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

Year-end Planning Tips 7/10 - Open Enrollment - 401(k) Deferrals

While all the talk right now is about Open Enrollment for Health insurance, healthcare flexible spending and Medicare we cannot forget about our 401(K) deferrals.   Most of us feel overwhelmed by the prospect of retiring.   Most have not done a proper “needs analysis” and therefore the amount needed for retirement is just an unqualified guess.  For those at the beginning of their careers it might seem impossible to think about what your needs might be at the end of your career but it is this generation that is blessed with the gift of time and can take full advantage of the growth opportunities.

If you are 50 years of age and above there are provisions for you to make up for lost time by making an additional catch-up contribution of $5,500 over and above the $17,500 deferral amount.  Traditional IRAs and Roth IRA also have a catch-up of $1,000 and this above the $5,500 annual contribution amount.  One should not be intimidated into contributing the full amount.  You should only contribute what you can afford but neither should you stinge your future needs either. Before you have children there is greater flexibility to put away more but one will need to review one’s situation once the family starts growing. 

Whether you are investing in your 401(k) or IRA, diversification as in every part of your income earnings or preservation of wealth is important to your portfolio.  The Department of Labor -Employee Benefits Security Administration has a guide that is useful for those not in a position to afford the services of Financial Planner.  Either way this is all too important to leave to chance and the links below should provide some guidance. 

Most employer sponsored plans to provide the services of an investment professional that can give you general guidance on your investment choices but this is usually geared to only retirement assets in that particular plan and will not include the other aspects of your life.

Savings Fitness: A GUIDE TO YOUR MONEY AND FINANCIAL FUTURE

Taking the Mystery Out of Retirement Planning

Year-end Planning 6/10 - Keeping Track of Tax Deductible Expenditures - Cyber Monday Purchases

Most of us worked off the turkey dinner by venturing out to the malls Thanksgiving night. Shopping continues today with Cyber Monday.  All in all a substantial amount of shopping will continue over the next day or two as we take advantage of all deals on offer.  Some of the deals available now a more attractive than those on offer during the "Back-to-School" campaigns.

Do not miss out on the opportunity to make the most of the deals by buying items that will have an added benefit of being tax deductible.  While you are searching the web for attractive offers try and keep in minds the needs of your college going children as well as your ends to your business.  Be sure to keep track of your purchases using many of the apps that are available.

While keeping track of what you are buying is important for budgeting purposes some of the items being purchase will qualify for tax deductions too.

Even though the deduction is a good incentive proceed with caution reviewing all return policies carefully as most will come with a shorter period within which you can return items.


Expense Tracker - Android

Income and Expense Tracking - iphone

Year-end Planning Tips 5/10 - Small Business owners and Sole Proprietors

Whether you choose to go it alone or you hand over your records to an accountant for tax preparation, how you keep your records is of paramount importance for various reasons.  On the forefront of these reasons is the ability to see how profitable your business venture is and without accurate records you are unlikely to know the true extent of your expenses.  But profitability aside we all strive to shelter as much of our income from taxes as possible.

Most tax shelters are useful if your timing is right but in order for the timing to be right you need all relevant information available to you so that your decision is an informed one.  Take for an example making contributions to a retirement plan, now there are various options open for small business owners from Defined Benefit Plans to Simple IRA, to name but a few.  Both the tax reporting requirement and allowable contribution will differ from plan to plan.  Knowing what your projected income is for the next two to five years can sway maximizing your contribution amount in Defined Benefit Plan, for the older business owners, to opting for a more restrictive Defined Contribution Plan.  On the other hand younger people just beginning might find that a SEP IRA’s minimal costs for maintaining a plan a more attractive.

Choosing a platform for record keeping will always depend on your needs as well as what is easier for you to use. Speaking to your accountant about which software to use will probably go a long way toward reducing your tax preparation costs.  Take for an example QuickBooks, which is an Intuit product, has some reasonable monthly packages for online services.  For those that prepare their own taxes using Turbo Tax the two programs work seamlessly.

Year-end Planning Tips 4/10 - Changes to Itemized Deductions for 2013

For those that itemize their deductions on the individual income tax returns it is important to pay special attention to some of the changes that came into play in 2013.

1.       High-income earners will need to keep in mind the phase-out provision of the American Taxpayer Relief Act of 2012.  The phase-out kick in once your AGI's (adjusted gross income) reaches $250,000 for single filers and $300,000 for married filing jointly.  The phase-out of itemized deductions will also raise tax bills for high-income earners by reducing the tax benefit of the certain itemized deductions. These deductions include: mortgage interest; property, income and sales taxes; contributions; and miscellaneous deductions

2.       Medical deduction – beginning January 1^st 2013 unreimbursed medical expenses threshold has been increase to 10% of AGI (adjusted gross income).  For tax payers over 65 years of age or with a spouse who is over 65 the threshold remains at 7.5% until December 31, 2016.

3.       To claim a charitable deduction for cash donation above $250 you are required to have written acknowledgement and/or cancelled check.  In short keep good records!

4.       For 2013 those tax payers that are over 70½ and do not itemize you can still take advantage of charitable donations by making RMD (required minimum distribution) directly to a charitable organization.  This will not be considered a charitable deduction on your tax return but the distribution will be tax-free.

Again year-end tax planning is an essential tool if one is to reduce their tax bill.

Budgeting for Thanksgiving Dinner

Most of us will be heading out over the next few days to fill our grocery carts with Thanksgiving Dinner ingredients.  Whether your goal is to maintain traditions or you are creating new ones, either way sticking to a budget is important.

First plan your meal and before leaving home make a list of the ingredients you will need to buy.  While you can do one-stop-shopping but this is hardly the best way to take advantage of all the lower prices on offer.  Most groceries stores will be running ads that will serve as a good guideline of where to get the best prices. If you have given yourself a target amount then go a step further and divide this amount by the different stores you will need to go to.

Some stores have club membership that offer discounted pricing while others will offer free turkeys with purchases of a certain amount.  Either way for a effective budget comparison shopping is essential and it need not be tedious so make the most of family assistance and remember to be thankful.

Thanksgiving shopping - making the most of the deals!

As we draw closer to Black Friday, correction - do we now call it "Black Week"?  We are already overwhelmed with unending ads as retailers go all out to draw us into their stores. While most of us use this time to buy gifts for family and friends for the upcoming holiday season.  Whether you are looking for gift ideas for the 12 Days of Christmas; or your gifts for 8 Nights of Hanukkah, (which this year starts the night before Thanksgiving) creating a budget will definitely serve you well.  

For those of us using these “door busters” for personal shopping it is important to make a list as things can easily get out of hand.  While credit cards are convenient to have they are not designed to aide you in controlling your spending.  Prepaid cards on the other hand allow you to put on them the exact amount of money you intend on spending. 

Making a list beforehand would be the best way to go.  You can itemize how much you want to spend on each family member  as this is will help you track what your true savings are at the end of your shopping spree.  Using that list you can surf the net and see with retailers are offering the best deals.   Most of us enjoy a good challenge so coming in under your budget should be most rewarding.

In today's world of ultimate convenience do not get caught paying more than you should for a product. Below are links to some apps that you can utilize to comparison shopping before heading out.  And for those of that want to do online shopping these are a perfect tool.  Please note the list is totally random - definitely not rated nor am I endorsing them.  If anyone has other suggestions please share.  Would definitely love to hear from you on what you use.

1.   The Find

2.  RedLaser

3.  Shop Savvy

4.  Amazon

Year-end Planning Tips 3/10 - Medicare Surtax & Net Investment Income Tax

With all the uproar on the Affordable Care Act - the individual mandate and employer's requirement to provide health insurance for their employees have been on the forefront of the battlefield.  Surprisingly the Medicare Surtax and Net Investment Income Tax came into play without what would have been the expected pomp and circumstance.  Could it be that until people actually sit down and work through what these two taxes mean to their final tax bill for the 2013 tax year, will the reality of it all sink in.

Without too many financial changes most of us go on the assumption that our tax bill will be the same as last year but unfortunately this year there are two new taxes that require thorough tax planning before the close of year.  Some might say planning should really have started during the year as people made changes to their portfolios.

Net Investment Income Tax - 3.8% - using a Form 8960 (still in draft form) - will be used to report the income on the US Individual Income Tax Return beginning with the filing of the 2013 tax return.  Individuals with income threshold of $250,000 and up for those married filing jointly and $125,000 for single filers will be required to pay this tax on their investment income.  Investment income includes the following listed items but by no means limited to this list interest:

• Gains from the sale of stocks, bonds, and mutual funds.
• Capital gain distributions from mutual funds.
• Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence).
• Passive income - income from partnerships and S Corporations

All in all these are big changes that will have a sizable impact on one's tax bill and unfortunately are not only limited to individual income but also Estates and Trusts will be subject to the Net Investment Income Tax, if they have undistributed Net Investment Income.  The threshold for Estates and Trusts is $11,650.

Medicare Surtax - 0.9% - Since employers should have built into the withholding for all $200,000 threshold employees an additional 0.9% medicare withholding the people most impacted by this will be individuals have more than one job (two or three jobs accumulative income above the threshold).  These individual will not have made the necessary withholding adjustments.  Another group of tax payers that might be caught short here will be joint filers as your employers are not necessary going to make adjustments for income that is not earned through them.

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$200,000

Year-end Planning Tips 2/10 - Health Insurance

With the year coming to an end it is time to do the dreaded year-end planning.  Depending on one’s source of income the planning will vary.

With the buzz lately being centered on the "flawed" launch of the "Health.gov" website it goes without saying planning this year is an across the board necessity.  Regardless of which side of the political aisle you place yourself health insurance is not a political tool.  It is as with other forms of insurance a risk management tool.  One generally does not wait to buy flood insurance as your basement is flooding.  Instead of personally taking on the risk to having to use your hard earned savings to pay for emergency hospital care would it not be better to pass the risk on.

For those entering the health insurance industry for the first time estimating income for the coming year along with a thorough review of the types of policies available is necessary.  It may all seem daunting but since it is an investment into your own future health care coverage it to tg a sie when he look at siais worth the effort.  If your state does not have alternatives maybe try and go directly to the different health insurance providers.

For those retaining their employer sponsored health insurance a thorough look at your coverage is still necessary as there may be some slight changes that can have financial ramifications.  If you do not understand anything - even if it is just one sentence it is better to ask for clarification.  Asking your neighbor or someone at your local gym does not qualify as getting proper clarification.    Your employer should have a contact person at the insurance company for you to speak to.  Make the time so that your decisions are informed decisions.

Most of us use FSA (Flexible Spending Arrangement).  Since this is subject to the "use-it-or-lose-it” a thorough review of what your particular policy allows is needed. You would not want to differ $2,500 for 2014 only to have allowable expenses amounting to $990.  That would mean that you are losing $490 since the IRS only allows a rollover of only $500 for the following year's allowable expenses.  No amount of money is too little for you to save – you earned it.

Every penny adds up towards your wealth building goal!

Year-end Planning Tips 1/10 – RMD (Required Minimum Distribution)

At age 70 ½ the Internal Revenue Service requires that you begin taking Required Minimum distributions out of your Traditional Individual Retirement Account – IRA.  In most cases either the brokerage house or mutual fund company where your account is held will send you a reminder to you between three and two months prior to year-end.  Generally they will have calculated the amount you must take for the current year.  Failure to take said distribution comes with a penalty of 50% of the amount you should have taken. If your RMD was $4500 for the year and you did not take it then your penalty would be $2,250.   This amount will of course increase your federal taxable income and as such it would be advisable to with taxes withheld that the time of distribution.

Non-spousal inherited IRAs are they tricky ones.  I have yet to come across a financial institution holding the assets of a non-spousal IRA (IRA BDA) that will remind you or calculate the amount for that matter.  The IRS does require that you take withdrawals but the calculation is a little different from how you would calculate your own or a spousal IRA.  In the case of spousal inherited IRA you are permitted to treat that as your own and as such you would not the calculator below.

Beneficiary required minimum distribution Calculator 

It is important to note after attaining age 70 ½ you can no longer make contributions to your traditional IRA.  Roth IRAs, while similar in allowing withdrawals at age 59 ½ without penalty like the regular IRAs but that is where the similarities end.  Roth IRAs allow contributions after age 70 ½ and do not impose required minimum distributions either after attaining age 70 ½.

For employer sponsored plans the Third Party administrator will usually take the responsibility of keeping you in compliance and informing you according as and when distributions are required.  If you are still actively employed you are not required to take RMDs but there is an exception for the owner of the business who has attained 70 ½.  Even though they are required to take RMD on an annual basis they are also permitted to make contributions should they wish to.