If there’s anything we can all agree on during this internet and information-saturated age it’s that people LOVE to point out others’ failings.
Truly, there are entire businesses/websites devoted to the practice … and I’m pretty sure they pull in a healthy profit.
But one thing is also true: we aren’t very good at applying the same medicine to ourselves.
Last week, I wrote about confronting the anxiety of our current world circumstances by taking a pro-active approach to our finances.
Well, this week is a bit of a corollary: in order to get our mind right, and our financial house in order, we need to be blunt with … ourselves.
By the way, this is also one of the cornerstones of proper tax planning — which is going to play a healthy role in my future posts over the course of the next couple of months.After all, when January 1, 2015 strikes … all that we can do is historical (with the exception of IRA contributions). Between now and January 1, however, we can be pro-active about what your tax file can include.
Let’s start here, though:
James Pantzis Takes On Confronting The Lies
“Any man can win when things go his way, it’s the man who overcomes adversity that is the true champion.” – Jock Ewing
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 $10, we spend $30. 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 credit crunch of 2008-09 can partly be blamed on a nation full of people who convinced themselves that a $800,000 home was necessary — even though a $350,000 home was more than sufficient. We must learn to live within our income … and this sometimes means that we must stop lying.
So, I’ve compiled a short list of ideas on how to stop lying to ourselves, and to instead face the truth when making purchase decisions.
1. Have (and stick to) a budget. Is this purchase in my budget? For example, your family budgets a certain amount each month to spend on clothing. You’ve agreed that this amount is sufficient to meet your needs. So you set this amount before facing a purchase decision. If during the month you want to exceed the budget because Kohl’s is having a fantastic sale, then you are now lying to yourselves. You aren’t saving money by exceeding your budget during a sale. In fact, now you have to dip into savings to pay for your 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 spouse if it’s okay” spending limit. Some spouses have decided that neither one of them is allowed to spend more than $100 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, these limits have stopped many from making a lot of unnecessary purchases.
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!
James Pantzis, CPA, PC
First, I’d like to put out a little mini-fire that’s been raging on the interwebs a little: No — Federal tax refunds are NOT being delayed until October 15, 2015.
Sometimes, satire is so close to what’s *actually* happened that it takes on a level of “truthiness” that gives it legs. That’s what happened here. An article from a website called “The National Report” (which is a bit like The Onion) posted a headline that refunds were already being delayed. On top of the FACT that filing season has been delayed for the past two years … and that the IRS is being tasked with enforcing some of the mandates within the ACA … well, again, this recent scare seemed like part of the general trend.
But hear me clearly: If something like this were to ACTUALLY occur, I will let you knowdirectly.
Now … speaking of scares.
If you’re at all like me, you take a look at the recent (non-satire) news pages online, and on the covers of newspapers and magazines … and a niggling sense of anxiety begins to creep in.
The world certainly seems to be fraying at the edges a bit these days.
So with it, I recommend vigilance — and a sense of humor.
And, of course, all of this is wrapped up in how we think about our finances. The world economy certainly plays a part in interest rates, currency valuations, and a host of other factors that affect how truly “well off” we might be.
But when it comes to those finances, I’ve found that there really is an antidote to worry.
James Pantzis’ Top 5 Ways to Confront Worries
“Fresh activity is the only means of overcoming adversity.” -Johann Wolfgang Von Goethe
With all of the news about disasters, outbreaks and spiraling federal debt, it’s natural that Americans are taking a hard look at their own situation, and it sometimes leads to worry — even for those who are relatively secure.
Interestingly, my clients who have MORE cash in the bank often worry more. Funny, right? But it’s normal human nature….
You see, under all guidelines and measures, my finances are very solid. I’ve got a thriving firm which is more secure than most people’s jobs. I work with numbers and am very good at taming balance sheets.
Yet, I still sometimes worry about money.
After a lengthy time of thinking, discussion and some more thoughts into the matter, below are a few takeaways I’ve settled on which can help us ALL reduce our worries over money.
1. Realize That It’s Exaggerated – Worry is a funny feeling; it seems to exaggerate any problem. While there are certainly many people who actually run out of money, those are usually not the people that tend to worry.
2. Spend The Same Time Making Money Instead – If you are going to spend time worrying about money, why not use that time and get a side job instead? Maybe start a website (or two, or three). I know it’s easier said than done, but the more you work at it, the easier it gets.
3. Develop Your Confidence – Part of the reason why we worry about money is because of the lack of confidence in our own abilities to earn an income. How can we boost our confidence you ask? Confidence comes from success, and success starts from taking action. So try a few low-risk entrepreneurial ventures. If they bomb, see it as a laboratory: learn from it and try again.
But never (never) allow it to touch your identity as a person.
4. Consider Your Workplace – One’s workplace plays a big role in worry. Are your colleagues encouraging? Is your boss supportive? If not, then do something about it. Don’t get into the thinking of “I can’t find another job.” Yes, you can — especially if you HAVE a job right now. If you got this job, you can get another one.
5. Recognize That Worrying Can Actually Be Good – A little, measured worrying is actually healthy for us. It’s what drives us to be better. It’s what turns our energy switch to the “On” position. The right way to deal with it is to channel it into your work ethic, and your desire to be better.
How Do You Deal with It?
Of course, what I listed above is just the tip of the iceberg. How do you deal with worrying about the lack of money? Or do you? What has worked for you? I’d be interested to hear…
James Pantzis, CPA, PC
I wrote last week on estate planning, and well … the response was such that I’m returning to the topic today. This time, for some “bigger picture” words on the subject.
But before I get there, IMPORTANT TAX NOTE:
Personal returns that were extended back in “tax season” are due WEDNESDAY, October 15th.
That means that if you’re someone we’ve been working with on an extension, and we are waiting on something from you … well, this week would be a marvelous time to send it our way! And, of course, here in the James Pantzis, CPA, PC office we’re working like bees in a garden to get all of our extended clients finished with the excellence to which you’re accustomed.
Which is actually a great segue to what I want to write about today.
In our line of work (as with many, I suppose), it’s so easy to get hung up on processes and outcomes — and forget about the big picture.
And while we speak of preserving assets (both financial AND “intangible”) from being overly taxed, and developing good procedures and structures for emergency situations — some families (and their estate planners) can forget what’s most important in any sound estate plan.
Estate Planning’s Best Outcome, According to James Pantzis
“The secret of happiness is to count your blessings while others are adding up their troubles.” – William Penn
Even though I’m a tax professional, I’m keenly aware that the most important product of estate planning isn’t only avoiding probate or reducing estate tax exposure, it’s achieving family harmony. As a result, we must watch out for personal dynamics that might threaten disharmony when a person dies or becomes incapacitated.
First, think carefully when you choose your executor or trustee. Being selected to manage an estate for someone who can no longer do so because of death or incapacity is an implicit compliment. It shows you trust the person you’ve named to do the right thing in the right way.
But it is also a very big job. Unfortunately, it can–and often does–feel like a thankless one. And what’s worse is that lack of thoughtful planning too often results in irreconcilable family feuds.
We all know that someone must settle our estate when we die. But because people live longer these days, more of us will experience a period of incompetence before our death. We must plan for the possibility that someone will become responsible for our physical and financial well-being long before a final settlement of the estate can be made.
We often choose a close family member, who probably has no knowledge of what’s required of a “fiduciary” (the term used to describe a person to whom property or power is entrusted for the benefit of another). Taking on a new and unfamiliar task is stressful and difficult, especially if your life is already full.
Remember that serving as a fiduciary, whether as an agent under a power of attorney, an executor under a will, or a trustee under a trust agreement, is a post of honor, but it is not an honorary post.
Don’t name an oldest child just because he or she was born first. Ask yourself if your oldest has the traits of a good executor or trustee. Is he organized? Is she trustworthy? Will he see a job through to completion? Is she diplomatic and fair-minded? Might he abuse the position to settle old scores and wounds that are sometimes 30 years in the making? Is she sensible? Will he know when he is over his head and needs professional help?
In short, given all your available choices, is this child the best person for the job?
People sometimes want to name more than one executor, so that no child will feel left out. If you’re so inclined, ask yourself, “Am I putting two scorpions in the same bottle?” The administration of an estate is not intended to be a therapeutic exercise that will ameliorate 20 years of bad feelings between brothers.
Now don’t get me wrong. Co-executors can be a good way to go. But ask yourself first if they are people who can work together. Will they help or hinder each other?
Second, think through how you are leaving your estate behind. Family disharmony provisions are all too common.
For example, if you are in a second marriage, it’s sometimes hard to be fair both to your spouse and to the children of your first marriage. In one situation, a 50-year-old man had concerns about his father’s will. His dad left virtually everything in trust for his second wife. Such a trust commonly provides limited amounts of income and principal to the spouse during the surviving spouse’s lifetime. When she dies, the assets pass to his children from his first marriage.
But because the stepmother is 55 years old, Dad effectively disinherited his kids. Don’t set up a plan where your children are waiting for their stepmother to die to get their inheritance. Think of creative ways to be evenhanded to your present spouse and your children when you die. And there could be problems naming either the stepmother or the children as trustee.
Another planned disaster is leaving real estate equally to all your children. In many states, real estate drops like a rock through probate. It’s not like money you can divide up equally. If your kids can’t agree unanimously on what to do with the real estate, it can be a serious problem, as often the only remedy the law provides is a partition suit. To keep the peace, provide an enforceable mechanism for either one child to buy out his or her siblings or for an executor to sell the real estate and divide the net proceeds up among the children.
Here is another dilemma that requires special consideration. You might recognize the need for one of your children to have his or her inheritance left in trust because of a poor credit record, mental instability, financial instability or a bad marriage.
Suppose that child resents the arrangement, which is quite possible. Who are you going to name as trustee of that child’s trust? Are you going to name a sibling as the trustee of another sibling’s inheritance? How will that decision affect the sibling relationship?
And if you name a professional trustee, such as an attorney or bank, are you putting your child at the mercy of that professional trustee? What if they provide poor service after you die? Or raise their fees? All those problems go away if you give someone you trust–such as the child you were thinking about naming as trustee–the unlimited power to fire the professional trustee and appoint a new one. It’s no surprise how much better professional trustees perform when they know they can be replaced at any time.
Estate planning begins with selecting the trustee who will handle it best. Probate and estate tax avoidance can be easy (with the right expert on your side). But selecting the best trustee is critical.
So be sure you structure everything legally in a way that will create unity, not animosity. Make that decision well, and you are halfway to drafting your estate plan with family harmony in mind.
And, of course, we’re here to help.
James Pantzis, CPA, PC
I’ve recently received some emails expressing confusion about the current estate tax situation, and implications for elderly parents.
The facts are that many people will be caught uninformed about *exactly* what their options are for their families when they deal with caring for the elderly, esp. as it relates to their finances and estate. One of the biggest problems is that many folks are confused about the terminology involved — and why it matters.
I hope to clear up a bunch of it in this week’s Note…
Will, Trust, Or Nothing: James Pantzis Helps You Weigh Your Options
“Failing to plan is planning to fail.” – Effie Jones
When a person with assets over $100,000 passes away, their assets will be handled in one of three ways:
(1) if they had no will, their assets will be distributed as mandated by the state probate code through a court proceeding called probate;
(2) if the person had a valid will, the estate will still have to go through the probate process, but the court will carry out their wishes as stated in their will; or
(3) if the person had a valid living trust (and their assets were re-titled in the name of their living trust), their wishes would be carried out in private, without the court’s involvement.
So … why does it matter to you?
The answer to this question depends on how much you care about what your loved ones have to deal with after you are gone and how much control you want to have as to who gets what, and when and how they get it.
If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friends/creditors who petitions the court will make these decisions on your behalf through a process called probate.
Why do you care about probate? Often, the probate process can take 12-16 months, can be extremely costly, and the process is completely public. The probate process can often lead to squabbling between family members and sometimes airs the family’s dirty laundry.
If a person leaves a valid will, it will still have to go through the probate process described above, but the court will have the benefit of knowing how you want your affairs handled. Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you), the court will pass on your assets to the specific people you have identified in your will.
Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.
A living trust (that has been properly funded), on the other hand, gives you more control. If you are working with an attorney who has expertise in this field, you can control WHO gets your assets, and WHEN and HOW they get it without the court’s involvement. Even better–with a living trust, it is a private administration and can generally be handled in a short period of time.
You may be asking yourself: why would someone ever do a will instead of a living trust?
Typically, a person will choose a will over a living trust for one of two reasons:
(1) they don’t know the difference between the two, or
(2) the (perceived) “cost” of doing a living trust.
There are some obvious advantages to doing a living trust over a will, but starting with something is better than nothing. If you are not yet ready to make a leap into the world of living trusts, a basic, will-based estate plan is a starting point.
In addition to giving the court direction about how you want your assets distributed, a will-based estate plan should also include your advance health care directive (which identifies the person(s) that will make health care decisions for you, if you’re incapacitated) and a durable power of attorney (which identifies the person(s) that will make financial and legal decisions, when you can’t).
While we all care about what happens to our assets, every person over the age of 18 needs to have an advance health care directive and durable power of attorney.
Don’t forget — we’re only a phone call or email away, and here at James Pantzis, CPA, PC, our consistent question for you is this: “What more could we do, to help you?”
James Pantzis, CPA, PC
Health insurance is set to now become part of our tax preparation process. This is the opening salvo.
If you have friends who received one of these notices, we can help. Send them our way: (718) 858-9864
But moving on, I wrote a few weeks ago about the hidden financial mistakes which even some of our wealthiest clients fall into. Thanks for your kind feedback on that one — and, so, I have a few more to share.
These are gleaned from my years working directly with families in the Brooklyn area — in their finances, and, of course, in saving them money on tax. In so doing, I’m hopefully offering some advice which isn’t the “same old, same old”.
My goal is to help you think about how you’re handling your finances a little differently. People don’t often talk about the psychology behind financial issues … and it can hurt you if you don’t consider it.
This doesn’t fully explore the rich topic, of course, but it should help …
James Pantzis Reveals 2 More Of Your Money Mistakes In Plain Sight
“Become addicted to constant and never-ending self-improvement.” – Anthony J. D’Angelo
As I wrote last week, you pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.
But perhaps you’re still not getting ahead.
Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and hurt us.
So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. Last week, I gave you two:
Subconscious Mistake #1: Inappropriate Mental Accounting
Subconscious Mistake #2: Manipulative Price Anchoring
Now here are the rest…
Subconscious Mistake #3: Loss Aversion Costing You
Definition: Our consistent tendency to avoid loss, rather than acquiring gain.
Typical Example: An investor is more likely to sell a stock which has increased in value, rather than selling stock that decreased. Over time, her investment portfolio is made up of investments that have decreased.
Cure: Don’t think of selling a stock for less than you paid for it as being a loss. It can actually work as a gain for two reasons:
* Tax deduction (which can really help!)
* The other side of opportunity cost: opportunity GAINED (i.e., you can better utilize that money elsewhere)
So, don’t check your portfolio so often. If you don’t know you’ve lost money, you don’t experience the pain. (And riding the roller-coaster of your portfolio’s value is a waste of emotional space.)
Since stock prices go up in the long-run, the longer you go without looking at your portfolio, the greater chance of seeing a gain.
Sometimes taking that loss really is the best thing you can do.
Subconscious Mistake #4: Following the Herd
Definition: The tendency for us to want to do the same thing as a large group of others, with no thought to whether that action is rational or irrational.
Typical Example #1: Buying when prices are high because everyone else is.
Typical Example #2: Selling when prices are low because everyone else is.
Cure: Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.”
Keep this in mind when making your next financial decision. If everyone is telling you to buy this or buy that (i.e., gold, silver, real estate), then do the opposite.
In the financial investment world, if it seems too good to be true, then it usually is.
Write yourself an investment policy statement or contract.
Include factors such as:
* Investment objective
* Investment goals
* Desired asset allocation and diversification
* Summary of your risk tolerance
* Rebalancing schedule
Before making any changes, consult with this contract.
You can also take advantage of our inherent tendency to do what’s approved by others, to affect positive behavior in yourself. For example, let’s say you are trying to pay off debt. Tell your 3 closest friends, make an informal contract, sign your name at the bottom, and then email it to them. The pain you would incur from breaking that contract is high, relative to the pain of breaking your behavior if you went about it alone.
Don’t forget — we’re only a phone call or email away, and our consistent question for you here at James Pantzis, CPA, PC is this: “What more could we do, to help you?”
James Pantzis, CPA, PC
In the course of our daily work here at James Pantzis, CPA, PC, we not only work with tax forms and legal/financial documents a TON … but we also get a regular crash course, via those documents, on how people (our clients, mostly) have arrived to the place where they actually have something to *protect*.
In short, we get to be around a great many well-accomplished families.
So, perhaps it’s odd to you, but I’ve learned to pay attention to the subconscious lessons I can learn from my clients, and from people of means around the country.
I’ve discovered a few things along the way about what keeps people from the kind of accomplishment and means which they are looking for.
So I’ve decided to channel my inner Clark Howard today and deliver some advice which isn’t the “same old, same old” — and which can help you think about how you’re handling your finances a little differently.
Even many of my clients make some of these mistakes … and they can hurt you. Especially because we hardly ever think about them.
James Pantzis Uncovers Your Money Mistakes In Plain Sight
“Leadership is practiced not so much in words as in attitude and in actions.” – Harold Geneen
You pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.
But you’re still not getting ahead.
Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and bite us in the keister.
So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. All it takes is thinking a little differently…
Subconscious Mistake #1: Inappropriate Mental Accounting
Definition: Tendency for families to divide money into separate accounts based on subjective criteria.
Typical Example: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.
Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.
Cure: Funnel income, no matter the source, into one savings account.
For any “found money”, such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.
As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental “books”, should be lumped into one monthly bucket.
Subconscious Mistake #2: Manipulative Price Anchoring
Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.
Typical Example: The “rule of thumb” to spend two months’ salary on an engagement ring.
Typical Example #2: A realtor will tell you that “in 2011, this house was going for $500,000 – and is now listed at only $350,000!” … causing you to think this house is undervalued.
Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.
For everyday purchases, avoid looking at the MSRP or sticker price.
Can I afford this today?
What do I really want to spend?
What is this really worth to me?
Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.
There are a few more big ones, but for the sake of brevity I’ll save those for another week. But do let me know: is this helpful to you? And what more could we do for you, to help?
James Pantzis, CPA, PC
It’s FOOTBALL SEASON (apparently). And, of course, colleges are getting back into the swing of things.
For better or worse, often our college-aged children haven’t been “burned” enough by the real world (I mean, of course, as opposed to the weird social media world many of them inhabit) for them to understand how financial complacency can lead to ruin.
So this week’s post is a public service for families in the Brooklyn area with children starting college — or those with children already there. I put it together because I’ve seen too many kids get underwater, and too many parents unknowingly enable them.
Before I get there, a couple of tax reminders:
1) Monday, September 15th is the estimated tax payment deadline for the third quarter.Our existing clients were given coupons to make it easy (albeit never fun), so let us know if you need any quick input there…
2) Corporate extensions are also due that Monday. This really only applies to you if we handle your S- or C-corp returns (which, of course, we do for a variety of our individual clients and friends). We’re on top of this on your behalf, if that’s you.
Now … onto my Animal House advice…
James Pantzis’ Useful Financial Guardrails for College Families
“If we wait for the moment when everything, absolutely everything is ready, we shall never begin.” – Ivan Turgenev
Financial independence training is a short-term pain, for a long term gain. But it’s terribly important because “untrained” college students are sitting ducks for unscrupulous financial service companies and their own lack of financial sense.
So, with that in mind, here are some off-the-cuff guardrails to consider for your son or daughter who is entering or continuing on through college…
1. Make a definite plan to leave college with no consumer debt. And I’m talking a realPLAN. Credit cards, car loans — college kids are ripe for the plucking. Consumer debt is a killer, simply because it depreciates so much. In a short matter of time, these items lose their value, but the payments and interest continue to inexorably pile up.
So set up a clear budget for travel, late-night snacks, and other miscellaneous lifestyle expenses (heck, going through the process might even prompt some lifestyle evaluation!). Tell your child: “You should have an exact answer if I ask about your weekly spending limit.” And have them try to earn enough over the summer that they can afford to skip the part-time job during the fall and spring semesters.
2. ATM bank fees are killer. Moving to a new city often means the local debit card will be charged from $1.50 to $3.00 for every withdrawal from a foreign ATM. Consider an online bank account that reimburses all ATM fees or a local bank with easy ATM access, or moving accounts to a bank local to the school, or a mega-national bank.
3. Overdraft fees are as common as hangovers for the college kid — avoid both. A recent Pew Foundation study found that the median overdraft penalty fee is $35; an additional $25 accrues if this overdraft is not repaid in seven business days. The average bank allows up to four of these overdrafts to occur in one day for a total fee of $140 or more per day. However, if you open a savings account in addition to your checking account, you can use the overdraft transfer protection. You might even set up a situation where the college student controls the checking account — but you control the savings.
4. One cell phone bill gone awry can swamp you. New routines in college will likely mean that data habits will change. If your child doesn’t have an unlimited plan, have them make it a habit in the middle of each billing cycle to review their account’s data usage for the month. By the way, this is a very good expense to NOT pay for as a parent.
5. Avoid gimmicky credit card offers. Often the first credit card is awarded at a football game where so-called “free” T-shirts are being handed out. Again, college kids are ripe targets. Shop online for the best rates and terms and purchase a dozen dress shirts with the money saved by finding a card with less onerous terms for interest rates and late fees. Focusing on the so-called “rewards” which credit card companies give you is a distraction in your financial life. Like a casino, credit card companies win most of the time — which is why they stay in business.
And, of course, having children enter into adulthood sometimes changes your tax considerations. Let us know if this applies to you — we’re here to help!
James Pantzis, CPA, PC
Labor day comes at me like a rush, every year. There’s a corporate tax deadline on the 15th of September to keep me busy and focused … but the truth of the matter is that the beginning of fall means that my team and I start to get real focused now.
Winter is coming. (Which means tax season.)
We’ve been working all summer, getting ready for the ACA implementation, analyzing potential tax law changes, and preparing for ones already in the books.
So it was nice to have the recent long weekend — and, despite the current place of controversy that unions seem to occupy, we’re well-served if we remember the great contribution they’ve provided to our culture.
The entire concept of a “weekend” (and not just one Sabbath/”day of rest”) was brought to us from organized labor. (Source: http://en.wikipedia.org/wiki/Workweek_and_weekend#History )
And, of course, we have “Labor Day” — the perfect transition into fall. This one started during the time of 7-day workweeks of 12-hour days, in the late 1800’s, as our country was in the throes of the Industrial Revolution. Times have certainly changed since then–and our economy is no longer driven by the manufacturing jobs of the past.
Our economy is now about *knowledge* … and that’s why I take the time each week to inform YOU about the “real world” steps you should be taking with your family’s finances, and how to be prepared for any circumstance.
Including the upcoming tax season — which, as I’m beginning to realize, will be here sooner than any of us think.
So I’ve put together a simple primer on what you should be pulling together, but the BEST way to be prepared is to have a conversation now about proactive strategy to minimize your burden. January through April may be “tax season”, but September-October is “tax planning season”–and to that end, I suggest you call us ((718) 858-9864) and set up a time for a tax planning session.
But regardless, here’s what you need to be making sure you have ready for 2015…
Brooklyn Tax Expert on Making Sure Your 2014 Taxes Are Done Right
“A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them.” – John C. Maxwell
Believe it or not, now is the time to start making sure that you’ll be ready for a few months from now, when tax time is upon us.
Generally speaking, you should keep any and all documents that may have an impact on your federal tax return. Individual taxpayers should usually keep the following records and supporting items on their tax returns for at least three years:
• Bills, Credit card and other receipts
• Invoices, Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return.
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include…
*A home purchase or improvement
*Stocks and other investments
*Rental property records
New for 2014 taxes: We will need to verify our health insurance during the tax process. I’ll be in touch further, in the future, about what that will require.
If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.
Examples of important documents business owners should keep include:
• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
Here’s the best part of all of this: By pulling together this information NOW, we can really work our “magic” and ensure that we aren’t simply playing catch-up for you after the fact. That’s what tax planning is all about.
So give us a call this week, and let’s plan out the rest of 2014 and beyond.
James Pantzis, CPA, PC
Being a Brooklyn tax professional, I get all kinds of questions throughout the year when it comes to taxes.
But whether at social gatherings, sporting events or even business networking functions, one of the most common ones I receive is: Can I write this off?
Well, allow me, today, to set the record straight on all this for you.
In my experience, there are 3 primary mindsets of people out there:
Mindset 1: These are the people who want to write off everything, whether it’s legal or not, and figure the cost of an IRS audit won’t be “that bad”. Or else they think they can’t ever get caught. They are invisible, or so they think. That’s more common than you would ever want to know.
Mindset 2: These folks don’t want to write ANYTHING off. In fact, I’ve known some who will tell me that they want to purposely overpay their taxes. If the tax due is $10,000, they’ll write a check for $11,000. They figure that will keep the IRS away.
But the IRS doesn’t take bribes. This plan doesn’t work.
Mindset 3: These are the people who want to pay less in tax, but they are cautious. They still want to sleep at night.
Well, I’m going to help you if you fall within that category today, with an illustration at the end …
James Pantzis’ Strategy for Writing Off Almost Anything
“The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can’t find them, make them.” – George Bernard Shaw
I’ve got good news and bad news. First the good: this is easier than you might think. But the bad: you really have to do it right.
There are four primary steps for this, and you have to follow them all…
#1: You must have a business. If you’ve been running a tax loss in your business after you take all of your deductions, you could run the risk of the IRS calling your business a hobby. If you have a hobby, you can’t take the deductions.
There are actually 9 factors that the IRS uses to determine if you have a business.
These 9 factors break down into 4 categories:
Are you running your business in a business-like manner?
Are you putting in enough time and effort to reasonably expect success in your business?
Do you have past success in a business like this? Or, if not, do you have a mentor, coach or advisor who does have past success?
And finally, the big one, do you have a true profit motive for your business? You might be losing money now, but do you have a plan that will get you to the cash?
This first step is the hardest. It trips all kinds of people up. BUT, at the end I’ll give you an example for how it may not be as hard as you think…
#2: The expense must have a business purpose. The expense must be “ordinary and necessary to the production of income”. But, that’s about all the guidance you’re going to get. And that’s the reason why so many people get stuck, especially in the beginning. What’s deductible?It depends!
If you can prove that this expense helps your business, you’ve covered #2. I’m going to go over the next two steps and then, again, an illustration for how you can write off almost anything (provided you follow the steps, of course).
#3: You have proof you paid the expense. This is pretty much a no-brainer. No receipt = no deduction. When you’re out, use your smartphone to take a picture of receipts. It’s a whole lot easier to keep track of pictures than it is loose slips of paper. Then, if you paid for the deduction with cash, check or credit, you’ve got the deduction.
#4: Make sure you properly report on your tax return. There are three steps to a successful tax strategy.
Strategy + Implementation + Reporting.
The tax return is the final part of a strategy. That’s where we come in, of course.
Now for my illustration…
Let’s say your spouse has a thing for eating organically.
Well, here’s a plan that would get this spouse writing off some of that food.
(And how about you? Do you have something you really wish you could take a write-off for? Consider that through the lens of this illustration.)
Your spouse is familiar with social media like Twitter and Facebook and had been talking about starting a blog. Perfect! You set up a blog about eating organically. Then, you set up an arrangement with an “affiliate marketer” for a variety of organic food and supplement suppliers.
On the blog, your spouse highlights various foods, and talks about things like taste, price, how to cook them, what to pair them with, downsides to eating too much of them — essentially all the things that fellow organic food lovers would care about.
The spouse now has a business. Commissions are coming in as food is purchased from the site. And your spouse necessarily must purchase, prepare and eat organic food, in order to write about it for her readers — that is, in order to deliver her business’ fundamental service.
Is that all it took? No, the spouse has to meet the 4 steps above as well.
But here’s the thing: Sometimes the best way to get the answer is to change your question.
If you’ve been asking, “What can I deduct?” Change it to “How can I deduct THIS?”
The answers may surprise you.
And, as always, we here at James Pantzis, CPA, PC are here to help. Now is a GREAT time to still affect your tax strategy for the rest of this year and take some nice deductions. Let us help you.
James Pantzis, CPA, PC
In light of events happening all over the place (but particularly in Ferguson, MO), I’ve been reminded of an eternal truth: The mind is like a parachute; it functions best when open.
Pretty sure Abraham Lincoln said that.
I’m kidding, of course — “source unknown”, but the truth is that while the social media activists, the media and those fueling the fire of argument on either side are increasing the volume of outcry, it’s difficult to say how much actual benefit that is ultimately bringing. Certainly there are evident problems there, here in Brooklyn, and all over our nation. Perhaps, in fact, some good may eventually come out of this terrible tragedy of a lost life.
But we must also avoid drawing pat conclusions (again, on either side) where facts are murky.
In their excellent recent book, Think Like a Freak, best-selling “Freakonomics” authors Steven Levitt and Stephen Dubner write of the rising phenomenon of dogmatism — and how it significantly hampers our ability to see solutions to problems very clearly.
Although I may only be a tax professional, in my humble opinion, there are some serious problems in our culture. There really is racism. And there also really is danger for honest policemen and women.
But shouting, lecturing, militarizing and browbeating won’t achieve the healing and improvements for which we all wish. While social media can certainly play an important hand in bringing attention to, and opening dialogue on, some of these situations and issues, let’s be careful to maintain a tone with one another that is respectful and open to the validities in others’ thoughts.
In other words, let’s all pour a small bucket of ice water over our heads, regarding some of our cultural hot topics — and be sure we’re listening first and speaking last, shall we?
Now, speaking of open minds … let’s talk about college education. Specifically, how to pay for it.
James Pantzis’ Big Idea: Pay For College AND Build Wealth?
“He that can have patience can have what he will.” -Benjamin Franklin
The average Brooklyn college student graduates with almost $20,000 in student loans. While this is a daunting sum, it is still possible to build wealth even while paying off student debt. But earning the degree and paying for the degree require two different kinds of smarts. In fact, some students may be better off not taking their parents’ advice on how to get out of debt.
Unlike most types of debt, student loans are usually best when paid as slowly as possible.
Almost all debt is bad debt. But, there are two areas in which this general rule is not as hard-and-fast: home mortgages and student loans. Diligent savers can use these types of debt to their advantage.
Students often assume the best thing to do is to pay off student loans as quickly as possible. The sooner you pay off your loans, the sooner you can start building wealth, or so the thinking goes. But, given the opportunity, which answer should you choose: A) Make extra principal payments on your loan each month, or B) Pay the minimum amount due and save and invest the difference?
The real answer is: it depends. However, as a rule of thumb, the lower the interest rate on your loans, the better off you’ll be just paying the minimum monthly payment and nothing more. Take the extra money you were going to pay on your loan and invest it instead.
The lower the rate of interest on your loan and the higher the average market return, the more it makes sense to invest your extra dollars instead of paying down on your loan. The difference between these two rates is known as the “spread.” If market rate of return is 11% and the interest on your student loan is 4%, then, the “spread” is 7% (11% minus 4%).
Let’s look at two examples. Sally and Brian each have $20,000 in student loans which are to be paid over 10 years at 4% interest. Brian pays his monthly payments of $202 plus $100 extra to retire his debt as quickly as possible. By paying making bigger payments, Brian is able to pay off his debt in just over 6 years. Now, with his debt out of the way, Brian invests the full $302 per month that he had been putting towards his debt. Ten years after graduating, Brian has paid off his school debt and his investments have grown to $16,728.
Sally decides to adopt a different loan repayment strategy. Instead of paying extra on her loans, Sally pays only the minimum amount of $202. She takes the extra $100 per month that she could have been paying toward her debt and invests it. She continues this simple plan for the full life of her loan. Because she makes no extra payments on her loan, she takes the full 10 years to pay off her loan. Now, ten years later, Sally’s loan is finally paid. However, her investments have grown to $21,700, beating Brian’s return by $4,972!
Sally has made more than Brian even though she only paid the minimum balance due on her loan. Instead of making extra payments as Brian did, she invested her money for a longer period of time. And even though Brian was able to retire his debt sooner than Sally, his big monthly investments were unable to catch up with Sally’s early saving. Sally was able to boost her savings by starting early and harnessing the power of compounding interest. In the investing world, this principle is called the ‘time-value’ of money.
However, this model is not ideal for everyone facing student loans. The smaller the spread between your loan interest rate and the average market return, the less appealing this strategy becomes.
Plus, there are other important cases to be made, of course, for working to be debt-free as quickly as possible, as I’ve written about before.
Still, there is one additional reason students should consider paying just the minimum monthly payment on student loans. Student loan interest, like home mortgage interest, is tax deductible (which of course, you KNOW I love!). By allowing you a tax deduction of up to $2,500 for student loan interest, Uncle Sam is, in effect, helping to subsidize the cost of your loan. The faster you pay down principle, the faster you lose your tax deduction, which is one more reason that paying just the minimum may be the best option for some. And, with the savings from your tax deduction, you have more money to invest at higher rates of return.
In order to benefit from this loan repayment strategy, you must save and invest your money. If you don’t invest the extra money (and you simply spend it), you would have been better off putting your extra dollars toward the repayment of your loan. But before deciding on a loan repayment strategy that’s right for you, be sure to take care of the following basics first.
Learn about your loans. Many student loans allow for a 6-9 month grace period before loan repayment begins. During this time, your loans may be charged a lower rate of interest. Consider consolidating your loans and locking in your interest rate while your loans are at a lower rate. This may not only help keep the cost of borrowing lower, but it will mean you only have to write one check per month.
Establish an emergency fund. You should have enough money in your emergency fund to cover three months of expenses. This money should be used only in the case of emergencies, and not for those late-night runs to Taco Bell.
Pay off your credit card. It’s estimated that college graduates carry an average of $2,500 in credit card debt. Most credit cards have very high interest costs. Be sure that you are not numbered amongst that statistical class. You cannot build wealth while paying 19% interest on your credit card purchases. Do not begin investing until you have an emergency fund and have eliminated your credit card debt.
Sign up for free money. If you have just started a new job, check to see what type of retirement benefits your company offers. Many companies will match your contributions dollar-for-dollar up to a certain percent of your pay. In other words, you get free money if you invest in the company retirement plan. Make every effort to contribute enough to get the full match. By doing so, you are, in essence, receiving a 100% return on your money. And, don’t assume you are too young to save for retirement. By saving now, and harnessing the power of compounding interest, you’ll have enough to retire long before most of your friends. Remember the time-value of money!
Contribute to a Roth IRA. Once you’ve built up an emergency fund, paid off your credit cards, and taken advantage of any free money available through your employer, make every effort to invest any remaining dollars in a Roth IRA. A Roth IRA is the ideal place to put those extra dollars you were otherwise going to apply to your student loan principle.
Building wealth takes time. But by starting early, you’ll be sure to make the grade.
And, as always, we here at James Pantzis, CPA, PC are here to help. Thanks for listening.
James Pantzis, CPA, PC