Blog - True North Financial Planning

10
Nov

FINANCIAL PLANNING FOR THE LATER YEARS IN LIFE, POST #3

Aging and the changes it brings are often regarded with apprehension. We know in many ways it can be good to get older, and enjoy the fruits of a life well lived.  However, we often fear the changes to our body and mind that may cause us to lose independence and control. Discussing these possibilities is not always comfortable for the aging person or the people who may have to care for them.

When to delegate financial decision-making, change living situations, quit driving, and seek assistance with health care decisions are difficult topics. They can be emotionally and financially very costly if plans are not put in place. People are forced to make decisions under duress, elders may often be neglected or abused, and family fights ensue.

I am excited to announce that I am now able to provide planning services that address many of the financial and related concerns that people often have around aging.  I am using tools developed to prepare families for the challenges associated with aging.  My approach is to help plan for aging-related transitions well in advance. This will reduce the likelihood of reactive decisions and the subsequent unnecessary costs that result from lack of preparation. My goal is to provide people with peace of mind at all stages of the aging process.

I pleased to be able to offer this service to both new and existing financial planning clients. The approach starts with three online questionnaires.  Each one takes about 15-20 minutes to complete.

  • The “Financial Caretaking Plan” outlines steps you may have taken to prepare for transferring bill paying, investment management, and estate planning, and the tasks you need to complete to get ready for the day you can no longer manage finances on your own. This module collects trusted contact information specific to the person answering the questions, and generates a customized financial decision-making transition plan
  • The “Risk Profile” is designed to identify traits that could place a person at risk for bad financial decision-making and financial exploitation. The questionnaire is based on a study conducted by geriatric psychiatrists.
  • The “Proactive Aging Plan” addresses a person’s living situation, transportation needs, and health care preferences. The program generates health care and long-term care cost estimates based on a person’s own situation, and provides a customized plan for managing life transitions.  Recommendations include ways to reduce unnecessary costs and age successfully in the living situation a person desires.

After a client fills out each questionnaire, the software will provide me as planner with a report indicating what the client is doing now and what they need to do to optimize their situation. It will contain a personalized list of to-do items, and information a client can give to their family to inform them of the client’s desires as they age. The reports also include links to a wealth of educational materials to help clients complete the recommended tasks. I send the reports to clients, answer any questions and provide any additional clarification, and I assist in implementing the tasks where appropriate.

Please contact me if you would any additional information about this valuable service.  I hope to have the opportunity to work with many of you to build a successful aging plan!

13
Oct

Financial Planning For The Later Years Of Life, Post #2

For many people in the middle years of life, the prospect of parents getting older and being less able to do as much for themselves is scary.  And when there is a life changing health diagnosis or other health event and suddenly that time is much closer, people experience many emotions and a slew of questions are often raised.  Questions are often wide ranging – how can I best help my parent or other family member?  Does this mean a change in living situation?  How much time do we have?  What can we do now to prepare for what we can expect to happen?  What are the financial considerations?

My own experience with this subject began when my dad was diagnosed with Parkinson’s when he was in his early 70s.  We soon realized that the trajectory of his life had changed, as Parkinson’s is a progressive and degenerative disease with no cure, and with treatment aimed mostly at providing some relief from symptoms.  Once the initial shock of the diagnosis lessened, my dad resolved that one of his highest priorities was to get his financial and legal affairs in order, and he asked me to help him.

Over the next several months we set out on a planning journey, and Dad structured his affairs in a way that considered his current health and how it was likely to change over time.  Our planning yielded a  financial care plan, which outlined how Dad’s day to day financial affairs, such bill paying and money management, would be handled when he could no longer manage these tasks himself.  The plan also addressed bigger picture considerations such as investment management, estate planning, and risk management/insurance.  We also developed a financial plan that addressed how to handle Dad’s health care and long-term care costs in the context of his overall financial picture, as these costs would likely be much higher now with the Parkinson’s diagnosis.

The result of our planning, and the implementation of the action steps identified, brought some measure of peace of mind and confidence that we were doing what we could to prepare for an ever- changing situation.  We couldn’t change the course of the disease, but at least we could plan for how to navigate through the many changes to come in Dad’s life.

The months and years that followed were often very difficult as Dad’s health declined.  He accepted what was happening to him, but at the same time pushed back against it and handled his situation with grace and humility until the end.  I am so grateful for having had the opportunity to help him in his time of need.

I am also grateful for this incredible real-life learning experience that has provided me with an opportunity to build on what I have learned and help others who are facing, or who may face similar situations.  Over time, I have been able to channel the deep and strong emotions I experienced through this journey into inspiration to help others.  So now I have found myself on a mission to work in this space, doing what I can to help people prepare to navigate through similarly choppy waters.  I am finding this work to be extraordinarily rewarding and meaningful.

8
Sep

Financial Planning For The Later Years Of Life, Post #1

I am in the middle of reading Atul Gwande’s book “Being Mortal”, which takes on the topics of aging, decline and death, and how our society has turned these into medical problems rather than human ones.  Gwande reminds us that American medicine has prepared itself for life but not for death, and we treat aging, frailty, and death as just another set of clinical challenges to overcome.  As a society, we are so focused on medical treatment for every ailment at every stage of life, and we often fail to recognize, especially as people age and decline, the importance of a life as meaningful and rich as possible under the circumstances.  Gwande discovers how we can do better, as he profiles reformers in the medical profession who illustrate how the ultimate goal for many people – a good life all the way to the very end – can be achieved.

Reading this book has inspired me to further the development of my own ideas around financial planning for the later years of life.  Most conventional financial planning doesn’t adequately address the financial implications of declining health in the later stages of life.  At the very least, a good financial plan should consider the possibility and financial impact of long-term care events and high medical costs.  But even if someone has a well-constructed plan, what happens when there is a life-changing medical diagnosis?  Suddenly, the trajectory of a person’s life, and finances, changes.  When this happens, many questions are raised – how much will my health care cost?  Can I expect to need long-term care services, and what will that cost?  Do I have enough money to pay for what I need?  What if I don’t?  What changes do I need to make to my finances to manage?  Where can I turn for help?

In future posts, I will address these questions and others in this critically important, and often overlooked, aspect of financial planning.  One initial tidbit of advice – wherever you are in life, there is no better time than now to start planning for life’s uncertainties.  Of course we can’t predict what may happen to our health – and what our health care will cost, especially as we get older – but there are some tools and techniques everyone can use to prepare as much as possible before a major health event occurs.

28
May

May 2016 Financial Planning Tips

Estate Planning Basics

 

By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. Estate Planning–An Introduction

By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. But what estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your particular estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive particular things. A simple will is probably all you’ll need. Or, you may have a large estate, and minimizing any potential estate tax impact is your foremost goal. Here, you’ll need to use more sophisticated techniques in your estate plan, such as a trust.

To help you understand what estate planning means to you, the following sections address some estate planning needs that are common among some very broad groups of individuals. Think of these suggestions as simply a point in the right direction, and then seek professional advice to implement the right plan for you.

Over 18

Since incapacity can strike anyone at anytime, all adults over 18 should consider having:

·         A durable power of attorney: This document lets you name someone to manage your property for you in case you become incapacitated and cannot do so.

·         An advanced medical directive: The three main types of advanced medical directives are (1) a living will, (2) a durable power of attorney for health care (also known as a health-care proxy), and (3) a Do Not Resuscitate order. Be aware that not all states allow each kind of medical directive, so make sure you execute one that will be effective for you.

Young and single

If you’re young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you don’t, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).

Unmarried couples

You’ve committed to a life partner but aren’t legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you might consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.

Married couples

For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. A new law passed in 2010 allows the executor of a deceased spouse’s estate to transfer any unused estate tax exclusion amount to the surviving spouse without such planning. This provision is effective for estates of decedents dying in 2011 and later years.

You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die’s estate tax exemption, and a credit shelter trust created at the first spouse’s death may still be advantageous for several reasons:

·         Portability may be lost if the surviving spouse remarries and is later widowed again

·         The trust can protect any appreciation of assets from estate tax at the second spouse’s death

·         The trust can provide protection of assets from the reach of the surviving spouse’s creditors

·         Portability does not apply to the generation-skipping transfer (GST) tax, so the trust may be needed to fully leverage the GST exemptions of both spouses

Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse, but a $148,000 (in 2016, $147,000 in 2015) annual exclusion is allowed. If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.

Married with children

If you’re married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them. You may also want to consult an attorney about establishing a trust to manage your children’s assets.

You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family.

Comfortable and looking forward to retirement

You’ve accumulated some wealth and you’re thinking about retirement. Here’s where estate planning overlaps with retirement planning. It’s just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).

Wealthy and worried

Depending on the size of your estate, you may need to be concerned about estate taxes.

Estates of $5,450,000 (in 2016, $5,430,000 in 2015) are effectively exempt from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent.

Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers of wealth that are made to grandchildren (and lower generations). The GST tax exemption is $5,450,000 (in 2016, $5,430,000 in 2015) and the GST tax rate is 40 percent.

Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.

Elderly or ill

If you’re elderly or ill, you’ll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.

Refer a friend To find out more click here
IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

 

 

25
Apr

April 2016 Financial Planning Tips

*There is no assurance that working with a financial professional will improve investment results.

Common financial goals

·         Saving and investing for retirement

·         Saving and investing for college

·         Establishing an emergency fund

·         Providing for your family in the event of your death

·         Minimizing income or estate taxes

Financial Planning: Helping You See the Big Picture

Do you picture yourself owning a new home, starting a business, or retiring comfortably? These are a few of the financial goals that may be important to you, and each comes with a price tag attached.

That’s where financial planning comes in. Financial planning is a process that can help you target your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources.

Why is financial planning important?

A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you’ll be better able to focus on your goals and understand what it will take to reach them.

One of the main benefits of having a financial plan is that it can help you balance competing financial priorities. A financial plan will clearly show you how your financial goals are related–for example, how saving for your children’s college education might impact your ability to save for retirement. Then you can use the information you’ve gleaned to decide how to prioritize your goals, implement specific strategies, and choose suitable products or services. Best of all, you’ll know that your financial life is headed in the right direction.

The financial planning process

Creating and implementing a comprehensive financial plan generally involves working with financial professionals to:

·         Develop a clear picture of your current financial situation by reviewing your income, assets, and liabilities, and evaluating your insurance coverage, your investment portfolio, your tax exposure, and your estate plan

·         Establish and prioritize financial goals and time frames for achieving these goals

·         Implement strategies that address your current financial weaknesses and build on your financial strengths

·         Choose specific products and services that are tailored to help meet your financial objectives*

·         Monitor your plan, making adjustments as your goals, time frames, or circumstances change

Some members of the team

The financial planning process can involve a number of professionals.

Financial planners typically play a central role in the process, focusing on your overall financial plan, and often coordinating the activities of other professionals who have expertise in specific areas.

Accountants or tax attorneys provide advice on federal and state tax issues.

Estate planning attorneys help you plan your estate and give advice on transferring and managing your assets before and after your death.

Insurance professionals evaluate insurance needs and recommend appropriate products and strategies.

Investment advisors provide advice about investment options and asset allocation, and can help you plan a strategy to manage your investment portfolio.

The most important member of the team, however, is you. Your needs and objectives drive the team, and once you’ve carefully considered any recommendations, all decisions lie in your hands.

Why can’t I do it myself?

You can, if you have enough time and knowledge, but developing a comprehensive financial plan may require expertise in several areas. A financial professional can give you objective information and help you weigh your alternatives, saving you time and ensuring that all angles of your financial picture are covered.

Staying on track

The financial planning process doesn’t end once your initial plan has been created. Your plan should generally be reviewed at least once a year to make sure that it’s up-to-date. It’s also possible that you’ll need to modify your plan due to changes in your personal circumstances or the economy. Here are some of the events that might trigger a review of your financial plan:

·         Your goals or time horizons change

·         You experience a life-changing event such as marriage, the birth of a child, health problems, or a job loss

·         You have a specific or immediate financial planning need (e.g., drafting a will, managing a distribution from a retirement account, paying long-term care expenses)

·         Your income or expenses substantially increase or decrease

·         Your portfolio hasn’t performed as expected

·         You’re affected by changes to the economy or tax laws

Common questions about financial planning

What if I’m too busy?

Don’t wait until you’re in the midst of a financial crisis before beginning the planning process. The sooner you start, the more options you may have.

Is the financial planning process complicated?

Each financial plan is tailored to the needs of the individual, so how complicated the process will be depends on your individual circumstances. But no matter what type of help you need, a financial professional will work hard to make the process as easy as possible, and will gladly answer all of your questions.

What if my spouse and I disagree?

A financial professional is trained to listen to your concerns, identify any underlying issues, and help you find common ground.

Can I still control my own finances?

Financial planning professionals make recommendations, not decisions. You retain control over your finances. Recommendations will be based on your needs, values, goals, and time frames. You decide which recommendations to follow, then work with a financial professional to implement them.

Refer a friend To find out more click here
IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.To opt-out of future emails, please click here.
16
Dec

December 2015 Financial Planning Tips

2015 Year-End Tax Planning Basics
December 14, 2015

The window of opportunity for many tax-saving moves closes on December 31, so it’s important to evaluate your tax situation now, while there’s still time to affect your bottom line for the 2015 tax year.

Timing is everything

Consider any opportunities you have to defer income to 2016. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Doing so may allow you to postpone paying tax on the income until next year. If there’s a chance that you’ll be in a lower income tax bracket next year, deferring income could mean paying less tax on the income as well.

Similarly, consider ways to accelerate deductions into 2015. If you itemize deductions, you might accelerate some deductible expenses like medical expenses, qualifying interest, or state and local taxes by making payments before year-end. Or you might consider making next year’s charitable contribution this year instead.

Sometimes, however, it may make sense to take the opposite approach–accelerating income into 2015 and postponing deductible expenses to 2016. That might be the case, for example, if you can project that you’ll be in a higher tax bracket in 2016; paying taxes this year instead of next might be outweighed by the fact that the income would be taxed at a higher rate next year.

Factor in the AMT

Make sure that you factor in the alternative minimum tax (AMT). If you’re subject to the AMT, traditional year-end maneuvers, like deferring income and accelerating deductions, can have a negative effect. That’s because the AMT–essentially a separate, parallel income tax with its own rates and rules–effectively disallows a number of itemized deductions. For example, if you’re subject to the AMT in 2015, prepaying 2016 state and local taxes won’t help your 2015 tax situation, but could hurt your 2016 bottom line.

Special concerns for higher-income individuals

The top marginal tax rate (39.6%) applies if your taxable income exceeds $413,200 in 2015 ($464,850 if married filing jointly, $232,425 if married filing separately, $439,000 if head of household). And if your taxable income places you in the top 39.6% tax bracket, a maximum 20% tax rate on long-term capital gains and qualifying dividends also generally applies (individuals with lower taxable incomes are generally subject to a top rate of 15%).

If your adjusted gross income (AGI) is more than $258,250 ($309,900 if married filing jointly, $154,950 if married filing separately, $284,050 if head of household), your personal and dependency exemptions may be phased out for 2015 and your itemized deductions may be limited. If your AGI is above this threshold, be sure you understand the impact before accelerating or deferring deductible expenses.

Additionally, a 3.8% net investment income tax (unearned income Medicare contribution tax) may apply to some or all of your net investment income if your modified AGI exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).
Note: High-income individuals are also subject to an additional 0.9% Medicare (hospital insurance) payroll tax on wages exceeding $200,000 ($250,000 if married filing jointly or $125,000 if married filing separately).

AMT triggers

You’re more likely to be subject to the AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions. Other common triggers include home equity loan interest when proceeds aren’t used to buy, build, or improve your home, and the exercise of incentive stock options.

 

IRAs and retirement plans

Take full advantage of tax-advantaged retirement savings vehicles. Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds on a deductible (if you qualify) or pretax basis, reducing your 2015 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) aren’t deductible or made with pretax dollars, so there’s no tax benefit for 2015, but qualified Roth distributions are completely free from federal income tax, which can make these retirement savings vehicles appealing.

For 2015, you can contribute up to $18,000 to a 401(k) plan ($24,000 if you’re age 50 or older) and up to $5,500 to a traditional IRA or Roth IRA ($6,500 if you’re age 50 or older). The window to make 2015 contributions to an employer plan typically closes at the end of the year, while you generally have until the April tax filing deadline for your 2015 federal income tax return to make 2015 IRA contributions.

Roth conversions

Year-end is a good time to evaluate whether it makes sense to convert a tax-deferred savings vehicle like a traditional IRA or a 401(k) account to a Roth account. When you convert a traditional IRA to a Roth IRA, or a traditional 401(k) account to a Roth 401(k) account, the converted funds are generally subject to federal income tax in the year that you make the conversion (except to the extent that the funds represent nondeductible after-tax contributions). If a Roth conversion does make sense , you’ll want to give some thought to the timing of the conversion. (Whether a Roth conversion is right for you depends on many factors, including your current and projected future income tax rates.) For example, if you believe that you’ll be in a better tax situation this year than next (e.g., you would pay tax on the converted funds at a lower rate this year), you might want to think about acting now rather than waiting.

If you convert a traditional IRA to a Roth IRA and it turns out to be the wrong decision (things don’t go the way you planned and you realize that you would have been better off waiting to convert), you can recharacterize (i.e., “undo”) the conversion. You’ll generally have until October 15, 2016, to recharacterize a 2015 Roth IRA conversion–effectively treating the conversion as if it never happened for federal income tax purposes. You can’t undo an in-plan Roth 401(k) conversion, however.

Required minimum distributions

Once you reach age 70½, you’re generally required to start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules apply if you’re still working and participating in your employer’s retirement plan). You have to make the withdrawals by the date required–the end of the year for most individuals–or a 50% tax penalty applies.

Changes to note

· Generally, the maximum “individual shared responsibility payment” (the amount owed if you don’t have qualifying health coverage for each month of the year, or otherwise qualify for an exemption) increased to 2% of household income with a family maximum of $975 for 2015; in 2016 the maximum amount owed jumps to 2.5% of household income, with a family maximum of $2,085.

· In June, the U.S. Supreme Court ruled 5-4 that same-sex couples in the United States have a constitutional right to marry, regardless of the state in which they live. This significantly simplifies the federal and state income tax filing requirements for same-sex married couples living in states that did not previously recognize their marriage.

Tax extenders

Once again, the status of a number of serially extended, popular tax breaks remains uncertain as the end of the year approaches.. These “tax extenders” last expired at the end of 2014. It’s likely that some or all of these provisions will be retroactively extended, but there’s no guarantee. You’ll want to consider carefully the potential effect of these provisions on your 2015 tax situation and stay alert for late-breaking changes. Tax-extender provisions include:

· The ability to make qualified charitable contributions (QCDs) of up to $100,000 from an IRA directly to a qualified charity if you are 70½ or older. Such distributions are excluded from income but counted toward satisfying any RMDs you would otherwise have to receive from your IRA.

· Increased Internal Revenue Code (IRC) Section 179 expense limits and “bonus” depreciation provisions.

· Above-the-line deductions for qualified higher-education expenses, and for up to $250 of out-of-pocket classroom expenses paid by education professionals.

· For those who itemize deductions, the ability to deduct state and local sales taxes in lieu of state and local income taxes.

· The ability to deduct premiums paid for qualified mortgage insurance as deductible interest on IRS Form 1040, Schedule A.

Talk to a professional

When it comes to year-end tax planning, there’s always a lot to think about. A tax professional can help you evaluate your situation, keep you apprised of any legislative changes, and determine whether any year-end moves make sense for you.
IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015.

To opt-out of future emails, please click here.

2
Feb

February 2015 Financial Planning Tips

February 02, 2015
Record Retention: Deciding Which Financial Records to Keep
Keep critical documents and records safe and secure but accessible in a time of need
Certain documents and records are too important to retain in an ordinary file drawer. Fortunately, they are also the ones you tend to need least frequently. If they are stolen or destroyed by a catastrophe such as flood or fire, replacing them could be extraordinarily difficult, if not impossible. One of the best places to retain such items is a safety deposit box. These can be rented for a small monthly fee at many banks. The boxes are actually locked drawers within the bank’s vault. Various sizes are often available to meet individual needs. A home safe is another option, provided that it is adequately rated to protect contents from fire, water, explosions (gas leaks), and other calamities. Documents deserving extra protection include:
• Property deeds
• Trust documents
• Insurance policies
• Automobile titles
• Stock and bond certificates
• Wills and estate plans
• Personal property inventory
• Marriage and birth certificates
• Military discharge papers
• Passports

Keeping copies of vital records can save time, money, and headaches

There may be times when you need to know certain information contained on documents you’ve placed in safekeeping but don’t need the actual document. Avoid the inconvenience of obtaining the original documents by making copies of them for your file.
Tip: Create one file that includes copies of all documents you’ve placed in safekeeping (e.g., a “Safety Deposit Box” file). Then, you not only can turn to it for vital facts, but if you are incapacitated, whoever handles your important affairs will be able to locate key documents quickly.
Caution: The specific contents of some documents, such as wills and trusts, may be inappropriate to keep in more highly accessible home files. Instead of a photocopy, you might simply file a page containing those key facts that are less confidential in nature or obliterate very sensitive items on the copy.
Make backup copies of all computerized records
These days, many people keep important records on their personal computer. This can be an easy way to keep your records organized and updated, but it is important to keep a backup copy of these records in a safe place. If your hard drive has a meltdown, you’ll need to be able to recreate the important financial information that was lost.
Financial management software can be beneficial in tracking your finances, but it will take some time to learn how to use it properly. Don’t forget that you must still retain original documents as evidence of past transactions.
Save all essential records, receipts, and documents that your budgeting system requires
There are many reasons to save important records. If you apply for a loan (such as a mortgage, auto loan, or education loan), you will have to provide proof of your income. If you notice that money is disappearing out of your checking account, you’ll need your bank statements to back up your claim of unauthorized transactions. If you own financial securities, capital gains taxes are based on the price you paid for them on the date purchased. You’ll be required to verify this information. Potential tax audits will be far less intimidating if you have kept records to substantiate your tax return claims. An unsubstantiated claim will cost you not only the unpaid tax but interest charges and possibly, a hefty penalty.
Tip: Most of us realize it’s important to keep expense records, but for those with income sources other than employers, a cash receipts log can be invaluable. A small notebook or a few sheets in a separate file folder will do for recording income as it arrives. If you don’t recall later whether you received a particular dividend or rent payment, the log provides a quick answer.
Caution: Certain items, such as tips or business-related use of a car, require special tax treatment and records. Therefore, your record-keeping system must track these and retain any related documents.
Keep records as long as appropriate
Different records need to be saved for different periods of time. Divide your records into categories, such as short-term, medium-term, and long-term. There are no concrete rules about how long records must be saved, so you will often have to use your own judgment. The following guidelines may help:
Short-term (1-3 years)

• Household bills, except those that support tax deductions (items such as heat, water, and electricity are generally short-term unless you deduct them for home office use or a rental)
• Expired insurance policies
Medium-term (6-7 years)

• Tax returns and supporting information
• Income and expense records (including lottery tickets and winnings)
• Bank and credit union statements
• Brokerage house statements
• Canceled checks and check registers (checks for major purchases may be kept longer)
• Paid-off loan documents
• Personal property sales receipts
Long-term (indefinitely)

• Tax dispute records
• Evidence of retirement plan contributions
• Investment records
• Medical history information
• Pension/retirement plan documents
• Social Security information
Other (as noted)

• Home ownership/sale documents: 7 years after sale or indefinitely
• Home improvement records: 7 years after sale
Caution: The IRS typically has three years after a return is filed to audit a return, or two years after you’ve paid the tax, whichever is later. However, if income was underreported by at least 25 percent, the IRS can look back six years after the return is filed, and there is no time limit for fraudulent tax returns. An audit requires that you provide documentation to substantiate the return being audited.
Tip: Canceled checks do not necessarily prove why a given payment was made, only that the payment was made. Having dated receipts, invoices, sales slips, credit card statements, and bank statements can provide valuable proof if needed, whether for an IRS auditor or an insurance claims adjuster.
Save space: Annually review retained records and discard those no longer needed

Some records and documents can be discarded after all potential usefulness has passed. Depending on circumstances, records can accumulate quickly and require extensive storage space. Discarding records that are no longer necessary saves space and makes finding a record you need easier.
Tip: Expired product warranties and insurance policies are excellent candidates for the trash can.
Tip: For easier future access, retain records for each year in separate files.
Caution: Keep your important records and financial files separate from information you might want to retain for other purposes. If you clip articles, jot notes, and save information you receive on items of potential interest, create a separate set of information files for them. These might contain vacation ideas, recipes, home improvement items, personal letters, or the kids’ school papers. Keeping them apart from vital records and financial files makes both easier to find and manage.

 

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015.
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13
Jan

December 2014 Supplement: Tax Extender Provisions

New Legislation Extends
Popular Tax Provisions

In one of its final actions, the 113th Congress passed the Tax Increase Prevention Act of 2014. This
legislation extends for one year a host of popular tax provisions (commonly referred to as “tax extenders”)
that had expired at the end of 2013. All of the following provisions were among those retroactively
extended, and are now effective through the end of 2014.

Deduction for qualified higher-education expenses

You may be entitled to a deduction if you paid qualified higher-education expenses during the year–this
includes tuition and fees (for yourself, your spouse, or a dependent) for enrollment in a degree or certificate
program at an accredited post-secondary educational institution. The deduction doesn’t include payments
for meals, lodging, insurance, transportation, or other living expenses. The maximum deduction is generally
$4,000. However, if your adjusted gross income (AGI) exceeds $65,000 ($130,000 if married filing jointly),
your maximum deduction is limited to $2,000; if your AGI is greater than $80,000 ($160,000 if married filing
jointly), you can’t claim the deduction at all.

Deduction for classroom expenses paid by educators

If you’re an educator, you may be able to claim up to $250 of unreimbursed qualified classroom expenses
you paid during the year as an “above-the line” deduction. Qualifying expenses can include the cost of
books, most supplies, computer equipment, and supplementary materials used in the classroom. Teachers,
instructors, counselors, principals, and aides for kindergarten through grade 12 are eligible, provided a
minimum number of hours are worked during the school year.

Deduction for state and local general sales tax

If you itemize deductions on Schedule A of IRS Form 1040, you can elect to deduct state and local general
sales taxes in lieu of the deduction for state and local income taxes. You can calculate the total amount of
state and local sales taxes paid by accumulating receipts showing general sales taxes paid, or you can use
IRS tables. If you use IRS tables to determine your deduction, in addition to the table amounts you can
deduct eligible general sales taxes paid on cars, boats, and other specified items.

Tax-free charitable donations from IRAs

If you’re age 70½ or older, you can make a qualified charitable distribution (QCD) of up to $100,000 from
your IRA and exclude the distribution from your gross income. The distribution must be made directly to a
qualified charity by December 31, 2014, and must be a distribution that would otherwise be taxable to you.
QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to
receive from your IRA, just as if you had received an actual distribution from the plan. You aren’t able to
claim a charitable deduction for the QCD on your federal income tax return.

Deduction for mortgage insurance premiums

Premiums paid or accrued for qualified mortgage insurance associated with the acquisition of your main or
second home may be treated as deductible qualified residence interest on Schedule A of IRS Form 1040.
The amount that would otherwise be allowed as a deduction is reduced if your AGI exceeds $100,000
($50,000 if married filing separately), and no deduction is allowed if your AGI exceeds $109,000 ($54,500 if
married filing separately).

Bonus depreciation

You may be able to claim an additional first-year “bonus” depreciation deduction, equal to 50% of the
adjusted basis of qualified property placed in service during the year. The additional first-year depreciation
deduction is allowed for both regular tax and the alternative minimum tax. The basis of the property and the
regular depreciation allowances in the year the property is placed in service (and later years) are adjusted
accordingly.

Expanded IRC Section 179 expensing limits

Under IRC Section 179, if you’re a small-business owner you can generally elect to expense the cost of
qualifying property, rather than to recover such costs through depreciation deductions. The maximum
amount that can be expensed for 2014 now remains at $500,000 (the same limit that applied in 2013),
rather than dropping to $25,000 had the legislation not passed. The $500,000 limit is reduced by the
amount by which the cost of qualifying property placed in service during the taxable year exceeds
$2,000,000.

Exclusion of gain–qualified small-business stock

Generally, you’re able to exclude 50% of any capital gain from the sale or exchange of qualified
small-business stock provided that certain requirements, including a five-year holding period, are met.
However, the temporary increase of the exclusion percentage to 100% that applied in 2013 is now
extended to qualified small-business stock issued and acquired in 2014.

Other provisions extended

Other provisions extended by the legislation include:
• The ability to exclude from income the discharge of debt associated with a qualified principal residence
• Provisions related to employer-provided mass-transit benefits
• Special rules for qualified conservation contributions of capital gain real property
• Provisions relating to business tax credits, including the research credit and the work opportunity tax
credit

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The
information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be
used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer
should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly
available information from sources believed to be reliable—we cannot assure the accuracy or completeness
of these materials. The information in these materials may change at any time and without notice.

 

13
Jan

December 2014 Financial Planning Tips

Season’s Greetings to all!

 

With the end of the year quickly approaching, it is important for many people to focus on year-end tax planning.  It may be possible to significantly impact your 2014 tax situation by taking certain actions before the end of the year.

 

When it comes to year-end tax planning, you need to have a good understanding of both your own financial situation and the tax rules that apply.  For some, that’s going to be a little challenging this year because a host of popular tax provisions, commonly referred to as “tax extenders,” that expired at the end of 2013, but In one of its final actions, the 113th Congress passed the Tax Increase Prevention Act of 2014. This legislation retroactively extends these tax provisions, which are now effective through the end of 2014.  If any of these provisions applies to you, it may be important to take action before the end of the year.  These provisions are summarized below, but see attached PDF file for more specifics.

 

  • The ability to make qualified charitable contributions (QCDs) of up to $100,000 from an IRA directly to a qualified charity if you were 70½ or older. Such distributions were excluded from income but counted toward satisfying any required minimum distributions (RMDs) you would otherwise have to receive from your IRA.
  • Increased Internal Revenue Code (IRC) Section 179 expense limits and “bonus” depreciation provisions.
  • The above-the-line deduction for qualified higher-education expenses.
  • The above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.
  • For those who itemize deductions, the ability to deduct state and local sales taxes in lieu of state and local income taxes.
  • The ability to deduct premiums paid for qualified mortgage insurance as deductible interest on IRS Form 1040, Schedule A.

 

Other year-end tax considerations include:

 

Timing is everything

Consider any opportunities you have to defer income to 2015. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Doing so may allow you to postpone paying tax on the income until next year. If there’s a chance that you’ll be in a lower income tax bracket next year, deferring income could mean paying less tax on the income as well.

Similarly, consider ways to accelerate deductions into 2014. If you itemize deductions, you might accelerate some deductible expenses like medical expenses, qualifying interest, or state and local taxes by making payments before year-end. Or, you might consider making next year’s charitable contribution this year instead.

Sometimes, however, it may make sense to take the opposite approach–accelerating income into 2014, and postponing deductible expenses to 2015. That might be the case, for example, if you can project that you’ll be in a higher tax bracket in 2015; paying taxes this year instead of next might be outweighed by the fact that the income would be taxed at a higher rate next year.

 

Factor in the AMT

Make sure that you factor in the alternative minimum tax (AMT). If you’re subject to the AMT, traditional year-end maneuvers, like deferring income and accelerating deductions, can have a negative effect. That’s because the AMT–essentially a separate, parallel, income tax with its own rates and rules–effectively disallows a number of itemized deductions. For example, if you’re subject to the AMT in 2014, prepaying 2015 state and local taxes won’t help your 2014 tax situation, but could hurt your 2015 bottom line.

 

IRAs and retirement plans

Make sure that you’re taking full advantage of tax-advantaged retirement savings vehicles. Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds on a deductible (if you qualify) or pretax basis, reducing your 2014 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) aren’t deductible or pretax, so there’s no tax benefit for 2014, but qualified Roth distributions are completely free from federal income tax, which makes these retirement savings vehicles appealing.

For 2014, you can contribute up to $17,500 to a 401(k) plan ($23,000 if you’re age 50 or older), and up to $5,500 to a traditional IRA or Roth IRA ($6,500 if you’re age 50 or older). The window to make 2014 contributions to an employer plan typically closes at the end of the year, while you generally have until the April 15, 2015, tax filing deadline to make 2014 IRA contributions.

 

Talk to a professional

When it comes to year-end tax planning, there’s always a lot to think about. A tax professional can help you evaluate your situation, keep you apprised of any legislative changes, and determine whether any year-end moves make sense for you.

 

 

I hope you find this information to be helpful.  Feel free to forward to anyone who may benefit.  Please contact me with any questions, or if you would like to discuss/would like assistance with any personal financial planning topics such as cash flow/budgeting, health care, taxes, insurance, investing, college/retirement planning, estate planning.

 

Note that planning tips and other info. are now posted on my website, http://www.truenorthfinancialplanning.com/, under Resources/Blog.  Feel free check it out.

 

I hope everyone has a happy and healthy holiday season.

 

Tom

 

Thomas C. Dettre, CPA, MBA

President and Founder

True North Financial Planning, LLC

802-373-2591

tdettre@truenorthfinancialplanning.com

www.truenorthfinancialplanning.com

 

IMPORTANT DISCLOSURES

 

This information does not provide investment, legal, or tax advice.  The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

 

18
Nov

November 2014 Financial Planning Tips

Greetings all,

 

I hope everyone is doing well, and successfully navigating the change of seasons.  Hard to believe the holidays will be here soon!

 

Another indication of the season is an open enrollment period for many people to select benefits for next year.  For those who obtain health insurance from a health insurance exchange, open enrollment for 2015 began on November 15, and runs through February 15, 2015.  In Vermont, the health insurance exchange is Vermont Health Connect, which went live about a year ago for coverage beginning in 2014.

 

Note that individuals and families under age 65 who don’t have access to an affordable employer-sponsored plan, as well as all small businesses (50 or fewer employees) in Vermont, need to purchase health insurance through Vermont Health Connect.

You can visit Vermont Health Connect at https://portal.healthconnect.vermont.gov/VTHBELand/welcome.action

 

There are two types of health coverage offered through Vermont Health Connect – Medicaid (which includes Dr. Dynasaur for kids and pregnant women) and private health insurance. Private health insurance plans are called Qualified Health Plans (QHPs) because they meet federal and state consumer protection standards.

 

Your household income determines whether you qualify for Medicaid, or a QHP.  Even if your income is high enough so that you do not qualify for Medicaid, you may qualify for subsidies to help you pay for the cost of a QHP.  You can estimate your subsidy on the Vermont Health Connect website: http://info.healthconnect.vermont.gov/tax_credit_calculator

 

Note that if you already have insurance from Vermont Health Connect, your Vermont Health Connect plan will automatically renew for 2015 unless you hear from Vermont Health Connect that additional information is needed. If you’re happy with your current plan and don’t have any changes to report, you do not need to contact Vermont Health Connect.

However, you will need to complete and mail in the Change Report Form included in your Vermont Health Connect Renewal Notice or contact them by phone if:

  • You need to report a change in your income or household, and/or
  • You want to pick a different health insurance plan for 2015.

 

Important: If you are making a change to your coverage, or enrolling for the first time on Vermont Health Connect, you need to enroll by December 15, 2014 for coverage starting January 1, 2015.  If you miss the December 15 date, you can still enroll for a health insurance plan on Vermont Health Connect until February 15, 2015 – but if your current coverage ends on December 31, 2014 (as it will for most people), you will be left with a gap in coverage for at least a month (if you did not automatically renew with Vermont Health Connect, as described above).  You should avoid a gap in coverage if at all possible.

 

Going to the doctor, treating illnesses and injuries, and paying for prescriptions can be very costly if you do not have health insurance. A health plan protects you from paying the full cost of care or prescriptions. In other words, health insurance is a way to help you pay for your health care so you can stay healthy, protect your wallet, and enjoy the peace of mind that comes with knowing you’re protected.

 

Did You Know?

Without health insurance, a broken arm can cost you more than $7,500.

A three-day hospital stay can cost more than $30,000.

 

Also – under the Affordable Care Act (aka “Obamacare”), there are penalties for not having qualifying health insurance coverage.  These penalties were introduced in 2014, but are much stiffer in 2015.

If you don’t have coverage in 2015, you’ll pay the higher of these two amounts:

  • 2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
  • $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.

 

 

I hope you find this information to be helpful.  Feel free to forward to anyone who may benefit.  Please contact me with any questions, or if you would like to discuss/would like assistance with any personal financial planning topics such as cash flow/budgeting, health care, taxes, insurance, investing, college/retirement planning, estate planning.

 

Note that planning tips and other info. are now posted on my website, http://www.truenorthfinancialplanning.com/, under Resources/Blog.  Feel free check it out.

 

Best regards,

 

Tom

 

Thomas C. Dettre, CPA, MBA

President and Founder

True North Financial Planning, LLC

802-373-2591

tdettre@truenorthfinancialplanning.com

www.truenorthfinancialplanning.com

 

IMPORTANT DISCLOSURES

 

This information does not provide investment, legal, or tax advice.  The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.