New Retirement Changes That May Secure Your Future

One of the best attributes about my profession is the constant change in the rules for which we give advice to our clients. One of the worst attributes of our profession is the constant change in the rules for which we give advice to our clients.  This double-edge sword keeps our team of professionals motivated to learn new strategies each day.  Another aspect of constant change is the challenge of providing long-term advice to clients.

On December 29, 2022, while many of us were preparing for a New Year’s Eve Party, Congress and the President were finalizing the printing and signing of the Consolidated Appropriations Act of 2023 which contains a substantial number of changes pertaining to retirement plans. To summarize the plethora of changes, the idea was to create greater opportunities for plan participants to save for their future.  Congress attempted to simplify many of the complex rules pertaining to employer retirement plans and encouraged employees to become savers through automatic enrollment provisions within retirement plans.

To encourage smaller employers, defined as those entities with 50 employees or less, to establish retirement plans, the IRS will allow a tax credit for 100% of the start-up costs for a plan.  This is an increase from the previously allowed 50% credit.  To take advantage of this credit the plan must be started after January 1, 2023.  Many smaller companies may find that a retirement plan serves as a wonderful retention tool to maintain their workforce.

For individuals reaching a certain age in which distributions from their Individual Retirement Account (IRA) are required, good news is included in the new law.  Prior to 2023, required minimum distributions (RMD) were mandated by the IRS at age 72.  If the individual failed to meet the minimum distribution amount in distributions, a penalty of 50% of the value required to be reported in income as was assessed on the appropriate income tax return.  Starting in 2023, the age for required distributions from an IRA is 73.  The law also provided for greater longevity of life in the United States in that RMDs will not start until age 75 beginning on January 1, 2033.  

Some employers have desired to provide incentives to certain classes of employers to participate in retirement plans.  The new law provides for employers to offer de minimis financial incentives, not paid with plan assets, such as low-dollar gift cards, to boost participation in workplace retirement plans.

One of the reasons for employees to deny participation in workplace retirement plans is that the money is required to be invested for a considerable period of time and access to the funds for an emergency is penalized unless certain criteria are met.  Under the new law, employers may rely on the employee certifying that deemed hardship provisions are met.  This will allow a short-term distribution of assets or a permanent distribution based on the needs of the participant.

Smaller employers generally establish SIMPLE (Savings Incentive Match Plan for Employees) IRA Plans or SEP (Simplified Employee Pension) Plans due to the lowered threshold of reporting and minimal administrative costs associated with such plans.  Certain criteria must be met by the employer in the number and types of employees but overall these plans are effective in saving for the future while capturing current tax deductions for the employer.  In 2023, SIMPLE IRA’s are allowed to accept Roth contributions (which are post-tax).  Also, SEP contributions by the employer (employees do not contribute to these types of retirement plans if not an owner) may be treated as Roth contributions.  This, my friends, is a big deal for younger workers who may wish to take advantage of a lower income tax burden early in their career.

One of the more tenuous debates in Washington, DC has been the student loan forgiveness ordered by President Biden.  Many students have worked multiple jobs to pay their way through college while others applied for loans.  Some of the animus results from the students who chose to attend college while working and now seem to be offended by the exclusion of their efforts from the forgiveness order.  Further, some allege individuals who attended very expensive private universities would be favored since they chose to attend a university requiring significantly higher tuition than the student who attended a state-sponsored university.  

The reason for opening the debate door on student loans is that employers are allowed to make matching contributions to allowed retirement plans with respect to “qualified student loan payments” beginning in 2024.  This will allow the employee to continue to reduce student loan debt while not forgoing savings for their future.

Emergencies do occur in life and many are caught without liquid funds to address the problem.  In 2024, plan participants will be allowed a $1,000 early withdrawal without penalty to address emergency expenses.  The participant has the option of repaying the withdrawal to the plan within three years.

Retirement does not have to be a complicated process. By planning accordingly with a Certified Financial Planner™ professional, you will feel more confident and comfortable about the future you choose.  As I often inform clients, “You retire for the first time only once.  It is better for your future that you do it right.”  Go make your world a little brighter, smile at everyone you meet!  

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How Successful People Gain and Retain Their Wealth

There is a TV show that I witnessed a couple of times that is titled, How Winning the Lottery Ruined my Life, or something to that effect.  While watching the “lucky” family discuss their travails and trials of winning such a large sum of money when they previously were considered poor or bankrupt was interesting to me. The reason for suffering from winning such large amounts of money is that the person was attempting to apply their current capabilities and philosophy of life to a much larger asset base.

Having served as an advisor to wealthy individuals for many years, it gave me perspective to understand the devastation of which the lottery winner spoke.  We all experience a stage in life that we are most comfortable.  This level of living has given us the lifestyle we feel is good, or good enough, to provide us some comforts of life.  The challenge is to understand that, as people, we must grow our philosophy toward money and wealth as we grow our lifestyle or trouble is on the horizon.

In simple terms, the person who has dominion over a few things must grow in mindset, knowledge and understanding about wealth to retain dominion over significantly more assets.  The Bible tells us that the person who has much wealth, much is expected.  That is a tremendous philosophical point about wealth.  Another statement I often use is that self-preservation leads to mediocrity while charity leads to wealth.  By giving away, in a reasonable and responsible manner, the assets you currently possess, you will receive greater assets from the marketplace.

To help you think like a wealthier individual, you should learn from those that possess great wealth.  Read biographies of Cornelius Vanderbilt, Andrew Carnegie and John D. Rockefeller.  What inspiration these men’s stories give me as I realize their generosity in developing the modern culture you and I benefit from.  Libraries, hospitals and universities all over our great country bear their names as a testament to the great blessing we possess of being American citizens.

One of the common themes I discerned from reading their biographies is that they thought differently than most people.  Their time was sacred and they didn’t waste it on trivial matters.  Most of them created, for themselves, an approach to capturing the best information to make critical decisions that contained considerable risk. To accurately describe their approach to managing their time, they eliminated, delegated or elevated activities which became their goals for success.

Many menial tasks that would arise during the day would be disregarded unless they had some relationship to the important goals set by the entrepreneur.  Business studies of behaviors inform us that most people major in minor things to the detriment of the business production they are seeking.  In simple terms, I call this “busy work”.  This type of activity has no sustained value or progress contribution toward your big goals for which you are seeking to attain.  According to Gallup, a considerable number of employees polled report they are simply disengaged from the act of contributing their skills to their employer at some point during each day.  That is startling when you realize these employers are paying significant amounts of money for training, retention and benefits for these “less than productive” employees.

Another strategy used by wealthy individuals is that they delegate tasks to others more capable or experienced in certain functions.  For example, many didn’t write or type their own letters but utilized a personal assistant.  Most of them didn’t drive themselves to destinations but used the skills of drivers and focused on their important tasks during the drive time.  Delegation is not restricted to business professionals. Many of us delegate our lawn work and flower beds to companies that specialize in such services.  Cleaning our homes and performing laundry are delegated activities for which others are most helpful.  You should be focusing on those activities that create and retain your most passionate areas of life.

Lastly, the wealthy are excellent at scaling their process for producing wealth.  They create a unique process and elevate it to capture market share or other investors.  By concentrating on your unique abilities to create value for others, you will quickly realize that a “better mousetrap” is in your possession.

Each day, plan your activities and review them to note what should be eliminated, delegated or elevated to give you the greatest opportunity to serve others and grow your wealth in life.

The world needs you to show up everyday to contribute your talents to helping others. It is only when we all find our purpose in this world and implement a means to using that purpose to help others that we truly are wealthy.  Mark Twain, one of my favorite authors, stated it well when he said, “The two most important days in your life are the day you are born and the day you find out why.”  

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Tax Credits for Homeowners

Home ownership avails tax deductions such mortgage interest and ad valorem taxes for those individuals that itemize on their personal income tax return. Deductions are good since they reduce your taxable income; however, tax credits are much better since they reduce the tax itself dollar-for-dollar. One of my mantras when helping our clients with tax planning is “deduction is good, but credits are great!”

Recent legislation passed by Congress and signed into law by President Biden is the Inflation Reduction Act. There has been significant debate as to the title of the law as being misleading. Let us leave the politics to the politicians and we will focus on the important matter of the impact this law has on your 2023 federal income tax return. 

Claiming credits against your federal income tax takes a little work to understand and navigate the maze of qualifications to claim the credit. In claiming the Energy Efficient Home Improvement Credit, a taxpayer must provide certain manufacturer certifications and an inspector’s report as to the sufficiency of the improvement to meet the criteria in the law. Further, if you built your home after December 31, 2022, and before January 1, 2033, you may claim a credit against your federal income tax of 30% of the costs paid for such improvements as exterior windows and skylights, exterior doors, and other qualifying energy property.

Overall, the annual limit for such tax credits is $3,200 with no lifetime limit. In that regard, you may make improvements that qualify for the credit on an annual basis as you convert your residence to a more energy efficient dwelling.

Other limitations apply when claiming tax credits. Some credits are refundable and others are nonrefundable. The difference in the credits’ refund status is critical. Refundable credits allow for the refund to be paid the taxpayer even if it exceeds your total tax liability. For example, let us assume your total federal income tax on your 2023 return is $2,500 and you could claim a refundable credit of $4,000. The IRS would send you a check for $1,500. Sounds good, right?

Assume the same tax liability of $2,500 and you claimed a $4,000 nonrefundable credit. The IRS would allow you use $2,500 of the credit to offset your tax and carryover to tax year 2024 the remaining $1,500 to considered in the following year’s calculation of tax.

An additional residential credit provided for in the Inflation Reduction Act is the Residential Clean Energy Credit. Like the previously mentioned credit, the qualified energy property improvements must be installed on a taxpayer’s residence before January 1, 2035. The credit is equal to 30% of the cost of eligible property placed in service in 2022 through 2032; 26% for tax year 2033; and 22% for 2034. Limitations are placed on the credit by kilowatt capacity of the installed property. For example, the credit is $500 for each 0.5 kilowatt of capacity of qualified fuel cell property expenditures for each tax year.

To qualify for the Residential Clean Energy Credit, you may install solar water heating systems, solar electric systems, fuel cell property, small wind energy property, geothermal heat pump property and, for years beginning in 2022, battery storage technology. Each of the eligible property improvements requires certain criteria be met through certifications provided by manufacturers of the products.

Tax laws are complicated. To properly take advantage of opportunities to lower your family’s income tax burden, seek a complimentary consultation from a CERTIFIED FINANCIAL PLANNER™ professional. Judge Learned Hand said it best, “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

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To retire, overcome these three challenges

Retirement planning of itself has many challenges for individuals.  It is an area of life that has many concerns and questions because of the unknowns in the future.  It is as the Boy Scouts would say, you must be prepared for anything.  To help you accomplish your goal of retiring with a worry-free lifestyle, we believe you should overcome three challenges in the planning process, as well as the remainder of your life.  The first of these challenges is longevity.


Longevity is that period of time for which you may outlive your sustained investments.  Too often, we are asked by our clients, “How long do you think I will live, and how much money do I need to live comfortably?”  This is a question, of course, that we cannot answer with any certainty.  No one knows what tomorrow may bring.  However, it is critical that you provide a savings plan for your future with the hope of reaching the longevity goal you establish for yourself.  It is not an answer any of us know with a degree of certainty.  For example, I have a friend who is dying from cancer at the age of 45.  However, my grandmother lived to the age of 100 years and 10 months.  Why this happens, we don’t know.  However, we must be prepared for either event.


The other challenge to overcome in retirement planning is inflation.  It is critical to understand that inflation cycles throughout the economies through the decades of life.  No one knows what the next cycle of inflation may entail.  However, let’s review what has happened in the past.  Over the past two and a half years, our inflation in the United States has increased to a height of 9.1%.  It is critical to understand that the cost of buying goods for your everyday living has increased by 9.1%, and certain sectors of the market increased much more.  Food and fuel have increased far more than 9.1% over the past two and a half years.  It is critical that you understand this large increase takes a tremendous toll on the investments you may have saved with a planned distribution rate of a much lower amount than the inflation factor.

One of the challenges you experience with inflation is that you do not know the length of time or term the inflationary period will be.  The height of inflation and the term of which it lasts, both play a role in the use of your retirement funds.


The third challenge, as mentioned in the previous paragraph, is taxation.  It is true that as Americans, we are taxed on many things, from income, the purchases we buy, and the real estate we own.  Taxation impacts literally every aspect of our lives in the United States.  However, there are areas that you can control in your cash flow to assist your savings for retirement in lasting longer. 

The timing of certain events with your retirement savings can help mitigate the tax burden you are impacted with on an annual basis. It is also a measure of how you invest that you will be taxed. For example, shouldn’t most of your retirement savings be in a qualified plan, such as your 401(k), or an IRA? These types of savings require taxation on the first dollar to be distributed from the respective plan.

However, for most of the wealthy, additional investments are made in those types of companies, or assets, that grow in value. This growth in value is not taxed until such a time as you wish for it to be taxed. For example, you must sell or liquidate the investment for a taxable event to occur. Once you decided and have liquidated the investment, capital gains at a much lower rate that ordinary income tax rates will be attached to the event. If you were invested primarily in growth-type companies and/or assets, your maximum rate on those capital gains in today’s law is 20%. This is a much lower rate than the 37% maximum ordinary income tax rates.

The wealthy in the United States pay an effective lower rate of tax than most Americans that are wage earners. This seems to be an abnormality. However, it is due to the impact and control these wealthy individuals exert over their investments and the realization of gains on a basis for which they control. For example, if you had property that you invested a very small amount in, and sold for a much larger amount, two to three times what you paid for it, the capital gains would then be applied to that portion you sold. Twenty percent tax rates on capital gains has been the effective rate on capital gains for many years now. It allows the planning for such events to have a little more certainty.

For you to be successful in retirement, it is vital that you overcome the challenge of longevity, inflation, and taxation. If you desire some guidance and seek some form of assistance, contact your local CERTIFIED FINANCIAL PLANNER™ professional for a complimentary consultation. You will be glad you did. See on the jogging trail!

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Controlling Your Debt

A new year always suggests the opportunities to create the world we truly wish to live in and the strategies we must implement to achieve success. Too many of us write down meaningless resolutions on January 1 that have no measurable qualities to denote actual commitment from the writer. This year will be different for you. As Jim Rohn often said, “We all face the same environmental disturbances and life challenges. We can either let the wind blow us where it goes, or we can reset our sail to go in the direction we desire.”

After Christmas, the reality of the expenditures we made comes to our attention. Credit cards that were used to make purchases are now due. Our economy is subjected to the highest inflation we have experienced in 40 years. You will note the impact of this inflation in your gasoline, food, clothing, medical and other items you purchase for everyday living. To counter the increasing inflation impact, the Federal Reserve Board of Governors continues to raise the rate it loans monies to participating banks. This process creates an impact on the economy to discourage the use of credit which will slow the demand of cash in the country.

One of the most noticeable areas of your life in which the Fed’s interest rate raises appear is your credit card bill. When opening your card statement, you will notice the increased interest rate for any balances not paid in full by the due date of the statement. Compare the interest rate from a year earlier to the one you received this month. Most likely the rate will have increased significantly.

The key habit to build into your lifestyle is to pay the monthly balance owed on your card in full each month. Two benefits will result from this habit. First, you will notice your credit score may rise due to the excellent payment record and management of your credit line. Second, you will maintain better control of your monthly budget since you will need the cash to pay off your card balance each month. 

One group of professionals that track credit card usage is the American Bankers Association. According to the data collected by the association, 40% of all Americans utilized a credit card and maintained a balance on the account at some date within the second quarter of 2022. Experian, one of the major credit monitoring agencies in the United States, reported that the average balance, reported by credit card issuers, owed by Americans in the third quarter of 2022 was approximately $6,004. In most instances, the reasons for using a credit card are to bridge cash flow needs during the month. However, it is highly recommended that credit cards are not used for purposes of increasing one’s lifestyle.

To control your life, you must take command of the variables that impact you. Your credit should be reviewed annually and loans with the highest interest rate should be liquidated first. Continue this process until all debt is paid in full. 

A funny, but true, story that happened to me last summer related to the purchase of an automobile for our daughter. Based on our excellent credit score, our family has not paid interest on a vehicle in more than 20 years. Knowing that our credit score was higher this year than the last vehicle we purchased, I confidently walked into the dealership in her city and introduced myself. Our daughter had researched the type of vehicle she wanted, and the dealership possessed a similar one in its inventory.

We informed the salesman of the amenities she desired on the vehicle and was informed one that she wanted was being shipped to the dealership within a couple of weeks. Remember, this is still a supply chain issue in the U.S., and I informed my daughter to give them a month before expecting delivery. We negotiated the price; I shook hands with the salesman and ask him to write the purchase contract. What happened next completely caught me by surprise!

I had researched the financing options with the manufacturer and noted that there were no zero-interest financing available due to the economy and the demand for vehicles. To counter this economic impact, we were going to write a check for the automobile. As I began to write the check, the salesman noted that I was writing it for the total agreed sales price. He said, “you can’t write a check for the sales price, or we will have to raise the price $1,000.”

Imagine the shock on my face that we would be charged an additional amount for paying the car in full instead of financing the vehicle! I understood what the gentleman was explaining and thought that the dealership would be grateful to work with someone who has such stellar credit and pays up front for their vehicles. Alas, these are different times. 

The moral of this story is “cash isn’t always king” and “supply and demand” play a heavy role in the operations of businesses. 

Review your current debt and find a means of paying off the largest interest rate loans. If your credit card is carrying a balance, I would recommend you start by paying the largest amounts available on the balance. To assist you with your family’s cash flow planning and other future needs, consult your local Certified Financial Planner™ professional. Hope you enjoy a successful and prosperous New Year!

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Reflection for Direction

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

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 PLANNERprofessional 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

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 PLANNERprofessional 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!

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Why it is Critical to Plan for 2022 — NOW!

Trust you enjoyed a wonderful Thanksgiving!  At publishing time for this article, I have laced up the running/walking shoes and hit the pavement to lose the excess turkey weight gained from the abundant offering of two meals last Thursday.  

Planning is the process of proactively controlling those events in life that you are capable of controlling in your best interest.  This process is confined by laws and regulations when we are talking about tax planning.  Further, you may have facts that don’t exactly align with examples of transactions in the Internal Revenue Code (IRC) but you like the outcome of the situation.  It is critical that you understand the importance of substantially complying with the tax laws of federal government as well as the various states of the union.

Inflation continues to plague the United States at a level of 7.7% for the past twelve months based on recent reports from the Bureau of Labor Statistics.  This means that many of us will be paying almost 8% more for goods and services as we plan our remaining days of 2022.  One approach to this cash flow process is to think about your daily living needs (and some wants) in a quantifiable manner.  Each day requires a certain amount of cash flow to meet your goals.  By planning in this manner, you will know, with intention, where each dollar goes.

One of the simplest methods of tax planning is to limit the amount of income you recognize in 2022 by deferring potential income from December to January, 2023.  Of course, this only gives relief for one year (2022) and adds potential income to the following year.  Remember, in tax planning, we evaluate the planning results in months and years since we do not know when new tax legislation may be introduced into the planning process by Congress.

I am predicting, with reasonable certainty, that the United States will not experience a significant federal tax bill for 2023.  The reason for such a prediction is due to the results of the recent mid-term election.  Government that is shared with more than one political party generally requires more compromise among the parties.  This “C” word has not been used in the legislative process in many years.  Yesterday, I was reflecting on my younger days (I do this often to measure my growth as a person, financially, spiritually, etc.) and recalled the early 1980’s when President Ronald Reagan faced a divided Legislative Branch.  One of the means of achieving his goals as president was to communicate his vision with all legislators, particularly Speaker of the House Tip O’Neil.  By working together, for the good of the nation and its people, a tremendous amount of progress was made for our country. But I digress.

One method of delaying potential income is to examine your capital gains and losses in your taxable portfolio.  If you wish to rebalance your portfolio (i.e., sell the positions that exceed your original allocation percentage and buy those that are below your desired allocation), it is a good time to do so.  This will not only prevent capital gains from being taxed but will also limit your risk in the portfolio to a level you desire.  Conversely, you may wish to fund IRAs and other retirement plans for your family in December instead of waiting until April, 2023.  The same tax effect is experienced by funding at either time; however, you may be buying your investments at a lower value allowing opportunity for potential growth in the future.

Most of us are calendar-year taxpayers.  This simply means we must complete our transactions by December 31 of each year to impact our tax liabilities.  Your estate planning is subject to this deadline, too.  If you wish to gift your children or grandchildren a sum of monies or property in 2022, it is critical it be performed by midnight December 31.  Remember, the annual gift exclusion amount for 2022 is $16,000.  Additional sums can be gifted in 2023 in the amount of $17,000.

Some of the most advantageous tax deductions of previous years will not be allowed in 2022.  These items such as Indian lands accelerated depreciation and Indian employment credits expired on December 31, 2021, and have not been extended, as of the date of this writing, for 2022.  Living in the middle of the Choctaw Nation, this has been an excellent motivation for many employers to expand their businesses with equipment and hiring tribal members.

Taxes can be confusing.  There is no need for you to feel overwhelmed.  Contact a CERTIFIED FINANCIAL PLANNERprofessional to help you plan to lower your taxes and discuss how your family can retain more of its hard-earned money in the future.  Hope to see you on the jogging trail!

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Another Type of Income Tax

As we get closer to Thanksgiving Day, it jars in my mind the opportunities we have to reduce our taxable income.  The important matter to remember is that most humans, in the United States, are calendar-year, cash-basis taxpayers.  There are many more tax planning strategies available to us prior to the close of the year than after a new year begins.  The thought of deferring income and accelerating deductions may be a good method of tax planning unless you are subject to the Alternative Minimum Tax (AMT).

This secondary system of taxing individuals and corporations arose from a period in time that very wealthy individuals and large corporations could control their tax liabilities by purchasing certain types of investments and spending cash on particular deductions.  Taxpayers with significant assets and cash flow can purchase municipal bonds, for example, that pays tax-exempt interest to them.  Some municipal bonds are exempt from federal, state and alternative minimum tax!  As you can imagine, if you were ultra-rich, you would want to remain as wealthy as possible by avoiding the highest income tax marginal rate of 37% (unless additional surtaxes apply based on your type of income).

Just when you thought you were done with your tax return calculation of liability, your CPA calculates the Alternative Minimum Tax.  You originally thought your income would be taxed at the individual rate of 15%.  However, based on the amount of interest you earned from private activity bonds, percentage depletion on royalty income from your investments in gas and oil properties as well as accelerated depreciation on your business property, your Alternative Minimum Taxable Income (AMTI) is now above the AMTI exemption exposing your income to a 26% tax rate.

Why did Congress do this to the American people?  The purpose and history of the Alternative Minimum Tax was to insure certain higher-income taxpayers paid taxes.  Our tax system is one based on income attributed to the taxpayer and certain types of income may be tax-free, tax-deferred or partially-taxed.  However, the AMT Exemption amount for 2023 is $126,500 for married filing jointly and surviving spouses and $81,300 for single individuals and heads of households which is more than the national average per worker in the United States.

Bracket “creep” has been a considerable challenge for middle class taxpayers in recent years.  Congress has not routinely addressed the exemption amounts for inflation.  When this occurs, there is little difference between the tax exemption and the Alternative Minimum Tax Exemption which causes those that can afford it least to pay the higher 26% tax rate.

While planning for your 2022 income tax liabilities, it is critical that you understand the complexities of the Internal Revenue Code.  Preparing your income tax returns yourself may save you a few hundred dollars today and cost you much more if the IRS adjusts your returns for errors.

I live with a variety of philosophies in life.  One of those philosophies is that it is not unpatriotic to pay the least amount of income tax one rightfully and lawfully owes.  Planning is an activity that gives you more control in how much tax you wish to pay each year.  It is critical that you understand the different types of income and the rates applied to the income during the tax year.  “A penny saved is a penny earned,” according to poet George Herbert.  If you had a choice to invest your heard-earned money in something that returns interest or dividends directly to you rather than paying the U.S. Government, wouldn’t you do so? Contact a CERTIFIED FINANCIAL PLANNERprofessional to help you plan to lower your taxes for 2022 and beyond.  Wishing you and your family the most blessed of Thanksgivings!

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