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Bond Frequently Asked Questions

Posted on by TheWealthIncreaser.com

Bond Frequently Asked Questions

 Learn more about bonds and bond funds by reviewing common questions that many have asked about bonds…

 

Q: What can I do to position myself for successful bond investing?

A: It is important that you “have all your bases covered” prior to starting on your bond investing or any investing as it is important that you have reduced or eliminated your debt to an acceptable level, you have a properly funded emergency fund (or you are working toward that goal), you understand credit—and you have looked at your finances in a comprehensive way.

By doing the above you put yourself in position for lasting success and you make your bond investing (or any investing) more likely to succeed—and even if you are unsuccessful your living conditions won’t be adversely affected.

 

Q: What is a bond?

A: a bond is a debt instrument used by corporations (and government entities) to help fund their growth.  Bonds are issued in increments of $1,000 and are sold at either a discount (below $1,000) or at a premium (above $1,000) and yield and yield to maturity is used to determine rates of return.

Interest rate movement will play a large factor in determining the actual yield or yield to maturity.  Bonds come in all durations with short, intermediate, and long-term available on the markets.

Governments also issue bonds (i.e. series EE and Series I) directly to individuals as well and they also issue municipal bonds  and treasuries among others.

 

Q: What is a bond fund?

A: a bond fund is a collection of bonds and can be mixed in any number of ways such as corporate and government, long-term only, short, intermediate and long-term, national and international and many other ways that a bond fund manager sees fit to create.

 

Q: What is the difference among corporate, municipal, government, international, series EE, series I and junk bonds?

 

  • Corporate bonds are a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company’s physical assets may be used as collateral for bonds.

 

  • Municipal bonds (or “munis” for short) are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems etcetera. Generally, the interest on municipal bonds is exempt from federal income tax, however some municipalities issue both taxable and non-taxable munis.   Pension funds and foreign investors normally don’t get the tax break.

 

  • Government bonds are a debt security issued by a government to support government spending. Before investing in government bonds, investors need to assess several risks associated with the country, such as country risk, political risk, inflation risk and interest rate risk, although the government usually has low credit risk. Federal government bonds in the United States include savings bonds, Treasury bonds and Treasury inflation-protected securities (TIPS).

 

  • International bonds are a debt investment that is issued in a country by a non-domestic entity.  International bonds are issued in your country but are purchased outside of the country in which you reside and are purchased in your  country’s currency.  They pay interest at specific intervals, and pay the principal amount back to the bond’s buyer (you) at maturity in the same manner as domestic bonds.

 

  • Series EE bonds are a “non-marketable”, interest-bearing U.S. government savings bond that is guaranteed to at least double in value over the initial term of the bond, typically 20 years. Most Series EE bonds have a total interest-paying life that extends beyond the original maturity date, up to 30 years from issuance.

 

  • Series I bonds are a non-marketable, interest-bearing U.S. government savings bond that earns a combined: 1) fixed interest rate; and. 2) variable inflation rate (adjusted semiannually).  Series I bonds are meant to give investors a return plus protection on their purchasing power.  Series EE and I bonds are considered “non-marketable” savings bonds meaning they can’t be bought and sold in the marketplace.  The can be redeemed at many banks and financial institutions.

 

  • Junk bonds are a fixed-income instrument that refers to a high-yield or non-investment grade bond. Junk bonds carry a credit rating of BB or lower by Standard & Poor’s (S&P), or Ba or below by Moody’s Investors Service. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.

 

They do well when the economy is growing rapidly, and stocks are rising.

Q: What are bond rating agencies and how do they operate?

A: There are a number of bond rating agencies and they include Weiss, S & P’s, Moody’s, Fitch and several others and they rate corporations, cities, counties, states and national government’s based on their ability or perceived ability to repay their debt.

In a sense it is based on the financial strength that they bring forward based on their past, present and projected ability to repay their debt obligations.

  

Q: What is the bond rating of the United States?

A: With the United States being the strongest economy in the world in the minds of many it is a big surprise for many when they learn that the United States does not have the highest bond rating.

The United States was recently downgraded from AAA to AA by Moody’s and Standard & Poors (several credit rating agencies around the world have downgraded their credit ratings of the U.S. federal government, including Standard & Poor’s (S&P) which reduced the country’s rating from AAA (outstanding) to AA+ (excellent) on August 5, 2011.

 

Q: If the interest rate rises what will happen to bond prices?

A: The bond price “will fall” as there is an inverse relationship (opposite relationship) to bond prices–meaning if interest rates fall bond prices will rise.

 

Q: What is YTM or Yield to Maturity and how do I determine what my YTM is prior to purchasing a bond?

A: Yield to Maturity takes into consideration the interest (coupon payments) during the period of bond ownership up until the bond is sold at its maturity date—thus YTM.

Yield on the other hand only includes the coupon payments that you will receive on an annual basis.

You can possibly get the YTM or projected YTM from your broker or other published financial publications.

 

Q: What is duration as it relates to bonds?

A: Duration is a measure of a bonds interest rate sensitivity.  You can use a bonds duration to make a better decision as to whether the bond will rise or fall based on interest rate movement.

 

Q: How are bonds taxed?

A: Many are taxed depending on whether they are inside or outside of a retirement account and the taxation is based on the interest received during the year.

If they are inside of your retirement account they may avoid taxation until withdrawals or retirement distributions begin to occur.  Some bonds (depends on the type) are taxed on an annual basis and some are taxed at maturity and those that are used for certain purposes may avoid taxation altogether.

 

Q: What is the biggest risk that I will normally face if I invest in bonds?

A: Market activity is the real key especially as it relates to rising inflation.  If inflation is stable or not moving upward much, interest rate movement will normally be stable as well and bond investments will remain a good play.

When a large number of bondholders move over to stocks for varying reasons that too can be a cause for concern.

However, rising inflation is something you must be aware of and if you are a bond owner you want to be aware of that movement so that you can countermove and limit your losses or protect your gains—in a timelier manner.

 

Q: What is bond laddering and how can I ladder my portfolio to increase my returns?

A: You can ladder your portfolio by purchasing bonds at different times and purchasing bonds with differing durations.

For example you can purchase short, intermediate and long-term bonds at differing intervals such as every 6 months, every year or every other year for a specified period of time—and that will help protect your gains or limit your losses.

 

Q: What is my number 1 concern if I decide to invest in bonds?

A: Depending on the type of bond you invest in inflation is normally the major concern as it will devalue the real worth of future interest payments and usually results in higher interest rates that will bring down the bond’s current market value.

 

Q: What is an inverted yield curve and how will it affect my bond investments?

A: It usually means the economy is slowing and moving into a recession.  Investors may forecast lower interest rates and pull money out of bonds and put into cash, stocks or mutual funds.

 

Q: How are bonds typically sold?

A: Usually in multiples of $1,000 if you purchase from a broker.  Bond funds and mutual funds may offer investment of a lower amount.  Series EE and I bonds can be purchased for as little as $50.  Treasuries will often have a minimum investment of $100.

 

Q: If a company liquidates where do I as a bondholder fall in claiming whatever cash becomes available as a result of the liquidation (bankruptcy)?

 

A: The good news is that bondholders are first in line to be paid during bankruptcy proceedings.  You would be considered a general creditor, along with employees, contractors and suppliers—stockholders would be the last in line.

 

 

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Qualified Business Income & Taxation

Posted on by TheWealthIncreaser.com

Learn how you can use QBI (Qualified Business Income) to lower your taxes…

 

After the tax cuts and jobs act of 2017, a popular buzzword or acronym that has crept up in the American lexicon is QBI or Qualified Business Income as it has the potential to lower the taxes for those who qualify.

 

In this discussion TheWealthIncreaser.com will try to explain what QBI is and show you ways that you can use this new tax change that occurred as a result of the tax cuts and jobs act of 2017 to reach your future goals more efficiently.

 

What exactly is QBI and why should I be concerned about QBI?

 

QBI stands for Qualified Business Income!

QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business as the result of the 2017 tax cuts and jobs act that occurred in the United States.

In  laymen terms if you have income from a sole proprietor, partnership or other pass through entity you could potentially deduct 20% of the income and lower the taxes that you pay on your tax return.

The pass-through deduction is a personal deduction that you may take on your Form 1040 whether or not you itemize and the deduction is taken on line 9 (second page) of your Form 1040.

It is not an “above the line” deduction on the first page of Form 1040 that reduces your adjusted gross income (AGI).

Furthermore, the deduction only reduces income taxes, not Social Security or Medicare taxes so keep that in mind.

 

Can QBI be used for rental property?

 

The new Section 199A regulations make it clear that merely owning rental real estate that generates rental income is not a trade or business of being a real estate investor, and as such, wouldn’t qualify for the QBI deduction.

However, if you actively manage your rental real estate—there is the potential for some or all to be classified as QBI.

 

Who qualifiies for the QBI deduction?

 

If you are self-employed or your business qualifies as a pass-through entity, the Tax Cuts and Jobs Act says you may deduct up to 20% of your QBI on your federal income tax return if you meet the qualifications.

The QBI deduction is known as the pass-through entity deduction that you may have heard about!

 

The following would have to be subtracted out of your business income when calculating the QBI deduction:

 

* capital gains and losses

* dividends or interest

* annuity payments

* foreign currency gains or losses

* reasonable compensation for owner/employees of S-Corps

* guaranteed payments to partnerships and LLCs

 

Are there Income Thresholds?

 

The QBI Thresholds for the 2018 tax year are:

  • $157,500 for single filers, and

 

  • $315,000 for people filing joint returns

 

The numbers will be adjusted for inflation after the 2018 tax filing season.

 

Also, keep in mind that  for certain businesses that provide services such as law firms, accounting firms, and doctors’ offices, the limitations are steeper and the deduction is phased out altogether when taxable income reaches $207,500 ($415,000 for joint filers).

 

Example 1:

You formed a new company in 2018 and operated as a sole proprietor.

During 2018, your w-2 wages total $82,183, you itemize, make IRA contributions and pay tuition and fees (both of which would be non-deductible due to your combined income exceeding the threshholds) and your businesses generates a loss of ($11,763) from business 1 and a gain of $196,987 from business 2.

Your QBI deduction would be $34,956 calculated as follows:

$196,987 gain from business 2 minus ($11,763) loss from business 1 equals net gain of $185,224 less 1/2 of self employment tax paid of $10,442 equals QBI deduction of $34,956.

You file jointly with your spouse for 2018, and the combined “taxable income” for the year for both you and your spouse, after subtracting out your itemized deductions of $24,765 and the QBI deduction or qualified business income deduction, is $198,084.

You have two dependents that allow you to claim the “credit for other dependents” of $1,000, and your other taxes total $20,912 which consist of self-employment tax of 20,883 and an additional medicare tax of $29 since AGI exceeded the $250,000 threshold for married filing jointly.

Your total tax would be $56,031 and with federal withholding of only $3,198 you would owe taxes in the amount of $52,833 for the 2018 tax year.

 

Deduction for Income Above $315,000 ($157,500 for Singles)

 

If your taxable income exceeds $315,000 if married, or $157,500 if single, calculating your deduction is much more complicated and depends on your total income and the type of work you do.

 

Your first step would be to determine whether your business falls within one of the following service provider categories:

 

  • health (doctors, dentists, and other health fields)
  • law
  • accounting
  • actuarial science
  • performing arts
  • consulting
  • athletics
  • financial services
  • brokerage services
  • investing and investment management, or
  • trading and dealing in securities or commodities.

 

There is a final catchall category that includes any business where the principal asset is the reputation or skill of one or more of its owners or employees such as that of TheWealthIncreaser.com’s.

 

This likely includes many individuals who provide services not listed above.

 

Architecture and engineering services are expressly not included in the list of personal services.

 

Pass-through owners who provide personal services are not favored under the pass-through deduction.

 

They lose the deduction entirely at certain income levels.

 

There are no such limitations on pass-through owners who do not provide personal services and that discussion follows.

 

Deduction for Non-Service Providers (Income Over $315,000/$157,500)

 

If your business is not included in the list of service providers, and your taxable income is over the $315,000/$157,500 thresholds, how you figure your deduction depends on your taxable income.

 

Non-service Provider Taxable Income Above $415,000 ($207,500 for Singles)

 

If you’re a non-service provider and your taxable income is over $415,000 if married filing jointly, or $207,500 if single, your maximum possible pass-through deduction is 20% of your QBI, just like at the lower income levels.

 

However, when your income is this high a W2 wage/business property limitation takes effect.

 

Your deduction is limited to the greater of:

 

  • 50% of your share of W-2 employee wages paid by the business, or
  • 25% of W-2 wages PLUS 2.5% of the acquisition cost of your depreciable business property.

 

Therefore, if you have no employees or depreciable property, you get no deduction.

 

This is intended to encourage pass-through owners to hire employees and/or buy property for their business in order to stimulate the economy.

 

The business property must be depreciable long-term property used in the production of income—for example, the real property or equipment used in the business (not inventory).

 

The cost is its unadjusted basis—the original acquisition cost, minus the cost of the land, if any.

 

The 2.5% deduction can be taken during the entire deprecation period for the property; however, it can be no shorter than 10 years.

 

Example 2:

Example: David and Monica are married and file jointly. Their taxable income this year is $1,000,000, including $800,000 in QBI they earned from their nightclub business they own through an LLC or limited liability company.

 

They employed eight employees during the year to whom they paid $300,000 in W2 wages. They own their nightclub building outright and are not leasing.

 

They bought the nightclub building  two years ago for $1.2 million and the land is worth $200,000, so its unadjusted acquisition basis is $1 million.

 

Their maximum possible pass-through deduction is 20% of their $800,000 QBI, which equals $160,000.

 

However, since their taxable income was over $415,000, their pass-through deduction is limited to the greater of:

 

(1) 50% of the W2 wages they paid their employees $150,000, or,

 

(2) 25% of W2 wages (75,000) plus 2.5% of their nightclub building’s $1 million basis (25,000) equals $100,000.

 

Since (1) is greater, their pass-through deduction for tax year 2018 is limited to $150,000–not $160,000 that was initially calculated above prior to the limitations being applied.

 

Many owners of pass-through businesses, especially landlords, have no employees, thus the 25% plus 2.5% deduction is of most benefit to them.

 

Conclusion:

 

We will conclude this discussion by defining what a pass through entity is and then reiterate how you can make the QBI deduction work better for you and your family.

 

Definitions:

Pass-through entity:

 

A pass-through entity is a business entity that passes through its income to the owners of the business. The owners then report the business income on their personal returns.

 

Generally, pass-through entities include partnerships and S corporations, but the qualified business income deduction also applies to other unincorporated entities such as sole proprietorships and single-member LLCs.

 

Partnership

S-Corporation

Sole Proprietorship

Single-Member LLC

 

Common Questions:

 

How can I make the Qualified Business Income Deduction work for me?

By becoming a business owner or continuing as a business owner with the right form of ownership (discussed above) you can deduct up to 20% of your qualified business income or, if lower, 20% of your taxable income net of any capital gain.

 

This deduction would be claimed on your individual tax return.

 

Generally, qualified business income refers to the business’s profits (income minus expenses).

 

Qualified business income does not include salary or wages paid to you–either as W-2 wages from an S corporation or guaranteed payments from a partnership.

 

This basic formula applies if the taxable income that business owners report on their individual returns does not exceed certain thresholds that were mentioned earlier–and will be presented again to further your understanding.

 

The thresholds for taxable income are:

 

$157,500 for single filers and $315,000 for people filing joint returns.

 

The numbers will be adjusted for inflation after 2018.

 

If taxable income does exceed these thresholds, the deduction factors in limitations relating to the wages the business pays to its employees and depreciable assets the business owns–also discussed above.

 

A key point to keep in mind – the latest pass-through business tax reform reduces “federal income tax” but does not reduce self-employment taxes for income from partnerships and sole proprietorships, or income for purposes of the alternative minimum tax.

 

How can I benefit throughout the year?

If you have the right form of business ownership and your income passes through on your federal 1040 return you can adjust your estimated taxes to account for this reduction in taxable income.

 

But, be sure to use caution because if you “underestimate” how much income you’ll earn in a year, the penalty for underpayment of estimated taxes can hurt you during filing time as you will be penalized.

 

In the examples presented above in this discussion “estimated taxes” were not taken into consideration and in both examples “a penalty” would more than likely apply for underpayment of estimated taxes!

 

If the new tax reform for pass-through entities sounds complex—you can increase your understanding by comprehending this article and site, gaining a real handle on your personal finances and hiring competent professionals if you now have a pass through entity or you anticipate having one in your future.

 

What is QBI?

The new qualified business income deduction provision in the Tax Cuts and Jobs Act (TCJA) gives a 20% deduction for qualified business income.

QBI is also called the section 199A deduction.

The goal of the legislation is to improve the benefits for flow-through entities and sole proprietors, who did not receive the major tax cuts that were given to C corporations (regular corporations) where their tax rate was reduced to 21%.

Whether the rule meets the goal remains to be seen. Any strategies you consider should be approached with  caution as the new law has some grey areas.

However, you can review the basic rules and strategies and see how they may apply to you, and what questions you may want to explore further as you expand and grow your business.

 

What exactly is a qualified business?

A qualified business is any business except those “specified service businesses” and the income earned by an employee, from guaranteed payments or personal interest, dividends or capital gains.

The specified service businesses can be in health, law, accounting, consulting, brokerage services, financial services, and others, but exclude architects and engineers.

 

What forms of ownership qualify?

QBI is available to sole proprietors and owners of pass-through entities such as S-Corps, LLCs, and partnerships.

 

Are there any limitations?

QBI is subject to limitations based on the taxpayer’s income and the type of business they operate.

Service businesses face additional limitations, however non-service businesses face limitations based on:

 

(1) 50% of the W2 wages they paid their employees or,

(2) 25% of W2 wages plus 2.5% of their capital expenditures

 

W- 2 and depreciation limits apply to non-service businesses but they are always allowed a deduction of some amount if they qualify (contrast that with a service business where elimination of the deduction will occur at some income level).

 

Exactly how does a Qualified Business Deduction work?

The QBI deduction reduces your taxable income, but not your adjusted gross income and can be taken regardless of whether you itemize deductions on your tax return.

To get the full benefit of the deduction, and not be subject to further wage and capital limitations, taxable income must be no greater than:

$315,000 for married filing jointly (phases-out through $415,000);

and $157,500 for single or married filing separately (phases out through $207,500).

 

  • If the pass-through entity owner is over the dollar threshold and a specified service business, it does not get the deduction; but if it’s a qualified trade or business it does, although it is subject to wage and capital limitation.

 

What is the amount of the deduction?

The deduction is the lesser of: 20% of the taxpayer’s qualified income, and a wage and capital limitation.

The wage and capital limitation is the greater of: 50% of the W-2 wages; or 25% of the W-2 wages plus 2.5% of the unadjusted basis of all qualified property–whichever is greater.

In addition, there is 20% deduction of REIT dividends and distributions from publicly traded partnerships.

 

What is the W-2 wage limit all about?

The W-2 wage limit minimizes the deduction if the business does not employ a substantial number of people relative to its size, or invest in a substantial amount of property under the “wage-and-property limit.”

Specified service businesses that rely primarily on the efforts of their owners or those with limited employee or capital investments will be affected the most and they may not be able to fully utilize the new qualified business income deduction.

In addition, there is an overall limitation on the deduction!

The limitation is the lesser of: the combined qualified business income, and 20% of any excess taxable income minus the sum of any net capital gain plus any qualified cooperative dividends.

The total amount cannot exceed the taxpayer’s taxable income (minus the taxpayer’s net capital gain) for the tax year.

 

How can I better qualify for the deduction?

If some portion of your qualifying business income comes from a “specified service business” you could:

  • Redefine your business if done so legally

 

  • You could consider spinning off portions of your business (separating the specified service business portion from the other qualified trade or business portion)

 

  • You could consider operating as a real estate investment trust (REIT), which do especially well. There is only one level of tax, and shareholders are entitled to a 20% qualified business income deduction for ordinary distributions with no W-2 basis limitation. On the flip side, REIT compliance and maintenance rules are complicated.

 

  • You could consider operating as a publicly traded partnership (PTP), which are not subject to the W-2 wage limit and qualified property cap.

 

  • If you are participating in an S corporation, it may be beneficial to take advantage of reasonable compensation so that you could meet the 50% of wages limitation by paying out more in compensation.

 

  • You could possibly rearrange your employer-employee relationship to one in which there is a partnership under an agreement in which the individual’s income from the partnership would be higher and their salary would be lower, thus making them (or you) eligible for the deduction.

 

  • You could use a gifting strategy (give up a percentage of business ownership) to bring in more people that qualify under the  “$157,500 per person threshold.”

 

  • If you are in a partnership, consider switching from guaranteed payments, which don’t qualify, to preferred returns, which do.

 

  • You could possibly increase the W-2 limit by switching from 1099 independent contractors to W-2 employees–think this process through carefully as there may be other negative effects as well.

 

  • You could manage your total income and taxable income so it is below the phase-out thresholds in order to qualify for the deduction.

 

  • You could manage your pension contributions to reduce taxable income as no part of the pension contributions would be included in income, so the QBI deduction could apply.

 

  • You could make tax-deductible qualified retirement plan contributions to reduce  your or your employee’s  taxable income in order to qualify for the deduction.

 

  • You can use your imagination to come up with other scenarios that might allow you to legally qualify for the QBI deduction–be sure to run it by your tax professional to ensure that it falls under the QBI guidelines.

 

In summary, The Tax Cuts and Jobs Act (HR 1, “TCJA”) established a brand new tax deduction for owners of pass-through businesses that can provide a tangible advantage for those who put themselves in position to qualify.

 

Pass-through owners who qualify can deduct up to 20% of their net business income from their income taxes, reducing their effective income tax rate by 20%.

 

This deduction begins for 2018 and is scheduled to last through 2025—that is, it will end on January 1, 2026 unless extended by Congress–as it was not made permanent in the manner that the 21% tax rate for corporations were.

 

If you are a small business owner–or desire to be one–you need to understand this somewhat complex, but highly beneficial deduction.

 

Always remember that:

 

You Must Have a Pass-Through Business

 

  • a sole proprietorship
 (a one-owner business in which the owner personally owns all the business assets)
  • a partnership
  • an S corporation
  • a limited liability company (LLC), or
  • a limited liability partnership (LLP).

 

As an owner you would pay tax on the money on your individual tax return (as opposed to corporate tax return) at your individual tax rates.

 

The majority of small businesses are pass-through entities.

 

Regular “C” corporations do not qualify for this deduction; however, starting in 2018 they do qualify for a low 21% corporate tax rate–that was made permanent and could be more beneficial–depending on your type of business, revenue generation and your intended goals for the business.

 

Therefore, if you are structuring a new business or have an existing business you must determine the best form of ownership from both a tax and liability position among other considerations that you may have to determine the best type based on your future goals and the direction that you desire to take your future.

 

Other Key Points:

QBI is determined separately for each separate business you own.

If one or more of your businesses lose money, you deduct the loss from the QBI from your profitable businesses.

If you have a qualified business loss—that is, your net QBI is zero or less–you get no pass-through deduction for the year.

Any loss is carried forward to the next year and is deducted against your QBI for that year.

This serves as a penalty for having a money-losing business.

 

Example: During 2018, you earned $20,000 in QBI from a lawn care business and had a $40,000 loss from your office store business.

You have a $20,000 qualified business loss, so you get no pass-through deduction for 2018. The $20,000 loss must be carried forward and deducted from your QBI for 2019.

 

You Must Have Taxable Income!

To determine your pass-through deduction, you must first figure your total taxable income for the year (not counting the pass-through deduction). This is your total taxable income from all sources (business, investment, and job income) minus deductions, including the standard deduction ($12,000 for singles, $18,000 for head of household and $24,000 for married filing jointly in 2018).

 

You must have positive taxable income to take the pass-through deduction!

Moreover, the deduction can never exceed 20% of your taxable income.

Example: You are a single taxpayer who run a consulting business which earned $80,000 in profit this year.  You had no other income and you take the standard deduction ($12,000).

Your taxable income is $68,000 ($80,000 income – $12,000 standard deduction = $68,000).

Your pass-through deduction cannot exceed $13,600 (20% x $68,000 = $13,600).  Even though  you had $80,000 in QBI, your deduction is limited to $13,600, not 20% of $80,000 = $16,000 because you had no other income such as w-2 income.

If you have other income that allows you to take advantage of the full 20% deduction you can do so as long as your taxable income is below $315,000 ($157,500 for Singles).

 

If you exceed the above limits that is a good problem to have–just realize your QBI deduction may be limited or eliminated if you are a “service business owner” and you exceed the threshold limits.

 

Deduction for “Service Business Owners” (Income Over $315,000/$157,500)

 

If your business involves providing personal services, and your taxable income is over the $315,000/$157,500 thresholds, your pass-through deduction is gradually phased out up to $415,000/$207,500 of QBI.

 

And remember that if you fall at the top of the income range you get no deduction at all.

 

That is, if your total income is $415,000 if you’re married, or $207,500 if you’re single, you get no deduction. This was intended to prevent highly compensated employees who provide personal services—lawyers, for example–from having their employers reclassify them as independent contractors so they could benefit from the pass-through deduction.

 

There is no such phase-out of the entire deduction for non-service providers.

 

All the best toward your effective use of QBI and your future  success…

 

 

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Hot Tax Topics & Wealth Building

Posted on by TheWealthIncreaser.com

As we enter the latter part of January many consumers in the U.S. and other parts of the world are gearing up for the filing of their 2018 income tax returns…

Learn about the latest tax news so that you can avoid the financial blues…

 

In this discussion TheWealthIncreaser.com will look at and discuss a number of critical areas of taxes that could help you maximize your tax position in 2019 and beyond.

 

In order to achieve more and maximize your personal income tax return it is important that you have knowledge of—and a practical understanding of how you can do the following more effectively:

 

Use the New Tax Rates to Your Advantage

 

If you are an individual and do not have majority ownership in a C corporation or S Corporation–your maximum tax rate is 35% versus the maximum for a corporation of 21% due to the job and tax act of 2017.

 

That means if you have high income that puts you in the upper income tax brackets you could possibly reduce the taxation of your income by establishing a corporation or keeping your income in the corporation as opposed to receiving a salary if you now have a corporation.

 

There are a number of ways that you can strategize to lower your taxes by using the new tax rates to your advantage and it is up to you and your professional team to find ways to do just that.

 

If You are a Business Owner or Desire to be One You Must Understand the Forms of Ownership

 

Sole Proprietorship

Limited Liability Company (LLC)

Limited Liability Partnership (LLP)

S Corporation

C Corporation

 

You must know and understand fully that certain types of ownership allows you to shield your personal assets against the liabilities of your business.

 

If you are operating as a sole proprietor where you are using your social security number as your Federal ID you are putting yourself and your family in position to be personally liable for actions that may arise out of liabilities of your business.

 

Whether a pass through entity or a corporation will be of greatest benefit to you will depend on your unique tax and financial position, the type of business you operate, the state that you are in, your liability (risk) exposure and the path that you desire to take to reach your goals once you lay out all of your intentions–whether you decide yourself or you decide to use financial professionals.

 

IRA’s

 

IRA’s and other tax favored retirement plans retain those tax advantages in spite of the tax cut and jobs act of 2017.  That means the “saver’s credit” and deductibility for a traditional IRA are still available.

 

In addition ROTH conversions can be done regardless of your income level and ROTH IRA’s still enjoy the tax free benefit upon withdrawal if done so according to IRS guidelines.  Contributions remain tax free upon withdrawal.

 

With both IRA’s the first time homebuyer withdrawal provision remains as well as several other “exceptions” that can help you avoid the tax bite.

 

HSA’s

 

A Health Savings Account may allow you to save more and meet your health care expenses in a tax efficient manner by allowing you to deduct the amount you contribute,  allow your contributions to grow tax free and allow you to withdraw your earnings tax free when used for medical related expenses.

 

Be sure to give the “triple tax benefit” of HSA’s real consideration.  In addition, be aware of the expenses that you will pay as that can eat away at your earnings.  Be sure to shop for the best plan available based on your financial position and health saving goals.

 

Know at the earliest time possible if you are going to utilize the standard deduction or itemize your deductions

 

Standard Deduction

 

The standard deduction has been increased for the 2018 tax year and many of those who once itemized will find that it is no longer to their advantage to do so.

 

Single is now at $12,000

Head of Household is now at $18,000

Married Filing Jointly is now at $24,000

 

Personal exemption eliminated for most—some dependents on your tax return may allow you to claim a $500 personal exemption.

 

Be sure to consider the effect on your state tax refund in determining whether to itemize or claim the standard deduction–as you may be surprised to find that a reduced itemized deduction at the federal level could still be to your benefit if you would get a higher overall refund or pay less in taxes when the federal and state amounts have been combined!

 

Itemized Deductions

 

Medical

Long-Term Care (LTC) insurance that you pay, Medical Insurance that you pay, Health Care Insurance Premiums that you pay, Eye Care that you received during the year, Out of Pocket medical expenses that you pay for the year, Dental Expenses that you pay for the year, Prescription drugs that you purchase for the year, Mileage to and from your medical care destination and many other medical related expenses may all be deductible in 2018 if they exceed 7.5% of your AGI (Adjusted Gross Income–line 7 on page 2 of form 1040) and you itemize your deductions. 

 

The AGI limit increases to 10% in 2019 and beyond unless Congress acts.

 

Taxes

 

State income taxes and sales taxes, ad valorem taxes, property taxes and possibly other taxes may be deductible by you if you itemize and otherwise qualify.

 

Keep in mind that there are limitations on taxes in some instances—so keep that in mind—particularly if you are in a high tax state such as California, New York, New Jersey, Connecticut and several others.

 

Mortgage Interest

 

Mortgage interest deduction is now limited to $750,000 down from 1 million.

Mortgage Insurance Premiums (MIP) and Private Mortgage Insurance (PMI) are not deductible for the 2018 tax year and beyond unless congress acts.

 

Charitable Contributions

 

New rules apply to deducting charitable contributions that are non-cash as you must provide additional documentation for donations valued over $250.

 

As for church donations and others that are in the form of cash the maximum percentage that you can deduct has changed,  however the required documentation is basically the same.

 

2% AGI Deductions Eliminated

 

Tax related fees, investment fees, unreimbursed employee expenses (including automobile expenses) and other 2% of AGI deductions have been eliminated for the 2018 through 2025 tax years.

 

Social Security Income Threshold Increases

 

In tax year 2018 the maximum social security wage base is $128,500—however for the 2019 tax year that wage base will increase to $132,900 which means if you earned over $128,500 in 2018 you may see a tax increase in the amount of social security tax that you will pay (6.2% of the amount that is between $128,500 and $132,900 will now be taxed) when you file your 2019 taxes.

 

The Medicare portion limit did not change as a result of the tax cut and jobs act of 2017.

 

Conclusion

 

It is important that you realize that many changes have occurred over the past few years as it relates to your taxes and the filing of your tax return. 

 

The form 1040 has a new look and now includes “Schedules” that allow you to include in income or deduct many of the items that were on page 1 of the 1040. 

 

You will now sign on page one as opposed to page two.  1040EZ and 1040A no longer exist and you must use form 1040 to file your 2018 through 2026 tax returns. 

 

In most instances you won’t claim exemptions, however the child tax credit has gone up to $2,000 per child with up to $1,400 of the credit refundable.  Student loan interest deduction and other educational credits remain.

 

Whether it is the “Affordable Health Care Act” (penalty will be eliminated after the 2018 tax filing year) the “Tax Cut and Jobs Act of 2017” or any other incidental changes in the tax code—it is important that you put yourself and your family in position to take advantage of the changes and not let the changes take advantage of you.

 

Be sure to choose highly competent professionals and be sure to gain the knowledge that you need so that you can succeed. 

 

Be sure to engage with professionals who have a track record of success, someone who encourages you to ask questions and are willing to spend the time that is necessary so that you can fully understand the questions you ask–and someone who adds value to your financial and overall life from this day forward!

 

You want to put yourself in an informed position where you know what is going on “tax wise” so that you can position yourself in a way where you can’t easily be taken advantage of.

 

By landing on this page alone—you are showing a real commitment toward success in you future and you are on a path to maximizing your tax knowledge in a way that will put you and your family in position to achieve more throughout your lifetime.

 

By landing on this page and navigating this site you will put yourself in position to not be taken advantage of like many were during the financial crisis from 2007 to 2009.

 

You will put yourself in position to know how the recent tax changes over the past few years will affect you and your family—thus giving you the opportunity to plan proactively and improve the likelihood that you will achieve your goals.

 

You no longer have to let your ignorance of the tax laws, immaturity in approaching your finances, insecurity in approaching your finances or the inability to approach your finances due to fear–lead to idleness and not moving forward in the financial realm of your life!

 

Today is the day that the Five “I’s” die—and you more than just try!

 

Today is the day that you pursue a new road to success that has fewer turns and less stress—and allows you to give it your best!

 

Today is the day that you become aware, mature, believe in yourself, operate daily with character and move to action in a manner where the success that you see has already been achieved.

 

All the best to your new tax knowledge and new road to success…

 

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New Beginnings & Wealth Building

Posted on by TheWealthIncreaser.com

Learn how you can approach your future from a new vantage point and achieve more…

 

As 2018 ends and 2019 begins—many are approaching various areas of their life with a new purpose or focus.

 

Whether you have a new vision of how you want to pursue your finances, health, fitness or any other goal–you must have a system that will bring into reality that vision.

 

In this discussion TheWealthIncreaser.com will look at and discuss a number of ways that you can achieve more and build wealth more efficiently in 2019 and beyond.

 

In order to pursue something new you in many cases must build from something old!

 

Your past failures and successes can be used to guide or direct your future!  By using your past as a guide you know what to avoid and what to continue doing.

 

As you build on your past financial successes it is important that you have a mental system that you can carry within your mind that allows you to see your credit and finances in clear terms—and act as a “more focused guide” that allows you to attain or achieve your goals more effectively and more efficiently.

 

You can use the following 3 approaches to get on a serious path to a “new beginning” in your life that allows you the freedom of thought to see your future in a manner where worry, anxiety, fear, frustration, lack of effort and excuses can be reduced or eliminated in your life.

 

1)   Utilize Personal Financial Statements Appropriately

It is important that you realize that many people who journey through life have more of a money management issue as opposed to not having enough income that allows them to reach their goals.

 

If only they had a money management system that made sense to them and that they created and believed in—they could achieve far more.

 

The use of personal finance statements in the right manner could allow those who fail to manage (or inappropriately manage) their finances just what is missing in their life to turn the tide in their favor and make the goals that they desire or need to attain a real possibility.

 

Be sure to use a personal cash flow statement (budget) at a minimum to help determine where you now are so that you can start on a new beginning and achieve more.

 

A monthly cash flow statement could be what is needed to get you to manage your finances more effectively and achieve more in the current economy.

 

For those of you who would like to achieve even more, be sure to consider creating (or have your financial planner do so on your behalf) a personal income statement to see how your finances look over a period of time—say one year or on an annual basis.

 

In addition be sure to create a personal balance sheet so that you can have a clear picture of what you own and what you owe—thus providing you a clear picture of your net worth.

 

By doing some or all of the above you will be on a serious journey or new beginning as it relates to your finances.

 

2)   Have a Thorough Understanding of Credit & How You Utilize It

Now that you have a clear picture of your monthly income, your monthly liabilities and you now know your net worth—you must put together a debt payoff or debt pay down plan–if you need to address those areas.

 

Whether you do or don’t have credit liabilities—you must have a practical understanding of credit that allows you to navigate through life in a manner where you are in control—and not creditors.

 

If you currently have credit card debt or other liabilities that are making your finances difficult to manage—be sure to get a thorough understanding of credit so that you can achieve more throughout your life.

 

3)   Know All Areas of the Financial Affairs in Your Life that You Must Address

Now that you know your current financial condition and you know how to effectively manage credit—you must now complete the picture by knowing all areas of your finances that you must address.

 

Insurance

Investments

Taxes

Emergency Fund

Education Planning

Estate Planning/Wills

Retirement

 

You must have a system that allows you to know and address the above critical areas of your finances throughout your life.

 

However,  just knowing is not appropriate–you must devise a plan to review and make improvements in all areas on a consistent basis!

 

Conclusion

By addressing the above areas on a consistent basis you will develop the habit of consistency and achieve more throughout your lifetime.

 

However, wanting to achieve more must be balanced with your willingness and determination to put in the required effort at this time if you are to achieve more by utilizing the steps in this discussion.

 

There is no hard and fast rule as to the timeline that you should do the above.  However it is important that you develop an action mindset so that you won’t procrastinate from this day forward.

 

You must realize that there are many paths to financial success.  Most people fail or fall short of reaching their financial goals because they lack a plan—or lack a plan that they can readily comprehend that gives them practical steps that they can take that will get them to their destination.

 

It is the desire of TheWealthIncreaser.com that this brief discussion has provided you the opportunity to see your “new beginning” in clearer terms and act as a springboard for you to achieve success by providing you a “clearer blueprint” that you can use throughout your lifetime so that you can enjoy life on your terms.

 

All the best toward your “new beginning”  and long-term success…

 

Learn what money management personality  you most closely resemble…

 

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Education Funding Vehicles & Wealth Building

Posted on by TheWealthIncreaser.com

Learn how you can fund your and your loved ones education so that you can build wealth efficiently and achieve more during your lifetime… More on Education Funding… As the year ends and families gather around the table, the topic of education funding for a planned child, a newborn, a child whether toddler or teen … Continue reading →

Tax Moves that You Can Make to Improve Your Bottom Line

Posted on by TheWealthIncreaser.com

Learn what you can do to lessen your tax bite and achieve more in your future…

 

As December rolls in and 2018 comes to an end it is important that you review your tax situation at this time and determine if there are some year end and year beginning moves that you can make to put yourself in a better position for short and long term success.

 

In this discussion TheWealthIncreaser.com will look at a number of moves that you can make to improve your tax position so that you can reach your short, intermediate and long-term goals so that you can enjoy life more and lessen your tax bite.

 

It is important that you are aware of new tax law changes that occurred in 2017 under the jobs and tax cut act and more particularly the ones that might affect you and your family.

 

You want to know your 2018 tax projections for your taxes that you will do in 2019 for the 2018 tax year.

 

However if you have not done so by now—you can at least prepare properly and put yourself in position to make other tax moves and possibly adjust your w-4 withholding in 2019 and not have any tax surprises on your 2019 and future year taxes.

 

Amend Your 2017 Return if You are Eligible Based on Tax Law Extensions Passed Earlier this Year

 

It is important that you are aware of tax law changes that occurred in February of 2018 that extended more than 30 tax breaks, including those for businesses and even a few for individuals and families.

 

The MIP (mortgage insurance premiums), deduction for tuition and fees of up to $4,000 and energy efficient home improvements went back on the books for 2017 returns and 2018 returns are still up in the air–as far as extensions are concerned.

 

To claim the deductions for 2017 if you are eligible you would have to file an amended return (form 1040X).

 

If after amending your return your AGI is reduced—that reduction could affect your state return and you could possibly amend that return as well and get additional income.

 

Project Your 2018 or Future Year(s) Tax Bill

 

You may be due a larger refund or you may owe more in taxes.  However, you won’t know if you don’t get out in front and project your 2018 tax bill as best you (or your accountant) can.

 

You can then determine if you need to adjust your w-4 in 2018 and better direct your refund or balance due—depending on your goals.

 

With new withholding tables now on the books you can now go to irs.gov and utilize the w–4 calculator to better plan your taxes after you have projected your income.

 

You can then go to your employer and adjust your withholding if you see a benefit.

 

Determine Now the Likelihood that You will Itemize or Take the Standard Deduction

 

With the standard deduction being nearly doubled for some taxpayers, it is expected that the number of those who itemize will decline.

 

Will you be in that number that utilize the standard deduction or will you itemize–or do you even care?

 

If you itemize you have the ability to deduct more items—but will the cash total be higher than the amount of the adjusted standard deduction based on your filing status that were put into effect with the job and tax act of 2017?

 

Be aware of the tax ramifications and don’t forget to consider the implications of your state taxes depending on the choice that you will make (itemize or standard deduction) as a lower itemized total at the federal level could still be of benefit–if it will help you more at the state level (your overall tax refund would be more or your overall tax payment would be less).

 

Find Ways to Earn Additional Income

 

Whether you get a second job, invest in the market both inside and outside of your retirement accounts, form a company of your own (Sole Proprietorship, C-corp., S-corp., Partnership, LLC or any other legal form) that you create based on “your” desire, ambition and passion—it is important that you use your imagination to find new ways of generating income.

 

Be aware of the tax ramifications and again don’t forget to consider the implications of your state taxes depending on the choice that you will make (investment choice(s) and ownership structure) and also look at non-tax issues in detail and do a thorough analysis as that analysis may sway your decision in the opposite direction of where you planned to go.

 

Questions You Need to Ask Yourself if You Are Considering Opening a Business of Your Own Include the Following–Among Others…

 

Can I really make money and pay all of my monthly expenses—including my taxes?

 

Can I sell my product or service for more than it costs to bring to market?

 

Can I serve my intended audience and/or customers or will I be overwhelmed and unable to meet the needs of my customers or potential customers in a timely manner?

 

Will I create a business plan and put together a team that can handle my legal, tax, banking, regulatory, technological and accounting concerns?

 

Do I believe in the product or service that I will be promoting and selling?

 

These are some of the questions that you must ask and answer upfront as the tax code generally favors those who take risks.

 

Even so, you want to take a calculated risk where you know the probability of success is in your favor when endeavoring in a new venture.

 

Create an HSA Account

 

A Health Savings Account provides you the opportunity to save for your future health care costs in a tax efficient manner (you can deduct your annual contributions on your tax return to reduce your taxes and your earnings grow tax free–and withdrawals are tax free if used for medical related purposes).

 

The good news is that there are “no income limits” and you can “invest in a variety of financial products” such as mutual funds, stocks, bonds etcetera to help guard against rising health care costs that you may incur in your future.

 

There are also “deductible qualifiers” if your employer offers health insurance.  However, you can also open and set up an HSA account at many financial institutions yourself if your employer does not offer a plan or you are self employed or you don’t otherwise qualify for medical coverage.

 

It is also important that you know what to consider if you decide to set up an HSA account and a recent bankrate.com article spells out what you need to consider in clear terms.

 

If your employer offers an HSA and you elect to participate you would not be taxed on the contributed amount or pay FICA on the contributed amount.  Even though you received the tax benefit through your employer you would still have to file form 8889 on your  personal tax return.

 

If you qualify for a HSA, you can deduct the contributions on your tax return even if you don’t itemize by using form 8889.  Keep in mind you will face serious penalties (20% in the 2018 tax year) if you withdraw funds for non-medical related expenses.

 

Once you reach age 70 ½ there are no mandatory withdrawals–therefore you could potentially continue to let your account grow in a tax-free manner if you had no need for the funds! 

 

Be sure to seriously consider the option now–and not look back in regret years down the road when the costs have skyrocketed and your financial options to cover your health care expenses are limited or non-existent.  If you remain healthy late into your 80’s or 90’s you will have tremendous growth in the account that you can use outside of medical related expenses after you turn age 65 (taxes would be due on withdrawals but there would be no penalty).

 

If used for medical related expenses after age 65 there would be no taxes due at all!

 

HSA’s have annual contribution limits (currently $6,900 for 2018 and $7,000 for 2019 for families–with a $1,000 catch-up provision for those age 55 and over).  Withdrawals are “penalty free” for all purposes after you reach age 65!  However, if you use the funds for other non-medical purposes taxes would be due at your ordinary income tax rate in effect at the time of  your withdrawal.

 

If your employer offers an HSA your contributions can allow you to avoid payment of FICA taxes, thus providing you an additional 7.65% additional savings on top of the amount that you contribute annually–all while helping you reduce your taxable income.

 

If you earn $100,000 a year and contribute $7,000 you would pay taxes (federal, state and FICA) on $93,000–the $7,000 contribution would be excluded from federal, state and FICA (social security) taxes!  In addition, your income minus your contribution (up to the limit for your filing status) can be used for calculating whether you are eligible for a subsidy under the Affordable Care Act.

 

Open an IRA Account

 

Did you know that an IRA (Individual Retirement Account) provides you another tax-efficient way to manage your retirement income?

 

It is important that you realize that there are basically two types of IRA’s:

 

1)    Traditional

 

2)    ROTH

 

A Traditional IRA allows you the ability to contribute up to an annual maximum and then you can deduct those contributions on your future year tax return—even contributions up to the filing deadline if the amount does not exceed the annual maximum (currently $5,500 or $6,500 if age 50 or older).

 

The result of deducting your contribution would normally be owing less tax or getting a larger refund.  Once you retired you would pay taxes at your current tax rate on the withdrawals.

 

Mandatory withdrawals are also required once you reach age 70 1/2!

 

A ROTH IRA allows you to make non-deductible contributions that have already been taxed—therefore your withdrawals would be tax free at retirement.

 

Roth IRAs do not require withdrawals until after the death of the owner.

 

With the Traditional IRA and the ROTH IRA there are income limits and other qualifier’s, however both are worth real consideration if you currently have the discretionary income at this time—or you want to learn more so that you can plan your future in a more tax efficient way.

 

Conclusion

Your tax moves at this time or at other times during the year can prove to be beneficial for you and your family.

 

All tax situations are unique, however there are moves that you can make to put yourself and your family in a better position tax-wise.  In this discussion TheWealthIncreaser.com has only scratched the surface in the coverage of tax moves that you can possibly make.

 

Even so, those that apply to you or that you may be considering can get you moving forward in a real way!

 

By taking several hours out of your busy life and organizing your tax and other financial data–and reviewing and seeing clearly where you now are at you can better position yourself and your family for future success.

 

Now is the time to outwork and outthink what is working against you and now is the time to turn the tide so that you can make your dreams come true.

 

By taking the time to think about your taxes and do something about them in a sincere way–today–you are on a path toward real success–if you give it your best!

 

And always remember the tax code normally favor those who take risks!

 

The tax code may not be as favorable for some due to their current family size, marital status, whether they were negatively affected by the tax law changes (i.e. claimed unreimbursed employee expenses—including mileage on their automobile etc.), their income level, the number, types and amount of deductions and credits available, whether they have a mortgage or rent and other factors.

 

All the best toward your tax moves and future success…

 

 

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Education Planning & Wealth Building

Posted on by TheWealthIncreaser.com

Learn why starting your education funding at the earliest time possible serves your and your family’s best interest…

 More on Education Planning…

As the holiday season kicked in and the creator of TheWealthIncreaser.com spent time with his children, grandchildren, siblings, mother, in-laws and other loved ones it came into focus after a number of days of reflection the need to address estate planning/wills at this time.

 

However, after dropping my youngest daughter off at the airport to send back to college the urge to write about education planning and how you can better serve your children (or yourself) over the coming years as they prepare for college—and leave their nest superseded the urge to discuss estate planning at this time.

 

It is important that you don’t do like the creator of TheWealthIncreaser.com did (not saving enough for his 3 children on the front end and had to use current income to pay for tuition of his youngest daughter) by not saving enough due to unforeseen events and adversity that occurred.

 

In the current economy it is important that you know the areas of your financial life that needs addressing and you must put a plan in place to address those areas!

 

If you anticipate future educational expenses whether it be for yourself, your children or your grandchildren—you must have a thorough overview and understanding of how you can fund those expenses at the earliest time possible.

 

It is also critical that you know other options that you may have to pay for educational expenses for yourself and/or your loved ones.

 

To better direct your future you want to know your educational outlook and where you are headed in a manner that you can comprehend!

 

You want to understand what you need to do “at this time” and “this discussion” will get you started and up to speed on “funding” educational options for you and/or your children in a manner that can allow you to avoid the worry, stress, anxiety, fear and frustration that seems to curtail so many.

 

When you lack the direction that you need to go and you don’t know the options that you can proactively take to mitigate a financial shortfall when it comes to educational funding for yourself and/or your children—you put yourself and your family at a major financial disadvantage throughout your lifetime!

 

In this discussion TheWealthIncreaser.com will discuss ways that you can fund your or your child’s education in a manner where the advantage will be in your favor.

 

 

Tax Advantage Educational Savings Options

 

Coverdell

Pre-paid Tuition

529 Plans

Many Other Ways

 

Retirement Savings for Education

 

IRA’s

 

401k’s

 

Thrift

 

Many Other Ways

 

Current Income

 

w-2

 

Sideline Income

 

Work-study or child working as a means to fund education

 

Many Other Ways

 

 

Conclusion

 

Scholarships—educational, athletically, musically etcetera, must be pursued and your child must be active in making their continuing education dreams come true by actively pursuing scholarships and having a real interest in how they (and/or you) can save for and fund their education now—so that they (and you) won’t be blind-sided after the fact or when it is too late.

 

Apply early and often as scholarships and grants can go quickly…

 

In most cases planning years in advance and knowing the number that you need to reach to fund your or your child(s) educational requirements will be the most effective approach.

 

If you come up short you may have to use your current income and possibly your retirement income.

 

Ideally you want to avoid those options by having your child obtain a scholarship or using other means of payment–such as saving NOW so that you have a certain level of comfort on the inside of you!

 

However,  your options may be limited if you fail to plan now.  Don’t be like the creator of TheWealthIncreasor.com and come up short on your educational funding goals!

 

Start now–and make your or your children’s goal of continuing education, a reality by doing the necessary planning at this time.

 

All the best to your continued educational success…

 

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Early Retirement & Wealth Building

Posted on by TheWealthIncreaser.com

Learn how you can build wealth efficiently and retire early…

 

In 2003 the creator of TheWealthIncreaser.com came up with a strategy to help young adults and those graduating from college implement a new system for building wealth efficiently and possibly retire early if that was their goal.

 

After reading a most recent article in Kiplinger Magazine about Millennials who retire early (in their 30’s) TheWealthIncreaser.com found it quite inspiring to see young workers retire early and that inspiration brought to the surface the topic of early retirement in the current economy and how you can do so in a more efficient manner.

 

In the article they were called FIRE (Financially Independent Retire Early–a great acronym and financial success formula that TheWealthIncreaser.com did not create–however, TheWealthIncreaser.com did create FAM® that is assisting those who desire real financial success achieve more than just financial literacy) and they are a group that is growing as more individuals and families see real advantages of retiring early and living life on their terms.

 

Regardless of your age you can retire early or achieve your goals more efficiently during your lifetime by understanding “your life stages” and determining the path that you will take toward making what you desire most during your lifetime–occur!

 

You must also have an expectation of success and a real knowledge within that you truly want to pursue early retirement or reach your goals in a more efficient manner.

 

You can achieve success more effectively and efficiently by doing the following on a consistent basis:

 

1)   Have a real understanding of the X Factors…

 

Experience, expertise, exercise and excellence must be a part of your make-up if you are to achieve at your highest level.

 

Your past experiences helped shape where you are now at and you must use that experience to your advantage.  You must also determine what you are good at or what you desire to be good at and pursue toward that with zeal and expertise will follow.

 

You must ensure that you are around to enjoy your early retirement or any retirement by ensuring that you exercise regularly, eat healthier and you feed your mind with the right information that can move you forward in a manner that works with your mind.

 

Lastly, you must have a mindset of excelling in all that you do.  You then develop the habit of consistency that you need to have to achieve at your highest level throughout your lifetime.

 

2)   Have high standards throughout your lifetime…

 

You must set lofty goals whether they be financial or otherwise.  However, setting lofty goals is only the starting point!

 

You must have every intention on achieving the goals that you set and you must visualize yourself achieving what you see.

 

You want to do your absolute best toward reaching your goals and you must be fully committed and have a high level of determination to reach or exceed the standards that you set.

 

3)   Have a mindset that is geared for success…

 

You must not let worry, anxiety, fear and frustration direct your life as it will in many cases lead to you not putting in the effort that is necessary to achieve at an optimal level and reach your financial goals in an efficient manner.

 

Although uncertainty at some level resides inside all of us—you must have an outlook of your future that is clear to you and doable by you (within your mind) if you put in the effort and stick to your plan.

 

Your ability to focus on what is important along with having the success qualities that are needed for consistent success will help direct your mind on a daily basis in the direction where success lives–and you will increase your odds of achieving your goals exponentially.

 

 

Conclusion

 

Early retirement or having the option to retire early is a lofty goal and many are pursuing that path in the current economy.

 

If you are one who would like to position yourself for early retirement you can do so by gaining the required knowledge and skills that are needed to do so at the earliest time possible.

 

For those of you who would like to continue working, you can put yourself in position to have an “early retirement” as a real option by planning now and doing so with a realistic picture of what it will take to get you there.

 

You must pursue your retirement goals in a righteous manner and in a manner that is in alignment with your core values.

 

You must ask and answer the right questions at the right time in your life so that you can repair, improve, or avoid that which serves against your early retirement ambitions.

 

You can go to the following links to learn more about early retirement and retirement in general and really make the goal of early retirement happen for you and/or your family:

 

Young Investors & Personal Finance

 9 Tips for Retiring Early 

College Graduates & Wealth Building

Wealth Building Now

Mr. Money Mustache Blog

Retirement Basics

All About Retirement

Compounding & How You Can Benefit

Life Stages of Financial Planning

Understanding the Various Types of Income

Invest like Warren Buffett

 

FIRE (Financial Independence, Retire Early) is a lifestyle, also referred to as a movement, aimed at reducing expenditures and increasing investing in order to quickly gain financial independence and the possibility of retirement at an early age.

 

All the best to your early retirement and lifelong success…

 

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Mindset of Endurance & Wealth Building

Posted on by TheWealthIncreaser.com

Learn why looking at your future outcomes “in a realistic time frame” or an “enduring way” can more effectively direct your future…

 

In the current economy it is important that you have the mindset that is necessary to “stick it out” whether difficulty arises, or things happen smoothly during your lifetime.  To better direct your future so that you can have the staying power or mental endurance that will lead to you taking the steps that will lead you toward your goals–you must have the right mindset!

 

It is imperative that you know where you want to go, know how you plan on getting there and you “must have” the mental fortitude that will get you there–regardless of how difficult the journey may be.

 

Now is the time that you fine tune or improve upon where you are at so that you can have the mindset that is needed to take you where you desire or need to be.

 

In this discussion TheWealthIncreaser.com will discuss ways that you can approach reaching your wealth building goals in a more enduring manner.

 

A made up mind can overcome many obstacles that can hold others back.   It is the desire of TheWealthIncreaser.com that you make up your mind to pursue your goals with more endurance as by doing so—you increase the likelihood of success tremendously because you have prepared your mind for the journey.

 

You can make real success happen now by doing the following:

 

Determine Your Path Toward the Success that You Desire…

 

Do you at this time have a feel for where you want to go financially?  Now is the time to formulate real goals and now is the time to gain the vision of what it will take to achieve the goals that you desire.

 

Once you determine where you are at you must then choose a path that will take you forward–or to the “top of the mountain”–so to speak (you will reach or exceed your goals)!

 

Are you going to pursue a path to success that can get you real results or are you at a point in your life where you are still trying to discover the path that you will take?

 

Do you have a burning desire to reach higher and achieve more during your lifetime or are you content with where you now are?  If you don’t have that burning desire to achieve more at this time–you more than likely won’t have what it takes to develop a “mindset of endurance” at this time.

 

Fine Tune Your Activities on a Consistent Basis…

 

Have you mastered ways that you can achieve success in the current economy and have you looked at more effective ways of reaching your goals?

 

By re-analyzing where you are at and where you want to go you can achieve far more on a daily basis!  You must realize that adverse happenings that are out of your control will occur as you pursue your goals–however you must press onward–even though difficult days are in your midst.

 

By  fine tuning or re-analyzing what you have planned for your financial future you give your mind and heart more direction and you help make what you desire most happen–because you are “tuned in” to your future success.

 

Conclusion

 

With many, attempting to do something new or different that can totally change the direction in their life can be a tough adjustment.

 

However, if you are one who desire to pursue your destiny, you must make the decision to change the direction in your life at some point!    It is the desire of TheWealthIncreaser.com that this page and site has at least got your mind to open up some and assess your current finances and the direction that you want to go in your life in a sincere manner.

 

On this site you will find a number of ways that you can build your endurance and change your mindset for the better.

 

However, it is your decision to decide to act on information that you feel can move you and your family forward.

 

You can choose to have a mindset of endurance and comprehensively pursue your dreams or fret later in regret because you have not reached your goals because you did not have the endurance to “stick it out” when difficult challenges came your way.

 

Isn’t it time you use your abilities, skills and talent that you now have or will soon learn to “focus in” on what you want to achieve and do so with “endurance” so that you can achieve more and win in your life.

 

Always remember that distractions affect your focus, without focus—you won’t do things right or at an elevated level.

 

Always be aware of the power of focus!  The less clutter in your mind means more success because you can focus on winning financially and building wealth without all of the distractions that seem to hold so many back!

 

Isn’t it time you cut things down to what is important!

Isn’t it time that you learn a few steps that you can take that works with your focus—not against your focus!

Isn’t it time that you know what you want!

Isn’t it time that you gain the power that comes when you focus!

Isn’t it time that a strong vibration goes through you and the universe!

Isn’t it time that you gain a “mindset of endurance!”

 

Focus for you may mean saying no to the other good financial products that are out there and selecting the approaches that are on this site or it may mean deciding that the approaches on this site–are not for you–and focusing on another approach that better fits your focus objectives or where you want to go as you improve your finances and build wealth.

 

You must focus on your future and have the mindset that you will achieve what you focus on.  By doing so you will “endure” all that comes your way and achieve the goals that you set–in a manner that will not sway!

 

Tips for Enduring Success:

 

Use written plans to make your goals happen…

 

Always realize that significant goals are not reached without proper planning…

 

Even though you may desire immediate success–reaching your goal(s) is a process and takes time…

 

You must believe in success if success is to come your way…

 

Patience may be required as you pursue your goals–make sure that you have the needed patience as you pursue your goals…

 

A wholistic approach or comprehensive approach is normally the best approach to take to achieve lasting financial success…

 

You will reduce stress in your life when you put a plan in place to reach your goals and you know deep inside that you are committed to achieving the goals that you formulated…

 

Always realize that with financial planning there are solutions—it is never too late to plan your  future so that you can live and spend like you want to do—there are many solutions to get you to where you want or need to be…

 

All the best to your new “mindset of endurance” and your future wealth building success…

 

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Wealth Building 101 (Frequently Asked Questions)

Posted on by TheWealthIncreaser.com

 Learn about common wealth building questions that many have asked over a number of years…

 

Wealth building is a lofty goal and you should be commended for seeking new and possibly more rewarding ways of building wealth.

 

In this discussion TheWealthIncreaser.com will present to you a number of questions that have been asked by clients, visitors and others on a number of sites created by the publisher of this site that TheWealthIncreaser.com feel is important for your financial advancement.

 

Be sure to hone in and focus on the questions that are significant to you at this time as you may find a more effective way to meet your goals and advance forward more efficiently.

 

Common Questions

 

Q: What is umbrella insurance and why should I get that type of coverage?

 

A:  An umbrella insurance policy provides additional liability protection for you in addition to the coverage that you would have on your home and auto liability coverage.

 

It is an affordable option to provide additional protection against liability claims that may come your way during your lifetime that could force you to have to sell your assets, downsize, move to another community, lose your liquid assets and further cause undue headaches that could have been avoided–for in many cases “several hundred dollars” per year.

 

Q: How much life insurance should I get at this time?

 

A:  The amount of life insurance that is needed for you (and others) will vary depending on your age, family size, family structure and your future goals.

 

There are a number of ways to determine the coverage that you may need and they include:

 

  • 10x earnings ($50,000 in annual income multiplied by 10 means I need $500,000 in insurance coverage)

 

  • replacement cost (to pay off my car, house and the student loan that my spouse has been paying on for the last 15 years I need $350,000 in coverage)

 

  • need analysis (to pay off my mortgage and my 5 year old daughters future tuition and provide my wife and my daughter $100,000 cash for a 10 year period I need $1,430,000 in insurance coverage) and

 

  • Several other ways as well

 

Q: Am I able to take money out of my 401k for a down payment on a home?

 

A:  You are able to borrow against your 401k and possibly save in the short term, however there are risks.

 

You risk your retirement income being reduced, and there are potential tax consequences of borrowing against your 401k.  In addition many who borrow against their 401k never manage to pay the loan back.

 

However, legally you are allowed to borrow against your 401k, the question then becomes is it wise to do so—or should I do so at this time—or are there better options that I can take?  A better option may be to utilize your ROTH or Traditional IRA or borrow in other means.

 

Q: After I retire and move to a new state can I lower my taxes?

 

A:  In many cases that is possible as many states have no or low tax rates and if you retired and moved to a new state you would in most cases be taxed at the rate in the state that you reside.

 

However, depending on the state that you moved from—taxes could still be owed and payable to that state.

 

Be sure to investigate further prior to your move on what will apply tax wise in your particular case.

 

Q: What is a healthy debt load for a family of four?

 

A:  The question is pretty much open ended and the answer will depend on your current income.  In general a debt load of 40% or less would be ideal.  However, in some cases compensating factors (a better school district, a more reliable car due to longer commute in your area, environmental factors, relative moving in, other additional income etc.) may lead to you exceeding the debt load of 40%.

 

Keep in mind the 40% debt load includes your housing and other debt.

 

If you make $120,000 annually or $10,000 per month your maximum or ideal monthly debt load would be $4,000 which in some localities would be possible.

 

A housing payment of $2,500 per month with a car payment of $500 per month along with other debt of $1,000 per month where you have roughly $6,000 to utilize in other ways (various monthly expenses, utilities, food, clothing, entertainment, retirement, vacations, investments, education planning etc.) will put you and your family in position for success in many areas and localities.

 

If you make “$60,000 annually”  or $5,000 per month you would be looking at a monthly housing payment of $1,250, a car payment of $250 and other debt of $500 and you would be in great position for lifelong success.

 

If you make “$240,000 annually” or $20,000 per month you would be looking at a monthly housing payment of $5,000, a car payment of $1,000 and other debt of $2,000 and you would be in great position for lifelong success.

 

In high cost cities such as New York and San Francisco you would more than likely have to exceed that 40% ratio—depending on your income.

 

The point is you want to have a debt load that is comfortable for you and allows you to live the lifestyle that you desire and save for your goals in a highly effective manner.

 

As to your family size—college planning, and the cost of raising children must be factored in as well–as that could further reduce your monthly discretionary income.

 

Note: The above numbers are illustrative in nature.  Any combination of housing and debt that is under 40% may be appropriate and the ratios must be interpreted from the money management perspective of the individual and/or  family.  Also, monthly debt as used in this discussion is debt that will exceed 12 months to pay off.

 

Q: How do I know the amount to save for college for my 5-year-old daughter?

 

A:  The amount that you will need will depend on the college, in state or out of state tuition rates and the future value of the amount that you will need.

 

You can then use a number of approaches to reach or exceed that number.  If you fall short you may need to use your current income, take out student loans in your name or your child’s name, or borrow in some other manner.

 

The sooner you get started and the more discretionary income that you have available the more realistic the number that you need to reach can be reached.  In addition it is important that you and your child have an understanding of the pay scale in the current economy related to the major (degree) that they plan on pursuing.

 

You can go to Payscale.com to learn about salary info for selected majors that your child is or will consider in their future…

 

Q: I know I need a will to avoid probate, but how do I know if I need a trust?

 

A:  In many cases a trust is an effective tool for shielding income from taxation and providing a safety net for your heirs.

 

You most definitely need a will, however the decision on whether you need a trust can be a difficult one because it is based on a number of factors–including privacy as a “will”–will be made public (again no pun intended) and a trust will not.

 

Be sure to visit the estate planning page on this site along with All About Estate Planning on Realty 1 Strategic Advisors website to learn more.

 

Q: What is the amount of income that I should save to have retirement income until I reach age 95?

 

A:  Your retirement number will vary depending on your current age, your current  income, your ability to save and your future goals.

 

 You want to save enough to live at your pre-retirement level and take the vacations that you desire at a minimum.

 

In addition you may have other goals such as helping your kids and grandkid’s pursue their dreams as well.

 

This will all play into the “retirement number” that you need to achieve to make the goals that you desire materialize.

 

Conclusion

 

In the current economy you are presented with many choices and answers to your financial questions and this discussion hopefully pointed you in the right direction as far as building wealth more efficiently in the current economy—or any economy.

 

Fortunately for you and other visitors, there are hundreds upon hundreds of personal finance sites on the web and it is your responsibility to find one (or several) that you are comfortable with and can help you build wealth effectively and efficiently in the times that we now live in.

 

Your devotion to improving your finances at this time will provide you the opportunity to achieve more throughout your lifetime.

 

Hopefully you took advantage of this page on the front end (prior to making financial mistakes)–however, even if you did not—you can correct your mistakes and build the type of future that serves your best interest.

 

TheWealthIncreaser.com believes that success lies ahead for you and your family from this day forward…

 

Also return to this site as additional Q’s and A’s will be added on a continuous basis.

 

Are you an agent of change or will you become the victim of changes that occur?

 

Be sure to answer the pressing questions (financial or otherwise) that you may have inside of your mind and heart in an intelligent, consistent and proactive manner to protect your and your family’s future interests.

 

In addition you can become an agent of change by building wealth in a more intelligent, consistent and proactive manner and not fall victim to the actions of others whether it be a scam artist, governmental policy or any other individual or entity!

 

It is the desire of TheWealthIncreaser.com that these and other FAQ’s that follow will help you achieve more throughout your lifetime…

 

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