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Here’s a Roundup of Your Nontaxable Income

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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

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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.

Becoming a Smarter Renter

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It seems everyone has a tale of a bad rental experience. If you rent anything – a home, a piece of equipment, or a car – here are some hints that can make it a positive experience.

Read all agreements. Read the lease agreement thoroughly prior to signing. Ask for clarification of anything you do not understand. Look for clauses in the agreement that might suggest the property owner has problems with its current tenants. If the agreement seems unfriendly, don’t sign it.

Negotiate up front. Be ready to negotiate your lease terms up front. If anything is unclear in the lease, have it clarified and put in writing. Be very clear about security deposits, first and last month’s rent, and services included in the lease.

Follow the terms. Be the tenant that pays a little early, not the one that always pays late. That way if you ever need a little extra time to pay, you have established the necessary trust to do so.

Proactive disclosure. If you think you will need a temporary exception to part of the lease, try to include it in your upfront negotiations. If this is not possible, consider proactively disclosing the exception to your property owner.

Keep the property clean. This is especially important if you have a pet in your rental property. When landlords come into your home, you will build confidence if the place looks like you treat it as if you owned it. The same is true with rental equipment. Always return it cleaner than you received it.

Know the owner and neighbors. Building a relationship with the property owner and your neighbors helps. If your neighbor has a problem with you, wouldn’t you rather have them come to you than to your landlord? Establishing a good working relationship with a landlord will help you when you need help with a problem in your home or with the equipment you rent.

Leave with a smile. This is especially true for home and vacation rentals. Before you leave, have the property cleaned and hassle-free for the landlord. Request a reference from the landlord for future rentals.

Tax Tips for Newlyweds

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The tax implications of marriage are probably not the first thing on the minds of most newlyweds, but paying a little attention to it now can save time and even money later. Here are a few tips to help those who are about to embark on a new life together.

Tip 1: Notify the Social Security Administration with any name change(s). The IRS has a name match program with the SSA and will potentially reject deductions and joint filing if the name change is not made timely. Do this by filing Form SS-5 with the SSA.

Tip 2: Use Form 8822 to update your address with the IRS if either of you is moving.

Tip 3: Change your name and addresses with your employer and the Postal Service to ensure your W-2s are correctly stated and delivered to the proper address.

Tip 4: If selling one or two residences, make sure you review how capital gains tax laws apply to your situation. This is especially important if one of you has been in your home for only a short time or if either home has appreciated in value.

Tip 5: Review legal documents to ensure legal titles are as you wish them to be. This includes bank accounts, titles on property, credit cards, insurance policies, and living wills.

Tip 6: Recalculate your payroll withholdings and file a new W-4. If both newlyweds work, your combined income could put you into a higher tax bracket. This phenomenon is referred to as “the marriage penalty.” By changing withholdings now, you can avoid a big surprise at tax time.

Tip 7: Review your employee benefits and make necessary changes in health care, insurance, retirement account beneficiaries, and tax-preferred spending accounts. Marriage is a qualified event to make mid-year changes by most employees.

If you or someone close to you has questions about marriage and taxes, give us a call. We’d love to help.

Planning a Wedding Over the Holidays

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Will wedding bells be ringing for you along with holiday sleigh bells this year? If so, add tax planning to your to-do list. Here are tax tips for soon-to-be newlyweds.

Check the effect marriage will have on your tax bill. If you both work and earn about the same income, you may need to adjust your tax withholding to avoid an unexpected tax bill next April, as well as potential penalty and interest charges for underpayment of taxes.

Notify your employer. Both you and your spouse will need to file new Forms W-4, Employee’s Withholding Allowance Certificate, with your employers to reflect your married status.

Notify the IRS. You can use Form 8822, Change of Address, to update your mailing address if you move to a new home.

Notify the insurance marketplace. If you receive advance payments of the health insurance premium tax credit, marriage may change the amount you can claim.

Update your social security information. You’ll need a certified copy of your marriage certificate to accompany Form SS-5, Application for a Social Security Card, if you change your name. Otherwise the IRS won’t be able to cross-match your new name and your social security number when you file your return with your spouse.

Review your financial paperwork. Update your estate plan, making appropriate changes to wills, powers-of-attorney, and health care directives. Also review the beneficiary designations on your retirement plans and insurance policies.

Have questions? Contact us. We’ll help you get the financial part of your married life off to a great start.

When Disaster Strikes, Will Your Business Be Prepared?

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Disaster preparedness involves answering the question: How would a disaster affect your business? If you’re not sure, it’s time to start planning. Here’s a quick look at how you can prepare beforehand, and what relief might be available afterward.

  • BEFORE DISASTER STRIKES

Identify key issues. Bring together managers of key areas and brainstorm on the critical steps needed to recover from a disaster. Consider at least two scenarios: a company-specific event such as a fire that affects only your business, and a regional disaster that affects the whole area. Since you can’t anticipate every need, your goal is to identify key issues and make basic preparations.

Establish a communications protocol. Think about how you’ll communicate with employees, vendors, and customers. At a minimum, each manager should have a contact list for key employees. Include phone numbers and personal email addresses.

Backup company records. Identify essential company records and know how you’ll access them. Make sure backups of your electronic information are stored in a safe location off-site. You may also need paper backups of certain key information in case of a power blackout. Create a master list of federal, state, and city tax information, bank account passwords, account number and login information, and insurance policy numbers.

Review your insurance. Meet with your agent and review the scope and dollar limits of your coverage. Discuss business interruption insurance. Make sure you understand your coverage.

  • AFTER DISASTER STRIKES

Apply for relief assistance. Know the steps required to apply for insurance reimbursements and federal disaster loans or grants.

Take advantage of tax breaks. Your business may qualify for a casualty loss deduction. If you’re in a Presidentially declared disaster area, you have the option of claiming the deduction against your prior year’s taxes for a faster refund.

Other tax benefits include extended due dates and penalty relief. Contact us for tax advice on your specific situation.

Financial Tips to Follow When a Spouse Dies

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The death of a spouse is emotionally and financially devastating. Making decisions of any kind is difficult when you’re vulnerable and grieving, but having a plan to follow may help. Here are suggestions for dealing with financial tasks.

  • Wait to make major decisions. Put off selling your house, moving in with your grown children, giving everything away, liquidating your investments, or buying new financial products.
  • Get expert help. Ask your attorney to interpret and explain the will and/or applicable law and implement the estate settlement. Talk to your accountant about financial moves and necessary tax documents. Call on your insurance company to help with filing and collecting death benefits.
  • Assemble paperwork. Documents you’ll need include your spouse’s birth certificate, social security card, insurance policies, loan and lease agreements, investment statements, mortgages and deeds, retirement plan information, credit cards and credit card statements, employment and partnership agreements, divorce agreements, funeral directives, safe deposit box information, tax returns, and the death certificate.
  • Determine who must be paid, and when. You’ll need to notify creditors and continue paying mortgages, car loans, credit cards, utilities, and insurance premiums. Notify health insurance companies and the Social Security Administration, and cancel your spouse’s memberships and subscriptions.
  • Alert credit reporting agencies. Request the addition of a “deceased notice” and a “do not issue credit” statement to the decedent’s file. Order credit reports, which will provide a complete record of your spouse’s open credit cards.
  • Determine what payments are due to you, such as insurance proceeds, social security or veteran’s benefits, and pension payouts. File claims where needed.

What You Need to Know About Hiring Seasonal Workers

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If summertime is a busy time for your business, you may be ready to hire seasonal workers. Here are tax rules to keep in mind.

  • Affordable Care Act exception. When you employ 50 or more full-time employees, you’re considered a “large employer” and are generally required to provide health insurance coverage or pay a penalty. However, the law provides an exception for seasonal workers, defined as those you employ for not more than 120 days during the prior calendar year. In general, your answer to two questions determines if you qualify for the exception. Did your workforce exceed 50 full-time employees for 120 days or fewer during the year? Were the employees in excess of 50 who were employed during that period seasonal workers? If both answers are yes, you’re generally not considered a large employer.
  • Employment taxes. Temporary workers are typically subject to the same employment tax rules as regular employees. You’ll generally have to withhold social security and Medicare taxes, as well as federal income tax from wages. You’ll also have to follow payroll tax deposit rules and employment return filing requirements.
  • Employment tax returns. Special filing rules may apply when you only hire employees at a specific season of the year, such as summertime. For each quarter that you pay wages, you can check the box for “seasonal employer” on Form 941, Employer’s Quarterly Federal Tax Return. By notifying the IRS of your seasonal status, you’re not required to file returns for quarters when you have no wages or tax liability.
  • Please contact us for more information about payroll tax rules, recordkeeping requirements, and documentation for seasonal employees. We’re here to make sure that your busy summer season goes smoothly.

Is This Insurance Missing From Your Financial Plan?

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What springs to mind when you hear “insurance?” Most likely, you think about auto, health, home, and life. But what if an illness or accident were to deprive you of your income? Even a temporary setback could create havoc with your finances. And statistics show that your chances of being disabled for three months or longer between ages 35 and 65 are almost twice those of dying during the same period.

Yet you may overlook disability insurance as part of your financial planning. Here’s how to fill that gap and get the right coverage to protect your financial well-being.

  • Scrutinize key policy terms. First, ask how “disability” is defined. Some policies use “any occupation” to determine if you are fit for work following an illness or accident. A better definition is “own occupation.” That way you receive benefits when you cannot perform the job you held at the time you became disabled.
  • Check the benefit period. Ideally, you want your policy to cover disabilities until you’ll be eligible for Medicare and social security.
  • Determine how much coverage you need. Tally the after-tax income you would have from all sources during a period of disability and subtract this sum from your minimum needs.
  • Decide what you can afford. Disability insurance can be expensive. You may opt to forego adding riders and options that boost premiums significantly. If your budget won’t support the ideal benefit payment, consider lengthening the elimination period. Just be sure that accumulated sick leave and savings will carry you until the benefits kick in.
Finance

Three Positive Steps to Financial Well-Being

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While you’re gathering information to prepare your 2015 tax return, set aside time for a financial review. Here are steps to get started.

  • Compile a year-end list of your assets and debts and compare the list to last year. Are you gaining or losing ground? What actions can you take to improve your financial situation in 2016?
  • Review your insurance. Do you have disability insurance to replace take-home pay if you become incapacitated? What about life insurance – will the benefit provide enough cash to pay your family’s expenses in the event something happens to you or your spouse? Is your home protected with replacement value property insurance? What about insurance for automobile accidents or lawsuits?
  • Update your will and estate plan. What changed during 2015? Did you marry? Divorce? Have a child? Move to a new state? Receive an inheritance? All of these events can affect your planning. This year, you can leave up to $5,450,000 to your heirs with no federal estate tax liability. But that doesn’t mean you can ignore estate planning, which includes expressing your wishes for who will make decisions for you in times of emergencies as well as who will receive your assets.

For more suggestions, call us. We’re here to help.