What happened last week in Paris was a horror show for those of us living in an ostensibly free society. Outrage, shock, argument — all of these things have been roiling through the last week, as we’ve watched. I’m sure you felt similar.
And, well, life has a tendency to keep on pulling us along, even as we attempt to process such things.
Soon, we will begin filing client tax returns to the IRS (electronically), and our offices will be jumping. There is a lot of change this year, and probably more than a little confusion among some tax offices because of the ACA this year. But we’ve been preparing for this for over 7 months now … and we’re pretty excited to see the fruition of our labors!
As well, we want to “seal the deal” on a variety of tax-saving maneuvers to which we’ve directed clients over the past year. In short, this is really fun for us here at James Pantzis, CPA, PC.
But with the ACA, and all of the changes every year, filing your taxes on your own is becoming much less fun for regular taxpayers — even with nice-looking softwares on the market which purport to make it “easy” for you.
I truly do pity those inexperienced ones who try to muddle through all of the different codes and forms on their own,without devoting even a week’s labor to the transaction. It really doesn’t pay to “go it alone” for certain tasks.
So, for those of you who want our help, I’ve put together a handy little list of what you’ll need to bring in. There may be certain situations where we’ll need other documentation to get you even more deductions. But, of course, we’ll let you know about that, should the situation arise.
Let me know your thoughts … and of course, if you’d like to talk this over with us, we’re here for you!
Pantzis’ 2015 Tax Time Document Chase List
“If you realize that all things change, there is nothing you will try to hold on to… there is nothing you cannot achieve.” -Lao Tzu
Yes, this is a long list — but it’s the unfortunate reality of our tax code that it’s not even comprehensive! But these items will cover 95% of our clients. Really, this is for ensuring that we’re able to help you keep every dollar you can keep under our tax code.
Even if for some strange reason you won’t be using our cost-effective services this year, feel free to use this list as a handy guide…
Social Security Numbers (including spouse and children)
Child care provider tax I.D. or Social Security Number
Employment & Income Data
W-2 forms for this year
Tax refunds and unemployment compensation: Form 1099-G
Miscellaneous income including rent: Form 1099-MISC
Partnership and trust income
Pensions and annuities
Jury duty pay
Gambling and lottery winnings
Prizes and awards
Scholarships and fellowships
State and local income tax refunds
Health Insurance Information (New for 2015)
* All 1095-A Forms from marketplace providers (if you purchased insurance through a Marketplace)
* Existing plan information (policy numbers, etc.)
* If claiming an exemption, your unique Exemption Certificate Number
* Records of credits and/or advance payments received from the Premium Tax Credit (if claiming)
Residential address(es) for this year
Mortgage interest: Form 1098
Sale of your home or other real estate: Form 1099-S
Second mortgage interest paid
Real estate taxes paid
Rent paid during tax year
Interest income statements: Form 1099-INT & 1099-OID
Dividend income statements: Form 1099-DIV
Proceeds from broker transactions: Form 1099-B
Retirement plan distribution: Form 1099-R
Capital gains or losses
Auto loans and leases (account numbers and car value) if vehicle used for business
Student loan interest paid
Early withdrawal penalties on CDs and other fixed time deposits
Personal property tax information
Department of Motor Vehicles fees
Gifts to charity (receipts for any single donations of $250 or more)
Unreimbursed expenses related to volunteer work
Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions)
Education expenses (tuition and fees)
Child care expenses
Medical Savings Accounts
Tax return preparation expenses and fees
Estimated tax vouchers for the current year
Self-employment SEP plans
Self-employed health insurance
K-1s on all partnerships
Receipts or documentation for business-related expenses
State and local income taxes
IRA, Keogh and other retirement plan contributions
Casualty or theft losses
Other miscellaneous deductions
We hope this helps, and we really look forward to seeing you in here in 2015!
James Pantzis, CPA, PC
This first full week of the year is often cited as one of the most difficult and depressing weeks of the year. Far from shiny newness, experts say that with all of the let-down after the holidays, coming back to work, or leaving behind family, can bring a heightened sense of loss.
This, combined with the fact that we’re staring at 2-4 months still left of winter (depending what part of the country you call home, of course — we have clients and friends reading this from across the country) …
Well, it can be a tough week.
So I’d like to lighten your 2015 load by giving you some simple, actionable guidance on FINANCIAL resolutions which are easy (and profitable) for you to keep.
You see, I hope you don’t mind that I see it as my role in your life to not only provide authoritative and actionable tax advice for your specific situation, but also to play a role as a “coach” for your finances, and even your mindset.
This is why our clients and their friends seek us out for *more* than simple tax preparation, but a whole host of other services as well — from planning, to business services, to simple encouragement. I get to be someone in your life who says: “You can do this. You’re not alone.”
It’s my great hope that our relationship will continue to grow into 2015, and beyond. And not just for “business purposes”. We love our clients — you’re like family to us (the *good* kind of family, that is)!
So, with my coach hat firmly in place, here are some thoughts for effectively creating and pursuing your personal financial goals, as we move into 2015 …
James Pantzis’ Top 3 Financial Resolutions To Keep in 2015
“Be at war with your vices, at peace with your neighbors, and let every new year find you a better man.” -Benjamin Franklin
Here’s the thing about most financial resolutions: They don’t usually last even until the end of January. That’s because making a permanent change in our behavior requires both time and a steely resolve. But I’ve found that we can develop financial character one action at a time.
So in that vein, here are some financial practices to take you from pauper to prince or princess if you add one each year. If you’ve already got one down, move to the next on the list.
By the way — no matter where you are on this list, we are here to help you. Whether it’s through financial advice, tax preparation or planning … well, we have all kinds of ways to help you stay on the path on which you want to be. You simply have to ask.
But here we go…
#1 MOST CRITICAL: Resolve to become (and stay) debt free. Now, I’m not Dave Ramsey, but there’s a reason why he’s become so popular: his approach works. I’d say that you can have a fixed-rate fixed-year traditional mortgage on your house — but nothing else, please. No equity line of credit on your house. No car payments. Certainly no credit card debt. Because you simply have to learn to live within your income — which, unfortunately, sometimes means going without. The millionaires among us really are frugal. So, learn to enjoy that process, and it’s a fantastic start.
#2: Automate your savings (AKA Pay Yourself First). You can start by getting the entire match if your company offers a 401(k) plan. Often this translates to saving something like 5% of your salary while the company contributes something like a 4% match — which is the fastest way to get an 80% return on your money. Most Americans forgo this match, believing they need to spend 100% of their salary. But you can learn to think like a millionaire and live well on 95% of what you make. If you don’t have a 401(k) plan, act like you do, and sock away 5% automatically.
Remember — these steps build off one another, so if you already have done the first 2, here’s your next step:
#3: Save another 5% in a taxable investment account. Automating savings is great, automating investment is even greater. Key word here: automate. At this point, you’re hitting a mark of saving 10-15% of your income. That’s a fast-track to long-term prosperity.
But I’m not quite done, grasshopper. However, I’m going to leave you with these for now, and come back to this again in the weeks ahead.
Best to you. May your 2015 be full of joy.
James Pantzis, CPA, PC
Happy New Year, folks! Now that we’re in 2015, the tax planning door has been closed and it’s time to start gathering your documents (well, you can still reduce your tax bill by opening an IRA or contribute to an existing one by April 15th). However, the best thing you can do now to help your 2014 tax bill is to make sure that you have a competent, caring professional by your side as you prepare your 2014 taxes. With all of the changes brought about with the ACA … this year, of all years, should not be one in which you go it alone.
And since we’re now in 2015, let’s also talk about how we handle our finances. What I’ve put together here isn’t your normal “how to save money better” information. Let me know your thoughts …
James Pantzis On Assessing Money Well Spent in 2015
“One resolution I have made, and try always to keep, is this: To rise above the little things.” -John Burroughs
“Life planning” is where financial decisions ought to start.
Life planning conversations with our clients, while not as frequent as the day-to-day tax planning and related financial ones, are nevertheless the most meaningful and potentially life-changing discussions.
When trying to raise financially savvy children, there are three things they need to learn: how to earn money, how to save and invest money, and how to spend money.
You might think that people don’t need to learn how to spend money. They do it naturally. Unfortunately, the way they “naturally” spend money is mindless spending.
The problem with most spending is that our actions are not consistent with our values.
The poor buy things; their homes are cluttered with them. The middle class buy liabilities like second homes and boats, and then they are obliged to make payments on and maintain them for years.
In contrast, the rich buy investments that appreciate and pay them dividends and interest for decades.
The problem is not just that the poor and middle class are not wealthy. The problem is that the poor and middle class are often not using their money to satisfy their values.
There is a book by Elizabeth Dunn and Michael Norton (called The Science of Happier Spending ) which chronicles the “research distinguishing spending that satisfies from that which disappoints.” The authors lay out five principles of spending that produce lasting dividends:
1. Experiences are more satisfying than stuff.?
2. Abundance ultimately backfires. Making indulgences rarer rather than frequent makes them more satisfying.?
3. Buying time is the best investment.?
4. Using “reverse credit” (pay now––use later) imbues us with the pleasure of anticipation rather than the buzzkill of paying later for something already consumed.?
5. Spending on others trumps spending on oneself.
This seems like a good starting place for judging money well spent.
If you were in charge of a group of people shipwrecked on an island, and you only had one doctor, you would “buy” his time in ways like having other people cook for him and keep his house in order, so as to free him from any duties other than doctoring, where he is the most valuable.
Many wealthy people are wealthy because their time is extremely valuable. If they are smart, they do not cook for themselves, or mow their own lawns or perhaps even drive themselves to work. They buy time by paying others to do those things for them, and as a consequence use their time in a more valuable way.
The same principle applies for anything that only you can do. You are the only person who can be a mom or dad to your children. Buying time to make those relationships happen is a great life-planning investment.
If you have children, print a copy of these five principles and discuss them at the dinner table. Such conversations are one of the ways we impart values to our children, and financial planning begins with moral or spiritual values.
Life goals may fall into one of several types, but since the course of your life is unique, the way you handle your money to help you in your calling will be tailored to you as well.
Aligning your money and your values isn’t an easy process. It is as difficult as aligning your eating and your health. And, of course, during this holiday season, we’re ALL feeling the disconnect there.
But this is what my team and I are here for. When you come to us for your planning this year, if you’re willing, let’s set a time to have a longer conversation about what you would like to do with your life. Because that’s really where everything comes together.
To your family’s financial peace in the new year …
James Pantzis, CPA, PC
As much of the nation and world has been enjoying this holiday season, my team and I have been preparing for a season of a different kind — TAX season.
And sure, we’ve certainly been pausing to meditate on the beauty of THIS season, but it just so happens to always coincide at the dawn of our busiest time of the year. And this year (2015) is shaping up to be a very “interesting” year.
The Affordable Care Act (“Obamacare” or the “ACA”) has a bunch of health care tax provisions that are kicking in this year, that will definitely affect your tax return.
Enough so that I am today devoting my post to you about its ramifications.
Honestly, I prefer giving quick tax alerts (when they’re necessary) in my introduction space, and then write something bigger picture and more analytical than the “just the facts, ma’am” approach I’m providing you today … but sometimes, well, the facts need to be shared.
So in that vein, PLEASE share this information with your friends and colleagues. There very well may be some ugly surprises for people who are not aware of some of these challenges.
(I will continue to be sharing more about the ACA and its impacts for regular taxpaying families and businesses, so if you are receiving this and are NOT a subscriber to my weekly notes, you can fix that here: )
What Brooklyn Taxpayers Need To Know About The ACA
“Expect trouble as an inevitable part of life, and when it comes, hold your head high, look it squarely in the eye and say, ‘I will be bigger than you. You cannot defeat me.'” -Ann Landers
First of all, this legislation has continued to be a political firecracker. I am NOT making certifications or predictions about the political, judicial or legislative future of this bill.
My job, as your local Brooklyn tax professional, is not to rail against the establishment nor to prop it up — instead, I am YOUR advocate as you walk through the byzantine process of fulfilling its requirements.
From what I am hearing inside the tax professional world, it seems unlikely that this legislation could ever become “unwound”, and it’s high time that all families and small businesses adjust to the world in which we find ourselves, and prepare for its effects.
Frankly, this upcoming year (2015) will be the first year that ALL taxpayers will feel the effects of the Affordable Care Act. That’s because starting with returns that are due on April 15, 2015 (which cover the year 2014 — the IRS and many others refer to this as “Tax Year 2014″ or TY2014) … tax returns are now required to report on health insurance coverage status.
This is whether you enrolled in health insurance (or not), and whether you used an ACA plan through the various state and federal marketplaces — or not. It’s for ALL taxpayers.
(There are some exemptions to this requirement, and those can be found here: http://1.usa.gov/1yUTga0 ).
You are required to show that you have had insurance starting on January 1, 2014 in order to avoid the penalty — and that you were without insurance for less than 3 months during 2014, if you are to avoid penalties.
Future penalties are scheduled to increase, so although for some taxpayers it may seem like a decent tradeoff to just pay the penalty for this year, it becomes increasingly costly to do so in the future.
Second, premium tax credits will be evaluated and adjusted according to information submitted on your tax returns.
This means that if you are 1) currently receiving a tax credit (provided directly to your health insurance provider as payments towards your premium — and offered only to eligible individuals and families without access to employer-sponsored coverage, and who purchase insurance through a marketplace) and 2) your income or household size has changed since you were granted the credit, then your tax refund or obligation may be affected.
So, an important note: if your income or the size of your household HAS changed, it is imperative that my staff and I help you to report this properly on your return. In fact, it may be worth contacting us (http://www.accountantbrooklyn.net//contact ) while you still can (whether you are an existing client or not), and letting us know how your income has changed. We may be able to help you prepare, or adjust your income appropriately through our return preparation process, etc. You can also call us: (718) 858-9864 if you think you will need our help.
If you received this premium tax credit, you will be receiving forms 1095 in the mail. KEEP THESE FORMS. You will need them for the tax return process.
Sadly, the issuance of these forms is optional for some entities, so it can be a complicated issue to make sure you have all of them. Which leads me to my last point…
Please, for the love of all that is good and holy, do NOT go it alone this year when preparing your tax returns. I understand that this exhortation may fall on deaf ears to you, as there is clearly a measure of “self-interest” in my saying this to you. But please understand, whether you use MY services or someone else’s — I will be much happier to hear that you had an experienced professional by your side than that you relied upon the notoriously unreliable algorithms of tax softwares. All of the different factors that are coming into play on this year’s tax return are creating a perfect storm for the software companies, and, well … let’s just say that this is probably not the year to “give them a shot.”
Again, self-serving nature of this statement acknowledged and understood.
But I do hope you can tell that most of all, I want your family to thrive and not to have to worry about all of this junk.
That’s what we’re here for. Let us worry about this now, so you don’t have to do so later on.
To your family’s financial peace over these holidays…
James Pantzis, CPA, PC
So, in looking at the headlines this morning from my Brooklyn tax preparation offices, as I write (I often look there first for some inspiration for my weekly note), I’m struck: our nation and our world (and even the Brooklyn area) continue to feel like they are fraying at the seams.
We all hate that this is the case — and I think that many of us also feel fairly powerless about it. Yes, political activity, speaking our minds and so forth has great value — but will the world really change?
Oh, but this is why we need this season. Christian believers are reminded that God entered the world in the middle of the muck, small and with no (visible) fanfare. Jewish believers are reminded that in the face of great adversity (such as faced by the Maccabees), miracles can happen. And although there are no special holidays for Muslim believers during this December, they and those of other faiths can embrace the fellowship among other believers in a spirit of mutual blessing.
We all need remembrances that life is bigger than our day-to-day circumstances.
So … in this season, we remember with the giving of gifts. And well … I am a Brooklyn tax accountant, after all! I have some thoughts on that.
James Pantzis’s Take: Better Giving Through Economics
“One of the sanest, surest, and most generous joys of life comes from being happy over the good fortune of others.” – Robert A. Heinlein
No matter your religious persuasion, it’s going to be pretty difficult over these next few weeks to avoid the non-stop merchant clamor to “buy stuff” in order to properly celebrate what started as a spiritual season.
And yes, I’m a local, Brooklyn tax business owner — I have nothing against people spending money as a way to communicate their love. It’s just … a tad ironic, isn’t it?
So, I’ve decided to put on my contrarian hat today, and let out that little grumpy tax accountant that most of my clients know lurks within me.
“Release the Scrooge!” …
Many Brooklyn people spend more during the holiday season than they can afford. Among other things, sometimes guilt or shame can drive a lot of big-ticket gifts–though not always, of course. But the satisfaction can be both short-lived and shortsighted.
In Wharton School professor Joel Waldfogel’s book, “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays“, he says that people are the most efficient when spending their own money, producing at least a dollar in satisfaction for every dollar they spend. But spending money on those we don’t know well results in what Waldfogel calls a “deadweight loss” of value–about 20%.
You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash. With Christmas & holiday spending in the United States at $100 billion, this loss results in “an orgy of wealth destruction” to the tune of about $20 billion. Ouch.
Waldfogel’s study found that givers with infrequent contact were those most likely to give less appreciated gifts. This group includes aunts, uncles and grandparents who live in another town. According to economists, people are better off when they make their own choices. For this obvious reason, Waldfogel suggests giving money or gift cards instead.
To the criticism that he has taken the joy out of Christmas, he responds that after watching desperate last-minute shoppers, he thinks the joy was taken out of Christmas long before his critique.
Of course railing against the commercialism and waste of the holidays is pretty common these days. So, let’s further breakdown what happens during this gift-giving season…
Some gift-giving is driven by social expectation, and becomes a test of the relationship. For example, for Brooklyn couples who are dating seriously, the message is much more important than the medium. Give a book the other person despises, and you have revealed how little you pay attention to your loved one’s opinions. But a pair of gloves, with a heartfelt note saying, “These will keep your hands warm when I’m not there to hold them” would show your affectionate side. Or perhaps the receiver doesn’t like romantic mush, and you are expected to know better.
Parents can help extended family members select gifts for their children by providing specific wish lists to ensure that what they buy will truly be appreciated. If you aren’t confident, include a gift receipt. You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash.
And in families where children don’t have any spending money, cash may be the best possible gift. Handling cash with all the complexity of choice is an experience that offers irreplaceable life lessons.
Try asking people, “What present changed the course of your life the most?,” to see just how much influence you can have. A pair of binoculars sparks a love of ornithology. A telescope fuels a fascination with astrophysics. A microscope leads to a biology career. An electronic toy prompts your daughter to join a robotics competition.
Not all presents need to be academic. A graphics tablet can lead to a design career. A guitar can inspire your son to form a new band. Or a video camera can lead to a later career choice in filmmaking.
Finally, some Brooklyn parents who are still unemployed will disappoint their children if they are hoping for expensive gifts this year. I’ve known a few families who had to tell their children that celebrating a traditional American credit card holiday would jeopardize the family’s financial security. Being financially cautious doesn’t mean you love your children any less. And if you can be positive and reassuring, you needn’t try to shelter your children entirely from household economics.
The greatest joy of the holiday season is not bought in a store and does not increase your credit card debt. There is a better way to celebrate that builds long-lasting family ties.
Make a list of all the things you have gotten right in past holidays, and make them annual family traditions. Add a few new ideas every year. The best holiday traditions don’t cost a lot of money, and they aren’t wrapped and put under a tree.
To your family’s happily-efficient spending over the holidays…
James Pantzis, CPA, PC
December is officially with us. It’s cold. And time is running out.
By that I mean that we are ONE MONTH away from year-end. That’s one month away from doing anything positive to affect your tax burden (with the exception of IRA contributions and a few other various back-dating strategies that are allowed).
So here’s a quick and dirty tax plan:
1) Unless your income has radically changed this year (in which case we should probably talk), take a quick look at your withholding and make a last-minute adjustment up or down.
2) Consider the following before December 31 …
* Adding to your 401(k) or other company-sponsored retirement plan.
* Winterizing your home with upgrades that qualify for the energy efficiency tax credit of up to $500 (some details here: http://bit.ly/1A88hmj )
* Spending down your medical flexible saving account (FSA) balance.
* Bunching deductible expenses, both miscellaneous and medical.
* Maximizing the sales tax deduction with a tax-qualifying major purchase.
* Considering ways to defer income if it will push you into a higher tax bracket.
* One more, which is my broader subject for today …
All of these (and more) are good options to make a dent in your 2014 tax bill. Help us help you make the right decisions and call: (718) 858-9864 to set up a year-end tax planning appointment (or, of course, you can also email us: http://www.accountantbrooklyn.net//contact).
About that last tax-reducing move…
James Pantzis Asks: To Give … Or Not
“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.” – Oprah Winfrey
When we advise about or help set up tax-saving mechanisms for clients to deliver their philanthropy and giving (outside of normal tax deductions), there’s plenty of discussion about the benefits of the gift for the recipient.
But what about for the giver? Here are some things to consider, as you contemplate giving, during this month of year-end appeals …
1. When you give, your emotions change.
Studies show (http://bit.ly/1A8bp1t ) that when individuals spend money on gifts for friends or charitable organizations, their happiness increases — while those who spend on themselves get no such boost. Even Scrooge can agree that everyone wins.
2. You might just spend it on something dumb, anyway.
As pious as you are, there’s still extra money in your budget somewhere. Create a budget for charity donations, then take some of your extra money (each month or each year) and donate it to charity. Use your spending money to make a difference instead of spending it on Brookstone junk you’ll use once. And if you think you don’t have enough, take that extra 2% you’ll be earning next year and put that toward a charity fund. For someone making $100,000, that’s $2,000.00.
3. It’s probably now or never.
Don’t pretend that instead of giving money, you’re going to donate time. When was the last time you volunteered at a soup kitchen? Don’t let your mind fall for this trick. Send the money now or you’ll end up giving nothing.
4. Get ahead of your heart.
This is the biggie, in my opinion. There’s something that occurs in your psyche when you cut a big (or relatively big) check to someone in need, or to a charity organization. You feel more powerful–more dynamic. You signal to your own soul: “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 sometimes actually happens: more money seems to find itself in your hands.
I’m not advocating a mystical pay-it-forward scheme; I’m simply making this observation over years of being a student of how money “works”. Frankly, it just seems to regularly find itself in the hands of those who give it away.
So, aside from the tax benefits … consider these as well. And I hope we talk soon …
James Pantzis, CPA, PC
Activity is relatively slow around here this week, and it always puts me in a meditative mood. Thanksgiving is nice because it’s not quite yet the “calm before the storm” which the December holidays represent (right before tax season, as they are). This is a week when I get to gear up … but I do so by looking back.
First, I’m reminded of my firm’s many blessings. For instance, I do NOT take for granted that you have chosen us to walk with you as we give you advice and help take care of your financial picture, especially around tax time. It’s hard to reveal the kind of personal information that you provide to us, and we don’t take it lightly.
This upcoming year, with health insurance concerns playing a new role in the tax return process, I’m again reminded of how precious your trust in us really is. THANK YOU.
And this week, I also look back on the journey to get here. As anyone who runs their own business will tell you, it’s a giant leap to go out “on your own”. I still remember what it was like to take this dream I had for James Pantzis, CPA, PC and put it into reality. I was a little bit scared, and a little bit (a lot) hopeful. I remember the friends and other business-owners who helped me along the way … and how risky it all seemed.
Well, the risk DID pay off, and I’m happy about what we’ve been able to create around here. Now we get to be the ones helping people pursue THEIR dreams.
For a new business owner, the first step seems really big … until the next step comes. And then you realize that running a business is a series of these decisions … you become a good risk-taker, if you stay in it for long.
But it sure helps to have somebody with a cold, clear eye to make sure you know what you’re getting into.
Which brings me to what I’m thankful for this year, as a business owner … and hopefully as your friend.
As I gather at my table with family and friends this season … I am thankful for you — and people like you. Thank you for your trust, for your business year after year … and for making my first step into starting and running a tax firm “way back when” so rewarding now.
And what I’m excited about as we head towards the end of 2014 … well, here’s to helping YOU keep the IRS off your back in 2015!
Looks like we’re all going to need it …
James Pantzis, CPA, PC
Well, we’re getting ready to see what Congress is going to do in the final session before the new members are sworn in (called the “lame duck” session).
And while I was exercising recently, I was thinking: Isn’t it interesting how decisions made by a few hundred men and women in a distant building actually *can* impact our life so much?
In my opinion, whatever we are seeing political people say: taxes WILL go up next year … whether it’s directly on your income, or in other more-hidden ways. The federal government has taken in record revenue this year, and that didn’t happen by accident. Nor will they want it to not continue.
Whatever happens, and I don’t know about you, but, I hate having to “wait” on other people’s decisions to plan my course of action. That’s why I try to set up specific benchmarks for my business and my life by which to judge success — regardless of how other people might affect it or react.
And this is a good week to write about benchmarks for YOU — specifically when you find yourself at a certain point in life. While I’m not a financial planner per se, I do happen to deal with these issues on a regular basis…enough that I know what I don’t know, at least. And, of course, I know what I do know…
James Pantzis’ Useful Financial Benchmarks For Mid-Life
“If someone is going down the wrong road, he doesn’t need motivation to speed him up. What he needs is education to turn him around.” – Jim Rohn
Generally speaking, many wise adults see a doctor when they hit 50. And the great thing about (most) doctors, is that they’re not financially-incentivized to advise you towards a specific course of action.
Would that were true about all financial investment advisers.
So, I thought I would take the time this week to give you an objective, “incentive-free” look at what your finances should look like when you hit the half-century mark. If you are close to that mark, I thought it might be useful for me to lay out the “perfect” scenario.
And look — if you’re not perfect, at least let it be a benchmark…
We should have been saving and investing 15% of our income regularly. Even if we don’t want to retire until age 70, by 50 we should be well on our way toward securing our retirement. We have managed to save about eight times our annual lifestyle spending. With a $100,000 per year lifestyle, that means we should have saved about $800,000 toward our retirement.
We are probably at the point where our children are in college or have recently graduated. When college funding is complete, it’s time to reevaluate and perhaps drop term life insurance coverage depending on our individual circumstances. We purchased the insurance to make sure our children would have enough money to complete their education. When term premiums rise and college accounts are fully funded, we should probably drop our coverage.
Our estate plan should be in place and fully implemented. And, of course, various assets are handled differently. This is the time to make a complete review of how our plan is put together, to ensure that EVERY asset (not just the tangible ones) are still handled properly.
And, for you “imperfect” savers, we have one last chance after children and before retirement to catch up. Age 50 is the first year we are allowed to take advantage of increased savings and catch-up provisions. At age 50, maximum savings in a 401(k) or 403(b) account increases from $18,000 to $24,000 in 2015 (it is $500 less for each amount in 2014). At age 50 or older, Roth contributions also increase from $5,500 a year to $6,500 with these “catch-up” provisions. If we don’t have eight times our lifestyle spending saved, now is the time to press these limits.
Of course, saving well is half the battle; investing well is the other half.
That’s a subject for another day, and which we can discuss more via phone, if you’d like: (718) 858-9864.
Of course life is too short to ignore meaning at any age. But for many people 50 is a milestone that reminds us to stop and reevaluate. There is still time for a whole new life of significance.
Financial independence can open exciting possibilities that were otherwise out of the question. If we don’t need the money, we are free to do anything with our lives. People of purpose usually don’t choose 28 years of recreation. Not when we finally have the time and the wisdom to make a difference in the world.
And counting retirement as a new career is a perspective I’d encourage. When you reach the point in your life where you can celebrate the freedom to work instead of the freedom from work, that’s success. If just a fraction of people in the second half of life turn their experience, time and talent to our nation’s most pressing challenges, imagine the progress we could make.
Although you can have that attitude at any age, it is especially powerful when redefining the second half of your life.
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC
Well, after the midterm election results have settled for a while, I promised I would pipe in with my thoughts about what this means for tax policy moving forward. Here they are:
Yes, you read that right.
Despite what may seem like a fundamental shift in the makeup of Congress (the Republicans taking over control of the Senate) and the questions I’ve been asked of late that seem to imply that it will, by necessity, change the way the tax code is legislated and implemented — the truth is that our tax code is so deeply entrenched as a way to curry particular favors and reward certain interests, that it would take a VAST political movement to make substantive change.
And, in my opinion, that won’t be happening with a divided government. I could be wrong of course — but let’s just say that for the purposes of THIS year (2014), don’t be banking on anything changing in your favor unless YOU make it happen.
That’s a good maxim, in general, when it comes to politics.
But moving on from the political “realm”, and from the last few weeks of tax and estate planning fare, I wanted to take a higher view of doing life WELL.
To do that, I like, of course, to examine the lives and principles of those who have done very, very well.
There are always principles to bring forward to today. In fact, their power is increased because of the deteriorating work ethos and wisdom of our current age (at least, in my humble opinion, that is!).
So, I’ve recently read up on J. Paul Getty — at one point, the richest man in the world. Here’s a distillation of his wisdom, based on my reading…
James Pantzis Reveals The Billionaire’s 4 Keys to Success
“Character isn’t something you were born with and can’t change, like your fingerprints. It’s something you weren’t born with and must take responsibility for forming.” – Jim Rohn
J. Paul Getty became the richest man in the world during his time by practicing a few basic principles of risk-taking and reward throughout his life. I’ve gathered them for you — and regardless of whether or not you run your own business, they apply.
1) Know How To Assess A Decision
Whenever J. Paul Getty was considering a business decision, he would ask, “What’s the worst possible thing that could happen in this situation?” Then, when he was clear about the worst possible outcome, he focused all of his attention on making sure that it didn’t happen. You should apply this technique to every risk situation or investment you ever make.
2) Consider Murphy Sub-Laws
Remember Murphy’s Law: “Whatever can go wrong will go wrong.”
Per Getty, there are several secondary laws to Murphy’s Law, such as “Whatever can go wrong will go wrong at the worst possible time” and “Of all the things that can go wrong, the most expensive thing will go wrong at the worst possible time.”
Another sub-law is “Everything takes longer than your best calculation.” In advising, Getty would take the very best estimate of break-even for any business venture, and then triple it to arrive at a more realistic number.
3) Always Add A Fudge Factor
Another sub-law is “Everything costs more than you can possibly anticipate in advance.” In minimizing risk in any venture, always add a “fudge factor” to account for the degree of uncertainty.
Having learned from Getty, whenever I now do a business plan, I always add 20 percent to the total of all costs that I can identify, to come up with the probable cost. Anything less than this, whether in business or your personal life, is likely to be an exercise in self-delusion and to open you up for some unhappy surprises.
Once you have identified the worst possible things that could go wrong, make a list of everything that you could do to offset these negative factors. Engage in “crisis anticipation.” Look down the road, into the future, and imagine every possible crisis that could arise as the result of changing external circumstances.
4) Do The Things You Fear
Getty wrote that one of the very best ways to develop your ability to take intelligent risks is to consciously and deliberately do the things you fear, one step at a time.
A very good way to overcome the fear of risk-taking is to set clear, written, measurable goals for yourself, and then to review those goals regularly. When you have clear goals and plans, and you continually work on them and evaluate your progress each day, you will see what you’re doing right and how you could improve your performance. You’ll feel more competent and capable, and will feel better about yourself. You’ll become more thoughtful and reflective and willing to take on even greater challenges. You’ll feel like the “master of your fate and the captain of your soul.” And your likelihood of success will become greater and greater.
Now, here are three steps you can immediately take to put these ideas from Getty into action:
First, take any worry situation in your life today and ask, “What is the worst possible thing that could happen?” Then go to work to make sure it doesn’t occur.
Second, look into the future in your life and determine the worst things that could happen.Engage in “crisis anticipation” regularly, and continually be taking steps to guard against your worst-case scenarios.
Third, work from clear, written goals and detailed plans. Review them regularly. Consider alternatives, and always look for ways to increase the likelihood of your success.
If some of these concepts seem “tried and true” … well, they are.
And there’s a reason for that. Maybe this should be the day you tried them anew.
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC
This is mid-term elections week, and as is my practice, I’m putting this post together on Monday morning, so we don’t yet know the results. I’m sure I’ll have a comment or two once the dust settles from that, though.
Regardless of the make-up of Congress, however, what *is* probable is that the legislators will be “very busy” again this year … and the tax code changes will come to us late, once again.
Which is why it (quite literally) pays to have someone in your corner who is watching things like a hawk, so you don’t have to.
So in between now and the end of the year, I’ll be giving you some insights into how you and your family can prepare NOW, so that your tax bill is as low as it can possibly be.
This week though, I’ll be speaking about a different kind of “planning”.
James Pantzis’ 6 Steps to Estate Planning Done Right
“A year from now you may wish you had started today.” – Karen Lamb
Over 50% of adults do NOT have a will or other estate planning instruments in place to protect themselves and their family. And, perhaps even worse, over 69% of parents have not yet named legal guardians who can raise their children if something happens to them.
Those are scary numbers. Estate plans provide great peace-of-mind for a family … and, of course, they can create a bunch of headaches if not handled correctly.
That’s why it always helps to have someone in your corner.
Here are some important things to keep in mind, whether starting a new plan, or working from an existing one…
1) Have an up-to-date plan. Too many people either fail to prepare an estate plan, or let their plan become outdated. Changes in the law occur frequently. As Will Rogers said, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
Plus, your circumstances can change. Toward the end of your life they seem to change faster. Between ages 40 and 65, have a new estate plan drawn up every decade. In your 70s and 80s, consider revisions every 12 months.
2) You have unique circumstances that your estate plan must address. Everyone does. As a result, there are very few “simple estate plans.”
For example, a friend related to me the story of a man who wanted a so-called simple estate plan drawn up for him and his wife. In the first 15 minutes, the estate planner learned that the client was a citizen of the UK, his 25-year-old son had bipolar disorder, and the son was actually not his biological or adoptive child, although he and the young man’s mother had been married for 23 years.
In another case, a very wealthy man was seeking “a simple estate plan” for him, his wife, and his family. But he was in a second marriage, had three children from his first marriage, his new wife had four children from her first marriage, and one of his daughters was in a prison for kidnapping.
You are unique. Here are some of the questions you may answer in a unique way:
* Do you donate regularly to charity?
* Or make substantial gifts to family members?
* Do you want those gifts to continue if you lose capacity?
* Do you own a business?
* Do you own property that should not be sold?
* Do you have a beneficiary who is likely to cause trouble or owes you money?
* Do you want to provide for the continuing care of a pet?
* Do you have a working farm, or farm animals?
* Do you want to be cared for at home regardless of the cost?
Your estate plan should be carefully crafted to address your specific needs and circumstances. The more tailored your plan, the less room there is for family disagreements.
3) Be careful not to change your plan inadvertently. Suppose, for example, you have a will that provides for your estate to be distributed equally among your three children, and you have named your daughter Sally as your executor.
To make it easy for Sally to access your bank accounts in the event of a medical emergency, you have added Sally’s name to all of them. What you have done without realizing it is to change your plan. Under some states’ laws, those bank accounts will belong to your daughter at your death and will not be shared by your other two children. As a result, your estate might be distributed differently than you intended. It can also result in family feuds or adverse tax consequences.
Before doing any self-help planning–even something as simple as adding a child’s name to a bank account–check with your legal advisor to see how it impacts your plan.
4) Make sure your fiduciary/executor gets adequate help. The actions of your executor, trustee or agent under a power of attorney are subject to a rigid and sometimes unforgiving legal standard. It is easy to unintentionally run afoul of those rules. If you name a child to serve in these capacities, introduce him or her to your legal adviser. Make it clear in your legal documents that your fiduciary is authorized to pay for that help from your estate.
5) Check that the person you choose is willing to act as your fiduciary before naming him or her in your legal documents. You may find an unwillingness or a reluctance related to some concerns that need to be addressed. For example, a child may never feel comfortable giving consent to take you off a ventilator, even knowing that was your wish.
6) Use your discretion, but consider telling your family in advance what arrangements you have made. Explaining your plan to your family upfront gives you the opportunity to address any concerns, answer questions and clear up misunderstandings. Once you lose capacity or die, it is too late. Many family fights could have been avoided with an open and frank discussion, so everyone is best prepared to handle a loved one’s loss of health or life. Eliminating surprises helps eliminate family fights.
In summary, most people who plan do indeed pay enough attention to concerns such as probate and estate tax avoidance. But the best estate plans are drafted with family harmony as a priority.
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC