Taxes and Investing
Before taking the plunge into retirement, early or traditional, you need to consider factors that will reflect the rest of your life. Handled correctly, early retirement can be a fulfilling blessing. Without proper planning you risk a return to employment you wanted to get away from.
Retirement means different things to different people. Some want to sit back and enjoy a life of leisure. Others wish to travel extensively. And there are some who consider retirement the grand opportunity to start the business of their dreams (maybe not technically retirement, yet still fulfilling), write a book or engage in charitable work.
The path you choose is up to you; there is no right or wrong answer as long as it suits your temperament. There are considerations with right and wrong answers. Get these wrong and retirement can be less than the blessing planned.
Money and taxes play a large role in when you retire and what activities you engage once in retirement. Meaningful activities and family are also serious considerations.
To help you prepare for retirement, I will discuss 10 things of vital importance to smooth the transition. I provide a starting point. You need to prepare from the starting point I provide so retirement plans are retirement realities.Read More
The excitement of bitcoin and other cryptocurrencies has risen to the height of the casino run. The house holds the odds, but for the moment, the card gods are looking kindly upon the gambler.
Some say the run has just begun. As I write, bitcoin is north of $50,000 with at least one large investor feeling bitcoin is going to somewhere around $500,000 per bitcoin! Mark Cuban was not interested in plastic wristbands that promised more energy (a scam), but has no problem with owning cryptocurrency. Interesting.Read More
This past week an old story was refreshed for me. A tax office that handles mostly simple tax returns for a very low price and gets paid mostly cash might not be claiming all that income. A previous employee of that firm informed me over $300,000 in cash was kept in a safe in the money cage.
The final response (and I was thinking the same thing) was, “And I’m sure all that cash was reported.
Cheating on your taxes is as American as apple pie, but a whole lot dumber. If this other tax firm really has that much cash on hand and does not report all their income they lose a lot more than most people expect.Read More
How much are you really paying for tax preparation?
What if I told you there was a hidden fee in your tax preparation bill. This hidden fee costs you serious money every time you file your taxes. This hidden fee shows up even when you prepare your own tax return. And it is totally avoidable. They sneak the fee in because you never see it and therefore never complain about it.
The hidden fee is hard to identify. It doesn’t show up as a line item on your accountant’s invoice or the online software payment page. Yet the fee digs hard into your wealth.
This same hidden fee looks different when you prepare your own tax return than from a professionally prepared return. The best way to expose this usurious fee is to handle it separately from how it is applied to DIY tax preparation and professionally prepared return.Read More
The timing could not have been worse for remote workers. The Tax Cuts and Jobs Act of 2017 nixed the deduction for work from home expenses and other unreimbursed employee business expenses.
Prior to the TCJA it wasn’t the best deduction in the world either. You had to itemize to get the deduction and it was combined with several other deductions and then reduced by 2% of your adjusted gross income. But it was at least available and with some planning could provide modest tax relief.
Self-employed people can still deduct these expenses on their or Schedule C. Same for farmers (Schedule F) and income property owners (Schedule E).
For employees, the deduction is now gone, unless you know the rules. With proper planning you can benefit by working from home, getting a tax benefit for work related expenses. The home office, the pro-rata share of utilities, insurance, property taxes and/or rent and mortgage interest can get tax-free treatment. Same for office supplies and equipment. And don’t forget business travel expenses.
Working from home has plenty of benefits: no office politics, no fighting traffic and every day is casual day. The downside is you have expenses at home that can’t be deducted on your tax return. We are going to fix that right now.Read More
When it comes to the blogs and other tracts providing information on building wealth, frugality carries most of the weight. And it makes sense. The greater the difference of income over spending is a strong determinant of the level of wealth an individual will achieve during their lifetime as compared to their income level.
As important as frugality is, spending is even more important, even if it doesn’t garner the required column inches the matter deserves. Spending less than you earn is the seed money for investments and without investments it is impossible to build significant wealth.
As an accountant I see people from all spectrums of income. Frugality, even hyper-frugality, is the hallmark of those with modest levels of wealth. Even the lowest income earners can amass a half million or more in a working career when frugality is taken to religious levels, with the excess invested in equities like index funds.
Mid-levels of income also do well with only the single tool of frugality. As their wealth grows they sometimes seek out professionals to help them. These clients tend to want short consulting sessions once a year with a review at tax time.
Then come the serious achievers. These people sometimes have modest incomes, sometimes large incomes. Regardless their income level, these people smack it out of the park. Their level of wealth is well beyond what would be expected for their income level or level of frugality (the excess of income above spending).
Super-achievers in wealth building focus on spending more than frugality. They know spending is more important. And they know most spending drains their energy and wealth while proper spending can actually make them richer!Read More
Five months ago COVID-19 was just getting started. Fear was rampant. People and businesses made rushed decisions with long-term consequences. In the U.S. fewer than 10,000 people had died from the virus, yet fear was many more would die.
Over concerns clients and readers (that is you my kind friends) would make poor financial decisions, I published an article encouraging caution and recommended people relax, breathe deeply and think before making a decision. By thinking before acting, I felt my people would be in a better position to make decisions that would serve them well.
Then I watched my readers act and react on social media. The spread of COVID-19 should have run a chill down the spines of any normal human being. But social media does not bring out the “normal” in people. Some over-reacted with the attitude everyone should shelter in place forever. But as always happens, the disease became “normal” as we saw it every day. Before long people wanted to get out and act as if nothing was wrong or that the risk had ended. The middle, sensible, ground somehow lost out.
It is sad the intelligent solutions lost out. Again, social media was rife with conspiracy theories, questionable remedies and outright lies. Social distancing, washing hands and masks are three simple things everyone can do to slow the spread of the virus until a vaccine can end its rein of terror.
Logic didn’t work 5 months ago, so now I have to get blunt. This is a financial blog so there is a reason for the focus on a medical issue. Your reaction to COVID-19 is a large part of the way you think. If you conduct stupid, risky behavior with your life, you probably do even worse when it comes to money. The best way for me to convey this message is with the good cop/bad cop routine.
There are two parts to this post. Part 1 is a mild comedy sketch of the facts. In Part 2 we will put it together and pull out meaningful and valuable data you can use. This value will increase your wealth and allow you to live long enough to enjoy it. Remember, Part 1 is dark comedy and not my opinion. I don’t want hate mail before you read the whole story.
The faulty logic used in our dark humor skit is more than a risk to our physical health; it is the same mindset that harms you financially. We actually have people who believe 1,000 or more dead Americans a day isn’t that bad. There are people who think it is okay to carry on as if nothing has changed because only old people suffer the consequences. They forgot their Hemingway: Do not ask for whom the bell tolls; it tolls for thee. (For exact quote use the link.) The clock keeps counting for all of us and since I see no old people saying, “I don’t care if young people do stuff that might kill me,” I assume today’s young people will want respectfully behavior from the future’s youth.Read More
As you can see by the details of the programs from the states above that have some form of pass-through entity tax that the rules vary widely by state. Many use a credit to pass-through the benefit while others adjust income on the member level.
Many considerations need to be taken into account. Even if the SALT limit were eliminated there would still be instances where the pass-through entity tax would be beneficially to entity members.
There are also reasons not to make the election (except in Connecticut where it is mandatory) as the pass-through entity tax can affect the Qualified Business Income Deduction, Earned Income Credit, Saver’s Credit, Premium Tax Credit and more.
The tax professional preparing the entity return and that of all the members will have an easier time determining the best course of action.Read More