2020 Updated Guide for Holiday Tips and Gifts

“The best way to not feel hopeless is to get up and do something. Don’t wait for good things to happen to you. If you go out and make some good things happen, you will fill the world with hope, you will fill yourself with hope.” ― Barack Obama

This year, we thank all the first responders and essential workers!  

… and during challenging times

While gift giving etiquette may be obvious in some instances, it can get less clear when considering gifts for people outside of your friends and family.  And this year is even more challenging, with social distancing and travel restrictions. 

To help adjust for gift giving during the Pandemic, we updated our guide of suggested gifts and tips for the people in our lives that help us keep our families, homes and businesses on track and get through each day as we move forward throughout the year. 

In many cases, the services these people provide ensure we can work, have clean homes and stay fit, including caregivers, delivery, home maintenance, and personal care services. 

For some, you can’t tip but you can still make them feel appreciated

This year, the list of people to thank includes first responders and health care workers.  Like many houses we see, you can display a sign with a red heart as a way of saying thank you.  You can send letters of thanks directly to a local hospital, fire station or police department. 

You can send a meal or buy coffee.  This may mean having a local restaurant deliver a pizza, which helps the restaurant as well as thanking the fire or police station or emergency room.  Or you can pay for a local coffee shop to treat workers who stop in.  

Check for any online bulletin board in your town, both to post a thank you note and to see if there are other ways to acknowledge your local first responders.  And be sure to observe local rules on social distancing, for your safety and theirs. 

“Neither snow nor rain…”

Despite the weather, terrain or traffic, your mail carriers, FedEx, UPS and Amazon drivers deliver your mail and packages every day and ensure that your online purchases arrive on time and in good condition.  These delivery workers have carried an increased burden this year. 

Let those who make those deliveries know you’re grateful.  Some people have left gift baskets on their porches to say thanks (a video of one Amazon driver dancing with joy went viral). 

In deciding what and how much to give, consider the particular company’s gift giving restrictions:

1.  Mail carriers – are prohibited from receiving cash gifts and gifts of more than $20;

2.  FedEx – employees may accept gifts under $75,  though no cash or gift cards;

3.  UPS – workers are allowed to accept tips, but UPS discourages the practice;

4.  Newspaper delivery – $10-$30 is standard; and

5.  Amazon driver – we suggest the same as for newspaper delivery. 

Caregivers (for kids, parents and pets, too!)

Many who are working from home in 2020 may not have had access to caregivers.  Those that have may be especially thankful.  These caregivers for your children, parents and pets can be lifesavers. 

They provide care, education, exercise, and attention to those you care about most.  This is the time of year to let them know how thankful you are for all that they do.  The amount of service they provide and the arrangement you have with them can dictate the appropriate gift level:

1.  Nanny/au pair – a week’s salary and a small gift;

2.  Daycare teachers – a $25-$70 gift;

3.  Home healthcare worker – a week to a month’s salary;

4.  Teacher – a small gift and a handmade card from your child – if your child is not remote learning.  In that case, you may have to arrange delivery;

5.  Dog walker – depending on your walker’s schedule, you may want to gift a day’s pay or a full week’s pay; and

6.  Dog groomer – half the cost to the full amount for the service.

If you contract any of these services through an agency, you may want to contact the agency to find out if they have a gift-giving policy in effect.  If the agency prohibits gifts, consider alternatives like making a donation to the agency or sending in homemade cookies to the office. Or sneak a Starbucks card into their stocking …

Home Maintenance

Whether you live in a single-family home or a large apartment building, it’s likely there is someone who services your home or property in some way. 

1.  Trash and recycling collectors – $10-$30, which you may want to mail directly to the collection company if you can’t safely leave for the collectors;

2.  Doorman – $25-$100, depending on their limited or expanded role this year;

3.  Regular cleaning person – the cost of one visit;

4.  Landscapers/gardeners – $20-$50 per person or if you have just one person doing the work, the cost of one visit;

5.  Parking garage attendant – $10-$50; and

6.  Building’s handyman, superintendent and custodian – $20-$100.

If you have someone who always goes the extra mile, such as a handyman who’s prompt and efficient or a doorman who is quick to carry heavy packages for you, then a larger tip may be warranted. 

Personal Services

It’s hard work keeping you fit, perfectly coiffed and beautiful, but recognizing the efforts of those who do is easy and may also buy you scheduling flexibility when you really need it – especially in a year of Zoom calls, masks and other restrictions.  In deciding whether to tip and how much, consider this:

1.  Hairdresser/manicurist – if you’re a frequent visitor, tip the cost of one visit.  If you’re a less frequent customer, then $20.  However, if you tip generously through the year, you do not need to give an extra tip at the end of the year;

2.  Personal trainer – up to the cost of one visit;

3.  Massage therapist – also cost of one visit; and

4.  Golf or tennis instructor or sax teacher – a thoughtful gift.

If you’re unable to tip or give a gift, a thoughtful thank you note will acknowledge the good work these people do for you throughout the year.  Another effective gesture of gratitude is to send a thank you note to the supervisors of the people who provide you with great  service throughout the year, letting them know how impressed you are with the service you receive.  

Good feedback is appreciated by both the supervisor – as well as the people who are helping you out. 

If you have any more ideas, let us know! 

Be safe and stay well!

What is the AMT?

Rather than showing themselves to be an ally to the middle class by ending the AMT or repealing it for years to come, my Republican colleagues refused to include it in today’s legislation and America’s middle class will surely suffer that choice greatly. 

-Ellen TauscherRead 

No, it is not a dyslexic version of ATM!

Back when people could shelter almost 100% of their high income, Congress decided to make that more difficult by creating the alternative minimum tax (“AMT”).  This and other changes have made it difficult for the top 1% of taxpayers, people with income over $1 million, to go much below an average tax of 20%.  But, an AMT rate as high as 28% is still great if your marginal rate is 39%.

However, the AMT is sometimes called the “stealth tax” because it now affects many less wealthy taxpayers!

 

Why do
you care?  Despite the title, you do not
get to pick

You must pay the higher amount determined by the regular and AMT
tax calculations.  If you have to pay the
AMT, you are paying almost a flat rate of 26% but it can be 28%, and you are
losing the value of certain deductions, including state income taxes paid,
certain mortgage interest and miscellaneous deductions, and having “preference”
amounts added to AMT income, including incentive stock options and alternate
depreciation schedules.  Data on 2012
income tax indicates that nearly every married taxpayer with income between
$100,000 and $500,000 owed some AMT.  

So what do you do?  Plan carefully

Make sure that efforts to reduce
regular taxes do not push you into paying the AMT.  Here is one example: If you have a year with
high ordinary income, you should pay your state income taxes during that
calendar year, since you are less likely to be in the AMT, rather than waiting
to pay in April of the next year, where a lower ordinary income means that you
will certainly be in the AMT. 

(Note: some states impose an AMT as well.)

Good planning pays off

As in the
example above, where preserving the deduction can be a very substantial savings
on your federal income taxes.

Should you Lease or Buy your next Car? It Depends

Any time you hear “always lease” or “always buy,” the “always” tells you the advice will probably never work for you – Steven

Are you better off leasing or buying a car?  The answer depends on many factors.

 

 

You want to evaluate the cost
of having the car during the period you own or lease it.   That includes the down payment, loan
payments and interest or lease payments, insurance, maintenance not covered by
any maintenance agreement, repairs not covered by warranty or extended
warranty, and gas.   

When you buy a car, your total
cost is reduced by what you get when you sell or trade it in.

When you lease a car, have lease
payments and no trade value.  

Note that the amounts you can
deduct for business use also differ: you can depreciate a car you buy, and
deduct financing charges, for the percent of business use, but only take lease payments on a car you lease for the percent of business use.

Quick guess: 

If you want a new car every
few years, leasing is probably better;

But if you typically own a car
for six years or more, which would be at least two successive leases, then
buying probably works better.  

Contact me if you need more car-related advice!

Guidelines for Holiday Tips and Gifts

I never wanted Mary Poppins to be my nanny. I wanted to be her when I grew up. 

-Anita Diament

The holiday season is in full swing and with that comes gift giving and tipping!  

This year, many of us have more people to thank, and tipping is one way to respond.

While gift giving etiquette may be obvious in some instances, it can get less clear when considering gifts for people outside of your friends and family.  So, to help you navigate the season, we have put together a guide of suggested amounts for gifts and tips.  

We all have people in our lives that help us keep our families, homes and businesses on track and get through each day as we move forward throughout the year.  In many cases, the services they provide ensure we can go to work, have clean homes and stay fit, including caregivers, delivery, home maintenance, and personal care services: 

Caregivers (for kids, parents and pets, too!)

Caregivers for your children, parents and pets can be lifesavers.  They provide care, education, exercise, and attention to those you care about most.  This is the time of year to let them know how thankful you are for all that they do.  The amount of service they provide and the arrangement you have with them can dictate the appropriate gift level:

1.    Nanny/au pair – a week’s salary and a small gift;

2.    Daycare teachers – a $25-$70 gift;

3.    Home healthcare worker – a week to a month’s salary;

4.    Teacher – a small gift and a handmade card from
your child;

5.    Dog walker – depending on your walker’s schedule, you may want to gift a day’s pay or a full week’s pay; and

6. Dog groomer – half the cost to the full amount for the service.

If you contract any of these services through an agency, you may want to contact the agency to find out if they have a gift-giving policy in effect.  If the agency prohibits gifts, consider alternatives like making a donation to the agency or sending in homemade cookies to the office. Or sneak a Starbucks card into their stocking …

“Neither snow nor rain…”

Despite the weather, terrain or traffic, your mail carrier delivers your mail every day and your online purchases arrive on time and in good condition.  Let those who make those
deliveries know you’re grateful.  In deciding what and how much to give, consider the particular company’s gift giving restrictions:

1.    Mail carriers – are not prohibited from receiving cash gifts and gifts more than $20;

2.    FedEx – employees may accept gifts under $75,  though no cash or gift cards;

3.    UPS – workers are allowed to accept tips, but UPS discourages the practice; and

4.    Newspaper delivery – $10-$30 is standard. 

Home Maintenance:

Whether you live in a single family home or a large apartment building, it’s likely there is someone who services your home or property in some way. 

1.  Trash and recycling collectors – $10-$30, which you may want to mail directly to the collection company if you’re not home to hand deliver it;

2.    Doorman – $25-$100;

3.    Regular cleaning person – the cost of one visit;

4.    Landscapers/gardeners – $20-$50 per person or if you have just one person doing the work, the cost of one visit;

5.    Parking garage attendant – $10-$50; and

6.    Building’s handyman, superintendent and custodian – $20-$100.

If you have someone who always goes the extra mile, such as a handyman who’s prompt and efficient or a doorman who is quick to carry heavy packages for you, then a larger tip may be warranted. 

Personal Services:

It’s hard work keeping you fit, perfectly coiffed and beautiful, but recognizing the efforts of those who do is easy and may also buy you scheduling flexibility when you really need it.  In deciding whether to tip and how much, consider this:

1.    Hairdresser/manicurist – if you’re a frequent visitor, tip the cost of one visit.  If
you’re a less frequent customer, then $20.  However, if you tip generously through the year, you do not need to give an extra tip at the end of the year;

2.    Personal trainer – up to the cost of one  cost;

3.    Massage therapist – also cost of one visit; and

4.    Golf or tennis instructor or sax teacher – a thoughtful gift.

If you’re unable to tip or give a gift, a thoughtful thank you note will acknowledge the good work these people do for you throughout the year.  Another effective gesture of gratitude is to send a thank you note to the supervisors of the people who provide you with great  service throughout the year, letting them know how impressed you are with the service you receive.  

Good feedback is appreciated by both the supervisor

and the people who are helping you out. 

Why You Don’t Need a Budget

Manage your spending by
creating and sticking to a budget.

-Alexa Von Tobel

Traditional Budgets Don’t Work

You know you need to save more, but how? Where will the money come from? It takes tremendous effort to accurately record all transactions so that you have a valid budget.  Then, frequently, after

 

“Instant budget”

A much easier way to figure out your spending is to take a twelve-month period and look at your cash and credit card balances at the beginning and compare them to the end of the year. Look for any inflows from gifts or other non-salary items, and then measure the change.  Did the cash accounts go up or did the credit cards go up?  That is your savings/dis-savings for that year.                  

Changing behavior

Rather than doing a budget to adjust behavior, force a change.  You can do that by removing money from your discretionary spending by contributing the maximum to a 401(k) plan, by an auto debit that put funds into an investment account, and other auto payments you remove available cash from the equation.  If your credit card balances go up, then you have to make a decision to alter behavior.

How does cash flow relate to debts?  

Managing your debt means getting the lowest after-tax interest rate so that you pay as much principle with each payment to pay off the loan as quickly as possible. 

You can deduct the interest paid on a mortgage and an equity line of credit debt.   You can deduct up to $2,500 of student loan debt.  But you cannot deduct the interest on most other forms of debt.

Conclusion?

Yes, you can skip the budget, but don’t skip knowing where all your money goes so that you can save! Remember, every dollar has a job.

Play the Rewards Game

Procrastination is like a credit card: it’s a lot of fun until you get the bill. 

-Christopher Parker

 

Channel Lucille Ball here and rack up those points with the following tips to maximizing rewards: 

1. Reward types: Before you begin your search, determine the type of reward you are looking for: cash back, travel, gift cards, etc. Once you know what you are looking for, begin your search for the best card for each type of reward.

2. Strategy: After you review available cards and select one or more for the rewards you want, develop a strategy to use your cards to get the most out of their reward terms. You may find that some cards offer different rewards for different types of purchases. 

3. Fees: You want to avoid paying any late fees, which average $34, because these fees quickly undermine any rewards you may earn. On the other hand, annual fees may be worth paying depending on the rewards being offered. For example, if you earn 6% back on purchases, then a $75 annual fee may make sense. You can always call the company and try to have the fee waived. If you signing up just for the sign-up bonus, then you will probably want to cancel the card before the fee is incurred.

4. Apply: Once you have narrowed down the cards with the best offers for you, apply for the credit cards within a two day period to minimize the number of inquiries recorded on your credit report. Multiple inquiries may damage your credit score.

5. Tracking: Develop a method to ensure you are using the right card for the right purchases.

6. Card balances: Keep your credit usage to 20% to 30% of your available credit because your credit score is also affected by the amount of credit you use. 

7. Payments: Pay off your balance every month. If you allow yourself to carry a balance, the interest rates you incur will diminish or wipe out any rewards you earned.

With a small investment of time and some self control, you can make credit cards pay you, rather than paying them a ton of money in interest.

7 things to do when starting a business to avoid nasty surprises

The only thing that hurts more than paying an income tax is
not having to pay an income tax. 

-Thomas Dewar

When you decide to start a business, taxes may be the
last thing you think about.  However, not
realizing that you owe the self-employment tax as well as income taxes can lead
to a nasty surprise when you file your taxes. 
This post is aimed at avoiding that costly surprise. 

But, before we discuss the self-employment tax, there are
other important steps to take when you become self-employed.  Here are the 7 things to do after you start your own business to avoid nasty
surprises:

Avoid nasty surprises –
set up bookkeeping, form your entity, get licensed, buy insurance, and pay
taxes

Bookkeeping – set up bookkeeping using software like
QuickBooks (either online or on your laptop). 
You don’t want to be scrambling to find receipts at tax time or not be able
to tell somebody if you are making money or not. 

You can save time by downloading from your bank and credit card companies.  If you set up things well, all income and every expense will be properly categorized for your profit and loss statement, or P&L.  The P&L and balance sheet help you monitor your business to see how well you are doing and are essential for preparing your tax returns.  The balance sheet will also come in handy if you need to apply for financing. 

 

For all these steps, you may want to hire an accountant
or speak to an attorney.

Okay, keep going ….

Entity – for many small businesses, being a sole
proprietor is appropriate.  You avoid paying
corporate excise taxes and filing annual reports.  However, if you have partners, you may want
to form a partnership, corporation or LLC (details on choosing are beyond the
scope of this post). 

 If your business involves risks that could lead to law
suits, form a corporation or LLC to shelter your personal assets from
liabilities of the business that insurance may not cover.  Make sure that any actions you take for the
business are in your capacity as an officer or manager – i.e., never sign
personally.

Remember, you may want to consult with an attorney.

Get licenses, file annual
reports and pay local taxes –
certain businesses require a license to operate.  Most entities are required to file annual
reports.  And, your city may impose taxes
on the personal property in your business.  Be sure to find out so you don’t owe penalties
for failing to file and pay.

Buy health and other
insurance –
in
addition to liability insurance, you will want to obtain health insurance if
you are no longer working for another employer. 
You may get favorable treatment for this expense on your income taxes.  You can also purchase insurance to cover
damage to equipment, loss of data, identity theft and so on.  

File payroll taxes – if you hire people to work for you
and pay them over $600 per quarter in any year, you need to report the
compensation.  If they are independent
contractors, you file a form 1099 with the IRS. 
If they are employees, you file a W-2 with the Social Security
Administration.  You also provide these
forms to your people for the income tax filings. 

You may need to withhold and remit FICA and Medicare
taxes.  Also, your employees may request
that you withhold and remit federal and state income taxes (unless you live in
a state that does not impose income taxes). 
Failure to withhold and pay to the IRS and state can lead to serious
penalties.

Pay your income tax – one big shock for many who start a
business is how much they owe in taxes.  When
you received a paycheck, you probably did not focus much on the fact that your
employer withholds federal and state income taxes and FICA and Medicare
taxes.  And, you never had a chance to
spend what was withheld. 

However, when you run your own business, you have full
access to the pre-tax income, so you must diligently allocate funds ahead of
time so that you don’t come up short at text time.  To avoid owing interest on the taxes due, you
make estimated tax payments each quarter to the IRS and state.  

Pay the
self-employment tax –
when you were an employee, your employer withheld FICA and Medicare
taxes from your paychecks.  The employer
also contributed FICA and Medicare taxes on your behalf

When you become self-employed, you are responsible for both
the employee and employer amounts.  This
tax is based on your net self-employment income

A lot to remember,
right?  

Maybe, but knowing and
planning is far better than trying to scrape together money in April to cover
taxes you did not expect. 

Good luck with your
new business!
 

In future posts, we will
examine partnering with others, assessing your profitability, rules on deducting
expenses, and entry into the real estate market. 

What Is Money?

Wealth is the ability to fully experience life.

– Henry David Thoreau

What would you do without money? Imagine carrying around leather coats you just finished stitching together from hides you tanned from an elk you shot and skinned, with the hope of finding someone willing to take them in exchange for that new smartphone you want …. Or imagine having to wash dishes at a restaurant to pay for the meal you wanted.  Not fun!  

 

Except if you’re ridiculously good at it.

The advent of money was a big deal in finance.  It created a standard.  As long as everyone accepts the value of money as a currency, it allows you to handle many financial transactions: you get paid, you buy goods, you pay for services, and you save.

Money stores the value of what you do for work

Without it, you would still be using the barter system, and you would have to be prepared to offer many jobs or diverse goods to make trades.  

Barter: the exchange of one good or service for another good or service.  

I went to the bank and asked to borrow a cup of money. They said, ‘What for?’ I said, ‘I’m going to buy some sugar.’ 

– Steven Wright

Money splits up the barter exchange: one person pays you money for your good or service; you use that money to go buy the goods or services you want.  This way, you no longer need the “double coincidence of wants.” 

With money, you have new possibilities  

As soon as you can store the value of your work, new possibilities arise.  First, you no longer need to be able to offer many services for barter, you can develop a special skill.  Second, money is “liquid,” meaning it is available whenever you need to use it compared to pulling out your fur coats from storage.  Finally, you can save up to buy big ticket items. 

How do you save enough to buy a car when you need the car to go to work to earn and save money?  There’s an app for that, it’s called credit – credit cards, revolving credit, short-term loans, long-term loans, etc.

Buying on credit 

The advent of loans to buy cars, sewing machines, refrigerators, and other items was another big deal in finance.  The short-term loan from a bank allows you to purchase and use a car right away, if you have good credit (more on building credit later).  Same goes for using a mortgage to buy a house.  

Credit cards are not money; they are a form of a short-term loan from a bank that you can use in place of money for purchasing goods or services.  

You then repay the lender all that you borrowed plus interest.  Of course, to keep your credit good, you have to make all the payments on your credit cards, car loans and mortgage on time. 

Benefits of money and credit, with some concerns

We now use apps to pay with our smartphones in place of money and even plastic credit cards.  The apps, like credit cards and money itself, are all part of finance.  

While this all sounds wonderful, there are some serious hitches:  as soon as you introduce money, you find many companies make money off of you almost any time you use money or credit:  bank fees, PayPal fees, investment fees and commissions, interest on loans, share of profits on sale, life insurance, commissions and real estate commissions.  

But then again, money permits you to purchase and own another type of asset: investments.  

More on fees and on investing in future posts – stay tuned!

Every Dollar Has a Job

“Budgets are nothing if not statements of priorities” 

– Jeff Merkley

Think of Yourself Like a Business

Imagine you have been put in charge of your favorite coffee shop. You really like their coffee, so you want to do all you can to keep it going. Could you manage it or would the shop go out of business? 

 

While you may not have the industry knowledge to manage a coffee shop…yet, you should have the skills to manage your own income and expenses like a business. If you don’t manage your income and expenses? Then you could go out of business! Okay, that’s a bit harsh, but who enjoys feeling broke all the time, and not being able to afford the things you really want? 

Every dollar serves some purpose and you need to know what that is. 

Back to the coffee shop. If you did manage it, you would need to keep track of everything that came into the shop and everything that left.

 

 

You would know what cash and credit card payments you received.  That is your Income. Also, you would know how many cups of coffee, pounds of coffee beans, and all the paraphernalia the shop sold.  These are your sales (sort of like the hours you “sell” to your employer). You would keep track of what you paid for supplies, rent, electricity, water, and insurance. You would also know how much you paid each employee and what you paid in payroll taxes and benefits.  These are your expenses. Finally, you would know what you made, which is the coffee shop income less its expenses.  That is called your profit (before taxes). 

What would you do with that profit?  You would pay income taxes, of course. You might create an emergency fund so you would be prepared for some unexpected calamity, like a delayed coffee shipment, or a broken storefront window. If you were really forward thinking, you might even set aside funds to replace broken equipment or maybe even save up to buy a building rather than continue to rent.

What if, instead of a profit, your expenses continually exceeded income? You have a loss – ouch! You don’t want to lose the coffee shop, so you might borrow some money to cover bills. That only postpones your problem; it doesn’t fix it. So you create a budget to learn why your expenses were so much compared to income. You might hire a bookkeeper to make sure you didn’t miss anything.

You could even hire a coffee shop planner who would tell you if you are buying too many supplies compared to what you sold.  The planner would make sure you charge enough for coffee and she would tell you to stop paying that Friday night blues band that wants free coffee and isn’t actually improving business. 

I’m sure you figured out where this is all going: You need to know what you make and where you spend each dollar. 

If you don’t know, look at the last 12 months of income and spending, even start a budget so you see why you keep borrowing on credit cards instead of saving for your future.

In the end, there is no left over money.  Every dollar needs to work for you, as hard as you work to make every dollar.

In future posts, we will look at the ways you spend, your “fixed expenses,” like income taxes, health insurance and rent, your “variable expenses” like food, phone bills and clothing, and your “discretionary expenses” like Netflix and, you guessed it, coffee!