Social Security Simplification & Wealth Building

Learn the importance of knowing all about social security prior to you actually deciding to get your benefits…                 

 

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Caution: 50-minute read, but well worth it in the opinion of TheWealthIncreaser.com for those who desire to take control of their understanding of Social Security

 

In the current economy the threat of Social Security and Medicare tampering happens on a regular basis.  But what exactly is Social Security and Medicare–and how can you make the Social Security and Medicare that you have contributed to work for your best advantage during your retirement years?

 

Deciding on the best approach to take to receive your Social Security benefits can be a confounding and confusing process for many, and this discussion is designed to clear up competing arguments on when and what is the best approach to receive retirement benefits and more specifically your Social Security benefits so that the average person can understand and possibly provide guidance so that they are better informed.

 

And just as your investments and how you approach them are determined by your unique goals that you have, your risk-tolerance level, your income and your personal situation–so too does your analysis of your Social Security that you will receive, to a lesser or greater degree, depend on those same factors.

 

In this timely discussion, TheWealthIncreaser.com will attempt to simplify the topic of Social Security so that you can make better use of Social Security during your retirement years–and possibly be of more benefit to your heirs after you transition.

 

Social Security & Your Finances

 

Learn how to determine the best time to receive the social security and other benefits that you are entitled to…

 

As you age and edge closer to retirement, Social Security and your other retirement income becomes a real concern.

 

In this discussion, TheWealthIncreaser.com will discuss the ins and outs of Social Security so that you can better time “the time” (pun intended) that you will elect to receive your benefits, and furthermore show you other things that you can do as you approach retirement that can enhance your Social Security and other benefits that you may be entitled to.

 

You can apply for Social Security disability income at any time if you are suffering from a disability that allows you to receive benefits.

 

Full Retirement Age, or FRA, is the age when you are entitled to 100 percent of your Social Security benefits, which are determined by your lifetime earnings.  It is gradually increasing, from 66 and 6 months for those born in 1957 to 66 and 8 months for those born in 1958 and, ultimately, 67 for people born in 1960 or later.  Be sure to “distinguish” that FRA when you are entitled to 100% of your Social Security benefit, is not the same as your Maximum Benefit Amount which could be 25% or more higher than the amount you receive at your FRA.

 

Those FRA dates apply to the retirement benefits you earned from working and to spousal benefits, which your husband or wife can collect on your work record.  They differ slightly for survivor benefits, which you can claim if your spouse dies.

 

Full retirement age for survivors is 66 and 4 months for people born in 1958 and gradually increases to age 67 for people born in 1960 or later.

 

  • Claiming benefits “before” full retirement age will lower your monthly payments that you receieve from the SSA; the earlier you file — you can start at age 62 — the greater the reduction in benefits.  Spousal and survivor benefits are also reduced if you claim them before reaching full retirement age.

 

  • You can increase your retirement benefits by waiting past your FRA to retire.  Each month you put off filing up to age 70 earns you delayed retirement credits that boost your eventual benefit.

 

How early should I decide to get my benefits?

 

Your window to elect to receive Social Security benefits begin at age 62 and end at age 70 (note: you can elect to receive Social Security after age 70, however there is no financial benefit of doing so).

 

That’s a difficult question and will depend on your goals, risk-tolerance level, income, tax position, personal situation and other factors that may be unique to your current and anticipated financial position.  You can claim Social Security as early as age 62, but it may be to your benefit to put off filing for benefits as long as possible (pun intended).

 

By delaying you can maximize your monthly payments.  But you may want to do further analysis.

 

Here are some key factors that you may want to consider:

 

  • Q: How’s your and your family’s health history?  A: If you have a reasonable expectation of living decades past retirement, postponing benefits to get a bigger payment could prove important to your long-term financial stability.  But if you turn 62 and you are in poor or debilitating health, or you have a genetic predisposition to certain illnesses, or otherwise have a pessimistic view of your future, you may decide it makes more sense for you and your family to get what you can, while you can.

 

  • Q: How long do you expect to be gainfully employed? A: Many older workers are being nudged into early retirement as companies downsize, and they wind up spending their last working years in the gig economy or other odd jobs.  If you are one who did not plan appropriately for you golden years and you find yourself struggling to pay your monthly expenses, filing for Social Security at age 62 or before your FRA and taking lower benefits may be what you need to make ends meet.  Just be sure to take into consideration inflation, rising property taxes, rising insurance rates and other factors that may be unique to you and the environment in which you live, into serious consideration.

 

Still, there are strong arguments for waiting as long as you can, and you want to use caution and do careful analysis of the choices available:

 

  • Filing earlier locks you into a lower benefit on a “permanent” basis.  You are not entitled to 100 percent of the benefit calculated from your earnings history unless you apply at full retirement age (66 and 6 months for people born in 1957, 66 and 8 months for people born in 1958 and rising two months annually to age 67 over the next few years).

 

 

  • From full retirement age until age 70, you can earn delayed retirement credits that can boost your eventual benefit by two-thirds of 1 percent for each month of delay — and increase survivor benefits for your spouse, if you die first.

 

Survivor, Spousal & Dependent Support

 

  • after you transition your spouse and/or dependents could receive–survivor benefits

 

  • after 10 years of marriage and you divorce–your “former spouse” could be entitled to benefits–divorced spouse benefits

 

  • dependents may be entitled to receive social security benefits based off of your work record–dependent benefits

 

Other family members may be entitled to benefits that you have earned through the Social Security program during your working years.

 

Social Security “survivor’s benefits” are paid to widows, widowers, and dependents of eligible workers and this benefit is particularly important for “young families with children” and the benefit amount would be based on your earnings, if you were to transition after accumulating a work history.

 

If you are divorced, your ex-spouse can receive benefits based on your record (even if you have remarried) if certain conditions are met.

 

Generally, you must be married for one year before you can get spouse’s benefits.  However, if you are the parent of your spouse’s child, the one-year rule does not apply.

 

The same is true if you were entitled (or potentially entitled) to certain benefits under Social Security or the Railroad Retirement Act in the month before the month you got married.  A divorced spouse must have been married 10 years to get spouse’s benefits.

 

You can apply for benefits by going online and completing the application for benefits.

 

Regardless of when you claim Social Security benefits, the sign-up age for Medicare is still 65. You can’t enroll earlier, except under very narrow circumstances, and you may incur hefty fees for signing up later.  There is a “time-period window” (roughly a 6-month period near the time of your 65th birthday) that must be met in order to sign up and receive Medicare!

 

How does a Reduction in Benefits work?

 

It depends on the year you were born and how long until you reach full retirement age, abbreviated as FRA.  That’s the age at which you would collect 100 percent of the monthly benefit payment that the Social Security agency calculates from your lifetime earnings history.

 

Retirement benefits are designed so that you get the full benefit if you wait until full retirement age, which is 66 and 6 months for those born in 1957, 66 and 8 months for those born in 1958 and gradually rising to 67 for those born in 1960 and afterward.  If you file early, Social Security reduces the monthly payment by 5/9 of 1 percent for each month before full retirement age, up to 36 months, and 5/12 of 1 percent for each additional month.

 

Suppose you were born in 1962 and will turn 62, the earliest age to claim retirement benefits, in 2023.

 

Filing at 62, 60 months early, permanently reduces your monthly benefit by 30 percent and if you would have been entitled to $2,000 a month at full retirement age, you will get $1,400 if you start benefits when you turn 62.

 

Here’s what the reduction would be in subsequent years.

 

  • Age 63: 25 percent

 

  • Age 64: 20 percent

 

  • Age 65: 13.3 percent

 

  • Age 66: 6.7 percent

 

In essence, by starting early you would forfeit roughly 5% to 7% or more in guaranteed returns a year, depending on the year you decided to start receiving your benefits.

 

  • The figures above represent the reduction if you start benefits as soon as possible upon reaching the designated age.  The benefit decrease is calculated based on months, not years, and each month that you wait beyond your 62nd birthday lessens the reduction.

 

 

  • All care in the accuracy in the data above was pursued, however the above data cannot be guaranteed as changes occur over time and the data obtained cannot be guaranteed.

 

What is the Maximum Benefit that I could receive?

 

 

You receive the highest benefit payable on your own record if you start collecting Social Security at age 70.

 

Once you reach your full retirement age, or FRA, you can claim 100 percent of the benefit calculated from your lifetime earnings.  Again, the full retirement age is 66 and 6 months for people born in 1957, 66 and 8 months for those born in 1958 and for those born in 1959, 66 and 10 months.

 

It will incrementally increase to 67 over the next few years, however if you were to hold off a few years, you could earn delayed retirement credits that increase your eventual benefit — by two-thirds of 1 percent for each month you wait.

 

For example, if you were born in 1958, your reach full retirement age between September 2024 and August 2025.  If you put off filing for Social Security until you turn 70, you’ll get 40 months of delayed requirement credits, good for a bump of nearly 27 percent over your full retirement benefit.

 

If the benefit you’re entitled to at FRA is $1,800 a month, at 70 your benefit would bump up to about $2,280 a month.

 

Here’s how that $1,800 full benefit could grow for you if you decided to wait:

 

  Year of birth     Full retirement age    Benefit at 70   

 

1954 66 $2,376 (132% of full retirement benefit)
1955 66 and 2 months $2,352 (130.67%)
1956 66 and 4 months $2,328 (129.33%)
1957 66 and 6 months $2,304 (128%)
1958 66 and 8 months $2,280 (126.67%)
1959 66 and 10 months $2,256 (125.33%)
1960 or later 67 $2,232 (124%)

At age 66 and 8 months you would receive a benefit of $1,800 a month, however if you waited to age 70, you could pocket $2,280 monthly–a difference of $480 a month, which could go a long way if you were in financial position and health condition to hold off a few years.

 

Keep Points

 

  • You can claim benefits later than 70, but there’s no financial reason to do so as delayed retirement credits stop, and your payment tops out once you attain age 70.

 

  • From age 67 to age 70 you can earn “delayed retirement credits” which can increase the benefit amount that you would receive.

 

What is the maximum amount that I can receive if I contribute a substantial amount to the system?

 

The most an individual who files a claim for Social Security retirement benefits in 2024 can receive per month is:

 

  • $2,710 for someone who files at 62

 

  • $3,822 for someone who files at full retirement age (66 and 6 months for people born in 1957, 66 and 8 months for people born in 1958).

 

  • $4,873 for someone who files at age 70 (Maximum Monthly Benefit Possible for anyone in 2024)

 

To add more clarity, the average Social Security retirement benefit in October 2023 was $1,796 a month, while the average disability benefit for 2023 was $1,489 a month.

 

You would be eligible for the maximum benefit if your earnings equaled or exceeded Social Security’s maximum taxable income — the amount of your earnings on which you pay Social Security taxes — for at least 35 years of your working life.

 

The maximum taxable income in 2024 is $168,600 and the figure is adjusted annually based on changes in national wage levels (wage adjustments), and thus the maximum benefit changes each year.

 

Also be aware that the maximum benefit is not the same as the maximum family benefit.  The most a family can collectively receive from Social Security (including retirement, spousal, children’s, disability or survivor benefits) on one family member’s earnings record differs from the maximum benefit amount for an individual mentioned above.  That amount is generally, about 150 to 180 percent of your full retirement benefit.

 

Can I stop and later restart receiving my Social Security benefits?

 

Yes, within limitations.  If you are in your first year of collecting retirement benefits, you could apply to Social Security for a “withdrawal of benefits” if you started early, say age 62.

 

If you later got an unexpected windfall such as an inheritance, lottery winnings, or a pay raise or higher-paying job, you could theoretically be in a position to wait until you are older and you can collect a larger benefit if you do so within 12 months of the date you first claimed your benefits.

 

You start the process by filling out Social Security form SSA-521. and sending the completed form to your local Social Security office, preferably by certified mail.

 

If you opt for a stop (withdrawal), Social Security will treat it as if you never applied for benefits in the first place, and you will have to repay every dollar you’ve received including the following:

 

  • Your monthly retirement payments.

 

  • Any family benefits collected by your spouse or children, who must consent in writing to the withdrawal.

 

 

If you’ve been getting retirement benefits for more than a year, the “window for withdrawal” has closed for you!

 

However, once you reach full retirement age (66 and 6 months for those born in 1957, 66 and 8 months for those born in 1958 and rising two months per year to 67 for those born in 1960 and later), there’s a second option:

 

You can request a suspension of benefits!

 

During a suspension, you accrue delayed retirement credits that were mentioned earlier, which will increase your monthly retirement benefit when you start collecting again.

 

You can ask Social Security to reinstate your benefits at any time prior to turning age 70, and if you don’t ask for reinstatement by age 70, the agency will do it for you!

 

Be aware that:

 

  • If you change your mind about a withdrawal of benefits, you have 60 days from the date Social Security approves your withdrawal to cancel the request.

 

  • The SSA-521 includes a question asking if you want to keep “Medicare” benefits.  You can if you want to, however if you don’t, there are numerous implications both for any health care benefits you’ve already received and for re-enrollment in Medicare at a later date.  You can review these implications in the Social Security publication “If You Change Your Mind.”

 

  • You don’t have to hand in your notice when you start getting retirement benefits, as there is “no requirement” that you stop working.

 

  • But continuing to draw income from work might reduce the amount of your benefit if you claim Social Security before you reach full retirement age (FRA), the age when you qualify to collect 100 percent of the maximum benefit allowed from your earnings history.

 

To reiterate, Full Retirement Age is 66 years and 6 months for people born in 1957 and will rise two months for each subsequent birth year, until it settles at 67 for those born in 1960 and later.  Prior to FRA, Social Security doesn’t consider you fully “retired” if you make more than a certain amount from work, and it will deduct a portion of your benefits if your earnings exceed that limit.

 

The earnings caps are adjusted annually for cost-of-living adjustments (COLA), and they differ depending on how close you are to full retirement age.

 

If you are receiving benefits and working in 2024 but not due to attain FRA until a later year, the earnings limit is $22,320.  You lose $1 in benefits for every $2 earned over the cap.  So, if you have a part-time job that pays $30,000 a year — $7,680 over the limit — Social Security will deduct $3,840 in benefits or roughly $125 a month, from your social security check.

 

Suppose you will reach full retirement age in 2024.  In that case, the earnings limit is $59,520, with $1 in benefits withheld for every $3 earned over the limit that applies until the date you hit FRA!  Once you attain age 70 and onward, there is no benefit reduction, no matter how much you earn–once you hit age 70, the sky is the limit as far as your earnings are concerned as it relates to your Social Security benefits.

 

In fact, Social Security increases your monthly benefit at that point so that over time you recoup benefits you lost to the prior withholding.

 

If you receive wages, earnings-limit calculations are based on your gross pay; if you’re self-employed, Social Security counts your “net income” only.  The Social Security pamphlet “How Work Affects Your Benefits” and its Retirement Earnings Test Calculator can provide you with more details.

 

Key points

 

  • The earnings cap applies only to income from work.  The cap does not count investments, pensions, annuities or capital gains.

 

  • If your Social Security payments are reduced because you earned income above the limit, spouses and children receiving benefits on your work record will have their payments reduced as well.

 

  • The earnings cap and rules also apply to the work income of people receiving spousal, children’s and survivor benefits.

 

 

  • It may be wise to consult your tax advisor prior to electing to receive your benefits, if possible, as all tax situations are unique and experienced tax professionals can see through blind spots and areas of taxation that are nuanced and you may not be aware of.

 

Will my benefits increase if I continue to work?

 

It very well could.  It will all depend on how much you’re making now and how much you’ve made working in years past.

 

Social Security uses your “lifetime average” for monthly income, as calculated from your 35 highest-earning years and adjusted to reflect historical wage trends, as the basis for your benefit calculation.

 

Even if you’ve already claimed your benefits, Social Security annually recalculates this average, factoring in any new income from work.

 

If your current earnings fall into your top 35 earning years, your monthly average will rise, and so could your benefit!

 

What is the recalculation time period?

 

The Social Security Administration recalculates your retirement benefit each year after getting your income information from tax documents.  If you have a job, employers submit your W-2s to Social Security; if you are self-employed, the earnings data comes from your personal tax return that you would file during the tax season.

 

Social Security will take any work income from that tax year and figure it into your benefit calculation.

 

That calculation is based on the average monthly income from the 35 best-paid years of your working life (as indexed for historical United States wage trends, a process similar to adjusting for inflation).  If your recent earnings make the top 35, it will increase the monthly average and your benefit payment will increase!

 

You can call Social Security at 800-772-1213 to ask about how your anticipated earnings might change your benefit.

 

What is the payment schedule?

 

Apart from any earnings-based calculations, Social Security makes an annual cost-of-living adjustment (COLA) to your benefit based on inflation, if any.  The COLA for 2024 will be 3.2 percent, boosting the average retirement benefit by $59 a month starting in January.  COLA review and adjustments are done annually by the Social Security Administration.

 

Social Security pays benefits in the month following the month for which they are due.  For example, the January benefit that you are entitled to would be paid in February.

 

For most beneficiaries, the payment date depends on your birth date since changes that were made in 1997 went into place.  If you are receiving payments on the record of a retired, disabled or deceased worker (for example, spousal or survivor benefits), that person’s birthday sets the schedule for the payments that you would receive.

 

Here’s how it works in a nutshell:

 

  • If the birthday is on the 1st through the 10th, you are paid on the second Wednesday of each month.

 

  • If the birthday is on the 11th through the 20th, you are paid on the third Wednesday of the month.

 

  • If the birthday is on the 21st through the 31st, you are paid on the fourth Wednesday of the month.

 

The Social Security Administration adopted this staggered schedule in June 1997.  Prior to that, all benefit payments went out on the third day of the month, but that became untenable as the number of beneficiaries grew to a level that made it impractical to pay out on a single day.

 

Most people who started receiving benefits before May 1, 1997, are still paid on the third of the month.

 

The third is also the monthly pay date for these groups of Social Security beneficiaries:

 

 

  • Those enrolled in Medicare Savings Programs, which provide state financial help for paying Medicare premiums continue to receive their payments on the 3rd day of the month.

 

  • Those who collect both Social Security and Supplemental Security Income (SSI) benefits.  If you were in this group, you would get your SSI on the first of the month and your Social Security on the third day of the month.

 

Social Security has an online calendar showing all the payment dates for 2024 and is updated annually.

 

Key points

 

  • Social Security no longer pays benefits by check. You can receive benefits by direct deposit or via a Direct Express debit card.

 

  • Those who receive Social Security Benefits receive payment based on the birth date of the retired, disabled or deceased person, or a set date determined by the Social Security administration which is generally the 3rd day of the month.

 

  • If a scheduled payment date falls on a weekend or federal holiday, payments are made on the first preceding day that isn’t a Saturday, Sunday or holiday.

 

Medicare payments

Medicare consists of:

 

Part A   Hospital

Part B   Utilizing Outpatient Coverage

Part C   Medicare Advantage

Part D   Prescription Drugs

 

An easy way to remember what each part of Medicare covers (which can be difficult for some) is to use the following system:

 

When you think of part A think of coverage that allows you to go to “A” Hospital

When you think of part B think that you will “Be” getting health coverage or utilizing outpatient coverage

When you think of part C think that you are buying “Coverage” for Medicare Advantage

When you think of part D think that you are going to get prescription “Drug” coverage

 

Medigap Insurance coverage fills in the gaps where you would possibly have out of pocket expenses and deductibles, and it can be purchase by you if you select Medicare–and decide not to buy into Medicare Advantage coverage.

 

Another way of looking at it is part A is Hospital Coverage and possibly free, Medicare is part B, Medicare Advantage is part C, and part D is coverage for Prescription Drugs, whether you have Medicare or Medicare Advantage!

 

Or yet another way to look at it is you must get over the HUMP with your Medicare–and you do so by realizing that part A is Hospital coverage, part B is Utilizing outpatient coverage, part C is Coverage for Medicare Advantage, and part D is Prescription Drug coverage.

 

Now that you have a system that you can use to distinguish all parts of Medicare and MA, let’s discuss Medicare in greater detail.

 

If you elect traditional Medicare, you will pay for parts B, D and Medigap, and you could be surprised by the premiums.  You have just learned and fully understand that part B covers outpatient care and has a monthly deductible ($174.70 in 2023), and there is also a deductible for every hospital visit on part A ($1,632 in 2023).

 

Part A: generally, you will qualify for hospital coverage if you have worked in the United States and have paid Medicare taxes (provides hospital coverage up to 60 days and a high deductible could be involved).

 

Part B: outpatient care is similar in scope to health insurance and in 2024 had a payment of $174.70 per month and the coverage will subject you to the benefits test if your modified adjusted gross income is over $103,000 single or $206,000 married filing joint.

 

Part D prescription drug coverage premiums averaged $50.50 in 2023, however drug and other coverage varies.  Often purchased through a private insurer.

 

Medigap coverage kicks in when there is a “gap in coverage” when you use part B and D, for example you could use the coverage to pay the part A and D deductibles mentioned above!

 

With Medicare, physicians and hospitals would have to submit claims to parts A, B, D and Medigap, where applicable individually, whereas with Medicare Advantage the claim would normally go to just one provider.

 

Medicare recipients could also possibly get financial assistance from Medicaid or other assistance programs if they qualified.

 

Medicare Advantage (part C) —the “competitor to Medicare” offers coverage for parts A, B and D, and coverage and costs varies by provider.  The coverage provided is similar to that of an HMO or PPO and provider costs and coverages that vary from provider to provider, so it is best to shop around.

 

In either plan, Medicare Advantage (MA) or Medicare “pre-existing conditions” will be covered!

 

Star Ratings by AARP could also be helpful when considering plans!

 

If you are signed up for both Social Security and Medicare Part B — the portion of Medicare that provides standard health insurance or outpatient care — the Social Security Administration will “automatically deduct” the premium from your monthly benefit.

 

The standard Part B premium for 2024 is $174.70 a month, an increase of $9.80 from the 2023 rate. Medicare Part A, which covers hospitalization, is free for anyone who is eligible for Social Security, “even if” they have not claimed Social Security benefits yet.

 

If you are getting Medicare Part C (additional health coverage through a private insurer, also known as Medicare Advantage) or Part D (prescription drugs), “you have the option” to have the premium deducted from your Social Security benefit or to pay the plan provider directly yourself.

 

Part D is also subject to a means test, similar to part B!

 

If you want the deduction from your Social Security income, you will have to contact your part C or D provider to arrange it!

 

Keep points 

 

 

  • People with low incomes and limited financial assets may qualify for Medicare Savings Programs that can help with Part B premiums.  These are federally funded but run by the states.  In 2023, income limits to qualify for the programs in most states ranged from $1,235 to $1,660 a month for individuals and $1,663 to $2,239 a month for married couples (the thresholds are higher in Alaska and Hawaii).  The 2024 limits will be posted on the Medicare website once they are announced.

 

  • If you are receiving benefits” from SSA, the Social Security Administration will “automatically sign you up at age 65” for parts A hospitalization and B outpatient care of Medicare.

 

  • Medicare is operated by the federal Centers for Medicare & Medicaid Services, but Social Security handles enrollment.  Social Security will send you sign-up instructions at the beginning of your initial enrollment period, three months before the month of your 65th birthday, however mistakes and delays can occur, therefore you want to act within the 6-month window of your 65th birthday if you have a need for Medicare as you are now aware of the enrollment process.

 

  • Medicare Part A covers basic hospital visits and services and some home health care, hospice and skilled-nursing services.  If you are receiving or are eligible to receive Social Security retirement benefits, you do not pay “premiums” for Part A.

 

  • Medicare Part B is similar to standard health insurance and carries a premium.  The base rate in 2024 is $174.70 a month.  Higher-income individuals pay more depending on the amount of their modified adjusted gross income.

 

  • You can “opt out” of Part B — for example, if you already have what Medicare calls “primary coverage” through an employer, spouse or veterans’ benefits and you want to keep the primary care that you already have.

 

  • Check with your current insurance provider to make sure your coverage meets the standard. Opting out will not affect your Social Security status, but you might pay a penalty in the form of permanently higher premiums if you decide to enroll in Part B later.

 

  • If you want to enroll in Medicare Part C (also known as Medicare Advantage, an “alternative to Part B” that is provided by private insurers, you must sign up on your own. The same goes for Medicare Part D, prescription drug coverage.  You can find more information in Social Security’s “Medicare” publication and AARP’s Medicare Made Easy guide, or you can call Medicare at 800-633-4227.

 

Key points

 

  • If you are living abroad or are outside the United States when you become eligible for Medicare, contact the nearest U.S. embassy or consulate to request an enrollment form.

 

You can only enroll in Medicare at age 62 if you meet one of these criteria:

 

 

  • You are on SSDI because you suffer from amyotrophic lateral sclerosis, also known as ALS or Lou Gehrig’s disease (The two-year requirement is waived in this case).

 

  • You suffer from end-stage renal disease.

 

Otherwise, your initial enrollment period for Medicare begins three months before the month of your 65th birthday.  For example, if you turn 65 on July 14th, 2024, the enrollment window opens on April 1st and closes on November 1st, 2024.

 

If you “are receiving” Social Security benefits, the Social Security Administration, which handles Medicare enrollment, will send you an information package and your Medicare card at the start of the sign-up period.  You’ll be automatically enrolled in Medicare Part A (hospitalization) and Part B (standard health insurance) in the month you turn 65.

 

In the meantime, consider looking into other options for health insurance to bridge the gap until you are Medicare-eligible if you lack insurance and have not reached the age to receive Medicare.  Depending on your financial and marital situation, these might include Medicaid, private insurance through the Affordable Care Act marketplace or coverage through your spouse’s workplace plan or your own employer’s work plan.

 

Key point

 

 

How to enroll

 

You can enroll online, by phone at 800-772-1213, or by visiting your local Social Security office.  Local offices fully reopened in 2022 after being closed to walk-in traffic for more than two years due to the COVID-19 pandemic, but Social Security recommends calling in advance and scheduling an appointment to avoid long waits.

 

You should proactively be aware of the enrollment deadlines, as Social Security will not sign you up automatically at 65 for “traditional Medicare” — Part A (hospitalization) and Part B (health insurance) — as it typically does for people already collecting Social Security benefits!

 

In this situation, you’ll have to enroll yourself, either online or by contacting Social Security.

 

Always remember that Medicare and Social Security are “two separate programs” however the Social Security Administration runs enrollment for traditional Medicare!

 

You can enroll in Medicare parts A, B and D (prescription-drug coverage) as early as three months before the month you turn 65 or as late as three months after your birthday month which is called your initial enrollment period.  For example, if your 65th birthday is May 15th, 2024, the initial enrollment window is open from February 1st until August 31st, 2024.

 

Here’s why you need to be on top of your deadline:

 

If you don’t sign up during those seven months, you may be subject to a permanent surcharge once you do enroll.  You’ll find more information on sign-up periods in Medicare publications about enrolling in Part B and Part D.

 

Part A is free if you qualify for Social Security, even if you have not claimed benefits yet, however Part B carries a premium and in 2024, the standard Part B premium is $174.70 a month; it goes up for beneficiaries with MAGI (income) above $103,000 for those who file an individual tax return, and MAGI of $206,000 for a married couple filing jointly.

 

If you are not yet receiving Social Security benefits, you will have to pay Medicare directly for Part B coverage.  Once you are collecting Social Security, the premiums will be deducted from your monthly benefit payment.

 

If you “decide to purchase” a Part D prescription-drug plan, it’s best to do so during your initial enrollment period; and as mentioned previously, you may pay a higher premium, permanently if you fail to sign up in a timely manner.

 

Your Part D provider cannot deny coverage even if you are in poor health or have a preexisting condition.  You can choose between paying Medicare directly or having Part D costs deducted from your Social Security payment.

 

Key points

 

  • The Medicare eligibility age of 65 no longer coincides with Social Security’s full retirement age (FRA) — the age when you qualify for 100 percent of the Social Security benefit calculated from your lifetime earnings.  FRA was long set at 65 but it is gradually going up: It’s 66 years and 6 months for people born in 1957, 66 and 8 months for those born in 1958, 66 and 10 months for those born in 1959 and will settle at 67 for those born in 1960 or later.

 

  • Always remember that even if you don’t elect for Social Security at the earliest time possible, you can still sign up for Medicare at 65 as long you are a U.S. citizen or lawful permanent resident.  You will have to pay Medicare directly for all coverage, including Part A (unless you or your spouse are among the small number of state and local government employees who paid Medicare taxes but not Social Security taxes; in this case, you may be able to get Part A for free).

 

Managing Medicare enrollment

 

For most people, Medicare eligibility starts at age 65 and “if you’re receiving Social Security retirement benefits” at that time, SSA will send you a Medicare enrollment package at the start of your initial enrollment period, which begins three months before the month you turn 65.   This point cannot be over-emphasized and is repeated here yet again due to the importance of you understanding this deadline.  If you are not on Social Security, you want to still know that you must sign up by age 65 if you desire the coverage!

 

For example, if your 65th birthday is July 15, 2024, this period begins April 1.

 

On your 65th birthday, you’ll automatically be enrolled in parts A and B.  You have the right to opt out of Part B, but you might incur a penalty, in the form of permanently higher premiums, if you sign up for it later.

 

If you have not yet filed for Social Security benefits, you will need to apply for Medicare yourself!

 

You can do so any time during the initial enrollment period, which lasts seven months (so, for that July 15 birthday, the sign-up window runs from April 1 through Oct. 31). If you do not enroll during that period, you could face late fees if you do so later.

 

You’ll find comprehensive enrollment information in SSA’s “Medicare” publication and links to application forms on the Social Security website.

 

Paying Medicare premiums

 

If you are drawing Social Security benefits, your Medicare Part B premiums are deducted from your monthly payments.  If you’re not getting benefits, you’ll receive bills from CMS (almost all Medicare beneficiaries pay no premiums for Part A because they worked, and paid Medicare taxes, long enough to qualify for the program).

 

The standard Part B premium paid by most Medicare enrollees is $174.70 a month in 2024. The rate rises with the beneficiary’s income, going up in steps for individuals with incomes greater than $103,000 in 2024 and married couples who file taxes jointly and have a combined income of more than $206,000 in 2024.

 

Social Security determines whether you will pay a higher premium based on income information it receives from the IRS!

 

If your income is high enough, Social Security will impose what is called an Income Related Monthly Adjustment Amount (IRMAA) or means test on Part B outpatient care and Part D prescription drugs.

 

Although this surcharge is unknown to many prior to signing up for Medicare, it can add up and can be hundreds of dollars on a monthly basis for some recipients.  If your income tier (MAGI) is from $103,000 to $129,000 in 2024, everyone in that tier would pay the same annual surcharge.  For MFJ the tiers start at MAGI of $206,000.

 

Therefore, if you are a high-income household and your spouse were to transition, you could fall into the single tax bracket (and the tier of $103,000 to $129,000) and a monthly surcharge could be added to your monthly payment, even though your household actually had a reduction in income.

 

The determination as to whether you will face this surcharge is based on your AGI (line 11 amount on form 1040 that does not go into the calculation of your MAGI or modified adjusted gross income) so charitable contributions or donations, mortgage deduction, taxes and medical deductions would not be of benefit with the exception of a QCD (Qualified Charitable Deduction) in which you can donate up to $100,000 annually and count it toward your RMD (distributions that must begin at age 73 according to the SECURE  Act 2.0.

 

Unlike cash, a QCD will keep the donation out of your gross income (it is an above the line deduction in tax jargon–goes on schedule 1 adjustments) and thus “lower your MAGI” so you could possibly avoid (the IRMAA adjustment) the surcharge.

 

Strategies that you can use to avoid or minimize the surcharge imposed by the Income Related Monthly Income Adjustment Amount:

 

*Consider a ROTH conversion

News flash–withdrawals from a ROTH IRA don’t count toward IRMAA

 

*Contribute more to your Retirement plans

You can lower your above the line income (IRS form 1040 line 11 and above) by contributing the maximum amount or at the very least an increased amount to your retirement plan or IRA account(s) and thus fall below the $103,000 threshold for singles, or $206,000 threshold, if you file as married filing jointly.

 

*Use tax-gain harvesting

By harvesting you sell your stock, mutual fund, etf etcetera, that is outside of your retirement account and buy it back immediately to “reset” your basis.  You would pay taxes on the gain in the year you harvested.   And by doing so the higher cost basis will reduce your taxes once you sign up for Medicare.

 

*Set up a Qualified Charitable Donation

As mentioned above, by setting up a QCD you can take an above the line deduction and reduce the amount of you MAGI, so your income won’t reach the threshold set by IRMAA (Income Related Monthly Adjustment Amount).

 

*Defer taking Social Security

You have up to age 70 until Social Security benefits make the most sense to take for many, and by delaying Social Security won’t count toward IRMAA.

 

*Compare your premiums between Medicare and Medicare Advantage

Medicare Advantage may give you the coverage that you need and might be cheaper than Medicare.  With Medicare you must pay separately for Parts A, B, D and Medigap and that along with the coverage that you desire could tilt the scales as to which one to choose.

 

*Appeal the surcharge

You can appeal if your income is significantly lower than it was 2 years ago.  SSA uses a 2-year lookback to determine current year surcharges.  If you were to start receiving Medicare in 2024, they would look at your 2022 MAGI to determine if IRMAA was applicable for 2024.  Other grounds to appeal include life changing events such as retirement, death of a spouse, divorce, loss of pension and other life changing events that the agency could possibly accept if it appeared reasonable in their eyes.

 

*Use your imagination to find other ways to avoid the surcharge

The surcharge is not necessarily permanent and if you can find ways to reduce your income some in future years, you may be able to avoid this surcharge altogether.  You may want to take the surcharge early because you know you can avoid it later.  Likewise, you may want to find ways to avoid the surcharge early and pay it later.  The surcharge is a year-to- year charge and you want to use the creativity that you have to find ways to eliminate this charge–when possible.

 

Key points

 

  • People with disabilities may qualify for Medicare before age 65 in many instances.  If you are receiving Social Security Disability Insurance (SSDI), Social Security will enroll you automatically in Parts A and B after you have been drawing benefits for two years.

 

  • If you have Medicare Part D (prescription drug plan) or a Medicare Advantage plan, also known as Medicare Part C, you can elect to have the premiums deducted from your monthly Social Security payment.

 

 

Conclusion

Social Security, Railroad Retirement Benefits and Pension income and other retirement income are areas that you want to give proactive analysis to, as the decisions and choices that you make will be critical for a successful retirement where you can do what “you” desire during your retirement years and not be restrained due to inadequate income or poor planning.

 

Although pension income for many is a thing of the past, those who now or will soon receive it can use the proceeds in conjunction with their social security income and sound investment and retirement planning to live out their life with more joy and enthusiasm.

 

Railroad Retirement Benefits are similar in scope to the benefits that the Social Security Administration provides, however those benefits are designed to assist railroad workers and their family in retirement and in the unfortunate transition of the income earner.  It is a system that is generally more generous than that of the SSA (pun intended) toward recipients and beneficiaries.  If you receive, or anticipate receiving those benefits, you too want to plan appropriately and build your retirement nest egg in the best way possible, based on your ability to do so.

 

Now is the time that you contemplate your Social Security payment amount that you will receive and combine the monthly benefit with your other retirement benefits to determine if the number that you are now at or will soon be at, is sufficient or whether you will need to earn more income, work a few more years until ultimately retiring or taking your benefits at the earliest time possible due to financial and health concerns.

 

Your total monthly income must be determined upfront, that means you must combine your 401k or other pre-tax retirement income, pension income, IRA income and income that is outside of your retirement accounts to determine if you have the monthly cash flow that allows you to pay your monthly expenses, do what you desire and have funds that can last for your remaining life expectancy and beyond.

 

The basic questions of choosing whether Medicare or Medicare Advantage is your best choice, whether you should you start your SSB, RRB or other retirement distributions earlier, at a reduced amount, or start later at a higher level may all coincide at this time or at the time you plan to retire!

 

If you delay, your eventual Social Security and/or RRB payment that you could receive will keep rising, until you hit age 70.

 

If you elect to start your benefits today or before reaching your FRA, you can enjoy the benefits earlier, because you are concerned about whether life and the future will go your way!  If you decide to wait, you may find an additional amount monthly, and for you that could be great.  Your unique financial and health condition will play a large role in the approach toward your retirement funds that you choose.

 

The choice as to whether to choose Medicare or Medicare Advantage can be a difficult one and should be given careful analysis, possibly with the assistance of family members and other professionals.

 

But many other factors come into play when determining the best age for you to claim benefits, including your physical well-being, marital status, financial needs, tax position and job satisfaction, other sources of income and your life savings.

 

The election of when and how you will elect SSB, RRB or choosing between Medicare and Medicare Advantage must all be analyzed in a thoughtful manner from all angles.

 

When you combine your SSB, RRB, investment income inside and outside of retirement, retirement income whether from your 401k’s, IRA’s, 403b’s, Thrift and other retirement plans, you want to be in position where you can put yourself, your loved ones and causes that you value most that bring you the most joy at the center.  And if you planned appropriately and obtained the necessary knowledge in a timely manner all of your retirement goals can come into clear focus and be attained in real time.

 

By simplifying the process and the way that you approach investments and retirement, you can make what you desire to happen most during your retirement years become a reality.

 

Other Key Points:

 

You receive the highest “maximum benefit payable” on your own record if you start collecting Social Security at age 70.  Full retirement age is 66 years and 6 months for people born in 1957 and will rise two months for each subsequent birth year until it settles at 67 for those born in 1960 and later.

 

You receive the “highest benefit payable” on your own record at FRA if you start collecting SSB or RRB at age 67.  Full Retirement Age extends from age 65 for beneficiaries born before 1938, to age 67 for those born in 1960 and later.  You can receive your full railroad retirement benefit starting at age 60 if you have 30 years of qualifying service.  Normal full retirement age for railroad benefits is 65 or 67, depending on the year you were born.

 

Medicare and Medicare Advantage are often in a “state of flux” and you can expect changes (hopefully for your benefit) to occur in the future.

 

All the best to your SSB, RRB, Other Retirement Income & Medicare success, as it is our hope that this discussion has allowed you to valiantly perch from your retirement nest…                                                                                                                               

 

 

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Retirement Simplification & Wealth Building

Learn how you can manage your retirement in a more stress-free manner as you build your wealth…

 

Caution:  20-minute read, however it is “well worth your time” in The Wealth Increaser.com’s opinion

 

In the most recent post investment simplification was discussed and investment approaches were presented in a way that allows you to build wealth almost effortlessly.  Based on that post, if you determined that you had the needed discretionary income and you were to apply the principles learned in that discussion on a consistent basis, you would now be on a real path toward investment and possibly retirement success.

 

You must know what you need to do after you have accumulated a large nest egg and this discussion is designed to show you a number of ways that you can receive your retirement income and minimize your taxes so that you can stretch your income over your life expectancy so that you can do more and live more abundantly!

 

Your retirement plan may need to last you decades and you want to know how you can stretch your nest egg at the earliest time possible so that you can live a more comfortable retirement.  Even if your retirement is decades away, you want to proactively familiarize yourself with the information in this timely discussion, so that you can achieve more throughout your lifetime.

 

Once you approach your retirement years you can choose to roll over your 401k, 403b, Thrift or other retirement plan, you can decide to leave your retirement funds in the 401k or other retirement account, or you also have other options, and they will all be discussed below:

 

Do the rollover yourself

Once you retire you can choose to roll over your funds from your retirement plan into an IRA, and you have 60 days to do so if you want to avoid the pain of being taxed on the entire amount.  Even if you roll over your funds within the 60-day window your employer (or former employer) or plan administrator will withhold 20% of the rollover amount for income taxes.

 

If you don’t have the 20% amount laying around in your emergency fund or other accounts, you will only be able to roll over 80%.

 

By coming up with the 20% you can “recoup” the 20% that was withheld at tax time when you file your tax return!

 

If you are unable to come up with the 20%, be sure that you realize that the 20% will be considered taxable income, and if you are under age 55 you will be penalized another 10%!

 

Say you receive $200,000 to rollover, $40,000 would be withheld and sent to the IRS and $160,000 would be rolled over into your IRA that you designated.  You would receive a 1099R at tax time showing $40,000 as taxable income.  By rolling over 100% it would not be considered taxable income and you could file your taxes and get the 20% withholding back.

 

Arrange for a trustee-to-trustee rollover

A trustee to trustee, also known as a direct rollover could be more beneficial than a rollover that you do yourself as it will be done by your retirement plan administrator, and is generally the best course of action as there would not be a 20% withholding.

 

Once the money is in the IRA, you are not “required” to take anything out until April 1st of the year after you turn 73.  If your contribution includes “after-tax” contributions, you can only roll over for the full amount if the IRA sponsor will account for the after-tax money separately.

 

If you have after-tax contributions, a “portion” of every IRA withdrawal will be tax free.  Or you can receive all of the “after-tax money” before the rollover and pocket it tax free!

 

Leave the money in the account

If you like your plan administration and the returns that you are getting, you can choose to leave the money in the account and cash out or roll it over later if you desire.  If the retirement plan is providing good returns and you are comfortable with the investments, why shake up the pot?

 

You would normally need at least $5,000 or more in the account to make this option worthwhile and distributions would be required by age 73, even if you did not need the money.  If your account was invested in a ROTH, you could leave the money in the account until you transitioned.

 

Roll over to a ROTH IRA

You can roll your assets from your company plans to a ROTH IRA, and because your contributions to your company plan was done on a “pre-tax” basis and have never been taxed, the rollover would now be taxable, however no 20% withholding would be required.  You do not have to take Required Minimum Distributions (RMDs) at age 73 with a ROTH.  The assets in your ROTH IRA could then grow tax-free indefinitely.

 

If you use this strategy, you want to be able to find the money “outside of your retirement account” to pay the taxes, otherwise you will limit the tax-free growth of the ROTH account.  Also, if you transition, the funds in the ROTH IRA could go to your beneficiaries and RMD’s and taxes would come into play.

 

Take out company stock

If you work for a fortune 500 company or a company that has publicly traded stock and your company put those stocks within your retirement plan, you could have yet another option that could help you save on your taxes.

 

You can use a tax concept called NET UNREALIZED APPRECIATION” (NUA) and pull the company stock out and put only the non-company stock balance in the IRA!

 

Rolling highly appreciated stock into an IRA, locks in a high tax rate for that appreciation.  You will owe taxes on the full value of the stock at ordinary income tax rates (up to 37%) “as you sell it” and take distributions from the IRA.

 

However, there is a better way to transfer the stock!

 

Lets say you have $2.2 million (the part not held in company stock) and roll it into an IRA, and you transfer the stock to a separate taxable account.

 

You will owe income taxes on the company stock, but the tax is based on its “cost-basis” — the value of the stock when your employer put them into your account.  In this case, let’s say it was $20,000 and is now valued at $200,000.

 

When you sell the stock from your taxable account, you will report a long-term capital gain, and if the sales price is $300,000, the gain ($300,000 minus $20,000) of $280,000 would be taxed at the more favorable capital gains rate of 0%, 15% or 20 percent–which would for most be lower than the “ordinary income tax rate” mentioned above that could be as high as 37%.

 

Assuming a retirement “long-term capital gains” tax rate of 15%, ($280,000 * .15) your taxes would be $42,000.

 

Had you rolled the entire $2.2 million into the IRA and “then” withdrawn the $300,000, you would owe income tax on the entire distribution in your highest tax bracket–and if it was the 37% tax bracket you would owe $111,000–a difference of $69,000, an amount that can go a long way during your retirement years.

 

Another way of looking at it is if you were able to use the above strategy you would pay $69,000 less in taxes or you would have an additional $69,000 that you could be utilizing for the continued growth of your retirement fund.

 

It is important that you realize that there are things in life that you don’t know–that you don’t know, and you want to know this important “lifelong fact of life” at this time or the earliest time possible in your life (no pun intended)!  This tidbit of knowledge that you have just learned as it relates to company stock can go a long way in protecting your nest egg during your retirement years, if it is a strategy that you can use with your retirement portfolio.

 

If you own the stock when you transition, not having it in an IRA creates a windfall for your heirs as the stock will receive “favorable stepped up basis” (stock will be stepped up to the stock price at your transition date and that means lower taxation for your heirs) treatment and once your beneficiaries sold the stock the tax would be at the capital gains rate and would be based on the price of your company stock at the time of your transition–not when your employer put them in your account.

 

Or another way of looking at it is if the stock is “outside the IRA, appreciation after the distribution becomes tax free” and the gain not taxed at the time of the distribution would be taxed at the 0%, 15% or 20% long-term capital gains rate, depending on where your beneficiaries would fall based on taxable income and filing status.

 

If the stock was in the IRA, the full value would be taxed as income in your beneficiary’s top tax bracket (as high as 37% as of 2024) as it is withdrawn.

 

Taxes & Retirement

Once you retire and start taking distributions from your retirement accounts, pensions, social security or railroad retirement benefits, you want to plan for the payment of your taxes in a proactive manner where possible.  You social security income could be taxable depending on the amount of your retirement income and whether you work part or full time after retirement.  Also keep in mind that taxation at the state level must be taken into consideration as many states exempt some or all income of retirees–and some states have no income tax at all.

 

In addition, consider the estate tax system in your state proactively, as even though you may not have estate taxes at the federal level–you may very well be required to pay them at the state level.

 

During your retirement years you will receive 1099Rs, Social Security Benefit statements, W-2s or 1099NEC if you decide to work, other 1099 statements for interest, dividends, capital gains etcetera, and you want to proactively plan with your tax professional so that you won’t have large surprises at tax time.

 

The IRS also receives copies of all of these documents so you want to do a “double take” to ensure that you have all of your documents at tax time.  Failure to do so and your inability to provide them to your tax pro for any reason could result in your return being audited.

 

Also realize that if you file your personal or business taxes by paper, the return will receive extra scrutiny from the IRS.  Even though many think paper is more secure, filing electronically has proven to be more secure and accurate.  You can also enroll in the IP PIN program (Identity Protection Personal Identification Number program) to further secure your filing, as even if they (scammers) have your social security number or ITIN (Individual Taxpayer Identification Number) they would still need your PIN to pretend they were you.

 

Your payment of taxes (ordinary income rates) will be based on your taxable income and filing status (10%, 12%, 22%, 24%, 32%, 35% or 37%) and you will pay taxes on your investment income at a rate of 0%, 15%, or 20% and that rate would be based on your taxable income and family situation (filing status).  If you are single with adjustable gross income over $200,000, ($250,000 married filing joint), you will have an additional 3.8% net investment income tax on your investment returns that were not offset by losses.

 

You also want to commit age 59.5 (age that you can begin withdrawals), age 73 (age at which you must take RMDs) and the age in which you will eventually transition (your assets will or will not receive “stepped up basis” treatment) to memory as those ages are important to know for planning purposes and particularly for tax and estate planning.  In addition, you want to know that short-term (less than 12 months) gains will be taxed at your ordinary income rates.

 

The above figures are based on the 2023 tax year and the numbers are adjusted annually.

 

Required Minimum Distributions & Retirement

Required Minimum Distributions or RMDs are the least amount of money you “must” withdraw from your traditional IRAs or pretax 401k and other pre-tax retirement accounts based on United States tax law.

 

Always remember that whatever your retirement (or pre-retirement) age, it is never too early to strategize your RMDs for 2024 and beyond.

 

The year that you turn 73 is the year that RMDs will be required to be taken by you.  If you are not turning 73 this year, you may still want to take withdrawals to reduce the amount of your future RMDs.  It will all depend on your goals, risk-tolerance level, income, personal situation–and tax bracket, the impact on the raising of your Medicare premiums and the impact of increasing the taxes on your Social Security income.

 

If you are now 70.5 or older, you can make a QCD (Qualified Charitable Distribution) directly from your IRA to a charity.  If you are 73 or older the QCD will count toward your RMD.  Though you can’t generally claim the deduction for the donation, you won’t be taxed either.

 

If you fail to take your RMDs in a timely manner, you want to notify the IRS of this “before they notify you” when possible (use form 5329) and explain with a letter why you didn’t take the RMDs by the December 31st deadline.

 

By doing so you can possibly avoid a 25% penalty on the amount you were required to withdraw–however you may still be subject to a 10% penalty!

 

Bond Management

Unless you have time to monitor and respond to the bond market, you may want to hire a pro as the pricing of bonds are normally out of the public view when compared to stocks.

 

Bonds have what is called a “bid price” and an “ask price” and shopping around for bonds can save you hundreds on commissions and markups.  If you are a buy and hold investor, you normally want to have at least $50,000 to spend and you want to assemble a portfolio of high quality corporate, treasury and possibly municipal bonds.  Mutual funds offer one stop bond diversification, but a portfolio of them typically costs “more to maintain” than a portfolio of individual bonds.

 

You want to have “at least two brokers” and check with each before placing your order.  You can also search online to compare prices and yields by going to:

 

 

 

 

 

 

All of the above sites would be a good starting point.  Treasurydirect.gov allows you the opportunity to purchase directly without fees and you can manage savings bonds, T-bills, notes, bonds and TIPs (Treasury Inflation Protected securities) in a free online account.

 

You also want to ask the right questions whether online or with your broker.  You would want to know the following:

 

*What is the spread between the bid and ask price?

The closer you buy to the bid price the smaller the markup!

 

*Is the bond callable?

Bonds may be redeemed by the issuer, and if so you want to request the yield-to-worse call (which is the lowest potential yield)!

 

*Which yield are you quoting me?

The coupon, yield to call (YTC) or yield to maturity (YTM)!  Be ready to haggle as brokers expect it.  If you don’t like to haggle, consider treasuries.

 

Since you are retired or are now anxiously anticipating the day that you will be, you now or will one day have the time to learn about bonds and other investments that can possibly help grow your nest-egg with relatively low risk.  You want to put yourself in position to learn what you need to learn in a relaxed and as stress-free a manner as possible while you are improving your finances.

 

You may also want to set up a bond ladder system during your retirement years to “smooth out the ups and downs” of interest rates.  Treasuries are as close to a risk-free investment that you can buy and when purchased in a 5-year laddering system, it can provide you income that guards against inflation during your retirement years.

 

If you need more income, consider CDs, municipal and corporate bonds in a laddering system or even dividend paying stocks such as those offered by utility stocks and REITs (companies that own and manage office buildings, shopping centers, apartments and other large developments).

 

On occasion, annually at least–you may need to re-balance your asset allocation, as over time based on gains and losses–your asset allocation will go out of balance from what you initially selected.

 

If your stocks or bonds exceed your previously set allocations by more than 5% you may want to re-balance once that occurs.

 

You generally want to re-balance first inside of tax deferred IRAs or tax-free ROTH accounts to get their allocation back on track as no taxes would be due and you want your risk level to return to what you selected initially.

 

You can also invest RMDs that you receive from your retirement accounts that are out of balance back into those tax-deferred accounts–so they go back into the market (they will be taxed) and increase your returns further.

 

Conclusion

You will have to allocate your assets based on your goals, risk-tolerance, income and personal situation.

 

You want to buy and sell bonds appropriately and know how to set up a bond ladder if that is of appeal to you and something that you feel can be of benefit during your retirement years.  It is important that you choose the best option possible based on what you desire to achieve during your retirement years and after you transition.

 

As you can see from this discussion the “choices that you make” can lead to lasting, cost-effective or cost-ineffective results during your retirement and pre-retirement years–and even after you transition!

 

The factors that should influence your decision should include your age, income tax bracket, insurance needs, income needs, estate plans, and whether you own individual stocks and/or mutual funds.  If you have adequate pension and social security income, you can supplement resources by spending income “generated in taxable accounts” and letting the “investments in your IRA grow tax deferred” until withdrawals are required.

 

Some people re-invest even after RMDs start, rather than spending their money.  You want to ensure that your allocation of stocks, bonds and cash are at the right mix to balance your need for both income and continued growth.  If you have Treasuries and Money Market accounts, corporate bonds and REITs that generate taxes, you may want to put them in your IRA.

 

You can put municipal bonds, index funds and stocks held for the long-term into a taxable account(s).

 

With the cap rate on most stock dividends capped at 20%, your IRA may not be the best place for dividend paying stocks.  And even though your stocks in a taxable account may generate capital gains taxes when you sell, the top long-term rate is 20% in 2024.  Keep in mind non-qualified dividends could be taxed at your ordinary income rate.

 

It is critical that you create a portfolio (or have your advisor do it) that is diversified among asset classes–from small company domestic companies to international equities, from bonds to commodities to help lessen the effects of an economic downturn during your retirement years as the funds in your accounts along with your social security (and possibly pension income) at a minimum must last through your remaining life expectancy.

 

Keep in mind that an all-stock portfolio will normally “fall more” during a downturn and also “rebound more” during an upturn in the economy.  As you get older during retirement, you may want to shift your allocation to a more conservative position such as 35% to 40% in the market, 10 to 15%% in cash and 45% to 50% in bonds.

 

By taking to heart and giving real consideration to how you will build up and  divvy up your retirement fund(s) during your lifetime, you can make your retirement stage or phase one that you can truly enjoy with your loved ones.  You can also “position your life” where volunteering your time and resources toward causes that are important to you while you are yet alive here on planet earth–can happen for you in a more realistic way–as you awake each and every day!

 

All the best as you make the best choices that will lead to continuous retirement success…

 

 

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Retirement Success & Wealth Building

Learn the importance of successfully planning for your retirement years…

 

In the current market many soon-to-be retirees are feeling short-changed to a degree, as 2022 was not a good year for many in the financial markets.  As a person who anticipates retiring and enjoying life abundantly in the future, it is imperative that you plan in advance to make a successful retirement a reality.

 

It is important that you realize that investment returns will go up and down from year to year but has historically averaged from 6% to 9%–which is more than you can get in most other places–relatively speaking.

 

In this discussion TheWealthIncreaser.com will focus on the importance of you choosing a portfolio that can lead you toward the goals that you desire–as you put a plan in place that will take you higher and higher–and lead to you reaching the retirement number that will not leave you in a quagmire.

 

Do the basics early so that you know where you stand

You must put yourself in position for a successful retirement by doing the basics or what you need to do on the front end.  That includes creating a budget or cash flow statement, an income statement, a balance sheet and a net worth statement at the earliest time possible during your working years.

 

By doing so, you give yourself a helpful guide that can provide more direction as you formulate goals that are more precise and forward moving toward the lasting wealth building success that you need to achieve–and particularly your retirement planning success.

 

You want to at the earliest time possible contemplate the amount that it would take for you to feel confident about retiring and doing what brings you joy and happiness–consistently.  There are a number of factors that you must consider (such as what your expenses will be) and unknowns (such as how long you’ll live) along with what you desire to do most during your retirement years.

 

You want to know the minimum number or baseline that you need to reach to pay your monthly expenses and live out the remainder of your life based on the life expectancy that you (or your financial planner) anticipate–based on sound analysis.

 

By using the 25x rule or other highly effective retirement planning formulas or techniques, you can get to your retirement funding in a manner that you can feel more comfortable as you approach your retirement.

 

The 25x rule, simply means that to stop earning new income (retire), you will want to have saved 25 times the amount you expect to need every year in retirement–as that should sufficiently fund your retirement for 25 years after you retire–and is generally a well planned life span for those who plan on retiring after age 60.

 

You can figure out what you’ll need for retirement using the 25x guideline by doing the following:

 

Your retirement calculation:

 

1. Start with your 25x number (25 times the amount you expect to need every year in retirement).

2. Subtract the savings you have today to get the savings you’ll need.

3. Estimate what your current savings may grow to by the time you reach, say, 62, by plugging that number into a compound interest calculator assuming a conservative 6%, 7%, 8% or 9% rate of growth.

4. Subtract that amount from your 25x number.

5. Divide the result by the amount you think you can save each year and you will have calculated the number of years you’ll need to get there.

 

Example:

 

1.  Say your 25x number is $2,000,000. ($80,000 a year times 25)

2.  Assume you’ve already saved $200,000.  $2,000,000 – $200,000 = $1,800,000 (your target!)

3.  If you’re 32 years old, by age 62 your $200,000 will be worth $1,522,451. (assuming 7% return compounded annually over 30 years)

4.  $2,000,000 – $1,522,451 = $477,549 (subtract the amount from line 3 from your 25x number)

5.  Say you can save $1,000 per month or $12,000 per year.   (divide result from number 4 above by what you think you can save each year) $477,549 / $12,000 = 39.8 years

 

If you’re 32 now and have already saved $200,000, you could retire at 71 with 2 million in your account by saving $1,000 per month for roughly 40 years.

 

If you’re 32 now and have already saved $200,000 and you desire to retire at age 62 with 2 million, you would have to bump your monthly savings up to $1,333 per month or $16,000 annually ($477,549 / $16,000 = 29.8 years) for roughly 30 years.

 

Always remember that this is just an estimate, and there are more caveats (in addition to the ones above) as you must consider inflation and other factors that could eat into your savings–but your savings and investments may help offset that along the way if you attain the right return over time.

 

Always remember that investing always involves risk!

 

Although the stock market has traditionally averaged from 6% to 9% return on investments over a number of intervals–that does not mean your portfolio will meet that average as it could be higher or lower over your retirement savings interval.

 

Therefore, your assumed rate of return is not what may occur in actuality, and your rate of return over the years will depend on how you invest, save and allocate your money, including the level of risk in your portfolio and other political, regulatory, economic, societal, technological and legal happenings in your country!

 

The 6% to 9% return is a reasonable expectation based on the history of the S&P 500 Index–but their are periods where that average has been lower–and higher.  You may want to consult a competent financial advisor if you want to be more precise in your calculations–and remember that financial markets don’t always act as they did in the past.

 

How Much Savings Will I Have When I Retire?

 

What will your portfolio numbers look like when you retire?

 

Here’s another way to figure it out!

 

The retirement calculation:

1. Think about how many years you plan to work.

2. Using an interest calculator, figure out what your current investments will be worth when you retire, assuming 6%, 7%, 8% or 9% annual growth.

3. Estimate your yearly savings.

4. Over ________ years, that regular contribution will get you to $________. (For comparison, if you just saved that money without investing it, you’d only have $__________).

5. Current Investment when you retire = $_________ +  your yearly savings estimate over x number of years $___________ = $____________ or the amount you would have when you retired!

Note: You can also use a financial calculator if you are proficient in the use of one

 

Make adjustments as needed

You must not only have the commitment to do what you need to do–you must also continuously review, if you are sincere in making your dreams come true.  That includes having a flexible mindset to make adjustments as adversity and life happenings that you did not or could not plan for–will occur.

 

Know what your retirement budget or monthly cash flow will look like

Retirement is a new era, but just like the rest of your life, it will all fall in place if you plan appropriately.  In each stage of your life, your concerns, goals and budgets (cash flow) will vary–therefore effective planning is essential.

 

You may want to break down your retirement in intervals to help simplify your retirement.

 

●    First 10 years of retirement. As you adjust to your new lifestyle, you’ll likely be in good health and excited by the transition into retirement and as long as you stick to your plan you can take vacations and enjoy life in a more bountiful manner.  It is important that you don’t overdo it on spending, as you must withdraw your retirement savings accounts appropriately because those funds still have to last you a while!

 

●    Second ten years of retirement. Hopefully you’ve had some fun during the first ten years, and now you might be settling down a bit—as spending usually drops some for most who are over age 70.  If you have downsized or paid off a mortgage and your housing costs are down you should be in great shape.  Be alert for home improvement or accessibility costs going up if you need them as you age, as well as healthcare costs.  If your investments have done better than expected and you need some extra cash you can utilize that cash if you have saved appropriately.

 

Third ten years of retirement. At this point, you may have a need to move into an assisted living facility or even needing long-term care.  You will likely spend less on everyday necessities, but be prepared for increased healthcare costs, especially if you need assistance.  As you slow down, you can increase your percentage of withdrawals further, though keep in mind how much you want to leave behind in your estate for your heirs.

 

Put a plan into action that will lead you to reach your “retirement number” that will position you to do what you desire during your retirement years

You must put effective forward moving plans in place if you are to reach your retirement goals.  That consists of knowing what you need to save annually to reach your desired goals and live out your life in a more joyful manner.

 

The 25x formula mentioned above or another retirement savings formula that provides you a way of reaching the number that you need to reach, can lead to you reaching the number that allows you to pay your monthly utilities, entertainment, taxes, charitable giving–along with traveling at the level that you desire during your retirement years.

 

It is important that you know the age that you want to retire along with the age that you can retire!  Their is no secret to your retirement success, you must save and manage your money consistently until you reach your retirement number!

 

While you can’t tell you how many grey hairs will be on your head by the time you are able to retire, you can help reduce stress in your life and estimate roughly when you’ll be financially ready to enter the “retirement zone” that you always aspired to reach by planning proactively and expecting success!

 

You have already assessed how much you’ve been able to set aside so far by doing the analysis above–and you now know what you can save moving forward (again based on the analysis that you did above)–therefore you must now do and review–as you already have the planto make your dreams come true–or you will soon have one!

 

Conclusion

Additionally, you want to know how much social security and other income that you and/or your household will receive, know when your required minimum distributions are required for your various retirement accounts and know the taxes that you will have to pay during your retirement years at the federal, state and local level (particularly your income taxes at the state and federal level, property and sales taxes in your area–along with any other taxes in your area that could be of a burdensome nature).

 

It is important that you get out in front of your retirement planning so that you can achieve greater success! 

 

With many now living well into their 80s and 90s–it is important that you plan for the years after you stop working with the expectation that you too will live well into your 80s or 90s (or beyond) so that you can enjoy life in a more bountiful manner.

 

You also want to be on the lookout for financial fraud as scammers are highly adept at creating accounts using your identity and getting your retirement benefits–particularly utilizing phishing scams and setting up fraudulent social security accounts.

 

Whether you anticipate receiving traditional IRA income, ROTH IRA income, pension income, 401k income, 403b income, railroad retirement benefits, government thrift savings plan payments, social security or any other source, you want to proactively plan for what those payments will be (in total) at the earliest time possible–if possible (no pun intended).

 

The monthly retirement payments that you will receive must be clear in your mind and not vague or cloudy–or even worse not even in the ballpark of what you need to carry on with your life in the manner that you intended–as no one cares more about you–than you–and that is as it should be.

 

By making a “real effort” to reach your “retirement number” you can put yourself in position to have a more rewarding and enjoyable retirement.

 

By applying what you sincerely feel can help you achieve your retirement goals more efficiently you will be putting yourself and your family in a better position as you age–and it is the desire of TheWealthIncreaser.com–that you will do just that as a result of visiting this page.

 

May all of your retirement dreams come true, as you now know what you must do–therefore the retirement success that you desire is now up to you!

 

You want to know at the earliest time possible what you value as far as saving for a more rewarding retirement and you want to put plans in place for what will happen after you transition because there is a good chance that you will have assets when you transition–and “you” can decide where they go if you plan now.

 

It is important that you utilize the values that you have acquired over your lifetime that are positive and uplifting so that you can reach your “retirement number” and improve humanity while you are here on planet earth–and even after you transition?

 

Do you have the endurance that you need to lead or are you at this time “not ready” to succeed–as you more effectively plant your retirement seed?

 

All the best as you operate daily at a level that will lead to your retirement success…

 

 

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10 Questions you must ask prior to your retirement…

What will I receive from Social Security on a monthly basis…

Retirement Cautions

5 Common Mistakes to Avoid

20-30-40–plan for success–for those who are age 30 or less

 

Return from Retirement Success & Wealth Building to Income & Personal Finance

Return from Retirement Success & Wealth Building to Compounding & Personal Finance

Return from Retirement Success & Wealth Building to What is the 3 Step Structured Approach to Managing Your Finances

Return from Retirement Success & Wealth Building to Retirement Planning & Wealth Building

Return from Retirement Success & Wealth Building to Retirement & Personal Finance

Return from Retirement Success & Wealth Building to Retirement Basics

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Return from Retirement Success & Wealth Building to IRAs & Personal Finance

 

 

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Retirement Planning & Wealth Building

Learn the importance of properly preparing for your retirement years so that you can build wealth more effectively…

 

It is important that you plan for a prosperous retirement at the earliest time possible.  In addition to knowing your cash flow position at this time and how you can use financial statements to achieve more–you also need to have an awareness of your “financial retirement number” that you will need to reach at a later time so that you can live out your retirement years in a dignified manner.

 

Regardless of whether you contribute to a 401k, 403b, thrift plan, railroad retirement plan, social security, IRA’s or other retirement funding vehicles, you must have a target amount that you need to hit to make your retirement years enjoyable and more beneficial.

 

There are a number of retirement funding vehicles and strategies that you can use to reach your “retirement number” once you get a handle on what that number is!

 

If you are conservative, and you desire to create a diversified portfolio, you can use a United States total market index fund, a United States total market bond fund, and a broad-based international fund.

 

You can simplify your choices even more by selecting a balanced fund or target date funds to reach your goals.  If you are more riskier, you can use Exchange Traded Funds, Mutual Funds, Stock Portfolios and other more exotic investment vehicles to reach your goals.

 

The key is you must have a plan at some level–and the sooner you get started–the better the odds are that you can reach your retirement number and live out your retirement years in the manner that is best for you and your family!

 

In this discussion TheWealthIncreaser.com will discuss the importance of planning appropriately for your retirement years so that you can “achieve your goals” and live out your retirement in the manner that you choose so that you can have more enjoyment during your golden years.

 

It is imperative that you have a basic understanding of retirement planning at a minimum and you have a willingness to learn more as you approach your retirement years.

 

Common Types of Income During Your Retirement Years

 

Social Security

In retirement you will have social security if you reside in the U.S. and worked and contributed at a level that allows you to collect benefits during your retirement years.  You can generally start receiving social security in your mid 60’s and the payments would continue throughout your lifetime.

 

Pension

Although pensions are a distant memory and thing of the past for most, some companies still provide them and if you now receive one or are on track to receive pension income in the future you must know what to expect and when to expect this stream of income.  There are also 401k ROTHs, Simplified Employee Pensions, solo 401ks and other retirement products on the market that may be appropriate for you–depending on your unique financial position.

 

401k, 403B, Thrift Plans and others

By contributing to retirement plans during your working years you can use pre-tax contributions to build your retirement nest egg in a more efficient manner.  There may be an employer match component to the plan and if so, you can use effective investing to achieve your goals even more efficiently.

 

IRA’s

You may be able to contribute to IRA’s (Traditional or ROTH) if you qualify and build a sizable nest egg that you can have available to fund your living conditions during your retirement years if you contribute to the max “and” you have a decent rate of return and choose a fund with low management fees.

 

There are tax and compounding advantages of using these retirement vehicles and they are worth real consideration if you qualify.

 

Railroad Retirement Benefits

If you work for the railroad system in the United States you could be eligible for a retirement plan that is generally more generous than that of the social security system.

 

Home Sale, Refinance, Home Equity Loan or Reverse Mortgage

If you were to sell your personal residence and downsize you could possibly be eligible for a $250,000 exclusion on the gain if you were single and you otherwise qualified–or $500,000 if you were married and otherwise qualified.  You can also refinance your personal residence (or your rental properties if you had any) to pull money out, get a home equity loan or home equity line of credit–or if your situation was dire (you failed to save appropriately during your working years) and you exhausted all other possibilities–possibly a reverse mortgage.

 

Keep in mind that when using any of the above approaches–you must do so strategically as your financial position is uniquely your own and what may be effective for others–may not be effective for you.

 

Investment Income

If you invested during your working years outside of your retirement accounts and reinvested you could have also possibly built a large nest egg that could be used during your retirement years to help fund your lifestyle.

 

Keep in mind an Exchange Traded Fund is more efficient for investing than a mutual fund when you are investing outside of your retirement as you will not have capital gains that would be taxable on an annual basis.  Other investments held outside of your retirement accounts may or may not be taxable.  Municipal bonds, individual stocks that are not sold may avoid or defer the payment of taxes.

 

Conclusion

You have the option of planning now for a more effective and rewarding retirement regardless of the life stage that you are now in.  Whether you invest in a traditional manner or you invest in cryptocurrency and other more exotic investment vehicles–you must have a plan to reach a level of success that allows you to not outlive your income sources–but also live comfortably and possibly leave something behind for your heirs or other causes that are dear to your heart.

 

When investing for your retirement years there are a number of key concerns that you should be aware of and you want to avoid common mistakes that many have made in the past by being aware on the front end and not being complacent during your working years.

 

You particularly want to be aware of fees that you pay and you want to minimize those fees on the front end because at retirement time it would be too late!  Look for no-load funds that don’t charge a percentage of your upfront investment.  Also choose a fund with a low expense ratio, which includes management fees and other costs of running the fund.

 

You can generally find this information on the funds website or in advertising brochures.

 

It is not uncommon to see retirees who invest $100,000 over a 30-year period with high fees end up with tens of thousands less than those who invest in funds with a low expense ratio.

 

You can change the direction that you are now on to that of real success if you now decide to plan appropriately–and give it your best.

 

You must analyze the sale of your home and the tax consequences (basis, depreciation, exclusion from taxes on gain must be analyzed) prior to and after you retire on the front end to ensure that you make the best decision for the short and long run regardless of where you are now at in your life stage.

 

Even if you have to pay for good advice, the value will more than likely be greater than the cost as you can avoid costly mistakes at the wrong time that have held so many back as they were building wealth.

 

It is important that you do all that you can to fund your retirement so that you can reach your retirement number and live at a level of comfort that you desire or need to live at.  Also keep in mind that with many retirement vehicles you will have mandatory withdrawals beginning at age 72.

 

If you project monthly income of $8,000 and monthly expenses of $5,000 and you are age 65 and you plan on living until at least age 95 you must hit the target number that will allow you to have “for a 30 year period” the $8,000 monthly income when all sources are added up.  You also want to know the tax implications and the effects of inflation on your retirement income so that you are “not surprised” during your retirement years.

 

Isn’t it time you try a new informative, powerful, revolutionary and results oriented approach to wealth building as opposed to the same tired approach that has been presented by many others in the finance industry over the years?

 

When it comes to retirement planning and wealth building  reaching your retirement number and having streams of income that are stable, reliable and predictable during your retirement years should be your primary goal.

 

When you combine your social security benefits, pension, other retirement income and all other sources of income during your retirement years, will it provide you with what you need to live out your retirement years in comfort?

 

By being particular, precise, clear and concise–about what you expect to happen during your retirement years–you set yourself up to avoid financial fears and eliminate financial tears during your golden years!

 

All the best to your retirement wellness and a lifetime of success as you are now in position to proactively give it your absolute best…

 

 

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Learn about the 3 Step Approach that was revealed in 2010 as it is the only system in existence that uses 7 words that allow you to have a comprehensive overview of what you need to do to comprehensively manage your finances throughout your lifetime…

 

Return from Retirement & Wealth Building to What is the 3 Step Structured Approach to Managing Your Finances

 

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Return from Retirement Planning & Wealth Building to Money Management Personalities

 

Return from Retirement Planning & Wealth Building to IRA’s and Taxation

 

Return from Retirement Planning & Wealth Building to Bonds & Bond Laddering

 

Return from Retirement Planning & Wealth Building to What is my Retirement Number

 

Return from Retirement Planning & Wealth Building to IRA’s  and Retirement

 

Return from Retirement Planning & Wealth Building to SEP IRA versus SOLO 401k

 

Return from Retirement & Wealth Building to Wealth Building Now

 

Return from Retirement & Wealth Building to Who is the creator of TheWealthIncreaser.com

 

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Business Expenses & Wealth Building

Learn how you can enhance your business revenue by using business expenses more effectively…

More on Taxes…

If you are currently a business owner, or desire to be one—it is important that you earn income and you know “the deductions that you can claim” now and in your future.

 

In this discussion TheWealthIncreaser.com will discuss a number of deductions or business expenses that you can take to help lessen your tax burden.

 

With this being the creation of the last page of this decade for the creator of TheWealthIncreaser.com and the 100th blog page on this site TheWealthIncreaser.com thought that an appropriate topic of discussion for those who desire to build wealth in the next decade and beyond was to show in clear terms how to use “business expenses” to build your business more efficiently–and effectively.

 

Although this discussion is longer than most, it is important that you “lock-in” on this discussion and utilize your mind at a high level so that you can see clearly where you can use business expenses to achieve more in the coming years.

 

Record Keeping

 

It is important that you realize the importance of record keeping whether it be for travel, meals, entertainment, office in the home, building, warehouse, office out of the home, automobile usage for business, advertising and any other expense related to your business.

 

It is important that you realize that most expenses—and in some cases all expenses that are directly related to your business—can or have the potential to be deductible on your individual or business tax return—and it is you who must keep records in an acceptable way to meet the scrutiny of the IRS.

 

All of the business expenses that follow have one thing in common—they all require that you keep effective records so that you can protect your interest if you face IRS scrutiny.

 

In the following paragraphs we will detail a number of critical expenses and show you ways that they can help you lower your taxable income.

 

Whether you now have (or are contemplating) forming a business as a sole proprietor, partnership, LLC or corporation–the discussion that follows can help you strategically plan your business and achieve more throughout your lifetime.

 

Automobile Expenses

 

You can use actual expenses or mileage to deduct automobile expenses and that topic will be discussed in greater detail later in this discussion.

 

For now, be aware that the standard mileage rate increased to 58 cents per mile for the 2019 tax year—up from 54.5 cents per mile in 2018.

 

Always remember that “depreciation” which will be discussed later, is already factored into the 58 cent mileage rate mentioned above.

 

For 2019, the first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2019 is $14,900.

 

The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2019 is $18,100.

 

If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2019, the amount is $10,100.

 

Meals & Entertainment

 

In general, entertainment expenses are no longer deductible.

 

The cost of business meals generally remains deductible, subject to the 50% limitation.

 

The maximum amount you can elect to deduct for most section 179 property (including cars, trucks, and vans) you placed in service in tax years beginning in 2018 and forward is $1,000,000.

 

This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,500,000.

 

For 2018 and 2019, the special (“bonus”) depreciation allowance on qualified property (including cars, trucks, and vans) is 100% for qualified property acquired and placed in service after September 27, 2017 and placed in service before January 2023, and is reduced 20% each year after for property placed in service before January 2027.

 

For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

 

An ordinary expense is one that is common and accepted in your trade or business.

 

A necessary expense is one that is helpful and appropriate for your business.

 

An expense does not have to be required to be considered necessary!

 

If you are in the military and you are transferred from one permanent duty station to another, you may have deductible moving expenses—for most, moving expenses are no longer deductible.

 

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home.

 

It includes the entire city or general area in which your business or work is located.

 

If you have more than one regular place of business, your tax home is your main place of business.

 

If you move around a lot you are considered an itinerant (a transient) and your tax home is wherever you work.

 

As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home.

 

If you have more than one place of work, consider the following when determining which one is your main place of business or work:

 

  • The total time you ordinarily spend in each place.

 

  • The level of your business activity in each place.

 

  • Whether your income from each place is significant or insignificant.

 

If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home.

 

You also cannot deduct the cost of meals and lodging while at your tax home.

 

If you are on a temporary assignments or job there are nuances to your tax treatment that may require additional analysis by your tax professional.

 

Note: there are exceptions for federal crime investigators or prosecutors

 

When you travel away from home on business, you should keep records of all the expenses you have and any advances that you receive from your employer.

 

You can use a log, diary, notebook, or any other written record to keep track of your expenses.

 

The types of expenses you need to record, along with supporting documentation include meals:

 

There is a 50% limit on meals.

 

You can figure your meals expense using either of the following two methods:

 

1) Actual cost

2) The standard meal allowance

 

Both of these methods are explained below.

 

But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals.

 

The actual cost method is quite simple and it only requires that you keep records of your meal costs and divide the cost by 50 percent.  You now have your meal deduction using the actual cost method.

 

If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel.  You deduct a per-diem amount based on IRS guidelines.

 

For travel between October 1, 2018 and September 30, 2019, the rate for most localities in the United States is $60 a day.

 

Note: The rates for the remainder of 2019 had not been published as of the date of this article

 

You can find this information (organized by state) at gsa.gov/perdiem.

 

Enter a zip code or select a city and state for the per diem rates for the current fiscal year.

 

Per diem rates for prior fiscal years are available by using the drop-down menu.

 

Incidental-expenses-only method

 

You can use an optional method (instead of actual cost) for deducting incidental expenses only.

 

The amount of the deduction is $5 a day.

 

You can use this method only if you did not pay or incur any meal expenses.

 

You cannot use this method on any day that you use the standard meal allowance.

 

This method is subject to the proration rules for partial days.

 

Building Mortgage or Lease Payments

 

If you are purchasing or renting a building for business use you can deduct the mortgage or lease payments.

 

Insurance, taxes and other fees related to the use and upkeep of the property such as maintenance, lawn care, grounds and other fees are also deductible.

 

Business Gifts

 

Always realize that there is a $25 limit on gifts as far as deductibility is concerned.

 

You can deduct no more than $25 for business gifts that you give directly or indirectly to any one person during your tax year.

 

Transportation Expenses

 

These expenses include the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.

 

Also, daily transportation expenses can be deducted if:

 

(1) you have one or more regular work locations away from your residence, or

 

(2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.

 

If you want to use the “standard mileage rate” for a car you own, you must choose to use it in the first year the car is available for use in your business.

 

“Then in later years, you can choose to use either the standard mileage rate or actual expenses.”

 

If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period.

 

If you purchase a car and change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation.

 

Standard mileage rate not allowed

 

You cannot use the standard mileage rate if you:

 

1) use five or more cars at the same time (such as in fleet operations)

2)  claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Methods of depreciation under Depreciation Deduction)

3) claimed a section 179 deduction (discussed later) on the car

4) claimed the special depreciation allowance on the car, or

5) claimed actual car expenses after 1997 for a car you leased.

 

If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C, Schedule C-EZ, or Schedule F (Form 1040).

 

If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040).

 

In addition to using the standard mileage rate, you can deduct any business related parking fees and tolls.

 

Parking fees that you pay to park your car at your place of work are nondeductible commuting expenses!

 

NOTE: If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction.

 

Actual car expenses include:

 

Depreciation

Tolls/Parking fees

Licenses

Lease payments

Registration fees

Gas

Insurance

Repairs

Oil

Garage rent

Tires

 

If you have “fully depreciated” a car that you still use in your business, you can continue to claim your other actual car expenses.

 

Be sure you continue to keep records!

 

If you use your car for both business and personal purposes, you must divide your expenses between business and personal use.

 

You can divide your expense based on the miles driven for each purpose—that is why effective record keeping is so important.

 

If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses.

 

Casualty and theft losses

 

If your car is damaged, destroyed, or stolen—you may be able to deduct part of the loss that is not covered by insurance.

 

Note: For tax years 2018 through 2025, if you are an individual, casualty and theft losses of personal-use property are deductible only if the losses are attributable to a federally declared disaster,  however business casualty and theft losses are still deductible.

 

You can elect to recover all or part of the cost of a car that is qualifying section 179 property, up to a limit, by deducting it in the year you place the property in service.

 

What is the section 179 deduction?

 

A section 179 write off allows you to write off part or the entire purchase price of an asset in one year as opposed to depreciating and writing it off over a number of years based on its asset class and depreciation schedule.

 

Therefore if your goal is to reduce your taxable income you may want to write it off in one year.  Likewise if you desire to spread out the deduction over a number of years you have that option as well.

 

You must normally make the 179 election in a timely manner in order for it to be allowed by the IRS.

 

If you elect the section 179 deduction, you must reduce your depreciable basis in the car by the amount of the section 179 deduction.

 

“You can claim the section 179 deduction only in the year you place the car in service.”

 

For this purpose, a car is placed in service when it is ready and available for a specifically assigned use in a trade or business.

 

Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use.

 

A car first used for personal purposes cannot qualify for the 179 deduction in a later year when its use changes to business.

 

Let’s say in 2018 you bought a new porsche and placed it in service for personal purposes.

 

In 2019, you began to use it for business.

 

Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2019.

 

“However, you can claim a depreciation deduction for the business use of the car starting in 2019.”

 

Requirements for 179 deduction

 

More than 50% business use is a requirement.

 

You must use the property more than 50% for business to claim any section 179 deduction.

 

If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use.

 

The result is the cost of the property that can qualify for the section 179 deduction.

 

If the cost of your qualifying section 179 property placed in service in 2019 is over $2,500,000, you must reduce the $1,000,000 dollar limit (but not below zero) by the amount of cost over $2,500,000.

 

Let’s say the cost of your section 179 property placed in service during 2019 is $3,500,000 or more, you cannot take a section 179 deduction.

 

The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year.

 

If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service.

 

If you or your spouse file separate returns, you are treated as one taxpayer for the dollar limit. You must allocate the dollar limit (after any reduction) between you and your spouse.

 

Employees use Form 2106 to make the election and report the section 179 deduction.

 

All others use Form 4562 to make an election.

 

You must keep records that show the specific identification of each piece of qualifying section 179 property.

 

These records must show how you acquired the property, the person or business you acquired the property from, and when you placed the property in service.

 

Note: Daycare centers, travel by air, cruise ships and rental income have a special set of rules as it relates to deductions.

 

You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement.

 

You must generally prepare a written record for it to be considered adequate.

 

This is because written evidence is more reliable than oral evidence alone!

 

However, if you prepare a record on a computer, it is considered an adequate record.

 

Be sure to record the Cost—Date—and Purpose—especially on Gifts, Travel and Transportation.

 

If you do so in written form that is acceptable.  Also, if done on your computer that is usually ok as well!

 

You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record.

 

You should also keep documentary evidence that, together with your record, will support each element of an expense.

 

Documentary evidence

 

You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses.

 

Exception:

 

Documentary evidence is not needed if any of the following conditions apply:

 

• You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging.

 

  • Your expense, other than lodging, is less than $75.

 

  • You have a transportation expense for which a receipt is not readily available.

 

Adequate evidence

 

Documentary evidence ordinarily will be considered adequate if it shows the:

 

-amount,

-date,

-place, and

-essential character of the expense

 

For example, a stay at an Air BnB where you get a receipt is enough to support expenses for business travel if it has all of the following information.

 

  • The name and location of the Air BnB.
  • The dates you stayed there.
  • Separate amounts for charges such as lodging, meals, and telephone calls.

 

A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.

 

  • The name and location of the restaurant.
  • The number of people served.
  • The date and amount of the expense.

 

If a charge is made for items other than food and beverages, the receipt must show that this is the case.

 

Canceled check

 

A canceled check, together with a bill from the payee, ordinarily establishes the cost.

 

However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose.

 

Timely-kept records

 

You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence.

 

A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall.

 

You do not need to write down the elements of every expense on the day of the expense.

 

“If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely kept record.”

 

If you give your employer, client, or customer an expense account statement, it can also be considered a timely kept record.

 

This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record.

 

Proving business purpose

 

You must generally provide a written statement of the business purpose of an expense.

 

However, the degree of proof varies according to the circumstances in each case.

 

If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation.

 

What if you have incomplete records?

 

If you do not have complete records to prove an element of an expense, then you must prove the element with:

 

  • Your own written or oral statement containing specific information about the element, and

 

  • Other supporting evidence that is sufficient to establish the element.

 

If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence.

 

Direct evidence can be written statements, or the oral testimony of your guests or other witnesses setting forth detailed information about the element.

 

Documentary evidence can be receipts, paid bills, or similar evidence.

 

If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial, rather than direct.

 

For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes.

 

Invoices of deliveries establish when you used the car for business.

 

Sampling

 

Another record keeping strategy that many are unaware of but could prove helpful is the use of sampling.

 

You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year.

 

You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.

 

Separating expenses

 

Each separate payment is generally considered a separate expense.

 

For example, if you entertain a customer or client at dinner and then go to a show on broadway, the dinner expense and the cost of the broadway tickets are two separate expenses.

 

You must record them separately in your records.

 

Combining items

 

You can make one daily entry in your record for reasonable categories of expenses.

 

Examples are taxi fares, telephone calls, or other incidental travel costs.

 

Meals should be in a separate category.

 

You can include tips for meal-related services with the costs of the meals.

 

Expenses of a similar nature occurring during the course of a single event are considered a single expense.

 

Car expenses

 

You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record.

 

Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use.

 

Allocating total cost of travel or entertainment

 

If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro-rata basis.

 

To do so, you must establish the number of persons who participated in the event.

 

If your return is examined, you may have to provide additional information to the IRS.

 

This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed.

 

How long should you keep records and receipts?

 

You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code.

 

Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file your income tax return on which the deduction is claimed.

 

A return filed early is considered filed on the due date.

 

There are certain nuances and rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees–so if you fall in one or more of those categories be sure to consult your tax professional for more up to date information.

 

You report your gift expenses and transportation expenses, other than car expenses, on line 27a, and you report your car expenses on line 9 of schedule C if you file as a sole proprietor.

 

You would also complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization.

 

Employee Business Expenses no longer deductible

 

If you are an employee and your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2.

 

The three simple guidelines an Accountable Plan must follow to be considered valid are:

 

1) all expenses to be reimbursed through the plan must have a business connection,

 

2) expenses must be “timely substantiated,” and

 

3) any excess advances provided to the employee must be “timely repaid.”

 

“Employee” expenses for business use of the home are no longer allowed.

 

If you are an employee, you can no longer claim any miscellaneous itemized deductions on Schedule A, including expenses for using your home as an employee.

 

Miscellaneous itemized deductions are those deductions that would have been subject to the 2% of adjusted gross income limitation had they not been eliminated for most with the 2017 Tax and Jobs Act.

 

You cannot claim a deduction for mortgage insurance premiums for expenses paid or accrued after 2017 if you have a home office.

 

Home Office Deduction

 

You can use two methods to claim the home office deduction:

 

When figuring the amount you can deduct for the business use of your home, you will use either your actual expenses or a simplified method.

 

  • Square Foot Approach, or

 

  • Simplified method for business use of home deduction.

 

Actual Expenses (Square Foot Approach)

 

You simply divide your business usage area by the square foot area of your house to come up with the business percentage.

 

All expenses associated with your home office and home would be multiplied by the percentage in order to come up with your business deduction.

 

To qualify to deduct expenses for business use of your home, you must use part of your home:

 

  • Exclusively and regularly as your principal place of business (defined later),
  • Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
  • In the case of a separate structure which is not attached to your home, in connection with your trade or business,
  • On a regular basis for certain storage use (see Storage of inventory or product samples, later),
  • For rental use, or
  • As a daycare facility (see Daycare Facility, later).

 

“You can deduct expenses for a separate free-standing structure, such as a studio, workshop, garage, or barn, if you use it exclusively and regularly for your business.

 

The structure does not have to be your principal place of business or a place where you meet patients, clients, or customers.”

 

After you determine that you meet the tests under Qualifying for a Deduction, you can begin to figure how much you can deduct.

 

Simplified Method

 

The IRS provides a simplified method to figure your expenses for business use of your home.

 

Electing to use the simplified method.

 

The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses.

 

“You choose whether or not to figure your deduction using the simplified method each tax year.”

 

With the simplified method you receive a standard deduction of $5 per square foot, up to 300 square feet (the deduction can’t exceed $1,500).

 

$5 multiplied by 300 square feet equals $1,500 is your maximum deduction!

 

Qualified Business Income

 

Although not a direct expense QBI or qualified business income—may help you lower your taxes and can be quite helpful to those who qualify.

 

QBI: If your business is a specified service, trade or business and operates as a sole proprietor, partnership, LLC member or S corporation stockholder—you could possibly qualify for the QBI deduction or pass-through deduction (if otherwise eligible) provided you have taxable income below certain amounts.

 

Conclusion

 

By landing on this page you have learned about business expenses in great detail.

 

For those individuals or companies that are new to business or existing companies or individuals who want to maximize their deductions—you can now do so by planning effectively.

 

The most common fully deductible business expenses in alphabetical order include the following:

 

  • Accounting fees

 

  • Advertising

 

  • Bank charges

 

  • Commissions and sales expenses

 

  • Consultation expenses

 

  • Continuing professional education expenses

 

  • Contract labor costs

 

  • Credit and collection fees

 

  • Delivery charges

 

  • Dues and subscriptions

 

  • Employee benefit programs

 

  • Equipment rentals

 

  • Factory expenses

 

  • Insurance

 

  • Interest paid

 

  • Internet subscriptions, domain names, and hosting

 

  • Laundry

 

  • Legal fees

 

  • Licenses

 

  • Maintenance and repairs

 

  • Office expenses and supplies

 

  • Pension and profit-sharing plans

 

  • Postage

 

  • Printing and copying expenses

 

  • Professional development and training fees

 

  • Professional fees

 

  • Promotion

 

  • Rent/Lease payments

 

  • Salaries, wages, and other compensation

 

  • Security

 

  • Small tools and equipment

 

  • Software

 

  • Supplies

 

  • Telephone

 

  • Trade discounts

 

  • Travel

 

  • Utilities

 

  • Web Services

 

By utilizing the above expenses to offset against your income for the year you can use the above expenses to strategically increase or decrease your tax position as it relates to your payment of business taxes.  Keep in mind most of the expenses covered in this discussion apply to sole proprietors, LLC’s, LLP’s, partnerships, S corporations and C corporations.

 

Whether you are a sole proprietor, LLC, partnership or corporation—you can manage your tax position so that you can achieve the goals that you desire as far as your business and personal growth are concerned.

 

If your goal is to get in position to use credit in your future—you may want to maximize your income and minimize your expenses to get the loan that you need at an appropriate rate and terms.

 

By doing so you can possibly put yourself in stronger position in the eyes of financial institutions when you apply for credit or a particular type of loan that will look at your “businesses financials” and/or “personal financials” to determine if you or your company meet the lending criteria that they require.

 

If you anticipate no need to use credit in the short or intermediate time period you may want to maximize your expenses and lower your tax payments.

 

If your goals fall in the middle you can plan accordingly as well.

 

All the best toward minimizing or maximizing your expenses and improving your circumstances as we enter 2020 and beyond.

 

Success lives in you—now is the time that you make your dreams come true…

 

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Tax Preparation Tips & Wealth Building

Learn how you can build wealth and use the tax code to assist in your efforts…

 

The proper preparation and filing of your tax return is an important step in the upward movement of your net worth and is a key aspect of your wealth building efforts.  Now is the time that you rise up and achieve more in your life and knowing a few tax tips can possibly lead to you flying higher.

 

With another successful tax season in the books TheWealthIncreaser.com thought that helping prepare you and others who desire more success in the coming tax seasons was in order.  In this discussion TheWealthIncreaser.com will discuss how “preparing in advance” is a key step in filing your taxes and building wealth.

 

It is important that you realize that record keeping is an important responsibility whether you decide to file your own tax return or you hire a professional to do them for you.

 

If your taxes are not complex and you are computer savvy you may be able to file your taxes yourself.

 

If you make under $66,000 the IRS offers free filing if you qualify.

 

Other online services also offer free tax preparation as well.  If you choose a free provider be sure to read the fine print and know all of your obligations going in—not after the return is prepared and filed.

 

You also have the option of purchasing tax software and doing your return yourself.  Live chats and explanations are normally included in the software purchase.

 

The average cost to file a tax return is over $200 in most areas of the United States.  In many cases it can be money well spent.

 

If you dread doing your taxes yourself consider a professional who knows how to complete the type of return that you will file.  If you have schedule A entries, capital gains or losses, investment properties, business income and the like you may want to choose a highly competent tax professional as there are nuances and certain understanding that is possessed by those who do taxes on a regular basis and take the profession seriously.

 

Whether you decide to complete and file yourself or you decide to hire a pro, the following paragraphs will provide you with basic insight on how you can build wealth more efficiently by effectively using the tax code.

 

Maintain Good Financial Records Relating to Deductions

 

  • Document non-cash contributions and donations
  • Assign a value to each item you donate
  • Document all of your medical expenses and mileage to and from your medical provider(s)
  • Save all mail and correspondence that is marked “Important Tax Information”
  • Organize all of your financial data
  • Start an “IRA” if you or your loved one qualifies at the earliest time possible and keep a record of your annual contributions

 

It is important that you avoid common mistakes that many make whether they prepare their return themselves or use tax professionals.

 

You want to definitely maintain good mileage records as the mileage rate for 2018 is 54.5 cents per mile.

 

Don’t overlook any of your itemized deductions or potential itemized deductions as with the new law many have been eliminated–however you may still need to run the numbers to see if your federal and state refund amount or amount owed will be more or less beneficial to you–depending on the approach (itemized or standard deduction) that you take.

 

Be sure you know all entries that you can legally enter on schedule 1   and schedule A now–and in future tax years.

 

If you are a business owner and travel don’t overlook travel expenses and keep good records.  You also want to be aware of a potential home office deduction that you may be entitled to take.  Also document and keep records of all business related purchases whether they be office supplies or major assets such as machinery, computers, automobiles and the like.

 

Also, if you are not doing so contribute to your 401k or other retirement account as well as HSA, FSA and other tax advantaged accounts.

 

If you qualify consider a ROTH or Traditional IRA (income qualification and contribution limits apply).  Of course, whether and how much you contribute will depend on your current financial condition, therefore it is imperative that you know how to manage your finances at an optimal level.

 

Student Loan Interest

 

You can deduct up to $2,500 in student loan interest annually on your tax return if you qualify.  However if you are single and earn over $80,000, you would not be eligible for the deduction–which seems quite unfair–you borrow to pay your way through college and when you start earning decent money to pay the loan back you are penalized and not allowed a deduction on your tax return.

 

Outside of earning less (usually a bad option) or getting married (your income limit increases some) your options to qualify may be limited!  Are those real options for you–probably not and a change in the tax code would be more appropriate–however by knowing the income limitation at this time–you can at least plan proactively or plan to avoid student loans altogether if you find yourself in a precarious position at this time.

 

If you are currently seeking higher education or you have dependents who are now seeking higher education you may be eligible for credits and deductions that could help lower your taxes.

 

You can also save for higher education in a tax efficient manner by utilizing a 529 plan, a prepaid tuition plan or other tax advantaged educational savings plans–including IRAs.

 

Itemized Deductions

 

Medical deduction limit in 2018 is 7.5% of your AGI and 10% of your AGI in the 2019 tax year.

You can no longer deduct moving expenses unless you are in the military.

Casualty losses are non-deductible unless in a federally declared area.

Unreimbursed employee expenses, tax preparation fees and other 2% miscellaneous deductions are no longer allowed on schedule A.

If you need to make changes on your tax return remember the 3 year rule (three years from the filing deadline–including extensions) form 1040X allows you to amend your return.

If you have not filed your return in the past three years and you are due a refund–file now as after three years you will no longer be eligible for the refund.

 

Always consider your overall “effective” tax rate–that means looking at your taxes from a federal tax point of view as well as state and city (local)—where applicable.

 

 Investments

 

If you have investments be aware of the type you choose and the present and future tax consequences.  If you have children or grandchildren consider setting up a 529 plan, an IRA or other tax favored savings plan for their educational and/or retirement future.

 

It is important that you are aware of how your “investment choices” affect your future and your taxes–and it is you who must gain the “right knowledge” that you need–to succeed.

 

You can set up an IRA for your child or your grandchild if they have income and by saving consistently and gaining an average rate of return you can set your heirs up for a prosperous future in a relatively painless way.  However, it is important that you plan now and set up systems that allow you to do that and more.

 

In addition, you must insure that you are on track to meet or exceed the goals that you desire and you must also operate in a sound manner in all of the financial affairs in your life.

 

Conclusion

 

With many changes in the new tax law of 2017 many may feel uncomfortable tackling their own taxes.

 

However, in many cases your taxes may not be complicated and tax software can lead you toward an accurate and cost saving preparation of your taxes.

 

Under the Tax Cuts & Jobs Act the standard deduction has basically doubled for most taxpayers and personal exemptions are gone except in limited cases (now called a tax credit).

 

The tax rates were reduced for most taxpayers, the child tax credit doubled from $1,000 to $2,000 for children under 17.

 

If you own a business and had income you may qualify for the Qualified Business Income deduction.

 

In addition, you want to form the right type of business (sole proprietor, corporation, LLC, partnership etc.), pay your estimated taxes (January 15th–April 15th–June 15th–September 15th) in a timely and accurate manner, record your revenue and expenses accurately and stay in good standing with the IRS in a proactive way.

 

Be sure to keep a separate bank account for your business, separate credit card(s) for your business and avoid commingling your business and personal records including bank deposits and withdrawals.

 

Also, allocate your income and expenses in the appropriate categories so that you can see where your income is coming from—and how much you are paying out in expenses–and where!

 

Keep a mileage log in your car (vehicle) or use an automated system and log all business related miles as well as repair and maintenance expenses such  as gas, oil changes, parking/tolls and other expenses in case you decide to use actual expenses instead of mileage.

 

A monthly profit and loss statement will help your tax professional at tax time (or yourself if you plan on doing your own taxes) and also help in planning your business now and in the future as you can use the data for employee staffing, inventory, maintenance and other areas of concern that are particular to your type of business.

 

In short, by previewing your tax position now–you can plan better for your future.  It is the desire of TheWealthincreaser.com that this page has given you some added insight on how you can achieve more in your future and lighten your tax burden as well.

 

Now is the time that you use T P T & W B to achieve results that you can see!

 

All the best toward your tax saving and wealth building success…

 

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Tax Moves that You Can Make to Improve Your Bottom Line

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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Early Retirement & Wealth Building

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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Retirement Cautions & Wealth Building

Learn what you need to know as you approach your retirement years and the taxation of your income that can prevent you from making the wrong moves…

 

Did you know that there are a number of concerns that you should have as you approach retirement age?

 

Hopefully you have managed your credit and finances effectively prior to your retirement years and you are in position now (if you are currently retired) to take advantage in ways that will better serve your retirement years.

 

Whether you are or are not retired be sure to focus in on what can help you achieve more at this time and throughout your lifetime.  By doing so you will put yourself far ahead of those who enter retirement without doing the preparation that is necessary that could guide them toward a more enjoyable retirement journey.

 

In this discussion TheWealthIncreaser.com will show you ways that you can make your retirement years more enjoyable and put you on path to making the retirement that you desire have less roadblocks for you and your loved ones.

 

First and foremost you must realize that you want to address your retirement related financial activity in a manner where you will have no surprises as it relates to your taxes as many who retire often have no clue how their tax position will impact their retirement years.

 

You must be aware of how the taxation of your IRA’s and 401k’s etcetera, social security benefits, w-2 income (if you work part-time during your retirement years), investment income, self-employed income or other pass through income and earned pension income–will all affect your tax position.

 

If you don’t withhold enough income or pay estimated taxes at the right amount with your IRA’s and 401k’s etcetera, social security benefits, w-2 income (if you work part-time during your retirement years), investment income, self-employed income or other pass through income and earned pension income when you receive those income streams you could be in for an unpleasant tax surprise if you have not planned ahead and gotten at least a cursory overview of how taxes will affect your income streams during your retirement years.

 

  • IRA’s, 401k’s and other retirement plans

IRA’s, 401k’s and other retirement plans may require that you begin taking distributions at age 70 1/2 even if you have no need for the funds.  You must plan for the tax consequences of these withdrawals at the federal and state level (if applicable) and know where you will fall based on your unique tax position.

 

  • Social Security benefits

Your social security benefits may or may not be taxable depending on your unique tax position.  However, there is the potential that your taxes could be 85% on your social security income.  You can elect to receive your social security at various times after you turn age 62 and you must determine if taking early payments or waiting is the best move for you and your family from a tax point of view based on your overall finances and future plans.

 

  • W-2 income

If you work part-time during your retirement years you may find that it will affect the taxation of your IRA’s and other retirement accounts, social security income, investment income and your pension income.

 

  • Investment Income

Your investment income will also be taxed during your retirement years and you must know the rate that you will pay during your (and your spouse if married) retirement years based on your annual income and filing status.  There are various thresholds and depending where you fall in those thresholds you could pay 0% up to 20% depending on the type of investment, your income and your filing status.

 

  • Self-employed income and/or other pass through income

If you decide to work for yourself or you receive pass through income from a partnership or S corporation there will be tax consequences and they will vary based on your income from self-employment, other pass through income and all of your other sources of income and your filing status.

 

  • Earned Pension Income

If you have worked for an employer and they had a pension plan you would receive a 1099R and you would be taxed on that pension income at the Federal level in almost all cases.  The question then becomes did you have enough withholding or did you pay enough in estimated taxes to offset the taxes that you would owe.

 

At the state level you would also be taxed but the rate varies from state to state and many states offer you the opportunity to exclude certain retirement and other income from your taxes if you meet the states requirement.  In a few states there are no state income taxes at all, and if you live in one of those states that is even better.

 

Conclusion

It is imperative that you look at the tax consequences of the various income that you will receive during your retirement years.  It might be helpful to get professional projections of the taxes that you may owe under various situations from your CPA or other financial professional(s) so that you can know what to expect during your retirement years.

 

Did you seriously consider the tax ramifications of receiving income from IRA’s and 401k’s etcetera, social security benefits, w-2 income (if you work part-time during your retirement years), investment income, self-employed income or other pass through income and earned pension income?

 

It is important to look at this information in isolation and in combination as you plan out your retirement year’s income streams. 

 

Did you analyze and determine that you will have the income that you need to live at the level that you desire after your retirement years after the payment of taxes from your various sources of income?

 

These—and more are the types of questions that you must answer prior to retirement so that you don’t enter your retirement years with an unrealistic expectation of how you can enjoy life.

 

You must fervently pursue your retirement goals, effectively utilize this page and site, make yourself available to learn more about retirement and taxes from other sources and make the right financial moves in a proactive manner throughout your life.

 

By doing so you will put yourself in position where you won’t have to FEAR your financial or retirement future—whether it be the tax implication or any other concern.

 

All the best as you work toward your retirement success…

 

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The New Tax Law & Wealth Building

Understanding the New Tax Law & Wealth Building

 

Learn how you can use the recent United States tax cuts and job act law changes to maximize your 2018 and future tax filings…

 

With the new tax bill out and anxiety in the air among many taxpayers the creator of TheWealthIncreaser.com had no choice but to review the new tax bill to help alleviate the fears of many and help those who desire greater success build wealth more efficiently in the coming years.

 

Even the creator of TheWealthIncreaser.com found navigating the bill of several hundred pages to be boring and cumbersome—however key aspects that could possibly benefit you and others were focused on and analyzed.

 

In the following paragraphs highlights of the bill will be analyzed and presented in a manner that could possibly help you build wealth in 2018 and beyond in a more efficient manner.

 

Even though the new tax law will reduce the taxes for millions, that does not mean that you will be included among the millions as personal taxes are unique and vary from person to person and family to family.

 

The good and bad news is that tax rates were lowered across the board but are scheduled to expire in 2025 unless congress decides to make them permanent.

 

To keep this discussion logical and concise the order of presentation will try to keep the format of the 1040 long format as the blueprint or guideline for discussion.

 

Personal Exemptions Are Now Gone

 

You can no longer claim your children or other dependents and get a personal exemption for them—or yourself and your spouse if married.

 

Those exemptions that you have become accustomed to getting have been replaced with higher standard deductions, lower tax rates, increased child tax credits, and a dependency credit for other dependents of $500.

 

Whether the new tax changes will be of more benefit to you depends on the age of your dependents, your income level, your family size, your above the line (page 1 of form 1040) and below the line deductions (page 2 of form 1040) ,  your tax withholdings and many other factors that may be unique to you and your family.

 

Standard Deductions Are Increased Substantially

 

Standard Deductions are now $12,000 for single up from $6,350, $18,000 for head of household up from $9,350 and $24,000 for  married filing jointly up from $12,700.

 

Be aware that claiming the higher federal standard deduction may not be a wise move in some cases.   It depends on a number of factors, including the amount of your itemized deductions and your state income tax filing standard deduction (if applicable)–among other factors.

 

Child Tax Credit Increases

 

The child tax credit increased from $1,000 to $2,000 so if you have a child under age 17 you would more than likely be eligible for the credit.  The income limits for phaseouts also increased as you can now earn up to $400,000 (AGI–line 37 of form 1040) and still take the credit (up from $110,000 in 2017).  In addition, $1,400 of the credit is refundable meaning even if you owe no taxes you are entitled to the refund.

 

To claim the credit your child dependent must live with you at least half a year and you must provide over half the cost of support for the child in order for you to claim the child tax credit—similar to when exemptions were claimed in past years.

 

The EIC or Earned Income Credit remains as well—meaning those with modest income and a family of 4 with kids under 17 could see a possible increase in the amount of the refund they will receive on their 2018 tax filing.

 

Those over age 17 whom you provide support such as college students, parents and others will provide you the opportunity to claim a $500 tax credit in the filing of your taxes if they meet the guidelines for dependents under the tax law.

 

The Marriage Penalty is Finally Eliminated or at Least Made Less Relevant for Most

 

Under the new law the tax bracket for married couples are almost double that of a single person in most instances.  If you have been avoiding matrimony due to the tax code or financial concerns—you can now breathe easier.

 

If you make $500,000 or more (which is a good problem to have) the marriage penalty again starts to rear its ugly head—If you make over $500,000 and plan on getting married soon—consult your tax professional before making the hitch as there may be ways that you can reduce the tax bite.

 

Alimony is also affected by the new tax law as you can no longer deduct alimony if you pay alimony and you don’t have to include alimony as income if you receive alimony (must be after December 31, 2018 otherwise old rules apply).

 

Education Deductions Remain in Place

 

Although TheWealthIncreaser.com did not initially take the news of eliminating the student loan interest deduction seriously—due in large part to the number of student loans outstanding and the hardship that the payments continue to cause for many—there were serious efforts to eliminate this helpful above the line deduction.

 

Fortunately, those in congress used their better judgment and the deduction for up to $2,500 worth of interest on student loans remain!

 

Tuition waivers and discounts by graduate students also remain tax-free.

 

The AOTC or American Opportunity Tax Credit worth up to $2,500 per undergraduate student (MAGI of $80,000 single and $160,000 married) survived the new tax bill.

 

The Lifelong Learning Credit also survived the new tax bill and it is worth up to $2,000, or 20 percent of the first $10,000 spent in a year (MAGI of $56,000 single and $112,000 married).

 

The $2,000 limit is per household with the Lifelong Learning Credit but the American Opportunity Tax Credit applies per student and could be more valuable to you if you have several kids in college.  Your overall credit would be higher, thus your tax bill would be lower or your tax refund would be higher!

 

529 college savings plans are now eligible to be used for k through 12 grades at private or parochial schools—in addition to colleges and universities.

 

Coverdell accounts remain although it appears they will be phased out and the cap remains at $2,000 annually, however you can now roll them over into a 529 plan tax free.

 

Always keep in mind the fact that many states also sweeten the pot—as you can deduct 529 contributions in many states.  And with the limits on property taxes (discussed later) that could be significant for those affected by the limitations.

 

ABLE accounts now are available for setup for a disabled beneficiary and can be legally rolled over from a 529 plan.  The benefit of doing so includes the tax-free use of funds for a variety of purposes—not just college, private or parochial school.

 

Assets up to $100,000 don’t count toward the $2,000 limit for SSI benefits.  Contribution limits are capped at $15,000 in 2018 and your rollover from the 529 plan would count toward that cap if you were to roll over a 529 plan into an ABLE account.

 

Educator expenses continue to be deductible (up to $250) by teachers who come “out of pocket” to purchase classroom material and supplies.

 

Most Retirement Plans Are Not Affected by the New Law

 

With the new tax law a change in your withhholdings may occur.  If you are in a strong financial position consider using the additional amount that you may see on your check to save more for retirement to help lower your taxable income and build wealth more efficiently.

 

IRA to a ROTH  conversions also see limits.  In the past you could undo the conversion and avoid the tax bite by re-characterizing the conversion by October 15 of the following year.   Now once you convert, it is permanent as far as the tax bite is concerned.

 

However, if you feel that a conversion is more beneficial for you and your family and you have the funds to handle the tax bite that could still be an effective strategy.  In addition, you could convert yearly a certain amount to lessen the tax sting.

 

Real Estate Takes a Hit with the New Law

 

Many residents of high cost cities where housing costs are high are crying foul over a number of provisions in the new tax.  The new law limits how much mortgage interest you can deduct.  The limit is now $750,000 (primary and vacation homes) down from 1 million.

 

Home Equity debt (home equity loan and home equity line of credit) interest is no longer deductible unless the money from the loan is used to improve your home.

 

Property tax deductions on your schedule A are capped!  The new law limits the amount that you can deduct in state income and property taxes at $10,000.

 

Like Kind Exchanges under Section 1031 of the Internal Revenue Code are now limited.  Like-kind exchanges of Real Property survived the new tax bill, however like-kind exchanges no longer apply to any other property–including personal property associated with real property.

 

Capital Gain Tax Rates are Preserved

 

Capital gain rates remain the same but the calculation formula now differs from using the tax brackets as in the past to using income thresholds.

 

If your income is less than $38,600 single or $77,200 joint you are at the 0% rate based on your income threshold.

 

If your income is between $38,600 to $425,800 single or $77,200  to $479,000 joint you are at the 15% rate based on your income threshold.

 

If you are in the ideal position of having even higher income your capital gains rate would be 20%.

 

The above capital gain tax rates apply to long-term capital gains (assets held over a year) and if you were to sell capital assets held less than one year you would pay tax at your ordinary income rate.

 

The “so called” kiddie tax that you would normally pay also has a change in the way that it is calculated.

 

Charitable Giving May Take a Hit Due to the Higher Standard Deduction Amounts

 

Charitable organizations were not pleased by the changes in the new tax law.  Even though charitable deductions are still deductible on the 1040 long form the likelihood of many using the long form has decreased due to the elimination of personal exemptions and the increase in the standard deduction.

 

Although many give generously out of the goodness of their heart, they still enjoyed the knowledge and annual application of a tax break.    That tax break that many have been accustomed to utilizing for years will be eliminated for some taxpayers due to the increased standard deduction which effectively wipes away their ability to itemize and claim their charitable giving.

 

Self-Employed & Those Who Have Pass Through Income Will See a Benefit

 

If you are self-employed or make additional income from a side job you could possibly benefit significantly from the new tax bill.  Many self-employed businesses will be allowed to deduct 20% of “qualifying” income from their taxable income.  Even so, there may be limitations depending on your business type and income thresholds.

 

Qualifying income is what the new law states that it is and can be a gray area, so consult your tax professional.

 

Entertainment expenses will no longer be deductible,  however meals will continue to be deductible (50% limit).

 

Medical Deductions Ceiling Reduced From 10% to 7.5%

 

At least for 2017 and 2018 you can deduct medical expenses on schedule A and have a 7.5% floor as opposed to 10% under the old rules.  The lower the floor the better–as it allows you to deduct more medical expenses on your schedule A.

 

The ceiling returns to 10% in 2019 so don’t get too excited.  Hopefully congress will make the 7.5% floor permanent or at least extend the deadline as baby boomers will find a real benefit as they age and get out of the employment population and experience increased medical expenses.

 

2% Miscellaneous Deduction Including Unreimbursed Employee Expenses Take a Major Hit

 

Moving expenses have been eliminated unless you  are an “active” member of the U.S. armed forces.  Tax preparation, unreimbursed employee expenses (mileage, travel, home office expenses etc.), investment advisory fees and casualty losses other than those declared as a presidential disaster area have all been eliminated.

 

Look for shockwaves to run through certain industries where they have high “unreimbursed” expenses when they file their 2018 tax return as those who work in the affected industries will in some cases experience a substantial increase in their tax bill.

 

Corporations & Pass Through Entities Receive the Majority of Windfalls with New Tax Bill

 

With a major tax rate reduction to 21%–down from 35%–many corporations will receive a significant financial windfall due to the reduction in their tax rates as well as other perks offered in the new tax law.

 

Depreciation write offs and 179 deductions could possibly be of greater benefit to you if you purchase equipment that qualifies.  However, there are no guarantee that they will continue indefinitely.

 

However, for the time being many corporations will benefit–and you too may be able to benefit as well if you are proactive and not reactive in looking at ways that you can better utilize the new provisions that are now available to corporations and pass-through entities.

 

Self-employed businesses, partnerships, S-corporations and C-corporations will all see a reduction in their tax rates and it is up to you to look at ways that you can use this new rate change to your and your family’s advantage by now getting in the game or playing the game more successfully by taking beneficial steps toward your goals at this time.

 

 W-4 Table for Exemptions No Longer Apply

 

The withholding based on exemptions are a thing of the past and new tables for withholding are in the process of being created.  It is important that you have your tax professional provide you projections based on your current withhholdings and the new rates and filing status to help plan for your 2018 tax filing in a more intelligent manner.

 

AMT & Estate Tax Remain

 

The Alternative Minimum Tax remains.  However, the exemption has been increased to $500,000 for single taxpayers and $1 million for couples.  This change is expected to result in fewer taxpayers being hit by the AMT tax.

 

The new tax law doubles the estate tax exemption to $11.2 million for single filers and $22.4 million for joint filers. This change will only affect a small percentage of the American population  as effective estate planning and the increased exemption will leave a very small percentage of taxpayers paying this tax.

 

Affordable Care Act Individual Mandate Gone

 

In 2019 the tax (individual health mandate penalty tax) that was imposed for healthcare under the Affordable Care Act (often called, “Obamacare”) will be eliminated.

 

Conclusion

 

Be sure you understand the difference between a tax credit and a tax deduction as a credit is a dollar-for-dollar reduction and a deduction is based on your tax rate or a percentage of your taxable income.

 

Even though the new tax bill appears to overwhelmingly benefit corporations and those who are well established financially–you too can benefit!   Be aware that much of the new tax bill was unfunded and will pass the cost on to others in an “irresponsible” way.

 

However, you can benefit now and in the future if you take the right steps to make the law work better for you and your family.

 

The new law provides the opportunity for those who are astute and who are willing to pause and take effective steps to use the new law to their advantage by asking and answering the right questions the ability to achieve at a higher level in the coming years.

 

How can “I” more effectively benefit from the various changes in the law during the various phases in my life?

 

How can I manage my finances at this time so that I can put myself in position to take advantage of the various changes in the law?

 

What can I do to avoid changes in the law that will negatively affect me?

 

These (and more) are the types of questions that you must ask yourself—and answer appropriately if you are one who desire to take advantage of the new changes in the tax law as opposed to having the new changes in the tax law take advantage of you!

 

It is the desire of TheWealthIncreaser.com that this discussion has at least got you started on a path to doing what you need to do to make the new tax law work better for you.

 

All the best as you pursue tax success…

 

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