6 Ways to Avoid a Credit Card Catastrophe

Do you feel like your credit card spending is out of control? Credit cards should be a convenient short-term way to pay, not a source of regular spending. Unfortunately, some people have a hard time staying true to this concept. Instead of paying off the entire balance due on the card each month, they let it grow and pay only the minimum amounts.

If this sounds all too familiar, it’s time to stop what you’re doing and start following these rules:

  1. Pay the entire balance due each month.
  2. If a balance remains unpaid at month’s end, do not use the card again.
  3. Do not use more than one credit card.
  4. Do not accept credit cards from specific retail stores.
  5. Do not pay off one credit card with another.
  6. Do not purchase gifts for people with your credit card. It’s often too easy to let your generosity exceed your ability to pay.

Why a Business Appraisal is Your Best Friend

For many business owners, business appraisals can provide vital planning information and help mitigate risk. Consider what it may be able to do for you:

  • Establish a verifiable value for your business. This can show whether assets have appreciated at a reasonable rate. If not, you may need to adjust your firm’s strategy.
  • Create documentation to support new financing. Lenders need strong evidence that their loans are properly secured. A business appraisal can supply that evidence. An independent evaluation of business assets may also encourage lenders to offer favorable interest rates.
  • Set a reasonable selling price. Without a detailed and defensible appraisal, owners selling their businesses sometimes entertain unreasonably low offers. On the other hand, an appraisal can keep owners from overpricing the firm and thus discouraging potential buyers.
  • Avoid litigation after a death. What happens if one owner dies or otherwise leaves his or her share of the business to others? In some cases, litigation follows. To ensure that the remaining owners’ interests are protected, the business needs to be appraised beforehand.
  • Support proper estate planning. If your estate is audited, the IRS is more likely to accept valuations that include a clear and reasoned appraisal. In fact, if discounts are adequately supported by an appraisal, estate taxes may be reduced.
  • Figure out capital gains. For example, if you inherit a business from your father and decide to sell it, the business can be valued as of the date of your father’s death. A good appraisal can help establish a supportable value for the business and may result in lower capital gains taxes.

Contact our office if you have questions about selling your business.

Here’s a Roundup of Your Nontaxable Income

Good news – there are a lot of revenue sources that aren’t taxed. Do you know what they are? Here are the most common sources of money that are generally not taxed on your federal income tax return:

  • Borrowed money, such as from banks or personal loans
  • Money received as a gift or inheritance from family or friends
  • Money paid on your behalf directly to a school or medical facility
  • Most life insurance proceeds
  • Child support payments
  • Money you receive for sustaining an injury
  • Scholarships for tuition and books
  • Disability insurance benefits from a policy purchased with after-tax dollars
  • Interest received on municipal bonds

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

Three Reasons Why your Child Should (or Shouldn’t) Have Life Insurance

Should you carry life insurance on your children? When determining whether or not to carry life insurance on your children, you’ll find that people have a variety of opinions. Here’s a look at some of the most common considerations for and against life insurance policies on children:

  • Financial security. Traditionally, you take out life insurance to provide for the financial security of dependents. The policy should include funds to replace the insured’s income and to pay off debts. Neither of these reasons applies to young children. They don’t generally have any significant income, and they don’t usually have any debts. Some parents might want to carry a modest amount of insurance to cover funeral costs for their children in case the unthinkable happens.
  • Some people believe that by taking out a policy at a young age, it helps guarantee insurability as the child grows older. This could be important if the child develops a major illness later in life. The problem is that if the child does develop a serious illness, insurance will still become very expensive or limited.
  • Insurance as an investment. Some advisors suggest that parents should take out a whole life policy on their children. These policies include a savings component to build up cash value in the policy. You could then use that value for education expenses or other needs. But others say that there are cheaper and more efficient ways to save than by using life insurance. For example, putting money into a tax-advantaged 529 education savings plan is often a better way to save for school tuition costs.

Although a majority of advisors may argue against life insurance for children, there may be some situations where people find it makes sense. However, you shouldn’t take out a policy just because it is offered to you or because others are doing it. Make sure to do your homework and know exactly why you need the insurance.

How to Get Your Marriage Off to a Good Financial Start

Don’t say “I do” until you’ve said a lot more to your spouse about finances. Wedding season is upon us. Did you know couples often enter into marriage without ever having had a discussion about financial issues? As a result, they find themselves frequently arguing about money. If you are planning a wedding, here are some steps you can take to get your marriage off to a good financial start:

  • Determine your financial compatibility. Take some time to discuss your finances before you tie the knot. Talk about your assets, debts, credit ratings and your financial attitudes, including your spending and saving habits. Do you share the same goals? Talk it out and see where you two align and where you differ.
  • Make a plan for how to handle finances after you say “I do.” This means figuring out day-to-day stuff, like who will pay the bills and whether or not you’ll maintain joint or separate checking accounts.
  • Involve your financial advisors. Every couple needs to work out their own style for handling money. Call us to assist you in setting up a budget, controlling your taxes and mapping out a financial plan for your future.
  • Discuss any related legal matters. If you have substantial assets, talk about the merits of a prenuptual agreement with your attorney. And ask your attorney how you can protect yourself from your partner’s credits if they have substantial debt. Perhaps you plan on buying a house together or combining financial accounts. Your attorney can advise you on the best way to hold title to your assets.

Discussing your finances before you wed may increase your chances for living happily ever after. Give us a call if you would like assistance in this area.

Want a Successful Business? Delegate

Even though delegating work may seem like a no-brainer, it’s often not the first idea that comes to mind when you’re contemplating how to get things done at work. It’s easy to get in the mindset that if you want things done the right way you have to do them yourself. But that isn’t always the best approach at work, even if you firmly believe you’re the best person for the job. There simply isn’t enough time in the day, especially if you have a business to run.

Like it or not, you must learn how to delegate work to your employees. Here are some helpful hints:

Develop a game plan. Start by deciding which tasks to delegate and which employees will be assigned responsibilities. The workload doesn’t have to be etched in stone, but you need a basic plan to subdivide jobs.

Find your most reliable, autonomous employees. You will need to rely on people who can think for themselves. Don’t rely on employees who you anticipate will be constantly seeking your guidance. If you have to show someone what to do every step of the way, it defeats the entire purpose.

Don’t hinder your employees. Give them the authority to act independently and make decisions on the fly. Don’t hinder the process by requiring employees to obtain your approval on every decision. This will only turn into a variation of doing things the same old way.

Keep track of work progress. This aspect must be handled with sensitivity. You’ll want to keep an eye on employees, but you can’t keep looking over their shoulders either. Find the proper balance.

Analyze the results. Do this to determine if the work met your expectations. If it didn’t, offer constructive criticism for improvements. Make this a learning experience for both of you.

As you become more comfortable delegating work, you can continue to loosen the reins. When you spend less time on routine matters, you’ll have more time to devote to growing your business profits.

What the Tax Reform Act Means for You

Revised: 12/28/2017

Congress has passed a tax reform act that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new act, which was signed into law on Dec. 22, 2017.

You can use this memo as a high-level overview of some of the most significant items in the new act. Because major tax reform like this happens so seldom, it may be worthwhile for you to schedule a tax-planning consultation early in the year to ensure you reap the most tax savings possible during 2018.

Key changes for individuals:

Here are some of the key items in the tax reform act that affect individuals:

  • Reduces income tax brackets: The act retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent. The individual income brackets are also expanded to expose more income to lower rates (see charts below).
  • Doubles standard deductions: The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended.
  • Limits itemized deductions: Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:
    • Caps state and local tax deductions: State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.
    • Caps mortgage interest deductions: For new acquisition indebtedness, mortgage interest will be deductible on indebtedness of no more than $750,000. Existing mortgages are unaffected by the new cap as the new limits go into place for acquisition indebtedness after Dec. 14, 2017. The act also suspends the deductibility of interest on home equity debt.
    • Limit of theft and casualty losses: Deductions are now available only for federally declared disaster areas.
    • No more 2 percent miscellaneous deductions: Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.
  • Cuts some above-the-line deductions: Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.
  • Weakens the alternative minimum tax (AMT): The act retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and increases the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.
  • Bumps up child tax credit, adds family tax credit: The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.
  • Expands use of 529 education savings plans: Qualified distributions from 529 education savings plans, which are not subject to tax, now include tuition payments for students in K-12 private schools.
  • Doubles estate tax exemption: Estate taxes will apply to even fewer people, with the exemption doubled to $11.2 million ($22.4 million for married couples).
  • Kiddie tax: Effective 2018, the “kiddie tax” on children’s unearned income will use the estates and trusts tax rate structure, meaning it will be taxed anywhere from 10 percent to 37 percent.

What stays the same for individuals:

  • Itemized charitable deductions: Remain largely the same.
  • Itemized medical expense deductions: Remain largely the same. The deduction threshold drops back to 7.5 percent of adjusted gross income for 2017 and 2018, but reverts to 10 percent in the following years.
  • Some above-the-line deductions: Remain the same, including $250 of educator expenses and $2,500 of qualified student loan interest.
  • Gift tax deduction: Remains and increases to $15,000 from $14,000 for 2018.

Farewell to the healthcare individual mandate penalty

One of the changes in the tax act is the suspension of the individual mandate penalty in the Affordable Care Act (also known as “Obamacare”). The penalty is set to zero starting in 2019, but remains in place for 2018 and prior years.

Tip: Retain your Form 1095s, which will provide evidence of your healthcare coverage. Without it, you may have to pay the individual mandate penalty, which is the higher of $695 or 2.5 percent of income. Beginning in 2019, this penalty is set to zero.

NOTICE: The IRS recently granted employers and health care providers a 30-day filing extension for Forms 1095-B and 1095-C, to March 2, 2018. The IRS clarified that taxpayers are not required to wait until receipt of these forms to file their taxes.

New 2018 tax bracket structures for individuals
Single taxpayer

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

Head of household

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%


Married filing jointly

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000   37%


Married filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000   37%

 Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500   37%

Key changes for small businesses:

Here are some of these key items in the tax reform act that affect businesses:

  • Cuts the corporate tax rate: Corporate tax gets cut and simplified to a flat 21 percent rate, changed from a multi-bracket structure with a 35 percent top rate.
  • Reduces pass-through taxes: Most owners of pass-through entities such as S corporations, partnerships and sole proprietorships will see their income tax lowered with a new 20 percent income reduction calculation.
  • Beefs up capital expensing: Through 2022, short-lived capital investments in such items as machinery and equipment may be fully expensed as soon as they are placed in service, using bonus depreciation. This now also applies to used items instead of only new ones; they just need to be placed in service for the first time in your business. After 2022, allowable bonus depreciation is then lowered incrementally over the next four years.
  • Strengthens Section 179 deduction: Section 179 deduction limits get raised to enable expensing of up to $1 million, and the phaseout threshold increases to $2.5 million. Section 179 may now also be used on expenses related to improvements to nonresidential real estate.
  • Nixes the corporate alternative minimum tax (AMT): The 20 percent corporate AMT applied to businesses goes away entirely.
  • Expands use of cash-method accounting: Businesses with less than $25 million in gross receipts over the last three years may adopt the cash method of accounting.
  • Reforms international taxation: Treatment of international income moves to the territorial system standard, in which foreign investments are generally only taxed in the place in which they operate. The new laws allow tax deductions for certain foreign-sourced dividends, reduced tax rates for foreign intangible income and reduced tax rates for repatriation of deferred foreign income.
  • Repeals business entertainment deduction: Businesses will no longer be able to deduct 50 percent of the cost of entertainment, amusement or recreation directly related to their trade or business. The 50 percent deduction for business-related meals remains in place, however.
  • Modifies several business credits: Several business credits are maintained but modified, including the orphan drug credit, the rehabilitation credit, the employer credit for paid family or medical leave and the research and experimentation credit.
  • Boosts luxury automobile depreciation: Luxury automobiles placed in service after 2017 will have allowable depreciation of $10,000 for the first year, $16,000 the second, $9,600 the third and $5,760 for subsequent years.

This brief summary of the tax reform act is provided for your information. Any major financial decisions or tax-planning activities in light of this new legislation should be considered with the advice of a tax professional. Call if you have questions regarding your particular situation. Feel free to share this memo with those you think may benefit from it.

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