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
Last week, I wrote to you that we would be giving some attention to “tax planning”.
If you’re not entirely familiar with the term, it’s the process by which you make moves NOW (before year-end) that can pay off in significant savings by the time we actually fill out your tax returns for you in the winter or spring.
Believe it or not, you can do many (MANY) things to help — and they have to be addressed before December 31st.
So, to get your wheels cranking (and now that we’re past the October 15th extension deadline), I wanted to give you some information.
But before I get there, I also want to address those of you who did NOT have us prepare your taxes this past year — or those who may have good friends who did not.
Whether through neglect, not keeping up with tax code changes, or simple caffeine deprivation, your 2013 tax returns may not have been everything you would have hoped. If that’s the case, let us fix them, even now.
And THEN, we can take a look at this …
James Pantzis Discloses The Starting Point For Tax Planning
“Worry often gives a small thing a big shadow.” – Swedish Proverb
As a trusted Brooklyn tax firm, the very first thing we would do with any client who wants to get ahead of their tax bill is to first figure out what their tax bill would actually be, if all things remain the same.
While there are a lot of variables that come into play, we can get a good grasp of things by looking at the tax brackets. We’re still waiting for Congress to finalize many 2014 tax laws (an annual exercise this time of year), but the seven ordinary income tax rates are the same, starting at 10 percent and topping out at 39.6 percent.
And the IRS inflation adjustments last fall told us what income ranges will be taxed at those various rates. And, so you don’t have to go searching, here they are in the table below.
|Tax Rate||Single||Head of Household||Married Filing Jointly
or Surviving Spouse
|Married Filing Separately|
|10%||Up to $9,075||Up to $12,950||Up to $18,150||Up to $9,075|
|39.6%||$406,751 or more||$432,201 or more||$457,601 or more||$228,801 or more|
Keep this handy, as it WILL be useful in the process of planning ahead.
Remember, even if your annual salary falls in the 39.6 percent bracket, that doesn’t actually mean that you pay that rate on every dollar you earn.
This is because the U.S. tax system is what is known as “progressive”. This means that you pay the top rate, or whatever bracket your income tops out at, on the “last” dollar you earn. The rest of your money is taxed at the lesser rates leading up to your top tax bracket.
So every federal taxpayer pays 10 percent on the first $9,075 of taxable income that he or she receives. That’s $907.50. Then we pay the 15 percent rate on our earnings that fall into that tax bracket and so on, until all our money is taxed at the proper rate.
These tax calculations mean that while your income may be in the 39.6 bracket, your “effective tax rate” will be less.
All of these considerations go into what moves we make, and when we make them, when we create a tax plan for clients.
And it’s no surprise that wealthier taxpayers also have to worry about some added taxes.
There’s the 3.8 percent Net Investment Income Tax, or NIIT, as well as the additional 0.9 percent Medicare payroll tax on top of the 1.45 percent all of us already have withheld from our paychecks.
These added taxes are applied if you make more than $200,000 as a single filer or $250,000 as a married couple filing jointly.
All these considerations are why it’s better to start thinking about your 2014 taxes now, instead of next April.
Which is why, it’s a very good idea to send me an email or give us a call: (718) 858-9864
Let’s get started on getting your 2014 taxes as low as legally and ethically possible, shall we?
To more of what’s yours, in your pocket…
James Pantzis, CPA, PC
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