Tax planning?  It helps you pay less, if you act

Checking your income tax planning now is a good idea – tax planning can be done year-round.  As with any planning, acting while you can have an impact is best.  Tax laws may change but knowing where you stand now will help you respond in the best way.

Check out these posts from our sister website: mid-year planning and year-end post on 2021 tax planning; let me know if you have any questions or comments! And good work in keeping up your financial literacy!

Holiday gift and tipping guide, Pandemic style

The holidays are a great time to say “thanks” and show appreciation for those who help us keep our families, homes and businesses on track, keep our homes clean, help us stay fit, and help us in other ways to get through each day throughout the year.  With that in mind, we updated our suggested gifts and tips for 2021. 

Gift giving etiquette may not always be obvious when considering gifts for people outside of your friends and family, so be mindful of the message you send.  Giving should show appreciation and respect.  Sometimes a smile or kind word can really make someone’s day.

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

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 also send letters of thanks directly to a local hospital, fire station or police department or send a meal or buy coffee.  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. 

“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 during the Pandemic, even risking their own health.  

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.  Garbage and recycling pickup – depending on what municipal rules permit, we suggest $10-$30.

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

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

5.  Newspaper delivery – a gift of $10-$30 is standard.

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

7.  Food delivery and curbside pickup – again we suggest the same as for newspaper delivery.

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 – from one week up to a month’s salary.

4.  Teacher – a small gift and a handmade card from your child (unless your child is still remote learning).  Note that a cash gift could be misconstrued as a bribe.  You can pool resources with other parents for a gift card.

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

6.  Dog groomer – from half up to the full cost 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.  

Also, if you have seen these people less frequently, consider adding more to a tip as they have suffered from the infrequent visits by you and others.  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 – a gift of $10-$30, which you may want to mail directly to the collection company if you can’t safely leave for the collectors.

2.  Doorman – a gift of $25-$100, depending on their role this year.

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

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

5.  Parking garage attendant – a gift of $10-$50.

6.  Building’s handyman, superintendent and custodian – a gift of $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, and ready to face the day, but recognizing the efforts of those who do is easy and may also help you get that special appointment 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.  If multiple people work on your hair, divide the tip among them. 

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

3.  Massage therapist – also up to cost of one visit.

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.   

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

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.

If you have any more ideas, let us know! 

Be safe and stay well! 

  • Steven

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.  [This has changed since the tax laws changed in 2018.]

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.

via GIPHY

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.

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.