Achieving financial security for you and your family is no small task. With inflation and the allure of signing up for yet another monthly service, saving money can feel like an uphill battle. In this month’s newsletter, read about 5 ideas that can help you save money on your road to building wealth.

Also learn about several tips to protect your Social Security number, why you should think twice before tapping retirement accounts to pay for emergencies, and ideas that can help your kids thrive this school year.

Please pass this information on to anyone that may find it useful and call if you have any questions or concerns.

Upcoming Dates

October 15
– Filing deadline for extended 2023 individual and C corporation tax returns

5 Ideas to Help Save Money

Creating a sound financial foundation for you and your family is anything but easy. It is tough to save when everyone is tempting you with adding one monthly service after another. Add to that the high increases in things like property taxes and insurance and you realize that saving is becoming more of an art form than a great habit. So here are some ideas to help build your wealth.

1. Pay yourself first.

Treat saving money with the same care as you pay your bills. Take a percentage of everything you earn and save it. Using this technique can help build an emergency fund and keep you from living paycheck to paycheck.

2. Know and use the Rule of 72.

You can roughly calculate the number of years compound interest will take to double your money using the Rule of 72. Do this by dividing 72 by your rate of return to estimate how long it takes to double your money. For example, 10% interest will double an investment in 7.2 years; investments with an 8% return will double in nine years. Use this concept to understand the power of saving and investment.

3. Use savings versus debt for purchases.

Unpaid debt is like compound interest but in reverse. For instance, using a 20% interest credit card to pay $1,500 for home appliances costs nearly $1,000 in interest expense if paid back over 5 years (on top of the original $1,500!). The result is that you have to work harder and earn more to pay for the items you purchase. A better idea is to save and then buy your dream item. Even better, when you save in a high interest account, you put interest to work for you to make the purchase more affordable.

4. Understand amortization.

When a bank loans you money, it gives you a specific interest rate and a set number of years to pay it back. Each payment you make contains interest as well as a reduction of the amount owed, called principal. Most of the interest payments are front-loaded, while the last few payments are virtually all principal. Making additional principal payments at the beginning of the loan’s term will decrease the amount of interest you pay to the bank and help you pay off the loan more quickly.

5. Taxes are complex and require help.

Tax laws are complicated. They are made even more complex when the rules change, often late in the year. Even worse, the IRS is not in the habit of telling you when you forget to take a deduction. The best way to stay out of the IRS spotlight AND to minimize your taxes is to ask for help.

Think Before Tapping 401(k)s and IRAs as Emergency Fund

All Americans are now allowed to withdraw up to $1,000 every year from retirement accounts to pay for a broad range of emergency expenses. There are several reasons, however, why you should avoid tapping your retirement accounts at all costs.

Reasons to leave retirement funds alone

• You’re diluting your retirement savings. Although the money comes in handy now, you’re chipping away at your nest egg and forfeiting growth. For example, if you withdraw $100,000 that would earn 6% annually tax-deferred for ten years, you give up a whopping $79,000 in lost earnings!
• It may be bad timing. Experts say it’s difficult to time the markets in the current volatile environment. If you sell some holdings right now, you may be locking in losses that would miss future appreciation.
• You still owe income tax. Even if it’s for an emergency, income tax is due on all withdrawals from traditional 401(k)s and IRAs.
• You may also owe a penalty. You may have to pay a 10% penalty on your withdrawal if it doesn’t qualify for an IRS-defined exception.

Ideas to find cash

Instead of tapping into retirement funds, here are some ideas to generate the cash you need:

• Sell unwanted items. Take a look around your home for items that you no longer use such as clothes, electronics, or furniture, and sell them through an online marketplace.
• Rent out a room or other property. If you have extra space in your home, consider renting it out or finding a more long-term tenant. Be sure to check with your local government for rules on short-term rentals.
• Freelance or gig work. Many companies are looking for part-time workers and independent contractors instead of committing to a full-time employee. Consider reaching out to local businesses to offer your expertise, in addition to creating an online profile through platforms that are popular for consultants.

Tips to Protect Your Social Security Number

Very few things in life can create a higher degree of stress than having your Social Security number (SSN) stolen. This is because, unlike other forms of identification, your SSN is virtually permanent. Here are some things that you can do to minimize the risk of having your number fall into the hands of the wrong people.

• Never carry your card. Place your SSN card in a safe place. That place is never your wallet or purse. Only take the card with you when you need it.
• Know who needs it. As identity theft continues to evolve, there are fewer people and organizations who really need to know your SSN. Here is that list:
  • The government. Federal and state governments use this number to keep track of your earnings for retirement benefits and to ensure you pay proper taxes.
  • Your employer. Your SSN is used to keep track of your wages and withholdings. It is also used to prove citizenship and to contribute to your Social Security and Medicare accounts.
  • Certain financial institutions. Your SSN is used by various financial institutions to prove citizenship, open bank accounts, provide loans, establish other forms of credit, track digital payments, report your credit history, or confirm your identity. In no case should you be required to confirm more than the last four digits of your number.
• Challenge all other requests. Many other vendors may ask for your SSN, but having it may not be essential. The most common requests come from health care providers and insurance companies, but requests can also come from subscription services when setting up a new account. When asked on a form for your number, leave it blank. If your supplier really needs it, they will ask you for it. This allows you to challenge their request.
• Destroy and distort documents. Shred any documents that have your number listed. When providing copies of your tax return to anyone, distort or cover your SSN. Remember, your number is printed on the top of each page of Form 1040. If the government requests your SSN on a check payment, only place the last four digits on the check, and replace the first five digits with Xs.
• Keep your scammer alert on high. Never give out any part of the number over the phone or via email. Do not even confirm your SSN to someone who happens to read it back to you on the phone. If this happens to you, file a police report and report the theft to the IRS and Federal Trade Commission.
• Proactively check for use. Periodically check your credit reports for potential use of your SSN. If suspicious activity is found, have the credit agencies place a fraud alert on your account. Remember, everyone is entitled to a free credit report once a year. You can obtain yours on the Annual Credit Report website.

Replacing a stolen SSN is not only hard to do, it can create many problems. Your best defense is to stop the theft before it happen.

Taming Monthly Bill Creep

You notice one of your monthly expenses just went up from $25 to $28. Six months later and you’re now paying $35. Fast forward another 18 months and now the charge is $50 a month. If you have an expense on autopay, you may go several months without noticing that one of your monthly expenses doubles in price.

Here are some tips to help you tame monthly bill creep and avoid a price-hike surprise.

• Investigate your recurring services. Start by taking stock of every service you’re currently using. Review your bank and credit card statements, and highlight all the charges that look like a subscription. Some examples to look for are streaming services (video, music and games), magazines, news subscriptions, digital storage services, gym memberships, and financial services. Determine if you have redundant subscriptions, such as multiple music-streaming services. Finally, ask yourself if each service is still providing value to you. If it’s not, cancel it.
• Review bills for unnecessary fees. Once you trim your list down to the services you want to keep, locate the most recent bill for each. Read through all the charges and make notes of those that are questionable. You might be paying for services you aren’t using, such as a video streaming service on your cell phone bill. Or maybe you’re paying replacement insurance coverage for something you don’t need. For every charge that doesn’t make sense, call and ask the provider to cancel it.
• Bundle expenses when you can. Many suppliers provide multiple services and will offer discounts if you sign up for a few of them. Bundling your cable TV, internet and home phone is a common example of this. Other places to look for bundling opportunities are cell phone providers and insurance companies.
• Negotiate for lower rates. Call each provider and ask for a lower rate or discount. Most companies want to keep your business, so they will often work with you. Service providers routinely change the way they package their products, so saving money might be as simple as changing to a different level of service. It’s rare for companies to reach out and offer savings, so you need to make the call!

It’s easy for your bills to spiral out of control if you don’t keep close tabs on them. Go through a review exercise every few months to ensure you aren’t paying more than necessary.

Proper Inventory Management Can Lead to Higher Cash Flow

Mastering inventory levels is a key to many successful and growing businesses. Here are several reasons why proper inventory management can lead to lower costs and higher cash flow:

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

Reducing the amount of interest you pay over the life of a mortgage can yield huge savings! This month’s newsletter provides an illustration of just how much you can save, even with as little as $10 a month.

Also in this edition, find out how cancelled debt may leave you holding a bigger tax bill, why banks won’t always come to the rescue if you get scammed, and how to protect your valuables before thieves decide to pay your home or apartment a visit.

As always, feel free to pass this information on to anyone that may find it useful and please call if you have any questions or concerns.

Upcoming Dates

September 16
-Filing deadline for 2023 calendar-year S corporation and partnership tax returns on extension
– 3rd quarter installment of 2024 estimated income tax is due for individuals, calendar-year corporations and calendar-year trusts & estates

October 15
– Filing deadline for extended 2023 individual and C corporation tax returns

Banks Won’t  Always Save You from Scams

It’s easy to feel secure about the money you deposit with a bank you’ve come to trust. After all, most banks and credit unions offer certain levels of protection against fraudulent transactions.
Banks, however, won’t protect you against all types of fraud.
Here’s a look at the protections that banks and credit unions usually provide to their customers – and which situations where you’ll likely be on your own.

When a Bank Usually Protects You

For credit cards, banks usually provide zero liability on any unauthorized charges. Debit cards also provide protection against fraudulent purchases, but there may be limitations depending on which financial institution issued your card. According to federal law, here is the maximum amount of fraudulent transactions you’ll be responsible for depending on when you notify your bank that your card is lost or stolen:

• Immediately notify your bank before any unauthorized charges are made: Zero liability
• Within two business days: Up to $50
• After two business days but within 60 days: Up to $500
• Fail to notify within 60 days: Unlimited

When a Bank Usually WON’T Protect You

Unfortunately, there are many types of scams that banks won’t reimburse you for if someone steals your money. Here are some of the more common scams:

• You are scammed into moving money out of your account and into another person’s account.
• A hacker uses lies to convince you to make a bank transfer into a cryptocurrency wallet.
• You liquidate your retirement funds and send the money to someone else for any reason, even if you were conned into it.
• You make a person-to-person transfer to another individual using an online payment app, and that transfer doesn’t come with any type of purchase protection.

How to Protect Yourself from Common Banking Scams

Here’s how to protect yourself from getting scammed:

• Don’t communicate about your accounts unless you initiate the conversation. If someone calls about your bank account, hang up and call the financial institution directly using your normal means of contact.
• Never share your information. Don’t share account details or personal information online or over the phone, especially if you were asked to share these details in a phone call you didn’t initiate or via email.
• Tell someone. Scammers try to isolate you from family members and friends. If you’re unsure about a banking transaction you plan to make, or you wonder if you’re being victimized, tell someone you trust about the situation.
• Ask your bank for help. Bank tellers are trained to spot the early signs of fraudulent transactions. If you’re making a bank transfer and feel unsure about the situation, explain it to a teller or bank representative and ask for their help.
• Report the incident. Whether you unfortunately got scammed or you spotted the attempted scam before withdrawing any money, submit a report of the situation by visiting ReportFraud.ftc.gov.

Early Mortgage Payoff: Small Payments Can Save You Big Money

Small payments can save you big money when paying off your mortgage.
With 30-year fixed rates reaching levels not seen in 25 years, adding even just a little extra to your monthly payment can significantly cut down on the interest you pay over the life of your mortgage.

Here are several different scenarios to illustrate how much interest you can save by slightly increasing each monthly payment.

Base scenario and assumptions

Here’s the assumptions used for this base scenario:

• Average U.S. home price ($420,800) and mortgage rate (7.50%) for early 3rd quarter of 2024
• Average U.S. downpayment of 10%
• House financed using a 30-year fixed rate mortgage
• Monthly payment includes principal and interest payments only; it does not include other expenses typically bundled with monthly payments, such as property taxes, homeowners insurance, and mortgage insurance premiums

With no additional money tacked on to your monthly payment, you would pay $574,583 in interest over the course of your 30 year mortgage in this base scenario. To buy this house for $420,800, you would end up paying just shy of $1 million after adding $574,583 of interest charges! None of us wants to pay $1 million for a $420,000 house. So let’s take a look at the following scenarios to find out how much interest expense you can save by increasing your monthly payments by a small amount.

Here’s a summary of the base scenario’s assumptions compared with how much interest you can save, and how much faster you’ll pay off your mortgage, in each of the following examples.

Example #1: An Extra $100 Per Month

Adding an extra $100 to your monthly mortgage payment would save you $81,902 in interest expense and cut down on the time to pay off your mortgage by 3½ years.

Example #2: An Extra Lump-Sum at Years 5, 15 & 25

In this example, let’s assume you make an additional lump-sum payment of $5,000 in years 5, 15, and 25 of your mortgage. While you wouldn’t save that much extra time paying off your mortgage in this scenario, you’ll still end up pocketing nearly $37,000 just by making three lump-sum payments over the course of your mortgage.

Example #3: An Extra $200 Per Month

If you can afford an extra $100 per month to put towards your mortgage, why not try for $200 a month? This is where the math starts to get fun. Adding $200 a month helps pay off your mortgage 6 years sooner and saves you $140,000 in interest expense.

Every little bit helps

Even adding an extra $10 per month can save you nearly $10,000 over the course of your mortgage. That’s a lot of money that goes into your bank account instead of your bank’s bank account! Paying off your mortgage early and cutting down how much interest you pay over the course of your mortgage doesn’t require a lot of money. Whether it’s $100 or $10 a month, every little bit can help on your quest towards a better financial future for you and your family.

Debt Relief and Taxes

What everyone should know

Negotiating to decrease or zero out a credit card bill or other loan balance can help relieve a tough financial situation, but it can also give way to an unexpected tax bill. Here’s a quick review of various debt cancellation situations and how they impact your your taxes.

• Consumer debt. If you have a credit card balance or loan forgiven, be prepared to receive IRS Form 1099-C representing the amount of debt cancelled. The IRS considers that amount taxable income to you, and they expect to see it reported on your tax return. However, if you’ve filed for bankruptcy or have liabilities that exceed your assets, then you may not need to report a cancelled debt as taxable income.

• Primary home. If your home is short sold or foreclosed and the lender receives less than the total amount of the outstanding loan, expect that amount of debt cancellation to be reported to you and the IRS. But special rules allow you to exclude up to $2 million in cancellation income in many circumstances. You’ll need to fill out paperwork to report this special homeowner exclusion to the IRS, but the end result can be a generous tax break for you and your family.

• Student loans. While this topic has generated plenty of recent headlines, the basics of student loan forgiveness have remained essentially the same. If your school closes while enrolled or soon after you withdraw, you may be eligible to discharge your federal student loan and not include the forgiven amount as taxable income. And if you are able to take advantage of the recent student loan forgiveness provision under the American Rescue Plan Act of 2021, your cancellation may be exempt from federal tax. The challenge, though, is that recent forgiveness programs are still being challenged in court AND your state may still wish to tax the loan forgiveness.

• Second home, rental property, investment property, & business property. The rules for debt cancellation on second homes, rental property, and investment or business property can be extremely complicated. Given your cost of these properties, your financial condition, and the amount of debt cancelled, it’s still possible to have this debt cancellation taxed at a preferred capital gains rate, or even considered not taxable at all.

Each of these themes have one thing in common – the tax laws can be complicated and you will probably need help navigating your situation.

Protect Your Valuables BEFORE Thieves Arrive

If you are concerned about protecting your valuables, here are several suggestions to consider for protecting them from would-be thieves:

• Rent a safe deposit box. It may make sense to keep seldom worn jewelry, coins and other important documents in a traditional safe deposit box at your local bank. But beware if you go this route, as it’s often inconvenient to retrieve your valuables, as well as easy to forget what is in the box and who has the key. Plus it’s important to fully understand your rights under the contract terms.
• Install a home safe. There are several types of in-home safes you can choose from, including wall, floor, free standing, fire and gun safes. There are also diversion safes for small items that are designed to look like everyday household objects that can blend in with its surroundings.
• Secure your house. In addition to installing a state-of-the-art home security system, there are several other ways to physically secure your home. Consider updating your locks every several years, and remember to actually use them! Many burglars are looking for easy targets, and unlocked doors and windows provide easy access. Also consider reinforcing your doors and windows, and installing motion-sensing lights both inside and outside.

Be prepared if a theft does occur

Thieves can still unfortunately steal your valuables despite multiple layers of protection. Here are some suggestions to prepare you if any of your valuables go missing:

• Be familiar with your insurance policy. Read your insurance policy to know what items are covered. Review your policy once a year or whenever you acquire another valuable asset.
• Get an appraisal. It may be difficult to know how much insurance you need without a proper valuation of your assets. Some assets may be worth much more than you think, while other assets may be difficult to pinpoint a value without professional assistance.
• Keep a home inventory. Create a list of all your valuables that includes photographs and purchase receipts. If an asset is stolen, having an up-to-date inventory list and documentation can help quickly jump-start filing an insurance claim.

Tax Credit or Tax Deduction: Understand the Difference

Tax credits are some of the most valuable tools around to help cut your tax bill. But figuring out how to use these credits on your tax return can get complicated very quickly. Here’s what you need to know.

Understanding the difference

To help illustrate the difference between a credit and a deduction, here’s an example of a single taxpayer making $50,000 in 2024.

• Tax Deduction Example: Savi Lesse earns $50,000 and owes $5,000 in taxes. If you add a $1,000 tax deduction, she’ll decrease her $50,000 income to $49,000, and owe about $4,800 in taxes.
  Result: A $1,000 tax deduction decreases Savi’s tax bill by $200, from $5,000 to $4,800.

• Tax Credit Example: Now let’s assume Ima Smart has a $1,000 tax credit instead of a $1,000 tax deduction. Ms. Smart’s tax bill decreases from $5,000 to $4,000, while her $50,000 income stays the same.
  Result: A $1,000 tax credit decreases Ms. Smart’s tax bill from $5,000 to $4,000.

In this example, your tax credit is five times as valuable as a tax deduction.

What you need to know

Credits are generally worth much more than deductions. There are several hurdles you have to clear, though, before being able to take advantage of a credit. To illustrate these hurdles, consider the popular child tax credit.

Hurdle #1: Meet basic qualifications. You can claim a $2,000 tax credit for each qualifying child you have on your 2024 tax return. The good news is that the IRS’s definition of a qualifying child is fairly broad, but there are enough nuances to the definition that Hurdle #1 could get complicated.

Hurdle #2: Meet income qualifications. If you make too much money, you can’t claim the credit.

Hurdle #3: Meet income tax qualifications. To claim the entire $2,000 child tax credit in 2024, you must owe at least $2,000 of income tax.

Take the tax credit…but get help!

The bottom line is that tax credits are usually more valuable than tax deductions. But tax credits also come with many rules that can be confusing. It’s always best to get help.

Make Your Hiring Process a Success!

Whether you’re a sole proprietor ready to hire your first employee, or you already have employees and think you’re ready to hire your next team member, here’s a two-step process to help make your hiring process a success!

Step #1: Define your needs

Long before you start interviewing, think carefully about why you need an employee and how you’re going to work with the new hire. Do you need someone to bring new skills that the business is lacking? Filling a vacated position? Or are you looking for someone to share your workload and free up your time?
If you’re looking for specific skills, perhaps a fractional hire or a consultant can fill your need.
Remember that hiring an employee will also create new challenges to take up your time – payroll, employment regulations, tax reporting, benefits, and so on.

Other questions to consider:

• Will your new employee be part-time or full-time?
• Will he or she work under your direct supervision, or will you delegate responsibility to your new hire?
• Are you prepared for the challenge of giving up hands-on control over part of your business?

Think hard about these issues until you have a very clear idea of what you want from your new employee.

Step #2: Find the right person

Once you’ve defined the role you want your next employee to fill, the second step in your hiring process is to find the right person.
You and your new employee will be working closely together, so good personal chemistry is essential. Think about possible candidates whose work you know, perhaps employees of your suppliers or other businesses you deal with. Interview thoroughly, check references, and above all, trust your intuition.
Hiring employees is always fraught with uncertainty and challenges. But you can increase your chances for success by defining what you need from this employee, then looking for the right person.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

Scammers are always scheming up new ways to steal your money. At the same time, the altruistic IRS is trying to protect you by staying one step ahead of the fraudsters. In this month’s newsletter, read about the latest scams flagged by the IRS that you should be on the lookout for this summer.

Also in this edition, find out how to avoid the back-to-school shopping trap, tips to increase the worth of your most valuable asset, and a list of buzzwords that can help expand your professional vocabulary.

As always, feel free to pass this information on to anyone that may find it useful and please call if you have any questions or concerns.

Upcoming Dates

September 2
– Labor Day

September 16
– Filing deadline for 2023 calendar-year S corporation and partnership tax returns on extension

– Due date for 3rd quarter installment of 2024 estimated income tax for individuals, calendar-year corporations, and calendar-year trusts & estates

Beware of Scammers Targeting Your Tax Info, Warns IRS

Social media is an easy way for scammers and others to try encouraging people to pursue some really bad ideas, and that includes ways to magically increase your tax refund.

– IRS Commissioner Danny Werfel

Tax scammers continue to become more sophisticated, which means it’s more important than ever to pay attention to any person or message asking you to provide confidential information. Here are several of the more prevalent scams to be on the lookout for, according to the IRS.

• Phishing and smishing. Taxpayers continue to be bombarded with email and text scams from fraudsters attempting to lure you into providing valuable personal and financial information that can lead to identify theft. Phishing involves fraudsters sending emails claiming to come from the IRS, while smishing uses text messaging and alarming language such as Your account has now been put on hold!
  What you can do: Never respond to phishing and smishing messages, and never click on a link! Report all unsolicited emails, including the full email headers, claiming to be from the IRS to phishing@irs.gov.
• Online help to create an IRS account. A scammer may offer to help you set up an online account on www.irs.gov. While the IRS’s online account tool can provide convenient access to your tax information, it’s also a valuable source of information for identity thieves who use information from your account to submit fraudulent tax returns using your name in order to get a big refund.
  What you can do: Schedule an appointment with someone you trust if you need help creating an online IRS account.
• Fake charities asking for donations. Scammers masquerading as charitable organizations try to lure you into making a contribution after natural disasters and other publicized tragedies. Scammers also use fake charities to swipe personal and financial information from you, in addition to targeting certain groups such as senior citizens.
  What you can do: Visit www.irs.gov, then search for Tax-Exempt Organization Search Tool. Use this tool to confirm that a charity to whom you want to donate is a legitimate organization registered with the IRS.
• Fake tax advice and AI tools. Social media routinely circulates inaccurate and misleading tax information. These articles and videos share wildly inaccurate tax advice, including some that involve urging people to misuse common tax documents such as Form W-2 or Form1099. They will make is especially convincing by using AI as a buzz word.
  What you can do: Don’t turn to the internet for tax advice. Remember, AI-generated ideas can also pull in inaccurate information as well!

It’s easy to fall victim to tax scams. So stay vigilant and if you see a scam, let everyone know. It’s with increased awareness that we can decrease the number of scam victims.

5 Little-Known IRA Opportunities You Should Know About

IRAs can be a powerful tool to lower your taxes while helping you save for retirement. Here are 5 little-known opportunities about IRAs that can help you and other family members save even more when contributing your IRAs.

• A nonworking spouse can have an IRA. If your spouse doesn’t work, you may still be able to open and contribute to an IRA for your spouse, assuming that you work and file a joint tax return. This can be a great way to help reduce your taxable income each year.
• Even children can have IRAs. If your child has earned income, you can open and contribute to an IRA. Just make sure you can document the earnings. While your child can contribute their own earnings, many parents will help keep track of things like babysitting money, then match those earnings in either a traditional or Roth IRA. Often the Roth IRA is preferred, because the future earnings could be tax free! Your child’s IRA is managed by an adult until the child is old enough for the account to be transferred into their name.
• You may still contribute to an IRA if you have a 401(k) or similar program at work. As long as you do not exceed the income limits, you can have both an IRA as well as other types of retirement savings plans.
• Non-deductible contributions may be made. If you exceed certain income levels, contributions to your IRA won’t be able to reduce your taxable income for the year. But you may still want to make after-tax contributions to a non-deductible IRA, as the earnings can still grow tax-deferred.
• It’s not just for retirement. With traditional IRAs, if you withdraw funds before the age of 59 1/2 you may be subject to income tax AND an early withdrawal penalty. But there are exceptions to this rule, including withdrawals for a first time home purchase, major medical bills, college costs, birth and adoption expenses, and others. However, it is important to know the rules BEFORE you withdraw the funds.

Tax rules surrounding IRAs are vast and complex. But within the rules are numerous situations that if you know they exist, can help you plan for a more tax-efficient future.

The Busy Business Owner: Get Back 15 Minutes a Day

Meetings, phone calls, emails, text messages, and water cooler conversations with your employees constantly bombard you as a business owner. Freeing up 15 minutes a day could dramatically improve both your workflow and peace of mind.

Here are some ideas for getting back 15 minutes every day:

• Use your phone. Whenever possible, use your phone instead of email. Oftentimes talking with someone directly is more efficient than spending the time to compose an email. Plus, email chains can fill your inbox and require precious minutes to read and decipher. Using the phone can also help avoid potential misunderstandings, as a person’s tone of voice conveys information that may be lost or misinterpreted when shared via a written message.
• Be brief with emails. Many tech entrepreneurs are known for their brief emails that consist of only several words. In situations where you do use email, consider crafting a response that is only several words in length. And remember the golden rule of emails: send fewer emails to receive fewer emails.
• Plan your meetings. Face-to-face time with colleagues, vendors, and customers is often productive and essential for growing a business. On the other hand, meetings can be a huge waste of time if not properly planned. Establish clear goals for a meeting in advance so your team can focus on priorities and get back to work.
• Minimize distractions. Business owners enjoy developing a rapport with their employees. These personal conversations, however, need to have boundaries so that both you and your employees can stay on task. Tell your team if there’s a day you don’t have time for small talk. Consider putting an old-fashioned Do Not Disturb sign on your door when you need to get things done.
• Delegate when possible. If you’re a small business owner who built a company from scratch, you may be reluctant to relinquish control over day-to-day operations. But failure to delegate can sap time from more important tasks like planning, building relationships with key vendors, and growing your customer base. So develop a plan to train your employees to assume more responsibility over time.

Fifteen minutes may not seem like much, but a busy business owner can work wonders with just a little more time every day.

No matter what season of life you find yourself in, the IRS will probably find a way to tax it. In this month’s newsletter, read through several situations where a tax planning session might make sense to help you try and cut your 2024 tax bill.

Also learn how to prepare yourself financially when purchasing a vehicle, several ideas to unplug during this year’s summer season, and why every impression matters in the world of business.

As always, feel free to pass this information on to anyone that may find it useful and call if you have any questions or concerns.

Upcoming Dates

June 15
– Due Date Quarterly Estimated Taxes

Prepare Yourself Financially When Purchasing a Vehicle

Financing a new or used car could spell big financial trouble if your vehicle is ever declared a total loss – even if the accident is 100% the other driver’s fault. Here’s what you need to know about staying safe financially if you take out a car, truck, or SUV loan in the future.

Background – The 80% Rule

Many Americans believe if their vehicle is declared a total loss following an accident, insurance companies will provide enough money to cover the cost to replace the vehicle with a similar vehicle. The truth, though, is that insurance companies never provide you with enough money to buy a true replacement vehicle.

The rule of thumb to use when planning is 80%…if the true cost to get the exact same vehicle you were driving before an accident is $30,000, your insurance will only give you 80% of this dollar amount, or $24,000. You’ll have to come up with the other 20%, or $6,000 in this example.

Why not 100%?

Unbeknownst to most of America, the valuation of vehicles deemed a total loss is determined by one company, CCC Intelligent Solutions. Per CCC, their services are used by most of the top 20 insurance companies. Instead of using a fair market valuation method to calculate the replacement cost of your vehicle, CCC uses a model that calculates a value that, when compared to valuation models found at Kelly Blue Book, Edmunds, and NADA, is systemically low.

How to Protect Yourself Financially

Here are some ideas to help you stay financially healthy when purchasing your next vehicle:

• Put down at least 20%.An unavoidable accident, even with no medical bills, could place your financial life in chaos. So try to have at least 20% equity in the vehicles you own from the moment you make the purchase or your loan will be underwater leaving you with no room to replace your vehicle with a similar make and model.
• Get a vehicle history report.Don’t buy a vehicle that’s been in an accident or has had other major issues such as flood damage. Buying a vehicle history report can help you identify cars, trucks, & SUVs that may create an even greater financial risk if you need to find a replacement.
• Build a fund for vehicle repairs and maintenance.Save up for inevitable maintenance and vehicle repairs. You could even use these funds to cover your 20% portion of a vehicle’s replacement cost. Having enough money in this fund is critical. If you need to repair a car after a fender bender AND you do not have enough to cover your share of the cost, you will need to deal with the lender who has a lien on your vehicle. You can quickly find yourself in a financial trap.
• Choose shorter repayment terms.While the average car loan length is now well over five years for both new and used vehicles, choosing a shorter repayment term can help you build equity faster. You’ll have a higher monthly payment, but you’ll be in a better financial situation sooner in the event of an accident.

You Need Tax Planning If..

Life can alter your taxes with little to no warning. Here are several situations where you may need to schedule a tax planning session:

1. Getting married or divorced.

You could get hit with a Marriage Penalty in certain situations when the total taxes you pay as a married couple is more than what you would pay if you and your partner filed as Single taxpayers. The opposite can also occur, when you benefit from a Marriage Bonus. This often occurs when only one spouse has a job or earns income in other ways such as a business. Another situation when tax planning becomes critical is if you and your future spouse both own homes before getting married.

If you’re going from Married to Single, make the process include tax planning. Alimony is no longer deductible by the spouse making payments, while the spouse receiving the alimony must report the payments as taxable income at the federal level. Child support is also not deductible by the spouse making payments, and isn’t considered taxable income for the spouse receiving payments. In addition, not all assets are taxed the same, so their true value will vary.

2. Growing a family.

Your family’s newest addition(s) also comes with potential tax breaks. You’ll need a Social Security number for your newborn child and to understand the impact this little gem will have on your full-year tax situation. These include breaks to help pay for child care or adoption-related expenses, the child tax credit, and the Earned Income Tax Credit.

3. Changing jobs or getting a raise.

Getting more money at work is a good thing. But it also means a higher tax bill. So you may need to review your tax withholding to ensure there are no surprises at the end of the year. And when leaving an employer, expect a tax hit for severance, accrued vacation, and unemployment income payments.

Another potential tax problem if you get a raise or otherwise earn more money is that you may no longer qualify for certain tax breaks, as most tax deductions and tax credits phase out as your income increases. Consider scheduling a tax planning session to discuss the phase out thresholds that may affect you in 2024.

4. Buying or selling a house.

You can exclude up to $250,000 ($500,000 if married) of capital gains when you sell your home, but only if you meet certain qualifications. A tax planning session can help determine if you meet the qualifications to take advantage of this capital gain tax break, or other home-related tax breaks such as the mortgage interest deduction or credits for installing qualified energy-efficient home improvements.

5. Saving or paying for college.

There are many tax-advantaged ways to save and pay for college, including 529 savings plans, the American Opportunity Tax Credit, and the Lifetime Learning Credit. As you plan your future, understanding how these expenses can be managed often happens long before you begin your college journey.

At the end of the day, when in doubt please reach out. There is no reason to pay more than you need to and a simple tax planning session can make all the difference.

Business Advice: Every Impression Matters

With competition knocking at your door for virtually every product or service, you need to hone every advantage available to you. One of the ways you can set your business apart is to create an awesome customer experience with every interaction. This is less of an event and more a state of mind for your entire team. Here are several steps to help you get there:

• The three outcomes. Start by understanding that every interaction with customers AND vendors has three – and only three – possible outcomes: positive, neutral, or negative. Your goal is to make every interaction, from a label on a product to speaking with someone on a call, a positive experience. Or in a worse case scenario, neutral.
• Make a great first impression. The first impression a potential customer creates about your business can come from many different avenues. Train your customer service reps and create an approachable tone on the phone. If you choose to use social media, keep it fresh or take it down. See your lobby as others see it. All details matter.
• Manage the outcome. The best way to do this is to eliminate the possibility of a negative outcome with your first impression. With customer interaction, this is often accomplished with active listening and a smile.

  For example, let’s say you receive a call from a customer wanting to hear about a new service. The employee that handles the service is not available and you are limited in your knowledge. The worst thing you can say is, I’m sorry, the person responsible for the service is not here at the moment. In the customer’s mind, you immediately remove the possibility of a positive outcome! Instead, engage the customer to hear about their needs, gather as much information as possible, and commit to finding the answers for them and calling them back immediately.

• Create slingshot experiences. No matter how well you strive to offer top-notch customer service, there will always be instances that are less than favorable. Use this as an opportunity to turn a negative experience into a positive one by thrilling the disgruntled customer with your solution. Even if the solution is costly and unreasonable, that customer will tell everyone the story about how you solved their problem.
• Use problems to make permanent improvements. Knowing your strengths can reaffirm your approach and help set customer service performance goals. On the other hand, learning about a bad experience from a customer’s perspective will give you great insight into how you can improve. Use these problems to focus your activity. Over time, the results of this continual improvement can have a tremendous impact on your business.

Creating a culture that excels at customer service is attainable if you put in the effort to know your customer’s needs and to understand that every impression matters!

Surviving Wedding Season Without Breaking the Bank

According to this survey by TheKnot.com, the average wedding in 2023 had a price tag of $35,000. And it’s not just the lucky couple doling out serious money. Wedding guests can also face steep costs between gifts and traveling to and from the big event. If you’re planning on attending a wedding or two (or three or four?) this summer, here are several ideas to help keep your wedding costs under control.

1. Give cash instead of buying a gift off a registry. Most people want to give a wedding gift that, on some level, reflects the relationship they have with the couple. This desire to find that perfect gift can sometimes lead to overspending. Instead of buying a gift off a registry, consider giving cash. Sticking with cash can help you stick to your wedding season budget and avoid your gift being stuck in a box or closet that never gets used.
2. Think outside the box for lodging. If traveling to a wedding, start looking at lodging options as soon as you know the date. First, check to see if you have family or friends in the area you would be comfortable staying with. Next, consider reconnecting with friends that are attending and share a room. Perhaps the wedding couple saved a block of rooms in a local hotel at a special rate. If so, compare the cost of that hotel with nearby hotels and short-term rentals. Remember to figure out your accommodations early so you don’t get stuck with just one expensive option.
3. Share your travel expenses. It’s possible you’ll have some friends or family attending the same wedding as you. If the wedding involves traveling, split some of the costs with them. This can include carpooling, sharing a rental car, teaming up on taxi or ride-share expenses, as well as sharing hotel accommodations.
4. Rent your attire. Going to a bunch of weddings in a short amount time can create a wardrobe challenge. Purchasing a new outfit for each one will get really expensive really quickly. If you take the one-and-done approach with your formal wear, renting a dress or suit will only set you back a fraction of the cost of buying new clothes for every wedding.
5. Respectfully decline. Whether it’s the cost of travel, poor timing, or something else, it’s OK to decline the invitation. The wedding couple expects some people won’t be able to make it to their big event. But it’s important to let them know you won’t be there. When sending back the RSVP, include a kind greeting and the reason for your absence without going into great detail. When the wedding day comes, remember to send a card or a gift.

Wedding season is a time of fun and celebration. Knowing that you also made the best financial decisions possible makes the occasion even better.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. This publication includes, or may include, links to third party internet web sites controlled and maintained by others. When accessing these links the user leaves this newsletter. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does COUTO DEFRANCO P.A. have any control over, or responsibility for, the content of any such Websites. All rights reserved.

Summertime offers unique tax and money saving opportunities for the whole family.

In this month’s newsletter, find out how day camps for your kids may be tax deductible, if you know the rules!

Also read about shielding your emergency fund from inflation and why you should always turn to a trusted tax professional if you receive a letter from the IRS.

Upcoming Dates

June 15
– Second quarter 2023 estimated tax payments are due

Shield Your Emergency Fund From Inflation

Most financial experts suggest keeping three to six months worth of household expenses in savings to help in case of emergency. But with record inflation, that task just got a lot harder to accomplish as virtually every safe place to put your emergency funds will not provide interest rates that keep pace with inflation. But that does not mean you cannot increase the rate of return on these funds.

Here are some ideas to reduce the impact of inflation on your emergency funds.

Actively monitor your savings account rate.

An interest rate hike by the Federal Reserve may not instantly change the rate on your current savings account, but it could lead to a higher rate for other accounts offered by your current bank or other banks.

What you need to know: If your bank is slow to raise your savings rate, be willing to monitor and shift funds to a bank that does. Just make sure the funds are still FDIC insured and are kept at a reputable bank.

Take a look at Series I Savings Bonds.

Series I Savings bonds are issued and backed by the U.S. government and feature two interest rate components: a fixed rate and an inflation rate. The fixed rate is set when the bond is issued and never changes during the life of the bond. The inflation rate resets semi-annually based on the Consumer Price Index.

What you need to know: You must hold an I bond for at least 12 months before redeeming it. And although you can redeem it after one year, you’ll have to pay a penalty worth the interest of the previous three months if you redeem the bond within five years. And remember, you must be prepared to pay the penalty if you need the funds for an emergency.

Creative use of Roth IRA funds in an emergency.

Roth IRAs are funded with after-tax dollars. Because of this, early removal of the initial contribution is tax and penalty free. If you dip into the earnings, however, you will not only be subject to income tax, but also may be subject to a 10% early withdrawal penalty.

What you need to know: Use of a Roth IRA is often a creative way to fund your emergency account while achieving higher returns with conservative investment choices, but it is not for the faint of heart. If you get this one wrong, it could cost you in taxes, penalties and lost fund value in a bear market. Prior to removing funds from any IRA, it makes sense to conduct a tax planning session.

Higher rates are out there, you just need to be aware and willing to actively manage your emergency funds to ensure you are attacking the risk of inflation.

Make Your Child’s Summer Break a Tax Break!

As a busy working parent, you may be on the lookout for activities that are available for your kids this summer. There may be a solution that’s also a tax break: Summer camp!

Using the Child and Dependent Care Credit, you can be reimbursed for part of the cost of enrolling your child in a day camp.

Am I eligible?

1. You, and your spouse if you are married, must both be working.
2. Your child must be under age 13, your legal dependent, and live in your residence for more than half the year.

Tip: If your spouse doesn’t work but is either a full-time student, or is disabled and incapable of self-care, you can still qualify for the credit.

How much can I save?

For 2023, you can claim a maximum credit of $1,050 on up to $3,000 in expenses for one child, or $2,100 on up to $6,000 in expenses for two or more children.

What kind of camps?

The only rule is: no overnight camps.

The credit is designed to help working people care for their kids during the work day, so summer camps where kids stay overnight aren’t eligible for this credit.

Other than that, it doesn’t matter what kind of camp: soccer camp, chess camp, summer school or even day care. All of these are eligible expenses for this credit.

Other ways to use this credit

While summer day camp costs are a common way to use this credit, any cost to provide care for your children while you are working may be eligible.

For example, you can use this credit to pay a qualified day care center, a housekeeper or a babysitter to take care of your child while you are working. You can even pay a relative to care for your child and claim the credit for that expense, as long as the relative isn’t your dependent, minor child or spouse.

This is just one of many possible tax breaks related to children and dependents. Please call if you have questions about this credit, or if you’d like to discuss any other tax savings ideas.

Never Take on the IRS Alone!

Sleuthing your way through a tax audit by yourself is not the same as fixing a leaky faucet or changing your oil. Here are reasons you should seek professional help as soon as you receive a letter from the IRS:

IRS auditors do this for a living — you don’t.

Seasoned IRS agents have seen your situation many times and know the rules better than you. Even worse, they are under no obligation to teach you the rules. Just like a defendant needs the help of a lawyer in court, you need someone in your corner that knows your rights and understands the correct tax code to apply in correspondence with the IRS.

Insufficient records will cost you.

When selected for an audit, the IRS will typically make a written request for specific documents they want to see. The list may include receipts, bills, legal documents, loan agreements and other records. If you are missing something from the list, things get dicey. It may be possible to reconstruct some of your records, but you might have to rely on a good explanation to avoid additional taxes plus a possible 20 percent negligence penalty.

Too much information can add audit risk.

While most audits are limited in scope, the IRS agent has the authority to increase that scope based on what they find in their original analysis. That means that if they find a document or hear something you say that sounds suspicious, they can extend the audit to additional areas. Being prepared with the proper support and concise, smart answers to their questions is the best approach to limiting further audit risk.

Missing an audit deadline can lead to trouble.

When you receive the original audit request, it will include a response deadline (typically 30 days). If you miss the deadline, the IRS will change your tax return using their interpretation of findings, not yours. This typically means assessing new taxes, interest and penalties. If you wish your point of view to be heard — get help right away to prepare a plan and manage the IRS deadlines.

Relying on an expert gives you peace of mind.

Tax audits are never fun, but they don’t have to be pull-your-hair-out stressful. Together, we can map out a plan and take it step-by-step to ensure the best possible outcome. You’ll rest easy knowing your audit situation is being handled by someone with the proper expertise that also has your best interests in mind.

Get More Money for School by Understanding These Scholarship Myths

There’s plenty of money available for you to pursue a post-secondary education for either you or your child! Here are several myths that could be getting in the way of securing money to pay for school.

Common misconceptions

Scholarships are only for top scholars and athletes. Many news stories are about high-profile students who snag a fully-paid-for scholarship. There are an unbelievable number of scholarships, however, that do not take grades or athletic ability into consideration.

Scholarships are only for students attending college. Enrollment in vocational and trade schools has nearly doubled since 2000, according to the National Center for Education Statistics. And the good news for prospective students is that scholarships for vocational and trade schools are just as plentiful as scholarships for four-year colleges and universities.

You have to be a great writer. Winning scholarships is more often about what you write than how you write. And for some scholarships, following the application’s directions and answering the questions that are asked is more important than how well you write.

You have to be a high school student. Scholarships aren’t just for soon-to-be high school graduates. Many schools have degree programs – and corresponding scholarships – aimed at older adults who are looking to learn new skills or make a transition in their career. Scholarships are also available for graduate students.

Finding scholarships takes too much time. Yes, you’ll need to invest a certain amount of time to find and apply for scholarships, but finding financial aid may not require as much of a time investment as you may think with tons of available online tools.

What to do

Follow the directions! You’d be surprised how many applicants don’t read or follow the rules of the scholarships. Take the time to read through all instructions, and thoughtfully answer the questions that are asked.
Apply every year by January. For every year that you’re attending a post-secondary school, consider setting aside some time in the fall and early winter to complete scholarship applications for the upcoming school year. Many applications need to be completed by January for the following school year.
Ask your school. Nearly every college in the U.S. offers some form of merit-based financial aid. You’ll likely need to complete the Free Application for Federal Student Aid (FAFSA), as many colleges have all students apply for scholarships by completing the FAFSA. This includes students who may qualify for only merit-based scholarships.
Ask local businesses. Many local businesses, civic groups, foundations, and religious or community organizations offer scholarships. So ask around in your community about available financial aid.

The early bird often gets the worm, but the bird that does not go looking for one will never get one!

It’s tax time! In the next couple of weeks you will be inundated with W-2s and various informational tax forms like 1099s. By paying attention to them, ensuring their accuracy, and that you are getting them all, you will be miles ahead in getting your tax return done. Spend a minute reviewing ways to get your tax information organized. Then consider some alternatives to the traditional new year’s resolution craze.

All this plus new inflation adjustments are providing a retirement contribution opportunity for those who plan, plus ideas on resolving common financial surprises that will take the sting out of most of them.

As always, feel free to reach out with any question or comments.

Upcoming Dates

January 16
– Martin Luther King Jr. Day

January 17
– 4th quarter installment of 2022 estimated income tax is due for individuals, calendar-year corporations and calendar-year trusts & estates

Begin tax filing for 2022
– Organize tax documents (W-2s, 1099s, 1098s and other records)
– Plan for tax time- plan for document drop off or meeting

Begin tax planning for 2023
– Create a budget
– Adjust your withholdings
– Rebalance investment portfolios

It’s Tax Time! Tips to Get Organized

The beginning of a new year brings the need to recap the previous one for Uncle Sam. Here are some tips and a checklist to help get you organized.

Look for your tax forms.

Forms W-2, 1099, and 1098 will start hitting your inbox or mailbox in the next couple of weeks. If you have not already done so, review last year’s records and create a checklist of the forms to make sure you get them all.

Collect your tax documents using this checklist.

Using a tax organizer or last year’s tax return, sort your tax records to match the items on your tax return. Here is a list of the more common tax records:

• Informational tax forms (W-2s, 1099s, 1098s, 1095-A) that disclose wages, interest income, dividends and capital gain/loss activity
• Other forms that disclose possible income (jury duty, unemployment, IRA distributions and similar items)
• Business K-1 forms
• Social Security statements
• Mortgage interest statements
• Tuition paid statements
• Property tax statements
• Mileage log(s) for business, moving, medical and charitable driving
• Medical, dental and vision expenses
• Business expenses
• Records of any asset purchases and sales, including cryptocurrency
• Health insurance records (including Medicare and Medicaid)
• Charitable receipts and documentation
• Bank and investment statements
• Credit card statements
• Records of any out of state purchases that may require use tax
• Records of any estimated tax payments
• Home sales (or refinance) records
• Educational expenses (including student loan interest expense)
• Casualty and theft loss documentation (federally declared disasters only)
• Moving expenses (military only)

If you aren’t sure whether something is important for tax purposes, retain the documentation. It is better to save unnecessary documentation than to later wish you had the document to support your deduction.

Clean up your auto log.

You should have the necessary logs to support your qualified business miles, moving miles, medical miles and charitable miles driven by you. Gather the logs and make a quick review to ensure they are up to date and totaled.

Coordinate your deductions.

If you and someone else share a dependent, confirm you are both on the same page as to who will claim the dependent. This is true for single taxpayers, divorced taxpayers, taxpayers with elderly parents/grandparents, and parents with older children.

With proper organization, your tax filing experience can be timely and uneventful.

Alternative Ideas to New Year’s Resolutions

It’s that time again when everyone has high hopes for how they are going to better themselves during the new year. The traditional way many people set goals, however, doesn’t seem to be working! According to The Economic Times, only 16 percent of people follow through with New Year’s resolutions. Here are seven alternatives to the traditional New Year’s resolutions that could help you in 2023.

Make 3, 5, and 10-year goals.

Part of the problem with resolutions is they are oftentimes open-ended, such as, I want to lose weight. Instead, write down specific goals for 3, 5, and 10 years from now. Break your goals into categories like family, career, financial, and health. Having concrete future goals is a good starting point to creating an obtainable vision.

Create better connections.

Social media makes it easy to stay in touch with what friends and family are doing, but it often lacks true personal connection. As we exit the pandemic era, consider committing to intentional development of relationships with a list of people that are important in your life. Write out the list and put it in a spot you’ll see every day. Then be consistent communicating with them and taking the time to actually reconnect in a meaningful way.

Reflect on the previous year.

Every year brings its share of happiness, challenges and things you never saw coming. Reflecting on these events is a great way to realize how much you’ve changed and grown over the past year. Whether the changes are positive or not so positive, acknowledging and analyzing will help you grow from your experiences and set you up for a better future.

Quit something.

For most of us, the days are overflowing with things to do and too many bills to pay. Why not take an inventory and quit something? Take back some of your income and time, to allow you to pursue something else or spend money on something more important to you.

Pretend like you are moving.

Walk around your house or apartment and make a list of things you’d like to improve or fix, just like you would do before moving. It can be a big thing like building a deck or a small thing like going through an old closet full of that stuff that you thought you might need someday. Donate it and keep the receipt – it might be a tax deduction!

Plan Your Retirement Savings Goals for 2023

A big jump in cost-of-living calculations means a big jump in how much you can contribute to retirement accounts in 2023! Now is the time to plan your retirement contributions to take full advantage of this tax benefit. Here are annual contribution limits for several of the more popular retirement plans:

What you can do

• Look for your retirement savings plan from the table and note the annual savings limit of the plan. If you are 50 years or older, add the catch-up amount to your potential savings total.
• Then make adjustments to your employer-provided retirement savings plan as soon as possible in 2023 to adjust your contribution amount.
• Double check to ensure you are taking full advantage of any employee matching contributions into your account.
• Use this time to review and re-balance your investment choices as appropriate for your situation.
• Set up new accounts for a spouse and/or dependents. Enable them to take advantage of the higher limits, too.
• Consider IRAs. Many employees maintain employer-provided plans without realizing they could also establish a traditional or Roth IRA. Use this time to review your situation and see if these additional accounts might benefit you or someone else in your family.
• Review contributions to other tax-advantaged plans, including flexible spending accounts (FSAs) and health savings accounts (HSAs).

The best way to take advantage of increases in annual contribution limits is to start early in the year. The sooner, the better.

Correcting Common Financial Mistakes

You’re working at the office, getting stuff done around the house, or hanging out with family when — wham! — a phone call, email or text alerts you that something happened with your finances. When a not-so-nice financial event hits, don’t let it take you down. Here are some common miscues and steps to remedy each situation:

An overdrawn bank account.

First, stop using the account to avoid additional overdraft fees. Next, manually balance your account by reviewing all posted transactions. Look for unexpected items and fraudulent activity. Then call your bank to explain the situation and ask that all fees be refunded. Banks are not obligated to refund fees, but sometimes they will. The next steps vary based on the reason for the overdraft, but ultimately your goal is to bring your account back to a positive balance as soon as possible.

A missed credit card payment.

Make a payment as soon as you realize you missed it. If possible, consider paying off the entire outstanding balance because interest will be assessed on old AND current charges. Then call the credit card company to get them to refund the late fee and interest charges. The customer service representative will look at your account, see the payments, and be more willing to do as you request. As long as you aren’t habitually late with payments, you can usually get the fees eliminated or reduced.

A tax return that didn’t get filed.

Gather all your tax documents as soon as possible, and file the tax return even if you can’t pay the taxes owed. This will stop your account from gathering additional penalties. You can then work with the IRS if necessary on a payment plan. The sooner you file, the sooner the money will be in your bank account if you’re due a refund. If you wait too long (three years or more), any potential refunds will be gone forever.

Losing a wallet or a purse.

Start by calling all of your bank, debit and credit card companies. Set up fraud alerts with the major credit reporting companies and get a new driver’s license. Then file a report with the police. Visit identitytheft.gov and review additional steps and procedures to protect yourself.

A missed estimated tax payment.

Estimated payments are due in April, June, September and January each year. If you are required to make estimated payments and miss a due date, don’t simply wait until the next due date. Pay it as soon as possible to avoid further penalties. If you have a legitimate reason for missing the payment, such as a casualty or disaster loss, you might be able to reduce or even eliminate your penalty.

Remember that mistakes happen. When they do, stay calm and walk through correcting the situation as soon as possible.

Tips to Get Your Finances in Tip-Top Shape

Here are some tips to get your finances in tip-top shape for 2023.

Know your net worth.

The first step to improving your finances in 2023 is to create a snapshot of your current financial situation. So note all your assets, then subtract all your liabilities (what you owe others) to calculate your net worth. When done on a regular basis, you will be able to evaluate changes to your financial status and identify steps to reach your financial goals.

Plan for hardships.

If the pandemic has taught us anything, it’s to plan for the unexpected. Now is the time to prepare by building an emergency fund that covers six or more months of expenses.

Prepare for a lower refund.

The 2021 tax year saw increases to the child tax credit and the dependent care credit, resulting in a big jump in tax refunds for many taxpayers. These changes, however, were not extended to 2022. If you plan to take advantage of either of these two credits on your 2022 tax return, be prepared for a possible decrease in your refund.

Create a debt repayment plan.

Design a plan to pay off your existing debts and try to avoid taking on any new debt. Pay special attention to credit card debt, as inflation is vastly increasing the cost of this debt every month! Also consider whether consolidating your debt is a good option for you.

Save for retirement.

Plan for your future self by building your retirement fund. In 2023 you can contribute up to $22,500 in your 401(k), plus another $7,500 if you’re 50 or older. Keep in mind your company may provide matching contributions up to a stated percentage of compensation. And you may be able to supplement this account with contributions to IRAs and/or other qualified plans.

Review and re-balance your portfolio.

Review your investments periodically and reallocate funds to reflect your main objectives, risk tolerance, and other personal preferences. This will put you in a better position to handle the ups and downs of the markets.

Set a date to review your estate.

Review your estate and legal documents at least once a year, in addition to whenever you experience a significant change in your life. Now is a good time to review your will, trust documents, beneficiary designations, powers of attorney, healthcare directives, and other estate- and legal-related documents.

It’s that time of the year again for our Year End Tax Planning Guide. Click below for a PDF version of the guide. The guide contains very important information regarding tax strategies for individuals and families, tax planning for businesses, investment planning, and planning for the future. This is an excellent tool to use as you begin to prepare for your 2022 tax filings.

If you have any questions about the guide or its content, please call our office. We are here to help!

2022 Tax Planning Guide

With the hustle and bustle of the holiday season, it’s easy to overlook that tax season is right around the corner. To help you make the most of potential tax saving moves before the end of 2022, this month’s newsletter features several year-end tax cutting ideas.

Also have fun with the entire family by testing your holiday song knowledge! Plus, read about how to protect yourself from identity thieves during the upcoming tax season, and how to look at whether it is time to replace your old vehicle versus paying for another costly repair.

Please feel free to forward this newsletter to someone who may be interested in a topic and call with any questions you may have.

Upcoming Dates

Dec. 18 to Dec. 26
– Hanukkah

December 25
– Christmas Day

December 26
– Kwanzaa begins

January 17
– 4th Quarter Estimated Payments Due

Take final year-end actions
– Deductible gifts
– Capital gains/losses
– Itemized deductions
– Dividend income

Year-End Tax Cutting Ideas

Here are moves you can make to reduce your taxable income. But the year is quickly coming to a close, so plan accordingly.

Tax loss harvesting.

If you own stock outside a tax-deferred retirement plan, you can sell your under-performing stocks by December 31st and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years.

Selling appreciated assets.

Planfully sell appreciated assets in the tax year that helps you the most. While this strategy may be hard to accomplish this late in the year, it is still worthy of consideration. To do this, estimate your current year taxable income and compare it to next year’s projected income. Then sell the appreciated asset in the year that will yield the lowest tax. Remember to account for the 3.8% net investment income tax in your estimates.

Max out pre-tax retirement savings.

The deadline to contribute to a 401(k) plan for a 2022 taxable income reduction is December 31st. So if your employer’s plan allows it, consider making a last-minute lump sum contribution. For 2022, you can contribute up to $20,500 to a 401(k), plus another $6,500 if you’re age 50 or older. Even better, you have until April 18, 2023, to contribute up to $6,000 into a traditional IRA. And as long as your income does not exceed phaseout limits, you can reduce your taxable income on your 2022 tax return.

Bunch deductions so you can itemize.

If your personal deductions are near the following standard deduction amounts for 2022: $12,950 for singles, $19,400 for head of household, and $25,900 for married filing joint, consider bringing some of 2023’s spending into 2022 so you can itemize this year. For most, the easiest way is to do this is to make 2023’s planned charitable contributions before the end of 2022. You can also include gifts of appreciated stock where you get to deduct the fair market value without paying capital gains tax.

Review health spending accounts.

If you participate in a Health Savings Account (HSA), try to maximize your annual contribution to reduce your taxable income. Remember, these funds allow you to pay for qualified health expenses with pre-tax dollars. More importantly, unlike Flexible Spending Accounts (FSA), you can carry over all unused funds into future years. If you do have an FSA, you can carry forward a maximum of $570 from 2022 into 2023. The deadline for contributing to your Health Savings Account (HSA) and still getting a deduction for the 2022 tax year is April 18, 2023. The maximum contribution for 2022 is $3,650 if single and $7,300 for married couples.

While the year is quickly coming to an end, there is still time to reduce your 2022 tax liability, but only if you act now.

Shrink Your Tax Bill in 2023

Here are several strategies to consider to shrink your tax bill in 2023.

Consider life events. Consider whether any of the following key events may take place in 2023, as they may have potential tax implications:

• Purchasing or selling a home
• Refinancing or adding a new mortgage
• Getting married or divorced
• Incurring large medical expenses
• Changing jobs
• Welcoming a baby

Manage your retirement. One of the best ways to reduce your taxable income is to use tax beneficial retirement programs. Now is a good time to review your retirement account funding. Here are the contribution limits for 2023:

• 401(k): $22,500 ($30,000, Age 50+)
• IRA: $6,500 ($7,500, Age 50+)
• SIMPLE IRA: $15,500 ($19,000, Age 50+)
• Defined Benefit Plan: $66,000

Look into credits. There are a variety of tax credits available to most taxpayers. Take a look at those you currently use and determine whether you qualify for them again next year. Here are some worth reviewing:

• Child Tax Credit
• Earned Income Tax Credit
• Premium Tax Credit
• Adoption Credit
• Elderly and Disabled Credit
• Educational Credits (Lifetime Learning Credit and American Opportunity Tax Credit)

Assess your income. Forecast how your 2023 income will compare to your 2022 income, then review your most recent tax return and find your effective tax rate by dividing your total tax by your gross income. Then apply that rate to your new income. This will give you a rough estimate of next year’s tax obligation.
To avoid getting stuck with an unexpected tax bill, consider scheduling several tax planning sessions throughout the year. Remember, some tax saving ideas may require funding on your part. It is best to identify them now so you can save the cash necessary to take advantage of them throughout 2023.

Identity Thieves Love Tax Season

The vast amount of information shared online during tax season makes it a haven for identity thieves, and they’re doing everything they can to take advantage of the opportunity! Here are several ways that identity thieves are targeting you, common signs of ID theft and steps to take if you become a victim.

How Identity Thieves Target You

• Impersonating the IRS. Thieves calling you and claiming to be the IRS will try and intimidate you into making an immediate payment using a gift card or wire service. Remember, the IRS will physically mail you a letter as a means of first contact. And the IRS will never call you to demand an immediate payment.
• Filing a fraudulent tax return. Identity thieves often try to file a tax return using your Social Security number before you do. So consider filing your tax return as quickly as you can to beat identity thieves at their own game.
• Phishing schemes. Be on the lookout for unsolicited emails, texts and social media posts that prompt you to share personal and financial information. These messages could also contain viruses, spyware or other malware that could infect your electronic devices.

Common signs of ID theft

Here are some of the common signs of identity theft according to the IRS:

• In early 2023, you receive a refund before filing your 2022 tax return.
• You receive a tax transcript you didn’t request from the IRS.
• A notice that someone created an IRS online account without your consent.
• You find out that more than one tax return was filed using your Social Security number. You receive tax documents from an employer you do not know.

Other signs of identity theft include:

• Unexplained withdrawals on bank statements.
• Mysterious credit card charges.
• Your credit report shows accounts you didn’t open.
• You are billed for services you didn’t use or receive calls about phantom debts.

What you can do

If you discover that you’re a victim of identity theft, consider taking the following action:

• Notify creditors and banks. Most credit card companies offer protections to cardholders affected by ID theft. You can generally avoid liability for unauthorized charges exceeding $50. But if your ATM or debit card is stolen, report the theft immediately to avoid dire consequences.
• Place a fraud alert on your credit report. To avoid long-lasting impact, contact any one of the three major credit reporting agencies—Equifax, Experian or TransUnion—to request a fraud alert. This alert covers all three of your credit files.
• Report the theft to the Federal Trade Commission (FTC). Visit identitytheft.gov or call 877-438- 4338. The FTC will provide a recovery plan and offer updates if you set up an account on the website.
• Please call if you suspect any tax-related identity theft. If any of the previously mentioned signs of tax-related identity theft have happened to you, please call to schedule an appointment to discuss next steps.

Fork in the Road: Repair or Replace Your Vehicle

Deciding whether to put more money into an aging car or to replace it with a new or used vehicle is rarely a simple decision. Plus skyrocketing vehicle prices and economic uncertainty are making the decision process even tougher.

Signs it is time to replace your car

To help you decide if it is time to replace your vehicle, look for these signs:

• The kids would rather walk miles to their friend’s house than ride in the car.
• Your oil bill is higher than your gas bill.
• The mechanic names a repair bay after you.
• Your employer politely asks you to park next door.
• The sound of the engine causes tornado sirens to blare.

If none of these apply to you, congratulations! Your car might still be street legal, but there are other things to consider. All joking aside, making the final call can be difficult. Here’s a few helpful ideas:

Making an informed decision

• Determine your risk threshold. No one wants to live in constant fear of being stranded or being in an accident because something in the car gave out. Reliability needs to be considered for every car, but especially if the typical route is remote, dangerous or unpredictable. It is even more important if you live in an extreme climate that is either very hot or very cold.
• Take newer car costs into account. While the idea of a newer, shinier car sounds nice, make sure you are counting all the costs – especially if you need to add a car payment. Beyond the monthly principal and interest, keep in mind that insurance and annual registrations will likely be higher, too.

Spend some time with the numbers

While a new, shiny car is fun, all too often it can create future financial hardship. So also consider the long-term financial impact of your decision. This includes:

• Used versus new car. Used cars typically give you the best price value, but limited supply is making used cars more expensive.
• Financing a vehicle has pitfalls. If replacing your car will require financing, be careful. Interest rates are going up and highly-leveraged loans can quickly put you into more debt than the car is worth. This often happens if your car is damaged in an accident.

Cars are unpredictable, but taking an analytical approach and making the best decision with the facts that you have will pay off more times than not.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

Social Security recipients got some great news about their benefits. Check out this month’s newsletter to learn more about the cost-of-living increase for 2023.

Also read about several tax court cases and what they might mean for your situation, how to raise a financially savvy child, and how to avoid gift card fraud during the upcoming holiday season.

Please feel free to forward this newsletter to someone who may be interested in a topic and call with any questions you may have.

Upcoming Dates

November 11

– Veterans Day

November 24

– Thanksgiving

November 25

– Black Friday

Reminder

– Conduct year-end tax and financial planning

6 Ways to Cut Your Everyday Expenses

Many people dream of making more money, but cutting expenses can have the same effect. Identify unnecessary expenses with these six money-saving ideas and help free up some cash:

1. Eliminate late fees.

Most late fees are the result of being too busy, traveling or simply forgetting. Fortunately, late fees are almost entirely avoidable if you have a plan. A lot of people only think of credit card late fees, but they can also show up in many places including utility bills, subscriptions and registration fees. Take a look at your bills and identify the kinds of charges you’re getting. Scheduling automatic payments should help you avoid late fees going forward. And if you get one, call and try to get it canceled. It just might work!

2. Cancel unnecessary subscriptions.

Subscriptions are popping up everywhere. They include everything from weekly shaving products to video and music streaming services. With so many options, it’s easy to double up on services or forget to cancel one that you were planning to use for just a short time. Review all your monthly subscriptions and cancel the ones that are no longer providing value.

3. Minimize interest expense.

Paying for day-to-day expenses with a credit card to rack up points to use for airfare or other perks is a great cash management tool, but the interest that builds up if you don’t pay it off every month negates the perks and creates an extra expense. If you find yourself in a situation with multiple credit card balances, consider a consolidation loan with a lower interest rate.

4. Be selective with protection plans.

With virtually every purchase, the store or website offers to sell you insurance in the form of a protection plan. And for good reason — they’re profitable to them and not you! Insurance should be reserved for things you can’t live without like your health and your home. Pass on the protection plan for your toaster.

5. Review your deductibles.

A deductible is a set amount you pay before your insurance kicks in to cover the cost of a claim. The higher the deductible, the lower your monthly premium. If you have enough in savings to cover a higher deductible when disaster strikes, raising the deductible may save you some money on a month-to-month basis.

6. Try a little DIY.

If you own a house, you know it’s just a matter of time before something breaks or stops working. When this happens, don’t instantly reach for the phone to call a repairman. Repair videos are in endless supply online. An easy fix will often do the job. Simple fixes can lead to big savings, especially since repair services charge minimums and fuel surcharges.

While some ideas take a little more analysis to understand the true benefits, many are just the result of paying attention. Taking a proactive approach can provide a big boost to your budget.

‘Tis the Season for Gift Card Fraud

With supply chain snarls still plaguing parts of the U.S. economy, many consumers are turning to gift cards as the holiday present of choice this year. In fact, according to the website Research and Markets, the United States gift card industry is expected to reach $188 billion in 2022.

Why is gift card fraud such a problem?

Because of the small dollar amounts involved, gift card fraudsters face a low probability of prosecution. It’s also easy to convert gift card value to cash or merchandise. In other words, this kind of fraud is relatively risk-free and easy to pull off.

In one common scam, a crook goes to a retail establishment, grabs a handful of gift cards from an out-of-the-way stand or kiosk, and records the card numbers using a magnetic strip reader. After returning the cards, the crook heads home and repeatedly checks balances on the merchant’s website until the numbers are activated.

The thief then spends or transfers the money on the card before the legitimate buyer or gift recipient has a chance to use it. Less sophisticated scammers may simply scratch off the card’s coating and replace it with a sticker, hoping the buyer won’t notice.

You can scam-proof your gift card experience by following these tips:

• Don’t pick the front card. Crooks are impatient. They often return compromised cards to the most accessible place on the rack. Select your gift card from the middle of the rack.
• Buy gift cards online. Purchase cards online, directly from the business that issued them. This reduces the potential tampering risk.
• Inspect packaging. If you purchase gift cards in person at a store, examine the cards for signs of tampering. It’s safer to buy from stores that keep gift cards behind the counter or in well-sealed packaging.
• Register the card. If a card issuer lets you register on their website, do it. You’ll be able to check your balance regularly and identify any abuse.
• Don’t give out card information to callers claiming to be from government agencies, tech companies, utilities or other businesses. Only scammers ask you to pay fees, back taxes or bills for services with gift cards.
• Don’t buy gift cards from online auction sites. They could be counterfeit or stolen, according to the Federal Trade Commission.
  If you think you’ve been scammed, contact the store directly and report incidents to local law enforcement.

Social Security to See Significant Adjustment for 2023

Your 2023 Social Security Benefits

Find out how your benefits have changed

Average Retirement Benefits
Starting January 2023

• All workers in 2022: $1,681/mo
• All workers in 2023: $1,827/mo (+$146)
• The 2023 maximum Social Security retirement benefits for a worker retiring at full retirement age: $3,627/mo

An 8.7% cost of living increase for Social Security retirement benefits and SSI payments begins with December 2022 benefits (payable in January 2023).

Increase your Social Security retirement benefits by 5 to 8% per year when you delay applying until you’re age 70.

Social Security Revenues & Expenditures

Revenue Sources = $1.09 trillion

• 3.5% – Taxation of benefits
• 6.4% – Interest
• 90.1% – Payroll taxes

Expenditures = $1.14 trillion

• 0.6% – Administrative expenses
• 0.4% – Railroad Retirement financial interchange
• 99.0% – Benefit payments

SOURCE: 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Table Il.B1.

2023 Social Security & Medicare Tax Rates

If you work for someone else…

• Your employer pays 7.65%
• You pay 7.65%

If you’re self-employed…

• You pay 15.3%

NOTE: The above tax rates are a combination of 6.2% for Social Security and 1.45% for Medicare. There is also a 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.

• 165+ million people work and pay Social Security taxes
• Social Security has provided financial protection for Americans since 1935

Social Security Payments Explained

• Social Security (SS) retirement benefits are for people who have paid into the Social Security system through taxable income.
• Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have paid into the Social Security the system through taxable income.
• Supplemental Security Income (SSI) benefits are for adults and children who have disabilities, plus limited income and resources.

Maximum SSI Payments

How does Social Security work?

• When you work, you pay taxes into Social Security.
• The Social Security Administration uses your tax money to pay benefits to people right now.
• Any unused money goes into Social Security trust funds and is borrowed by the government to pay for other programs.
• Later on when you retire, you receive benefits.

Here’s how you qualify for retirement benefits

When you work and pay Social Security taxes, you earn credits toward benefits. The number of credits you need to earn retirement benefits depends on when you were born.

• If you were born in 1929 or later, you need 40 credits (10 years of work) to receive retirement benefits
• You receive one credit for each $1,640 of earnings in 2023
• 4 credits maximum per year

Did you know you can check your benefits status before you retire?

• You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.
• It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.
• If it doesn’t show earnings from a state or local government employer, contact them. The work may not be covered within Social Security.

Sources: SSA.gov

Tax Court Corner

Here’s a roundup of several recent tax court cases and what they mean for you.

Thou Shalt Not Commingle Funds

(Vorreyer, TC Memo 2022-97, 9/21/22)

Don’t let sloppy record keeping prevent you from deducting legitimate business expenses. The Tax Court agreed with the IRS that business expenses must first be deducted on that business’s tax return before flowing to the owner’s tax return.

Facts: A married couple, the sole shareholders of an S corporation, operated a family farm in Illinois. In 2012 they paid the farm’s utility bills of $21,000 and property taxes of $109,000 from their personal funds, then deducted these payments on their individual Form 1040 tax return as business expenses.

Even though the utility and property tax bills were legitimate business expenses, the deduction was disallowed because the expenses should have first been deducted on the farm’s S corporation tax return, then flowed through to the shareholder’s individual tax return.

Tax Tip: To pay an expense on behalf of your business, first make a capital contribution to your business, then have your business pay the expense. Then include this expense on your business’s tax return.

Adding Tax Insult to Injury

(Dern TC Memo 2022-90, 8/30/22)

Payments received to settle a physical injury or illness lawsuit are generally considered non-taxable income. But you better be sure that the lawsuit you file is actually to compensate for a physical injury or illness, and not something else.

Facts: Thomas Dern, a sales representative for a paint products company in California, was hospitalized for acute gastrointestinal bleeding and a subsequent heart attack. When the company fired him because he could no longer do his job, he sued for wrongful termination. The parties eventually reached a settlement.

Dern argued in Tax Court that his illness led to his firing, and therefore the settlement should be classified as non-taxable income. The payment he received, however, was to settle a discrimination lawsuit and not a physical injury. The settlement therefore did not qualify to be non-taxable income.

Tax Tip: Pay attention to the tax consequences of settlement payments so you don’t get surprised with an unexpected tax bill.

You’re Stuck With the Standard Deduction

(Salter, TC Memo 2022-49, 4/5/22)

Facts: Shawn Salter, a resident of Arizona, requested and received a distribution of $37,000 from his retirement plan after being laid off from his job in 2013. Salter failed to file a tax return for 2013, so the IRS created a substitute tax return for him using the standard deduction of $6,500 for a single taxpayer. The IRS also assessed an early withdrawal penalty of 10% on the distribution.

Salter, arguing that the distribution was to pay for medical expenses which aren’t subject to the 10% early withdrawal penalty, eventually did file a 2013 tax return with $25,000 of itemized medical expenses. The Tax Court disallowed the $25,000 of itemized deductions, stating that once a substitute return is created by the IRS using the standard deduction, the taxpayer can no longer claim itemized deductions for that year.

Tax Tip: Try to avoid a situation where the IRS files a substitute tax return on your behalf. Once this happens, you have no choice but to use the standard deduction for that tax year.

Raising a Financially Savvy Child

If you have children or grandchildren, you have an opportunity to give them a jump-start on their journey to becoming financially responsible adults. While teaching your child about money and finances is easier when you start early, it’s never too late to impart your wisdom. Here are some age-relevant suggestions to help develop a financially savvy young adult:

• Preschool – Start by using dollar bills and coins to teach them what the value of each is worth. Even if you don’t get into the exact values, explain that a quarter is worth more than a dime and a dollar is worth more than a quarter. From there, explain that buying things at the store comes down to a choice based on how much money you have (you can’t buy every toy you see!). Also, get them a piggy bank to start saving coins and small bills.
• Grade school – Consider starting an allowance and developing a simple spending plan. Teach them how to read price tags and do comparison shopping. Open a savings account to replace the piggy bank and teach them about interest and the importance of regular saving. Have them participate in family financial discussions about major purchases, vacations and other simple money decisions.
• Middle school – Start connecting work with earning money. Start with activities such as babysitting, mowing lawns or walking dogs. Open a checking account and transition the simple spending plan into a budget to save funds for larger purchases. If you have not already done so, now is a good time to introduce the importance of donating money to a charitable organization or church.
• High school – Introduce the concept of net worth. Help them build their own by identifying their assets and their current and potential liabilities. Work with them to get a part-time job to start building work experience, or to continue growing a business by marketing for more clients. Add additional expense responsibility by transferring direct accountability for things like gas, lunches and the cost of going out with friends. Introduce investing by explaining stocks, mutual funds, CDs and IRAs. Talk about financial mistakes and how to deal with them when they happen by using some of your real-life examples. If college is the goal after high school, include them in the financial planning decisions. Tie each of these discussions into how it impacts their net worth.
• College – Teach them about borrowing money and all its future implications. Explain how credit cards can be a good companion to a budget, but warn them about the dangers of mismanagement or not paying the bill in full each month. Discuss the importance of their credit score and how it affects future plans like renting or buying a house. Talk about retirement savings and the importance of building their retirement account.

Knowing about money — how to earn it, use it, invest it and share it — is a valuable life skill. Simply talking with your children about its importance is often not enough. Find simple, age-specific ways to build their financial IQ. A financially savvy child will hopefully lead to a financially wise adult.

Watching summer transform into beautiful fall colors can be just as mesmerizing as tax planning. Similar to looking closely for gorgeous autumn scenery, with tax planning you’re meticulously on the lookout for opportunities to cut your 2022 taxes.

In this month’s newsletter, read about several planning strategies to consider as time is winding down to implement tax cutting measures for 2022.
Also read about ideas to improve your personal cash flow, the ingredients of a successful business partnership, and valuable FAFSA information.

Please feel free to forward the information to someone who may be interested in a topic and call with any questions you may have.

Still Time to Reduce any Tax Surprises!

Consider conducting a final tax planning review now to see if you can still take actions to minimize your taxes this year. Here are some ideas to get you started.

Review your income.

Begin by determining how your income this year will compare to last year. Since tax rates are the same, this is a good initial indicator of your potential tax obligation. However, if your income is rising, more of your income could be subject to a higher tax rate. This higher income could also trigger phaseouts that will prevent you from taking advantage of certain deductions or tax credits formerly available to you.

Examine life changes.

Review any key events over the past year that may have potential tax implications. Here are some common examples:

• Purchasing or selling a home
• Refinancing or adding a new mortgage
• Getting married or divorced
• Incurring large medical expenses
• Changing jobs
• Welcoming a baby

Identify what tax changes may impact you.

Some of the major changes this year include the lowering of the child tax credit and the lowering of dependent care credit for working couples. This year also marks the first year in the last two with no pandemic related payments. If you think this could impact your situation it may make sense to conduct a tax planning review.

Manage your retirement.

One of the best ways to reduce your taxable income is to use tax beneficial retirement programs. So now is a good time to review your retirement account funding options. If you are not taking full advantage of the accounts available to you, there is still time to make adjustments.

Look into credits.

There are a variety of tax credits available to most taxpayers. Spend some time reviewing the most common ones to ensure your tax plan takes advantage of them. Here are some worth reviewing:

• Child Tax Credit
• Earned Income Tax Credit
• Premium Tax Credit
• Adoption Credit
• Elderly and Disabled Credit Educational Credits (Lifetime Learning Credit and American Opportunity Tax Credit)

Avoid surprises.

Your goal right now is to try and avoid any unwanted surprises when you file your tax return. It’s also better to identify the need for a review now versus at the end of the year when time is running out. And remember, you are not required to be a tax expert. Use the tips here to determine if a review of your situation is warranted.

Upcoming Dates

October 17

– Filing deadline for extended 2021 individual and C corporation tax returns

Maximize Your College Financial Aid With These FAFSA Tips

A brand new Free Application for Federal Student Aid (FAFSA) made its debut on October 1st, featuring 60% fewer questions and a host of other changes that aim to increase the likelihood that you can qualify for financial aid.

As you prepare to complete this year’s application, here are some tips to maximize your FAFSA eligibility for financial aid.

File the FAFSA early.

More than a dozen states award financial aid on a first-come, first-serve basis. Students who file the FAFSA in October tend to get more than twice as much grant aid on average as students who file the FAFSA later. Even better, by completing the FAFSA early you can time your financial requests to colleges with their varied due dates.

Minimize income in the base year.

2021 is the base tax year when filling out the FAFSA for the 2023-2024 school year. If you’ve already filed your 2021 tax return, consider filing an amended Form 1040 if there were deductions you may have overlooked that could reduce your income. Otherwise, file this knowledge away to best position your income for future years.

Reduce the amount of reportable assets.

While assets aren’t weighted as heavily as income on the FAFSA, they could still affect overall financial aid eligibility. To decrease the amount of reportable assets, consider using cash in your bank accounts to pay down unsecured debt such as credit cards and auto loans, or maximizing retirement plan contributions. Keep in mind that certain assets aren’t considered when determining financial aid eligibility. This includes the home you live in, the value of life insurance, and most retirement plans.

Use 529 plans wisely.

529 plan owners will impact how the funds are reported on the FAFSA. If the account owner is a grandparent or relative, the funds are not counted on the FAFSA until the money is used. So timing the use of these funds is important. And remember if the account owner is a parent or the student, the balance of 529 plans is considered an asset of the parent on the FAFSA.

Spend a student’s money first.

If a student does have cash saved or other assets, consider withdrawing money from student assets first before touching parent assets, since student assets are assessed at a higher rate than parent assets.

Plan for the American Opportunity Tax Credit (AOTC).

If your family is eligible for the AOTC, try spending up to $4,000 in tuition and textbook expenses using cash. The AOTC’s maximum tax credit of $4,000 will be worth more dollar-for-dollar rather than using a $4,000 tax-free distribution from a 529 plan.

Ideas to Improve Your Personal Cash Flow

One of the most common reasons businesses fail is due to lack of proper cash flow. The same is often true in many households. Here’s how this concept of cash flow applies to you along with some ideas to improve it.

Cash flow defined

Cash flow equals cash coming in (wages, interest, Social Security benefits) and cash going out in the bills you pay and money you spend. If more is coming in than going out, you have positive cash flow. If the opposite is true, you have negative cash flow. Unfortunately, calculating and forecasting cash flow can get complicated. Some bills are due weekly, others monthly. A few larger bills may need to be paid quarterly or annually.

Create your cash flow snapshot

Before improving your cash flow, you need to be able to visualize it. While there are software tools to generate a statement of cash flow, you can also take a snapshot of your cash flow by creating a simple monthly spreadsheet:

• Type each month across the top of the spreadsheet with an annual total.
• Note all your revenue (cash inflows), then create a list of expenses (cash outflows) in the left-hand column.
• Enter your income and bills by month. Create a monthly subtotal of all your inflows. Do the same for your cash outflows. Then subtract the expenses from income. Positive numbers? You have positive cash flow. Negative numbers? You have negative cash flow.
• Create a cumulative total for the year under each month to see which months will need additional funds and which months will have excess funds.

Ideas to improve your cash flow

Identify your challenges.

See if you have months where more cash is going out than is coming in to your bank account. This often happens when large bills are due. If possible, try to balance these known high- expense months throughout the course of the year. Common causes are:

• Holidays
• Property tax payments
• Car and homeowners insurance
• Income tax payments
• Vacations

Build a reserve.

If you know there are challenging months, project how much additional cash you will need and begin to save for this in positive cash months.

Cut back on annuities.

See what monthly expense drivers are in your life. Can any of them be reduced? Can you live with fewer cell phone add- ons? How about cutting costs in your cable bill? Is it time for an insurance review?

Shop your current services.

Some of your larger bills may create an opportunity for savings. This is especially true with home and car insurance.

Create savings habits to add to cash flow.

Consider paying a bill to yourself in your cash outflows. This saved money is a simple technique to create positive cash flow each month to build an emergency reserve.