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Tax Moves to Consider in Summer

Jun 14, 2019

Now is a good time to think about a few financial matters.

Making changes earlier rather than later.

If you own a business, earn a good deal of investment income, are recently married or divorced, or have a Flexible Savings Account (FSA), you may want to think about making some tax moves now rather than in December or April.

Do you now need to pay estimated income tax? 

If you are newly self-employed or are really starting to see significant passive income, you may need to quickly acquaint yourself with Form 1040-ES and the quarterly deadlines. Every year, tax payments to the Internal Revenue Service are due on or before the following dates: January 15, April 15, June 15, and September 15. (These deadlines are adjust if a due date falls on a weekend or holiday.) It might seem simple just to make four consistent payments per year, but your business income may be inconsistent. If it is, and you fail to adjust your estimated tax payment per quarter, you may be setting yourself up for a tax penalty. So, confer with your tax professional about this.¹

Has your household size changed?

 That calls for a look at your pre-tax withholding. No doubt you would like to take home more money now rather than wait to receive it in the form of a tax refund later. This past April, the I.R.S. said that the average federal tax refund was $2,864 – the rough equivalent of a month’s salary for many people. Adjusting the withholding on your W-4 may bring you more take-home pay. Ideally, you would adjust it so that you end up owing no tax and receiving no refund.²

Think about how you could use your FSA dollars before the end of the year.

 The Tax Cuts & Jobs Act change the rules for Flexible Spending Accounts (FSAs). The I.R.S. now permits an employer to let an employee carry up to $500 in FSA funds forward into the next calendar year. Alternately, the employer can allow the FSA accountholder extra time to use FSA funds from the prior calendar year (up to 2.5 months). Companies do not have to allow either choice, however. If no grace period or carry-forward is permitted at your workplace, you will want to spend 100% of your FSA funds in 2018, for you will lose those FSA dollars when 2019 begins.³

You could help your tax situation by contributing to certain retirement accounts.

 IRAs and non-Roth workplace retirement plans receive funds with pre-tax dollars. By directing money into these retirement savings vehicles, you position yourself for federal tax savings in the year of the contribution. If you make the maximum traditional IRA contribution of $5,500 in 2018, and you are in the 24% tax bracket, that translates to a $1,320 federal tax deduction for 2018.⁴

While it may seem far from April, this is an excellent time to think about tax-saving possibilities. You and your tax professional have plenty of time to explore the options.

Citations.

• 1 – irs.gov/faqs/estimated-tax/individuals/individuals-2 [2/20/18]

• 2 – fortune.com/2018/04/16/tax-day-2018-refund/ [4/16/18]

• 3 – cnbc.com/2017/12/29/how-to-use-your-flexible-spending-account-funds-at-the-last-minute.html [12/29/17]

• 4 – usatoday.com/story/money/taxes/2018/07/20/70-of-households-are-missing-out-on-this-important-tax-break/36835905/ [7/20/18]

Tags: Tax Planning

Bad Spending Habits That Can Be Corrected

Jun 12, 2019

A little frugality may lead to a lot of financial progress.

Americans have a great deal of disposable income relative to many other nations, yet our free spending can take us further and further away from the potential for financial freedom. Some people fall into crippling spending habits and injure their finances as a consequence. 

Bad Habit: Failing to Save

Saving even $50 or $100 a month – isn’t that hard under most financial conditions. Even so, some households don’t put much of a priority on building a cash reserve of some kind, a portion of which could be used for equity investment. 

When you don’t make saving a goal, you don’t have any money to withdraw in a pinch – so if you need to get ahold of some money, where do you find it? Basically, you have three options. One, turn to friends or Mom or Dad. Two, divert money that would go toward a core need (food, rent, the heating bill) toward the sudden crisis. Three, charge your credit card. (There are other options, but they are best not explored.) 

Good habit: save just a little, then a lot.You can start a savings campaign by saving “invisibly” – that is, just spending $10 or $15 or $20 less on a regular expense each month. Maybe two or three, even. That’s less than a dollar a day per expense. When your earnings climb further above your financial baseline, you can increase the amount you save/invest. 

Bad Habit: Buying Things on a Whim

The correlation between impulsive spending and credit card use isn’t too hard to spot. Spending money you don’t have on material items that will soon depreciatedoesn’t put you ahead financially.

Good habit: set a budget when you shop.As you arrive at the market, the mall or the local power center, arrive with a limit on what you will spend on that shopping trip and stick to it. Take an hour (or a day) to mull over any big buying decisions – are you buying something you really need? Lastly, use cash whenever you can. 

Bad Habit: Living on Margin

Living above your means, charging this and that credit card – this is a path toward runaway debt. You may look rich, but you’ll carry a big financial burden that risks being “out of sight, out of mind” in between credit card statements.

Good habit: strive for lasting affluence, not temporary bling.Possessions symbolize wealth to too many Americans. Real wealthis measured in accumulated assets. They aren’t usually visible, but you can count on them in the future, in contrast to ever-depreciating luxury goods.

Bad Habit: Buying Unnecessary Services

Cable subscriptions, extended warranties, service contracts for highly reliable items, health club memberships that translate into little more than an alternate place to shower – they all add up, they all siphon some of our dollars away each month. In many cases, we pay for options rather than necessities.

Good habit: evaluate who benefits most from those services.Are they benefiting the provider more than the consumer? Are they entrees to a “main course” – a steady, long-range financial exploitation? 

Go against the norm – it might leave you a little wealthier. In April, Gallup found that 62% of Americans liked saving money more than spending it. Just 34% liked spending more than saving. This appreciation of frugality is relatively new. As recently as 2006, 50% of Americans told Gallup that they enjoyed saving more than spending with 45% preferring spending.¹

If we love saving money, a key statistic doesn’t reflect it. According to the Commerce Department,the typical U.S. household was saving 4.8% of its disposable personal income in May. The personal savings rate for 2013 was 4.5%, the least in any year since 2007. Compare that to 6.7% across the 1990s, 9.3% across the 1980s and 11.8% during the 1970s.^1,2

Perhaps many of us want to save but can’t due to financial pressures. Perhaps the economic rebound is encouraging personal consumption over saving. Whatever the reason, Americans on the whole don’t seem to be saving very much. That’s the status quo; going against it might help you build wealth a little more easily.

Tags: Financial Help, Spending Habits

Heirs, Value and Family Wealth

Jun 10, 2019

Values can help determine goals & a clear purpose.

Some millionaires are reluctant to talk to their kids about family wealth. Perhaps they are afraid of what their heirs may do with it.

If a child comes from money and grows up knowing they can expect a sizable inheritance, that child may look at family wealth like water from a free-flowing spigot with no drought in sight. Your child may rely upon your wealth if nothing works out; or simply to whims born of boredom. The perception that family wealth is a fallback rather than a responsibility can contribute to the erosion of family assets. Factor in a parental reluctance to say “no” often enough, throw in a penchant for racking up debt, and the stage is set for wealth to dissipate. 

How might a family plan to prevent this? It starts with values. From those values; you can begin to define goals and purpose.

Create a Family Mission Statement.

To truly share in the commitment to sustaining family wealth, you and your heirs can create a family mission statement, preferably with the input or guidance of a trusted financial advisor professional or estate planning attorney. To introduce the idea of a mission statement to the next generation may seem pretentious, but it is actually a good way to encourage heirs to think about the value of the wealth their family has amassed, and their role in its destiny.  

This mission statement can be as brief or as extensive as you wish. It should articulate certain common viewpoints. What values matter most to your family? What is the purpose of your family’s wealth? How do you and your heirs envision the next decade or the next generation of the family business? What would you and your heirs like to accomplish, either together or individually? How do you want others to remember you? These questions (and others) may seem philosophical rather than financial. However, they can actually drive the decisions made to sustain and enhance family wealth.

Distribute Inherited Wealth in Phases.

 A trust provides a great mechanism to accomplish this. A certain percentage of trust principal can be conveyed at age X and then the rest of it Y years later. It would be wise to involve a legal professional to carefully state your requirements within your trust.

By involving your kids in the discussion of where the family wealth will go when you are gone, you encourage their intellectual and emotional investment in its future. Pair values, defined goals, and clear purpose with financial literacy and input from a financial or legal professional, and you will take a confident step toward making family wealth last longer.

Tags: Family Wealth, Financial Planner Charlotte NC

Impact Investing: Have You Heard of it? You Will.

May 24, 2019

I’d like to shine a bright light on the ever-growing popularity of impact investing and then define the three types of investors found to have the most interest in what seems to be this relatively new (although it’s actually not) and seemingly unknown (only to the retail investor) area of the investment marketplace. Let’s hop right in.

Impact investing. First, it’s important to know that “impact investing” is merely a subsegment of a more broadly defined investment methodology known as Sustainable, Responsible and Impact … otherwise known as SRI. This is actually a relatively new set of terms or definition for the S-R-I acronym which for a long time stood for Socially Responsible Investing – and that is actually where a lot of confusion comes in when people begin to discuss SRI or impact investing strategies.

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You Don’t Know What You Don’t Know

Mar 27, 2019

Having attended the 2018 SRI Conference in Colorado Springs, aka: SRI in the Rockies back in November, I remember returning not only inspired to continue the work we do, but reassured that the work we do for our clients is simply the right work to be doing.

SRI is the acronym for investments that focus not only on a financial return, but they also have a social or environmental return component as well. SRI stands for Sustainable Responsible and Impact, and it’s rightly taken claim as one of the fastest growing segments of the investment marketplace. Quite simply, and when looked at correctly, it is the way to have your money “do more”, for you, and for others.

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US SIF Foundation Releases 2018 Biennial Report On US Sustainable, Responsible And Impact Investing Trends

Oct 31, 2018

WASHINGTON, D.C., Oct. 31 – The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends,released today, found that sustainable, responsible and impact investing (SRI) assets now account for $12.0 trillion—or one in four dollars—of the $46.6 trillion in total assets under professional management in the United States. This represents a 38 percent increase over 2016.

The Trends Report—first compiled in 1995—is the most comprehensive study of sustainable and impact investing in the United States. From the first report when assets totaled just $639 billion to today, the sustainable and responsible investing industry has grown 18-fold and has matured and expanded across numerous asset classes.

The 2018 report identified $11.6 trillion in ESG incorporation assets under management at the outset of 2018 held by 496 institutional investors, 365 money managers and 1,145 community investing financial institutions. The largest percentage of money managers cited client demand as their top motivation for pursuing ESG incorporation, while the largest number of institutional investors cited fulfilling mission and pursuing social benefit as their top motivations.

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Are You “Wealthy”?

Apr 18, 2017

While doing my annual Spring “office clean”, I came across an article that I had printed out from June of last year (Trust & Estates, June 30, 2016 – Patricia Angus). I re-read it and felt that I needed to share it here. It resonates with me on several fronts, and it may very well resonate with you as a reader of our blog and potential fan of the work we do. I hope you enjoy it …

Recently, I took a taxi to the airport after leaving a conference focused on the challenges and opportunities of families with “great wealth” — that is, families with extraordinary financial, business and philanthropic resources that are expected (or hoped) to last several generations. As discussions veered toward questions of “How much is enough (to leave to our children)?” and “How can we prevent the (often adverse) impact of these resources on our inheritors?” I felt a familiar sense of disconnect from those around me. In fact, I’ve been finding it increasingly difficult to (more…)

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