Money Management Tips for Couples

Money Management Tips for Couples

Couples consistently report finances as the leading cause of stress in their relationship. Here are a few tips to avoid conflict with your long-term partner or spouse.

  • Be transparent. Be honest with each other about your financial status. As you enter a committed relationship, each partner should learn about the status of the other person’s debts, income and assets. Any surprises down the road may feel like dishonesty and lead to conflict.
  • Frequently discuss future plans. The closer you are with your partner, the more you’ll want to know about the other person’s future plans. Kids, planned career changes, travel, hobbies, retirement expectations — all of these will depend upon money and shared resources. So discuss these plans and create the financial roadmap to go with them. Remember that even people in a long-term marriage may be caught unaware if they fail to keep up communication and find out their spouse’s priorities have changed over time.
  • Know your comfort levels. As you discuss your future plans, bring up hypotheticals: How much debt is too much? What level of spending versus savings is acceptable? How much would you spend on a car, home or vacation? You may be surprised to learn that your assumptions about these things fall outside your partner’s comfort zone.
  • Divide responsibilities, combine forces. Try to divide financial tasks such as paying certain bills, updating a budget, contributing to savings and making appointments with tax and financial advisors. Then periodically trade responsibilities over time. Even if one person tends to be better at numbers, it’s best to have both members participating. By having a hand in budgeting, planning and spending decisions, you will be constantly reminded how what you are doing financially contributes to the strength of your relationship.
  • Learn to love compromising. No two people have the same priorities or personalities, so differences of opinion are going to happen. One person is going to want to spend, while the other wants to save. Vacation may be on your spouse’s mind, while you want to put money aside for a new car. By acknowledging that these differences of opinion will happen, you’ll be less frustrated when they do. Treat any problems as opportunities to negotiate and compromise.
Hustling for Extra Income

Hustling for Extra Income

Don’t forget the taxman!

From supplementing their current income to replacing income that was lost because of layoffs, the pandemic or other reasons, many people have started side hustles over the past 2 years to help make ends meet.

If you currently have a side hustle, don’t forget about the tax implications from earning extra money. Here are several ideas to help you stay on top of your side hustle’s taxes:

  • All income must be reported. Income from side hustles can come from a variety of sources. Regardless of where the money comes from or how much it is, it is supposed to be reported on your tax return. If you do work for a company, expect to receive a 1099-NEC or 1099-MISC if you are an independent contractor, or a W-2 if you’re an employee.
  • Keep good records and save receipts. Being organized and having good records will do two things: ensure accurate tax reporting and provide backup in the event of an audit. Log each receipt of income and each expense. Save copies of receipts in an organized fashion for easy access. There are multiple programs and apps to help with this, but a simple spreadsheet may be all that you need.
  • Make estimated payments. If you are running a profitable side business, you will owe additional taxes. In addition to income tax, you might owe self-employment tax as well. Federal quarterly estimated tax payments are required if you will owe more than $1,000 in taxes for 2022. Even if you think you will owe less than that, it’s a good idea to set a percentage of your income aside for taxes to avoid a surprise when you file your 2022 return.
  • Don’t fall into the hobby trap. You won’t be allowed to deduct any expenses if the IRS determines that your side hustle is a hobby instead of a business. To make sure your side hustle is deemed a business by the IRS, you should show a profit during at least three of the previous five years.
  • Get professional tax help. There are many other tax factors that can arise from side income such as business entity selection, sales taxes, state taxes, and more. Please call to set up a time to work through your situation and determine the best course of action for your side hustle.
Start Your Tax Planning NOW!

Start Your Tax Planning NOW!

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 2022 return:

  • Check 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. The IRS has an online tool that will help you calculate how much your current withholdings match what your final tax bill will be. Visit https://apps.irs.gov/app/tax-withholding-estimator.

    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 2022 income to a future year via contributions to a retirement account. For 2022, the 401(k) contribution limit is $20,500 ($27,000 if 50 or older); $6,000 for both a traditional and Roth IRA ($7,000 if 50 and older); or $14,000 for a SIMPLE IRA ($17,000 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 you should plan for 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 would be to structure proportional withdrawals from all retirement accounts that 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 2022.

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 2022.

Your Business Mileage Deduction Just Became More Valuable

Your Business Mileage Deduction Just Became More Valuable

Your business mileage tax deduction just became more valuable for the rest of 2022 after a recent announcement by the IRS.

Starting July 1st, the IRS’s business mileage rate is increasing by 4 cents, to 62.5 cents per mile, while the medical and moving mileage is also increasing by 4 cents, to 22 cents per mile. The previous mileage rates still apply through June 30th.

Here are some tips to make the most of your business’s vehicle expense deduction.

  • Don’t slack on recordkeeping. You won’t be able to take advantage of the increased mileage rates without proper documentation. The IRS mandates that you track your vehicle expenses as they happen (this is called contemporaneous recordkeeping). You’re not allowed to wait until right before filing your tax return to compile all the necessary information needed to claim a vehicle deduction. Whether it’s a physical notebook you stick in your glove compartment or a mobile phone app, pick a method to track your mileage and actual expenses that’s most convenient for you.
  • Keep track of both mileage and actual expenses. The IRS generally lets you use one of two different methods to track vehicle expenses – the standard mileage rate method or the actual expense method. But even if you use the standard mileage method you can still deduct other expenses like parking and toll fees. So keep good records.
  • Consider using standard mileage the first year a vehicle is in service. If you use standard mileage the first year your car is placed in service, you can then choose which expense tracking method to use in subsequent years. If you initially use the actual expense method the first year your car is placed in service, you’re locked in to using actual expenses for the duration of using that car in your business. For a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate the first year.
  • Don’t forget about depreciation! Depreciation can significantly increase your deduction if you use the actual expense method. For heavy SUVs, trucks, and vans with a manufacturer’s gross vehicle weight rating above 6,000 pounds, 100% bonus depreciation is available through the end of the 2022 tax year if the vehicle is used more than 50% for business purposes. Regular depreciation is available for vehicles under 6,000 pounds with annual limits applied.

Please call if you have any questions about maximizing your business’s vehicle expense deduction.

Business Metrics that Have Impact

Business Metrics that Have Impact

At the end of the year it is easy to compare revenue, gross margin, and profitability to the prior year and to your business plan. Here are a few ideas of other metrics to consider.

  • Customer acquisition cost. Divide the total amount of money you’ve spent on marketing over a set period by the number of new customers you’ve gained. The result is your cost per new customer, also known as your customer acquisition cost. To get an even better read, divide your marketing costs into two buckets: one you spend on current customers and one for money spent to acquire new ones. Now you have two metrics: customer acquisition cost AND customer retention cost. Compare these figures against prior years to see if you are becoming more efficient.

    To go a step further, look at how much each new customer spends on average compared with how much it costs to acquire them. Knowing your rate of return for each customer can help you revise your marketing strategy.
  • Lead-to-client conversion rate. For many businesses, generating leads is an integral part of the selling process. If this is true for your business, clearly define each step of the sales funnel from lead to purchase. You can judge how successful your sales efforts are over time by calculating how many qualified leads are converted to sales. Remember to use these measures to refine and improve your selling process. Even a tried-and-true conversion process can get tired, but if you are not measuring it you may not know until it is too late.
  • Website traffic. Use tools such as Google Analytics to find out who is visiting your website, from where, and what they spend the most time on while they’re there. You can learn a lot about your potential customers and your market by keeping notes on how your website traffic changes over time and how it reacts to new content. Just don’t get stuck inside this analysis.
  • Seasonality. Understand and keep track of the seasonal trends for both sales and number of orders by month in your business. This helps manage human resources and cash flow in both busy and slow periods. Examining these metrics for sales and web traffic can help you prepare inventory and staffing for the busy season. It will also help you time the scheduling of technical upgrades and equipment repairs for expected slow periods. You can also use this information to shift seasonality with marketing offers to make better use of your staff during slow times.
  • Cash burn rate. Keeping a close watch on your cash flow statement as well as your income and balance sheet is the key to keeping your business running smoothly. Simply subtract how much cash you have at the start of the month from what you have at the end of the month. You can then divide your reserves by your cash burn rate to see how many months you can sustain that rate.

    A key to the usefulness of this measurement is maintaining a forward-looking financial forecast for the next 12 months. This will help you take timely actions to avoid a cash crunch, such as cutting costs, improving sales or collecting accounts receivable.

Remember that measurements for measurements sake is just busy work. The key to all of them? They need to provide an actionable result for your business.