Planning

With the backlog of tax return filing due to late changing tax laws, want to ensure your refund gets to you in the shortest amount of time? More importantly, how can you avoid receiving a letter from the IRS? Here are some of the most common tax filing mistakes:

Forgetting a W-2 or 1099: The IRS does an effective job in comparing W-2s and 1099s they receive from organizations to the amounts you claim on your tax return. If they do not match, rest assured you will receive a notice in the mail asking for clarification.

The 1095 form: Through 2018, all taxpayers must now prove they have valid health care coverage for themselves, their spouse, and their children. This is done with Form 1095. Make sure you receive yours prior to filing your tax return.

Duplicate dependent reporting: If more than one tax return claims the same person as a dependent, the second return will be rejected. The IRS does not try to determine which tax return is correct. They leave that up to you.

Forgetting a name change: If you fail to change your name with Social Security after marriage and you file a tax return with your “new” last name, be prepared for either a rejected tax return or an adjusted tax return.

Other missing information: When preparing your tax return, often the return is held up because key information is missing. These missing items range from property tax and mortgage interest statements, to 1099s and W-2s.

Signing the e-file authorization form: Your tax return cannot be e-filed without proper authorization. After reviewing your return, a properly signed Form 8879 must be received. Contact us if you need help with your tax planning.

Do you save regularly? If not, you should reconsider. Developing a saving habit is one of the best things you can do for your financial health.

In the short term, savings can provide you a cushion to deal with emergencies, such as a job loss, unexpected home repairs, medical bills, etc. It will also help you reduce or eliminate your need to take out loans or other financing. Most importantly, building up savings while you work can mean the difference between a comfortable retirement and scraping by on Social Security benefits.

There’s no better time than now to start saving.

If you’re not a regular saver, where do you begin? Here are three tips to help you get started:

• Set small, manageable goals. Remember the old adage that “what gets measured gets managed.” Set specific goals, whether it’s to save so many dollars per month or a set percentage of your earnings. Then track your progress toward your goal at frequent intervals. This will help you gradually expand your goals as you see your successes.
• Save automatically wherever possible. Sign up for payroll deductions into your company 401(k) plan, or arrange for a portion of every paycheck to go straight into a savings account at your bank. Saving is much easier if you never get your hands on the money.
• Track what you spend. Keep records for a month or two so you know where your money is going. Then figure out where you can cut back to generate some savings. For example, give up one espresso coffee per day, or make your own lunch two days each week instead of eating out. Or think up one creative, low-cost way to have fun with family or friends each week. Put aside the money you save so you can see the results.

Remember, saving leads to other financial benefits. The more you save, the less you borrow. The less you borrow, the less interest you pay and the more money you can add to your savings. So start your savings program now! Contact us if you need help with financial planning.

Financial goals make it possible for you and your partner to achieve the things you dream about. Here are three things you can do to create – and achieve – financial goals as a couple:

• Start talking sooner rather than later. Finances can be hard to talk about. People sometimes feel guilty about debt or ashamed that they don’t make more money than they do. More than that, many people consider money to be a private thing that shouldn’t be discussed with others.
  
  However, the first step to setting financial goals as a couple is to start talking. And the sooner you start talking with your partner, the better prepared you’ll be to make positive financial decisions. Saving for big purchase, for example, takes time and planning. Having a discussion early gives you more time to start saving.
• Don’t just agree on goals – agree on how to achieve them. Once you’re talking about your finances, you’ll want to discuss your goals. Would you like to pay off your credit card debt? Save for a big family vacation? Have more of a financial safety net?
  
  After you’ve agreed on what you’d like to achieve, start talking about how you’ll work together to achieve it. The best financial plans require both partners to contribute to the financial goal – whether that means each agreeing to contribute monthly to a savings account or just give up your gourmet latte habits.
• Keep the conversation going. Plans need maintenance to succeed. That means continuing to talk about them, checking progress on a regular basis. It’s important for both partners to know all the numbers, even if one partner manages the finances.
  
  Scheduling a regular financial conversation is one way to keep you and your partner on track to achieving your goals. This “financial date night” is a good way to ensure that things are going as planned. It’s an opportunity to check in and adjust the numbers accordingly.

With open communication and commitment from both partners, you’ll be well on your way to reaching your financial goals.

Summer is often a time for vacations reunions. But it can sometimes be hard to justify spending the money to take one. Fortunately, with a little planning and ingenuity you can trim the cost of that summer getaway without cutting back on fun and relaxation. Here are a few ideas:

• Consider package deals. By bundling airfare, hotel and car rental together, travel companies sometimes offer cheaper rates. Just be sure to read the fine print.
• Eat in your room. Just because you’re on vacation doesn’t mean every meal needs to be expensive. For some dinners, try buying some staple items at the local grocery store. Sleep late and reduce your food intake to a brunch and a dinner. You’ll eat less and possibly spend less on food, too.
• Travel in the off-season. Christmas in Mexico is great, but it’s also more expensive. By choosing the days just before or just after the busy season, you’ll often find cheaper rates without much difference in climate. You’ll also avoid some of the hassles that result from too many tourists in too little space.
• Do some research before you go. You can often find info on local customs, authentic eateries, free events and the best times to visit museums online or in inexpensive guidebooks. Some also offer coupons.
• Vacation nearby. Tourists visit your home state and marvel at its attractions. For a week, become one of them. You’ll save on the cost of accommodations but still have the chance to explore the area around you through day trips.
• Plan ahead. Instead of financing your getaway with a credit card (then struggling to pay off the balance and accumulated interest later), plan ahead. Every month or every paycheck, set aside money. Make it a family activity. If everyone wants to visit Disneyland, research the best airfares and hotel rates and let your kids do the math. The earlier you start, the more you’ll be able to accumulate for that dream trip.

Here is a tax planning tip for those who file their tax returns early and wish to contribute to a tax deductible IRA, but do not have the funds to do so.

Say you want to pay into an IRA to get a tax break but you don’t have the money? Take heart, there are ways to get around this. The IRS allows you to take the deduction now and pay later when you get your refund.

How it works

Step 1: Prepare your tax return early in the year (early February). Run the tax return considering an income reducing contribution to a tax deferred IRA. If you do not have the funds to put into the IRA, but your tax return has a refund that can fund your contribution, you are ready for step 2.

Step 2: File your tax return with the IRA contribution noted. File the tax return as early as possible to ensure your refund gets back to you prior to April 15th. E-file the return if at all possible.

Step 3: Fund your IRA prior to April 15th. Tell your IRA investment firm you wish your IRA contribution to be for the prior year.

That’s it. You have now effectively had the income reduction benefit of your IRA contribution help fund the account through your tax refund.

The risks

• Timing is everything. If you use this technique it is critical that the IRA is funded on or before April 15th. If it is not, your tax return will need to be amended.
• Refund not received in time. If you do not receive your refund in time, you may not have the funds to make a timely IRA deposit. In this case, you may need to borrow funds on a short-term basis until the refund is received.
• No extensions. The IRA contribution for the prior year must be made by April 15th of the following year (the original filing due date). This is true even if you file your return under an approved extension period.

While not for everyone, this tax tip could help you fund more of your retirement on a tax deferred basis.

Is an IRA an option worth considering for you? If so, which is better?

Traditional IRA

A Traditional IRA is an individual savings account that allows you to contribute money for your retirement. Depending on your income level, you may deduct the contributions from your taxable income. Any earnings made in a Traditional IRA account remain tax-deferred until the money is withdrawn from the account. Tax is only paid on the money once it is withdrawn. After the account holder reaches age 70 1/2 you may no longer make contributions into your Traditional IRA and minimum required distributions must be taken from the account each year. Anyone with earned income can create a Traditional IRA, but if you also have a retirement account with an employer, there are income limits to the amount you can contribute to your IRA in pre-tax dollars.

Roth IRA

A Roth IRA is an individual retirement account that allows you to contribute income that has already been taxed (“after-tax” dollars). Withdrawals of earnings on contributions from Roth IRA accounts are federal income tax-free so long as a 5-year holding period has been met and the account holder is at least 59 1/2 years old, disabled, or deceased. Withdrawals of contributions are always tax-free since you already paid the tax on the contributions. There are no required minimum distributions nor are there age limits for contributions.

• Traditional IRA contributions that qualify for pre-tax treatment will allow a larger beginning investment to compound over time versus a Roth IRA.
• Roth IRA contributions, though smaller because of tax treatment, could create earnings that are never taxed.
• Roth IRA accounts have more flexible contribution and withdrawal rules.

So the answer is. . .it all depends. If you think tax rates will be significantly higher when you withdraw your retirement savings, then think seriously about a Roth IRA.

If you think your retirement account investments will perform well, then perhaps the earnings growth in a Traditional IRA will more than pay for the additional tax at time of withdrawal.