We’re continuing with our series on New Year’s resolutions that you can do to improve your finances.? Be sure to read Part 1 for extra tips!
Pay Down Those Credit Cards
If you owe money on your credit cards, determine how much you can realistically afford to pay down during the year. For best results, try not to charge additional purchases on those cards while you’re trying to pay down what you owe. Download our (Microsoft Excel) debt/savings calculator to calculate how much you need to pay each month to pay off a debt.
Maximize Your 401(k) & 403(b) Plan Contributions
At work, you probably have the opportunity to save for your retirement through a 401(k) or 403(b) plan sponsored by your employer. The maximum annual contribution for 2013 has increased to $17,500. And anyone who will be 50 or older by December 31st can contribute an extra $5,500 this year. Remember, amounts contributed to these plans reduce your taxable compensation and grow tax deferred.
Unless you’re already on track to contribute the maximum to your 401(k) or 403(b) plan this year, now’s the time to instruct your employer’s benefit department to increase the percentage of your salary going towards this tax-advantaged retirement savings account.
And if you’re self-employed, set up a solo 401(k) plan or a SEP IRA plan as soon as possible, if you haven’t already done so, and try to contribute to these plans systematically over the year.
Contribute $5,500 to a Roth IRA
Roth IRAs are one of the few tax-free investments available to individuals. This year, you can contribute up to $5,500 to your Roth IRA. You won’t get a tax deduction, but amounts contributed grow tax-free, as long as certain conditions are met. Consider signing up with a mutual fund company to have $458.33 automatically transferred from your checking account into a Roth IRA each month.
Don’t forget, if you’re single and your adjusted gross income (AGI) exceeds $127,000 or married and your AGI exceeds $188,000, you’re not eligible to contribute to a Roth IRA that year. If your income exceeds the applicable threshold, you’re still eligible to contribute to a traditional IRA for that year. The amount contributed isn’t tax deductible if either you or your spouse is covered under a retirement plan at work, but grows tax-deferred. You can also convert your IRAs to a Roth IRA at any time under the current rules, no matter how high your income will be.
Take Advantage of the Tax-Free College Savings Opportunities
Money contributed to Education Savings Accounts (formerly Education IRAs) and 529 Plans grow tax-free, as long as any money withdrawn is used for tuition and certain other college expenses, or in the case of ESAs, for private elementary school or high school as well. You can contribute up to $2,000 per year per child into an ESA, and up to $14,000 per year, or frontload $70,000 at one time, into a 529 Plan, subject to certain restrictions. With tax rates on the rise, these tax-free opportunities become even more attractive to most taxpayers.
Avoid Resolution Pollution
Did you set so many financial goals that you’ll end up attaining none of them? If so, take this opportunity to restate your financial resolutions for 2013.
There might be a lot of uncertainty surrounding the tax rules these days. Don’t use that uncertainty as an excuse to avoid trying to improve your personal finances. What better time to make some resolutions for 2013 than New Year’s Day?
Last January 1st, did you make any resolutions concerning your personal finances? If so, how’d you do? Did you attain your financial goals, or was 2012 a total financial washout?
The good news about New Year’s resolutions is that you get to make new ones each year. Below are some New Year’s resolutions to improve your finances.
Pay Some Extra Principal With Your Mortgage Payment Each Month
Looking for a risk-free return on your money? By paying extra toward your mortgage each month, you’ll get a risk-free return on that money equal to your mortgage interest rate. Plus, you’ll cut down on the number of years it will take to pay off your mortgage. As a rule of thumb, try to pay extra principal each month equal to at least 10% of your total mortgage payment.
If You Don’t Own A Home, Try to Qualify For the Home Office Deduction
If you’re a renter, the rent you pay generally isn’t deductible on your federal tax return. By claiming the home office deduction, you make a portion of your rent tax deductible. To qualify, you need to use a portion of your home regularly and exclusively in connection with your trade or business. Using your office for managerial and administrative tasks qualifies. You’ll claim the home office either directly against your self-employment income on the Schedule C or as a miscellaneous itemized deduction on the Schedule A.
Save A Set Amount Of Money Each Month
Did you know that if you deposit $81.50 into your savings account each month, the account would be worth $1,000 at the end of the year? To help you reach your goal, make sure to transfer the money out of your checking account into a separate savings or investment account. By doing so, it’s more difficult to spend the money that you have managed to save.
Download our (Microsoft Excel) debt/savings calculator to calculate how much you need to set aside each month to reach a certain savings goal.
We’ll post more Resolutions in Part 2 of this series – stay tuned!
I’m a CPA and my wife is a CFP (Certified Financial Planner). Even so, I think together we’ve done a lousy job teaching our two kids – Jonathan (age 14) and Lizzie (age 13) – much about personal finances. We have also done little to help them learn anything about exercising fiscal discipline.
Over the years, we’ve toyed with monthly allowances and paying our kids for doing their household chores. The problem is that we have never been consistent with doling out the promised $20 per month or with enforcing the rules they need to follow to even be eligible to receive their allowance. So my family’s allowance system has evolved to something like this:
Child: “Dad and/or Mom, I’m getting together with friends. Can I have some money?”
Parent: “Sure thing, Jonathan and/or Lizzie. Will $20 be sufficient?”
Well, as my kids continue to grow up, we have reached the point where this conversation happens pretty regularly. Our kids have no incentive not to ask us for money, since we have a track record of giving them money whenever they ask. And they also don’t have an incentive to try to earn any money on their own, since we have gladly been supporting 100% of their spending.
That’s all about to change. Financial responsibility for the Schwartz Clan, here we come. As a parent of a teenager, you might be asking, “How will you pull this off Andrew?”
For Christmas/Chanukah, we gave each child a Pass Card issued by American Express These cards are only available to kids 13 or older.
According to American Express, “Pass is a prepaid reloadable Card parents give to teens. It’s safer than cash, and unlike a debit or credit card, teens can only spend what’s preloaded on the Card.” For my two kids, we loaded each card with $100, and then will reload the card on the tenth of each month with their $25 allowance.
Pass cardholders can spend money on the prepaid card pretty much anywhere that takes credit cards. And while parents do have the right to deny their kids access to cash from ATMs, we decided to set up the cards to allow ATM withdrawals. We can change this setting at any time, however. The first ATM transaction each month is free for each kid, and then there is a charge of $2 per withdrawal.
In theory, when either kid spends all the money on the card, they are out of money until they next receive the $25 on the tenth of the month. Here is where my wife and I will need to exercise some parental discipline and not just dole out more spending money. Instead, we need to try to use this opportunity to remind Jonathan or Lizzie that if they want to spend more than $25 per month, they can always babysit, shovel snow or rake leaves for our neighbors, work at my office during tax season, or try to find another job that hires 14 year-old kids (Lizzie will be 14 in the summer) to earn extra money .
For parents, the Pass Card has a nifty web interface that allows parents the opportunity to view balance and purchase history online at any time, transfer additional funds into the card, or tweak the amount or frequency of the automatic reloads. Teens will also be able to logon to the Pass website under a separate login to monitor balances and activity.
According to the site, the Pass Card also provides your child some additional benefits similar to the benefits that come with the AMEX card, including:
- Purchase Protection if an item purchased with the Pass Card breaks within 90 days
- Roadside Assistance if your child’s car won’t start
- Global Assist Services to provide your child with emergency services while traveling
I hope the Pass Card works out well for my family and helps my wife and I teach my kids a little about personal finances and fiscal discipline. Check back next fall or winter, and I’ll definitely give you an update on whether the Pass Card helped my family make progress towards these two goals.
By Andrew D. Schwartz, CPA
In my first post, I looked at Mitt Romney’s tax policy based on information posted on his campaign’s official website.
Today, I’ll look at the President’s rebuttal and which candidate’s tax policy makes the most sense, IMHO.
President Obama’s Rebuttal:
There actually isn’t very much information about Obama’s tax policy on his campaign’s official website. Check out The President’s Record on Taxes available at: www.barackobama.com/record/taxes?source=issues-nav and all you will find is mention of the Buffett rule and these four bullet points:
- President Obama has cut taxes for middle-class families and small businesses. One of the first things he did in office was cut taxes for 95 percent of working families. He has also signed 18 tax cuts for small businesses and extended the payroll tax cut for all American workers and their families, putting an extra $1,000 in the typical middle-class family?s pocket.
- For too long, the U.S. tax code has benefited the wealthy and well-connected at the expense of the vast majority of Americans. A third of the 400 highest income taxpayers paid an average rate of 15 percent or less in 2008.
- That’s why President Obama proposed the Buffett Rule, asking millionaires and billionaires to do their fair share. But if you’re one of the 98 percent of American families who make under $250,000 a year, your taxes won?t go up.
- The President has asked Congress to take action to reform our tax code and close tax loopholes for millionaires and billionaires, as well as hedge fund managers, private jet owners, and oil companies.
President Obama’s official campaign site also includes a link to a report that pokes holes in the Romney Tax Policy, available at: www.taxpolicycenter.org/UploadedPDF/1001628-Base-Broadening-Tax-Reform.pdf.
Which Candidate’s Tax Policy Makes the Most Sense?
Tough question. What makes it tougher is that the President doesn’t write the laws. Instead, the President’s job is to sign bills that have been passed by Congress into law. Even so, having an understanding of the tax philosophy of the country’s two presidential candidates is probably a prudent idea.
As an interesting exercise, check out President Obama’s views on taxes from the prior election cycle in our article called What’s The Tax Plan, Man? included in our October 2008 Newsletter, and compare his suggestions from 2008 to what’s been enacted during his first term. A few of the items that he proposed during his previous campaign, including raising the Social Security taxes on people earning more than $250k and implementing a “Make Work Pay” tax credit, have come to fruition during his first term in office.
By Andrew D. Schwartz, CPA
Election?season is upon us and the voting?is?just a two months away. Let’s take a look at Mitt Romney’s tax policy based on information posted on his campaign’s official website, www.mittromney.com.
Extend the Bush Tax Cuts:
If Congress doesn’t act by the end of the year, the 2001 Bush tax cuts will expire on December 31st causing tax rates across the board to increase. According to Mitt Romney:
While the entire tax code is in dire need of a fundamental overhaul, Mitt Romney believes in holding the line against increases in marginal tax rates. The goals that President Bush pursued in bringing rates down to their current level? to spur economic growth, encourage savings and investment, and help struggling Americans make ends meet?are just as important today as they were a decade ago. Letting them lapse, as President Obama promises to do in 2012, is a step in precisely the wrong direction. If anything, the lower rates established by President Bush should be regarded as a directional marker on the road to more fundamental reform.
Eliminate Taxes on Investment Income for People Earning Below $200k:
Romney’s Tax Policy includes a provision to cut taxes for taxpayers earning less than $200k. Let’s see what the Romney Campaign calls the Middle-Class Tax Savings Plan:
As with the marginal income tax rates, Mitt Romney will seek to make permanent the lower tax rates for investment income put in place by President Bush. Another step in the right direction would be a Middle-Class Tax Savings Plan that would enable most Americans to save more for retirement. As president, Romney will seek to eliminate taxation on capital gains, dividends, and interest for any taxpayer with an adjusted gross income of under $200,000, helping Americans to prepare for retirement and enjoy the freedom that accompanies financial security. This would encourage more Americans to save and to invest for the long-term, which would in turn free up capital for investment flowing back into the economy and helping to facilitate economic growth.
Implement Tax Simplification:
Promising tax simplification is nothing new. When I started practicing accounting in 1987, President Reagan had just signed the huge Tax Reform Act of 1986 into law. That Tax Act really complicated the tax code, and it has continued to become increasing more complex over the past 25 years. Remember Steve Forbes? He ran two presidential campaigns on his Flat Tax Platform.
Here is Romney’s spin on tax simplification:
In the long run, Mitt Romney will pursue a conservative overhaul of the tax system that includes lower and flatter rates on a broader tax base. The approach taken by the Bowles-Simpson Commission is a good starting point for the discussion. The goal should be a simpler, more efficient, user-friendly, and less onerous tax system. Every American would be readily able to ascertain what they owed and why they owed it, and many forms of unproductive tax gamesmanship would be brought to an end. Conversely, tax reform should not be used as an under-the-radar means of raising taxes. Where reforms that simplify the code or encourage growth have the effect of increasing the tax burden, they should be offset by reductions in marginal rates. Washington?s problem is not too little revenue, but rather too much spending.
Mitt Romney also wants to eliminate the Death Tax and repeal the Alternative Minimum Tax. You can read Mitt Romney’s complete Tax Policy at www.mittromney.com/sites/default/files/shared/TaxPolicy.pdf
In my next post, I’ll look at President Obama’s rebuttal and which candidate’s tax policy makes the most sense. Stay tuned!
By Andrew D. Schwartz, CPA
At my firm this year, we instituted a Book Club for the first time.? We are currently reading The 7 Habits of Highly Effective People by Stephen R Covey.? We are scheduled to discuss one habit per month for the remainder of the year.? I highly recommend that you read this book if you haven’t done so already, or re-read this book if it’s been a while since you last read it.
When reading about Habit 2, Begin With The End in Mind, I was struck by this passage from the book:
Management is a bottom line focus:? How can I best accomplish certain things?? Leadership deals with the top line: What are the things I want to accomplish?? In the words of both Peter Drucker and Warren Bennis, ‘Management is doing things right; leadership is doing the right things.’? Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.
I found these words to be quite meaningful because I read them following a somewhat heated discussion I had with a staff member.? She was upset with me because I wasn’t able to find time to help her with a client issue that she was trying to resolve.? She was looking for me to help her get this issue right. (Ultimately we met later that morning and everything worked out fine.)
After reading this passage, I gave some thought to the roles I need to play at my 12 person CPA firm.? My first idea was to define these terms: leader, manager, supervisor, coach, and mentor.? According to dictionary.com:
A person or thing that leads. Also, a guiding or directing head, as of an army,? movement, or political group.
A person who has control or direction of an institution, business, etc., or of a part, division, or phase of it. Also, a person who controls and manipulates resources and expenditures.
A person who supervises workers or the work done by others.? Dictionary.com defines supervises as: oversees a process, work, workers, etc. during execution or performance.
To give instruction or advice to in the capacity of a coach; instruct.
A wise and trusted counselor or teacher. Also, an influential senior sponsor or supporter.
At a professional practice the size of my firm, my brother and I are the primary source of these five positions to most of our ten-person staff.? We are not only the leaders and the managers of the firm, but, in most cases,?are also the supervisors, coaches, and mentors.
If you are in a position of responsibility, I’m sure you struggle with which of these roles you play with respect to your direct reports and/or to other staff members who you interact with on a regular basis; especially when you factor in how busy you are trying to provide great care to your patients as well as running your practice.
If you have already come up with solutions to this practice management dilemma, please share them in the comments section or email me at email@example.com.