Tips for Tax- Efficient Financial Planning

For Tax-Efficient Financial Planning, it is important to consider your:

  • “Income” sources
  • How each source is taxed
  • Your Tax Bracket

Income Sources:

Visualize a pie and then divide your sources of income in to 3 general categories: Taxable, Tax Deferred, and Tax Free.

How does it look?

  • All taxable? This is an excellent opportunity to reduce your tax bill and keep more of your money. Your recent filed tax return can be a good road map to provide clues for tax savings opportunities
  • Taxable and Tax-Deferred? Good for you; you have some balance
  • All 3? Even better. This provides flexibility on how you draw down your assets later, which could save tax dollars and money

Tax Rates:

Taxable “Income”:

  • Ordinary Income is income earned from providing services or the sales of goods
  • Capital gains are usually associated with the sale or exchange of property characterized as capital assets
  • Short Term Capital Gains are taxed at your Ordinary Income tax rate (10 % to 39.6%)
  • Long Term Capital-Gains tax rates vary by your income tax bracket and the type asset sold
  • Generally, if you’re in the 10% or 15% tax bracket, you’ll pay 0% on those gains. Most other taxpayers pay 15%; however, the rate can also be 20, 25, or 28% for certain asset classes and/or income levels.

Tax Deferred Investment Income includes:

Withdrawals from traditional IRAs and your 401K, which are, taxed as ordinary income (10% to 39.6%)

Tax Free Investment Income: Roth IRA

  • Tax Free Income as long as the account has been open for at least 5 years
  • Provides flexibility in the timing of future income – you decide
  • Required Minimum Distributions do not apply to Roth accounts as are required by Traditional IRA plans
  • Roth IRA distributions are not considered as income when determining how your Social Security payments are taxed
  • Qualified Roth distributions are not included in either net investment income or in the modified adjusted gross income calculation for assessing the 3.8% net investment income tax

Tax-Brackets:

To determine your tax-bracket, you, generally, need to know your annual taxable income and your tax status as of the end of the year.

As you have already seen or already knew, Ordinary Income is taxed at the highest rate.

Managing your tax-brackets means:

  • Try to keep your Ordinary Income in the lower tax brackets
  • “Fill up” each bracket, where possible
  • Be aware of tax consequences before making decisions that push you into the next highest rate bracket; i.e. can you defer a bonus or sale to new year if it means you will be taxed 10% less?
  • If you itemize, group deductions where possible; i.e. elective medical or dental procedures; charitable contributions to reduce your taxable income

Takeaways for Tax-Efficient Decisions:

  • Know your tax bracket
  • Estimate your current annual taxable income
  • Use the 2015 IRS Tax Bracket Schedules to determine “how much room you have to move, before moving to the next highest tax bracket
  • You could use this “room to move” as the potential amount to convert the specific amount of money from a Traditional IRA to a Roth IRA
  • A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. The conversion is reported on Form 8606, Nondeductible IRAs. See  Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), for more information.
  • Determine the tax consequence before you convert and ensure you have the cash to pay the tax for converting

The IRS is spelled just like that: “Theirs”. However, tax laws were put in to place to help save you money. The IRS is not going to tell you that you could have paid less when you submit your tax return. It is your job and I am here to help, which is why I share information – so you can.

Deborah Ann Fox, CPA studies tax laws so you don’t have to. She enjoys making a difference in peoples lives, hearts, and wallets as she helps them on the road to financial freedom.

Deb provides free 30-minute consultations. More information is available at www.debfoxfinancial.com.

Thanks for reading!

Part 2: Financial Success : Our Kids: Money, Its Value & Values

piggy

Teaching kids about money, its value, & values can be frequently connected to each other.

Kids learn when they are young that money is something we trade for something else.

Teaching kids “value” is also something we can introduce to them when they are young.

How many times as parents, have we heard, “Mom/Dad, will you buy this for me?” We tell them, no, but you can spend your own money to buy it and then they decide they don’t want it. As the parent, you might think, I sure am glad I did not spend my money on something they don’t really want. I know I did & was glad that I had responded the way that I had.

Yes, the kids thought they wanted “it” & they did, when they did not have to pay for it. The “value” changed when they needed to spend their own money. Kids begin to learn that “value is what we think something is worth”. If we buy it, they don’t have to think about it. If they buy it, the value or the cost becomes a reality. Kids can become “pretty tight fisted” when it comes to spending their own money & that is a good thing.

Indirectly, they are also learning “relative value”. Yes, I want that, but I want something else more. Slowly, they begin to learn delayed gratification, priorities, & the need to save their money for what they want or think they need.

Kids often think that they need a certain brand of clothes or perhaps shoes & there are a lot of reasons for them to think this way. As parents, we can choose to re-enforce this belief or use it as a springboard for education. Yes, they might need a new pair of jeans or shoes, but you could set a dollar limit on what they can spend. If you want to spend $60 for that item & they want something more expensive, tell them they can earn the difference & you will give them the $60 when they have enough money to pay for it, Until then, they wait or can have the $60 item.

Teach your kids to count & also teach them what counts
• Tell your kids that advertisements are designed to try to get people to buy things
• Educate them that retailers place “impulse items” at the check out in the hope that you will decide to buy it while you were waiting in line
• Teach them to comparison shop: buy the store brand or the name brand? What is the difference in cost? Let them know that sometimes you can taste the difference, but most of the time you cannot. Why spend more money on something you can’t even taste?

Perspective on our possessions can help us learn about value as we develop our values:
• When my son, Jason, was in 9th grade he tutored Hispanic children in the Colonia’s outside of McAllen, TX. Most of the children’s parents only spoke Spanish & lacked education to help their children with their homework. Jason tutored one day a week for the school year & grew to be more thankful for what he had. After his 1st visit, he told me he was glad to even have a pair of shoes. Serving others that had so much less, made his heart more sensitive to other people – less judgmental, more caring. Of course a boy is not going to tell you that, but I could see it in his actions. For example, when he was older, he & a friend bought pizzas & served them to the homeless, who were living under the bridges in Houston.
• Learning to appreciate what we have helps us value our possessions; it subtly teaches perspective & gratitude

Build their self-esteem. Become an advocate & a role model to show them “who you are is more important than what you own”
• Share good examples of living “beneath your means” – tell them Warren Buffet is one of the richest people in the world & he is well known for being “frugal” with his money
• Tell them that even though Warren is worth billions, he still lives in the same house he bought before he had very much money
• Let them know there is a big difference between what you make, what you have, & what you keep
• To have money, we need to learn how to earn it, how to spend it, how to keep it, and how we try to make more money by saving & investing

    Marty Rubin said, “A scale can tell what a body weighs, but not its value.” Like wise, our value comes from within – not outside of ourselves.

Thanks for reading,
Deb

Deborah Ann Fox, CPA uses her “money” knowledge to help families & small business with budgeting, homeownership/debt, tax planning (saving), cash management, etc. She is available for side-by-side, local, & remote appointments. She offers free 30-minute consultations.

http://www.debfoxfinancial.com

Financial Success: Life Lessons for all Ages & Stages – Part 1

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To celebrate the beginning of April’s Financial Literacy month, I thought I would create a series of blogs about money & financial literacy. I am starting at the beginning, when kids are young & will continue through some of the older ages & stages of life.

Part 1: Kids learn by what they see, hear, & do:

 When my niece, Ali, was 4, she used to think money came out of a machine. It made sense, she saw her Mom do it. If you want something, you just go to the machine, get the money, & go to the store. If we don’t tell them any different, kids believe what they see – money comes from a machine.

Little ones quickly learn that they need money to buy things. They need to be taught:

  • You earn money by working
  • You deposit the money you earn in a bank to keep it safe
  • You have to have money to pay for things you need – a place to sleep, food to eat, clothes to wear, maybe, even a car to go places
  • You use money you saved in the bank to pay for things you need
  • There is a difference between needs & wants – needs come 1st
  • You usually have to save money to buy something you want

Kids learn from what they hear. Do you speak positively or negatively about money?

Most of us know that kids are like little sponges & pick up on things they hear & sometimes they repeat us to our surprise (or shock): “We don’t answer the phone at our house, it might be a bill collector”. As adults, we need to be careful with our words. We also need to pay attention to other places that kids can learn by listening – TV, video games, radio, private & public places.

In today’s digital world there are so many ways to educate our kids about money; we can play fun songs for them to hear and maybe learn. One of my favorites is Sammy Rabbit; hIs dream big campaign teaches great money habits for young children. You can learn more about Sammy at http://www.dreambigday.net or sammyrabbit.com.

Kids also learn by what they do. Teaching kids to be financially successful in life should begin early. The Davidson Institute reports that money behavior habits can be formed by age 7.   When we are young, it is hard to learn that we can’t have everything we want. Parents can help by creating incentives & providing rewards.

  • Have kids write goals & create visual savings charts for something “they want”
  • Tell them that writing goals down increases their chance of success
  • Practice “learning by doing”
  • Money earned or received can be divided into 3 groups – spend, save, give. Let them decide where to give.
  • Teach “delayed gratification” – this will provide a great leap forward to becoming financially capable & successful, later in life
  • The concept of “budget” can be taught with things other than money; i.e. 1 sugary item per day – they choose when. I used to tell my son, Jason, if you want sugar on your cereal in the morning, then please don’t ask for a cookie or something else later on in the day. He frequently decided to wait because he did not know what other choices there might be later. Till this day, he still does not care for sugar much and he learned to wait for what he wants. He also works for it.

If you want to teach your kids a little about saving money, tell them that one of the best things they can do with their money, is to save it. Start early & save often. Even a little bit saved, on a regular basis, can add up to much after time. It is like planting a seed and watching it grow. Money can do the same.

A Chinese Proverb is “Learning is a treasure that will follows its owner everywhere”. Learning to make smart financial decisions when you are young will also benefit you for life.

Have fun teaching & helping others learn to make smart financial decisions. Thanks for reading.

Deborah Ann Fox, CPA is a financial literacy advocate who devotes part of her practice to helping others make smart financial decisions by providing education while building client skill levels.  She is available for one on one, local, or remote appointments. Free 30 minute consultations.

website: http://www.debfoxfinancial.com

Phone: 619-549-2717

Money Spent, Wisdom Gained, & 20 Helpful Tips

piggy

Many of us have said, “I wish I had known then what I do now; I would have done things differently”.

This is particularly true when it comes to money & our financial situations. Money trouble or challenges occur for a variety of reasons:

We spend when we shouldn’t or we spend without understanding the true cost:

As a student, perhaps we used some of our student loan to go shopping. Maybe, we bought things we knew we couldn’t afford because we wanted or deserved it, or signed contracts without reading or fully understanding them.

We spend because we lose our job & spent our financial safety net to survive

Sometimes we end up in money trouble just because of unexpected life events. This has happened a lot since 2008 when people suddenly found themselves with a “pink slip” & not able to get another well paying job. Even if you had the now outdated 3-6 months livings expense safety cushion, it wasn’t enough. Debt piled up.

We spend because we don’t have any other choice; it is a revolving circle:

When debt piles up, we may play the “rob Peter to pay Paul” tactic & move debt from one card to another.

We pay the bills for the services that are the most important to us – housing, electric, phone, gas, & food and hope we can pay the rest of the bills -soon. We hope something will change and actively seek solutions.

We spend to pay high service fees: Fringe Banking, Unbanked, & Under -banked:

The movie “Spent: Looking for Change”, is about hardworking Americans who do not have access to traditional banking services. The film tells us that there are nearly 70 million Americans that are unbanked & financially underserved. They use check cashers, pawns shops, payday lenders, & money order services. These alternative financial services are expensive & those that least can afford it spend more than traditional bank users to cash their payroll checks & to pay their bills.

We spend because we want our tax refund now:

Low to moderate income tax payers pay extremely high interest rates & fees to get some or part of their tax refund now rather than wait a couple of weeks and avoid these needless high expense charges.

The National Consumer Law Center’s website provides the following description:

  • Refund anticipation checks (RACs) – RACs are a financial product used to deliver refunds and to pay for tax preparation fees by deducting them from the consumer’s tax refund.
  •  RALs from non-bank lenders – A few payday and other non-bank lenders are offering RALs. These loans could be more expensive and riskier than bank RALs.

Since the 2008 recession, many people have permanently changed the way they spend their money.

Following are 20 tips to help you make your money go further. This, then will provide you the opportunity to either pay down debt, build a safety cushion, or invest in your future.

Money Management & Spending Tips:

  1. Some “assets” appreciate and can go up in value; spending money here makes sense
  1. Other “assets” depreciate as soon as you buy them – cars, furniture; consider buying used or refurbished
  1. Accountants use a term called “Sunk Costs” which means a cost that has already been incurred & cannot be recovered; limit your sunk costs
  1. Opportunity Costs: the value of something that must be given up to achieve something else; limit how much you spend on a things that you want; you might need the money later for a need
  1. Good debt provides you an opportunity to get ahead; there can be a return on your investment; i.e. a mortgage on a home
  1. Bad debt includes high interest rates on unpaid credit card balances
  1. Borrowing on credit is expensive; debt makes you a slave to payments; you’re a hostage with limited life choices & flexibility
  1. Building & Maintaining a good credit score means it will cost you less to borrow money
  1. Forgo bad debt & instead, build toward your dreams
  1. When you want to spend instead of save, think about your long-term goals. Is going out to eat, buying coffee at Starbucks, going shopping because you feel depressed or want something new worth adding more debt or forgoing savings?
  1. Read your contracts & plan for both the best & the worse scenario- can you afford both?
  1. Know that managing money is becoming more simple and that there are is a lot of free help
  1. Use the internet to learn more about personal finance- Coursera offers free classes
  1. Use on line tools to help you determine your best money moves; I have several on my website, on the resources page
  1. Hire someone to help you understand & determine your best possible alternatives
  1. Avoid “problem pile-ups”- it is too hard to solve almost anything that way. Choose one thing to work on, resolve, choose another
  1. Don’t beat yourself up if you made what you consider a “money mistake”. Ideally, we all learn as we grow. This is a normal part of life & it is fully possible to recover & regroup
  1. Don’t assume you know the answer, because you think “it is true” or someone told you. Look for the answer yourself or try to get your answers in writing from an objective source
  1. If you are a parent, be careful that you are not unintentionally teaching your children poor money habits by saying things like, “I am not answering the phone, it is another bill collector”
  1. Sometimes we learned poor money habits as a kid and carried them with us in to adulthood without realizing it. This has become so common that there is a new field of study & help: Behavioral Finance. Learn about this is if it applies to you

Deborah Fox, CPA is working to make financial information affordable & accessible. She helps others improve or protect their personal or business financial health by answering specific money questions. She provides information while building knowledge & practical skill levels for her clients. She is available for local or remote appointments. Thanks for reading.

Website: www.debfoxfinancial.com

e-mail: debfoxfinancial@gmail.com

Phone: 619-549-2717

Your Personal Income – Learn, Grow, Achieve

 It is a new year and many of us have renewed energy, vision, & goals we want to accomplish- make more money, get out of debt, buy a home, prepare to retire, have more time with our family.

To help, I thought I would write a short series of articles that might be resourceful in helping you reach some of your goals.

To begin, I thought we would start at “the top” of most people’s list and take a look at money; i.e. our personal income.

In future blogs, I will provide info on how we spend, save, & can protect the money we earn.

First, lets look at some words that describe our Personal Income:

1. Learn:

Disposable Income = Income – taxes

This term is kind of a misnomer. Disposable sounds like we don’t really need the money when in reality we do, to pay our bills.

Discretionary Income = Income – taxes – all monthly payments

This is what companies use to decide to whom to market their product. The more discretionary income we have, the higher priced items are “presented” to us. They are a lure. It is always our choice. Do we save, invest, build for tomorrow or enjoy today?

Our discretionary income varies by which stage in life we are: student, raising children, retired.

IRS Income Terms:

The IRS uses the term “Ordinary Income” which basically includes all income except for income except income from Long Term Capital Gains.

Ordinary Income includes:

Earned Income: Money earned in exchange for services

  • Work for someone & receive payment for services
  • Self-Employment

Not “Earned” Income:

  • Interest
  • Dividends
  • Retirement Income
  • Social Security Payments
  • Unemployment
  • Alimony
  • Child Support

Portfolio Income

  • Interest
  • Dividends
  • Annuities
  • Royalties not derived in the ordinary course of your trade or business
  • Gains & Losses – not derived in the ordinary course of trade or business

There are other income terms that we hear others say: Recurring income such as the commission earned by insurance agents and web hosts as they almost automatically renew us each year. Residual Income  is royalty income earned by the owner of intellectual property – books, lyrics, music, patents.

  1. Grow:

This “Income definition review” is not about definitions. It is to help you think about:

  • What kind of income am I making now and how much does it “cost” me?
  • Is the income I earn from a variety of sources or am I dependent on a single source?
  • What do I want to build for tomorrow?
  1. Achieve:

Remember the slogan, “Work Smarter, not Harder?

“Passive Income” is based on “leverage”; we can increase our time productivity by creating assets that work for us and can pay us while we are busy doing other things we enjoy.

 Designing your life to include some passive income could allow you to do more things with your time. It can create a sort of financial “safety net” if you become sick, injured, or have a family emergency that prevents you from working at a typical job. For some, it allows them to have more freedom of choice in their life about where, when, and how they “work” to earn an “income”.

Many of us learned during the recent recession that we should not rely on a single source of income to keep us financially safe. We need to “spread our risk” and not have all (or too many) “eggs in one basket”.

Some people try to create multiple income streams because it provides more financial security and reduces their “dependency” on a single source of income.

Here are some ideas to help get you started:

  • Think about getting involved in the #sharing economy – rent out something you are not using (house, car, bike)
  • Write a series of e-books and sell on Kindle (http://www.stevescottsite.com)
  • Create an App
  • Sell memberships, advertisements, or affiliate links from your blog or website
  • Buy rental property
  • Set up a Self-Directed IRA & invest in mortgage notes, etc. (see my previous blog)
  • Be a bank- Peer to Peer Lending
  • Turn your passion into profit – start a small business or trade services

As you think about reaching your money goals for this year, you could earn more money, spend less, or do both. If you decide to earn more, what can you do to leverage your time, increase your productivity and your net worth?

“A wise person should have money in their head, but not in their heart” – Jonathan Swift

Deborah Fox, CPA is working to make a difference in peoples hearts, lives, and wallets by helping others protect their financial health. She is available for side by side, remote, or mobile appointments. More information is available at www.debfoxfinancial.com. Questions or comments can be sent to debfoxfinancial@gmail.com. Thanks for reading.

Band-Aids for the Heart, Mind & Soul

Red Crossed BandaidsBand-Aids have been around since 1920. Earle Dickson created them for his wife who frequently cut & burned herself while cooking. This “healing aid” is an American Icon. We all know the brand and most of us use it. It is great for life’s little physical injuries.

There are a lot of ways we can feel “injured’ or “hurt”. Sometimes, we are physically hurt. A Band-Aid may be all we need. Healing is fast & easy. Psychological & Emotional “injuries” are more difficult to heal. Band-Aids for those “hurts” don’t come as easy. We have to do some work to get past the hurt. Fortunately, there are some “Tools” we can use to help our growth and healing process.

Zing Ziegler said, “Getting knocked down in life is a given. Getting up and moving forward is a choice”.

History is full of those that supposedly failed and then became a huge success. We can use their stories or our own success to help us keep moving & growing. It gives us hope. We can Turn Our Scars in to Stars and our Wounds in to Wisdom.

Our attitude affects our viewpoint. Will life’s events boost you up or keep you down? Will your childhood or some other event keep you stuck living in the wake of the boat or will you use life’s events to propel your boat forward?

Life is not a straight line. It is a zigzag, always full of ups & downs. There is rain and then the rainbows.

Christmas is a time of hope. We hope for a happy holiday season. We hope for a happy & healthy tomorrow. Most of us hope for a New Year as good or better than we had this year.

Hope is wonderful; sometimes it is all we have as we try to hold on. Hope by itself, is not a good long-term financial or life strategy. We need more. We need to:

  • Accept what is
  • Decide to make a change
  • Act

With this in mind, I offer you my top 12 “Band-Aids “ for psychological & emotional health and wellbeing:

1. Realize that Circumstances happen to us; they do not define who we are, unless we let them:

  • Experience is part of our history and/or background; It is not who we really are
  • We are more than what has happened to us. We can carry “our story” as a burden or use it as springboard for growth
  • Use it as a Spring Board

2. We only “fail” if we stop trying:

  • Everything else can be viewed as gaining the experience or the wisdom we need to move closer to our goal or toward our dreams
  • Keep Moving

3. Know that you can “Come Back” from a tough year, relationship or financial loss:

  • Learn to Let Go of things that weigh you down
  • You need energy to make goals happen. Let Go of a past that drains you
  • Choose to let go of the weight so you can create the energy you need to grow, in your business, or in your personal life

4. Remember & Celebrate Your Past Success:

  • If you overcame an adversity or a difficult situation in the past, you already know you can do it again
  • Do it
  • Celebrate your past success by remembering them. Write them down & use the list as a supportive reminder if you have a bad day
  • Gather wisdom from past challenges to create a better you today

5. Try to Avoid “Problem Pile-up”:

  • If you have more than 1 area that could use an emotional or psychological Band-Aid, it is hard or almost impossible to heal a lot of hurts at one time
  • We can’t fix things when there is a big pile
  • Choose the most important now, and work on that one topic
  • Then choose the next most important item; keep going

6. Decide to leave negative thoughts behind:

  • Ants are “Automatic Negative Thoughts
  • Thoughts & Feelings can be fleeting
  • We decide to hold on or let them go
  • Choose to let the “ANT’s” go rather than let them run wild
  • Try not to let your unconscious mind be the master of your life
  • Choose Differently

7. Fuel your thoughts with Positivity:

  • Choose to think that life is good and it will be
  • Where thoughts go, energy flows
  • We become what we think about
  • Think positive. Be positive. Act positive

8. Determine your SMART goal. Write it down. Your goal should be:

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-Bound

9. Measure & Monitor Your Success:

  • Document your success and date it
  • Ask yourself, are my actions consistent with my vision, goals, and dreams?
  • Tell yourself, if I fall short, it won’t because of my actions. Remember, actions speak louder than words.
  • If your goal seems too big, decide to Either Step Up or Lower your Goal
  • Baby steps, any forward steps, count too

10. Consider Practicing The Four Agreements:

  • Consciously choose to be impeccable with your word, thoughts, & deeds – with yourself and with others
  • Avoid making assumptions
  • Avoid taking things personal
  • Always do your best

11. Though we might walk “through the valley of the darkness,” we are not supposed to “Camp There”:

  • Just like in life, a one -sized Band-Aid does not fit all wounds
  • Little hurts heal faster than big hurts
  • Big hurts can take more time to heal
  • Be kind to self and give yourself time

12. Change Your Mind Movie:

  • Change the Unconscious “Mind Movie” (the stories we have told to ourselves) to the Consciousness “Mind Movie” (the healthy story you want to tell about yourself).
  • Create a “Vision Board” or “Dream Board
  • The new visual can be based on who you are now or who you want to be in the future
  • Use PowerPoint to create your own Mind Movie. Add your favorite motivational song. Watch and enjoy.

I hope some of my favorite tools help you or yours find a sense of internal peace, health, happiness, and wellbeing.

Conversations are welcomed and encouraged. Life is about heart.

You Count and I Care.

Deb Fox is working to make a difference in peoples lives, hearts, and wallets by helping others protect their financial health and is available for side-by-side, remote, or mobile appointment. More information is available at www.debfoxfinancial.com. Questions or comments can be sent to debfoxfinancial@gmail.com. Thanks for reading

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Smart Personal Tax Planning –What to do before Year-End

2013 TaxTaxes take a big bite out of the income we earn. We may pay: federal (IRS) income tax, state income tax, payroll tax (social security/medicare), sales tax, and property tax. Most of these taxes offer limited options to control how much we pay. However, our golden opportunity comes with income tax because there are a ways to reduce our expense. Today, I offer some of these for you to consider:

The Why & The How

If you want to want to make sure your money is more in “your pocket” than in theirs (The IRS), now is the time to act. Estimating your 2014 tax bill keeps you from being surprised next year. More importantly, it provides you the opportunity to perhaps decrease the amount of tax you pay by planning and acting strategically before the end of this year.

To start:

  • Determine how much you have earned this year
  • Determine what you have paid toward your 2014 tax bill
  • Then increase each of these amounts to estimate the year-end amounts

Now that you have a glimpse of your 2014 tax situation, compare those numbers to those on your 2013 tax return. A filed return can be used as a sort of “road map” to see if there are options to reduce your tax bill now or in the future.

For example, did you get a refund last year? If so, consider this:

Kiplinger’s recently had a great article titled, “Safeguard your Refund by shrinking it”. The article includes the following:

  • More than 75% of Americans get an IRS tax refund each year which is the equivalent of giving the IRS an interest free loan
  • Identity Theft is on the rise and thieves file fraudulent returns to collect refunds. Avoid this risk by limiting the amount of refund you receive
  • Use on –line tax calculators to see if your estimated tax withholding is correct; the IRS and Kiplinger’s both provide these
  • File a revised W-4 with your employer this year to change your tax withholdings; remember the goal is to break even

Shift Income?

Then consider if you can shift income to decrease the amount of tax owed:

If you think your income will decrease next year and your tax rate would be lower, can you:

  1. Defer a year-end bonus to January 2015?
  2. Postpone a sale that will trigger a gain to next year?
  3. Delay exercising stock options?

Alternatively, it may make sense to move income to this year:

  1. Covert a traditional IRA into a Roth IRA and recognize the conversion income this year
  2. Take IRA distributions this year?

Shift Payments?

If you itemize, would you benefit if you changed the timing of some of your payments?

If you expect your income to decrease next year, then you might want to move some payments/deductions to the current year to offset your higher income this year. Can you:

  • Prepay property taxes?
  • Make your January mortgage payment this year?
  • If you owe state income taxes, consider making up any shortfall rather than waiting until your return is due
  • Consider the timing of medical expenses so you can benefit from the deduction?
  • Sell some or all of your loss stocks?
  • If you qualify for a health savings account, consider setting one up and making the maximum contribution allowable

Defer Deductions into 2015

If you expect tax rates to increase next year, or if you anticipate a substantial increase in taxable income, you may want to explore waiting to take deductions until 2015:

  • Postpone year-end charitable contributions, property tax payments, and medical and dental expense payments, to the extent you might get a deduction for such payments
  • Postpone the sale of any loss-generating property

Can you do anything else?

For those that would like to take it a step further, consider if there is anything you can do to increase your “Above the Line Deductions”.

On a Federal Individual1040 tax form, the basic formula is:

Income minus “Above the Line” deductions = Adjusted Gross Income.

These deductions include paying monies to:

  • Establish an IRA for you or your spouse?
  • If qualified, set up a Health Savings Account?
  • If self-employed, would you benefit from having health insurance or a Qualified Pension Plan?

While this is not an exhaustive list, I hope it gives you enough information to initiate your plan, act this year, and save money on your next tax bill.

A dollar saved is a dollar you don’t need to earn. Keep marching towards financial freedom. Happy planning!

Deb Fox is working to make a difference in peoples lives, hearts, and wallets by helping others protect their financial health and is available for side-by-side, remote, or mobile appointment. More information is available at www.debfoxfinancial.com. Questions or comments can be sent to debfoxfinancial@gmail.com. Thanks for reading