Life can alter your taxes with little to no warning. Here are several situations where you may need to schedule a tax planning session:
Getting married or divorced. You could get hit with a Marriage Penalty in certain situations when the total taxes you pay as a married couple is more than what you would pay if you and your partner filed as Single taxpayers. The opposite can also occur, when you benefit from a Marriage Bonus. This often occurs when only one spouse has a job or earns income in other ways such as a business. Another situation when tax planning becomes critical is if you and your future spouse both own homes before getting married.
If you’re going from Married to Single, make the process include tax planning. Under divorce or separation agreements executed after 2018, alimony is no longer deductible by the spouse making payments and isn’t considered taxable income for the spouse receiving payments at the federal level. The opposite is true for divorce or separation agreements executed before 2019 – alimony is generally deductible by the spouse making payments and must be reported as taxable income by the spouse receiving payments.
Child support is also not deductible by the spouse making payments, and isn’t considered taxable income for the spouse receiving payments. In addition, not all assets are taxed the same, so their true value will vary.
Growing a family. Your family’s newest addition(s) also comes with potential tax breaks. You’ll need a Social Security number for your newborn child and to understand the impact this little gem will have on your full-year tax situation. These include breaks to help pay for child care or adoption-related expenses, the child tax credit, and the Earned Income Tax Credit.
Changing jobs or getting a raise. Getting more money at work is a good thing. But it also means a higher tax bill. So you may need to review your tax withholding to ensure there are no surprises at the end of the year. And when leaving an employer, expect a tax hit for severance, accrued vacation, and unemployment income payments.
Another potential tax problem if you get a raise or otherwise earn more money is that you may no longer qualify for certain tax breaks, as most tax deductions and tax credits phase out as your income increases. Consider scheduling a tax planning session to discuss the phase out thresholds that may affect you in 2024.
Buying or selling a house. You can exclude up to $250,000 ($500,000 if married) of capital gains when you sell your home, but only if you meet certain qualifications. A tax planning session can help determine if you meet the qualifications to take advantage of this capital gain tax break, or other home-related tax breaks such as the mortgage interest deduction or credits for installing qualified energy-efficient home improvements.
Saving or paying for college. There are many tax-advantaged ways to save and pay for college, including 529 savings plans, the American Opportunity Tax Credit, and the Lifetime Learning Credit. As you plan your future, understanding how these expenses can be managed often happens long before you begin your college journey.
At the end of the day, when in doubt please reach out. There is no reason to pay more than you need to and a simple tax planning session can make all the difference.
Kids can pose challenges from every direction for their parents – feeding times, car seats, sleep schedules, strollers, child care, and of course…taxes! What most parents don’t consider is that these bundles of joy complicate their tax situation. Here are some tax tips that may help:
Start a 529 education savings plan. 529 education savings plans are a great way to kick off the baby’s savings for the future. These plans offer low-cost investments that grow tax-free as long as the funds are used to pay for eligible education expenses (including elementary and secondary tuition). States administer these plans, but that doesn’t mean you are stuck with the plan available in your home state. Feel free to shop around for a plan that works for you. Starting to save early, even a little bit, maximizes the amount of tax-free compound interest you can earn in the 18+ years you have before kids go to college.
Bonus tip for family and friends: Anyone can contribute up to $18,000 to the plan in 2024 for each child! In addition, there is a special provision for 529 plans that allows five years worth of gifts to be contributed at once — a great estate-planning strategy for grandparents.
Update Form W-4. Every year, parents need to review their tax withholdings. Remember, the birth of a child brings new tax breaks, including a $2,000 Child Tax Credit, along with the Child and Dependent Care Credit for childcare expenses. These credits can be taken advantage of now by lowering tax withholdings and increasing take-home pay to help cover the cost of diapers and other needs that come with babies and children. On the other side of the coin, these benefits fall away as your kids grow older. The Dependent Care Credit is for children under the age of 13 and the Child Tax Credit is available for kids under the age of 17. So plan accordingly.
Prepare for medical expenses. Having a baby is expensive. So is watching your kids grow up! Fortunately, there are ways to be tax smart in covering the predictable medical and dental expenses. The first thing to do is try to pay for as many out-of-pocket expenses with pre-tax money. Many employers offer tax-advantaged accounts such as a Health Savings Account (HSA) or a Flexible Spending Account (FSA). So check this out and fund these accounts as much as possible. And while it’s more difficult to claim medical expenses as an itemized deduction, it’s impossible to do so if you don’t keep receipts.
Having a kid can be expensive. Schedule a tax review today to make sure you’re getting all the child tax breaks you deserve!
During your summer break or vacation, consider the following ideas to not only recharge, but to do so without sitting in front of a screen, monitor, or phone.
Leverage the library. If it’s been a while since you’ve been to a library, consider a trip to find two or three good books to help you pass the time this summer. If you have kids, consider going once a week or every two weeks as a summertime activity for the entire family. Plus the library is a great place for a variety of activities and resources, including books on tape for that long drive to your summer hideaway!
Start journaling or writing. Instead of reading a book you got from the library, why not actually write a book? If that sounds too ambitious, then consider starting a journal or writing shorter essays. Summer is a great time for taking your imagination and ideas, and getting them on paper.
Start a new outdoor hobby. Many studies confirm that outdoor activities give a boost to both your mental and physical health. It doesn’t matter if the activity uses a lot of energy, such as biking, running, or hiking, or is a more laid-back activity like gardening or bird watching. Pick a new outdoor activity to help you de-stress and reconnect with nature.
Dust off your board and card games. Whether it’s a game for the entire family or a group of friends, summer is a great time to grab your favorite board and card games from the closet. Even better, consider going to a thrift store and finding a new board game. For the very ambitious, consider inventing your own game.
Volunteer. In addition to giving back to your community, volunteering can help both students and adults learn new skills and meet new people. Your volunteering activities are also something that usually look great on a resume.
Go for electronic-free walks. Many people exercise while listening to music or a podcast, or watching something on TV. Consider going for a walk or doing your normal exercise activity without an electronic device. Focus instead on the scenery around you or meditate on something that happened that day.
Meet with old friends. Always too busy to meet up with old friends? Consider scheduling game nights or outings. Not only can you catch up with everyone, you do it while laughing through a fun activity.
Start a quest. Pick a theme – such as mini-golf courses, state parks, lakes, or birds – and make it a quest to visit or find as many as possible. Consider it a real life quest. Then make it memorable. For example, if your quest is to visit every state, consider taking a picture with your child and their favorite stuffed animal in each state. Then write a caption to make a great memory.
Finally, no matter what activity you choose during summer break, enjoy your time away!
According to this survey by TheKnot.com, the average wedding in 2023 had a price tag of $35,000. And it’s not just the lucky couple doling out serious money. Wedding guests can also face steep costs between gifts and traveling to and from the big event. If you’re planning on attending a wedding or two (or three or four?) this summer, here are several ideas to help keep your wedding costs under control.
Give cash instead of buying a gift off a registry. Most people want to give a wedding gift that, on some level, reflects the relationship they have with the couple. This desire to find that perfect gift can sometimes lead to overspending. Instead of buying a gift off a registry, consider giving cash. Sticking with cash can help you stick to your wedding season budget and avoid your gift being stuck in a box or closet that never gets used.
Think outside the box for lodging. If traveling to a wedding, start looking at lodging options as soon as you know the date. First, check to see if you have family or friends in the area you would be comfortable staying with. Next, consider reconnecting with friends that are attending and share a room. Perhaps the wedding couple saved a block of rooms in a local hotel at a special rate. If so, compare the cost of that hotel with nearby hotels and short-term rentals. Remember to figure out your accommodations early so you don’t get stuck with just one expensive option.
Share your travel expenses. It’s possible you’ll have some friends or family attending the same wedding as you. If the wedding involves traveling, split some of the costs with them. This can include carpooling, sharing a rental car, teaming up on taxi or ride-share expenses, as well as sharing hotel accommodations.
Rent your attire. Going to a bunch of weddings in a short amount time can create a wardrobe challenge. Purchasing a new outfit for each one will get really expensive really quickly. If you take the one-and-done approach with your formal wear, renting a dress or suit will only set you back a fraction of the cost of buying new clothes for every wedding.
Respectfully decline. Whether it’s the cost of travel, poor timing, or something else, it’s OK to decline the invitation. The wedding couple expects some people won’t be able to make it to their big event. But it’s important to let them know you won’t be there. When sending back the RSVP, include a kind greeting and the reason for your absence without going into great detail. When the wedding day comes, remember to send a card or a gift.
Wedding season is a time of fun and celebration. Knowing that you also made the best financial decisions possible makes the occasion even better.
In today’s digital age, it’s impossible to avoid the internet. Even if you don’t have a computer and actively avoid social media, there is information about you in some corner of the web. Here are some ideas to help you manage your digital footprint:
Actively manage your security settings. Every app, social media site and web browser contain multiple layers of privacy and security settings. When you download a new app or register with a new site, don’t simply trust the default settings. Look through the options yourself to ensure you are comfortable with the level of privacy. One thing to watch for with apps on your phone is location settings. Some apps will track your location even when the app isn’t running.
Protect your online image. Career search firms now have strategies built entirely around recruiting through social media. In addition to recruiting, human resource departments will vet prospective employees by reviewing social media profiles. Pay attention to what others post about you, as well. If you are uncomfortable with what they are sharing, have a conversation with them and ask that it be taken down.
Set boundaries for yourself. Try to find the balance that allows you to enjoy connecting with others online but doesn’t negatively impact other parts of your life. In addition to time spent, draw a bright line between what you consider shareable versus personal information. If you have these boundaries in mind when on social media, it will help you think critically before continuing to scroll or posting something.
Know your friends. Be aware of who you are connected to on social media sites. Be cautious of accepting connection requests from people you don’t know, as some of these requests could be a phishing attempt to swipe confidential information.
The best defense of your private information is you. Having a plan and actively managing your online profiles is the best way to minimize the chance of your personal data falling into the wrong hands.
It’s never too early to start teaching your kids about money. By proactively explaining how money and banking work in the real world, you can help them begin their adult lives on solid financial footing. Here are some ideas.
Help kids to start earning money. Letting kids earn money is a good first step to learning positive financial habits. Teenagers can get a traditional job or line up babysitting work to earn some cash, whereas younger children can mow lawns, pick weeds, or do other age-appropriate household chores.
Open a bank account. Kids need a place to store any money they earn, as well as cash they receive for birthdays and holidays. Plenty of banks offer checking and savings accounts for children and teens, provided parents or a guardian are also on the account. This is also a great opportunity to teach how to balance a bank account every month.
Get a debit card for older kids. There are many teen checking and debit card options available today, including some free options. For example, Capital One offers a teen checking account option with no fees, no account minimums, and a debit card for kids.
Help teenagers build credit for the future. You can add teenagers to credit card accounts as an authorized user to help them build credit history over time. Just remember that the impact on a teen’s credit will only be positive if you pay bills on time and keep debt levels within a reasonable range.
Teach about investing. Kids with earned income can contribute money to their own IRA. There are also online apps for teenagers that can help them monitor their investments, such as the Greenlight app, which lets families manage money and research stocks and ETFs.
Teaching kids about money can give them a head start with being financially savvy. The lessons they learn can help them minimize debt, save more money, and potentially have enough money when they retire.
Cutting expenses is often easier said than done. It’s easy for somebody to say Just cut your expenses! Stop getting a to-go espresso everyday! Eliminating something from your monthly budget, though, may come down to figuring out the best way to change your spending habits. Here are several ideas that may help.
Build a list of named goals. Getting motivated to save can seem like a chore when you’re not saving for something specific. Consider writing down on paper two or three goals for something specific you want to save for, then open a savings account for each goal. For example, you could start a beach vacation fund, a college savings account, or a new golf clubs account.
Give your goals a visual element. Bring your goals to life by creating something that lets you track each one as you save. This could be a savings spreadsheet that breaks down your goal into manageable chunks of weekly savings, or it could be a poster board with sections to fill in as you save money and get closer to your goal. Also print several images of what you want to buy and hang them up around your living quarters.
Always pay yourself first. Set up automatic transfers to your savings accounts and pay yourself first. This ensures that your savings become a priority, and that you don’t accidentally spend the money on other bills and expenses.
Immerse yourself in education. Fill your mind with financial lessons you want to learn about. Read books, listen to podcasts, and read essays from financial experts to help you learn new habits surrounding saving and investing.
Make new friends. Motivational speaker Jim Rohn said most people become the average of the five people they spend the most time with. If you’re surrounded with people who are constantly struggling with money, it may be time to expand your social circle. Look for like-minded people by joining online groups centered on financial topics and attending money-related meetups in your area.
Keeping your taxes as low as possible requires paying attention to your financial situation throughout the year. Here are some tips for getting a head start on tax planning for your 2024 return:
Review your paycheck withholdings. Now is a good time to check your tax withholdings to make sure you haven’t been paying too much or too little. Use this online tool from the IRS to help calculate how much your current withholdings match what your final tax bill will be.
Action step: To change how much is withheld from your paycheck in taxes, fill out a new Form W-4 and give it to your employer.
Defer earnings. You could potentially cut your tax liability by deferring your 2024 income to a future year via contributions to a retirement account. For 2024, the 401(k) contribution limit is $23,000 ($30,500 if 50 or older); $7,000 for both traditional and Roth IRAs ($8,000 if 50 and older); or $16,000 for a SIMPLE IRA ($19,500 if 50 and older).
Action step: Consider an automatic transfer from either your paycheck or checking account to your retirement account so you won’t have to think about manually making a transfer each month.
Plan withdrawals from retirement accounts to be tax efficient. Your retirement accounts could span multiple account types, such as traditional retirement accounts, Roth accounts, and taxable accounts like brokerage or savings accounts. Because of this, consider planning your withdrawals to be as tax efficient as possible.
Action step: One way to structure withdrawals is to pull from taxable accounts first, and leave Roth account withdrawals for last. Another approach is to structure proportional withdrawals from all retirement accounts, which would lead to a more predictable tax bill each year.
Net capital gains with capital losses. If you have appreciated investments you’re thinking about selling, take a look through the rest of your portfolio to see if you have other assets that you could sell for a loss and use to offset your gains. Using the tax strategy of tax-loss harvesting, you may be able to take advantage of stocks that have underperformed.
Action step: Make an appointment with your investment advisor to look over your portfolio to see if there are any securities you may want to sell by the end of 2024.
Tax planning can potentially result in a lower bill from the IRS if you start taking action now. Please call if you have questions about your tax situation for 2024.
Going on vacation is a time to get away, relax and enjoy new experiences. But if you don’t pay close attention, extra costs can sneak up on you like tiny money-stealing gremlins. Here are several sneaky vacation costs to watch out for:
Covert airfare increases. Airline pricing algorithms are programmed to store your browsing history to see if you’ve been looking at flights. If you have, they will bump up the price. Before searching, clear your internet history and switch to private (or incognito) mode on your web browser. When you are finally ready to book the flight, do so using a different computer from a new location to be sure that you’re avoiding this artificial price increase.
Stealthy resort fees. The nightly base rate for a fancy resort will often compare favorably to a standard hotel in the same location. This is an intentional pricing tactic used by resorts to get their rooms on the initial search results page. Don’t be fooled! These same resorts will add a daily resort fee on the back end of your bill to cover the extra amenities they offer. The extra fee might be worth it to you, but it’s better to understand the full cost of the stay before making your reservation.
Useless rental car insurance. Rental car companies will try to sell you insurance to cover damages you may cause during the rental period. Often, the auto insurance you already have will extend to the rental car. In these cases, the extra insurance isn’t necessary. Before renting a car, check with your insurance company to see if a rental will be covered.
Bloated baggage fees. You probably already know that airlines may charge for checking a bag, but do you know they will charge extra if a bag is too heavy? Exact weight can vary by airline or location, so check the weight limits before you go and weigh any heavy bags using a bathroom scale.
Crafty parking costs. Downtown hotels in big cities charge as high as $100 per night for parking! Research alternative parking options near your hotel or compare the cost of using rideshare options before committing to the hotel rate.
Sly extra driver charges. Rental car companies will charge an extra daily fee to have a second driver listed on the rental. If possible, commit to one person to handle all the driving on your vacation.
Tricky foreign transaction fees. Traveling abroad and paying an extra fee for every purchase will add up in a hurry. Before you go, check your credit cards and bank accounts to see if they charge foreign transaction fees. If they do, shopping for another card or account that doesn’t charge fees might make sense.
Some vacation fees can’t be avoided, but many of them can if you know where to look. Implement a plan to navigate the fees in the planning stages of your trip to avoid dealing with them during your vacation.
Offering a retirement plan can be a powerful tool when you’re competing to attract the best employees. And if you’re a sole proprietor, a retirement account can help you save even more money for the future. Here are some of the most popular retirement options for small business owners, along with ways to help with the cost of starting and operating a retirement plan.
Retirement plan options
Simplified Employee Pension (SEP) IRA Account. Contribute as much as 25% of your business’s net profit up to $69,000 for 2024.
401(k) Plan. Contribute up to $69,000 of your salary and/or your business’s net profit.
Savings Incentive Match Plan for Employees (SIMPLE) IRA Account. You can put all your business’s net profit in the plan, up to $16,000 plus an additional $3,500 if you’re 50 or older.
Tax breaks to start a retirement plan
Tax Credit for Startup Costs. A tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan is available for up to three years for eligible businesses with 50 or fewer employees. Businesses with 51 to 100 employees can still be eligible, which caps the credit at 50% of administrative costs and with an annual cap of $5,000.
Taking advantage: This credit could potentially cover all set-up and administrative costs during the first three years of a plan’s existence, as average 401(k) set-up costs range from $1,000 to $2,000, while average annual administrative costs range from $1,000 to $3,000. To keep your annual administrative costs as low as possible, it may be worth shopping around to look at different plan providers as the fees can vary.
Tax credit for employer contributions. Eligible businesses with up to 100 employees may qualify for a tax credit based on its employee matching or profit-sharing contributions. This credit, which caps at $1,000 per employee, phases down gradually over five (5) years and is subject to further reductions for employers with 51 to 100 employees.
Taking advantage: Once this tax credit expires after the plan’s first five years of existence, employer contributions to 401(k), SEP, and SIMPLE plans are still tax deductible up to certain limits. This means that both the employer and employee can continue to reap tax savings for the entire life of the retirement plan.
And remember that employees can still contribute to their own individual IRA. So let your employees know that in addition to having either a 401(k), SEP, or SIMPLE account through your company, they may also qualify to contribute to their own traditional IRA or Roth IRA.
It’s never been easier or more affordable to start a retirement plan for your business, so if you have not already done so, look into the alternatives that best fit your business.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.