Tax Stuff You Need To Know

Working During Retirement - The New Oxymoron

2019-12-02T18:49:00.000-05:00

A Merrill Lynch study found that 47% of people age 50 or older who identified as "retired" work or plan to work during their retirement.

It is no surprise that as people live longer, the age of what people think of as the "retirement age" has increased. Not that long ago (depending on what long means to you) the average retirement age was seen as being between 62 to 65 but now it's typically between 65 and 69 on average.

But it isn't just increased longevity that is extending the working years. The financial crisis of 2008, increase in the cost of living, caring for elderly parents and medical expenses play their role too.

Many people are still reeling from what happened in late 2008. And for those who panicked at that time and got out of stocks and never got back in, they locked in losses and missed the long recovery. This may account for a much smaller nest egg than anticipated.

For those who are at risk of outliving their money, one solution has been to work a few more years. Working longer, even on a part-time basis, affects your retirement plan in a number of ways.

You can defer claiming your Social Security until you are either at full retirement age (this varies depending on when you were born) or by waiting until you are 70 to boost your benefit by 8% a year. Be aware the increase ceases at age 70 so no need to defer any longer at that age.

Earning income allows you to be a little less dependent on your savings and retirement accounts. Taking a smaller draw-down may provide the opportunity for continued growth of your assets as they remain invested.

You may be eligible for medical benefits through your employer which could save you thousands of dollars in medical expenses.

Perhaps you can contribute more to a 401(k), IRA or other retirement savings account.

Working during retirement can add other benefits too as it is not always only about the money. Getting up and going to work gives some people a reason to be out in the world and offers social interaction. The added structure to your day can help with self-esteem, boredom, loneliness and lack of purpose.

Keep in mind, if you have already starting taking your social security before your designated full retirement age and you are working, it can hit your tax return pretty hard. Your benefits are reduced by $1 for every $2 that you earn over the annual limit which for 2019 is $17,640. However, once you reach your full retirement age, there is no limit on the amount of money you can earn and still receive your full Social Security retirement benefit.

Even better, maybe your new "retirement career" will be a job where you can use your knowledge, skills and experience while doing something you always wanted to do! I plan on working in a greenhouse. What do you want to do?

Kale is Not the Only Answer

2017-07-24T10:24:00.001-04:00

There are many dimensions to being healthy. When you talk about healthy living, we may think about what we eat, our level of activity, and mood . But how often do we consider how our financial health affects on our life?

We have all heard about relationships that falter due to “money issues” and the physical impact of worrying is well documented. Chronic worrying can cause physical illness and it can affect your life so much, it interferes with eating, activity, relationships, sleep, and job performance. Sustained levels of anxiety are known to boost levels of the stress hormone cortisol in our system, which puts us at a greater risk for illness, and depression. It can also cause us to seek the temporary relief of drugs, alcohol and over eating.

Leading causes of financial “dis-ease” are unhealthy levels of debt, unstable income, limited savings and living beyond our means.

When you workout it’s unlikely you ignore whole muscle groups which, as you may know, can increase the possibility of injury. But according to Vanguard’s annual report, How America Saves, the median account balance for 401(k) savings is about $29,500 which represents an income of only $1,200 a year! Of course statistically, those balances grow with age and income, but no matter what your age, your financial health is an important part of your healthy living plan. This is not a “muscle group” you can ignore!

Start with a financial weigh in or check-up and then create your own plan for “Financial Fitness”.

· How much does it cost to be you? Track your spending for one month so you can see where your money goes.

· Divide your expenses into “have to’s” and “want to’s”. “Have to’s” are thing like rent, utility bills, and insurance premiums; “want to’s” are things like eating out and entertainment. Make no mistake about it, my gym costs are a “have to”.

Evaluate your debt and determine what percent of your monthly income is going to pay debt and then - cut the fat! Just like fine tuning what you eat so you can be healthy and feel better, you can adjust where and how you spend your money.

Make a plan to pay down debt. If you have more than one credit card with a balance, and you pay amounts greater than the minimum required, consider paying all the extra dollars to the card with the highest interest rate or highest balance. This will help you pay off your debt sooner and save you money in interest expense. Once that card is paid off, add 100% of those dollars to the second card and watch your credit card debt trim down!

It takes 68 months to pay off $5,000 of credit card debt with an interest rate of 10.99% for a total of $6,718.

Are you giving away free money? If your employer matches the funds you put into your retirement plan, make sure you are at least putting in enough to scoop up all the free money. Some employers match dollar for dollar up to 4%. If you saw a $50 bill on the ground, wouldn’t you pick it up?

Life happens and so do unplanned expenses. Emergencies like illness, job loss, car trouble, or home repairs are just a few of those little unexpected and expensive surprises. An emergency fund is a stash of cash you have set aside to cover these stressful and costly, surprises.

While saving money may not be easy, it is less painful than the alternative which could be using your credit card, having to move, or being unable to fix the car or a broken tooth! A recent study from FINRA Investor Education Foundation National Financial Capability Study (2012) found the following:

· 26% of people had unpaid medical bills

· 22% were overdrawn at the bank

· 10% took loans from their retirement account

· 13% had more than one late payment on their mortgage

· 56% of people in the U.S. don’t have enough of an emergency fund to cover three months of reduced living expenses.

Knowing you have the reserves to cover the unexpected, can reduce your stress level and may help keep you on your road to financial fitness.

Change can be hard, but not changing can be harder.

GIMME SHELTER

2016-11-15T12:47:00.000-05:00

Being a landlord is not for everyone. But it can provide an income stream that is not subject to self-employment tax (social security and medicare). It can create a tax "negative" while still generating a cash "positive".

For instance:

If you receive rent for January 2017 in December 2016, you report the rent as income on your 2016 tax return.

If you receive a deposit for first and last month's rent, it's taxed as rental income in the year it's received even if the “last month” occurs years later!

If your tenant paints the unit in lieu of rent, you must report the value of the goods or services as income on your return in the year the tenant provides the service.

A security deposit is not included as income when received if the plan is to refund it to the tenant when the lease ends.

Some deductible expenses include:

Advertising

Cleaning and maintenance

Commissions paid to realtors

Condo fees

Insurance premiums

Mortgage interest

Property taxes

Management fees

Pest control

Repairs

Supplies

Trash removal fees

Utilities

Yard maintenance, snow removal

You can even deduct the cost of travel to your rental property, if the purpose of the trip is to check on or perform work on the property. If you travel by car, you must keep a mileage log as proof.

It is imperative to keep good records. In order to deduct an expense, you must be able to document it with logs, and receipts. So hold on to all receipts, cancelled checks, credit card and bank statements.

Can improvements and repairs be deducted?

Okay, this is where things get confusing. According to the IRS, there is a big difference between and an improvement and a repair. The cost of improvements generally get depreciated over time using IRS depreciation tables rather than deducted in the year the expense was generated. However, repairs can be written off in the year the repair is made.

Improvements “materially add to the value of the property” or substantially “prolong the life of the property”.

Examples include:

Additions

A totally new roof

Modernizing a kitchen or bathroom.

Installing insulation or new windows.

Repairs are basically seen as keeping the property in good working condition.

Examples include:

Painting

Repairing appliances (vs. buying a new one)

Fixing leaks (vs. a plumbing “do-over”)

Replacing a broken window (vs. replacing a number of windows for upgrading purposes)

Patching part of a roof (vs. replacing the whole roof)

Calculating depreciation can get pretty confusing. But to give you an idea of how it works consider that depreciation is a deduction you take over an IRS specified number of years. The IRS determines the “life” of the property and different kinds of property have varying “useful life years”.

To figure out the depreciation on your rental property:

Determine your cost or tax basis for the property (in some cases this sounds easier than it is).

Calculate depreciation for each property type based on methods, when the property is put into use and the number of years the IRS deems as “useful life” for each asset.

Examples of property class lives and recovery periods per the IRS:

The building itself minus the value of the ground it sits on for residential rental real estate = 27 1/2 years.

Nonresidential rental real estate = 39 years

A fence or shrubs = 15 years.

Furniture, carpets and appliances = 5 years

Office furniture = 7 years

Additions, improvements, renovations for residential rental real estate = 27 1/2 years.

In general your cost basis in the property is the amount that you paid for the property (acquisition cost plus any expenses). But if you are converting your primary home to a rental, your tax basis in the property is the lower of (1) your acquisition cost or; (2) the fair market value at the time you convert the property from personal to rental use.

Yeah, I warned you it can get cumbersome.And of course there are a lot of special rules for figuring out your basis if you inherited the property or took ownership in a like-kind exchange.

For more information check out IRS Publication 551: Basis of Assets and IRS Topic 414: Rental Income and Expenses.

Here We Go Again

2016-01-25T13:38:00.002-05:00

That was fast! Here we are again, packing away holiday decorations; promising ourselves we will go the gym, and the unabashed using of kitschy names for what used to just be a snow storm or blizzard (think “snowmageddon” and “snowpocalypse”).

It is also the beginning of tax season and time to start hunting and collecting. It is important for you to understand in most cases money received is counted as income unless tax law provides for an exception.

When is money generally not counted as income? A gift is not included as part of your gross income nor is money you borrow. However, if you don't pay the borrowed money back and the lender "forgives" the debt, then the "forgiveness of debt" is included as part of your gross income. Although like everything that has to do with taxes, there are also exceptions regarding forgiveness of debt.

What happened last year that may change your taxes?

Birth of a child
Marriage or Divorce
Purchase or sale of personal residence

The thing to keep in mind about the first two items is that as far as the tax authorities are concerned – whatever your status was on December 31st, is your status for the whole year. So those of you that had a baby on the last day of the year, you have a new deduction for the entire year!

Most of you probably know that mortgage interest continues to be a tax deductible item. And so are your real estate taxes. If you bought a home, make sure to give your accountant a copy of your HUD closing statement as there are some small deductible items that only show on that form.

A gain on the sale of your primary residence is a bit more involved and depending on your specific circumstances, it could be excluded. To exclude the gain on the sale of your home from income, you must own and occupy the property as your principal residence for two of the five years immediately before the sale. However, the ownership and occupancy need not be concurrent. The law permits a maximum gain exclusion of $250,000 ($500,000 for married taxpayers). This is known as the 121 Exclusion aptly named after the Internal Revenue Code Section 121. And even if you qualify for a full exclusion, while the gain may not be taxable, it is still has to be reported.

Be aware that the gain on any portion of a residential property you didn’t use for residential purposes is taxable. Any post-May 6, 1997 depreciation allowable on the property triggers recognition of otherwise excluded gain.

You can typically only claim the 121 Exclusion once every two years. However, a taxpayer who disposes of more than one residence within two years due to a job change or health problem, may qualify for a reduced exclusion amount.

Documents you need to prepare your return:

W-2
1099-INT (bank, credit union and other interest you receive)
1099-DIV (for dividends from your non-retirement investment accounts)
1099-G (money received from a government agency such as your prior year state refund)
1099-MISC (for services you provided to clients, rents received or royalties etc)
W-2G (gambling wins)
1099-B (broker reporting statements for the sales of securities)
1098-INT (mortgage interest you paid to a lender)
1099-R (pension, 401(k), IRA or annuity distributions)
1099-SSA (Social Security benefits received)

Keeping good tax records helps your accountant make sure you get all of the deductions to which you are entitled. It also makes her like you – a lot! Make it easier on both of you by coming up with a system and sticking to it. It doesn’t have to be fancy and can be as simple as stashing items in a folder as you receive them and then doing a little adding up at the end so you present her with category totals and have all the documents you received in one place. Not only will good record keeping save you time and reduce your stress during tax season, if the IRS ever had any questions, good records could save the day!

LIVING WELL CORNER

As someone who struggled most of my adult life with weight issues, this is a topic about which I am passionate.

Getting healthier is not about a diet or short term plan, it is about changing how you live. Trying to do it all at once is a sure way to fail. Not trying to do it at all is also a sure way to fail. Because change does not happen overnight, it is important to realize that the adjustments you make are life adjustments, not a stop-start effort. It begins with a commitment to yourself and learning how to quiet the negative head chatter.

For me, the first step was realizing I possessed the ability to change my life. I am not weak willed, hopeless, a victim of genetics, or powerless. All of these thoughts are negative and self-defeating and while somehow it seemed acceptable to talk about myself this way, I would never talk about YOU using these very same words.

I am motivated, able, and an addict. I am addicted to junk food, sugar, and simple carbohydrates. I describe myself as having the palate of an eight year old boy. I did not get to unhealthy weight by eating salad, grilled chicken and vegetables. But believe me, that is not all I eat now and over a number of years, I have lost and kept off 70 pounds.

Don’t Do It Alone - If I Can You Can

While ultimately we are all responsible for our own success, it is important to get support from the people around you. You will need to be brave, direct and brutally honest with yourself and others. I found it hard to say out loud, all the things I had been silent about for so long. If you want to succeed, it is crucial to build a healthy support system and ask for help. Tell your friends, family and even coworkers, what your goal is and how you plan to reach it. Let them know what you cannot eat and in my case, what foods I cannot be around.

Their support is important. But be aware that not everyone will be on board because they do not understand or perhaps have their own food issues. I had many people tell me, “you can have just one”, or “start tomorrow”, or “you are thin, this won’t hurt”. But it will hurt, because once I start, I cannot stop. Would you tell someone who stopped drinking “you can have just one”?

I have also found that there are many free apps and websites that help keep me accountable. They force me to be mindful of what I eat, or how many steps I take daily. Some of the apps reward you for keeping track!

One of my favorites is Wellcoin, whose tagline is “It pays to live healthy”. Earn wellcoins for making healthy choices and then cash them in for free gym classes, workout gear, and healthy food (to name a few). You can connect with their community to give and get the support and encouragement you need to make your healthy changes a new way of living.

Follow this link and sign up now – it’s free!

http://wellcoin.com/AccountNew/SignUp?signUpCode=yankeegirl

Is It Ever Legal To Not Pay Taxes?

2015-10-28T11:17:00.000-04:00

In some cases it is legal to not owe or pay taxes when you sell your primary residence. Here is how it works:

“Let’s start from the very beginning, a very good place to start”.

The first issue is to know the "basis" of your home. Your original cost basis is the amount of money you paid for your home. But during the time period you owned and lived in your home, the original cost basis can be adjusted up or down dependent on things like capital improvements to the home, depreciation[1], or damage that causes a reduction in value.

When you sell your home, you can have a gain or a loss, but how the IRS views that gain or loss can vary. For now think of it like buying a stock and holding onto it for a number of years before selling it. And then, upon the sale you either made money or lost money.

To determine if you have a gain or a loss, know that your basis is the beginning point for gain or loss calculation. Then take into consideration the amount for which you sell the property.[2]

For the sake of this story let’s assume the only thing affecting the value of your home is appreciation. Therefore, the capital gain on your home sale is the difference between the sale price and what you originally paid for the home. If you have owned and lived in your home for many years, that capital gain may be a significant amount.

121 Exclusion: The IRS says in most cases up to $250,000 in capital gains ($500,000 for a married couple) is exempt or tax-free provided the home was your principal residence for two out of five years prior to the sale.

Be aware, however, that this exclusion does not apply to investment properties (rentals)[3], second homes, when a home or a partial interest in a home has been gifted to you, or for joint ownership with children, or real estate inheritances.

In the case of an inheritance, however, there is another tax allowance and that is you are able to claim "stepped-up basis". This means your basis for the inherited home is “stepped up” to the market value of that home on the date you received it. The capital gain when you sell it is then calculated using your stepped-up value vs. the original basis, and this could save you thousands of dollars in taxes. Note that this is also true of inherited stocks, bonds, ETF’s or mutual funds. Keep in mind we are only focusing on capital gains tax here as other taxes may apply, but that is an entirely different story!

Because tax code changes every year, many taxpayers are unaware of how the step-up in basis works, and wind up gifting[4] their home to their heirs or change to joint ownership with their heirs assuming they are saving on estate, capital gains and inheritance taxes. But doing this could present their heirs with a large tax liability upon sale.

There are also situations where the step-up in basis is not straightforward, for instance when one spouse passes away, and the home is held in joint tenancy with right of survivorship. In this situation the surviving spouse receives a half-step-up in basis, based on the fifty-percent of the home that the deceased spouse owned.

When “gifting” occurs there are many considerations such as the gift tax implications (again a story for another day) and the loss of stepped up basis. How you calculate the basis of gifted property depends on whether there will be a gain or a loss.

For determining gain, the gifted basis is the same as that of the original owner and this is known as “carryover” basis. It is for this reason that planners suggest holding onto a highly appreciated asset and bequeathing it instead of gifting it. This choice could save your heirs thousands of tax dollars.

When a gifted asset loses or depreciates in value to less than the donor’s original cost, the recipient’s basis is the fair market value (FMV) of the asset at the time of the gift. So say a donor paid $100 for some stocks that he or she then gifts and when the gift occurs the shares are worth $50. By the time the recipient sells the shares they are only worth $25. Here is how that loss would be calculated:

$50 (FMV at gifting) -$25 (sale price) = $25 loss

Using the same original donor basis of $100, if the value of the asset had appreciated and was $200 when gifted but dropped to $50 when the recipient sells it, you would calculate loss this way:

$100 (donor basis) - $50 (sale price) = $50 loss

While we suggest keeping in mind 121 exclusions, stepped-up basis and gifting vs. bequeathing when considering the disposition of your home, or any asset, we realize that other factors may influence your specific situation. Therefore, always make an informed decision. It is best to consult with a professional before “winging it”.

^{^[1]}Depreciation is a reduction in the value of an asset over time, due typically to wear and tear and it is an indication of how much of an asset’s value has been used up; in general this applies only when the a tangible asset (in this case your home) has been used for business or rental purposes.

^{^[2]}Although the IRS may exempt or realize some or all of the gain, you cannot take a loss on the sale of a primary residence.

^{^[3]}Rental or other business properties, vacation homes, and part rentals are subject to an entirely different set of rules and taxes, potentially including a tax on “depreciation recapture”.

^{^[4]}Gifting occurs when an asset is transferred to another while the original owner is still alive; a bequest is when an asset is transferred to someone else postmortem, and this is known as an inheritance.

What To Do If You Get a Notice From the IRS (after you stop crying)!

2015-05-14T15:46:00.002-04:00

Each year the IRS mails millions of notices. Here’s what you should do if you receive a notice from the IRS:

1. Don’t ignore it. You can respond to most IRS notices quickly and easily. And it’s important that you reply promptly.

2. IRS notices usually deal with a specific issue about your tax return or tax account. For example, it may say the IRS has corrected an error on your tax return. Or it may ask you for more information.

3. Read it carefully and follow the instructions about what you need to do. Or call your tax accountant. Some issues are best handled by a professional whereas, some situations you can resolve on your own.

4. If it says that the IRS corrected your tax return, review the information in the notice and compare it to your tax return.

If you agree, you don’t need to reply unless a payment is due.
If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at 30+ days for a response from the IRS.
You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. Make sure you have a copy of your tax return and the notice with you when you call, a cup of coffee and a headset - it may be a while.
Keep copies of any notices you get from the IRS.
Don’t fall for phone and phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not contact taxpayers by email, text or social media about their tax return or tax account.

For more on this topic visit IRS.gov. Click on ‘Responding to a Notice’ at the bottom left of the home page. Also see Publication 594, The IRS Collection Process. You can get it on IRS.gov or call 800-TAX-FORM (800-829-3676) to get it by mail.

Beware the Hobby Loss Rule: A Very Costly Mistake

2015-01-06T09:06:00.001-05:00

If the IRS thinks you have a hobby instead of a business, it could cost you a lot in taxes.

If the money you spend more money on your business than you earn, your business incurs a loss. However, if you keep reporting losses year after year, you need to be very concerned about running into trouble due to the “hobby loss rule.” This rule could cost you a fortune in additional income taxes.

The IRS created the hobby loss rule to prevent taxpayers from repeatedly deducting losses. If a business shows a loss for three years out of five, then the IRS considers the activity to be a hobby. A venture is considered a business only if you engage in it to make a profit.

If you keep incurring losses and can’t satisfy the profit test, you must be prepared to convince the IRS that your business is not a hobby in case you’re audited--and there is a good chance you will be audited.

How do you prove you are seriously involved in the business for money making purposes? The IRS looks closely at the manner in which the activity is carried out and there are nine regulatory guidelines:

1. The manner in which the taxpayer carries on the activity. Are there complete accurate books, a budget, and separate accounts?

2. The expertise of the taxpayer or his advisers. Did the taxpayer study the activities business practices? Did they consult with experts?

3. The time and effort expended by the taxpayer in carrying on the activity. Do they devote a lot of time to the business particularly in comparison to other employment?

4. The taxpayer’s history of income or losses with respect to the activity. Has the taxpayer become profitable in a reasonable amount of time?

5. The expectation that the assets used in the activity may appreciate in value. Is the plan to generate profits through asset appreciation?

6. The success of the taxpayer in carrying on similar or dissimilar activities. Have they been able to convert the activity from unprofitable to profitable?

7. The financial status of the taxpayer. Does the taxpayer have other income sources that are being offset by the losses of the activity?

8. The amount of occasional profits. Consistent loss is a red flag.

9. Does the activity lack elements of personal pleasure or recreation? If the activity has large personal elements it is indicative of a hobby.

If the IRS deems a business as a hobby, the income is reported as "other income" on Form 1040. But “Hobby Expenses” are only deductible if you itemize deductions. They fall under “miscellaneous deductions" and you can only deduct the portion that, along with any other miscellaneous deductions, exceeds 2% of your adjusted gross income. Depending on your particular tax circumstances this can result in all income from the hobby being taxable income with no offsetting deduction for hobby expenses.

That Was Then....This is Now

2014-06-16T12:32:00.004-04:00

“Will Social Security exist when I retire?”

We have all have heard this debate numerous times or likely have thought about it personally. There is a huge concern that Social Security will begin to pay out more in benefits than it brings in, as the baby-boomers begin to retire.

To Understand the Future – Look to The Past

Before the 1930s, support for the elderly was more a family matter than a Federal concern. Enter the Great Depression which, in addition to widespread national financial devastation entered proposals for a national old-age insurance system. On August 15, 1935, President Roosevelt signed the Social Security Act into law.

Unlike some European nations, the U.S.’s version of Social Security "insurance" was funded from "contributions" in the form of taxes on wages and employers’ payrolls rather than directly from the Government. The act also provided funds to assist children, the blind, and the unemployed; and to institute vocational training programs and provide family health programs.

Prior to Social Security, the elderly routinely faced the prospect of poverty upon retiring and this program was seen as the answer to that problem. But Social Security was never meant to be the only source of retirement income! Social Security only replaces about 40% of income and many financial advisors say retirees may need 80% or more of pre-retirement earnings to live comfortably.

The Present

The current Social Security system works like this:

· when you work - you pay taxes into Social Security;

· the tax money is used to pay benefits to;

· people who already have retired;

· people who are disabled;

· survivors of workers who have died; and

· the dependents of beneficiaries.

The money you pay in taxes is not held in a personal account for you to use in the future. Your taxes are being used right now to pay people who are currently receiving benefits. Any unused money goes to the Social Security trust fund, not a personal account with your name on it.

You pay Social Security taxes on your earnings up to a certain amount and in 2014, that amount is $117,000. Any earnings over that amount are not subject to Social Security tax. So, if you earn $234,000 and I earn $117,000, we both pay the exact same dollar amount of Social Security tax.

Where your Social Security tax dollars go?

85 cents of every Social Security tax dollar you pay goes to a trust fund that pays for the benefits to current retirees and their families and to surviving spouses and children of workers who have died. The other 15 cents goes to a trust fund that pays benefits to people with disabilities and their families.

Receiving Retirement Benefits

Delayed retirement

If you choose to delay taking your benefit when you reach your full retirement age (which differs depending on when you were born), your eventual benefit will be increased.

Early retirement

You may also start receiving benefits early - at age 62. However, if you opt for early Social Security retirement, your benefits are permanently reduced. It is reduced about one-half of 1% for each month you start your Social Security before your full retirement age. For example: if your full retirement age is 66 and you begin to receive your benefit when you are 62, you would only get 75% of your full amount. This percentage reduction does not change when you finally reach full retirement age if you choose early retirement. It is a forever kind of thing!

If you work and get benefits

You can continue to work and still receive your retirement benefit. Your earnings in the month you reach your full retirement age will not reduce your Social Security benefits. However, your benefits will be reduced if your earnings exceed certain limits for the months before you reach your full retirement age.

If you work but start receiving benefits before full retirement age, $1 in benefits will be deducted for each $2 in earnings you have above the annual limit. In 2014, the limit is $15,480.

In the year you reach your full retirement age, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($41,400 in 2014) until the month you reach full retirement age.

The Future

The government’s position seems to be that there is enough money coming in and in the trust fund to pay all benefits on schedule until 2033 but after that it is likely that benefits will be reduced. This is because the next decade will see a large drop in worker-to-beneficiary ratios.

Once the trust fund is depleted, there will be no surplus remaining and the amount paid out can only match what's coming in through employment taxes. The problem gets compounded when you consider that people's life-spans are growing longer, the birth rate is declining, and the cost of living is increasing.

When Social Security was first established, the worker to beneficiary ratio was over 15 to 1; while today it's closer to 3 to 1. This means that less money will be put into the system, while more gets taken out.

For additional information on Social Security go to: http://www.ssa.gov/

ROTH VS TRADITIONAL - AND THE WINNER IS...

2014-01-07T12:15:00.001-05:00

As you may know, Traditional IRA contributions reduce your taxable income for the year in which they are made.

For example: Say you make $100,000 and contribute $15,000 to your traditional 401(k) plan. Your taxable income is immediately reduced to $85,000. Furthermore, the money you invest grows tax-deferred until you withdraw it during retirement. And at that time, you will pay ordinary income tax on all traditional contributions and the gains.

Alternately, Roth contributions won’t reduce your current taxable income. But you pay no taxes on the Roth distributions during retirement. You pay the taxes up front, and the rules today state gains aren't subject to taxation either.

The other thing to keep in mind is that any traditional retirement accounts (non-ROTH) are also subject to Required Minimum Distributions[1] (RMD’s) which have to begin no later than April 1 following the year in you turn 70 ½. They must then be distributed each subsequent year thereafter. ROTH IRA's, however, are not subject to this.

Deciding whether to Roth

People who are in their peak earning years just prior to retirement generally stand to benefit most from traditional contributions. In those high-earning years, traditional contributions could help by moving you into a lower tax bracket which could have a significant impact on your tax bill.

During early or lower earning years, there is typically less of a need to reduce down to a lower tax bracket, so it generally makes sense to make Roth contributions. Keep in mind that there are a lot of gray areas, as tax and income situations vary widely. And tax laws could change by the time you retire.

There isn't a perfect plan for deciding on Roth, traditional, or blended contributions. You can, however, diversify to mitigate tax risks. Given we never know exactly which laws will change or exactly to the dollar how much you will make “blending” could be the answer. You can blend so that you’re making both Roth and traditional contributions.

As you get into your 50’s and nearer to retirement than not, odds are that your income is closer to a peak and reducing your taxable income may be beneficial. But, ultimately, much of the decision hinges on whether you feel more comfortable paying taxes now or later and whether you’re willing to risk tax uncertainty during retirement years in exchange for a beneficial tax situation now.

Tax diversification is appropriate for nearly every retirement investor. The percentage of ROTH to Traditional will vary based on your personal situation and comfort level. I am a big believer that everyone who is eligible to contribute to a ROTH in any way – should. It creates a non-taxable asset pool from which you can take a distribution to help pay the taxes on your taxable income. There is nothing worse than having to take money out of a taxable account to only then be forced to pay taxes on money used to pay taxes!

Things to consider when deciding ROTH vs Traditional:

1. Will you be in a lower tax bracket during retirement?

2. Do you need to reduce your current tax burden?

3. What is your current ratio of taxable assets to non-taxable assets?

4. Do you think income tax rates will go up in the future, remain the same or go down?

5. How much money so you anticipate having to withdraw each year to offset your

shortfall (after pension and social security)?

While no one can predict the future the general rule is: if you think you will be in a lower tax bracket during retirement then use a Traditional IRA. That being said, I think it is wise to have a portion of money in a ROTH – at least enough to use to cover the taxes on your taxable income.

[1] These required minimum distributions are determined by dividing the prior year-end fair market value of the retirement account by the applicable distribution period or life expectancy; the calculation is based on the aggregate of all qualified plans; if you are still working, you may qualify for an exception.

THE ACCIDENTAL TAURUS

2013-05-03T11:33:00.001-04:00

Earth signs are said to be naturally practical - and a Taurus is all Earth. They are often attracted to material things, but it's less about the objects themselves than it is about the pleasure they bring to the senses. Comfortable living and things that feel and smell nice are important to the Taurus, like clean linens, soft clothing, aromatic food and music. As one of the most practical signs, the Taurus's outlook on life is usually quite sensible.

So how does one balance, "practical" with the want of pleasurable material things? Can a Taurus fight the urge for wanting soft comfortable things, perceived to make life more pleasurable with the practical "carry no balance" motto?

This Taurus can.

Credit cards…colorful, shiny, and easy - offering immediate gratification and all kinds of rewards. They put power, vacations, toys, dinners and YES – debt in your hands.! Swipe, sign and then…

One credit card gets used to pay off another; the card is used to pay for expenses of daily living; things you need; things you want; groceries, gas, , monthly bills, and soon there’s a multi-colored library of plastic in your wallet. For some this is not a problem, if each and every one of them was completely paid in full every month. But, in the more common scenario, they’re gathering interest-on-interest along with new principal - like a black hole swallows stars.

NerdWallet.com indicates that the average amount of debt for Americans with credit card debt was $15,422. Add average mortgage debt of $149,782, and average student loan debt was $34,703 and that's a whole lot of debt!

When you total everything up, the numbers quickly surpass the average human capacity for comprehension: the total American debt was $11.31 trillion, $858 billion of which was credit card debt (for those of you who like zero's, that is $858,000,000,000). With the numbers so high, it’s no surprise that late payments are on the rise.

So what can you do about it? There are five time-tested tricks to help with alleviate current credit card debt, while not accumulating more.

1) Create a budget - and yes, I realize I am asking you to use the "B-Word". Figure out what’s coming in, what’s going out, how, and where. If you want to be successful , you have to be honest with yourself. Determine where you are and where you want to be. This can be a daunting and emotional process, but the real truth is that, whether your budget looks balanced or unbalanced, tomorrow is a new day. You need to start somewhere, and the point is to get reach your goals.

2) Improve your rates. Make some calls to the credit card companies. Call the credit card companies and ask if they will reduce your rate, even if only for a period of time After all, it’s not like they’ll raise your rates for asking.

3) One at a time.If you pay additional amounts over the minimum amount due each month, the best thing to do in order to pay off the debt faster is to pay one card off at a time. Put all the "extra" towards one card while paying minimums on the others. Then, once the each card is cleared, take the amount you were paying on that card and add it all to the next card. Rinse, wash, repeat. Start this process by focusing all of your attention on the card with the highest interest rate, or the card with the biggest balance.

4) Pare it down. Now that your wallet is full of empty credit cards, figure out which ones you can do without. The ones retail stores give you in exchange for 20% off when you buy $200 worth of stuff are a good start. MIT did a study that showed people who pay with cards are more likely to spend more than people who pay with cash (think casino's and chips here).

5) Keep track of yourself. The last thing you want is to get yourself out of trouble only to climb right back into it. Updating that budget you’ve already made yourself can help make sure you know what money is going where, and you might even find that after a while you’ve earned yourself a little wiggle room.

Most importantly, have patience, with yourself and with the process. If you find yourself frustrated, remember that it is a process.Unless you used your credit card to buy a condo or a boat, accumulating the debt was a process too.

HOME, HOME ON THE CHANGE

2013-02-01T13:35:00.000-05:00

Now that we’ve put away the eggnog, shiny party hats, and stopped hearing the phrase “fiscal cliff” every 15 seconds, ’tis the season to be thinking about how the changes in tax code may affect you.

Unless you slept through the last three months, you are probably aware that courtesy of Congress, tax code has changed. Here are some of the results, for 2013 and the foreseeable future.

The threshold for who can claim an exemption for the Alternative Minimum Tax was raised to account for inflation, meaning that 60 million Americans will not be affected by Congress’s new changes. The Alternative Minimum Tax, or AMT, is a parallel tax system which began as a way to ensure that taxpayers pay at least a minimum amount of tax. AMT has a completely different set of calculations than regular tax. For the regular tax, you add up your total income, subtract out various deductions and personal exemptions, and then the tax is calculated. AMT, however, does not allow for the standard deduction, personal exemptions, or certain itemized deductions. Also some income which is typically not subject to regular tax is added back in for AMT purposes. Your tax under AMT rules may be higher than your tax under regular tax rules.

Obama’s payroll tax reduction, which we have been enjoying for the past two years, was set back to its original amount. This means that Social Security tax on each paycheck will once again be the full 6.2%. The wage ceiling, on which Social Security is taxed, was raised to $113,700, which means that the first $113,700 you make is subject to the 6.2%. And for those earning $200,000 or more, the tax for Medicare will be taking 0.9% more than last year out of each paycheck.

High-income households, that is, singles making $400,000, or married filing jointly and earning $450,000, will see rates rise from a previous 35% to 39.6%. This begins as of 2013, however, and will not affect 2012 tax returns. Capital gain rates for this tax bracket will rise to 20% (previously 15%), and will see a 3.8% surcharge for the Affordable Care Act. Affectionately nicknamed “Obamacare,” the ACA includes all of the new healthcare reforms we’ve debated so much about. Some of the highlights of the ACA include coverage for people who have not been covered, lower costs to consumers, and the end of the pre-existing condition clause.

If you are single and earning $250,000, a head of household earning $275,000, or a married couple filing jointly and earning $300,000, the new regulations mean that the old itemized deduction and the personal exemption phase-outs, which were part of tax code for years, will be reinstated. In layman’s terms, this means that you won’t be able to take all of your itemized deductions anymore and your personal exemptions will also be reduced. Don’t despair, though—if you build a racecar track for NASCAR, you can get a tax benefit that way. No, seriously.

Many tax deductions that were applicable last year still stand, however, including being able to get credits or adjustments for tuition costs, a deductions for those pesky mortgage insurance premiums, and deductions for substantiated charitable donations.

Of course there is a lot more, but no room here for all 157 pages of the new law. So now that you’re all up to speed, “walk into the light.” And no matter how nervous you feel, avoid the Puerto Rican rum, since there’s been a tax on it since 1917 that is now whistling to the tune of $13.50/gallon.

I’ve found feelings of trepidation can be just as easily conquered by a few aromatherapy candles and a hot bubble bath. But please don’t bring your 1040 with you. Soggy documents will not be accepted, no matter how nice they smell.

POLITICS, TAXES & CUPCAKES

2012-10-10T20:40:00.000-04:00

When it comes to election years we hear a lot of discussion around issues like taxes, social security, jobs, health insurance and budget deficits.

You may already know that the Bush and the Obama Tax Cuts are set to expire or “sunset” in 2013. And unless Congress changes current law, individual income tax rates will revert to pre-2001 levels. The Bush Tax Cuts, which represent a much larger percentage of the cuts, were extended in 2010 for a two-year period by the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010, which is why 2013 is currently the magic number.

According to the Tax Policy Center one of the biggest increases for average households potentially comes from the expiration of the 2% Social Security tax reduction which was enacted in 2011 and in effect for 2011 and 2012. Also we could see the lowest income tax rate go from 10% to 15% and the highest rate increase from 35% to 39.6%.

Another increase would be generated by the changes in capital gains rates: the reverse of the phase out of taxes on long-term capital gains for people in the 15% and below tax bracket and the increase from 15% to 20% for other taxpayers. This could largely affect people whose incomes are derived mainly from what in tax-speak is called “unearned income”.[1]

In 2001 and 2003 Americans saw tax rates on ordinary income and qualified dividends go down; the child tax credit expanded, as was the child and dependent care tax credit. Also the limitation on itemized deductions and phase out of personal exemptions disappeared. President Obama proposes to extend those tax cuts for low- and middle income tax payers.[2]

In 2001, Congress voted to phase out the estate tax in steps until 2010 when it was completely repealed. The 2010 Tax Act reinstated the estate tax (35%) but increased the exemption to $5 million. And making a grand debut was the transferability of exemption balance between spouses meaning - any of the $5 million exemption not used by one spouse upon death may be added to the exemption available for the second spouse provided he or she has not remarried. If no changes are made, then in 2013, estate limits in effect prior to 2001 would be reinstated. This denotes that estates valued at $1 million or more would be subject to tax at progressive rates up to 60%, and the portability option would disappear. However, the Obama budget proposes to permanently setting the estate tax at its 2009 level beginning in 2013 with estates worth more than $3.5 million set to pay 45% on the value that is over the $3.5 million benchmark. It would also make portability permanent, thereby allowing married couples to share a combined exemption of $7 million.

If all of this makes your head spin, like Linda Blair in the Exorcist, be assured you are not alone. Also please be aware I am neither condoning nor condemning any of the provisions, nor those who implemented, or extended them or may potentially change them or allow to them to expire. I believe education and understanding helps you to make informed decisions. Perfectly put by Dragnet’s Sgt. Joe Friday, I am presenting - “Just the facts”.

Now at this point you must be wondering what the heck cupcakes have to do with tax cuts. Well actually nothing. But I love cupcakes! I like to eat them; I like to make them; and I love to share them. So below is my recipe for Coconut Crème Anglaise Cupcakes. Try them out and let me know what you think!

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Cupcake Ingredients

2 ¼ cups of cake flour
1 tablespoon baking powder
½ teaspoon kosher salt
1 ¼ cups whole milk, room temperature
4 large egg whites, room temperature
1 stick unsalted butter, room temperature
1 ½ cups granulated sugar
Seeds scraped from one vanilla bean
2 teaspoons pure vanilla extract

Cupcake Directions

1. Preheat oven to 350 degrees and line cupcake pan with paper liners.

2. In a large bowl, sift together the flour, baking powder and salt.

3. In a medium bowl, whisk together the milk and egg whites.

4. Beat the butter, sugar and vanilla bean seeds at medium speed for 3 minutes, or until the butter and sugar are well combined and light. Add the vanilla extract and one third of the flour mixture, still beating on medium speed.

5. Beat in half of the milk-egg mixture, and then beat in half of the remaining dry ingredients until well mixed.

6. Add the rest of the milk and eggs, beating until smooth, and then add the last of the dry ingredients. Beat for another two minutes or so to make sure everything is well mixed and aerated.

7. Fill each cupcake liner about 2/3’s full.

8. Bake for 18-24 minutes, depending on altitude or until a toothpick inserted into the center come out clean. Let them cool before attempting to fill them or they will fall apart.

Ingredients for Crème Anglaise

2 tablespoons of butter
¾ cup of granulated sugar
2 cups of cream
1 teaspoon vanilla
¼ cup cornstarch
½ teaspoon of salt
2 egg yolks, beaten

Directions for Crème Anglaise

Melt butter and add sugar, cornstarch and salt. Add cream slowly to mixture. In saucepan, heat until just boiling and immediately reduce heat. Slowly add egg yolks, constantly stirring and cook for about more 2 minutes. Add vanilla. Continue stirring. Remove when well combined and thickened. If you over cook it the sauce will break. Let it cool.

A broken sauce means either the fat of the butter or cream separates from the emulsification or due to excessive heat the egg yolks scramble and then the sauce becomes lumpy. Typical reasons for a sauce breaking are temperature too high, adding the fat too quickly, not whisking the fat into the sauce quickly enough, or allowing the mixture to stick to the sides by not stirring constantly while being heated.

Filling the Cupcakes

Using a medium round holed Wilton tip, fill a pastry bag with Anglaise and press the tip into the top of your cupcake. Gently squeeze the bag, filling the cupcake slowly so it just comes out of the top.

Ingredients for Coconut Topping

Confectioners’ sugar

Water

Shredded Coconut

Directions for Coconut Topping

Make paste using just enough water to make it smooth but not so much that it is runny. This is not exact – think of glue. Turn cupcake upside down and swirl in the frosting paste until the top of the cupcake is lightly covered.

Spread the shredded coconut onto a plate or into a bowl making sure to separate out or break up chunks and now swirl frosting topped cupcakes in the coconut. If the paste gets too stiff simply add a little more water a teaspoon at a time stirring it in as you do.

You now have yummy Coconut Crème Anglaise Filled Cupcakes!

[1] Income derived from sources other than employment, such as interest and dividends from investments, or income from rental property.

[2] Low- and middle- income tax payers are defined as married couples with income below $250,000, and singles under $200,000, both 2009 values, as indexed for inflation.

so·cial [soh-shuhl] se·cu·ri·ty [siˈkyo͝oritē]

2012-08-17T12:19:00.001-04:00

SOCIAL SECURITY – Some of us think there won’t be any left by the time it’s our turn but I believe there will. True, “baby boomers” are turning 65 at the rate of about 10,000 a day, but not all of them are taking their benefit right away (which can be claimed at a reduced rate beginning at age 62).

Guideline #1 - You get less money when you take your benefit early.
Guideline #2 - You get more money if you take your benefit later.

The difference between taking your benefit as early as possible or waiting until age 70 is that waiting provides for a benefit that is 76% higher. But this also means you will have to depend on your other financial resources while you wait to reach 70 in order to get that increased amount.

For example, consider retiring and taking your benefit at age 62 with an annual benefit of $16,440 a year. If you wait until age 66 and 6 months (depending on what year you were born), the benefit would increase to $23,376 annually; wait until you reach age 70 and you would receive $30,528 which is close to double.

If you’re married it may make sense to take the lower income-earners benefit sooner to help defray the cost of living expenses. This way you also lock in the largest possible survivor benefit for the remaining spouse.

Those born between January 2, 1943 and January 1, 1955, reach full retirement age for Social Security at 66. If you work and are full retirement age or older, you keep all of your benefits, no matter how much you earn. For people younger than full retirement age, there is a limit to how much you can earn and still receive your full benefit. Anyone younger than full retirement age in 2012 will have $1 deducted from their benefit for every $2 earned above $14,640. Yeah I know, this gets complicated and is a lot to remember.

Other Stuff You May Not Know About Social Security:

Social Security benefits are calculated using your 35 highest-paid years while working.
There is no additional benefit to waiting beyond age 70.
Spouses can claim benefits. Spousal benefits may be worth as much as 50% of the higher earner's Social Security payment. Two-income married couples who have reached full retirement age can even claim Social Security twice by signing up for spousal payments, then later switching to payments based on their own work record.
The Social Security wage limit for 2012 is $110,100 meaning you pay no additional Social Security tax on amounts earned over that wage limit. The base wage limit is typically adjusted every year for inflation.
If you began collecting your Social Security within the last year and then change your mind, you can repay all the benefits received, and reapply for a potentially higher benefit at a future date.
6. If you work for someone else, only your wages count toward Social Security’s earnings limits. If you are self-employed, only your net earnings from self-employment are counted towards calculating your benefit. Social Security does not count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains.

A Brief and Wonderful History of Social Security

Although formally the Social Security Act was not enacted until 1935, it all started during the Great Depression in the early 1930's as "social insurance". Poverty rates amount senior citizens exceeded 50% and the stock market crash along with bank failures, destroyed many American's retirement savings [insert your comments about the lost decade of the 2000's here].

It was President Franklin D. Roosevelt's first term when the act was passed by Congress as part of the New Deal. The goal was to help the most fragile members of society (the elderly, those effected by unemployment, poverty, widows and fatherless children).

For more information on the history of Social Security, follow this link:

http://www.fpanet.org/ToolsResources/SocialSecurityPredictor/HistoryofSocialSecurity/

Refresh your memory regarding FDR's "New Deal" initiative by clicking here:

http://www.fdrheritage.org/new_deal.htm

My MacGyver Moment: Have a stripped wood screw that just keeps spinning like the one in my back door? This is apparently not that uncommon. If you don't have a longer screw to replace it with or if a longer one won't do, try this: Remove the screw and put a couple of toothpicks into the screw hole. I used three but put in enough to fill the hole. Then break off the ends sticking out and put the screw back in. Rumor has it chopsticks, steel wool and golf tees also work. Who knew?

The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov.

WILL I WILL OR WILL I WON'T?

2012-07-17T17:41:00.000-04:00

What is it that scares people so much about making a will? For some it is superstition. "If I make a will something bad will happen to me". For others they may think it is expensive, complicated or irrevocable. The truth (at least about the last three) is that NOT having a will assures those things will become a reality should someone pass away intestate (without a will).

Writing a will used to be more expensive but with the ability to compare costs and services of estate planning attorneys, you have the potential to be a more informed consumer. Making decisions today about who you want to care for your children, how assets are to be distributed and circumventing possible tax issues are vastly important, but it does not have to be complicated.

A good place to start is by making lists:

Make a list of your assets, including account numbers, phone numbers and where to locate the asset.
Decide who gets what. If it is a retirement account or annuity, you can attach a beneficiary designation directly to the account or policy but remember, whatever the designation states is binding even if you name someone else in your will to receive that asset. Some states also provide for a Transfer on Death (TOD) or Payable on Death (POD) designation for non-retirement accounts. This means the asset transfers automatically upon death and avoids probate too!
If you have children who are under 18, decide who you want to raise them in the event that you couldn't and discuss naming that person as guardian. Also choose someone to manage your children's property if you leave them assets.
Decide who you want to serve as executor of your estate because every will has to name someone to carry out the terms of that will. Discuss this with them ahead of time to make sure it is something they are willing to do. Handling someones financial affairs can be daunting. If you do not name anyone, the court will appoint someone for you and it may not be a choice you would have made.
Once you have made these kinds of decisions, you are ready to make your will! Having this information on paper ahead of time will help make the final process quick and efficient whether you use an attorney (which we suggest) or if you use a do-it-yourself software.
Other important legal forms to complete are a health care proxy, living will, and power of attorney. A health care proxy is a legal document that allows you to appoint someone to make health care decisions for you should you be incapable; a living will or advance health care directive, contains written instructions that specifies what actions should or should not be taken regarding medical treatment if you are no longer able to make decisions; a power of attorney is written authorization for someone other than you, to act on your behalf in private, business and legal affairs with the same power as if you were acting on your own.
We also suggest putting together a "treasure map" which identifies account numbers, phone numbers and where things are. A life insurance policy resting inside a safety deposit box that no one has access to or worse, no one knows exists, can have a devastating effect on your beneficiaries and loved ones. Let your executor, attorney or someone else you trust, know where everything is!

A will, power of attorney, living will and health care proxy are essential documents for all adults. Having these in place and updating especially after a life changing event (birth of a child, marriage, divorce, sale or purchase of property), is the right thing to do for you and your family.

So will you "will" or will you won't?

For additional information and some helpful checklists see what AARP has to say by clicking here: http://www.aarp.org/money/estate-planning.

LAND OF THE FEE OR CAN YOU HEAR ME NOW?

2012-01-04T19:41:00.005-05:00

2011 seemed to be a GOOD year for BAD business decisions. It also seemed to be a GOOD year for the consumer to yell "I'm mad as hell and not going to take it anymore". Several companies (all household names) attempted to increase their revenue by increase our fees but consumers stopped them in their tracks. Think Bank of America, Netflix and Verizon.

Bank of America was first when they tried to impose a $5 monthly fee to use their debit card for purchases. This was in addition to fees for using the same card at ATM machines. Those fees quietly crept up and perhaps BOA thought since consumers did not create an uproar over that, this new fee may be received the same way. But such was not the case. Announcement of the fee created a consumer uproar and competing banks, Wells Fargo, JPMorgan Chase and Sun Trust (all of whom had the same plan) decided the fee was a "no go" leaving BOA as the last man standing. Why did they change their minds? Although they never disclosed how many customers bailed at the announcement, "sources" indicated that account closures were "higher than usual" and smaller institutions said acquisition rates increased significantly during the days following the announcement of the fee.

Netflix had their own announcement and what a trifecta it was! They increased their fees, capped streams per household and lost the Starz contract. Their plan to split-up the company and have members need to access two websites was short-lived and Qwikster was "quickly" abandoned. Add the power outage plague Netflix experienced and well, movies and tv shows weren't the only thing streaming. Giving customers less and charging more (60% increase) does not seem to be a very sustainable business model. Just ask Redbox who saw a huge increase in sales when 800,000 Netflix customers "streamed" out the door.

Verizon had similar ideas when it announced it would begin charging a $2 fee for customers to make a one-time credit or debit card payment on the phone or online. This "convenience fee" (more on that later) was to be implemented on January 15, 2012 but once again customers said NO NO NO. Protesting customers used social media and online campaigns to make their voices heard so loudly one can only ask "can you hear me now" and clearly Verizon did. With pressure mounting Verizon realized their new fee was a public- relations disaster and a bad marketing move. The company smartly dropped the fee Friday, citing "customer feedback."

Hire this woman: The campaign against Verizon was led by Molly Katchpole, of Washington, who can now add two successful campaigns against big business to her resume. Katchpole also led the protest that forced Bank of America to abandon their ill-thought out $5-per-month fee for debit-card use after she obtained 300,000 signatures on a petition.

*Convenience - [kuhn-veen-yuhns] noun 1. anything that saves or simplifies work, adds to one's ease or comfort, etc., as an appliance, utensil, or the like. 2. Allows business to get their payment faster and with less human interaction and expense.

Speaking of fees, I decided this year I am going to save every credit card solicitation I receive in the mail just to see how many I actually get. I am pretty sure I get about five a week or at least it feels like that many.

You ever wonder how much money it costs to write the text, buy mailing lists, lay it out, have it printed, stuffed and mailed? Well I have been wondering too. And then I wonder how much of the fees and interest and annual fees that I pay subsidize these excessive mailings. One would think that after years of sending me these applications which I simply shred, they would figure out their ROI (return on investment), at least when it comes to me, is negative. If I had an employee who called one lead five times a week for years with no sale - that employee would be long gone. What do credit card companies know that I don't? "Hello, this is Peggy".

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My one resolution for the new year is to try and reduce how much I spend on nonessential things like eating out. I'll let you know how I am doing by updating the amount each month. Sometimes dinner was my treat but here we are so far!

2011 = $1,865
2012 = $30

Oh and tax season has officially started!

Receive 10% off first-time services by emailing the correct answer to our question of the week at info@cyndiebarone.com and visit our website at www.cyndiebarone.com for more information about our services.

The correct answer to last month's polling question - "What do people most often do with a fruitcake they receive" is re-gift it! Congratulations to JG from Nicholasville who got the correct answer.

Disclaimer: Tax advice contained herein was not written to be used and cannot be used to avoid payment of taxes or to avoid penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. All information provided is for illustrative purposes only. You should contact an accountant, tax preparer or tax attorney for advice or information specific to your situation. This information is not to be used as a directive.

HO HO HELP

2011-11-29T19:58:00.004-05:00

'Tis the season, to pepper spray other shoppers and spend too much money. And in the words of my friend John, "nothing says 'Good Will Towards Man' than that burning sensation to the eyes". I, however, prefer to make a tax deductible, contribution to my favorite organization.

This year for the holidays I am donating to The Leukemia & Lymphoma Society and The Rutgers University - Debbie Lyle Mojta Scholarship Fund. If you are making a donation to the Debbie Lyle Mojta Scholarship Fund, please make sure to type in the name of the fund you are supporting on the linked webpage.

Leukemia & Lymphoma Society - http://pages.teamintraining.org/ky/pfchangs12/GoJulieG.

Debbie Lyle Mojta Scholarship Fund http://support.rutgers.edu/s/896/Foundation/Givestart.aspx.

Ahh how easy it is to overspend during the holidays - perhaps fueled by the influence of your spiked soy eggnog, whining children or the reality disconnect created by using plastic instead of cash. But there are ways to avoid that January "financial hangover" and the year long effect it causes.

Making a list and checking it twice can help!

The first step toward taking control of your finances is to assess how much money you bring in and how much money you spend. Start by writing down your income from all sources and then list your "fixed" expenses. Fixed expenses are those that are the same from month to month, like your mortgage or rent, car payments, and insurance premiums. Next, list the expenses that vary, but are necessary, such as food and utilities. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, determine where you are overspending and prioritize. The goal is to make sure your "needs" are covered before your "wants".

Now that you know how much you have, make a list of who you are buying presents for and jot down ideas of what you want to get them. This can keep you from impulse buying.

Impulse buying is an unplanned decision to buy something, that you make right before you buy it. It is said the emotional effect of impulse buying disrupts the normal decision making pattern in your brain; logical actions are replaced with an irrational moment of self gratification. Impulse items appeal to your emotional side and are not considered necessary in a consumers' life.

In addition to not planning another source of overspending during the holidays is "gift guilt". Gift guilt comes in several sizes including "homemade", "surprise" and "equalizing". "Homemade" gift guilt is when we believe that homemade gifts are unworthy. Anyone who believes that has clearly never tasted my homemade, farm fresh marinara sauce or pistachio, cranberry biscotti! "Surprise" is when someone gives you an unexpected gift and so at the last minute you run out to the store and....yes - impulse buy. "Equalizing" is when you try and keep up cost-wise with someone else who either makes more money than you do or has totally blown their budget!

Holiday joy? Guilt? Victim of marketing? Medication worn off? Whatever the case may be, making a plan and doing your best to stick to it can help you avoid the long term effect of overbuying during the holiday season. Come January when the bills arrive, money that you may have been planning to use to fund your ROTH IRA now gets allocated to pay down credit cards. And just about when you clear that up, guess what - it's holiday season all over again.

Receive 10% off first-time services by emailing the correct answer to our question of the week at info@cyndiebarone.com and visit our website at www.cyndiebarone.com for more information about our services.

If Credit Cards Could Speak - What Would They Say?

2011-10-28T07:26:00.000-04:00

"I got paid under the table". "I did not claim the money I made selling stuff on eBay".

Well maybe not YOUR credit card because you do not cheat on your taxes or "forget" to report tips - RIGHT??

Remember the Housing and Economic Recovery Act of 2008, a not-so-little piece of legislation, intended to help homeowners avoid being foreclosed on during the housing market collapse? Well, deep inside the dark recesses of this Act is a little known provision that kicks in beginning January 1, 2012. And it could have a huge impact on small business owners who process credit cards.

In an attempt to catch tax cheats, the IRS will now require banks and the credit card processing companies to report purchases to the Internal Revenue Service, who will then, in turn, match the information with income that the business taxpayers report on their federal returns.

Congress thinks they may collect an additional $10 billion in tax revenues from this new cross matching process. But in order to provide the transaction information to the IRS for "cross checking", the processing companies have had to reprogram their systems and create new departments to keep up with the compliance checks. The additional money it will cost to do this may be passed on to the merchants who accept cards. It seems unlikely that the processing companies will simply agree to "eat" the additional expenses.

Originally touted as a way to catch Internet sellers who don't report their sales, any bank or other payment settlement company that processes credit cards, debit cards, and electronic payments such as PayPal will have to issue a new return called Form 1099-K, Merchant Card and Third-Party Payments.

An exception has been granted for very small merchants and they won't be issued information returns. "Small" in this case means a business where annual gross sales on merchant cards are no more than $20,000 or when there are 200 or fewer transactions.

Merchants have to provide their federal tax identification numbers to the companies that process their transactions. Failing to do so, may make them subject to "backup withholding". This means these companies will have to deduct and withhold income tax from reportable payments.

So for anyone with a lucrative home-based business - things just got a little more complicated.

Additional information on this topic can be found at http://www.irs.gov.

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Can You Hear Me Now?

2011-09-22T13:11:00.000-04:00

IRS Issues "Guidance" on Tax Treatment of Employer-Provided Cell Phones

Last fall, a provision in the Small Business Jobs Act of 2010, removed cell phones from the definition of listed property, a category under tax law that normally requires additional record keeping by taxpayers.

The IRS now states that employer-provided cell phones can be considered an excludible fringe benefit. This means that if an employer provides an employee with a cell phone used primarily for non-compensatory business reasons, both the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require record keeping of business use in order to receive this tax-free treatment.

Also announced in this memo is information with respect to small businesses that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for non-compensatory business reasons, to use their personal cell phones for business purposes may treat these reimbursements for reasonable cell phone use as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee's regular wages.

I guess when the IRS says "Paperwork Reduction" - they actually take themselves seriously.With the changes in technology also comes the changes in taxation. And in case you are ever on Jeopardy here is some tax technology trivia:

"Within 25 years, the mere trickle of 25,000 electronically filled individual tax returns has turned into a torrent of more than 100 million a year and led to a permanent change in the way Americans file their taxes".

Additional information on this topic can be found on IRS Notice 2011-72 as posted at www.irs.gov.

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Wet and Wild or How I Spent My Summer Vacation

2011-09-08T13:16:00.044-04:00

Extended Filing & Payment Dates

If Tropical Storm Irene hit you hard and you live in Massachusetts, be aware that you may qualify for tax relief from the IRS. I realize it's odd to see the word "relief" in the same sentence with "IRS" but President Obama has declared both Berkshire and Franklin counties as federal disaster areas. If you live or have a business in either of those counties, you may qualify for tax relief.

The declaration permits the IRS to postpone deadlines for those taxpayers who qualify. Corporations and other businesses that previously obtained an extension until September 15 to file their 2010 returns, and individuals and businesses who filed for a similar extension until October 17 now have until October 31, 2011. It also includes the estimated tax payment for the third quarter, which is normally due on September 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits that were due from August 27 through September 12, as long as the deposits are made by September 12, 2011.

If you qualify for these extended dates and receive a penalty notice from the IRS, call the phone number on the notice to have the IRS abate the interest and any late filing or late payment penalties. Be aware that the penalties or interest will be abated only if you have an original or extended filing, and payment due date, that falls within this postponement period.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year (2011) or last year (2010). Claiming the loss on your 2010 return will get you a refund for the loss earlier, but waiting to claim the loss on your 2011 return could provide for a greater tax saving, depending on other income factors.You can only deduct personal property losses that are not covered by insurance or other reimbursements.

If you are claiming the disaster loss on your 2010 return, you should put the Disaster Designation “Massachusetts/Tropical Storm Irene” at the top of the form so that the IRS can expedite the processing of the refund.

For more details, see Form 4684 and instructions. You can also call the IRS disaster hotline at 1-866-562-5227 to request this tax relief and get additional information.

Taxpayers in New Hampshire, Vermont, Connecticut, North Carolina, New Jersey, New York State, and Puerto Rico should go to http://www.irs.gov/newsroom for information specific to your state. You can also find information regarding tax relief for disasters occurring earlier this year in Kentucky, South Dakota, Missouri, Nebraska and Montana.

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ICE ROAD TRUCKERS & GOOD NIGHT IRENE

2011-08-29T12:50:00.005-04:00

Come on, admit that sometimes, maybe once in a while you watch ICE ROAD TRUCKERS. If you do, take a look at our question of the week and email the correct answer to info@cyndiebarone.com and if you are a first time client you will receive 10% off of services.

ICE ROAD TRUCKERS

The IRS has provided truckers with a three-month extension for their highway use tax return. Typically due by August 31st, truckers now have until November 30th. This extension was granted because the highway use tax is currently scheduled to expire on September 30, 2011. Hopefully the additional time will help alleviate confusion and possible multiple filings that may result if Congress reinstates or modifies the tax after that date.

GOOD NIGHT IRENE

Interruptions caused by Hurricane Irene motivated the IRS to delay the final end date for the voluntary disclosure program for taxpayers with offshore accounts. This IRS provided reprieve for filing the required information or for seeking a 90-day extension, from August 31 to September 9, is for those taxpayers making a 'good faith' effort to comply. The updated voluntary disclosure initiative information is available on the IRS website.

Find more information by following this link: http://www.irs.gov

Tax Stuff You Need To Know: Floods, Hurricanes & Tornadoes - Oh My!

2011-08-03T12:45:00.001-04:00

Floods, Hurricanes & Tornadoes - Oh My!: "Disasters and losing your home or personal belongings can be stressful enough without the added issue of having to recreate important record..."

What Do Summer Camp and Taxes Have In Common?

2011-07-13T12:36:00.002-04:00

ANSWER: COULD BE, THEY HAVE A LOT IN COMMON!

Now that school is out and you are still working, you may have enrolled your children in summer camp. To the kids it may be about kickball, swimming and arts & crafts but for you it may be about extra expenses. But, those added expenses may help you qualify for the Child and Dependent Care Credit tax credit!

Parents who are working or are looking for work and have arranged for care of their children under 13 years of age during the school vacation may qualify for this credit. Here are some facts you need to know about the tax credit available for expenses incurred during the summer and throughout the rest of the year.

The cost of day camp may count as an expense towards the child and dependent care credit but expenses for overnight camps do not qualify.
Whether your childcare provider is a sitter in your home or at a facility outside your home, you may get some tax benefit if you qualify for the credit.
The credit can be up to 35% of your qualifying expenses, depending on your income(s).
You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to calculate the credit.
In order to claim the credit you must have the full name and address of the care provider as well as their social security or employer ID number.

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

IRS Publication 503, Child and Dependent Care Expenses