Do you have a financial plan that works for both you and your spouse? Here are suggestions that can help.
Organize your finances. Get a handle on your income and spending, by both of you individually and as a couple. By reviewing the overall picture of how you spend money, you can focus on potential problem areas.
Set goals. How much will you accumulate in bank accounts and investments over the next three years? Five years? Ten years? Have you anticipated future expenses? Say, for example, you’re dreaming of a vacation in Europe for your anniversary. You’ll want to start saving now so you won’t need to finance the trip with credit cards.
Build an emergency fund. How much is enough for emergencies? As a general rule, set aside three to six months of your combined gross income in easily accessible accounts, such as savings or money market accounts.
Save for retirement. Participate in your employer’s retirement plan and contribute at least as much as the amount your employer will match. The earlier you start saving, the more you’ll accumulate. It’s that simple.
Formalize an estate plan. Have an attorney draft a will and set up a financial power of attorney so your assets are distributed according to your wishes in the event of death or incapacity.
Shaping up your finances in 2017 may seem like a big goal, perhaps even too daunting. But if you take one small step at a time, these small steps will add up. Here are suggestions. * Shift out of automatic. Have you established automatic bill pay at your bank or service provider, or automatic charges to your credit card? Small step: Look for payments for goods or services you no longer use, such as recurring monthly subscriptions, and cancel them. Big goal: Reduce total expenses and increase savings.
* Take the urgency out of emergency. Sure, you know that having an account with enough funds specifically earmarked for emergencies is a good idea. But the amount you need to save seems overwhelming. The good news is you don’t have to immediately fund six months of living expenses. Small step: Set up a separate account with automatic deposits of $5 or $10 per paycheck, perhaps with funds you’ve redirected from those unused recurring monthly subscriptions. Big goal: An emergency fund with enough cash to cover six months of expenses.
* Give yourself credit. Maybe you intend to pay off your credit card debt. But do you have a plan? Knowing where you stand is the first step in getting to where you want to be. Small step: Make a list of your cards, the balances, the minimum payments, and the interest rates. Big goal: Eliminate finance charges by being able to pay off your balance each month.
* Retire your excuses. Does your employer offer a retirement plan? If so, you may be leaving money on the table. Small step: Find out what amount is on offer as “matching” funds. That’s money your employer will add to your account when you make contributions. Big goal: Maximize your retirement contributions.
Small steps can lead to big improvements in your financial well-being. Contact us for more tips.
Out with the old, in with the new. No matter whether you apply the expression to changes in attitude or to life adjustments, the end of the year is a great time to assess your household finances and prepare for new opportunities. Here are suggestions.
Review your credit report. Request a free copy of your credit report from each of the three major credit bureaus. If the reports contain errors, get them corrected.
Make or update your home inventory. Go through your house and make a video describing what you see, along with information such as purchase dates, prices, and estimated values. Your home inventory can be vital for getting insurance claims approved in case of disaster.
Calculate your net worth. Your net worth is the value of your assets, including your house, personal property, bank accounts, car, and investments, minus liabilities such as your mortgage, credit card balances, and loans. This is a great yardstick for measuring your household’s financial growth (or shrinkage) from year to year.
Increase your savings. If you get a year-end raise, consider contributing a portion of the extra money to your 401(k) plan or other savings account.
Purge financial records. If you’re a financial packrat with stacks of old cancelled checks and bank statements that are no longer needed for an IRS audit or your own use, shred them.
June 30, 2016, is the deadline for filing the 2015 Form 114, Report of Foreign Bank and Financial Accounts, known as the FBAR. Not sure if you need to file? The general rule is that a return is due when you have a financial interest in, or signature authority over, foreign financial accounts if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. The requirement applies to both individuals and entities such as trusts and businesses, and you may need to file even if your foreign account produces no income.
Be aware that June 30, 2016, is a “hard” deadline. Your 2015 Form 114 must be filed electronically with the Treasury Department no later than that date. No filing extension is available for 2015 forms – even if you filed an extension for your federal income tax return.
Although the kids might still be in school for a few more weeks, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax credit?
The power of tax credits
Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.
Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 28% tax bracket, $1 of deduction saves you only $0.28 of taxes. So it’s important to take maximum advantage of the tax credits available to you.
Rules to be aware of
A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.
Eligible costs for care must be work-related, which means that the child care is needed so that you can work or, if you’re currently unemployed, look for work. However, if your employer offers a child and dependent care Flexible Spending Account (FSA) that you participate in, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.
What springs to mind when you hear “insurance?” Most likely, you think about auto, health, home, and life. But what if an illness or accident were to deprive you of your income? Even a temporary setback could create havoc with your finances. And statistics show that your chances of being disabled for three months or longer between ages 35 and 65 are almost twice those of dying during the same period.
Yet you may overlook disability insurance as part of your financial planning. Here’s how to fill that gap and get the right coverage to protect your financial well-being.
● Scrutinize key policy terms. First, ask how “disability” is defined. Some policies use “any occupation” to determine if you are fit for work following an illness or accident. A better definition is “own occupation.” That way you receive benefits when you cannot perform the job you held at the time you became disabled.
● Check the benefit period. Ideally, you want your policy to cover disabilities until you’ll be eligible for Medicare and social security.
● Determine how much coverage you need. Tally the after-tax income you would have from all sources during a period of disability and subtract this sum from your minimum needs.
● Decide what you can afford. Disability insurance can be expensive. You may opt to forego adding riders and options that boost premiums significantly. If your budget won’t support the ideal benefit payment, consider lengthening the elimination period. Just be sure that accumulated sick leave and savings will carry you until the benefits kick in.
Is your tax return finished? If not, this year you have an extra day – or two – to file. April 18, 2016, is the due date to file your 2015 individual federal income tax return and pay any balance due. If you live in Maine or Massachusetts, you have until Tuesday, April 19, to file and pay.
Here’s why. The normal due date – Friday, April 15 – is Emancipation Day. That’s a holiday in the District of Columbia, so the tax filing deadline shifts to Monday, April 18. However, Monday, April 18, is also a holiday (Patriots Day) in Maine and Massachusetts. That means if you live in either of those states, your deadline moves to April 19. The extended due dates apply whether you file electronically or on paper.
Here are other major mid-April deadlines.
● The above due dates also apply to filing an automatic extension for your 2015 individual income tax return if you can’t file by the deadline. You don’t need to explain to the IRS why you need more time and the automatic extension gives you until October 17, 2016, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by the April deadline.
● Filing 2015 partnership returns for calendar year partnerships.
● Filing 2015 income tax returns for calendar year trusts and estates.
● Filing 2015 annual gift tax returns.
● Making 2015 IRA contributions.
● Paying the first quarterly installment of 2016 individual estimated tax.
● Amending 2012 individual tax returns (unless the 2012 return had a filing extension).
● Original filing of a 2012 individual income tax return to claim a refund of taxes. If you have tax refunds due for prior years, the refund is lost unless you file a return to claim it.
Financial literacy is a vital skill in today’s world. Will your children be able to handle their finances when they became adults? Here are tips to help ensure the answer is yes.
Shave spending. Take the weekly allowance to the next level by helping your child develop a budget. Review the results to reinforce good habits.
Stress savings. Even young children can grasp the power of compound interest. A simple example is asking your child to put a dollar in a piggy bank. Offer to pay five percent interest if the money is still there in a week or a month. Make the same offer at the end of the first time period, and pay “interest on the interest” as well.
Introduce investments. Create a portfolio, either real or paper, consisting of shares of one or more stocks or mutual funds. Make a game of charting the investment’s progress on a regular basis.
Cover credit. Take on the role of lender and let your child request an advance on a weekly allowance. Charge interest.
Talk taxes. Use word search or crossword puzzles to teach tax terminology. Consider creating a “Family Economy” game using examples from your own budget.
Lessons in financial responsibility can benefit your children now and in the future. Get them started on the right path.
As a business owner, monitoring operations and dealing with everyday problems no doubt takes up the bulk of your day. But carving out time for a comprehensive review can benefit your business. Here are 5 key areas to consider.
Insurance coverage. Automatic renewal may appear to be a time-saver. But you might be missing out on necessary updates and the opportunity to revise your coverage. Sit down with your insurance agent and discuss your business operations, focusing on risks from new ventures or changes in laws. Make sure you have suitable liability coverage.
Tax Strategy. A month after you file your tax return, make an appointment with your tax advisor. Go over your return together and identify opportunities for tax savings. Question everything, starting with whether you’re using the right form of business entity. Ask about recent changes in the tax code and how they might benefit your business. Make your advisor a partner in your business strategy.
Succession planning. Have a specific plan for each key managerial position, including yours. Will you promote from within or recruit externally in the case of an unexpected vacancy? Which managers can be cross-trained to keep your business operating during the short-term absence of another employee?
Banking relationships. Schedule a meeting with your controller or chief financial officer to go over your cash balances and banking relationships. Then both of you meet with your banker. Address service concerns or problems that arose during the year. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.
Personal Estate Planning. Your company is likely a significant part of your estate. A good estate plan is essential if you hope to pass it on to your heirs. But your company, your personal circumstances, and the tax laws are continually changing. Make sure your plans are current.
Contact us for more suggestions. We can assist you in securing your business’s long-term success.
If you have an individual retirement account, you’re aware of how complicated the rules can get. Here are four to remember as you prepare your 2015 federal income tax return.
1. Are you searching for one more tax deduction? It’s not too late to contribute to your IRA and claim a deduction for 2015. Under current tax rules, you can establish and contribute to your IRA up until April 18, 2016 (April 19 if you live in Maine or Massachusetts). If the IRA is the traditional, tax-deductible kind, you can deduct that contribution on your 2015 federal income tax return. If you’re under age 50, the maximum contribution is $5,500. If you were 50 or older by December 31, 2015, you can contribute up to $6,500.
2. You can make a contribution to a traditional IRA and convert it to a Roth later. Although a conversion now will generate taxable income that’s reportable on next year’s federal tax return, qualifying withdrawals from the Roth will be tax-free when you retire. If your circumstances change, you can choose to “recharacterize” your new Roth as a traditional IRA by moving the funds back within a specified period. You also have the opportunity to “reconvert” the funds to a Roth again after a recharacterization.
3. If you turned 70½ in 2015, you’re now required to take an annual minimum distribution from your IRA (and, unless you’re still working, from other retirement plans also). If you chose to delay taking your first distribution last year, April 1, 2016, is an important deadline. That’s the last day you have to take your initial distribution or you’ll be subject to a 50% penalty on the amount you should have taken.
4. The age of 70½ also lets you benefit from the now-permanent tax break for making charitable contributions from your IRAs. While it’s too late to make a contribution for 2015, you can exclude direct transfers of up to $100,000 from your gross income this year. The donation counts as part of your required minimum distribution.
For more tax breaks related to IRAs and other retirement plans, contact our office.