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Building a Money Management Blueprint

Managing your money usually involves a combination of budgeting, saving, and controlling debt. Creating a money blueprint, or monitoring the one you have, is important to help keep your finances on track.

RECORD YOUR SPENDING

You can’t take charge of your money if you don’t know how much you’re spending. By tracking your expenses, you’ll see where your money is going, and it may inspire you to adjust your spending to align with your goals. It can also help you identify areas where you overspend and unnecessary costs, like unused subscriptions or duplicate services.

DEVELOP GOOD HABITS

Your credit dictates your ability to get a loan and what interest rate you’ll pay. Credit scores can impact things like car insurance rates and whether you’ll need to pay a deposit for utility services.

To stay on top of your score, focus on the two biggest factors influencing it: timely payment history and credit utilization (how much of your credit limits you’re using). Aim to pay everything on time because just one missed payment can hurt your score.

CREATE A DEBT PAYMENT PLAN

If you have loans to pay off, ensure you have a strategic plan to reach the debt-free finish line. You may want to pay off the most expensive liability as quickly as you can, to reduce the amount of interest paid. Or you can pay off the smallest balance first for a sense of accomplishment and to create forward momentum.

BE PERSISTENT

Sticking to a budget that’s too restrictive can be suffocating, causing many people to fall off the financial bandwagon. Don’t get discouraged. Instead, give yourself time to adjust as you adapt to living within a realistic budget. Work with your financial professional for additional guidance. Before long, you will be managing your money with confidence.

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Employee Retirement Plan Selection

Offering an employer-sponsored retirement plan is one of the most effective ways to help workers save for retirement. And most provide tax advantages for both employers and employees.

PICK A PLAN

The 401(k) is one of the most common plans employers offer because they’re fairly easy to set up. They also offer higher contribution limits than individual retirement accounts (IRAs). But they require more administrative work. An annual report must be filed with the Department of Labor to disclose the plan’s financial condition, investments, and plan operations.

Smaller employers can consider a Simplified Employee Pension (SEP) or SIMPLE retirement plan. Both are easier to maintain than a 401(k). The SIMPLE plan allows employees to contribute with pre-tax payroll deductions but is limited to companies with 100 or fewer employees. A SEP plan only permits employer contributions.

TAX CREDITS

A federal tax credit of up to $5,000 for the first three years is available to eligible employers that start a new retirement plan. The credit is for ordinary and necessary costs to set up and administer the plan and educate employees.

To help workers save for retirement, an additional $500 credit is available for the first three years — if your plan has an automatic enrollment feature.

Remember, tax credits offset the amount of tax you owe dollar for dollar, but deductions only reduce your taxable income.

IT’S A MATCH

Offering to match employee plan contributions is a valuable perk you can use to attract and retain top talent. The good news is that your matching contributions are tax-deductible.

To start, you’ll need to determine when you’ll begin matching contributions (e.g., after the employee has worked for a year), when your contributions will vest, and how much your business can afford to contribute.

Meet with your financial professional for help deciding which plan is best for your company.

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September 2022 Client Line Newsletter

Employee Retirement Plan Selection – offering an employer-sponsored retirement plan is one of the most effective was to help workers save for retirement.

Building a Money Management Blueprint – managing your money usually involves a combination of budgeting, saving and controlling debt.

What Is Intellectual Property – intellectual property represents the ownership and rights to creative work.

Simple vs Compound Interest – understanding the difference between simple and compound interest is not hard.

Protect Yourself From Financial Scams – it’s good to know how to protect your financial accounts.

September 2022 Questions and Answers

September 2022 Client Profile

Filling Out The FAFSA – if your child is attending college in the fall of 2023, it’s time to complete the FAFSA

Did You Know?

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The QBI Deduction and Real Estate Investments

The qualified business income (QBI) deduction was born from the Tax Cuts and Jobs Act of 2017 and offers tax savings to qualified businesses. Keep reading to learn how this deduction applies to real estate investments.

TRADE OR BUSINESS

To qualify for the QBI deduction, your real estate activity must be a trade or business. And in the eyes of the IRS, that means it must have a profit motive and require continuous activity.
Other factors to consider include:

  • Type of property rented (commercial vs. residential)
  • Number of properties rented
  • Owner’s (or their agent’s) day-to-day involvement
  • Types and significance of ancillary services provided under the lease
  • Terms of the lease (short-term vs. long-term)

SAFE HARBORS

Even if your real estate investment activity doesn’t meet the trade or business requirements, some safe harbor provisions could allow you to qualify for the QBI deduction including:

  • Maintaining separate books and records for real estate activities
  • Providing at least 250 hours annually for rental services
  • Retain records of services completed

DEDUCTION AMOUNT

The QBI deduction aims to bring the tax rate for pass-through entities, like sole proprietorships, partnerships, and S-corporations, in line with the flat 21% C-corporate tax rate.

The deduction is 20% of qualified business income for qualifying businesses, which is subject to multiple limitations, including a phase-out based on income.

For 2022, the deduction is reduced when taxable income exceeds $170,050 for individuals and head of households or $340,100 for married filing jointly (MFJ) with a complete phase-out at $220,050 for individuals and $440,100 for MFJ.

Consult your tax professional to learn how the QBI deduction may apply to your situation.

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Retirement Plan Audits

If your company’s retirement plan has 100 or more eligible participants at the beginning of the plan year, you’ll generally need to have it audited by a qualified independent accountant each year.

A plan audit typically includes reviewing plan documents to verify they comply with IRS and Department of Labor rules, examining employee contributions to ensure money was remitted timely, confirming distributions and rollovers were paid out correctly, sampling specific participant’s transactions for plan compliance, and determining the accuracy of the information reported.

Keeping track of plan-related documents throughout the year—and for smaller companies experiencing steady growth, monitoring the number of active participants— are the simplest ways to prepare for an audit.

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Higher Education Costs

Below are average in-state tuition and fees full-time undergraduate students paid during the 2021-2022 school year.

FOUR-YEAR SCHOOLS

  • Public universities: $10,740
  • Private nonprofit universities: $38,070

TWO-YEAR SCHOOLS

  • Public, in-district: $3,800

Source: https://research.collegeboard.org/media/pdf/trends-college-pricing-student-aid-2021.pdf

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August 2022 Client Profile

Jaime is starting school to become an electrician. He has some savings, but he’s worried about how he’ll pay for tuition without taking out loans.

Jaime has a few options to help pay for his schooling. Along with his savings, if his school is eligible for federal student aid, he should complete the Free Application for Student Aid (FAFSA). This application will determine what federal educational aid he qualifies for, like grants and scholarships.

If someone could fund a 529 college saving plan for Jaime, that money would be eligible to pay trade school tuition and fees. It can also be used for purchasing required textbooks and computer software. But he’s limited to withdrawing a maximum of $10,000 per year tax-free.

Jaime should search for vocational scholarships. Many schools and industry-specific companies and trade unions sponsor scholarships to attract recruits to the field. Scholarships are typically based on merit, including academics and community involvement.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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August 2022 Question and Answer

Question:

How do I change my company’s fiscal year-end?

Answer:

Transferring your business to a fiscal year from a calendar year is a significant step and should be done only if there is a strong business purpose. It will complicate tax compliance because some reporting deadlines will shift while others, like Forms 1099 and W-2, will remain on a calendar year.

Changing your year-end date generally requires approval from the IRS by submitting Form 1128, so you’ll want to get your tax professional involved. However, if you’re looking to change your fiscal year-end strictly for a financial presentation viewpoint, remember you can always present your company financials using any period you like without changing your tax filing requirements.

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Are You Saving Enough For Retirement

Here are the average retirement account balances by ages, according to a Survey of Consumer Finances.* This chart clearly demonstrates that most Americans are not saving nearly enough for retirement. Fortunately, you do not have to be average. Working with your financial professional is your best chance of developing a realistic savings strategy that works for you.

AGE GROUP AND THEIR AVERAGE RETIREMENT SAVINGS

  • Under 35: $13,000
  • 35-44: $60,000
  • 45-54: $100,000
  • 55-64: $134,000
  • 65-74: $164,000
  • 75 and up: $83,000
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Interest Rates and Bonds

A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When interest rates rise, the cost of bonds typically decreases and the bond’s yield (how much you’ll earn) usually increases. This is true for government and corporate bonds.

INVERSE RELATIONSHIP

A bond’s coupon rate (e.g., interest rate) is fixed when issued. But when interest rates change, the coupon rate becomes more or less attractive depending on how interest rates move. When a bond’s coupon rate is lower than the prevailing interest rate, investors will likely find it less appealing, and the bond’s price will decrease. For example, if a corporate bond has a coupon rate of 3%, but prevailing interest rates are 4%, an investor will pay the amount that generates more than a 4% yield. So, a $1,000 face value bond might sell for $925.

Remember that time to maturity and the issuer’s credit quality also impact bond rates.