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.

Prepaid Debit Cards Offer Benefits and Drawbacks

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Prepaid debit cards, also known as stored-value cards, can be useful when you lack a traditional checking account. In an increasingly plastic-dependent world, these cards can be substituted for cash, and you can use them to pay for airline tickets, hotel stays, electronics, and groceries. Money is transferred, or “loaded,” to the card and is yours to spend until the card runs out of funds or is reloaded.

Prepaid cards have several advantages over traditional credit and debit cards. For example, if you’re traveling and the card is stolen, losses are limited to the amount on the card. In addition, because your personal banking information isn’t on the card, thieves and con artists can’t extract that data to steal your identity. Another use: Teaching kids how to budget. Some issuers offer instant alerts that monitor card activity, which is a great way for parents to see what their teens are purchasing in real time. If you’re the one who’s prone to overspending, prepaid cards offer a built-in safety net: you can’t spend more than the amount that’s loaded onto the card.

But be aware of the lack of regulatory constraints on the cards. Issuers have great latitude over fees and prepaid cards can get expensive. Depending on the card issuer, you might be charged a fee to activate the card, use it at an ATM machine, check your balance, add more money, or talk to customer support. You might be charged a monthly maintenance fee as well. Before you buy, read the fine print.

Summer Day Care Expenses Can Add Up to a Tax Credit

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Did you know that you can claim a federal income tax credit when you pay someone to care for your kids while you’re at work or school? The Child and Dependent Care Credit is valuable because it reduces the amount of tax you owe dollar-for-dollar. Here’s an overview of the rules.

  • Child care expenses must be work-related. This requirement means you have to pay for child care so you can work or actively look for work. If you’re married, you and your spouse must both work. Exceptions to this “earned income” rule include spouses who are full-time students or who are not able to care for themselves due to mental or physical limitations.
  • Expenses generally must be paid for care of your under-age-13 child. However, expenses you pay to care for a physically or mentally disabled spouse or adult dependent may also count.
  • Expenses must be paid to someone who is not your dependent. Amounts you pay your spouse, your child’s parent (such as an ex-spouse), anyone claimed as a dependent on your tax return, or your own child age 18 or younger do not qualify for the credit. For example, if you pay your 17-year-old dependent child to watch a younger sibling, that expense doesn’t count for purposes of claiming the credit.
  • The care provider has to be identified on your tax return. You’ll typically need to show the name, address, and taxpayer identification number. You can request this information by asking your provider to complete Form W-10, Dependent Care Provider’s Identification and Certification.
  • The amount you can claim depends on how much you spend for the care up to a dollar limit of $3,000 of expenses for one dependent and $6,000 for two or more dependents.

Contact us for more information.

Is Your Child Ready for a Summer Job?

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If your child is planning to work this summer, make sure you know the tax basics.

Tax returns. Assuming no other sources of income, your child will be able to earn up to $6,300 in 2016 before a federal income tax return has to be filed. However, if income tax is withheld from paychecks, your child will have to file a return to claim a refund.

Federal income tax withholding. When hired, your child will have to fill out Form W-4, Employee’s Withholding Allowance Certificate. This form tells the employer how much federal income tax to withhold. If the job involves tips, remember that tips are taxable income. Have your child maintain records of amounts received.

Financial aid. Summer earnings can affect eligibility for college financial aid. If you’re counting on financial aid, check out the earnings limit ahead of time.

Retirement saving. Consider encouraging your child to open a Roth IRA. Amounts invested in a Roth can grow tremendously due to tax-free compounding over many years. As an incentive, you might match any amounts your child is willing to save.

For assistance with the tax issues relating to summer employment, contact us.

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.

Report Your Foreign Accounts by June 30

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If you hold foreign bank or financial accounts, or have signature authority over such accounts, and the total value of all your accounts exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It’s easy to overlook this requirement because it’s separate from your federal income tax filing, with a different deadline and strict rules.

“FBAR” refers to Form 114, Report of Foreign Bank and Financial Accounts. Your 2015 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2016. No filing extension is available. Contact us if you need details or assistance.

Keep Track of Summer Rental Income

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Are you thinking of signing up with one of those websites that link travelers to property owners with space to spare? If you plan to offer for rent all or part of your main home, establishing sound recordkeeping procedures from day one is a good idea.

In addition to a bookkeeping system to track the income and expenses related to your rental, a calendar detailing the days your home was rented will be useful at tax time. The reason? Deductible expenses may be limited when rented property is also your personal residence. Having a written record helps determine which tax-reporting rules apply.

For example, say you rent your primary home to a vacationer for 15 days or more during a year. All of the rental income is taxable. However, expenses such as interest, property taxes, utility costs, and depreciation are split between the time your property was rented for a fair rental price and the days you used it personally. The portion related to the rental is deductible up to the amount of your rental income.

What if you have rental expenses in excess of your rental income? You may be able to carry them forward to next year.

Different rules apply when your home is rented for less than 15 days, and when the property you offer for rent is your vacation home or timeshare. Please contact our office. We’ll help you plan a tax-efficient rental program.

 

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.

Is Your Business Adequately Diversified?

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Is your business adequately diversified? Relying on too few customers, vendors, or key employees can leave you open to risks that can be catastrophic. Here’s what to consider.

Customers. Do you depend on just a few customers for the majority of your sales? What will happen to your business if your largest customer requests a major price reduction, starts buying from your competitor, or is bought out? Even if your company sells to many customers, you aren’t adequately diversified if most of them are in the same industry. This is known as concentration risk. Reduce it by targeting customers in different industries.

Vendors. How many suppliers do you rely on for the smooth operation of your business? Do you have a backup option if a key vendor raises prices, can’t provide enough product, or goes out of business?

Employees. Do you count on the skills and reliability of one key second-in-command person? What would happen if that individual suffered a family emergency and had to leave unexpectedly? Sharing information and allocating responsibilities among employees can keep the work flowing.

When your business is new, diversification may be difficult. But putting a plan in place to reduce your vulnerability to manageable risks is essential for your long-term success.

Include Your Tax Paperwork in Your Spring Cleaning

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Looking to minimize clutter? Here are recordkeeping guidelines that will help you do just that while retaining what’s important.

  • Income tax returns. Keep these at least seven years. Hang on to the back-up documents, such as Forms W-2, mortgage interest statements, year-end brokerage statements, and interest and dividend statements, for the same amount of time.
  • Supporting paperwork. Keep cancelled checks, receipts, and expense and travel diaries for a minimum of three years.
  • Stock, bond, or mutual fund purchase confirmations. Retain these while you own the investment. You can destroy them three years after you sell.
  • Real property escrow and title statements. Retain these documents as long as you own the property so you can prove your purchase price when you sell. They can be destroyed three years after the date of the sale.

As you purge your financial clutter, be sure to shred or otherwise destroy the discarded paperwork. These documents often reveal your social security number, bank and brokerage account activity, and other personal information that could lead to the theft of your identity.

Contact us for more recordkeeping tips.