Monday, December 08, 2014

Many of Last Year's Tax Breaks - Extended

The major tax news at the end of last year was 55 tax breaks expired on December 31, 2013.  During all of 2014 tax planners and tax payers all were awaiting a final decision on whether or not many of these will be renewed or revised.  As the year draws to an end, Congress is backing off of revisions and proposing simply extending these breaks.

As a result those 55 tax breaks that expired last year will be extended.

Congressional Republicans on Tuesday said the measures would be renewed retroactively to Jan. 1, 2014 but only through the end of 2014.

In the next couple of weeks tax experts will be watching the Congressional action carefully.  Those 55 tax breaks are:
  • Tax-free distribution from individual retirement plans for charitable purposes.
  • Reduction in S corporation recognition period for built-in gains tax.
  • Credit for energy efficient appliances
  • Deduction for qualified tuition and related expenses
  • Employer wage credit for activated military reservists
  • Non business energy credits
  • Deduction for state and local general sales tax
  • Additional first year depreciation for 50 percent of basis of qualified property
  • Incentives for biodiesel and renewable diesel fuel
  • Credits for research and experimentation expenses
  • The remaining 45 are mostly business credits

Wednesday, October 29, 2014

End-of-Year Tax Planning

It’s time to start making your year-end plans even though this year’s tax rules are pending in Congress and not yet finalized.  Lawmaking tax writers are waiting until the last minute to revive a series of tax breaks that lapsed at the end of 2013.  These include the deduction for state sales taxes in lieu of income taxes and direct transfers from IRAs to charity up to $100,000 for people age 70 ½ and up.  Despite the lawmakers’ reluctance to take action until after Election Day (Nov. 4) we believe many of the tax breaks will be renewed for 2014 and 2015.

The key to end-of-year tax planning is to weigh your options for both 2014 and 2015.  You want to minimize the tax impact for both years, not just one.

Some taxpayers can accelerate income into 2014 to take advantage of a lower income and tax bracket, while other taxpayers may be able to defer income into 2015 for the same reason.
State and local income tax are itemized deductions.  The decision to pay, underpay or overpay can affect either year depending on your situation.

There are a number of other deductions such as interest, charitable donations, and medical expenses that need to be considered.
Knowing your tax position before the holidays is always a good idea. Contact your Wealth Advocate to discuss your income tax concerns and end the year with a reliable plan.

Tuesday, October 21, 2014

Carl Richards on Happiness and Success


In the past, WFG has used ideas and images from behaviorgap.com to promote financial literacy to clients and investors through our website and other materials.  You may recognize some of them:


The man behind behaviorgap.com is Carl Richards, a well-known author and international speaker.  We like to use some of Mr. Richards’ ideas because he is often able to present complex, albeit important, financial ideas in an easily understandable way.  Below is a copy of the most recent behaviorgap.com newsletter, on success and happiness:


Are You Chasing Happiness or Success?

For the next few minutes, I want you to focus on the most successful person you know (and yes, it may be you). What makes this individual successful in your mind? Professional accomplishments? Personal wealth? Now, I want you to think of the happiest person you know.

Did you come up with the same name?

No doubt some of you did. However, I suspect many more of you ended up with two different people. We often ignore it, but we live in a world that doesn't always make it easy for success and happiness to coexist. My sense is that the problem comes back to something fairly basic.

How we currently define success and real happiness overlap very little. It may seem counterintuitive. After all, what successful person wouldn't be happy? But go back over the mental list you made for the individual you consider a success. How many of your qualifications are connected, at least in part, to owning tangible, material things?

Now, think about the happiest person you know. What makes them happy? I'm willing to bet it's because of their relationships and the things they do, not because of what they have. But why isn't there a greater alignment between what we consider success and happiness?

One of the best examples of this disconnect is the greater happiness we feel when we're living an experience versus buying a possession. Even though it seems counterintuitive (e.g., your vacation only lasts a week), people are happier both before and after an experience compared to how they feel after buying a physical product. But think about how we define success. Very often it comes back to what someone buys and owns.   

These visible reminders of success become a measuring stick, and like any measuring stick, it can be hard for some of us to measure up. Case in point, I've had more than one person tell me about how they'd like to slow down and live a different life. These are often people who would easily qualify as successful.

But as we walk through the reasons why they can't slow down, they invariably hinges on those signs of success. For instance, don't tell me you wish you had more time to coach your kid's soccer team if you just bought a luxury car that requires working overtime to make the payments. While success may come with happiness, sometimes we'll need to walk away from what everyone else defines as success to find our own happiness.

Yes, this may sound incredibly abstract and maybe even a little New Agey. But time after time, I've had conversations with clients in which they will share their goals, and their goals will be based on the idea of having "something." They focused on visible success and skipped over the happiness part. They just assumed success meant happiness. As a result, these clients were surprised to discover that after all their hard work, and despite all the possessions they'd accumulated, they weren't always happy with the outcome.

What might happen if we reordered happiness and success? What if we instead said our decisions would be based on what makes us happy? Of course, we'd be thrilled if those decisions also led to success, but our primary focus was now happiness.

How would that change the decisions you've made in the past week? Would anything be different? If not, then you've managed to find a balance between success and happiness. But if you find that more than one or two decisions would be different, then maybe it's time to ask yourself why.

Do you really think success will bring you happiness, or do you just hope that's the case?

Carl


If you would like to read more from Mr. Richards, visit behaviorgap.com and/or subscribe to the Behavior Gap newsletter for more insight.  If you would like to see Carl’s archives in the New York Times, click here

Monday, September 29, 2014

Establishing Legal Residency in a New State


  • Locate a place to live in the new state of choice. Purchase a home if you can, although it is not required.  You must spend at least 6 months and 1 day at this new home to claim residency in your new state.  The new state must be your “Domicile” (generally meaning "permanent home").
  • Spend substantial time in the new “home” state during vacations and holidays.
  • Next, establish a home address with the U.S. Postal Service by going to the nearest post office and filing a change of address form.  The new home must be your primary mailing address.
  • Have your important documents transferred to your new home address (insurance, memberships, licenses, etc.).  
  • Obtain a driver's license and car registration in your new home state, or apply for a non-driver's state ID card if you do not drive.
  • Register to vote in your new home state.
  • Register motor vehicles in your new home state and make sure insurance rates are based upon your new state residency.
  • Establish a banking relationship in the new state.
  • Establish new professional relationships such as an accountant, lawyer, dentist and doctor. 
  • Establish social groups and relations in the new home state, such as joining a health club, country club, civic, or business groups.
  • Become a member of a local church.
  • If you have professional licenses, have them transferred to your new state. Do this by contacting the governing board of your occupation in the new state (nurses, physicians, social workers, attorneys, etc.). Temporary licensing can often be granted immediately while you are waiting for the permanent license.
  • Purchase a resident hunting or fishing license in the new home state, and if you continue these sports in your previous state purchase a non-resident license there.
  • If retaining any property in your previous state, make sure it is “non-homestead” (if applicable) property for property tax calculations.

NOTE FOR MINNESOTA RESIDENTS:  Minnesota courts have recently demonstrated in their rulings a reluctance to let the taxpayer establish a residency change while maintaining a “presence” in Minnesota.  The court cases suggest that a complete break with Minnesota must be established in order to evidence a taxpayer’s intent to change residency from Minnesota to another state.  Not all states have been as aggressive as Minnesota in establishing difficult rules to comply with.  Check your home state rules for specific requirements.

IF YOU CHANGE STATES FROM MINNESOTA- RECOMMENDATION:   Stay out of Minnesota (well) over half the year.  OVERDO residency changes related to intent factors!  Keep excellent records!  If you receive a residency audit notice from Minnesota, we recommend you retain a Minnesota tax attorney.

Wednesday, September 10, 2014

Fall is Tax Time

It’s the end of summer, the best time of the year to think about your income taxes. Seriously! 


Granted, there are some last minute moves that can and must be made at year-end, by December 31. Why wait until December?  More than halfway through the year is great for planning. You have a good idea of what your earnings will be, and you have time to take steps that could cut the taxes you will have to pay.

If you have not filed your 2013 tax return because it is on extension (you have until October 15, 2014), get it done now. Rushing through it in October is not a positive move.

For 2014, will you owe or get a big refund? You probably should adjust your withholding if either is the case.  Payroll withholding should provide “just enough,” not too much and not too little. Changing your withholding is easy. Just submit a new W-4 to your payroll office.

Do you pay estimates?  Now is a great time to reassess your estimated tax situation. You can adjust your 3rd quarter, (due September 15) and 4th quarter payments.

Is your 2014 tax-filing material building up in a pile? Straighten it out now. It will make it filing your return next year much easier.

Your favorite non-profit organization will happily pick up unwanted household items and clothing any time of the year. So help out the charities now. Just be sure to get a receipt and put it in your newly created tax filing system. Household goods, furniture, clothing and nick-knacks can add up to very meaningful contributions. List them out with the following information:  Description of item, approximate acquisition date, original purchase price or original value, date of donation, organization receiving donation, condition of item, (excellent, good, fair, etc.), estimated value (10% - 30% of original).  You will be surprised at the amount of the donation. If any item exceeds $5,000 in value you must obtain an outside, independent appraisal.

Earlier is better when it comes to retirement plan contributions. 


There are many other moves and ideas you can make or do. Contact your Wealth Advocate for more tax planning ideas.

Wade Financial Group is on your side for tax planning.

Monday, September 08, 2014

Reminder: Third Quarter Tax Payments Due

The 3rd payment of your estimated individual income tax is due on September 15, 2014.

If you mail your payment and it is postmarked by the due date, the date of the U.S. postmark is considered the date of payment.  If your payment is late or you did not pay enough, you may be charged a penalty for underpaying.

If you are paying an estimated payment based on your prior year total tax, you are paying a “safe harbor” estimate.  This safe harbor estimate allows you to have significant increases in income and will not incur a penalty if all your estimates are paid on time.  If you are not paying an estimate based on your prior year tax and if you need to change your estimated tax payment we are available to assist you or you may call your tax preparer for assistance.

There are several methods to pay your estimated income tax:

  • Pay by check using the US mail.  Be sure to enclose the estimated payment voucher with your check and write your social security number on your check and note that it is for the 3rd quarter of 2014 taxes.  The IRS prefers you to not staple your check to the voucher.  The mailing address for Minnesota residents is:
    • Internal Revenue Service
    • P.O. Box 802502
    • Cincinnati, Ohio 45280-2502
  • Pay online at www.irs.gov/e-pay.  You can pay using either of the following electronic payment methods:
    • Direct transfer from your bank account
    • Credit or debit card
  • Pay by phone: for the latest details on how to pay by phone, go to www.irs.gov/e-pay
    • To pay by phone by direct transfer from your bank account call EFTPS Customer Service at 1-800-555-4477
    • When paying by phone using a debit or credit card the IRS charges a “convenience” fee which varies by provider, card type and payment amount.  The providers to call for paying by debit or credit card are: