When most people think of insurance, disability insurance isn’t the first type that comes to mind. However, this overlooked coverage can be an important part of your financial plan. Learn more.
Say “insurance” to most people and auto, health, home, and life are the variants that spring to mind. But what if an illness or accident were to deprive you of your income? Even a temporary setback could create havoc with your financial affairs. Statistics show your chances of being disabled for three months or longer between ages 35 and 65 are almost twice those of dying during the same period.
Yet people with financial savvy often overlook disability insurance. Perhaps they feel adequately covered through their job benefits. However, such coverage can be woefully inadequate. The fact is, most individuals should consider disability insurance in their financial planning. When considering disability insurance, think in terms of long term and short term. Many employers provide long-term disability coverage for all employees. Find out if your employer does. If you have long-term disability insurance, you need to consider short-term coverage to supplement during the period of disability before your long-term coverage begins. To get the right coverage for you, take the following steps:
Scrutinize key policy terms. First, ask how “disability” is defined. Some policies use “any occupation” to determine if you are fit for work following an illness or accident. A better definition is “own occupation,” whereby you receive benefits when you cannot perform the job you held at the time you became disabled.
Check the benefit period. Ideally, your policy should cover disabilities until you’ll be eligible for Medicare and Social Security.
Determine how much coverage you need. Tally the after-tax income you would have from all sources during a period of disability and subtract this sum from your minimum needs.
Decide what you can afford. Disability insurance is not inexpensive. Plan to forego riders and options that boost premiums significantly. If your budget won’t support the ideal benefit payment, consider lengthening the elimination period (but be sure that accumulated sick leave, savings, etc., will carry you until the benefits kick in).
Common errors have helped to make the Earned Income Tax Credit (EIC) a major source of what the IRS calls “improper payments.” The agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn’t qualify to receive them. To help combat this problem, the IRS now requires additional confirmation of information regarding the EIC and three new credits beginning in 2016.
Now if you claim the EIC, the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC) or the American Opportunity Tax Credit (AOTC), additional information may be requested.
For the CTC and ACTC, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives, or other guardian.
If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide Form 1098-T from the college or university. You will also need receipts for related expenses.
You may also be asked to double-check the social security numbers and dates of birth for the dependents on your return, as these are two common sources of error.
If you get more questions than usual or are asked for additional documents, be aware that it’s just a new reporting requirement implemented by the IRS.
Business plan. Outline who will own the business and what the legal form will be, your qualifications to run the business, the competitive market you face, the products or services you will sell and how you intend to advertise to prospective customers. How much cash will you need to start up and where will those funds come from?
Legal form. You can incorporate, or operate as an LLC, a partnership or a sole proprietorship. Consider both tax and non-tax reasons for selecting a given entity.
Location. If your business will consist only of online sales, your world headquarters can be wherever you are. However, if your business needs foot traffic to thrive, you’ll need to research rents and other costs such as utilities, as well as zoning and traffic restrictions.
Taxes. You’ll have to work with the IRS, state tax agencies and local governments to obtain permits and occupational licenses.
Advisors. Create a business financial team that includes a banker, an insurance agent, an attorney and an accountant. Involve your advisors early and frequently in order to gain the most value from their insights.
Need more suggestions for getting your business off to a good start? Contact us. We’re here to help.
You may not have thought much about the alternative minimum tax, or AMT, since Congress passed a law that permanently fixed the exemption. But the tax, which you must calculate separately from your regular tax liability, is still around. Here’s how the AMT might apply to your 2016 tax return.
Certain income and deductions, known as preference items, are added to or subtracted from the income shown on your federal income tax return to arrive at your AMT taxable income. For example, certain bond interest that you exclude from your regular taxable income must be included when computing income for the AMT. This is a “preference item” because tax-exempt interest gets preferential treatment under ordinary federal income tax rules.
AMT “adjustments” also affect whether you’ll owe the tax. These include personal exemptions and your standard deduction. In the AMT calculation, these taxable-income reducers are not deductible. Instead, they’re replaced with one flat exemption, which is generally the amount of income you can exclude from the AMT. For your 2016 return, the AMT exemption is $83,800 when you’re married filing a joint return or are a surviving spouse, $53,900 when you file as single, and $41,900 if you’re married and file separately. The exemption decreases once your income reaches a certain level.
Finally, only some itemized deductions, such as charitable contributions, are allowed in the AMT calculation. Others, including medical expenses and mortgage interest, are computed using less favorable rules.
Need help determining whether the AMT will apply to you? Give us a call.
Students – Don’t be in such a hurry to file your return that you cost your parents!
Students that work part-time jobs often have more tax withheld from their paychecks than the actual tax assessed when they file their return. They are then, understandably, in a hurry to file their return to get some spending money from their refund.
However, if they don’t fill their return out correctly and claim a personal exemption for themselves, their parents won’t be able to claim them. The parents often, not knowing the consequences of their student filing their return in January or February, rightfully claim the student as a dependent. Since this results in both parent and student claiming the same person (and SSN), the parents return is adjusted so that they don’t get credit for the refund. This could cost the parent approximately $1,500 to $2,000 depending on their tax bracket. Amended returns for both parent and student can be prepared but this is costly and no one wants to file amended returns if they don’t have to.
A better solution is to make sure the student holds off in filing their return until the parents file their own return or at least have a professional tax preparer determine that it is ok for the student to file.
Students that work part-time jobs often don’t earn enough to require filing a tax return but still have federal and state income taxes withheld from their paychecks. This can present a situation where they have to file a tax return just to get their money back. Often the cost of paying someone to prepare their return is more than they might get refunded so they don’t file a return at all (which is legal to do).
A better solution is to elect not to have any taxes (other than social security and Medicare which are not optional) withheld from their pay.
To make this election, request form W-4 from your employer for federal taxes and write EXEMPT in box 7. In order to be eligible to be EXEMPT from withholding, you basically must not have had any taxes owed the prior year and do not expect to have any taxes due for the current year.
For Georgia taxes, request form G-4 from your employer and read instructions on page 2 of the form and if eligible, check the box on line 8.
Of course, if it turns out that the student earned more than anticipated, a return might have to be filed and it is possible some taxes would be due. However, if that doesn’t happen the student will be able to keep all of their hard earned money and will not have to file a tax return JUST to get back income taxes that were withheld.
Hawkinson Muchnick & Associates adds a new location in north-central Georgia, opening an additional office in Paulding County.
January 2017 – Douglasville – Hawkinson Muchnick & Associates is proud to announce the opening of a new office in Hiram, Georgia. Officially opening its doors in early January, the Hiram office brings high quality tax, accounting and business advisory services to businesses and individuals in an expanded area, adding convenience for clients in Paulding County and the region and allowing the firm to serve an expanding client base.
Paul Hawkinson describes the need for expansion saying, “HMA has been experiencing rapid growth for several years now. It made sense to add an additional location to better serve the clients who rely on us.”
His partner, Dan Muchnick, agrees. “Our clients are geographically diverse,” he reports. “As business owners ourselves, we know how important it is to be able to meet with the professionals you depend on at a location that’s convenient so you don’t spend too much time travelling. Having an office in Hiram lets us make it easier and faster for them to get the services and advice they need close to home.”
As longtime residents of the area, both Muchnick and Hawkinson are deeply involved in the business communities of both Douglas and Paulding counties as well as the broader region. Their intimate understanding of the economic conditions that drive business, job growth and government allows them to bring critical insight to business owners and individuals throughout this portion of the state.
“Paulding County has seen so much growth in recent years,” says Hawkinson. “It’s important for business leaders and others with an economic involvement in the region to work with professionals who really understand the changing conditions and dynamic environment there. We are able to bring that kind of insight to decision makers and investors, so they can reach their goals more efficiently.”
Shaping up your finances in 2017 may seem like a big goal, perhaps even too daunting. But if you take one small step at a time, these small steps will add up. Here are a few suggestions to help you get started.
Shift out of automatic. Have you established automatic bill pay at your bank or service provider, or automatic charges to your credit card?
Small step: Look for payments for goods or services you no longer use, such as recurring monthly subscriptions, and cancel them.
Big goal: Reduce total expenses and increase savings.
Take the urgency out of emergency. Sure, you know that having an account with enough funds specifically earmarked for emergencies is a good idea. But the amount you need to save seems overwhelming. The good news is you don’t have to immediately fund six months of living expenses.
Small step: Set up a separate account with automatic deposits of $5 or $10 per paycheck, perhaps with funds you’ve redirected from those unused recurring monthly subscriptions.
Big goal: Build an emergency fund with enough cash to cover six months of expenses.
Give yourself credit. Maybe you intend to pay off your credit card debt. But do you have a plan? Knowing where you stand is the first step in getting to where you want to be.
Small step: Make a list of your cards, the balances, the minimum payments, and the interest rates.
Big goal: Eliminate finance charges by being able to pay off your balance each month.
Retire your excuses. Does your employer offer a retirement plan? If so, you may be leaving money on the table.
Small step: Find out what amount is on offer as “matching” funds. That’s money your employer will add to your account when you make contributions.
Big goal: Maximize your retirement contributions.
Small steps can lead to big improvements in your financial well-being. Contact us for more tips that make it easy to get into great financial shape, one step at a time.
Tax return filing season has arrived, which means it’s time to mark your calendar for these 2017 tax deadlines.
January 17 – Due date for the fourth and final installment of 2016 estimated tax for individuals (unless you file your 2016 return and pay any balance due by January 31).
January 31 – Employers must furnish 2016 W-2 statements to employees, and send copies to the Social Security Administration (both paper and electronic).
January 31 – Payers must file all copies of 2016 Forms 1099-MISC with non-employee compensation in Box 7. For these forms, the January 31 due date applies to both paper and electronic filing.
January 31 – Employers must generally file 2016 federal unemployment tax returns and pay any tax due.
February 28 – Payers must file information returns (except certain Forms 1099-MISC) with the IRS. (Except for certain Forms 1099-MISC, March 31 is the deadline if filing electronically.)
