How much money did you save last year? If
you didn't save at least 10% of your earnings, you didn't save enough. If your
savings in 2013 fell short, the only solution is to take charge of your
financial future right now and start saving more money.
Saving money doesn't have to be hard work.
In fact, many successful savers have found simple ways to cut spending and
increase their savings. Here are some tips to help you get started and stay on
* Set goals. To give your savings purpose,
set specific financial goals. For example, it's advisable to have an emergency
fund of approximately six months' worth of living expenses to cover any cash
outlays that may catch you by surprise. Nothing can derail your financial plans
faster than a series of mishaps that force you to take drastic financial
measures. Other saving goals may include a college savings fund, vacation fund,
or a fund for major purchases.
* Treat your savings as your most important
monthly bill. Write a check to savings first, or have your savings
automatically deducted from your checking account or paycheck.
* Tax-deferred retirement accounts offer a
smart way for you to save money for retirement. If your employer offers a
401(k) or SIMPLE retirement plan, contribute the maximum amount allowed. If
your employer offers no plan, contribute to an individual retirement account
(IRA). The money you contribute to a retirement account can reduce your taxable
income and grow tax-free until withdrawn.
* Another way to maximize savings is to
track your expenses for a few months. This is a great way to spot unnecessary
or wasteful spending; it doesn't take much work to see potential cutbacks.
* When it comes to saving, think
"control." For example, control the use of your credit cards. The
amount you pay each month in finance charges could go to savings instead. Also,
control the use of your ATM card. Get in the habit of giving yourself a regular
cash allowance, and try to live with it.
You should be saving at least 10% of your
earnings. Seem impossible? If you took a new job at 10% less pay, you would get
by. For help in setting financial goals and developing a savings plan, call us.
Are you a working parent looking for ways
to ease the burden of child care expenses? There are several tax-saving
strategies available to you.
First, there's the dependent care tax
credit, a direct reduction to your tax liability. The amount of the credit
depends on the amount of your child care expenses, your adjusted gross income,
and how many children you have. The maximum credit is 35% of your costs for
child care while you work or go to school, up to a limit of $3,000 for one
child and $6,000 for two or more children.
Next, there is the flexible spending
account, an arrangement set up by some employers which allows employees to set
aside pre-tax dollars to be used for child care expenses. However, you should
be careful when establishing this type of account because there is some risk
involved. If your dependent care costs for the year are less than your
contributions to your account, you could forfeit the unused balance. Also, any
tax-free reimbursement from the account reduces your eligible expenses for the
dependent care tax credit.
Finally, you may have an employer who is
taking advantage of a new business tax credit for providing child care services
for employees. Employers who provide such benefits can receive a tax credit of
up to $150,000, depending on the actual costs of running the child care center.
If you are lucky enough to receive this benefit, your employer will report the
total amount of your dependent care benefit on your form W-2. The first $5,000
of this benefit is not taxable, but any benefit over $5,000 per family will be
included in taxable wages.
Give us a call if you would like more
information about the restrictions and requirements involved with these
Sitting on a piece of investment property
that you would like to sell? By structuring the transaction as a tax-deferred
exchange, you can delay paying taxes on the full amount of the gain realized.
Also known as a "like-kind
exchange" or a "1031 exchange," these transactions are only
available for investment or business assets. Certain types of assets don't
qualify for a tax-deferred exchange, including inventory, accounts receivable,
stocks and bonds, and your personal residence. Keep in mind, too, that the
like-kind exchange rules only defer the tax. Any gain will be recognized upon a
taxable disposition of the replacement property.
Specific steps must be followed for a deferred
exchange to be successful. Start by finding a qualified intermediary, such as
an escrow agent or a title company, to facilitate this transaction. You then
have 45 days from the date you relinquish your property to the qualified
intermediary to name as many as three possible replacement properties. You must
take title to the replacement property within 180 days. The rules state that
you must replace real property with real property and personal property with
personal property. Replacing an apartment building with commercial space, a
strip mall, or even undeveloped land all qualify.
While deferred exchanges can save you a
significant amount of taxes, following the specific rules can be tricky. For
more information about these tax-advantaged transactions, please give us a
the 80-20 rule to increase your business profits
How well do you know your customers? Which
ones are the most profitable? Which ones take most of your time? It's worth
taking the time to find out. If your business is like most, the 80-20 rule
applies. That is, 80% of your profits come from 20% of your customers.
If you can identify that top 20%, you can
work hard to make sure this group remains satisfied customers. Sometimes all it
takes is an appreciative phone call or a little special attention. Also, by
understanding what makes this group profitable, you can work to bring other
customers into that category.
Keep in mind that it's not always profits
alone that make a good customer. Other factors, such as frequency of orders,
reliability of the business, speed of payment, and joy to deal with are
important too. Ask your accounting staff and your sales staff. You'll soon come
up with a list of top customers.
There's another way in which the 80-20 rule
applies to your business. Very likely, 80% of your problems and complaints come
from 20% or fewer of your customers. If you identify those problem customers,
you can change the way you do business with them to reduce the problems.
Consider changing your pricing for those customers so that at least you're
being paid for the extra time and effort they require. Sometimes the only
solution is to tell these customers that you no longer wish to do business with
The bottom line is that understanding your
customers better can only help your business. Contact us if you need help
analyzing your customer profitability.
If you do volunteer work for a charitable
organization and have not kept track of your out-of-pocket expenses, you might
be passing up an excellent opportunity to lower your tax bill. To qualify, your
unreimbursed expenses must relate directly to the charity, and you must itemize
your deductions on your tax return. Here is a brief rundown of some possible
* Volunteers may deduct the cost of phone
calls, postage stamps, supplies, and other out-of-pocket costs incurred in
their volunteer work. For volunteers who are required to wear a uniform, the
cost of buying and cleaning uniforms is deductible if they are unsuitable for
* The cost of your time, no matter how
valuable it may be, is not deductible. That's true even if you would normally
be paid for the type of service you contribute. For instance, accountants who
perform free consulting for charities can't deduct what they would normally
charge for their services.
* Using your car in connection with
volunteer work can earn you a deduction. The standard mileage rate for
volunteers who use their own cars is 14 cents per mile. Alternatively, you may
deduct your actual unreimbursed expenses for gas and oil - but not maintenance,
depreciation, or insurance. Either way you choose, related parking fees and
tolls are deductible as well.
* If you travel overnight for charitable
purposes, your expenses are deductible as long as they are reasonable in amount
and not connected with personal activities or any element of recreation.
* Special rules apply to conventions.
Travel and other out-of-pocket expenses related to attendance at a convention
for volunteers are deductible only if you have been chosen as a delegate to
represent the organization.
Finally, just remember that it is up to
you, the volunteer, to substantiate your deductions. If you take these
deductions, you should be prepared to show the IRS the connection between the
costs claimed and the charitable work performed.
Many mutual fund companies allow you to
switch funds without a penalty or commission, as long as you stay within their
family of funds. There's a catch though. Unless the funds are in a tax-deferred
retirement account, you could owe income tax each time you make a switch. When
you move money between funds, the IRS considers it a sale. You've sold shares
in the first fund, then reinvested the proceeds in the second. As a result,
you'll owe income tax on any gain.
You should consider switching funds when it
makes economic sense to do so. Just don't forget that Uncle Sam may have his
hand out at tax time. To discuss the tax implications before
making a switch, give us a call.
you paid enough for 2014? The deadline for the third quarterly
payment of 2014 estimated taxes is September 15. That's a good date to do a quick
review of the taxes you've paid so far for 2014, whether you pay in quarterly
installments, through withholding, or both. If necessary, you can beef up your
quarterly payment or adjust your income tax withholding for the remainder of
the year. Be aware that withheld taxes are considered paid in equal amounts
during the year, regardless of when the tax is withheld. An adjustment now to
withholding or quarterly estimates can help prevent underpayment penalties for
Another strong warning from the IRS is
alerting taxpayers to phone scams that have already resulted in 90,000
complaints and the theft of millions of dollars. Here's how the typical scam
works: The caller claims to be from the IRS and, using hostile and abusive
language, demands immediate payment of taxes by a prepaid debit card or wire
transfer. The IRS reminds taxpayers it will never contact you by phone about
owed taxes; the first contact will be by mail. It will never ask for credit,
debit, or prepaid card information in a phone call, and it will never request immediate
payment over the phone.
If you drive your car on behalf of a
charitable organization and there is no element of personal pleasure,
recreation, or vacation involved, you may take a tax deduction for either your
actual vehicle expenses or the standard mileage rate of 14 cents a mile, plus
parking fees and tolls.
For a parent, estate planning is especially
important. The first priority is to make sure your children are protected in
the event that something happens to you. Your estate plan should appoint
guardians for your minor children, as well as provide for their financial
If your children have earnings from summer
or after-school jobs, encourage them to open IRA accounts. The additional years
of tax-free compounding can produce huge additional savings by the time your
children reach retirement age.