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

Controlling Your Debt

Posted on January 5, 2023January 5, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

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

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!

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Why it is Critical to Plan for 2022 — NOW!

Posted on November 25, 2022November 22, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

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 PLANNER^™professional 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

Posted on November 18, 2022November 18, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

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 PLANNER^™professional 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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Exercise Your Right; Discharge Your Duty

Posted on November 4, 2022November 4, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

“This is your duty, son,” my father told me on my 18^th birthday as he drove me to the county election board office to register to vote. As a teenager, I understood civics (thank you, Mr. Nunn) by learning from wonderful teachers who made the process fun. As students of civics, we studied the form, function, and limitations of our federal and state governments.

Why is this important in a column about investing? A valid question. The answer is also very appropriate – without a proper understanding of government and its role in our economy, one cannot understand our financial markets and other economic factors. By studying government and participating in the process of electing our leaders of such government, citizens are taking an active role in their nation’s functions. Our country was founded by individuals who desired for an opportunity to play a role in the functions of the government. The vote was a right originally given only to wealthy, male landowners. After the 19^th amendment, passed on August 18, 1920, women were given the right to vote.

One of the outcomes of elections is that policy makers are identified, and their roles are defined. For example, the governor of a state is the chief executive officer of the state’s agencies and assets which are to be utilized for the benefit of the state’s citizens. How these assets are utilized, and the agencies functions are a direct relationship to the governor’s beliefs and style of management. Some leaders believe government is the solution to all the people’s problems. Other leaders believe the problems of the citizens are caused by the government.

If I may reminisce for a moment, my grandfather was always quote at election time, “If you don’t vote, you can’t complain!” Not certain that is a valid comment about one’s ability to refrain from speaking about perceived or actual ills of the government, but he did state it in that manner.

Tuesday, November 8, 2022, is a national election day in the United States of America. It is incumbent on each of us to discharge our duty as citizens by voting. Research your candidates and confirm in your own mind the person’s platform for running for office is the slate of actions you wish to see the person perform while in office.

Planning for your retirement is critical to achieve your desired goals. It is imperative that you participate in creating the future you wish by being informed and involved in the electoral process of our government. As Abraham Lincoln so eloquently stated, and I paraphrase, “To predict your future, you must simply create it in the manner you wish.” Contact a CERTIFIED FINANCIAL PLANNER^™professional to assist you in creating a plan that helps you achieve the lifestyle you desire. Go vote for the candidates of your choice. Next, go for a walk and dream about a bigger future for your family and you.

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The One Constant is Change

Posted on October 21, 2022October 21, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Remember as a younger person when you first heard the phrase, “the only constant in life is change”? At the time you, perhaps, thought the person to be either a great philosopher or speaking gibberish. As I am approaching the inspirational age of 60 years young, the aforementioned statement of change has been proven true more times than I can recall. To provide additional truth to this historic statement, the IRS does its part by changing the laws governing your annual filing of income tax returns.

The standard deduction is the allowance of a certain amount to accommodate your lifestyle needs such as food, shelter, and clothing without the need to itemize these deductions on your individual income tax return. Each year the IRS considers the inflation rate in the United States to determine if adjustments should be made to the standard deduction amount for the various filing statuses. In recent years, the IRS simplified this process by combining the original standard deduction with the exemptions a filer could claim to reduce his taxable income.

Due to the altitudinous inflation experienced in the United States in the past two years, most recent rate provided by the U.S. Bureau of Labor Statistics to be 8.2%, the IRS recently issued the increased standard deduction amounts for the 2023 tax year (i.e., your return you will file in 2024). For those filing jointly, the standard deduction has increased $1,800 over the 2022 amount to a deduction of $27,700. If you qualify as a single filer or choose to file as married but filing separate from your spouse, the standard deduction is $13,850 which is $900 higher than the previous allowed deduction. For those individuals who are single and maintain a household for a minor or special dependent, the head of household status allows a greater deduction than a single filer. Their amount for 2023 standard deduction will be $20,800 which is $1,400 higher than in 2022.

For taxpayers that owe little or nothing for a residence, contribute smaller amounts to charities and have medical coverage for major illnesses or infirmities, the standard deduction provides a benefit. Time is a considerable savings for filers who do not meet the standard deduction limit with their itemized deductions. To simplify the process of filing your individual return each year, consider the standard deduction amount allowed and perform a quick mathematical equation to confirm your potential deductions are more than your standard deduction.

The United States Tax Code provides seven tax rates, or brackets, for purposes of calculating your annual income tax liability. From a rate as low as 10% on taxable income of $11,000 or less to a maximum rate of 37% for filers with taxable income above $578,125 for single individuals and above $693,750 for married filing joint taxpayers. To add a little complexity to the process, the Congress assesses a surtax on certain filers to assist in the funding of the Medicare and Social Security programs.

One of the easiest methods of completing your annual tax filing obligation is to start early. Employers are required to mail Forms W-2 to employees on or before January 31, 2023. Start now by gathering your potential itemized deduction receipts and as income documents are sent you, begin the process of completing your returns. It is recommended that you file electronically to facilitate the processing of your returns and, hopefully, the electronic deposit of a refund check to your bank account.

A quote attributed to one of the greatest planners of the last one hundred years, President Dwight D. Eisenhower, as the commanding general in WWII, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” applies to tax “battles.” The planning for targeted outcomes is critical to the realization of your goals.

Tax planning is necessary for you to prepare yourself for the best results possible in filing and paying your annual income taxes. If you need assistance achieving your retirement planning goals, one of which should be the lessened impact of taxation on your wealth, seek the assistance of a CERTIFIED FINANCIAL PLANNER^™professional to guide you through this important planning process. Go play in the Autumn breeze this weekend!

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Medicare Benefits Planning

Posted on October 17, 2022October 17, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most critical benefits affecting American citizens is the Medicare Program. For those individuals who qualify at age 65, this program provides health coverage for inpatient care (Part A), outpatient care (Part B), prescriptions (Part D) and other areas. This article will focus on these three most common areas of care.

To qualify for Medicare benefits, you must have worked in a job that withheld Medicare contributions from your paycheck while working at least forty quarters (i.e., 10 years). This is a very low bar to meet eligibility for such a comprehensive medical plan. Of course, as with many federal laws, exceptions apply to the general guidelines.

The important concept of medical coverage through Medicare is that it functions similar to the private insurance you may have received while employed in your career. For example, Medicare covers 80% of your covered qualified medical charges for inpatient care. This means your hospital stay may be covered but you will be expected to pay the remaining 20% unless you purchase a Medicare Supplement Plan.

Supplement plans are relatively inexpensive and can be the difference between destroying your lifetime savings and the security your family needs. There are many carriers of such plans and each state may differ as to the carriers available. It is critical that you determine the appropriate Medicare Supplement Plan you desire that is contracted with your various medical providers. Supplement plan consultants are often helpful to narrow the field of possible plans and to assist in the selection of a plan that meets your budget.

To enroll, or to change plans, you should be aware of the upcoming Open Enrollment Period. For 2022, the period is October 15 through December 7. It is critical that you review your current plan for potential savings as new plan changes and plan providers are introduced into the marketplace. Often people will purchase a supplement plan and, like the infomercial, “set it and forget it”. This is a big mistake that could cost you thousands of dollars.

Let’s review the outcomes of such a person who failed to obtain a supplement plan and suffered a significant health issue. While in the Intensive Care Unit of a major hospital, the medical care she received was excellent. She left the hospital after 10 days of care and felt so much better… until she started receiving the bills! The total cost of the hospital stay was more than $120,000 for all the medical care provided her. Without a supplemental plan, she was responsible for more than $24,000 of the total cost.

Medicare Part D is a complicated area of law. It is vital that you seriously consider enrolling in this program when you are first eligible or you will be penalized for each month you delay enrollment. This sounds rather harsh but the method of funding the program is through premiums assessed individuals who utilize the benefit. Considering that most people may live a relatively healthy life until age 75, the ten-year period of qualification to election date may cause you to incur a significant penalty at a time when you may need your savings for other priorities.

The cost of medical care continues to rise at an unprecedented pace in the United States. We highly recommend those individuals enrolling for their Medicare Benefits to seriously consider purchasing a supplement plan. Monthly premiums vary depending upon the level of care and the carrier issuing the policy.

If you are approaching your 65^th birthday, it is critical that you file for your Medicare Benefits approximately 60 – 90 days prior to your birthday. It will be a lot easier to blow the candles off your cake if you aren’t worrying about medical bills. Seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional to guide you through this critical and difficult process. Make it a wonderful week!

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What Is Your Net Worth?

Posted on September 23, 2022September 23, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

As a result of the economic disruption of the past two years, many people are becoming confused and concerned as to the sufficiency of their financial wealth in maintaining their lifestyle. Fear has a means of causing one to doubt previously acceptable strategies and financial reserves as supportive of your future. By focusing on the factors, you can control, you will regain your confidence and build competence to achieve your future no matter the market conditions.

First, it is critical that you understand your current financial state. To do this it is necessary that you look earnestly at your overall finances in a manner that provides you the most information. One document that will help you capture this information in a succinct manner is a personal financial statement. This report is a snapshot of your assets (the items you own), your liabilities (the amounts you owe to others) and your net worth (an arithmetic function of assets minus liabilities). Let’s assume you own assets valued at $3,000,000 and have liabilities of $1,000,000. Your current net worth, in the most simplistic of terms, would be $2,000,000.

By understanding what you own and how much you owe others, you may now start the planning process for the future. You know the old saying, “It is hard to get to where you wish to go if you don’t where you are.” This document can be a very useful tool for an individual planning for her future. Exam the personal financial statement and notice those assets that may create income and those that simply grow in value. Perhaps on your financial statement there are assets that are idle and incur expenses without generating income to offset their maintenance.

Examining the liabilities, you may calculate several important ratios or factors that will help you achieve greater net worth. For example, if your indebtedness is secured by collateral, what is the value of the asset? Is it sufficient to allow the indebtedness to be liquidated by selling the asset? What is my weighted average cost of borrowing? These are important questions to consider when creating a financial plan.

Taxes are often overlooked on a personal financial statement. This is one liability that must be considered in the statement since it is prevalent in our country and will require assets to achieve the payment. Taxes are owed in many forms – estate, sales, income, property, etc. I am reminded of the poem authored and published by the Adam Smith Institute that reads in part, “Tax his cigars, tax his beers, if he cries then tax his tears. Tax all he has, then let him know, that you won’t be done til he has no dough. When he screams and hollers, then tax him some more, tax him til he’s good and sore.” A little levity is always good when talking about a portion of one’s lifetime income being sent to a taxing authority.

The final step is to analyze the change in your net worth. Are you growing in net worth or are you losing ground? It is critical to understand the net worth you possess so that you can work with this amount for purposes of funding your future lifestyle. Review your net worth over the past ten years and note the growth trend you experienced. Are you consistently increasing in net worth prior to retirement? If not, adjustments must be made in your assets that you purchase and the indebtedness you incur.

To fully understand the development and uses of a personal financial statement, seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional. To create a pathway to success, you must first establish your current point in time and net worth. You owe it to your family and yourself to be as capable as you can possibly be to direct your efforts to the future of your design. See you on the gridiron!