In the back of every Form 1040 instruction booklet there’s a section that shows where our federal government gets its money and where it is spent. As taxpayers, it makes sense to know this information. Here is the data for the government’s fiscal year ending September 30, 2019, as reported by the IRS in the 2020 instruction booklet for Form 1040. Please note that this spending is prior to COVID-19 relief bills.
FY Ending 2019
Inflow:
$3.464 trillion
Outflow:
$4.448 trillion
Deficit:
$984 billion
TOTAL INFLOWS
39%
Personal Income Taxes
28%
Social Security, Medicare, Unemployment Taxes
22%
Borrowing to Cover Deficit
6%
Excise, Customs, Estate, Gift and Misc Taxes
5%
Corporate Income Taxes
SPENDING BREAKDOWN
42%
Social Security, Medicare, & other retirement. These programs provide income support for the retired and disabled and medical care for the elderly.
21%
National defense, veterans, and foreign affairs. About 15% of outlays were to equip, modernize, and pay our armed forces and to fund national defense activities; about 4% were for veterans benefits and services; and about 1% were for international activities.
21%
Social programs. About 15% of total outlays were for Medicaid, SNAP (formerly food stamps), TANF, SSI; and 6% for health research and public health programs unemployment compensation, assisted housing, and social services.
8%
Net interest on the national debt (at historically low interest rates).
6%
Physical, human, and community development. These outlays were for agriculture and environment; transportation; aid for education and college assistance; job training; deposit insurance, commerce and housing credit; and space, energy, and general science programs.
2%
Law enforcement and general government.
SOURCE: IRS publication i1040gi, P.110, 2020 Tax Year
What You Need To Know
Deficits of $1 trillion are not sustainable. No matter where you fall on the political spectrum, annual deficits of $1 trillion cannot be sustained. And remember, this information is detailing a pre-pandemic deficit. It may be several more years before the annual deficit gets back down to this level, if at all.
Government borrowing hurts all taxpayers. In 1990, $50,000 worth of Certificates of Deposits (CDs) earned a cool 8% interest, or $4,164, each year. Today, that same $50,000 earns just 0.6%, or $301. What happened to the other $3,863? Your interest income is now helping to cover money borrowed by the government in the form of lower interest rates. Look at 2019…almost ¼ of the money spent by the federal government was borrowed!
Low interest expense risk. Look at the percentage of money spent on interest expense in 2019. It’s 8% with interest rates hovering around zero. So what happens when rates actually start to go up? As a percentage of overall expenditures, interest expense could double to 16%…and potentially go even higher than that.
Make a difference. Whether we should spend more or less is not the issue. It is that spending more than you bring in will cause big problems…eventually. Money doesn’t just magically appear on printing presses. That money has to come from someplace and that someplace is from everyone. So make your voice heard…it’s your money!
Handling employment taxes can be complicated, especially when you’re required to file important tax documents throughout the year. Here’s a quick recap of the most vital payroll tax forms and what you can do to make your payroll life easier heading into 2022.
Important Payroll Tax Forms
Form 941 — Employer’s quarterly federal tax return. This form is used to report income tax withheld from employees’ pay and both the employer’s and employees’ share of Social Security and Medicare taxes. Employers generally must deposit Form 941 payroll taxes on either a monthly or semiweekly deposit schedule.
Form 940 — Employer’s annual federal unemployment tax return (FUTA). This return is due annually at the end of January. However, FUTA taxes must generally be deposited once a quarter if the accumulated tax exceeds $500.
Form W-2 — Wage and tax statement. Employers are required to send this document to each employee and the IRS at the end of the year. It reports employee annual wages and taxes withheld from paychecks.
Make payroll easier
Remind employees to review withholdings. January is a great time to remind your employees to check their paycheck’s tax withholding amounts. Various life events in the preceding 12 months can potentially lead to one of your employees owing a different amount of taxes in 2022 than they owed in 2021. And no matter how hard you try, employees will ask for your help. So get ahead of the curve with this simple review reminder.
Create a payroll forecast. Be prepared for how much you’ll spend on salaries and wages in 2022 by creating a payroll expense and benefit forecast. In addition to base salaries and wages, include the following in total salary and wage expenses: Your share of an employee’s Social Security and Medicare taxes; health insurance premiums paid on behalf of employees; and any other benefits you provide to employees.
Ask for help. Payroll compliance involves many moving parts at the local, state and federal levels. Please call if you have any questions about your business’s payroll tax compliance, and how to properly account for payroll expenses on your financial statements.
Getting a bill for an unexpected expense can put a significant dent in your business’s cash flow. Here are some tips your business can use to deal with a surprise bill.
Stick to a reconciliation schedule. The best advice is to be prepared for the unexpected. Do this by knowing how much cash you have in your bank account at any given time. This is done by sticking to a consistent bank reconciliation schedule. Conventional wisdom suggests reconciling your bank account with bills paid and revenue received once a month. But if your business doesn’t have that many transactions, you could reconcile once every two or three months. No matter what time frame works for you, be consistent with your review!
Create a 12-month rolling forecast. This exercise projects cash out twelve months. Then each new month you drop the prior month and add another month one year out. This type of a forecast will reflect the ebbs and flows of cash throughout the year and identify times that you’ll need more cash so when a surprise bill shows up, you know exactly how it will impact your ability to pay it.
Build an emergency fund. Getting surprised with an unexpected business expense isn’t a matter of if it will happen, but when. Consider setting money aside each month into an emergency fund to be used only in case of a significant expense. A longer term goal could be to save enough money to cover 3 to 6 months of operating expenses.
Partner with a business advisor. Even small businesses sometime need help keeping their cash flow in line and avoiding unexpected expenses. Please call if you have any questions about organizing your business’s cash flow and preparing for surprise expenses.
Creating a sound financial foundation for you and your family is anything but easy. With low interest rates as an incentive to borrow more and even lower interest rates on savings accounts is it any wonder that it’s tough to retain the discipline to save? Here are five thoughts that may help.
Pay yourself first. Treat saving money with the same care you pay your bills. Take a percentage of everything you earn and save it. Using this technique can help build an emergency fund and keep you from living paycheck to paycheck.
Know and use the Rule of 72. You can roughly calculate the number of years compound interest will take to double your money using the Rule of 72. Do this by dividing 72 by your rate of return to estimate how long it takes to double your money. For example, 10% interest will double an investment in 7.2 years; investments with an 8% return will double in nine years. Use this concept to understand the power of saving and investment.
Use savings versus debt for purchases. Unpaid debt is like compound interest but in reverse. For instance, using a 12% interest credit card to pay $1,500 for home appliances costs over $2,000 if paid back over 5 years. The result is that you have to work harder and earn more to pay for the items you purchase. A better idea may be to save and then buy your dream item.
Understand amortization. When a bank loans you money, it gives you a specific interest rate and a set number of years to pay it back. Each payment you make contains interest as well as a reduction of the amount owed, called principal. Most of the interest payments are front-loaded, while the last few payments are virtually all principal. Making additional principal payments at the beginning of the loan’s term will decrease the amount of interest you pay to the bank and help you pay off the loan more quickly.
Taxes are complex and require help. Tax laws are complicated. They are made even more complex when the rules change, often late in the year. Even worse, the IRS is not in the job of telling you when you forget to take a deduction. The best way to stay out of the IRS spotlight AND minimize your taxes is to ask for help.
The collectibles industry used to be defined by classic keepsakes such as stamps, coins, and trading cards. Today, a new kind of collectible called non-fungible tokens (NFTs) has exploded in popularity. From music to digital game pieces, NFTs are digital assets that sometimes sell for millions of dollars. Twitter co-founder Jack Dorsey sold his first-ever Tweet as an NFT for $2.9 million!
But is there any substance behind the hype? And what does it mean for you?
Understanding NFTs
NFTs offer a blockchain-created certificate of authenticity for any digital asset. This asset can be a piece of music, a token for a popular game, or a piece of digital art. To understand an NFT, consider its components:
Non-Fungible…Where cryptocurrency like a Bitcoin is designed to be readily tradable (fungible), non-fungible is just the opposite. There is one and only one of it.
Token…In this case the non-fungible identification is attached to a specific digital asset or token.
Therefore, each NFT is unique and can readily solve the problem of users creating multiple copies of a digital asset. In effect, Jack Dorsey’s original tweet cannot be copied or duplicated because of NFT technology!
Why NFTs are popular
Traditional artists rely on auction houses and galleries to sell their work. These galleries and auction houses authenticate the work as original. Now artists can sell digital works at the same prices as rare works of art by using NFTs to do the authentication work for them. It is so popular now that even companies are getting in on the action. For example, a Charmin digital brand was auctioned off to raise funds for charity.
Why some NFTs are so expensive
Just like physical collectibles, there’s a market for NFTs. Current NFT buyers tend to be tech workers and entrepreneurs who understand the intricacies of purchasing digital goods. Artists are also dipping their toe into the NFT waters. For instance, superstar artists like King of Leon and Steve Aoki have sold NFTs for millions of dollars. Just imagine if your favorite musician decided to record an exclusive piece of music and then only sell 100 copies of the song. How much would you pay?
What you need to know
Here’s what you need to know about getting involved with NFTs:
Large cash outlay not necessary to invest. There are multiple NFT marketplaces where you can get involved as a buyer without getting into 5- and 6-figure bidding battles. Some of the more popular marketplaces are Opensea, Rarible, SuperRare and Nifty Gateway.
Beware of fees to create NFTs. If you want to create your own NFT, you’ll likely spend hundreds of dollars in various fees to make your own tokens. If you end up selling your tokens, you may be able to cover the cost of these initial fees. If you struggle to sell your tokens, however, you’ll end up eating the cost of creating the tokens.
Do your research. Since NFTs are so new, there isn’t a lot of history to judge its performance. As with any investment, you could either make a fortune, lose everything you invested, or end up somewhere in between. And these digital assets are treated just like other property, so you would pay capital gains taxes if you sold an NFT at a profit.
NFTs require power. NFTs use blockchain technology. Blockchain technology requires power. Lots of it. There is growing concern on the energy usage for this new digital marketplace and whether it is sustainable.
Because NFTs are becoming so popular, so fast, many experts are leery of what the world of NFTs will look like in the future. Regulation is currently lacking, and legal precedence is unclear. While blockchain technology can verify your purchase, does owning the NFT of something really mean you own the asset? Will NFTs stand up in court? These are some of the questions being asked without concrete answers.
The 2022 maximum Social Security retirement benefits a worker retiring at full retirement age: $3,345/mo
DID YOU KNOW …
97% of U.S. citizens over age 60 either receive Social Security or will receive it.
1 in 4 seniors expect it to be their primary source of income.
Social Security pays benefits to more than 70 million people including retirees, children and surviving spouses.
2022 SOCIAL SECURITY AND MEDICARE TAX RATES
If you work for someone else…
Your employer pays 7.65%
You pay 7.65%
If you’re self-employed…
You pay 15.3%
NOTE: The above tax rates are a combination of 6.2% Social Security and 1.45% for Medicare. There is also 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.
Item
2022
2021
Change
Maximum amount you may pay in Social Security taxes
$9,114.00
$8,853.60
+ $260.40
Maximum earnings amount Social Security will tax at 6.2%
$147,000
$142,800
+ $4,200
165+ million people work and pay Social Security taxes
Social Security has provided financial protection for Americans since 1935
SOCIAL SECURITY PAYMENTS EXPLAINED
Social Security retirement benefits are for people who have paid into the Social Security system through taxable income.
Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have paid into the Social Security the system through taxable income.
Supplemental Security Income benefits are for adults and children who have disabilities, plus limited income and resources.
MAXIMUM SSI PAYMENTS
Filing Status
2022
2021
Change
Individual
$841/mo
$794/mo
+ $47
Couple
$1,261/mo
$1,191/mo
+ $70
HOW DOES SOCIAL SECURITY WORK?
When you work, you pay taxes into Social Security.
The Social Security Administration uses your tax money to pay benefits to people right now.
Any unused money goes into Social Security trust funds and is borrowed by the government to pay for other programs.
Later on when you retire, you receive benefits.
HERE’S HOW YOU QUALIFY FOR RETIREMENT BENEFITS
When you work and pay Social Security taxes, you earn credits toward benefits. The number of credits you need to earn retirement benefits depends on when you were born.
If you were born in 1929 or later, you need 40 credits (10 years of work) to receive retirement benefits
The earnings needed to a credit in 2022 is $1,510
4 credits maximum per year
DID YOU KNOW YOU CAN CHECK YOUR BENEFITS STATUS BEFORE YOU RETIRE?
You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.
It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.
If it doesn’t show earnings from a state or local government employer, contact them. The work may not be covered within Social Security.
