Starting Over – A Happy Tax Story

 

Red Crossed Bandaids

Zig Ziglar said, “We cannot start over, but we can begin now and make a new ending”.

The Problem:

A few years back, I had a contact call me in a panic after she had finished her initial attempt at preparing her own tax return. She owed almost $5,000 and was shocked that she owed that much money.   It was scary because she didn’t have the money to pay that kind of tax bill. She called me for help and advice.

The Beginning:

To put this into perspective, this was her 1st year to file Single.

Previously, her husband of almost 25 years had handled their tax returns. They had filed Married Filing Joint and had dependent children. At work, her tax withholding was based upon her previous situation, not her present circumstance.

Originally, she thought filing a tax return would be simple and at first, it seemed as if it was. TurboTax asked her questions and she completed the answers the best that she could.

The Middle:

After receiving her call, we agreed to meet and I reviewed what she had completed, but had not yet filed. After a good interview process, we had a game plan and she began to collect tax related documents that could be used to determine the feasibility of itemizing rather than to use the standard deduction.

The End:

After several weeks of back and forth questions and answers, I had the documentation that I needed to help her complete a revised return. This resulted in about a $3,900 savings and she thankfully, filed her federal and state tax returns.

The Zig Ziglar quote is great, but it did not fully apply in this situation. She could “start over” and could also make a new ending.

Since that time, we work together every year. We don’t just wait until the tax season to talk. We use tax planning and action during the year to manage her annual tax bill and to keep it as low as possible. Frequently she knows her current tax situation before 12/31. We don’t know the exact number, but she does have the comfort of “No Surprises” when the tax season officially arrives.

The Lessons:

  • Sometimes, a 2nd look can make a big difference
  • If the tax filing process is new to you, having someone help you, may prove to be beneficial
  • If you ask someone to help,  try to find someone that will take the time to educate you about the process.
  • It is empowering to learn and apply the tax rules; it saves you money 

Thanks for reading!

Deborah Ann Fox, CPA is working to make a difference in peoples lives and wallets, by helping them build and protect their financial health.

Debbie offers free 30 minute no obligation consultations and is available for appointments – including remote. More information is available at http://www.debfoxfinancial.com. Questions or comments can be sent to debfoxfinancial@gmail.com 

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Money Spent, Wisdom Gained, & 20 Helpful Tips

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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.

Where is “The Help?”

We have a need. We have a want. Where is The Help?

Where is the help if we want to talk to an affordable professional about our money?

The Need:

Many of us worry about our money situation because of consumer debt, student debt, limited savings, or the ability to retire.

We might worry, but talking about our money is not something we like to do. A recent survey by the National Foundation for Credit Counseling (NFCC) showed that we would rather tell people how much we weigh than the amount of our credit card debit or our FICO score. Many of us are embarrassed.

We might not want to talk about our money situation, but we also know that we could benefit if we did. We know what we don’t know or understand.  We might be comfortable not thinking about it, but this only allows anxiety to grow and does not change anything. A comfort zone can be a beautiful place to be, but nothing ever grows there.

The Want:

We all need and want financial stability.

We might know what to do with our money and just not do it. We know that we need to spend less than we make, but doing that is hard. It can also be hard to save and not spend. We have heard, pay your self first, but do we? We leave money on the table by not getting the full company match for our 401k plans at work.

Most of us were not taught how to manage our finances when we were in school.  We learned the hard way: through trial and error and through the “school of hard knocks”.

Increasingly, we want financial literacy taught in our schools. Students need to learn how to balance their bank account, manage debt, credit, and avoid financial traps.  In short, we want our children or the youth of our community to be better prepared than we were.

The Help:

Clearly, we have a need and a want. Where can we go for affordable help?

Historically, formal financial planning services were designed for and enjoyed by those who had large sums of money to protect. Comprehensive Financial Plans are expensive and time consuming to prepare. Financial Planning service firms may have provided this service at a nominal cost and made their money by selling insurance or investment products or by providing investment management services.  This works well for people who have plenty of money and the need for a comprehensive plan.

Where is the help for those that have less money?

Where is the help for those that do not yet need comprehensive financial plans, but have questions about their money?

Where is The Help for the:

  • Young Adult?
  • Young Career?
  • Young Family?
  • Families living paycheck to paycheck?
  • Working Poor?
  • Shrinking Middle Class?

Over the last few years, service providers have started to pop up. The marketplace had a void and some are stating to fill it, including me. I want to make financial planning, understanding, and capability more accessible for this underserved market for both individuals and small business owners.

For personal finance, maybe you would like to:

  • Talk about your money situation, evaluate, prioritize, act, and build confidence about your economic future?
  • Learn to use a systematic approach to evaluate a financial decision?
  • Have a mentor/friend to help empower you to become more accountable?

For the entrepreneur or small business owner, would you benefit by learning new business skills about:

  • Pro-Forma financials for your business plan?
  • Budgets and cash flow?
  • Tax planning?

For those that like to read and learn on your own, there are a lot of good resources out there to help you.  I have resources listed on my website at www.debfoxfinancial.com. I also blog, post frequently on my Facebook page and share information on Twitter.

Perhaps, you learn best by working “one on one” and would benefit by having the opportunity to ask financial questions and then work together, as a team, to learn, grow, and achieve your financial goals.

I believe that the scope of financial services should be broader than is currently available and want to use my expertise and experience to help others.  We could work together on one project, many projects, or perhaps, I can just be a resource for financial information?

Execution matters. I can help. It is important that you know that I would not tell you what to do.  I can be a financial compass and help you sort through choices and evaluate the potential costs and the benefits of the available options. You decide what is best for you.

I am a financial literacy advocate and want to provide affordable financial solutions by providing meaningful, actionable, advice. If you can afford a personal fitness trainer; you could afford “one on one” help from me.

Takeaways:

  • Decisions made today affect the options available to you in the future
  • What you do today with “Your Present Self” has a direct impact on “Your Future Self”
  • An investment in you today can result in a financially stronger you tomorrow
  • Financial strength brings more freedom of choice

“Tell me and I’ll forget. Teach me & I may remember. Involve me & I learn” – Benjamin Franklin

Deb Fox is working to “make a difference in peoples lives, hearts, and wallets”. Although she earned her CPA designation in 1997, she is not currently practicing as a CPA. She does use her knowledge to help others. She does not give investment advice; this is outside her areas of expertise. She can help with financial planning, tax, accounting, and commercial property and casualty insurance questions.

Website: www.debfoxfinancial.com

E-mail: debfoxfinancial@gmail.com

Twitter: @debfoxfinancial