Jimmy J. Williams, CPA/PFS, CFP® | Live a Life By Design

The Taxman Cometh

Posted on March 19, 2023March 19, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Only two certainties remain in life – death and taxes. These two actions require a significant commitment from you in terms of time and money. It is important that we each carry a portion of the costs of the freedoms we enjoy in the United States of America. A phrase often quoted by the leaders of our government is that the “rich should pay their fair share”.

“Fair” is such an ambiguous term. What is your definition of “fair” when it is applied to your income and assets? Should the percentage you pay be 10%, 20% or, lets get creative and say 50%? Based on research performed by The Tax Foundation in 2020, high-income taxpayers paid the majority of federal income taxes. The findings were quite confirming of my thoughts in how our system of taxation is applied to the population.

Based on the findings of the research, the bottom half of taxpayers earned 10.2% of the total Adjusted Gross Income (AGI) and paid 2.3% of all federal individual income taxes. Conversely, the top 1% earned 22.2% of total AGI and paid 42.3% of all federal income taxes. Would you determine this to be “fair”? Surely those of us that earn more should pay more in taxes. However, the nebulous word “fair” may be defined differently by the two aforementioned factions of taxpayers.

For 2022 income tax filings, individuals will find themselves in a marginal tax bracket from 10% to 37% (with additional surtaxes added to the top rate based on other income factors). Generally, the argument is made by the ultra-wealthy such as Bill Gates, Warren Buffett and others that they should pay more in taxes. The challenge is the types of income experienced by the ultra-wealthy and those in the 10% bracket consist of different taxable characteristics. For example, the rates for ordinary income range from 10% to 37%. However, the most wealthy of us actually have a greater share of annual income derived from investments thereby describing the income as capital gains. The maximum rate of federal tax for long-term capital gains is 20%.

A couple of years ago, Mr. Buffett was quoted as saying he paid a lower tax rate than his secretary (an archaic term in today’s world but Mr. Buffett is a member of the “Greatest Generation”). His secretary must be well paid to be taxed higher than 20% on her earnings. These types of comments stem from the frustration in our U.S. tax system by the Oracle of Omaha. As an investor, Buffett has benefited for decades by the favorable tax treatment afforded capital gains. The theory is that our economy will help everyone if we continue to experience robust investment in jobs and infrastructure. I do believe this to be a true statement (with provisos and adjustments).

There are certainties in the tax code on which we can all rely. One of those certainties is the due date of the filing of your individual income tax return for 2022. The due date is normally April 15. This year the due date is April 18, 2023. I understand your confusion. Three additional days to file and pay your tax liabilities. To grasp how the tax law is written, one must understand the impact of weekends, holidays declared and holidays recognized in specificity. This tax filing season is one of those flummoxed moments where April 15 is a Saturday, which means Sunday is the 16^th and your return should be filed by Monday, April 17. However, the District of Columbia, the special designated land in which the U.S. Capitol is located so that no state would claim to be more honored than another, will celebrate Emancipation Day on Monday. A brief examination of history will confirm that Emancipation Day, marking the abolition of slavery in D.C., was effective on April 16, 1862 when signed by President Abraham Lincoln. Not to sound pedantic but that date is a Sunday in 2023 and, therefore, will be celebrated on the next business day which is a Monday.

So, the good news. You have three extra days to file and pay your income taxes. However, my recommendation is that you don’t wait until the last day to file. If you are receiving a refund, file early and take possession of your money. If you owe money this year, file on April 18, 2023, and pay the tax in full to avoid penalties and interest being assessed.

If you wish to take a proactive approach to your tax planning, seek a complimentary consultation with a Certified Financial Planner™ professional. By focusing on one of the largest expenses of your family’s annual budget, you will experience greater confidence by maintaining control of your finances. I often quote to my friends that “I am glad to pay taxes…” After they cease looking at me with a shocked look on their faces, I finish the quote – “… the alternative of paying nothing means my family struggled and lacked the basic pleasures of this life.” Hope you enjoy a great Spring Day with the extra hour we gained earlier this week!

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Don’t Leave Your Money Behind When You Leave a Job

Posted on March 9, 2023March 9, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

If you were to leave your home and move to another one, would you leave your valuable jewelry and other assets with the old home? Of course not! In a similar sense, millions of Americans leave their place of employment and fail to protect one of their most important assets after the change in employment – their retirement account.

Participants of 401(k) plans control, to a degree, the mobility of their retirement accounts. We were visiting with a business executive recently who had been very successful in his career. One interesting note was that he had worked for five different companies during his career and left his sizeable retirement accounts at each of the employers. When I asked his reason for abandoning his accounts with a previous employer, he simply stated that he had invested his funds in a proper allocation and wanted to diversify his total investment for retirement.

My next question caught him ill prepared. I asked, “Who is the new custodian for the plan you HAD with XYZ Company?” For purposes of full disclosure, I had direct knowledge that the XYZ Company had changed platforms for the retirement plan twice since this gentleman had been last employed with the company. He couldn’t answer my question. Then I asked what he knew of his sign on and password for the platform to obtain balances and statements. Again, he admitted that he did not know the information.

A valuable lesson to be learned is to take control of your retirement assets from your former employer by transferring them to your Individual Retirement Account (IRA). Too many times have we witnessed the stress a person experiences when they can’t gain access to their money because of changes in platforms, company being sold or some other transaction that occurs since their last date of employment.

By taking proactive action upon separation from service from your employer, you have the information to request a trustee-to-trustee transfer to an IRA without tax impact. Further, you will have retained the pre-tax favorability of the assets by transferring to your IRA. Lastly, you will have the opportunity to invest in a much larger selection of investment types than most plans can provide you.

Another excellent benefit for maintaining control of your employer plan accounts is that you can consolidate all of your 401(k) accounts into a single IRA which will make your management of the funds much simpler. By maintaining a single IRA, you can monitor any potential rebalancing or concentrating in a single asset class that will help you mitigate risk in the portfolio.

Life in retirement should be simpler and with more freedom than you accomplished while in your career. It does take a plan to reach a simpler lifestyle and it is something we do every day for our clients. No one retires to work harder managing and protecting their assets. Life is simple but we tend to make it harder than it must be.

If you have orphaned a 401(k) account with a previous employer, act today to regain control of your assets. We believe it is in your family’s best interest to communicate the location last recalled of the assets with a spouse or significant other. What if you decease while the plan assets remain with your employer? There are steps you can take to protect your family and facilitate the distribution or transfer of these assets. To help you paint the picture of your bigger future, seek a complimentary consultation with a Certified Financial Planner™ professional. A quote by Joshua Becker is so fitting to end this article, “The first step in crafting the life you want is to get rid of everything you don’t.”

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“During” Retirement is Different than “To” Retirement

Posted on March 3, 2023March 3, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Work, work, work! This is the metronome of our lives for more than 40 years of our existence. My father was an excellent instructor on life as he dispensed exorbitant amounts of wisdom to me while growing up. Some of his sage advice, not original to him, was “you don’t have time to do it twice so make sure its done right the first time.” Or, the excellent mode of always staying focused on the task at hand as he framed in the statement, “the idle mind is the Devil’s workshop, therefore, if you have time to breathe, you have time to work.”

My father is not moving as fast as I remembered from my early childhood but at the young age of 83, he continues to mete out wonderful statements and quotes about work being good for a person and building character. Recently, he made a statement during our telephone conversation that got me to thinking. His comment was regarding his longevity in life and his admission that he would have taken better care of himself had he known he was going to live this long.

Many people initiate savings for retirement in their employer’s benefit plan. Whether it is a SIMPLE Plan or 401(k), most of the participants establish the allocation of the underlying investments and forget about them. Every pay period the funds are deposited in their account and a statement is produced every quarter which may, or may not, be reviewed with an eye toward the ultimate goal of retiring.

It is critical that a change of mindset be adopted toward the processing of saving for retirement and investing during retirement. These are two distinct functions with differing goals. While accumulating wealth it is a goal to invest in growth as well as value stocks. Perhaps a younger person may invest a greater allocation of their savings in equities and allocate bonds in greater percentage as they age. Further, additional risks may be assumed by younger investors that allow for non-traded investments to be a diversification strategy for their portfolio.

As a person gets closer to their targeted retirement date, a different thought process must be invoked. For example, it is imperative that a pre-retiree understand their income streams which will be needed to support their lifestyle when their salary is no longer an option. Understanding your Social Security benefits, pension options and Medicare plans are the basics for preparing for retirement.

To potentially increase your cash flow in retirement, many investors will allocate a portion of their portfolio equities to value stocks which, generally, pay a consistent and higher dividend than their growth counterparts. Bonds become more prevalent in a retiree’s portfolio than during the accumulation phase. It is also important to review or stress-test your portfolio for potential market contractions to determine if the income streams generated will be sufficient for your lifestyle. Remember, if the markets decline in performance, you costs of living do not cease or lower.

Two of the most negative consequences to a retiree’s portfolio are mostly uncontrollable – inflation and taxes. Certainly you can plan your finances in a manner that reduces the impact of inflation and taxes but you can’t remove them as an influence on your budget. Inflation applies to every good you buy such as groceries, gasoline and clothing. Taxes are assessed on most everything you own or touch – property, automobile, consumer goods, etc.

The best method of being prepared for retirement is to seek out an independent opinion as to your plan for the future before you retire. We advise our clients to meet with us approximately five years before their planned retirement date to allow time for them to implement their plan and feel comfortable with the intended outcomes.

One of the most empowering processes we developed for our clients is called The LifePlan Solution™. This unique process analyzes the resources you have available for retirement, provides a comprehensive approach to lifetime income and instill confidence by consistently communicating potential changes that are necessary to maintain your desired lifestyle. To gain confidence in your future plans, seek a complimentary consultation with a Certified Financial Planner™ professional. It is much easier to hit a target that you have defined and stay focused on for your life.

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Life Isn’t “Set it and Forget it”

Posted on February 27, 2023February 27, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

“It’s the end of the world as we know it,” as the pop singer bellows out the first line of the chorus of a top song for their band. What a profound statement when we think of the chaos of the past few years and the impact economic factors have made on your net worth. For many Millennials and Gen-Z individuals it may appear as if their world has ceased to exist as they are accustomed to in their short lives. We have been here before and we will return to this state of the economy again.

One constant in U.S. economy is the fact that it will continue to cycle. The four phases of our economy have been recognized by financial experts for decades and with quite predictable accuracy – expansion, peak, contraction, and trough. Difficulty lies in defining which one of the phases we currently find our country.

Economists analyze several factors to determine the current phase of our economy. Gross Domestic Product, employment, interest rates and consumer spending are a few of the factors followed to determine trendlines within the four phases of the economy. Gross Domestic Product (better known as “GDP”) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. GDP can be computed on a nominal basis or a real basis. When accounting for GDP on a real basis, the consideration of inflation plays a significant role in the computation.

In the United States, our real GDP rate is typically between 2% – 4% on an annual basis. To compare this with other countries, consider China who reports a real GDP rate of 8.1% for 2021 according to www.data.worldbank.org. As the country’s GDP rate goes up the production for labor, exports and other areas of the United States is performing at efficient levels. If other factors considered are increased over a previous period, the country may be in expansion or reaching its peak economically.

It is important to understand the cycle of our economy and use this information to your benefit. The New York Stock Exchange, the American Stock Exchange and London Stock Exchange are auction markets. It functions by a process that someone must sell a stock for someone to buy a stock. This is known as the secondary market.

Another of the statistics focused on by investors is the labor participation rate. The United States is currently experiencing one of the best unemployment rates in modern history due to the recall of millions of workers back to the workforce after the federal government shut down the businesses employing them. If the unemployment rate rises, this will be a leading indicator to possible negative economic conditions occurring.

There is not one magic number for purposes of determining the type of economy experienced in the United States. To study these factors and guide your investment philosophy requires discipline and patience. Many investors have been unable to fight the emotional battle of watching their savings plunge and staying the long-term course determined to be the most probable path to success. As wealth advisors, our goal is to provide understanding and education to our clients so they can make intelligent decisions. Emotions play no role in the process but can be intrusive to sound judgment.

Life changes on a daily basis. It is critical that you construct your affairs in a manner that allows for the disruptive periods of time to pass without substantial change to your long-term plans. To attempt to time the markets would, in my opinion, give greater risk to reaching your long-term savings goals than to simply design a fully-diversified portfolio to weather the storm. By consistently maintaining your acceptable level of risk in the portfolio through periodic rebalancing, your probabilities for reaching your goals are much higher.

If you’re concerned about the economic conditions or have questions pertaining to your investments providing for your future in the manner you desire, consider a complimentary consultation with a Certified Financial Planner™ professional. When you have a vision for your future that helps you see your goals accomplished, it is much easier to live through the economic challenges of life. See you on the jogging trail!

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It’s Tax Time! Are You Ready?

Posted on February 17, 2023February 17, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

The taxman cometh! Every year at this time, individuals in our great country are asked to file their income tax returns to contribute a portion of their earnings to the common good. Some of us are immune to this exercise in honest reporting due to income levels. Others are subject at the highest rate of taxation allowed by law. All of us owe a duty to maintain the republic in revenue that we lawfully owe.

Due to the pandemic, many companies were subjected to slowing, or ceasing, supply lines that caused temporary, or permanent, layoffs of workers. In the past couple of months, some of the largest employers on the planet have given notice that they will be reducing their workforce due to the current economic climate. For example, according to a CNBC article published on January 18, 2023, more than 70,000 individuals lost their jobs in the past three months from companies such as Google, Meta, Microsoft, and many other giant technology companies.

What does one do when their means of earning a living has been eliminated? The state in which you reside generally provides temporary unemployment benefits to assist you in transitioning to another job. What many people don’t realize is that the benefits paid them are also taxable on their income tax return. Does this seem fair? From a purely theoretical tax law perspective, the taxation of these benefits is correct. This series of payments you are receiving to substitute, although in most cases at a lower level than you earned your wages, income for purposes of living expenses does, in fact, improve your cash flow. Many people fail to consider their marginal tax rate when receiving these payments and owe taxes on the money when their return is filed.

This year individual tax filers will receive a little extra time to file their 2022 income tax returns. Due to a federal holiday and April 15 landing on a Saturday, your income tax return is not required to be filed until April 18, 2023. However, it is my recommendation that you not wait until the due date to start the filing process.

Tax rates ranging from 10% to 37% are reasonable in respect to some other countries. Congressional leaders argue as to the fairness of our tax code. However, it has been proven that the top earners in our country, the labeled “1%”, do, in fact, pay 42.3% of the total income tax collected on earnings of 22.2% of the income according to the Tax Foundation, a non-profit think tank. Those taxpayers at the bottom of the earnings schedule took home 10.2% of the total income of the United States and paid 2.3% of the total taxes collected.

Our system of taxation does work, perhaps not perfectly, but functionally. One of my mentors asked me how I felt about being able to pay my debts including my taxes. My philosophy has been one that I truly wish to pay my family’s fair share of its debt to this great country. To pay taxes at the highest rate of taxation is to say our family enjoyed a prosperous year. Too many of us seek a means of reducing our tax burden by illegal means (i.e., dealing in cash, embellishing our expenses or deductions, etc.). It is incumbent on all of us to be honest and willing participants in this self-assessing system of taxation for our country to function properly.

Regarding the 87,000 IRS agents to be hired by the agency, there are many rumors about the types of employees and their focus in the collection and enforcement process of the U.S. Treasury. It is unfathomable to think that agents toting guns will be coming to a peaceful business to enforce collection of a tax that is voluntarily assessed and paid. However, the focus of these new agents will be directed toward those taxpayers who flaunt the system and intentional fail to report their earnings properly.

I have used this quote many times, but it is no more appropriate than at this time of year: “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.” – Judge Learned Hand

If you wish to lower your tax burden, consider a complimentary consultation with a Certified Financial Planner™ professional. By developing a plan to legally reduce your tax burden each year, you may save additional funds for other important matters in life. See you on the jogging trail!

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Predicting Your Future

Posted on February 9, 2023February 9, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Prior to starting the new year, many of us sat down with a pen and paper to develop our desired goals for 2023. Well, some of us did. Gallup, a national polling organization, studied goal setting by U.S. citizens and the results are encouraging. The findings were that 79% of adults age 18 – 34 and 72% of adults age 35 – 54 are most likely set new goals for 2023.

Based on the annual study, more Americans are setting goals for improvement of life in 2023 than in prior years. Why is it important to set goals for your life? Because it is very difficult, if not impossible, to hit a target you do not set. In other words, you will become a wandering generality rather than a meaningful specific to use the phrase of the late Zig Ziglar. I often hear people complain about life but do nothing to improve their quality of life.

Goals are far more than simply writing down aspirations and unattainable ideas. To be successful in goal achievement, you must become effective in goal setting. One of my annual tasks is to take time in November each year to evaluate my progress on current year goals and set the new year’s goals. The outcomes in life have been phenomenal! For example, I address goals in all the aspects of my life – financial, educational, spiritual, vocational, physical and familial. To gain a better understanding of this process, an example of one of my “go up” goals may be “To read and implement the learning from twelve books on my reading list by reading one per month.”

Setting goals is only one step in the process. To monitor my progress, I perform a weekly review and check on various projects, activities and appointments for each week. If I haven’t made progress on a goal, say the monthly book reading one, I can quickly correct my course and spend time reading to catch up on this important goal. This process each week takes less than fifteen minutes. Generally, I will perform such review on Friday afternoon (unless it is a beautiful day and the golf course is open, but I digress).

When you analyze your ambitions and desires in life, your goals will rise from your thoughts and inspire you to grow as a person. Success is the accomplishment of your goals but more than a checkmark beside a written statement it is the person you are becoming that you desire to see in the mirror. I am often asked what the definition of success is to me. My reply is a consistent one. Success is the freedom to live where you wish, to control your time as you desire and to live a life of abundance. Nowhere in my statement do I mention wealth or money as a definitional term for success.

Standard of living and quality of life are two different statements. Most people who chase only after a standard of living (i.e., money and wealth) do not experience a quality of life. However, with certainty, the people who seek a better quality of life achieve a better standard of living. Attitude is critical to achieve success. Gratitude is the fuel of passion that empowers you to achieve the proper attitude to reach success.

If you feel you are not making the progress you desire in life, it’s time you made a new plan. Seek out a Certified Financial Planner™ professional to assist you in forming a new plan in life that accomplishes your definition of success. At the end of life’s journey you will be more happy to say “I’m glad I did” rather than “I wish I had”.

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New Retirement Changes That May Secure Your Future

Posted on February 1, 2023February 1, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

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

Posted on January 27, 2023January 27, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

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

Posted on January 19, 2023January 19, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

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

Posted on January 13, 2023January 13, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

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

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.

Inflation

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.

Taxation

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!