We have all watched over the last few weeks the horrific images coming from Haiti. It’s hard to imagine how difficult that would be here at home, but imagine how hard it must be in a country that struggles with the simple tasks we take for granted. They obviously could use our help.
The IRS has given us a little incentive to help out. On Jan. 22, 2010 a new law went into effect that will allow taxpayers to deduct qualifying contributions to organizations providing relief to victims in Haiti on their 2009 tax return.
The fine print
Contributions must be made after Jan. 11, 2010 and before March 1, 2010, and the taxpayer must itemize their deductions on Schedule A in order to take advantage of the benefit. Contributions must be in the form of a cash type donation, as opposed to a donation of property. Donations via text message, check, credit and debit cards are allowable. The IRS states that the taxpayer may choose either tax year 2009 or 2010 to take the deduction. Obviously, not both….the IRS frowns on double dipping!
I always tell my clients not to make charitable contributions solely based on the tax deduction. Make the donation because you choose to. This still holds true, but the flexibility to take this deduction either in 2009 or 2010 is fabulous. This is another opportunity to utilize a little forethought and tax planning to maximize tax savings…..all while helping those in need.
Friday, January 29, 2010
Tuesday, January 19, 2010
Three Ways to Reduce Your 2009 Tax Bill in 2010.
It’s that time of year again! Tax documents are arriving by mail and the race towards April 15th is on. What many folks don’t fully understand is the fact that while 2009 is over and gone, there are still things we can do to reduce our tax liability for last year. Here’s a list of a few things you can do now that might reduce your tax bill for 2009.
1. Take full advantage of available tax credits.
The government offers taxpayers an array of credits. Remember that credits are a dollar for dollar reduction in tax liability as compared to a tax deduction, which will reduce your taxable income. In short, tax credits are preferable to tax deductions. While some credits are phased out by income, such as the child tax credit, other credits are not phased out by income, such as the residential energy credit.
Below is a list of popular credits that often get overlooked:
• Residential Energy Credit. Taxpayers can use this credit for improvements to a principle residence that creates an increase in energy efficiency. I.e. Installation of a tankless hot water heater.
• Alternative Motor Vehicle Credit. The government will give you a tax credit if you purchased an alternative fuel vehicle, such as a hybrid automobile.
• First Time Homebuyers Credit. This credit has certainly made the headlines. If you purchased a home in 2009, you may be eligible for a tax credit that could save you tax dollars.
• American Education Opportunity Tax Credit. This credit extends the credit formerly known as the Hope credit. If you sent a child to college in 2009, this credit might be for you!
• Dependent and Child Care Credit. This credit is available for working tax payers with dependents that require care during working hours. There are several requirements and regulations with this credit, but it is certainly worth the effort, if applicable.
The above list is only a portion of available credits. It is beyond the scope of this article to explore the entire list. It is important to discuss the applicability of tax credits with your tax professional. It could save you big bucks!
2. Maximize Retirement Contributions.
Did you know that the government will subsidize your retirement? That’s right, through tax deductions the government effectively is subsidizing your retirement. Many personal retirement accounts allow contributions up until April 15th, and those contributions can apply to 2009. A few even allow contributions as late of Oct 15th, 2010 while applying towards the 2009 tax return.
Contributions into tax-deferred retirement accounts, such as IRAs, SEPs, and SIMPLE IRAs reduce current taxable income; therefore reducing tax liability. For example, a couple in the 25% tax bracket who can make an allowable Traditional IRA contribution of $10,000 could save $2500 or more. That’s a 25% return on investment before this money is even invested! Best of all, this contribution can be made as late as April 15th.
There are a multitude of rules and regulations regarding allowable retirement contributions and deadlines, so it’s imperative to speak with a tax professional before making a decision.
3. Review Itemized Deductions.
Schedule A (Itemized Deductions) is a common area for mistakes and omissions. In my experience, I have seen mistakes and omissions on this form due to a lack of effort from the taxpayer. For example, many people leave tax dollars on the table when it comes to charitable deductions. Charitable deductions can help reduce taxable income and ultimately decrease your tax bill.
Here are a few other areas that are often overlooked.
• Charitable Mileage. A deduction is allowable for qualifying charitable mileage. For example, if you drive to a local Goodwill to drop off items, the mileage to and from is deductible.
• Sales Taxes. In 2009 there are a couple ways to deduct sales taxes paid for automobile purchases. Depending on the state in which you live, this deduction can save you several hundred dollars or more. Let your tax preparer know if you purchased a vehicle in 2009.
• Non-cash Charitable Contributions. Organizations such as Goodwill perform a great service to our communities. It’s important to properly substantiate non-cash contributions to maximize deductibility. Make sure to always get a receipt from the organization, create an itemized list of items being donated, and do not forget to properly value the items being donated to fully substantiate these types of donations. There are several documents available to assist taxpayers in determining the donated value of each item, including one on Goodwill’s website. It’s worth the additional effort.
This is another area where a good tax preparer can come in handy. Don’t be afraid to ask for assistance from your preparer when it comes to properly valuing your donated items. Also, make sure to keep up with your mileage as well!
• Utilize Miscellaneous Items Deductions. Miscellaneous itemized deductions are subject to a 2% floor of adjusted gross income. This means in order to get a deduction you must produce deductions greater than 2% of your adjusted gross income.
The number of employees working from home has increased in the past few years. An office in the home of an employed taxpayer is a fine example of a miscellaneous itemized deduction. Tax preparation fees, financial planning, unreimbursed employee expenses, and investment expenses are a few more examples of miscellaneous itemized deductions.
Most Taxpayers don’t have the time and energy to fully understand all the available deductions, credits, and retirement contribution options available. The key to properly handling one of the largest recurring expenses (taxes) in anyone’s financial world is by implementing a proactive tax strategy. But, even with good tax planning, numbers can change and life can get in the way. When that occurs, the above options allow taxpayers another chance to reduce their tax liability.
I utilize integral tax planning for my clients. I feel this areas is one of the most important (if not the most important) part of the financial planning puzzle. Taxes can touch and impact (both positively and negatively) many aspects of our financial world, so it’s important to manage our tax liability. It’s important that taxpayers work closely with tax preparers.
I am a firm believer in holistic financial planning, which includes proactive tax planning. If you are searching for a holistic financial planner in your area, The Alliance of Cambridge Advisors (ACA) is a great place to start. ACA advisors integrate taxes into financial planning, which is an enormous benefit to clients. You can find more info and search for an advisor near you at www.acaplanners.com .
In full disclosure, Troy Von Haefen is a member of The Alliance of Cambridge Advisors.
Any of the above information is intended for informational purposes only and is not intended to be considered tax advice or implemented as such.
1. Take full advantage of available tax credits.
The government offers taxpayers an array of credits. Remember that credits are a dollar for dollar reduction in tax liability as compared to a tax deduction, which will reduce your taxable income. In short, tax credits are preferable to tax deductions. While some credits are phased out by income, such as the child tax credit, other credits are not phased out by income, such as the residential energy credit.
Below is a list of popular credits that often get overlooked:
• Residential Energy Credit. Taxpayers can use this credit for improvements to a principle residence that creates an increase in energy efficiency. I.e. Installation of a tankless hot water heater.
• Alternative Motor Vehicle Credit. The government will give you a tax credit if you purchased an alternative fuel vehicle, such as a hybrid automobile.
• First Time Homebuyers Credit. This credit has certainly made the headlines. If you purchased a home in 2009, you may be eligible for a tax credit that could save you tax dollars.
• American Education Opportunity Tax Credit. This credit extends the credit formerly known as the Hope credit. If you sent a child to college in 2009, this credit might be for you!
• Dependent and Child Care Credit. This credit is available for working tax payers with dependents that require care during working hours. There are several requirements and regulations with this credit, but it is certainly worth the effort, if applicable.
The above list is only a portion of available credits. It is beyond the scope of this article to explore the entire list. It is important to discuss the applicability of tax credits with your tax professional. It could save you big bucks!
2. Maximize Retirement Contributions.
Did you know that the government will subsidize your retirement? That’s right, through tax deductions the government effectively is subsidizing your retirement. Many personal retirement accounts allow contributions up until April 15th, and those contributions can apply to 2009. A few even allow contributions as late of Oct 15th, 2010 while applying towards the 2009 tax return.
Contributions into tax-deferred retirement accounts, such as IRAs, SEPs, and SIMPLE IRAs reduce current taxable income; therefore reducing tax liability. For example, a couple in the 25% tax bracket who can make an allowable Traditional IRA contribution of $10,000 could save $2500 or more. That’s a 25% return on investment before this money is even invested! Best of all, this contribution can be made as late as April 15th.
There are a multitude of rules and regulations regarding allowable retirement contributions and deadlines, so it’s imperative to speak with a tax professional before making a decision.
3. Review Itemized Deductions.
Schedule A (Itemized Deductions) is a common area for mistakes and omissions. In my experience, I have seen mistakes and omissions on this form due to a lack of effort from the taxpayer. For example, many people leave tax dollars on the table when it comes to charitable deductions. Charitable deductions can help reduce taxable income and ultimately decrease your tax bill.
Here are a few other areas that are often overlooked.
• Charitable Mileage. A deduction is allowable for qualifying charitable mileage. For example, if you drive to a local Goodwill to drop off items, the mileage to and from is deductible.
• Sales Taxes. In 2009 there are a couple ways to deduct sales taxes paid for automobile purchases. Depending on the state in which you live, this deduction can save you several hundred dollars or more. Let your tax preparer know if you purchased a vehicle in 2009.
• Non-cash Charitable Contributions. Organizations such as Goodwill perform a great service to our communities. It’s important to properly substantiate non-cash contributions to maximize deductibility. Make sure to always get a receipt from the organization, create an itemized list of items being donated, and do not forget to properly value the items being donated to fully substantiate these types of donations. There are several documents available to assist taxpayers in determining the donated value of each item, including one on Goodwill’s website. It’s worth the additional effort.
This is another area where a good tax preparer can come in handy. Don’t be afraid to ask for assistance from your preparer when it comes to properly valuing your donated items. Also, make sure to keep up with your mileage as well!
• Utilize Miscellaneous Items Deductions. Miscellaneous itemized deductions are subject to a 2% floor of adjusted gross income. This means in order to get a deduction you must produce deductions greater than 2% of your adjusted gross income.
The number of employees working from home has increased in the past few years. An office in the home of an employed taxpayer is a fine example of a miscellaneous itemized deduction. Tax preparation fees, financial planning, unreimbursed employee expenses, and investment expenses are a few more examples of miscellaneous itemized deductions.
Most Taxpayers don’t have the time and energy to fully understand all the available deductions, credits, and retirement contribution options available. The key to properly handling one of the largest recurring expenses (taxes) in anyone’s financial world is by implementing a proactive tax strategy. But, even with good tax planning, numbers can change and life can get in the way. When that occurs, the above options allow taxpayers another chance to reduce their tax liability.
I utilize integral tax planning for my clients. I feel this areas is one of the most important (if not the most important) part of the financial planning puzzle. Taxes can touch and impact (both positively and negatively) many aspects of our financial world, so it’s important to manage our tax liability. It’s important that taxpayers work closely with tax preparers.
I am a firm believer in holistic financial planning, which includes proactive tax planning. If you are searching for a holistic financial planner in your area, The Alliance of Cambridge Advisors (ACA) is a great place to start. ACA advisors integrate taxes into financial planning, which is an enormous benefit to clients. You can find more info and search for an advisor near you at www.acaplanners.com .
In full disclosure, Troy Von Haefen is a member of The Alliance of Cambridge Advisors.
Any of the above information is intended for informational purposes only and is not intended to be considered tax advice or implemented as such.
Monday, January 4, 2010
Start 2010 on the Right Foot!
It’s hard to believe that it’s 2010. Has it really been ten years since the Y2K scare? While the world has changed over the last ten years, there are financial planning strategies that can help position ourselves for success. If you’re looking for a few things to implement as we turn the corner into another decade, read on!
Here are three things you can do to help positively position you for a successful 2010!
1. Timely file your taxes
Most people handle their personal taxes in a reactive manner. They don’t spend much time during the current tax year preparing and planning to balance the tax liability due. Many folks put off preparing the tax return until the last possible minute, which can mean October.
It’s difficult to get a handle on your current year’s tax projections if you don’t file your previous year’s return until October. For those of you who year after year file for extensions and finalize your return in October, you know the burden you carry around until the return is finally signed and filed. If the return is filed in October, there are only a couple more months before the process begins again. Imagine the weight that would be lifted from your shoulders by filing your return when due (April 15th). I have seen this time and time again in my office with clients who were perpetual late filers. By filing timely, clients now have more time and energy to prepare for the current year’s tax burden and can focus on tax reduction strategies.
Remember that taxes are the single largest recurring expense that most of us will encounter from now until the day we die…..and the IRS will want a piece of the pie even after you die! So, why not pay more attention to this expense. File timely and focus efforts on reducing your tax liability through efficient tax planning. Start now by preparing documents for your tax preparer and strive to hit the April 15th deadline.
2. Establish a Spending Plan (Budget)
I realize I have said a bad word. The term budget conjures up similar feelings as “pop quiz” or “shot”. Just like testing and vaccinations are necessary, budgets have a very useful place in our personal financial world. The overall goal of a budget or spending plan is two-fold: 1. to make sure we spend less than we earn, and 2. to make sure we are doing the right things with our money (working towards goals and spending money in areas that bring us joy).
While not everyone will need a budget that is dialed down to the penny, some folks will need to see in black and white where their money goes every month. Knowledge is key, and having a budget on paper, in black and white, will help you visualize the income versus expenditure concept.
Again, not everyone will need a detailed budget. I feel that everyone will at least need to have a spending philosophy. In essence, if expenditures are less than income, liquidity is in place (emergency funds), goals (future needs) are being tended to, consumer debts (car loans…etc) are eliminated, and purposeful spending is occurring (spending money in areas that bring joy), then a person’s spending philosophy is right on track.
3. Take advantage of matching funds while savings for your retirement
While some corporations have reduced or eliminated matching funds in retirement plans, most have not. If your company offers a 401k/403b match, take full advantage of this free money. If your company matches up to 6% and you only contribute 4% into your 401k plan, then you are leaving free money on the table. There are not many free rides available for hard working folks, but this is one!
There is a nice additional benefit tied to retirement contributions. Money that is deferred into a retirement is not currently taxed. The government will help subsidize your retirement by delivering a tax break for retirement contributions. For example, a single tax payer in the 25% tax bracket who contributes $10k into their 401k will save a minimum of $2500 in taxes. That’s a 25% return on investment before the money even enters the market!
At first glance the above three items may not seem connected, but the interworkings of a good financial plan work hand and glove with all the integral pieces. These three pieces can work together to produce a positive snowball effect on a personal financial plan. With proper tax planning comes tax savings, which in turn frees up more money for cash flow. More cash flow allows for an increase in retirement contributions, which reduces taxes even further and again increases cash flow. You get the idea! Start 2010 on the right foot by taking positive steps to improve your financial wellbeing. Happy New Year!
Here are three things you can do to help positively position you for a successful 2010!
1. Timely file your taxes
Most people handle their personal taxes in a reactive manner. They don’t spend much time during the current tax year preparing and planning to balance the tax liability due. Many folks put off preparing the tax return until the last possible minute, which can mean October.
It’s difficult to get a handle on your current year’s tax projections if you don’t file your previous year’s return until October. For those of you who year after year file for extensions and finalize your return in October, you know the burden you carry around until the return is finally signed and filed. If the return is filed in October, there are only a couple more months before the process begins again. Imagine the weight that would be lifted from your shoulders by filing your return when due (April 15th). I have seen this time and time again in my office with clients who were perpetual late filers. By filing timely, clients now have more time and energy to prepare for the current year’s tax burden and can focus on tax reduction strategies.
Remember that taxes are the single largest recurring expense that most of us will encounter from now until the day we die…..and the IRS will want a piece of the pie even after you die! So, why not pay more attention to this expense. File timely and focus efforts on reducing your tax liability through efficient tax planning. Start now by preparing documents for your tax preparer and strive to hit the April 15th deadline.
2. Establish a Spending Plan (Budget)
I realize I have said a bad word. The term budget conjures up similar feelings as “pop quiz” or “shot”. Just like testing and vaccinations are necessary, budgets have a very useful place in our personal financial world. The overall goal of a budget or spending plan is two-fold: 1. to make sure we spend less than we earn, and 2. to make sure we are doing the right things with our money (working towards goals and spending money in areas that bring us joy).
While not everyone will need a budget that is dialed down to the penny, some folks will need to see in black and white where their money goes every month. Knowledge is key, and having a budget on paper, in black and white, will help you visualize the income versus expenditure concept.
Again, not everyone will need a detailed budget. I feel that everyone will at least need to have a spending philosophy. In essence, if expenditures are less than income, liquidity is in place (emergency funds), goals (future needs) are being tended to, consumer debts (car loans…etc) are eliminated, and purposeful spending is occurring (spending money in areas that bring joy), then a person’s spending philosophy is right on track.
3. Take advantage of matching funds while savings for your retirement
While some corporations have reduced or eliminated matching funds in retirement plans, most have not. If your company offers a 401k/403b match, take full advantage of this free money. If your company matches up to 6% and you only contribute 4% into your 401k plan, then you are leaving free money on the table. There are not many free rides available for hard working folks, but this is one!
There is a nice additional benefit tied to retirement contributions. Money that is deferred into a retirement is not currently taxed. The government will help subsidize your retirement by delivering a tax break for retirement contributions. For example, a single tax payer in the 25% tax bracket who contributes $10k into their 401k will save a minimum of $2500 in taxes. That’s a 25% return on investment before the money even enters the market!
At first glance the above three items may not seem connected, but the interworkings of a good financial plan work hand and glove with all the integral pieces. These three pieces can work together to produce a positive snowball effect on a personal financial plan. With proper tax planning comes tax savings, which in turn frees up more money for cash flow. More cash flow allows for an increase in retirement contributions, which reduces taxes even further and again increases cash flow. You get the idea! Start 2010 on the right foot by taking positive steps to improve your financial wellbeing. Happy New Year!
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