“My Holiday Prayer” Birmingham Accountant Explains
December 19, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"People travel to wonder at the height of the mountains, at the huge waves of the seas, at the long course of the rivers, at the vast compass of the ocean, at the circular motion of the stars, and yet they pass by themselves without wondering." -St. Augustine
It seems that every year around this time that we tax professionals cast our gimlet eyes on Congress, and wait for them to resolve their year-end business — which ALWAYS affects our work.
Well, ho ho ho … this year is no different! As of this writing (Monday morning, December 19th), we’re seeing the payroll tax cut (worth up to $1K for many working families) be batted around. (A news article on it: http://on.wsj.com/sEufja )
We’ll keep you posted with the relevant details, as well as other, hopefully-pertinent information (you never know, with Congress!).
Anyway, I came in to the office this morning, and I noticed that traffic is already a little "lighter" around town. Many of us are still working, but I know of plenty of folks who have already taken time away from work, starting today.
Whatever your faith background, it’s hard to ignore the holiday clamor. In my opinion, it’s a crying shame that a season of reflection and prayer (Christmas, Hanukkah, etc) would become transformed into something so… busy. It’s almost as if we now have to rush around to "purchase" or artificially create nostalgic moments, when they would happen on their own before.
Now look — as a proud business owner, I’ve got no problem with people earning money during this season…I just wonder when it’s time to say "enough"?
But enough holiday ranting. This week, while everyone else is attempting to slow down, we tax professionals are gearing up. I thought I would take a break from my usual "financial" strategy tips, for the holidays, and pause a moment for reflection with you.
Because as I’ve been meeting with tax clients in getting ready for the season, I’ve discovered that many of you are worried and stressed–about finances, family, personal circumstances, etc. It’s not my job to save the world on your behalf of course, but I do get to be somebody in your world that can encourage you to slow down, take a breather and keep your perspective on what’s really important.
Thanks for your friendship, and for your business in 2011, and (hopefully) in 2012!
This week’s Note is to help us all keep perspective, this week…and into next year.
Martha Echol’s
"Real World" Personal Strategy
A Holiday Prayer For All Of Us
"God, help us remember that the jerk who cut us off in traffic last night is a single mother who worked nine hours that day and is rushing home to cook dinner, help with homework, do the laundry and spend a few precious moments with her children.
"Help us to remember that the pierced, tattooed, disinterested young man who can’t make change correctly is a worried 19-year-old college student, balancing his apprehension over final exams with his fear of not getting his student loans for next semester.
"Remind us, Lord, that the scary-looking bum, begging for money in the same spot every day (who really ought to get a job!) is a slave to addictions that we can only imagine in our worst nightmares…
"Help us to remember that the old couple walking annoyingly slow through the store aisles and blocking our shopping progress are savoring this moment, knowing that, based on the biopsy report she got back last week, this will be the last year that they go shopping together.
"Father, remind us each day that, of all the gifts you give us, the greatest gift is love. It is not enough to share that love with those we hold dear. Open our hearts not to just those who are close to us, but to all humanity. Let us be slow to judge and quick to forgive, show patience, empathy and love. "
Amen.
Best to you! May your season be truly bright.
Birmingham Accountant: “I’m A Myth-Buster”
December 12, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"If you love life, don’t waste time, for time is what life is made up of." – Bruce Lee
Scattershooting around the tax world while simultaneously preparing for a sure-to-be-busier tax season (thanks for all the recent referrals — keep ‘em coming!) AND navigating the perils of another holiday season … well, it means one busy Martha!
Seriously, we’re getting excited about what is our most intense season of the year — TAX time. In between cookies and egg nog, we’re boning up on all of the official tax law changes, and meeting with clients for last-minute tax-planning.
A few quick tax items for you, in fact, before I get to the good stuff:
IRS might have some refund $$ for you: There’s $153 million unclaimed right now. So, if you were expecting a refund check and fear it might have been returned to the IRS as undeliverable, go to the IRS website (www.irs.gov) and use the "Where’s My Refund?" tool. This will give you the status of your refund. In some cases, it will also provide "instructions on how to resolve delivery problems." You can also can get a phone version of "Where’s My Refund" at (800) 829-1954.
A friendly reminder: Use those FSA funds in the next few weeks … or lose ‘em! No explanation necessary, methinks.
Lastly — we have a couple last-minute tax planning appointments available! If you want to ensure that we’re maximizing your assets for MINIMUM tax liability, a phone or in-person meeting will make it happen. Shoot me an email, or give us a call: (205) 715-0088
Now… on to something which might just serve as a friendly nudge: "Tax time" is the perfect time for you to get other, long-delayed financial tasks accomplished. One of these is the dreaded estate plan. This is something which every family should have in place — not just the 1% (if you will). In fact, there are some myths about preparing estate plans which I thought we should deconstruct together, today.
(And as I mentioned — preparing to set up one of these plans is much easier in the context of what you normally do in preparing for tax season … so, let us know how we can help you with it!)
Martha Echols’
"Real World" Personal Strategy
Two Common Estate Plan Myths — BUSTED
As of this writing, it’s a fact that almost 60% of Americans don’t have a basic will, and that’s a big problem.
One of the big reasons that most families don’t yet have this kind of plan in place is because of some incorrect thinking about whether it’s right for them, or if it’s even necessary. And sure –some people just haven’t gotten around to creating a will or trust. Others think they don’t need an estate plan because they’re not "rich".
But here’s the problem–if you continue without an estate plan, you could leave a legacy of bad feelings and attorneys’ fees.
So I wanted to speak to some of the more common misconceptions out there. I’ll start with a couple big ones this week, and when the time is right, address a few more in 2012…
MYTH #1: Only rich people prepare estate plans.
Do you own ANYTHING? Because if so, you need a will. You see, a will allows you to designate who will receive your property should anything happen. Continuing without one ensures that your assets will be distributed under the terms of your state’s "intestate succession" laws. That means your money and property could end up with family members you haven’t spoken to in years, instead of who you’d really like to see control your assets.
I won’t go into all of the different components of a will, trust, health care directive etc., as my purpose here is to emphasize that failing to plan is simply a decision to trust your assets to government bureaucrats who don’t know you from Adam.
Even if you think your situation is pretty straightforward, you may feel more comfortable hiring a lawyer to guide you through the process.
MYTH #2: Everything goes to your spouse, if something happens.
Unfortunately, that’s not always the case. We deal with clients from different states around the country, and state laws vary. In fact, in most states, if you continue without a will (intestate), your inheritance will be divided among your spouse and your children. In New York, for example, when someone dies intestate, the spouse gets the first $50,000 of the estate and what’s left is divided 50-50 among the spouse and the children.
You can imagine how this could create all kinds of problems, particularly if your spouse was financially dependent on you or you have children from a previous marriage.
I’ll send a few more in the future, but I hope you can already see that things are not always as we "think". And let’s take advantage of tax season and move towards getting this done (or updated) in 2012!
I hope this helps! To your family’s financial and emotional peace…
Birmingham Accountant On: “How To Handle All These End-Of-Year Giving Requests”
December 5, 2011 by Birmingham Tax Professional, Martha Echols, CPA
“The only way to get positive feelings about yourself is to take positive actions. Man does not live as he thinks, he thinks as he lives.”
- Vaughan Quinn
The other day, I received probably the 20th “Consider including _____ in your holiday giving plans” request of the season. I’m not tired of it (in fact, I welcome it), but it’s also pretty clear that these 501(c)3 organizations all sort of “get” simple tax planning!
So as a tax professional, it warms my heart to see all of that deductibility flying around through mailboxes and the interwebs, and I’m especially happy when I see clients step to the plate and actually give.
Last week, I wrote about those inevitable “last-minute tax moves” we tax professionals always spout off about around this time of the year, and (surprise, surprise!) one of the options was increasing your donations.
But I wanted to address this a little more specifically — because donating for tax purposes is good (VERY good) … but there are better reasons. In fact, the current White House administration continues to scrutinize reducing the deduction rate for charitable donations, as it seems to do every year around this time.
So we might as well consider what it would look like to give with a smaller tax deduction incentive for doing so (though I should hasten to add that these proposals are not yet set into law).
Martha Echol’s
“Real World” Personal Strategy
3 Reasons To Give Money Away, With or Without a Tax Deduction
There’s something that happens to your soul when you cut a big check to someone in need.
You signal to those very fears and desires which so often control your unconscious thoughts: “Money doesn’t rule me. I have more than enough, so much more than enough that I’m giving it away.” Then, of course, something special often happens: more money seems to find itself in your hands.
I’m not advocating a mystical pay-it-forward scheme; I’m simply making the observation over years of being a student of how money “works”. And, “coincidentally” it just seems to find itself in the hands of those who give it away.
Why is it that those who are benevolent seem to be well-taken care of, even rich? I know many families of significant means who were NOT wealthy when they started to give in large percentages of their income (15%+). Coincidence?
So I’d say that this first dynamic is one significant reason to give: Your soul is set free from the shackles of fear and greed.
Here are two more big reasons:
2) You build a network of grateful friends and organizations. You’ll never know when someone to whom you’ve donated or given (be it time, money, connections, or other resources) comes back to you with something you need, at just the right time.
Personally, I’ve seen this dynamic in play enough times to not dismiss it. When you act or give generously, it’s the most powerful form of networking on the planet. Obviously, there are better, less self-interested reasons to give … but there sure are worse ones.
3) Your perspective can shift in an instant. When you don’t just give money, but also time and heart, you often learn heretofore unrealized reasons for being grateful about your own present circumstances.
Sometimes giving to institutions that work with the poor can bring home appreciation of your own enormous wealth. And it can also bring home awareness of a poverty which isn’t solved through adding zeroes to a bank balance. But either way, if you do it right, you are changed for the better.
With these reasons, AND the monetary benefits to your tax return, I urge you: stretch yourself this month. Give more than you think you should. See what happens.
I promise it’ll be good.
All this said, above, I firmly advocate for being careful with your planning of said giving. I don’t suggest impulsivity, just some small risk-taking.
But don’t risk losing out on the tax advantages to gifting appreciated stock, or other, less common, forms of gifting. Shoot me an email, or give us a call (205) 715-0088 if you want to discuss the tax implications of your year-end giving. It is, after all, what we do.
“Make These Moves This Month” Birmingham Accountant Advises
November 28, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"The way we communicate with others and with ourselves ultimately determines the quality of our lives." -Anthony Robbins
Hey, maybe my readers of last week’s Black Friday tips REALLY took it to heart! Apparently, sales from that day were up a whopping 16% from last year, which, as I write this on Monday morning, is driving the stock markets up, up, up.
Of course, this may not quite be the indicator we all might hope it to be — after all, Black Friday is notorious for big sales and for penny-pinchers. I might feel better about our economy’s direction if we get a few quarters of sustained consumer spending, outside of the big sales, under our belts.
This week, I’m hoping you will take my advice equally to heart. With just about one month left in 2011, there are some moves you simply must make. Why? Because right now, the tax picture for 2012 is extremely murky. Congress has just under five weeks to consider a TON of legislation and expiring credits (here’s a list, in case you’re interested: http://www.bankrate.com/financing/taxes/congress-year-end-tax-tasks/ ).
So the smart money should be leveraged to take maximum advantage out of this year’s tax situation. Because the way our political situation is shaping up … well, the only certainty right now seems to be UNcertainty.
The following is how you can make some CERTAIN tax-saving moves — but I will say this: if your income looks to be over $75K this year and you will have significant deductions, then we really should touch base for a planning conversation to ensure you don’t get hit by the AMT.
(205) 715-0088 or email me martha@marthaecholscpa.com.
After you’ve done that, read on.
Martha Echols’
"Real World" Personal Strategy
Echols’ Year-End Tax Moves for 2011
As promised, I’ve compiled some information on expiring tax breaks for 2011, as well as some suggested moves to make before December sees its ball-dropping end.
But before I share them with you, please allow me this important disclaimer: it’s difficult to make blanket recommendations to all my clients, simply because everyone’s situation is different. If you are uncertain about taking action on any of this information, well, that’s why we do tax planning — so give us a call in that instance (205) 715-0088.
Disclaimers aside, here are some relatively-easy tax moves you can make before 2012:
Filed under: Increased-Deduction strategy
With one caveat: increasing deductions could cost you if you end up owing under the Alternative Minimum Tax (AMT).
1. Pre-Pay and Accelerate
Mortgage bills, college tuition, property taxes — all of these can add deductions to your bottom line, so cherry-pick some 2012 bills if cashflow allows, and you’ll get to mark them against this year’s taxes (only January’s mortgage payment counts for this, I should hasten to say).
And you can "accelerate" certain expenses like optional medical procedures (dentistry is always a ripe source for procedures to implement, unfortunately ?), again, doing so if cashflow allows.
2. Donate
It’s not just because ’tis the season, but often (if we’re all honest) because the year-end is so close. So, obviously, when it comes to taxes, giving to a nonprofit can be like a money-saving gift to yourself. If you itemize your deductions, you can claim your charitable donations, both of cash or goods.
In fact, if you’re *close* to being able to itemize deductions, making some nice gifts this month can push you over the top into some major tax-savings. And, of course, there’s the added benefit of what happens to YOUR mindset when you give.
Filed under: Buying stuff you already need — and saving on taxes
3. Energy-Savings and Big Cars
We ‘tax people’ have been pounding this drum for a while, for the simple fact that (because of the last "stimulus" package) replacing windows, doors, and HVAC systems– as well as installing new insulation–could net you a $500 tax credit on your 2011 tax bill! Credits always beat deductions. A solar energy system gets a 30% credit with no upper limit.
How about that fancy new vehicle you’ve been eyeing? Or that energy-sucking flatscreen? Buy it before the end of the year, and you are eligible for a deduction on the state and local sales taxes.
But you can’t deduct both state income taxes and general sales taxes, so the deduction is usually most beneficial to our clients who actually live in the no-income-tax states. By the way, this sales tax deduction is scheduled to expire on Dec. 31.
Filed under: Common sense
4. Please stop loaning extra funds to Uncle Sam
Do you intentionally get a big refund each filing season? Quit that! You’re providing Uncle Sam an interest-free loan of your money.
Submit a new W-4 now so that your payroll withholding is more closely in line with your future IRS bill. It could even give you a few extra dollars at the end of the year to spend on holiday gifts!
Oh, and just so you know, it’s growing very likely that whatever Congress decides on tax law changes, payroll calculators may not have time to update by January 1st. This means that even if you request the changes, your withholding may not reflect things until 2012 … but making the change will still impact your taxes — it just might not be obvious until next year..
I hope these are easy, and that they give you some good ideas. Remember– I’m in your corner!
And when in doubt, give us a call.
Birmingham Accountant On: “Betting On Black”
November 21, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"95 percent of your emotions are determined by how you interpret events to yourself." – Brian Tracy
You know how Thanksgiving got its start, don’t you?
Smack in the middle of horrendous civil war, President Lincoln proclaimed the last Thursday of November as a national day of Thanksgiving which should take place every year.
I believe Lincoln understood a fundamental truth in the human soul: how we choose to see our circumstances often dictates the state of our hearts — and, thereby, our future circumstances. After all, if a war-torn nation can turn its eyes upward — so can you and your family.
You should sit in my office with me sometime, watch the procession of "wealthy" and "poor" clients meeting with me and my staff over various problems — and watch how the hearts are activated. Sometimes my "wealthiest" clients are the most impoverished … and those without many zeroes in their accounts are flat-out rich.
"Rich" is a state-of-mind–and it’s tied to gratitude. It affects how you see savings, retirement, our current economy, and investment. And, of course, gratitude is the enemy of fear. It’s like an opposite magnet for it — walk in gratitude, and fear just melts away.
So, here’s my advice for this week: Whatever financial situation you happen to find yourself in, be thankful. There are hidden blessings in any trial … and hidden fears lying within any windfall. Find them, savor the blessings, and watch your family thrive.
Now, perhaps this the perfect segue into my actionable advice for this week — because though I’m a professional in tax-savings, I like to find ways for my clients to find savings all over the place. And aside from turkey, there’s this whole "shopping" thing which is pushing up against our football! Well, I scanned around online, and I’ve compiled some of the BEST (i.e. not-just-conventional) advice for starting the holiday shopping season with a bang…
[By the way, as I write this, the "debt supercommittee" is headed towards failure. You KNOW that means that the IRS will be under serious pressure to collect maximum tax from you, right? So don't let this year pass without a tax planning conversation: (205) 715-0088]
Martha Echols’
"Real World" Personal Strategy
Echols’ Black Friday Winning Tactics
Personally, I prefer avoiding this mess altogether, but I just KNOW that many of my clients feel differently. So, if that’s you…here you go:
Expect some Black Friday sales to start on Thursday. Many retailers will start offering discounts online on Thanksgiving day. And some, such as Amazon, will offer Black Friday deals several days before November 25 — so hot items may sell out before the big shopping day after Thanksgiving. And, as you’ve probably seen, some stores (like Target) are even opening on Thursday…
Don’t assume the best deals are only in the stores. It’s a tradition for a lot of people to get up at the crack of dawn and camp out in front of stores to scoop up deals. But a lot of "doorbusters" (those deeply discounted items retailers use to get consumers in the door early Friday) will be available online, too — especially on big-ticket products. And if an Apple product is on your gift list, you’ll probably find it for less online (at Amazon.com, MacMall.com or MacConnection.com) than at an Apple store — AND you may escape sales tax on your purchase [I just had to get that one in there, as a tax pro!].
Only brave the crowds if you’re trying to snag an extremely limited item. You have a better chance of getting the deal if you go to the store – and are first in line. Keep in mind, though, that the items which are marked down dramatically are often cheap items to begin with – not top-selling, name-brand products.
Black Friday is only the beginning. In fact, the best deals on apparel usually appear on Cyber Monday (November 28 this year), when retailers discount items online. Toys will be cheaper the first two weeks of December when Walmart and Amazon go to war with each other to offer the lowest prices and clear out inventory before Christmas. And the best deals on name-brand TVs and luxury items can be found in early December, too.
Watch out for return policy shenanigans. Some retailers tighten their policies around the holidays as a way of compensating for all that discounting they’re up to. Some charge restocking fees if you bring an item back. And some won’t let you exchange items which were manufactured specifically for Black Friday (to be sold at a low price).
This one is pretty universal: Never spring for extended warranties on big-ticket items. There’s a good chance that a salesperson will try to talk you into paying extra for an extended warranty if you purchase a big-ticket item on Black Friday. That’s because revenue from extended warranties helps make up for lost profits on these discounted items. Typically, you’ll pay 10% to 20% more for an item to extend a one-year manufacturer’s warranty through the fifth year of ownership. But most major appliances do not break down within the extended-warranty period. Plus, you might already be covered if you use your credit card to purchase an item.
Just doing my little part to help YOUR economy-stimulation efforts this holiday season get the most bang.
Next week, I’ll have some urgent information on expiring 2011 tax breaks. Until then…
HAPPY THANKSGIVING!
I’m NOT a Financial Planner, But …
November 14, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"Don’t wish it were easier, wish you were better." – Jim Rohn
First off, I hope you’ve had the chance to respond to last week’s blog post – and thanks to the many who took the time to help US help YOU before tax season strikes.
But secondly, I’m here to challenge your thinking a little today. This blog post might get a little math-y … but hey, we get paid the big bucks to do math.:)
If you’ve followed my writing for a while, you know that I like to challenge conventional wisdom. And, though I’m not a financial planner, per se, we do face a bunch of questions which simply must be considered from a financial planning perspective.
Many of my clients and their friends are scrambling for ways to think about how to save for retirement. And, as I hope you know, we can help think through all of the tax implications for various accounts, deductions, etc. But one of the "lazy man’s" methods for saving for retirement, for too many people, is to rely on the equity in their primary residence.
In short, this won’t be enough, for most people.
The long, more fully-explained version is laid out here in my Note. I hope you see how it demonstrates the sort of thinking which we bring to ALL of the decisions we can help you make. After all … we can be so much more than form filler-outers, if you let us!
Martha Echols’
"Real World" Personal Strategy
Your House May Not Be The Investment You Thought It Was
Just because something costs a lot doesn’t mean it is an investment. An investment is something that pays you money.
Therefore the house you and your family live in is not an investment. Neither is the vacation home you rent occasionally. Nor that piece of land next to your house you bought to preserve your view. It is human nature to justify a purchase by calling it an "investment," but if it doesn’t pay you money, it shouldn’t be treated as an investment in financial planning.
Historically, equities appreciate at a rate of about 6.5% above inflation. If inflation has historically been 4.5%, equities average about 11%. Equities include stocks, stock mutual funds and stock exchange-traded funds (ETFs). Your portfolio should be invested mostly in equity investments to appreciate at a rate greater than inflation.
Fixed income is more stable, but averages interest payments of 3% over inflation. If inflation averages 4.5%, fixed-income investments average 7.5%. Fixed income includes bonds, bond mutual funds and bond ETFs.
Real estate as an investment falls somewhere between stocks and bonds. On average commercial real estate produces a real return of about 4.9% over inflation. If inflation averages 4.5%, commercial real estate averages 9.4%.
Commercial real estate as property with no income does not appreciate at the rate of inflation. It actually depreciates against inflation by about 1% a year. Fortunately, it should produce 5.9% in profit to overcome this depreciation and produce a real return of about 4.9% over inflation.
Handling commercial real estate privately requires more work. If your commercial real estate isn’t generating a lot more income than it costs to maintain it–including depreciation–it isn’t pulling its weight. Only if it can produce significant income and grow at a real return of 4.9% over inflation will a $100,000 investment in real estate grow to $331,000 after 25 years.
Similar equations can be used for residential real estate. On average it produces slightly less income, giving a real return of 4.1% and growing to have a buying power of $273,000. Obviously all real estate is subject to the increasing desirability of the area where it is located. Some excellent school districts have experienced appreciation significantly greater than inflation. But many rural communities have barely kept up.
These historical averages provide benchmarks as a way to judge the investment worthiness of a particular piece of property. If you own a $300,000 rental home, you should expect to average at least $3,000 each year in repairs and upkeep. One year it might be lower only to have major bills the next. Your benchmark is a real return of 4.1%. After repairs and all other expenses, you should have a profit of $12,300, or 4.1% of your investment. That means you have to have a profit of at least $15,300 (5.1%) or more for your investment to pay you the appropriate amount.
Real estate that pays you appropriately can be considered an investment for the purposes of wealth management. But you need to run it like an investment and track your return after all of your expenses.
This analysis helps explain why property that you do not rent is not an investment. Every $100,000 of equity put into property that lies fallow costs you $1,000 in expenses just to keep up with inflation. And although keeping up with inflation is good, without the 4.1% income there is no way your $100,000 investment will grow to have the increased purchasing power of $273,000.
A family’s home, however, does not, typically, keep up with inflation. Some couples sell a large expensive home, purchase a smaller house and invest the difference. Many believe they will, but when the time comes, their downsized house is so much nicer that little is left over to invest.
Additionally, for many couples the value in their home is used as equity toward an assisted living arrangement. The larger their home, the more expensive the retirement community they buy into. For these and other reasons, it’s helpful to not assume that the equity in a family’s home will be available during retirement.
To reiterate, just because something costs a lot doesn’t mean it is an investment. Investments should appreciate at a rate that grows faster than inflation and gains purchasing power. And spending your money on non-investments can jeopardize a plan to reach your goals of financial freedom. As a rule, investments should work FOR you, paying you money that you can spend or reinvest elsewhere.
I do hope this helps — and I realize there’s a lot to consider here. Let me know if there’s anything I or my team can do to help, or if you’d simply like to discuss this further. As you can see, both with taxes and family finances, we make it our mission to think ahead on your behalf!
Birmingham Accountant Reviews: “Questions Which Might Affect Your 2011 Tax Bill”
November 6, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"If you treat an individual as if he were what he ought to be and could be, he will become what he ought to be and could be." -Goethe
I have a few questions for you, which won’t take very long to answer, but can help US help you keep your taxes down, even for this year. Just email the answers to the nine questions below to martha@marthaecholscpa.com – and with your permission, we’ll contact you to set up an appointment.
You see, I’m doing something a little different here this week. As you know, I love to write about current events, personal finance issues and information that matters to YOU with my Weekly Note (we try to keep the tax information concise and as pertinent as possible — knowing that most of our clients prefer we handle that all for them), as we did, for example, last week with the information about the looming higher ed bubble.
Well, with two months (less!) remaining in 2011, there may be a few moves we can make that can help your tax hit before we’re forced into "reaction mode" — which is the only mode out of which after-the-fact tax work can be done. So, if at all possible, I’d like to change that paradigm for you by having you answer a few short questions for me…
So, without further ado — some questions for you:
1) Have you had a significant change in your wage income this year?
2) Have you taken capital gains or losses this year? Are you planning to?
3) Did you start or sell a business this year?
BONUS QUESTION: Do you know anyone who did, that would like input on their tax situation?
4) Did you purchase real estate?
5) Did you make your full contributions to retirement accounts?
6) Have you considered a Roth IRA?
7) Did you withdraw from retirement accounts, and for what purpose?
**8) Have you sent your family and friends our way — and, if not, is there something which we can help you with to make this easier?
9) Are there any other issues you think we should know about?
Now — the answers to these questions form the "tip of the iceberg", and they will help us to know which direction to take as we work with you over the next two months to prepare for year-end. With your permission, we’ll contact you back, as appropriate, and set up a time to discuss them further with you, whether by phone or other method.
We’re really looking forward to serving you WELL this year — and greatly appreciate your helping us do that!
If This Bubble Don’t Burst, It’s Going To Be Scary
October 31, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things." – Leonardo da Vinci
Brace yourself, because this email could hurt a little.
Let me start here: I’m writing this on Monday morning (Halloween), and the Occupy Wall Street folks are freezing their little tails off. The Northeast just got slammed with a snowstorm, and it’s not quite as fun as it used to be to hang out in Zucotti Park and hold protest signs.
Now, say what you will about these protesters (and there’s plenty to say), but one thing they’re certainly correct about is that higher education costs are a huge problem.
Tuition costs (not to mention living expenses) have been outpacing inflation for a long time (for example, see this chart, from actual data, and from even just two years ago: http://satyagraha.files.wordpress.com/2009/07/inflation-factors-2.jpg ) … so, plainly, something will have to give here.
But here at Team Echols, we have to live in the Real World — which means we approach the world according to how it *is* … not according how we WISH it would be.
And if you have children, that means it’s, um, time to start saving. Here’s what I mean…
Martha Echols’
"Real World" Personal Strategy
Higher Education Bubble Blooming
According to the most recent College Board Annual Survey of Colleges, the sticker price of a college education keeps rising, faster than the price of groceries, health care and almost everything else in the basket of goods used to determine the Consumer Price Index (CPI). In the last 10 years, in-state tuition and fees at public four-year colleges increased 5.6% annually on top of a CPI growth of 2%. The average estimated total expenses for most public in-state four-year students (depending on the state) vary in the astounding range of $65,000 to $90,000.
S0, that means that if you were blessed with the birth of a child recently, you will need to save $430 monthly to pay for in-state college tuition, fees, room and board. Double this rate to cover the full costs at the average private institution. And this doesn’t even include money for a cell phone, pizza, room decor or other stuff that college students deem "necessities."
Now it’s true: most students don’t pay full price for college. In 2009-10, undergraduate students received an average of $12,894 in financial aid, split almost equally between loans and grants. Grants are the most attractive because students are not saddled with a repayment plan after college. Federal grants make up 26% of total aid. Institutional college grants account for 17%, state grants for 6% and private and employer grants (scholarships) for 4%.
But that hasn’t stopped the fact that students are graduating with larger debt loads than they were 10 years ago. This is one of the driving factors of the recent-graduate-laden Occupy Wall Street movement. Public four-year college borrowers graduate with an average of $19,800 in debt; their nonprofit private college counterparts graduate owing $26,100. This private college debt is 17% more than it was 10 years earlier, even after accounting for inflation. In addition, a growing percentage of all college debt is unsubsidized and begins accruing interest immediately.
Perhaps there are some good things which are shaking out here. That is to say, degrees might have to be evaluated a little more closely — that anthropological art history degree maybe should be scrutinized a little more, yes?
So, students will have to make smarter education choices. Today’s global marketplace places more value on hard skills such as engineering, computer technology, teaching and finance. Technical degrees and certificate programs will become commonplace. A liberal arts education will likely diminish in popularity and become more focused at the elite institutions. More students are likely to begin their education at lower cost community colleges and complete a four-year degree at schools that specialize in their concentration.
Parents may feel overwhelmed about the amount they need to save for college. But college education is one of the two lifetime investments for which we approve borrowing money (the other is a home mortgage). Students should plan to graduate with a debt load no higher than half of what they can reasonably expect from their first year’s salary. For example, those with a starting salary of $40,000 should keep their debt at or below $20,000. Thus graduates can dedicate 10% of their annual salary to school debt and pay it off in five years.
New parents who are able should immediately begin saving $430 a month for college. Alternatively, a onetime $50,000 investment should cover tuition, fees, room and board at an in-state college 18 years from now. Yes, this is pretty scary. But there’s other options…
Giving a child the gift of a college education and a debt-free start to adulthood is one choice. Other parents believe their children should participate in financing their college education and can apply the 50/50 savings approach. Parents commit to saving half of the money needed, and their children commit to the other half. Students participate by working hard in high school, applying for scholarships, taking summer jobs, seeking out work study opportunities and accepting reasonable loan levels.
The support of grandparents can help tremendously. The vast majority of the college accounts that I’ve seen are owned and funded by grandparents. Instead of buying the latest gadgets for their grandchildren, they make annual contributions to a college savings account. If the grandparents own the account, it has the added advantage of not being included as a resource on the student’s financial aid forms — and that is a beautiful advantage, trust me!
One last thing: I’m not a stocks advisor, but–I do NOT recommend prepaid college tuition plans. At best, they tend to match college inflation, and if used at an out-of-state institution, returns are based on money market rates, which are abysmally low right now. Even worse … who knows? This bubble may just burst, and you don’t want to have locked into a tuition which might fall through the floor on its own some years from now.
I do hope this helps, if it didn’t scare you too much! Let me know if there’s anything I or my team can do to help. As you can see, both with taxes and family finances, we make it our mission to think ahead on your behalf!
Birmingham Accountant Reports On: “Living In a Material World”
October 24, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"Simplicity is making the journey of this life with just baggage enough." -Charles Dudley Warner
There was a recent "Freakonomics" podcast about the folly of prediction. Fascinating stuff — and (predictably) one of the most valuable conclusions? The experts are usually wrong.
When you study how experts make opinions and, more importantly, the characteristics of those who make GOOD predictions, what you learn is that effective forecasting requires the ability to engage in constructive self-criticism.
And that’s, incidentally, what it takes to make real and lasting changes to your financial world. You can be real dogmatic about the course you’re currently taking — and wake up five years later only to realize that maybe (just maybe) you should have switched jobs, or changed that investment strategy.
My point? Don’t be bull-headed about your finances … and maybe it’s time to make a change.
I can’t advocate, across-the-board, for a specific strategy (except of course for the big, general ones) — unless you sit down with us. Because THEN there is still time to make real changes to your 2011 tax file.
Don’t be bull-headed about making changes to your tax situation. Because I predict (ahem) that you’ll regret it come April. Call us: (205) 715-0088 or email me back with any questions you might have! There are a few expiring deductions in 2011, which you can only leverage if you are willing to take action.
Now … all that aside, I’ve observed some child tantrums recently in the checkout line. And far be it from me to make specific judgments, but it HAS got me thinking about the pressure many parents face when it comes to loving and lavishing their children … and balancing it with the desire to curb consumerism in them.
So I thought I’d weigh in on a few things which might spark ideas. I know — this isn’t a normal topic for a tax professional to address. But we see it as our role to come alongside families and individuals where the rubber meets the road: how taxes and money actually affect our daily lives. I happen to think it’s part of what makes us effective … because we care about ALL of the implications for your financial decisions.
I know that every family has its own rhythm and pattern, and I’m no "parenting expert". It’s risky for me to write about this stuff. But I hope you understand — these are ideas to spark your thinking.
Martha Echols’
"Real World" Personal Strategy
3 Gift-Giving Strategies To Limit Materialism In Children
First off, I’d like to say, again, that I’m not an expert in these matters — but I’ve had many conversations with wise clients who have shared a thing or two over the years. I have clients, with great material means, who have children that remain "unspoiled", and don’t carry an expectant spirit.
Likewise, I have clients who have shared their struggles with us about their children always wanting MORE MORE! (these are brave and wonderful clients to share such private details), and this, even, when some of these families don’t have large incomes.
And then there are the holidays — coming faster than we all think.
So how do we hold back the flood of consumerism, and teach our children the true meaning of gifts, giving and the upcoming holiday season? Well, some of my wiser clients might say …
1) Explicitly Limit The Number Of Gifts Given
Parents often tend to go overboard buying presents for their little ones around birthdays and holidays — after all, it often feels like an overflow of love AND children sure do love it.
But I know families who have always put a stated limit on Christmas and birthday presents — and yet their children don’t seem to act like they feel deprived. Christians can link Christmas gift-giving to the three gifts of the magi; others can find different spiritual reasons to not simply pour a truckload of gifts on their children. The key seems to be in creating a happy atmosphere around it, and remaining consistent.
2) Have Your Children Buy Their Friends Gifts
Why not let your kids experience what it feels like to sacrifice and give? After all, we’d all want to give ALL of our friends a gift, but the truth of the matter is that we simply cannot buy a gift for everyone on our list. We have finite resources and have to allocate them accordingly. There is a line that we all have to draw in the sand for who will get gifts and who will get a card.
Giving your children a certain dollar amount to spend on gifts, or simply making them pay for their friends’ gifts out of their own pocket, will teach them about making the hard choices of whom to give to, and how much, within their very limited resources.
And, of course, this assumes that they ARE giving gifts! If not, that’s a great place to start.
3) Share Pertinent Financial Details
Children should be protected from adult concerns. But that doesn’t mean that they should be blissfully ignorant about how money works. In fact, we owe it to our children to properly explain where the family’s money comes from, how it gets into the bank account, and how expenses and budgets work. With a little explanation about how your family’s budget is structured, you may be able to hold back the tide of consumerism.
Again, they don’t need to feel a pinch — but they SHOULD know that gifts and items have a monetary value, and don’t just get plucked from the shelves without cost.
These are just ideas to start with. It’s extremely hard to curb the allure of consumerism in our culture. But in my opinion, it’s a fight that every parent should consider waging in today’s society of overspending and consumer debt.
Again, every family has their own approach … but I do hope that you’ve thought yours through.
To your family’s financial health!
Birmingham Accountant Asks: “I’m Not Lying–Are You?”
October 17, 2011 by Birmingham Tax Professional, Martha Echols, CPA
"Success seems to be largely a matter of hanging on after others have let go." – William Feather
Now that "extension season" has all been about wrapped up, we’re able to breathe a little easier around here at Team Echols.
And one of the things we’ll be focusing on, next, is how to maximize YOUR tax savings for 2011. We’re in the final quarter, and there are still yet things which you can do to set up your file so that you don’t get burned, come tax time.
There might be just one problem, though. Well, one of two.
1) Some of my email contacts (even some of those with whom we’ve directly corresponded!) haven’t yet experienced how effective our work can really be! The only reason I can think of is that you try to wade through the pile of tax forms through a templated software, or you have someone else give it the old college try.
I’d like to suggest that now — here in the final quarter — is the BEST time to prepare to "make the switch". But I’d also like to answer any questions you might have, so shoot me an email or call us: (205) 715-0088 and we’ll explain more about our process. After all, trusting your sensitive details is NOT something anyone should take lightly!
2) Some existing clients only meet with us once a year — during tax season. You could be leaving lots of tax-saving possibility on the table. If that’s you, it might be well-nigh time to consider planning AHEAD for a change! See the phone number above, or shoot me an email — let’s get your file set up for maximum PLANNED saving!
[And by the way, by "breathe a little easier", I mean that we'll have more of a chance to focus on these exact issues--which is why NOW is a great time to get in touch!]
This week, since I’m actually preparing this Note to you in the middle of our extension-swirl (here on Monday), I’m taking the liberty of reaching back into my files for one of my most popular articles. It’s perhaps even more pertinent now than the day it was written, a few years back.
Enjoy!
Martha Echols’
"Real World" Personal Strategy
How To Not Lie To Yourself About Finances
Working with my clients’ finances over the years has given me a bit of a crash course in human behavior. Often, I’m floored by the generosity I see displayed by many clients–even those without significant means.
Other times…well, I think that we all could use the reminder that our human flaws show up very clearly in our family’s finances. The fact is that we ALL lie to ourselves, from time to time, about what’s really happening in our wallets.
This habit of lying to ourselves threatens our financial stability. Instead of spending $5, we spend $20. Instead of recognizing that we *want* that new shirt, car, or fine dinner at a restaurant, we lie to ourselves until we are convinced that, for one reason or another, we *need* that new shirt, car, or fine dinner. The current credit crunch can partly be blamed on a nation full of people who convinced themselves, for example, that a $500,000 home was necessary–even though a $250,000 home was sufficient. We must learn to live within our income … and this means, we must stop lying!
So, I’ve compiled a short list of ideas on how to stop lying to ourselves and face the truth when making purchase decisions…
1. Have (and stick to) a budget. Is this purchase in my budget? For example, my family budgets a certain amount each month to spend on clothing. We’ve agreed that this amount is sufficient to meet our needs. We set this amount before facing a purchase decision. If during the month we want to exceed the budget because Kohl’s is having a fantastic sale, then we are now lying to ourselves. We aren’t saving money by exceeding our budget during a sale. In fact, now I have to dip into savings to pay for my overspending.
2. Set a per-purchase spending limit. A wise man said, "The four most caring words for those we love are ‘We can’t afford it.’" Take some time with your spouse to set what I call a "What I can spend without having to ask my wife if it’s ok" spending limit. My wife and I have decided that neither one of us is allowed to spend more than $50 at any given time without calling and asking the other one if it’s okay (this does not apply to groceries). Let me tell you right now, my wife has stopped me from making a lot of unnecessary purchases by telling me, "We can’t afford it." Even though we had a budget for the purchase, we still didn’t need it.
3. Replace bad habits with enjoyable, inexpensive activities. Shopping or overspending is a habit that we have likely formed over years. Since our brains are programmed to react in a certain way in specific situations, any change is met by resistance. The existing habit is simply more comfortable and natural. To help change your behavior, replace the bad habit with another activity.
For example, instead of going to the mall to pass time, go to a local park with a soccer ball and spend some time with family or friends. Start or re-start a hobby. Your new hobby might even be a low cost home business where you make money!
4. Make sure that the reason you tell yourself you are making the purchase and the *actual* reason you are making the purchase are the same. Ask yourself, "Why am I really making this purchase?" Am I buying this dress for my wife because I love her and want to show my appreciation, or am I trying to prove to her and the world that I am a good provider? We lie to ourselves to cover our true motives. If the real reason you are making a purchase isn’t in-line with your principles and budget, then don’t buy it.
5. Take stock of and enjoy everything that you already have! Develop gratitude for what you already have in your life. Purchasing new things is often a sign of ingratitude for what life has already afforded us … or a sign that we feel deficient in some area.
Overcoming bad habits and addictions is a process that requires concerted effort. Face each day one at a time and stop lying to yourself! Don’t believe the story you’ve created in your mind that justifies unnecessary and financially harmful purchases.
To your family’s financial health!