Tag Archives: savings

Tips for a Successful Early Retirement

When would you like to retire? Even if the answer is later versus sooner, most of us would like the freedom to decide. To do this, consider what it would take to create financial independence in retirement. Here are some ideas to help plan for an early retirement.

  • Start early – Establish your desire to retire early as soon as possible. Have a discussion with your spouse and loved ones to ensure you have the same retirement date goal. With this stated goal, meeting savings targets and establishing spending priorities get much easier.
  • Know what you want to do – Have you always wanted to visit national parks? Do you have a passion for art? If you have a dream that can be fulfilled in retirement, it makes any hardships to get there more tolerable. Once you set retirement goals, creating a plan to get there will have more meaning.
  • Pay yourself first – People who retire early have higher savings rates than most of us. Consider saving in excess of 10% of your earnings. To do this might mean holding off on a big vacation once in a while or delaying a major home improvement or purchase. While a hardship, knowing the long-term dividend makes it worthwhile. The larger your savings become, the more flexible you are in acquiring assets that generate more wealth for you.
  • No debt and credit cards paid in full – It’s hard to retire early if you are making large loan payments. Having a mindset to save money before you buy something versus taking out loans is the way to go for prospective early retirees. Why pay the credit card company interest when you could use that money during your non-working days?
  • Financial independence mindset – Save enough to not have to worry about Social Security or other government programs to take care of you. Said another way, never over-spend your own resources as you will need to depend on yourself and not others for your financial independence.
  • Use common sense when investing – Many investment alternatives may no longer make financial sense when compared to the income potential of the underlying asset or property. For example, if you own rental property, determine if the cash flows create a reasonable rate of return for the price you paid for the property. If you use common sense, more of your investments may help generate income in retirement.
  • Other resources – Go through a retirement planning process with a qualified expert. This exercise can help you understand what your projected financial needs will be during your retirement years. Project your potential savings. Look into other sources of projected income from pension plans and retirement savings accounts. Create an estimate of possible Social Security benefits. Understand what other resources will be available to you during retirement.

While this list is not meant to be all-inclusive, it should help start the conversation toward your early retirement dream. Remember to ask for help to understand your situation and to develop your own personal plan.

Five Smart Uses for Your Tax Refund

So you were fortunate enough to receive a tax refund this year. What are your plans for the money? Here are five ideas worth considering.

Pay down debt – Start with debts that carry the highest interest rates first, then move down the line. This is like savings on savings as you are freeing up future cash needed to pay the interest on this debt.

Ideas: Pay off credit card debt. Lower your student loan debt. Make a principal payment on a mortgage.

Add to savings – Save some of your refund for later use.

Ideas: Add to your emergency fund to have enough to cover at least six months of your every-day expenses. Add to a college savings account or a tax-advantaged retirement account.

Invest in yourself – Spend some money improving yourself or your well-being. Investing in yourself can have long-term benefits.

Ideas: Take a class to develop a hobby into a career. Consider a fitness membership. Take up meditation. Become accredited in your chosen profession.

Spend for permanence – Instead of spending your refund on day-to-day expenses, use some of it for capital purchases. Capital purchases are for items that last longer than one year.

Ideas: Replace a worn out couch. Purchase a replacement bicycle. Upgrade an outdated light fixture. Consider a minor home improvement.

Have some fun – Finally, consider using part of your refund for a well-deserved break. When balanced with using a portion of your refund to improve your financial condition, you can feel better about a little splurging in your life.

Ideas: Shop last minute flight deals for a weekend getaway. Take a road trip to a favorite destination.

Year-End Tax Planning Ideas – Part 2

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next.  We have compiled a checklist of actions that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them.

Below is part two of a two-part series – this second is aimed at ideas for businesses.

Year-End Tax-Planning Moves for Businesses & Business Owners

Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,010,000. Expensing is generally available for most depreciable property (other than buildings), off-the-shelf computer software, and qualified real property—qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make purchases before the end of 2016 will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.

Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. The bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the full 50% first-year bonus write-off is available even if qualifying assets are in service for only a few days in 2016.

  • Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit of property can’t exceed $2,500.
  • A corporation should consider accelerating income from 2017 to 2016 if it will be in a higher bracket next year. Conversely, it should consider deferring income until 2017 if it will be in a higher bracket this year.
  • A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2016 (and substantial net income in 2017) may find it worthwhile to accelerate just enough of its 2017 income (or to defer just enough of its 2016 deductions) to create a small amount of net income for 2016. This will permit the corporation to base its 2017 estimated tax installments on the relatively small amount of income shown on its 2016 return, rather than having to pay estimated taxes based on 100% of its much larger 2017 taxable income.
  • To reduce 2016 taxable income, consider deferring a debt-cancellation event until 2017.
  • To reduce 2016 taxable income, consider disposing of a passive activity in 2016 if doing so will allow you to deduct suspended passive activity losses.
  • If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

Year-End Tax Planning Ideas – Part 1

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next.  We have compiled a checklist of actions that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them.

Below is part one of a two-part series – this first is aimed at ideas for individuals.

Year-End Tax Planning Moves for Individuals

  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, and then buy back the same securities at least 31 days later.
  • Postpone income until 2017 and accelerate deductions into 2016 to lower your 2016 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2016 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2016. For example, this may be the case where a person’s marginal tax rate is much lower this year than it will be next year or where lower income in 2017 will result in a higher 2017 tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
  • It may be advantageous to try to arrange with your employer to defer, until early 2017, a bonus that may be coming your way.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2016 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2016 if you won’t be subject to alternative minimum tax (AMT) in 2016.
  • Estimate the effect of any year-end planning moves on the AMT for 2016, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state and local property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses of a taxpayer who is at least age 65 or whose spouse is at least 65 as of the close of the tax year, are calculated in a more restrictive way for AMT purposes than for regular tax purposes. If you are subject to the AMT for 2016, or suspect you might be, these types of deductions should not be accelerated.
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
  • Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  • If you become eligible in or before December of 2016 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2016.
  • Consider increasing charitable deductions by the end of the year.
  • If you are thinking of installing energy saving improvements to your home, such as certain high-efficiency insulation materials, do so before the close of 2016. You may qualify for a “nonbusiness energy property credit” that won’t be available after this year, unless Congress reinstates it.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and/or estate taxes. The exclusion applies to gifts of up to $14,000 made in 2016 and 2017 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.
  • Maximize retirement deferrals such as 401K, Simple Plan, catch-up contributions if you are over 50, DB plan, etc.

The Ten Commandments of Financial Common Sense

Most everyone knows you need to budget, balance and save. However, here’s a list of the ten steps to ensure you walk on stable financial ground.

  1. Set a budget and stick to it – Make financial goals and then create a budget that supports those goals. Account for expenses on a monthly basis and set budget limits for dinner out and other forms of entertainment.
  2. Pay off all debt (except a home mortgage) – Make debt payments a part of your budget until paid off.
  3. Set aside money for future expenses – Plan in advance for both short- and long-term big expenses and create a line item for them in your monthly budget.
  4. Save for emergencies – Set aside funds each month to build a reserve of three months living expenses (eventually build up to six) to guard against job loss or unexpected expenses. Having these savings automatically deducted you’re your income makes it easier.
  5. Take advantage of available plans – Company-sponsored 401(k) plans and/or other retirement plans, 529 savings plans and education funds will help you financially later. A little put away today can mean a lot is available tomorrow.
  6. Spend only what you have – Limit uses of credit vehicles like credit cards and high interest cash advances. Pay off credit cards by due dates each month.
  7. Manage your financial life – Regularly manage and monitor your accounts and statements, including balancing your debit/checking account and investment accounts.
  8. Keep an eye on your credit score – Making timely payments is one of the best ways to maintain good credit for future lending. If used responsibly, automatic payment systems like online banking can be beneficial.
  9. Set up Identity Theft Protection on your financial accounts – Regularly change your online and mobile passwords, and safeguard your financial statements.
  10. Openly communicate with your spouse about your family’s financial position – Make sure you both agree on short- and long-term goals. Teach your children the power of saving and budgeting to put them on the path to a successful financial future.

Moving From “Paycheck to Paycheck” to “Planning Ahead”

A recent study found that 47% of American workers live “paycheck to paycheck”. The path to achieving financial milestones like paying for a college education, buying a car, owning a home or retiring at an early age always begins with one step – saving for the future. Based on this survey, many Americans aren’t saving – and are unprepared for the unexpected.

The survey also found that:

  • More than half knew that an emergency fund should hold six months of living expenses
  • However, two-thirds don’t have that amount in savings
  • How many don’t have any emergency fund at all? 30%!
  • Retirement planning – more than half don’t contribute to a 401K, IRA or other retirement plan
  • Two-thirds of baby boomers carry their credit card debit into retirement

Start small and start NOW. Begin with a small goal – put away $10 each week. As that reserve grows, focus on building an emergency fund with three to six months of living expenses. The unexpected can and will happen to all of us – will you be prepared?