December, 2020 | Live a Life By Design

Change Your Philosophy About Money and Change Your Life

Posted on December 18, 2020December 18, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

One of the greatest powers of wealth is your philosophy toward money. This year has been a challenge to many of us and you may have not met your savings goal or some other type of goal. However, our philosophy of life doesn’t change whichever way the wind blows economically or otherwise.

Think about your deepest convictions about life – personal, professional, marital, charitable, etc. Most likely these deeply rooted philosophical beliefs came from someone in your family or a close friend or an author of a book you read. My beliefs about money came to me early in life from my parents and, surprisingly perhaps, Jim Rohn and Zig Ziglar. Philosophy is what keeps you grounded during times like this that we are currently experiencing.

One of the greatest habits you can foster is the creation and continuance of your philosophy of money. Too many of us are chasing wealth and overlooking diamonds on the way. What I am referring to is the fact that money doesn’t define us in life but rather it affords us the opportunities we receive and the freedoms to enjoy them. Let’s analyze the thoughts of the billionaires of the United States, a very small group, and attempt to understand their philosophy about wealth. Wealthy individuals view money in long-term time horizons. There are no “get rich quick” schemes to lasting wealth. By diligently and consistently working toward their goals for success every day, the billionaires of our country amass great fortunes that last far beyond their lifetimes.

Another philosophy upheld by billionaires is their optimistic attitude. Do you believe that positive people attract opportunities? It certainly does! By maintaining an attitude of positivity and optimism, the people you meet during your day will notice your demeanor and reward you with a smile or kind gesture in return. This is another means of billionaires discovering the next great investment that will continue to grow their wealth.

The philosophy of “pay yourself first” is evidenced by the lifestyles of the ultra-rich. This approach to life is to invest your money toward your long-term goals first and then use the remainder for your current lifestyle. The key to balancing this philosophy is to clearly articulate and write down your goals. By focusing on the bigger future, you will not frivolously waste your resources today. One method you can demonstrate this philosophy is your current retirement account. Instead of instant gratification for a new vehicle or boat, be deliberate about funding your future and save for the asset you desire. To illustrate the opposite of this philosophy, many people will utilize debt to purchase their “toys” and when retirement or an emergency arises, they are ill prepared and sink further into debt.

Lastly, money is nothing more than a ticket to freedom. Your choices that are availed to you through your preparedness for life are considerable. Think about your freedom of choosing a place to live, the freedom to choose the type of car you drive, the freedom to support the charity you believe is making a difference, etc. These freedoms are critical to the state of happiness you enjoy in life.

During my speeches across the United States, I often state, “Money has never purchased happiness but it can lease joy on a long-term basis”. I am amazed this statement continues to confuse people by its simple inference. It’s Christmas and time to think about your goals for 2021. Give some thought to changing your philosophy about money and life. The rewards you will gain are impactful and world-changing. If you wish to learn more about goal setting and other philosophical approaches to life and money, go to www.compasscapitalmgt.com.

Wishing each of you a wonderful Christmas and a Happy New Year!

Note: The “Invest in Yourself” column will not be published for the next two weeks. We will resume publication the week of January 4, 2021.)

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Last-Minute Strategies To Lower Your Taxes

Posted on December 11, 2020December 11, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

It’s that time of year when the sand has almost passed to the bottom of the hourglass. Most individual taxpayers are calendar-year filers which means that many opportunities to reduce your 2020 income tax bill will lapse after midnight on December 31, 2020. To help you achieve your goal of paying the least amount of income tax as possible, you may want to consider some simple, yet effective strategies

Taxes for personal property and real estate may be deducted on your individual income tax return if you elect to itemize for 2020. If you own property, you will have received a notice of taxes due on the property from the previous assessment by the County Assessor’s Office. You may wish to pay the full amount of taxes every other year to “bunch” up the deduction allowing you to accumulate deductible expenses in excess of the standard deduction.

Income taxes paid to state and local governments are included in your itemized deductions. If you are self-employed, or receive income from sources that do not withhold taxes for you, you may be required to remit income taxes on a quarterly voucher. Typically, your fourth and final state income payment for 2020 is due on January 15, 2021. However, you may elect to remit payments in December to the state and local governments and claim the expense in 2020. The Tax Cuts and Jobs Act of 2017 limited the amount of state and local income taxes for deduction to $10,000.

Charitable contributions to qualified charities will increase your itemized deductions for 2020. Consider those charities that you typically support and be generous this year. As long as the charity is a qualified exempt organization and you remit payment before December 31, you should be allowed to include the deduction on your return. Don’t forget that you should request a receipt to document your charitable intent and the receipt of the payment by the organization.

Have you thought about cleaning out your closet or gifting your old car to a worthwhile charity? Good news! You may qualify for an in-kind donation. Additional rules and requirements must be followed to document the deduction but you will have helped a great cause and your closet or garage may look better, too.

Another easy method of lowering your tax bill is to defer any income that is possible. If you are self-employed, you may delay your billing for services until January, 2021 and, thereby, deferring payment to be earned income until the next tax year.

Remember in 2020 that personal exemptions are no longer allowed. Instead, a much larger standard deduction is availed to individuals and married filing joint taxpayers of $12,400 and $24,800, respectively. If you are a single parent with a child in your household, you may qualify for a little larger standard deduction of $18,650.

The key to tax reduction is to be proactive. Don’t procrastinate on this important task. By spending a few minutes planning, you may significantly reduce your tax bill for 2020. One statement we share with our clients is that “you should always seek to pay the least amount of income tax you legally owe”.

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Gifts, Charitable Donations and Taxes

Posted on December 7, 2020December 7, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

It is the time of year that we think of others. By “others” I am referring to our favorite charities, loved ones and the IRS. Sounds interesting to place the IRS in the same sentence as charities and love ones, doesn’t it? I offer that this particular government agency should always be a part of any discussion for gifts and donations.

Many people confuse the requirements that qualify charitable donations for deductibility purposes. A particular section of the Internal Revenue Code specifies the types of recipients (donees) that qualify for charitable deduction. Typically, a contribution to your local church may qualify for a charitable deduction in the year it was given. This means that you can generally contribute to your church’s building fund or other designated use funds for your church and claim the contribution on your individual income tax return for the year. Substantiation should be received from the charitable organization, in written form, that discloses the date of receipt of the gift, the amount received as a gift (unless it is other than a check or cash which would require the donor to assign a reasonable fair market value), the name and address of the charitable organization and a statement as to no services or goods given to the donor for the donation.

Unique for most taxpayers, that do not itemize deductions on their individual returns, the tax law changes signed by President Trump in March, 2020, allows for a deduction of $300 of charitable deductions for cash contributions to qualified charities. This deduction is claimed “above the line” which will lower the adjusted gross income of the filer resulting in lowered taxes owed. Highly recommend everyone to take advantage of this opportunity to help qualified charities during this difficult pandemic.

You may not realize but your Christmas gifts to loved ones actually fall within the requirements for reporting purposes to the IRS. You guessed it – gift taxes may apply! Talk about Scrooge, right? Consequently, the IRS wishes to know of any transfers of property for less than full value to another party to determine the amount of gift given to the party. Good news is that the IRS doesn’t require that you report the clothing, toys or other gifts given to your children if the total given for the year is less than $15,000 per donee for 2020.

If you add up all of your gifts to Cousin Eddie, a reference to one of my favorite Christmas movies, and the amount is greater than $15,000 for 2020, you will need to consult with your tax advisor as to the filing of a gift tax return by April 15, 2021. Although a gift tax return may need to be filed, you will, generally, not remit any tax due to a unified gift and estate tax exemption of $11,580,000 per person. So, be generous this year!

Individuals are typically calendar-year taxpayers. This means that you lose some opportunities to lower your 2020 income taxes after December 31, 2020. It is critical that you review your current tax deductions for 2020 and accumulate those needed receipts to provide your tax preparer. Be proactive this year and contact your tax preparer now to book your appointment for receiving tax preparation services.

Lastly, remember those that have suffered during the pandemic. Families in our community may have little to enjoy the basic living needs of life much less Christmas with their loved ones. Disregard the IRS for a moment and let’s focus on our community. Reach out to families that may need a hand up, not a hand out, this Christmas Season. Put some joy in your life by giving to those in need.