Category: every dollar has a job

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!

Here are the Steven & the Squash Brothers videos from a few years back, helping with Holiday Planning with ideas on cash flow, debt management, and tax planning.

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.

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

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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!

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. 

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

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“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.