Tuesday, December 11, 2012

Year End Tax Tips

I know year-end tax planning isn’t much fun, but a little sound Financial Planning could reduce the taxes you owe. With so much uncertainty around the “Fiscal Cliff” and 2013 tax rates, now is the time to plan!

2013 tax regulations are still NOT clear, and may NOT be until after the first of the year. You can still reduce the taxes you owe for 2012 and get a plan in place for next year.


Accelerate Income for 2012 and Defer Deductions to 2013
Income Side: If tax rates increase next year, paying taxes now at this year’s lower rate may be the smart move. Consider accelerating bonuses, self-employment income, taking IRA distributions, and/or convert a traditional IRA to a Roth IRA before Dec 31st. 

Deduction Side: You may be able to delay mortgage interest payments, real estate taxes, medical expenses, and gifts to charity until 2013. Delaying deductions until 2013 will help reduce income next year that may be taxed at higher rates. Assuming Congress doesn’t limit these types of deductions for 2013. Ugh!!!

Itemize Deductions Every Other Year
If your 2012 itemized deductions will be just under or just over the standard deduction amount consider combining expenses for itemized-deduction items every other year. The 2012 standard deduction is $11,900 for married couples filing a joint return, $5,950 for singles and married individuals filing separately, and $8,700 for heads of household. If you are age 65 or older, you may increase your standard deduction by $1,450 if you file single or head-of-household. If you are married filing jointly and you OR your spouse is 65 or older, you may increase your standard deduction by $1,150. If BOTH you and your spouse are 65 or older, you may increase your standard deduction by $2,300. I think this year is a good one to go with the standard deduction and if the tax rates go higher for 2013, itemized your deductions. 

Accelerate Medical Expenses This Year
For 2012, the itemized deduction for medical expenses equals the excess of qualified expenses over 7.5% of adjusted gross income (AGI). Next year, the threshold rises to 10% of AGI.

Maximize Retirement Account Contributions
It’s not too late to maximize contributions to your retirement accounts. Contributions reduce your taxable income.

Take Advantage of Lower Long-Term Capital Gains Tax Rates
For 2012, the federal income tax rate on long-term capital gains is 0% if you are in the 10% or 15% federal income tax rate brackets. If all the Bush tax cuts are allowed to expire at year-end, the 0% Capital Gains rate does too, so consider selling investments with gains in 2012 to take advantage of the current rate.

Even if you fall into a higher tax bracket, selling assets now to take advantage of today’s low rates may still make sense. This move avoids the potential higher capital gains tax rate in 2013 and the new Medicare tax of 3.8% on net investment income, which goes into effect for high net-worth investors.

Give Some Money Away
The $5.12 million gift tax exemption and the 35% rate are scheduled to expire at year end. Without congressional action, the top estate and gift tax rate will be 55% in 2013, with an exemption of only $1 million.


Bonus Depreciation is scheduled to expire on Dec. 31
A company can take “bonus” depreciation of 50% of the cost for qualified property acquired and generally placed in service by year-end 2012. A company is also allowed, under certain circumstances, to expense up to $139,000 of qualified property in 2012—an amount that drops to $25,000 next year. In considering this limit, you should know that up to $25,000 of the cost for sport utility vehicles (weighing more than 6,000 pounds) can be expensed in 2012, with an additional 50% bonus depreciation allowed on the remainder.

Consider Paying a Dividend
There’s a reason Dillard’s and Wal-Mart are approving bigger dividends and paying them earlier. Generally, the highest individual income tax rate on qualified dividends is 15% for 2012. This rate is scheduled to rise to 39.6% for 2013 unless Congress otherwise extends the 15% rate or agrees to some rate in between. There will also be an additional 3.8% “Medicare” tax in 2013 on net investment income (which includes dividends) for high income individuals. This tax applies to the lesser of net investment income or modified adjusted gross income over $200,000 for a single taxpayer ($250,000 for married filing joint taxpayers). The Medicare tax will apply as enacted and should not be affected by whether the 15% dividend rate is extended or increased up to 39.6 percent. This is particularly relevant for closely held corporations and for S corporations that have C corporation earnings and profits where shareholders could benefit from lower dividend rates.

Review Future Impact of ObamaCare
Under the health care reform act an employer can be taxed up to $2,000 per full time employee (with the first 30 exempt) if it carries insufficient or no health insurance for its employees. This tax does not start until 2014 and it only applies to “applicable large employers”, which are those employers who have, on average, at least 50 full time equivalent employees during 2013. Companies should review their employment levels in early 2013.

Hire A Veteran
The Work Opportunity Credit of up to $9,600 is still available for hiring an unemployed veteran, but in order to be eligible for the credit, you must have the qualified veteran start work before 2013.

These are just a few of things sound Financial and Tax Planning can do to reduce your overall tax bill. If you current Advisor is NOT helping you solve these issues, let's meet for coffee so you can learn more about how my comprehensive Fee-Only Planning Process can help you. www.JasonQuallsCFP.com or 615-878-2134.

Tuesday, November 20, 2012

Celebrate Thanksgiving By Giving Back: 5 Places To Give

Matthew 25:35-40
For I was hungry and you gave me something to eat, I was thirsty and you gave me something to drink, I was a stranger and you invited me in, I needed clothes and you clothed me, I was sick and you looked after me, I was in prison and you came to visit me.’

“Then the righteous will answer him, ‘Lord, when did we see you hungry and feed you, or thirsty and give you something to drink? When did we see you a stranger and invite you in, or needing clothes and clothe you? Where did we see you sick or in prison and go to visit you?’

“The King will reply, ‘Truly I tell you, whatever you did for one of the least of these brothers and sisters of mine, you did for me.’

Celebrate Thanksgiving by giving back. 5 Places in Rutherford County, TN to give back this Thanksgiving:

Feed America First
A faith-based hunger relief organization. We collect large scale food donations from manufacturers, growers, distributors, and other charities, and then distribute that food at to some of the numerous small agencies already engaged in hunger relief in our poor communities. We currently supply about 200 agencies, most of them on a monthly basis. These agencies are on the front lines. They are children's homes and church pantries, homeless shelters and substance abuse recovery centers. Often, they are neighbors helping neighbors, and, as is common in rural America, those doing the giving hardly have any more than those who receive the help. We believe that hunger will no longer be a problem in America when we refuse to allow our neighbors to go hungry.

Good Shepard Children's Home
The Good Shepherd Children's Home is a Christian-based home for disadvantaged boys and girls facing difficult circumstances in their lives at no fault of their own. Many of the children we serve struggle with the effects of poverty, abuse or neglect and in most cases, just need stability and a little extra love and support to reach their full potential. Our goal is to provide hope and healing in a Christian environment, where kids can develop academically, physically, socially, and most important, spiritually. We strive to make each child feel safe, loved, and cared for and to provide them with a biblical perspective for life and an understanding that they are special and that God has a perfect plan for their life if they will let Him have control.

The Journey Home
The Journey Home is a Christian Outreach Center for the homeless and at-risk individuals and families in Rutherford County.  When someone comes to The Journey Home, they often are looking for a place to feel at home. Everything that a person might find in a home, our clients can find within the walls of our Outreach Center, with the exception of a place to sleep.  

Greenhouse Ministries
Greenhouse Ministries offers life transformation as volunteers make themselves available to encourage and motivate the clients, to inspire them to dream, to make better choices and needed changes in their lives, to promote wholeness, and to give back to others in the community.

A Soldiers Child
As citizens of the U.S.A., we are forever indebted to the men and women who so unselfishly protect our freedoms. It is our objective to communicate through ASC to the children left behind, that the memory of their parent will not fade away. We want them to know that there are many Americans that are forever grateful for their parent's sacrifice.

Wednesday, November 14, 2012

6 Things That Cause Couples To Fight About Money

If you and your “honey bunny” are like most couples, chances are, you argue about money sometimes. Hopefully not ALL the time! Many studies have shown that money fights are a leading cause of divorce. Here is what sparks the six most common types of arguments:

1.) Marrying Your Money. Should you merge everything you have into one joint account, or should you maintain individual accounts and open a joint one for household expenses? Many couples find that the ideal solution is some sort of blended system. They share a joint account for household finances, but each has a personal account to do with as they please. With this hybrid approach, the real decision is about how to divide the household income.
  • If you and your partner make roughly the same amount, you could contribute equally to the joint account, and then keep what’s left over in your personal accounts.
  • Some couples use a proportional system: If one partner earns 2/3's of the household income, then they contribute 2/3's to the joint account. After funding the joint account, the partners can do whatever they want with the leftovers.
  • A final option is to use the “adult allowance” system. In this case, both spouses put their entire paycheck into the joint account, and then withdraw a fixed amount into their personal accounts every month.
What’s most important is honesty and communication. Any system in which spouses are open about their money habits is a good one

2.) Dealing With Debt. Whenever debt enters the relationship, it’s good to remember that no one is perfect. The debt is not a way to keep a “scorecard” in the relationship. People in mature relationships accept that solving the debt as a team not only strengthens the relationship, but helps reduce the debt more quickly.

3.) Overspending. In many relationships, one gets labeled the “saver” and the other gets labeled the “spender.” Labels and categories never serve to make you feel closer to your spouse. They key here is to remember that you’re simply trying to avoid surprises, which a budget goes a long way toward fixing. You must both agree on how your money will be spent or you'll be in more money arguments than you can count.

4.) Bone Head Investments. Various studies show that men are more willing to take financial risk than women. It's far too common for a husband to make a poor investment decision which starts a marriage towards deterioration. However, investments are a secondary argument. The biggest issue is achieving agreement and understanding of how specific investments will be made based on your goals. Once a discussion of goals and time frames are clarified for different accounts and sums of money, it becomes much easier for couples to align themselves with common goals and objectives.

5.) Money Secrets. Let’s face it… Most of us have trouble not lying to ourselves, let alone other people. Lies about what we ate, what we spent. This is one of the fundamental challenges of a relationship, to be vulnerable and transparent in all areas (and not letting your own guilt and money secrets come to such a point they damage you and the people around you). Each must keep in mind that most relationships aren’t destroyed by one dramatic act, but a series of small, even individually inconsequential acts that chip away at your foundation of love and trust.

6.) Cash Reserves. Just like couples vary on the degree of risk they are willing to take, they also vary on the level of reserves they need to feel safe. Once a budget is clarified, issues of cash reserve savings become secondary. Discuss it, make a decision about it, then don't dip into it behind the others back.

With honesty, open communication and a willingness to look at your finances objectively, couples can avoid the top money arguments.

Thursday, November 8, 2012

Should You Move Your Old 401k to Your New Employer?

Answer: MAYBE

Moving your old 401k to your new employer’s 401k plan could be good, but like all things in financial planning… There is no cookie cutter answer.

Check out the rules with your new company.
Your old employer has no say in the matter. If you want to move the 401k, you can. But your new employer may or may not allow plan-to-plan rollovers.

You may want to keep things simple.
The advantage of the rollover to another 401k is that all of your money is in one place, and you only have one account to think about. You can also make all of your asset allocation decisions inside one account. 

What are the costs in new plan?
This one trumps the first two considerations in my opinion. The downsides of many 401ks are their exorbitant costs, and these costs can wreak havoc on your retirement goals. The cost of the mutual funds in your new 401k plan is likely to be higher than the mutual funds you could select inside your own IRA. For that reason, I like rolling over into IRAs most of the time. Check the fees on the mutual funds in your new 401k. If most of the funds have an annual expense ratio more than 1% per year, you can do better in an IRA. Ask your human resources department for their latest 401k fee disclosure

Will you be able to get diversified?
Make certain your new 401k has enough choices for you to allocate your assets the way you need to. If not, a good IRA provider offers all the choices you could possibly need—and more. Basic asset classes your new 401k should have: US Stocks (large, mid, & small), International Stocks (large and emerging markets), Fixed Income (US & foreign with a range of maturities), Real Estate, and Hard Assets/Commodities.

Don’t be a do-it-yourselfer!
You may be able to grout the tile in your shower because you watch the DIY network, but investing doesn’t work this way. Most retail investors way under-perform the market because they have no clue what they are doing. Also, most Financial Advisors are just mutual fund salespeople. They have no incentive to show you all the great commission free funds that are out there. By using a traditional Advisor, you may end worse than if you just screwed it up yourself. I suggest working with a FEE-ONLY Certified Financial Planner because they must act in your best interest, and have been trained in all aspects of financial planning.

For more about my Fee-Only Financial Planning practice, go to www.JasonQuallsCFP.com or call 615-878-2134.