Your compensation vs a stranger's sexual preferences - which one is more important to you?

It boggles the mind how Americans in general will go to the ends of the world to express their views (for or against) on someone else's sexual preferences but when it comes to their own compensation they become mute.  When the debate ending DOMA was raging strong people from all walks of life put in their two cents worth.  Passions were high - those in support marriage equality were 100% behind President Obama - held his feet to the fire where they felt it necessary, the push itself was unrelenting to say the least.  Those against it, equally passionate - foreseeing the end of the world as we know it, made their voices heard and continue putting an equal amount of pressure trying unsuccessfully to sway things back to their way of thinking.

In 2014, though some conservatives still continue to fight a losing battle to prevent marriage equality, President Obama has moved onto making income inequality the next war-front but this time round it appears he is on one side by himself, and on the other side is corporate America fighting hard to keep their margins in place.  The American people (for whom Obama is fighting to increase their compensation with whatever tools he has available to him) are sitting quietly on the sidelines, being spectators as though they do not have any "skin in the game".  That passion that was raging strong as it intrusively pried into the bedrooms of strangers has surprisingly lost its fervor.

There are those who feel that Obama's efforts are socialistic in nature being imposed on a capitalistic economy.  These people hold the view that USA is the land of opportunity and that if you work hard enough you can achieve anything - you can build wealth, you need only pull yourself up by your "boot straps".  Unfortunately for those struggling to pull themselves up into middle class the "bootstraps" that were provided in the form of a good education, well paying manufacturing jobs that came with good solid pensions and health insurance are no longer around as a way to the middle class.  No,  steadily Corporate America has been reducing the number of employees on one end while drastically the number and value of employee benefits; and basic compensation itself has not kept in stride with the every rising cost of living.

The biggest reduction in the workforce came as a result of the great recession of 2008.  The majority of companies downsized their payroll by staggering numbers as they tried to stay afloat during very uncertain times.  The employees that remained under employment saw their workload increase without the corresponding increase in compensation.  Through 2009 and 2010 conventional wisdom was that one should simply be grateful that they have job at all and needing to be properly compensated for the work you did was a luxury many had to forgo.  The majority of employees today still feel obligated to be grateful to have "A JOB" especially as unemployment remains relatively high for an economy that is supposed to have recovered.  Most employees are extremely unhappy but do not dare switch jobs out of pure fear of LIFO -  being the new kid of the block  "last in first out"have.  This is primarily why President Obama is fight income inequality by himself.  People are afraid - they believe the threats that Corporate America is giving.  Most continue to struggle and bridging the shortfall between income and expenses by dipping into their regular savings and retirement accounts.

According to the Congressional Budget Office (CBO) the increase of minimum wage to $10.10 that the President is proposing will effectively increase the income of approximately 16.5 million people.  Those pushing against the increase use the same report, stating that we need to save the jobs of approximately 500,000 that are likely to lose their jobs should the minimum wage be increased.  Little is said about the 900,000 who will be raised out of poverty.  As I have said before this baffles me somewhat.  An employer is willing to let go some employees because he feels he cannot afford the payroll, cannot possible cut his profit or adjust his pricing somewhat.  How cutting his labor affects his business is something that no one seems to bother explain.  My assumption would be the remaining employees are asked to take on more work since they technically they have been given a pay increase.

If for the 500,000 losing their jobs was purely for the fact that they had least skill set and in turn they felt moved enough by the loss to improve themselves it would all be beneficial process in the end.  Unfortunately most people when they lose their jobs its never about them but how wrong the employer was.  I asked someone the other day why they temp, she replied it was because she had lost her permanent job and finding another one has proved difficult at best.  "Why not try for a permanent position with the companies that you are temping with?" I asked her.  "Oh they told me that in the current environment I did not have required skill set" she responded. "Did you ask what skills would be required ?"  "No."  To me she appears very content, content being stuck with no growth.  Her lack of desire or drive to improve herself so that she has the relevant skill set is scary notion that she believes at some point employers will require less than they are now. So she waits.  Were she nearing retirement one would try and understand but for a young woman in her late 30s mind-blowingly retarded.

Avoiding probate by using transfer-on-death instruments

Dealing with one's mortality has always been somewhat of a difficult hurdle to jump over.  Most of us wait until death is persistently knocking on our front door, before we acknowledge that there is some preparation that is required of us.  The fear of the unknown scares the majority of us into shutting down the whole process.  Preservation of ones' wealth makes it a necessary evil, an inevitable process.  Avoiding burdening our loved ones with handling all our financial problems, problems that we could have handled ourselves prior to death, gives them time to mourn our passing instead of cleaning up after us.

Once someone said to me people with long-term illness are lucky in a horrible way, because they are stopped in their tracks and made to face their mortality, while the rest of pretend the day will never come.  Waiting until one is terminally ill is something of a gamble because you are working on the assumption that you are 100% sure you will get a warning of sorts. I personally feel if we learn to live our lives to the fullest - each day as though it was the last but also as though it was the beginning of something new; this will make it somewhat easier to be prepared for the inevitable. Do not procrastinate living your dreams least you run out of time. 

You work so hard to acquire the property that you have and should want your loved ones to get as much of it as possible.  There are plenty of instruments available that afford you the opportunity to protect your assets and ensure that the people you wish to inherit your wealth are the ones the ones that ultimately inherit it.  In the absence of clear and direct instructions upon your death your property becomes subject to probate.  Meaning legal proceedings, directed by the courts, will determine who inherits your property.  This can be a very costly, long and confusing process for your loved ones to endure.

I had a client once who fought a long battle with cancer. She had two siblings, one told her she needed to make alternative arrangements for her own care that did not include them, because they felt not well equipped to deal with her illness nor the inevitable death. The other sibling practically gave up their own lives to be her primary caregiver during her last days.  Being single and never had any children (now not there are any guarantees that your children will readily look after you should you need it either) absence of family can make a bad situation worse.  During our many conversations she would reiterate how she wanted Marybeth, (the sibling looking after her) to inherit all her assets, and to ensure that Sarah got nothing.  Sarah's absence during her sister illness was difficult to accept.  With all the planning, having all her accounts to transfer-on-death, there was unfortunately an account that she had forgotten about.  The account went into probate and was split between her two surviving siblings, following the law but totally against the deceased dying wishes.

The most economical way of avoiding probate is by making use of the Transfer of Death Instruments that are available. Now most of these are revocable, meaning should the family member that you named either predecease you or falls out favor, you can change this at any time.  It is important to note that you need to do the necessary research, ensuring however you decide to title your property it is within the laws of the state or country you reside in. Should you have property in a different State to your resident state, then it is the laws of the State where the property is that you follow and not where you are resident.

There are many instruments available, where you reside, in the case of real estate property will determine which instrument is better suited for you.  For example in Illinois, 2012 saw the introduction of  Illinois Residential Real Property Transfer on Death Instrument Act.(755 ILCS 27/) - which permits an individual to pass ownership at death to another person at a minimal cost.  You would approach your local  There similar instruments for vehicles too, but in this case you would need to approach your local DMV so that the name of your beneficiary is added to the certificate of registration.

For brokerage accounts (holding securities such as stocks, bonds, mutual funds) you can use Transfer-On-Death registration. Again this can be changed at any time should your situation change and require it. Bank accounts use Payable-On-Death but you need to request for the necessary forms to have this on file from your bank.  It is important to note that if done this way it does not give the named beneficiary access to the account during your life time.  Upon your death they will be required to produce proof of death along with appropriate identification to transfer the funds to their name.

Retirement accounts are handled differently, depending of course on your resident state as well as whether you are married or not.  You will need to research on your residence state requirements.  With IRAs (Individual Retirement Accounts) it is advisable to do this at the time you open the account.  Some brokerage houses will insist you name a beneficiary when you open your account, but sadly this is not the norm.  It is most advisable you make a point of reviewing the beneficiary designations on all your retirement accounts at the earliest convenience.  For 401(k), Profit Sharing Plan, Defined Benefit Plan you will need to contact the third party administrator who handles the plan.  If you are not sure who that is, your human resources department should be able to point you in the right direction.

As with other transfer-on-death registrations/instruments, with retirement accounts the designations are revocable of course, but they do also offer the possibility of appointing contingent beneficiary in case your primary beneficiary predeceases you.  For some states Spousal Consent maybe required, if you do not name your spouse as 100% primary beneficiary.  The following states do not require you to notify your spouse should you wish to make any changes:  Alabama, the District of Columbia, Colorado, Georgia, Indiana, Kentucky, Maryland, Mississippi, Montana, Nebraska, New York, North Carolina, North Dakota, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, and West Virginia

How price-conscious are you?

Most of us talk about being price-conscious but truthfully not that many people follow through.  Living in a country that brags of being the epitome of capitalism – where market forces rule, who really is in the driver's seat..  Living alone I can afford to stagger my grocery shopping in such a way that I only buy when something is on sale.  Being a creature of habit my product selection remains virtually the same over a period of time and as such I am aware of the price of most items in at least three grocery chains.

Now with this in mind I have to disclosure there are a few items that I hold dear, where I close my eyes and pay whatever the going rate is.  When purchasing these items I walk into the store for that particular item only and nothing else. This week I did make such a trip to the store to make a purchase but while I was waiting for my purchase to prepared I realized that I was hungry and would not be able to eat for a while.  Now retailers bank on such situations occurring because right in front to me was an array of things I can eat on the go.  I looked for a familiar product which I am confident is sold nationwide but to my surprise it was not available. 

In its place was similar product - nutritional content pretty much the same too.  I picked one out, pulled the five dollar bill out my purse, as I had already paid for my other purchases.  I put the two things on the counter for the cashier to ring me up.  Now remember I am working on assumptions here because I picked a similar product and taking for granted the pricing would be similar I was looking for $2.00 change or slightly less.  The cashier rang me up and then in an extremely pleasant voice said “Since this a new product I will give you a coupon for $1.00 for today’s purchase and another your next purchase.  Your total today is $5.62”.  I swallowed hard, putting special effort not to show my shock.  With extremely controlled facial expression I handed her the additional money. 

I cannot say for sure whether I developed an utter dislike for the product because I thought it was overpriced or not.  All I can say for sure is that I am disappointed that I did not just state that the price was above what I was prepared to pay and asked to have the transaction cancelled.  I admit that it was a form of “peer pressure” – I have my usual mantra ringing in my head “every penny counts” over and over again but here I was in a situation where I clearly crossed that line and made a purchase that is above my income bracket and could not even pretend that I did so because I have a long standing relationship with said product.  That it was under $6.00 and I had the ability to pay it is irrelevant to my need for price sensitivity.

Needless to say one of the reasons why I bought the product without a moment's hesitation in the first place was because I had seen a friend drink it.  When I saw her next I handed the coupon to her and told her that I did not realize she had such expensive taste. 

Wealth accumulation 101 – being a great saver means being price-conscious across the board.  But I hasten to add it is also important to ensure you are buying quality, while all the necessary nutrients were there the taste definitely needs working on but none of it matters I will stick to just buying the one product that I have been buying from this particular retailer over the years.

Keeping track of your retirement plan contributions

Having a plan or road map as you accumulate your wealth is an extremely important first step but sometimes if you do not have a working knowledge of some of the investment vehicles that are available then it is prudent to seek help.  As we grow our needs change and with these life-changes the necessity to review your financial situation on a yearly basis makes more sense at the time we prepare our tax returns. 

While IRAs (Individual Retirement Accounts), Roth IRA, SEP IRA and Simple IRA are very useful as retirement accumulation vehicles, they come with a set of complicated rules and regulations that one has to abide by if one is to make use of the intended benefits.  Take for an example if in prior years one might have been eligible to make contributions to an IRA it is not a given that you can continue to do so in future years without checking your eligibility.  It is essential that you confirm your eligibility to make contribution in any given year before the funds are deposited into your IRA account and also that the corresponding deduction is appropriately reported on your tax return.   The Internal Revenue Service (IRS) permits you to correct erroneous contributions through a request for a withdrawal of excess contribution which you can make through your broker or mutual fund.  Whether this is done prior to filing your tax returns for the tax year in question or after and any corresponding earnings are reported in the tax year of the correction.  

While correcting over-funding might seem unnecessary work at first, it quickly becomes a costly oversight when taking the distribution out of your retirement you receive a Form 1099-R and the stated taxable amount is a lot higher than what you recall.  The IRS will require that you show proof of what amount is taxable and what amount is not taxable, failing to do this will result in the full amount being taxable.  No one wants to pay more taxes than is absolutely necessary but worse still you do not want to pay taxes twice because you failed to keep your adequate records.  

Items of special note:

IRA - Individual Retirement Account

SEP IRA

Roth IRA

Simple IRA

Form 1099-R

Return of Excess contribution

ACA - Individual Mandate vs Employer Mandate - who is responsible for your health insurance coverage?

Much has been said about the Affordable Care Act but it seems an injustice that the flood of information has left an uncomfortably high portion of society clueless at best.  For the average person they know the basics and how they interpret the information really depends on what side of the political isle one places themselves.  Take for an example the employer mandate was extended for another year but the individual mandate remains in play.  Some unfortunately read this as though they as an individual need to wait for their employer to decide.  This is sadly incorrect.

As individuals when it comes to issues that affect us personally sometimes it is more beneficial to look at things outside the political purview.  After all, neither your congressman nor your senator has an intimate knowledge of neither your finances nor your health.  Since Health insurance, like any other forms of insurance, is a vehicle used for risk management.  Why then would you give that much power to someone who has a macro view of your needs.  The only difference between the regular insurance we purchase for our houses and cars is that there is certainty that you will definitely use your health insurance to one extent or another.

I have a friend who had one of those catastrophic health plans– which in my world means “I have a card and that’s about it” (thankfully that was cancelled for not meeting basic needs).  With this plan you are not passing the risk onto to anyone – you are literally keeping all the risk but paying someone for a false sense confidence of coverage.  While some use the excuse that they are not buying into ACA because they are not comfortable with certain parts of the bill – seriously you will deny yourself health insurance coverage because you have issue with some woman down the street getting contraceptives? But all is not lost for you for it is still possible to buy health insurance outside the exchange.  Insurance Agents - National Association of Health Underwriters

Then others give the excuse I am waiting for my employer to make a decision – this is where ignorance reigns supreme.  So you are literally opting not to have coverage until your employer has had the chance to see how they can possible avoid offering you health insurance coverage.  If only we could concentrate on the things that affect us directly and partially listen to the things that irrelevant.  It is blatantly obvious that there is a huge amount of information out there – some information misguides people either by undermining the benefits or overselling benefits.  Some information is helpful but nonetheless all of it can be a systems overload for an ordinary person on the street to understand.  Nice thing about living in this digital age you can total streamline your search to only the specific things that matter to you.

Saving for retirement

A common mistake made by many is to think you need a certain amount of income before you can start saving for retirement.  Some will say “you need money to make money”; others use the excuse that they barely have enough to live on now.  But nothing could be further from the truth. When we are younger we have more flexibility on our ability to survive.  During retirement years there are too many variables like health that one needs to contend with.  Like a baby learning to walk, with saving you need to start with small concentrated steps, even though they may be unsure steps it is better start basic and build on it.  Even if you feel you are living from hand to mouth all of us have some room within our budget that one can work with – luxury items we can chip away at. 

With the benefits of “compound interest” even if you save say $10,000 between the age of 20 and 30,  stopping when you are starting your family, that amount if left untouched until your retirement will have grown to approximately $92,000, working with hypothetical interest of 6%.  The idea is that you are leaving any earnings along with the principle within the account.  Starting later will of course mean less money at your retirement but every penny counts.

There are many types of retirement vehicles available for one's use, depending of course on your income level, as well as how you earn it.  In prior years Defined Benefit plans were very popular in the private sector, along with your Social Security Benefits one was guaranteed of a comfortable retirement income.  Volatility, high employer costs coupled with responsibility for uncertain obligations have contributed to a significant move from Defined Benefit Plans to Defined Contribution Plans.  For the majority in the USA we have the 401(k) Plans, which are employer sponsored but also afford one the ability to elect a certain amount annually to be deferred into an account up to $17,500 but not more 100% for actual income earned.  For those 50 and over additional $5000 catch up provision is allowed.  Now just because the maximum is $17,500, it does not mean it’s that amount or nothing.  One should not be intimidate by the high amount but instead should defer an amount more in line with one’s own earnings.

It is important to realize that even if it is only $25 per pay period that you can afford, then that is where you begin.  Try this for at least a year or two.  You can then review on an annual basis and I can assure you, once you see how much you put away with the tax benefit of reducing your current taxable income you will increase the deferred amount.  Some employers will match your contribution and this will only increase the amount you are putting away.

The same concept can be applied with Individual Retirement Accounts (IRAs) but in this case the maximum you can put away is $5,500 for the 2013 tax year (catch up provision for those 50 and over being $1,000).  IRAs are privately held and have nothing to do with your employer.  You have until April 15th 2014 to make any IRA contributions - whether it is a traditional IRA or Roth IRA. The main difference between these being that the traditional IRA is funded with pre-tax tax money and Roth IRA is after tax, as well as all growth if withdrawals are qualified.  (Will cover these two in more detail over the next couple of weeks).   As long as you have earned income you can open an IRA account but the IRS does stipulate income limitations on its tax deductibility.   

For those with a lower income there are further retirement saving benefits worth taking into consideration prior to filing your 2013 tax returns.  The IRS (Internal Revenue Service)offers Saver's Credit, which can be up to $1,000 of tax credit for retirement savings of $2,000 for those within the stipulated AGI (adjusted gross income).  In short you are being paid for saving your own for retirement. 

Can you live on minimum wage?

We all go through life seeing things from our own perspective and this is a very normal thing to do.  But seldom do we acknowledge that this view is limited by our own experiences when we pass judgment on others.  Sometimes the decisions we make or at a minimum the views we hold collectively have far reaching consequence far beyond our dismissive nature on the path that others are travelling.   When voting we based on our needs personally, the things that affect us directly and not collective needs of the population as a whole.  Some of us participate in polls that politicians use to gauge popular trends before formulating policies.

 There is the old adage/proverb that you should not criticize anyone until you have “walked a mile” in their shoes.  I would like us all to stop for a minute and look at the guilty pleasures that we have.  Just how much does each one cost you?  Whether it is a night out once a week; or weekend getaway once a month.  For some it might be as simple as another pair of shoes in addition to the other "60 pairs.  Now I am not saying give it up – no I am just highlighting the importance these things in your life.  These guilty pleasures do go a long way in keeping us sane.

Now imagine you are earning $8.25 per hour and working 30 hours (weekly income of $247.50) because your employer is keeping your hours down as part of their strategy of keep costs down in these “uncertain economic times”.  Maybe you have two kids and spouse looking to you to make ends meet.  Those wages are nowhere near sufficient to feed a family of four as well as provide shelter.  $8.25/hour is by no means a “living wage” and the people in this income bracket are expected to shop in the shops where we all shop at. The rate stated above is for my home state of Illinois, the Federal rate is $7.25

I am ashamed to confess that on occasion I have uttered the words “I am feeling the hardship of the recession”.   And in truth I have because there were things that I did stream down when I was reviewing my personal budget.  I used the word ashamed because I do not have a family of four to feed.  Even though I consider myself “under-employed” my income is significantly higher than what is considered minimum wage and yet I shop in the same shops as people on minimum wage.  I still complain on just how hard things have become but I do remember to be grateful for I am well aware just how much worse it could all be.  

So next time you are giving your opinion on whether or not there should be an increase to the minimum wage think a little outside the box.  A better compensation for all ultimately means less people will need to turn to supplemental assistance such as the link card or Section 8 housing.  With a reduction in the number of those who use these programs there will be less of your tax dollars needed.

Upward mobility and the skills gap

In President Obama's 2014 State of the Union he spoke of putting in place policies that will increase jobs as well as an increase in the minimum wage.  Only some of the tools he intends on using will deal with problems of inequality, or as some prefer to call it "the income gap".  

There is a stark disparity between the packages CEO's negotiate for themselves and what the actual workers are being compensated.  Some get bonuses in the millions for cutting human resource expenses.   Most CEO's fight an increase 15-17% increase in minimum wage, claiming it is bad for business but feel their 50-70% increase is justified.  Which boggles the mind when it is the same CEO's that are looking for a market for their products.  Don’t the potential customers need to actually earning the money to spend somewhere.

To date, employers feel when a candidate has been out of work for a period of time, that employee has missed out on changes that might occur.  The corporate world is supposed to sign on, pledging to be more lenient on those who have been unemployed for extended periods.  In reality what is needed here is that the unemployed actively take steps to reduce those so called "gaps" on the resume to lessen the anxieties of future employers.  How does one stay current on industry regulations?  

In the financial and accounting industry there are regulatory continuing education courses that one is required to do that help keep you abreast of said changes.  If you are at home how do you keep up with the changes? With the economy having moved from manufacturing to service, technology has left a huge percentage of the population lacking relevant skills needed as to be viably employed.

Then there are those who are unemployed because their position no longer exists for a mired of reasons, from downsizing to some sort of automation. It can only mean your skills are no how longer marketable.  Does it then mean that the pledge from "C" suite will cover these shortfalls too?

Now I am not saying that I am grateful for all efforts the President is pushing.  I am just saying that the individual has a significant part to play here.  We are back to basics and there is a clear need for one to reinvent themselves by either going back to school (your degree attained 30 years ago is hardly relevant if changing careers altogether) or looking to see what self-employment might offer.  Americans need to take ownership of their lives and not wait for the right conditions to be put in place.

We brag so often about the greatness of America, whether Republican or Democrat we all have socialist tendencies.  Hiding behind a need for a smaller government in the hope of paying lower taxes without reducing your expectations accordingly is asking for a handout.  Continually expecting benefits when there is no revenue to cover the need is in itself expecting a handout.

The problems being experienced in the USA are replicated world over.  While the USA has an unemployment rate of 6.7% the Euro-zone is at approximately 12.1% - of course countries like Spain (26.3%) and Greece (27.7%) are the biggest contributors to the high rate.  Of course not being counted in there are those that have given up looking altogether.

Maybe the solution is that governments offer incentives to companies that opt of human workers instead of automation.  But there are the high and constant costs that come with HR whereas with equipment it is a given purchase and maintenance cost that no President can change with the stroke of a pen. 

99% vs Tom Perkins? Or Perkins just old man fighting for relevance

Is there something to be said about the disparity on income and wealth in the USA and world over?  The answer would be a resounding yes.  If the rich are feeling victimized then obviously the message must have been skewed at some point.  Hard to understand how one with so much could possibly feel anything but privileged.   One can confidently say Tom Perkins was hardly a choice that the 1% would have chosen to be their collective voice for he clearly does not speak for the majority of what he affectionately refers to as a "minority".

In an interview with Emily Chang of Bloomberg Tom Perkins is "Comparing the problem to the Holocaust".

The sheer absurdity of the term requires one not to get worked out about Perkins at all but to feel sorry for him.  He is an extremely accomplished millionaire.  Not a billionaire by his own admission but he brags of having personally facilitated others in becoming billionaires.  Clearly the wits he had to achieve this is no longer there in abundance. 

The debate is narrowly discussed and one has to choose a camp - either with the Democrats and be accused of income redistribution or Republicans and only desired to discuss cutting taxes.  Personally I do not want to be boxed into either camp.  I believe that opportunities need to be provided to allow people to work for a living.  I do not believe any person with self-pride would opt for handouts instead of a good steady job.  I sincerely believe good people apply for unemployment benefits because they genuinely need to feed their family.  But I do also believe that these benefits need to be streamline and better manage to avoid abuse.  Extending them was necessary during the Great Recession but at some point this too needs to stop.

What is missed in the discussion about income disparity is the mere fact that with so many slipping into poverty there is a significant decrease in the numbers to whom these extremely accomplished millionaires and billionaires can sell their products.  An intelligent business person would strive for a stronger middle class so that he can have someone to sell his products to.  Feeling victimized because you have more that you could possibly spend in your lifetime and comparing it to the Holocaust can only come from an old man experiencing adverse effects of aging.  For one to have achieved what he achieved and then to make irresponsible comments as he did in his interview with Emily Chang is beyond sad.  The man is crying out for help and we should all feel sorry for him rather than be angered.  But more important at least he has enough money to pay for the help he clearly needs and he is not being subjected to "death camps" either.

I really think we need to respect the horrific experiences of the Holocaust and not trivialize the memory of the lives lost nor the lives altered.  Making apologies after the fact is unacceptable.  It is simply uncouth to speak so irresponsibly and then think it is okay to offer apologies after the fact.  It is really so hard for one to think before one speaks? 

2013 TAX HIGHLIGHTS

Below are a few highlights for consideration as you prepare your tax documents before going to your tax preparer.  It is important to always remember that you are ultimately responsible for the tax returns that you efile or authorize a tax professional to file on your behalf.  If you feel you do not understand something ask.

More importantly the Internal Revenue Service is available for taxpayers with questions - IRS - Telephone-Assistance.  In addition H&R Block and Jackson Hewitt  are among companies that have walk-in offices that you can use.  For those who prefer to use online services Turbotax is an option. Depending on your income level some of the companies with online services do offer free tax preparation.  

1.     Parents must have social security numbers for dependents born before December 31, 2013 to claim an exemption on 2013 returns.

2.     Tax rates for 2013...10%, 15%, 25%, 28%, 33%,  35%, and 39.6%.  The top rate only has increased from 35% to 39.6% for Single/Head of Household filers with excess Modified Adjusted Gross Income (MAGI) over $400,000 & Joint filers over $450,000.

3.     Personal exemptions...2013 - $3,900; 2014 - $3,950.  Beginning in 2013, the personal exemption begins to phase out for taxpayers with adjusted gross income amounts over $300,000 for Joint filers, $250,000 for Single filers, and $275,000 for Head of Household.

4.     Standard deductions (in lieu of itemizing deductions) - 2013:                                                                                                                                                                                                                                                                              Age 65+ or Blind

                                                    Standard Deduction                                    Each Spouse

        Married Filing Jointly /                                                                        

        Qualified Widower                                   $12,200                                                 $  1,200

        Single                                                      $  6,100                                                 $  1,500

        Head of Household                                  $  8,950                                                 $  1,500

5.     Investment income of children under age 18 or children under age 24, as long as they are full time students in excess of $2,000 is taxed at the parent’s marginal tax rate.

6.     Investment Income:  Beginning in 2013, all excess investment income for those with modified adjusted gross income over $200,000 for single filers; $250,000 for Joint filers will include an additional 3.8% Medicare tax liability.

7.     FICA wage ceiling: For 2013, the so-called payroll tax social security holiday ended and the base rate has returned to 6.2% of taxable wages each for both employee and employer contributions up to the wage ceiling of $113,700.  For 2014, the ceiling will be $117,000. .        Medicare: For 2013 the base rate is 1.45% of taxable wages for both employer and employee and has an unlimited wage ceiling.  Beginning in 2013, the employee share increases to 2.35% for taxable wages over $200,00 for Single filers, $250,000 for Joint filers.

9.     Ceiling on 401(k) and 403(b) contributions:                  Simple Contributions:

                        2013 - $17,500 ($23,000 if 50 or older)                      2013 - $12,000 ($14,500 if 50 or older)

                        2014 - $17,500 ($23,000 if 50 or older)                      2014 - $12,000 ($14,500 if 50 or older)

10.   2013 contributions for IRA and non-working spousal IRA:  $5,500; ($6,500 if 50 or older)

        2014 contributions for IRA and non-working spousal IRA:  $5,500; ($6,500 if 50 or older)

11.   Standard mileage rate: For 2013: Business is $.565 …for charity $.14 .. for medical and  moving $.24

      For 2014: Business is $.56 …for charity $.14 … for medical &  moving $.235

12.   Allowable Earnings for Social Security below full retirement age is $15,120 for 2013 and $15,480 for 2014…on or after full retirement age unlimited earnings.  $1 gets deducted for every $2 you earn over the allowable earnings limit.

13.   Annual gift tax exemption - $14,000 per individual for both 2013 and 2014.

14.   Penalty-free withdrawals from IRA can be made for medical expenses in excess of 10% of adjusted gross income

15.  Long term capital gain and qualified dividends rates are now graduated rates based on modified adjusted gross income (MAGI).  For 2013, Single filers with (MAGI) under $36,250 and Joint filers under $72,500 will pay 0%.  Single filers between $36,250 - $200,000 and Joint filers between $72,500 - $250,000 will pay 15%.  Single filers between $200,000 - $400,000 and Joint filers between $250,000 - $450,000 will pay 18.9%.  Single filers over $400,000 and Joint filers over $450,000 will pay 23.8%.

16.   Annual compensation limit for retirement plans is $255,000 in 2013; $260,000 in 2014.  Contribution limits are set at $51,000 in 2013 and $52,000 for 2014 for profit sharing and simplified employee pension plans, and $205,000 in 2013 and $210,000 for 2014 for defined benefit plans.

17.   IRA distributions. For 2013 taxpayers age 70 1/2 or older can continue to make tax-free distributions from IRAs for charitable purposes. 

NEW AND/OR REVISED TAX PROVISIONS INCLUDE:

·         The enhanced Code Sec 179 maximum dollar limitation and investment limitation respectively is $500,000 and $2,000,000 in 2013.

·         AMT exemption. The Alternative Minimum Tax (AMT) exemption for 2013 is $80,800 for married; $51,900 for singles and head of household; and $40,400 for married filing separate taxpayers  It will be indexed for inflation in 2014 and beyond.

·         Itemized deductions for medical expenses.  Beginning with the 2013 tax year, deductions for unreimbursed medical expenses must exceed 10% of your adjusted gross income to be deductible.  For individuals age 65 and older, the threshold remains at 7.5% until December 31, 2016.

·         Income for forgiveness of mortgage indebtedness. Principal-residence homeowners who have part of their mortgage debt forgiven have been spared having to pay income tax on the forgiven income for joint filers up to $2 million dollars. The Emergency Economic Stabilization Act of 2008 extends this benefit through 2013.

Same-sex couples who have been legally married in a state or  jurisdiction that recognizes their marriage, must now be treated as married for federal tax purposes.  The ruling applies regardless of wherever the couple currently resides, using either the married filing jointly or married filing separately filing status.  Additionally, employees who purchased same-sex spousal health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as a non-taxable fringe benefit.  

I have a limited understanding of Unemployment Insurance – do you know more than I do?

Since I am so on the fence with Unemployment insurance I would like to find out people views on the issue – maybe, just maybe I might get educated.

1   1.     Should we have unemployment insurance in the first place?

     2.    If so then for how long and how much?

     3.   When you say you believe in it is it because you feel you have earned?

     4.   Or do you believe it is a right?

5   5.  When I lost my job was I partly to blame or was my employer supposed to keep on forever no matter what?

There are many views out there but none have me totally believing that it is either beneficial to the economy as a whole or that it is harmful in some way.  I guess I can to some extent believe that one does need something to live on while you are looking for another job.  But in today’s economic environment where the chances of you finding that job move from slim to none very quickly.  Should we not then revisit the merits of handing out said checks?

A more important question to those advocating for an extension of benefits how different are you from those receiving food stamps and Section 8?  Do we not all mooch off the government in one form or another but just call it different things to make it more palatable?

Year-end Planning Tips - 10/10 - New Year's resolutions

At this time of year everyone is consumed with reflections of 2013 and resolutions in an effort to make avoid past mistakes in the New Year.  And for others just simply trying to do better.  For those needing to get a better handle on their finances and taxes it is a good time to put your records in order to facilitate a less stressful tax time. 

Ensuring that you are not paying more in taxes than you need to is an essential part of wealth accumulation and wealth management.  To do this properly gathering all relevant documents is important.  Over the next month or two you will be receiving tax information in the mail detailing your income for 2013.  Having your prior year's tax return is a good guidance on what you need but if using the services of a new tax professional then giving copies of the last three years will be more beneficial for a thorough review.

Below is a checklist you can use for guidance when putting your information together.  You can use different files for each category. Envelopes or paperclips will work just as well in keeping each category separate for ease of review. While this may not cover everything you may need but it is a good start.

Tax Preparation for Personal Information
Depending on your filing status (single; married filing jointly; head of household)  the IRS requires you include the full details of all individual included in your tax return.  Dates of birth are also essential for certain credits and deductions.  To make this easy, they require:

• Your Social Security number
• Your spouse’s Social Security number (if married)
• Social Security numbers for any dependents

Tax Preparation for Income Information
The following documents will help you prepare all the income information that you need to file a federal tax return:

• W-2 Forms from all employers you (and your spouse, if filing a joint return) worked for during the past tax year.
• 1099 Forms if you (or your spouse) completed contract work and earned more than $600.
• Investment income information (including: interest income, dividend income, proceeds from the sale of bonds or stocks, and income from foreign investments).
• Income from local and state tax refunds from the prior year.
• Business income (accounting records for any business that you own)
• Unemployment income
• Rental property income
• Social Security benefits
• Miscellaneous income (including: jury duty, lottery and gambling winnings, Form 1099-MISC for prizes and awards, and Form 1099-MSA for distributions from medical savings accounts)

Tax Preparation for Income Adjustments
The following adjustments can help reduce how much you owe in taxes, and in turn, increase your chance of receiving a tax refund:

• Homebuyer tax credit
• Green energy credits
• IRA contributions
• Mortgage interest
• Student loan interest
• Medical Savings Account (MSA) contributions
• Self-employed health insurance
• Moving expenses

Tax Preparation for Credits and Deductions
There are many tax credits and tax deductions for various expenses, which are designed to help lower the amount of tax that an individual has to pay:

• Education costs
• Childcare costs
• Adoption costs
• Charitable contributions/donations
• Casualty and theft losses
• Qualified business expenses
• Medical expenses
• Job and moving expenses

Tax Preparation for Direct Deposit
Are you interested in having your tax refund directly deposited into your bank account? If so, you will need to provide two things:

• Your bank account number
• The bank’s routing number

This tax forms / preparation checklist should help you get organized before filing your next income tax return.

Year-end Planning Tips - 9/10 - Review prior year tax returns

They say hindsight is always 20/20 vision.   Sometimes we use it to beat ourselves up on how wrong we read a situation and other times it is to pat ourselves on the back.  With your taxes, however, a timely review of prior years can prove beneficial, for both past, current and future years.  With a through review of our prior year tax returns overlooked tax credits, deductions or tax treatment of income can be highlighted. Amending your tax return may bring about a refund if you had made errors such as not reporting income, dependents, filing status or tax credits.  While you cannot amend a return for maths errors always keep in mind when you can there is a three year statute limitation from the original due date of the return,

Any omissions found in a prior tax return must be noted to see applicability for current and future years.   Depending on the complexity of your tax return it would be advisable to employ the services of an accountant specializing in individual income taxes for qualified competent assistance as this almost always serves you well.

Most of us procrastinate with the preparation and filing of our personal income tax returns.  We go through the year making mental notes as we come across things that can affect our taxable income and yet we seldom take the necessary action that will make these advantageous.  Precious few do any  do any tax planning before year-end.  The new year rolls in, we received our Form W2; 1099 or K1s and we stash them away as April 15th seems so far away.....

Not until we start hearing the final count down on the news channels and commercials for tax preparation software blaring through the airwaves a  few days prior to "Tax Day" do we pay attention and start hastily putting our records together.  This is no way to ensure that the tax return we file in any given year aids us in having tax-efficiency.  Any tax efficiency achieved translates into savings and in turn increases your accumulated wealth.  

Target Security breach - credit and debit cards

It is not as simple as cash vs plastic.  The security breach at Target has many shoppers worried and questioning these security breaches continue to happen and appear to be more grandeur size.  Instead people should be asking what can one do as an individual to minimize such vulnerabilities.  It is not enough to throw it all at the retailers – we, the consumers have made the choice to use plastic instead of cash.   Now I am not saying that the retailers are not obligated to provide an environment as close to secure as possible, where we can shop with minimal worries. For we have, for all intents and purposes, been courted, cultured and nurtured by the same retailers into using plastic.  The convenience of plastic has become sealed into our very being.  But the convenience cuts both ways and therein lies the conundrum.  

 Those of us who are “old school” have held onto using cash and are now patting themselves on the shoulder for not having opened themselves up to the anxiety 40 million shoppers are experiencing today.  Little about the perpetrators is known as yet.  We wait with baited breath as the Secret Service investigates.  For the shoppers themselves none of the above is really important outside from some significant punishment being metered on those who carried it out.

It is important for the 40 million people who are at the heart of this to put into practice simple checks and balances to either keep a close look on the activity of the related accounts.  Some will quickly jump to closing the account opening a new one effort to lessen the anxiety.  It is not every breach that we hear about and therefore our vulnerabilities are there every day.  

In some instances the organizations offer basic credit monitoring but according to the reports when date is stolen in the manner that it was in the Target case fake credit cards are made.  This is why it is essential to monitor your accounts.  

Good practice:

1.  Review your credit statements or bank statement for those using debit cards.

2.  Review your credit card account policy, specifically identity theft coverage

3.  Signing up for alerts is also an option offered by many financial institutions.

4.  If you do decide to close the account and replace it be sure to update all automatic transactions linked to the card being replaced

Is it possible to reinvent yourself - Avoid the pitfalls of the Long term Unemployed

At a holiday party over the weekend I sat next to an economist and the conversation ended up focused on the long-term unemployed.  Quickly one realizes that economist have a brutally different way of thinking.  The gentleman I sat next to said there is nothing that can be done for approximately 40% of the long-term unemployed.  For a staggering number of people like that to be allowed to just fall off and never to be counted again is somehow at minimum unacceptable for me.  Unfortunately, though he is right when you are looking at it from an employer's point of view.  When employers are seeking to hire they do not see through a lens that accommodates for the Great Recession.  But more from a bargaining view as this allows them latitude to negotiate wages better, as such big gaps in employment history are frowned upon.

With what appears to be the end of extended unemployment benefits questions on how this will affect the unemployed in an economic that appears to have found a rhythm without their participation.  For some the economy itself is still in great need of stimulation to create jobs for those who without the benefits will most likely end up on the fringe of a population that is gainfully employed.  Keeping the benefits going is for some its purely unsustainable.  It was a temporary measure used during extraordinary times that should be shut off now.  For others it is a moral issue.  How do you just dump that many people into "wilderness" without offering viable options.

While most of us agree that the job front has changed dramatically over the last two decades -  Gallup shows unemployment - 30-Day Rolling average  of 7.3% and 17.3% underemployed but we are also constantly hearing of 3 millions jobs that employers are finding difficulty in filling.  These 3 million jobs that remain unfilled represent a staggering skills gap where the majority of the unemployed are coming from manufacturing background and the available positions very technical.  There are many suggestions out there on reinventing oneself to meet the needs of the new job market but precious few are psychologically prepared to go through the necessary steps/training.

Failing to reinvent oneself leaves many with the undesirable option of accepting compensation that is way below what they were accustomed to prior to the Great Recession.  Few are able to come to terms with this decrease in earnings and adjusting their living standards accordingly.  Those that fail to make said adjustments then use their IRAs and 401(k) as bank accounts draining all their retirement assets. 

People general misrepresent "wants" and "needs".  At the beginning of our professional lives we generally do not earn a huge amount.  When we first start working we are grateful for income and we general budget and stretch things here and there.  As our income increases so too does our spending.  Living in a retail society are pressured by the constant bombardment of commercials; special offers and introductory prices that soon wants becomes needs.  

Who truly needs 50 pairs of shoes?  Or a brand new television, cell phone, tablet or game?  I often hear people speaking of upgrading - the shows you watch on your TV do not upgrade nor do the conversations you have on your cell phones.  As such that "upgrading" is all about keeping up with the Jones. But the question to ask here would be - do you know what the Jones' true earning power is?  As the economist so love to say - "All things being equal", or as the rest of us love to say but seldom apply appropriately, "comparing apples and oranges".  If your possessions must be on equal footing with those you wish to emulate in the retail world shouldn't first strive to earn as they do?

Year-end Planning Tips 8/10 - Estimated Taxes for 2013

Quarterly estimated tax payments are not only applicable to self-employed income earners.  Alimony and investment earnings, dividends etc, for any income that is not subject to withholding you are required to pay estimated income tax periodically, as you earn it.

Whether you use a tax professional or not, understanding the requirements is of paramount importance as compliance is essential in avoiding penalties and interest.  

Most people find it easier to calculate their current year estimated tax payments at the time their prior year tax return is prepared.  This allows you to use your prior year taxable income as a guide to what you will be paying for the current year.  It is also important to review your income at the end of the year to ensure that any increase income that might not have been calculated at the beginning of the year is taken into consideration when you make your fourth and final quarterly estimated tax payment.

Should you be in a refund position in the prior year applying the funds as a prepayment of current year taxes might be an option worth exploring.  This amount will reduce the safe harbor amount you are required to pay in estimated tax to be compliant for the current year.

Guidance on what is a current year safe harbor amount to pay use the smaller of the following amounts for those with a tax liability of $150,000 or less:

i)  90% of the tax of the current year liability 

ii) 100% of the prior year's liability.

If you tax liability in the prior year was over $150,000 then you are required to pay 110% of the prior year's liability or 100% of current year.

The IRS Form 1040-ES (Estimated Tax for Individuals) is useful in calculating how much you need to pay.  Due dates are as follows - keeping in mind of course that payments must be date stamped on or before the listed dates:

Earnings for period:

January 1           - March 31        - payment due April 15th

April 1              - May 31           - payment due June 15th

June 1               - August 31       - payment due September 15th

September 1     - December 31  - payment due January 15th 

While most of feel they want to delay parting with their money to Uncle Sam as much as is possible it is important to apply a little bit of risk management in this instance. If it just a delaying strategy then you should also think about whether the penalties that come with this delay are worth paying.  If you want to utilize the funds for something else then the gains you earn wherever you are using the funds in the meantime must also earn you enough to cover the penalties.

The IRS will assume you earned evenly throughout the year and therefore will expect quarterly payments. When sending in your payment use a payment voucher.  

Should your earnings be uneven during the year you can use Form 2210 - Underpayment of Estimated Tax by Individuals to annual your earnings thereby avoid penalties.

Tax Avoidance -vs- Tax Evasion

Just because a friend claims to file a particular form and have a particular deduction on their individual income tax return it does not necessarily follow that you too will receive the very same benefit.  No matter how simplified people tell you tax returns are the U. S. Internal Revenue Code is complex. The best way to work around the various forms that feed into Form 1040 on your own is by using tax preparation software that walks you through the process by asking you relevant questions.  TurboTax is one of many that are available.

What others have done in the past is not a justifiable defense should you be audited by the Internal Revenue Service.  That is not to say when someone brings something to your attention that you do not do the necessary research to see how it may affect your personal taxable income.  All things being equal know and understand the difference between tax avoidance (which is working within laws to reduce your taxable income) and tax evasion (which is the deliberate concealment and/or misrepresentation of relevant information in an effort to reduce your taxable income and this is illegal).

Tax planning is all about employing strategies that will reduce your taxable income within the parameters of the law.  In special circumstances where you have done the necessary research within your tax strategies if come across a tax law that is unclear you can apply for a Private Letter Ruling but these are only for a particular tax issue and only for that tax payer that applies for the ruling.  Most situations are covered fully within the Internal Revenue Code.  If you do not utilize the services of a tax professional then make use of the Internal Revenue Service website (IRS website) or alternatively telephone Toll-Free, 1-800-829-1040 for assistance in clarifying any issues you may have. 

For those of you doubting just how serious the ramifications of tax evasion can be take a look at the list below and I am sure all them felt at some point that they would never get caught.  Or maybe they did a simple arithmetic and said "what are the chances?"

1.  Wesley Snipes - Actor
2.  Ty Warner - Creator of Beanie Babies
3.  Lauryn Hill - five-time Grammy winning singer