December, 2022 | Live a Life By Design

Reflection for Direction

Posted on December 28, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Happy New Year! It is so awesome to open a new calendar and smell the fresh ink and clean pages of opportunity. The blank calendar pages are awaiting your input of a remarkable life in the new year. 2023 looks very promising. Not from the world’s perspective but from the perspective of each of you accomplishing great things in your life.

One of the most important tasks I undertake as a new year begins is to reflect on the previous year to glean from it that I have learned, where I have grown and use this information to determine where I wish to go in life. The most amazing opportunities lie in front of you if you know what to look for and how to place these occasions into action.

In 2022, I worked on goals in a variety of areas. Most of the goal may have been accomplished but the finish line lay ahead of me. In 2023, I will be focusing on the remaining portion of these goals and seeking to finish strong in the first quarter of the year. To many goal constructionists, once the period of performance has lapsed you either pass or fail at the attempt to reach the goal. Allow me to grant you some “Grace Space”. The world has become somewhat disjointed with the economic and geopolitical challenges we face every day. Am I making excuses? No. Am I giving myself additional space to be my best self? Yes.

There were opportunities in 2022 that allowed me to grow as a person. Did you identify those areas for your life? If we are looking introspectively, glaring times of interactions that could have been better or statements made in public that could have been crafted more eloquently stand out. How are you capturing the important memories in your life? For me, I journal to record the moments and memories of life’s occurrences that are worth sharing with my heirs.

Volumes of these journals line library shelves. What book have you read that would be more impactful to your children and grandchildren than the life you lived and the decisions you made? Your personal memoirs are so impactful that your influence in the lives of your heirs will continue for generations beyond your terminal point.

How is this investing in your yourself? By learning from our mistakes and capitalizing on our accomplishments, we can create a world that is full of blessings and benefits that allow us to live in a more desirable society. War is absent in many countries on the globe; however, that does not mean peace is present. Our mindset is so important in determining our approach to life’s challenges. By maintaining positivity in our thoughts and actions, we can infect others with a smile and kind word that will spread faster than any virus on the planet.

It is an honor to share my thoughts each with week with you. The pages of this column are a means for me to reflect on our world and how we can make the best of difficult situations and take advantage of breaks that will give you the edge to greater discovery of yourself.

Open your calendar and your planner today. Map out the future you wish to see come true. It is yours for the taking. Make it happen by bringing your best you to the day. Interact with others in a positive and pleasant manner that creates a compounding effect of peace on earth. See you on the jogging trail!

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Is it Income or Isn’t It

Posted on December 22, 2022December 22, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most confusing questions asked by many people: Is it taxable as income? To help provide greater clarity around this question, let’s refer to the law utilized for the determination of individual income tax computations. The Internal Revenue Code of 1986, as amended, provides guidance for such quandaries. By reviewing the sections of the IRC, one will quickly surmise that everything is income unless specifically exempted by the “Code”.

Does that clear it up a bit? Clearly, your wages earned from a job are taxable but what about reimbursements from your Health Savings Account for medical care paid out of pocket? This is the type of question that many taxpayers struggle with understanding.

Tax-exempt interest is not taxable if derived from investing in certain types of debt securities. Some of the securities may be exempt from both federal and state income taxes. Sounding pretty good, right? The issue is understanding what you are investing in and how it is structured. Placing your money in an interest-bearing bank account will pay you a return. The earnings on the account are taxable. However, investing money in a municipal bond may generate non-taxable income for federal purposes but be taxable for state purposes. Or you may wish to invest in U.S. Government bonds. Interest earned on these types of bonds are taxable on your federal return but not on your state return. Confused yet?

Many taxpayers wish to save a few dollars by preparing their own income tax returns. The IRS website provides a link called “Free File” for individuals to utilize a platform that electronically files their return to the IRS. However, and I mean this in the most compassionate manner of speaking, if the wrong amount or type of income is placed in the wrong field on the return, you will have trouble by receiving a letter from the IRS informing you of such error.

What if you bought a piece of equipment such as a lawnmower? You used this mower to keep your personal lawn looking great. After a few years, you decide to sell the mower to buy a larger model. Is the $150 you received from the sale of your $400 mower taxable to you? Of course not. You have a basis in the mower of $400, the original purchase price. When you sell the mower for $150, you suffer a $250 capital loss. Therefore, you wouldn’t include the $150 in your income.

Another example of this mistake was made by a client of ours that purchased a pickup for work in his sole-proprietorship. He depreciated (i.e., wrote off the basis of his truck over time as a deduction against his income from the business) the vehicle for five years. His basis was very little after the depreciation claimed on his previous tax returns. The vehicle originally cost him $60,000 and he had depreciated $52,000 over the period of time he owned the vehicle. When he sold the truck for $21,000, he told me he didn’t “make any money” on the sale. I looked at him with a big grin on my face and corrected his statement. “You actually incurred an ordinary gain on the sale of the truck in the amount of $13,000,” I explained. His smile was reduced to a frown.

Income and expenses are allowed only as stipulated in the Internal Revenue Code or your state statutes. It is critical that you understand the ramifications of failing to report income or claiming deductions that you cannot substantiate. Failing to report income is called tax evasion. If you omit a substantial amount of income from your tax returns, you may be prosecuted in federal court and ordered to pay a large fine and possibly imprisonment.

Understanding tax law is difficult. Planning and filing your income tax return does not have to be. Contact a CERTIFIED FINANCIAL PLANNER^™professional to guide you in the proper manner of filing and paying your income taxes. Life is more enjoyable when you don’t worry about it. Go ahead. Live a life by design and allow someone else to worry for you. Tell Santa I said “hi”!

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Clearing Up Confusion About Cars and Taxes

Posted on December 8, 2022December 8, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

As the year of 2022 winds down to its last days, our thoughts of family gatherings, gift sharing and taxes dance in our heads. Well, maybe not the tax thoughts but it is a good time to review a few planning ideas to help you feel more confident about your tax filing strategies for 2022.

Your automobile may be a shelter for tax deductions you haven’t considered in the past. As a utility for us to rapidly move from one location to another, automobiles are subject to a considerable number of tax laws and regulations that guide in their usage for tax purposes. For example, your personal automobile, when used for purposes of discharging your duties for your employer, is a tax-deductible asset. A few documentation steps are required to take advantage of this deduction such as a mileage log. By properly maintaining a mileage log that reports your daily travel, the location to which you traveled, the business purpose for the travel and any related expenses such as tolls and parking, you may help achieve your goal of deducting an activity that you performed anyway.

If you own a smartphone, such as an iPhone or Android, there are many apps that are free to help you track your mileage and provide documentation for your activities. The app I utilize for this purpose is found in the Apple App Store named “Mileage Expense Log & Tracker” by ChuChu Train (“yes”, this is the real name and “no” I did not simply make this up because its sounds cool!). Using the app is very easy. Every morning when I start my car, I open the app to record the mileage on the odometer as the ending mileage for the previous day noting where I had traveled and who I had seen. The app carries the ending mileage to the next day as the beginning mileage. This routine consumes about 1 minute from my day and meets the IRS standard for documentation of business use of my automobile.

Tracking mileage and expenses is only a piece of the benefit of using your automobile in a business. Annually the IRS publishes the allowed rates for business, medical and charitable purposes. In 2022, due to the significant increases in gasoline, the IRS changed the rates with a mid-year order that increased the rates for the second half of the year. For the period of January 1 through June 30, 2022, the rates are: business – $0.585 cents per mile, medical – $0.18 cents per mile and charitable – $0.14 cents per mile. For the period of July 1 through December 31, 2022, the rates are: business – $0.625; medical – $0.22; and charitable – $0.14.

Documentation is critical that you maintain corroborating evidence of your trips each day such as meal receipts if you met with a client for lunch or parking receipts if you traveled to a city requiring such charges.

Many of our clients ask questions such as: Can I depreciate my vehicle instead of claiming the standard mileage rates? Of course! However, it is a best practice to keep the mileage log to determine if you would benefit more from mileage rather than actual expenses. One caveat to remember is that electing the actual expense approach to deducting your automobile for tax purposes, you may not change in later years.

Medical mileage is that number of miles you travel from your residence to your medical provider. Documentation is rather simple in this instance since you will be receiving an invoice from your provider which discloses your name, date, city of the doctor’s office and other pertinent information.

Charitable mileage may be documented by obtaining any papers reflecting the activities of the charitable event such as a flyer, agenda, minutes of meeting, etc. As with everything in tax planning the success of the deduction being sustained under examination is directly related to the quality of the documentation you provide the IRS or other taxing agency.

You may use a simple piece of paper or a manual mileage log for your documentation purposes. No matter the type of system used, it is only as effective as you are diligent in its use. By documenting your automobile usage in great detail, you may just convince the tax examiner that you are detailed in other areas of reporting on your returns.

Make documentation of your automobile usage for business, medical or charity a goal for 2023. It is not too late to recreate your log for 2022. Contact a CERTIFIED FINANCIAL PLANNER^™professional to help you plan for your future in a tax-effective manner. The more you keep of your own money, the better life will be for your family. Hurry up, Santa, I am ready for a great Christmas!