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Avoid Passing Debt to Loved Ones

No one wants to think about it, but no one is guaranteed tomorrow. Nearly half of Americans are concerned about passing on debt to loved ones. According to Experian, debt tends to peak somewhere around middle age. Among Millennials, 17% have specific concerns about passing on education debt.* While it is never easy, there are steps you can take to help alleviate this stress.

THINGS TO DO

Make a concerted effort to lower your debt, especially high-interest credit card debt, and avoid accruing more. Buy nothing you don’t absolutely need until you’ve paid off all of your high interest debt.

A SAFETY NET

Overall, 21% of those who expect to pass on debt don’t own life insurance, which is the one thing that you should consider buying as you continue to pay off debt.* Should the unthinkable happen, the benefits can help provide financially for your loved ones. Your financial professional can review your needs and offer coverage options that are usually more affordable than you may think.

*Source: Nasdaq Personal Finance, 2024

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July 2024 Client Profile

Small business owners Jack and Ally are considering one of them being an at-home parent to their expected baby.

Talking to their tax advisor about the financial aspects, they’ve learned that annual childcare costs average more than $7,500* per child, up to $3,000 of which may be offset using the dependent tax credit. They also may gain a child tax credit (up to $2,000), regardless of whether they both continue working.

The advisor also emphasized the importance of insurance. The business’s health care insurance would continue, however, their only life insurance is what the company offers, so they should evaluate how much coverage they will now need, keeping in mind that if they sell the company, they will lose that coverage. Personally owned life insurance remains in effect, as long as the premiums are paid.

With professional guidance, they learned that Ally can work fewer hours from home, which would provide a paycheck and keep her current in her field. Her family, who lives nearby, is willing to provide in-home childcare when needed.

*The Harris Poll, Dec. 2023
Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you

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IRA Missteps You Can’t Afford

With annual 2024 contributions limited to $7,000 ($8,000 for those age 50 and older), your retirement security can’t afford you making mistakes with your IRA. Yet many IRA investors do.

Younger people have many financial buckets to juggle: student loans, car loans, and the expenses of a first-time apartment or home. That doesn’t mean you should ignore saving for retirement. It may bring a modem of reassurance to know that while an IRA is not an emergency fund, you may be able to access IRA money without tax or penalties for a financial emergency. Premature withdrawals aren’t ideal for anyone, but they’re generally better than not contributing to an IRA as early as possible.

Married couples with one earner may forget that they can make annual contributions on behalf of a spouse who is not working. As long as the earning spouse has enough earned income to equal the contributions, each spouse may contribute up to $7,000 ($8,000 for ages 50 and older) to an IRA for the 2024 tax year.

Tax-sensitive procrastinators may make IRA contributions until the April 15, 2025 tax filing deadline. However, keep in mind that last-minute contributions give your investments less time to compound and you potentially have less money for retirement. If you can’t make your contribution all at once at the beginning of the year for optimal compounding, use a monthly contribution strategy to contribute the most you can, the earliest you can. It makes a big difference over the years.

Older IRA owners no longer have to end contributions to traditional IRAs at age 70 1/2, thanks to the Secure Act. Like the Roth IRA, contributions are allowable for people of any age. So long as you have earned income and can afford to contribute to an IRA you have options. Remember that a Roth IRA has no required minimum distributions and contributions are not tax deductible, unlike traditional IRAs.

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Data Breach and Identity Theft Losses

The average cost of data breaches globally in 2023 was $4.5 million, and increasing.* Identity theft generally goes hand in hand with breaches. What should you do if you’re hit by either? Take immediate action to close the breach and protect against future attacks. Then, consider how you might deduct your losses.

Under Sec. 165(a) of the tax code, any taxpayer may deduct losses that (1) are incurred in a trade or business (which would include breach and identity theft losses); (2) are incurred in a transaction entered into for profit, other than through a trade or business; or (3) arise from fire, storm, shipwreck, or other casualty, or from theft. Alternatively, businesses may opt to deduct losses under Sec. 162(a) as “ordinary and necessary” business expense. Individuals may deduct their losses only under Sec. 165(a).

*Cost of Data Breach 2023 Report, IBM

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Summer Tax Planning for Small Businesses

Tax planning isn’t limited to year-end and your review at the start of a new year. Being proactive and reviewing your tax strategy mid-year can give you a competitive edge and set you up for success come the 2024 tax season.

WHAT TO LOOK AT

During the summer months, review your deductible business expense records. Every expense you document — travel, meals, entertainment, office supplies, equipment, etc. — can reduce your taxable income. Check out your contributions to tax-advantaged retirement accounts. Can you increase them? By doing so, you can benefit from potential tax deductions and credits.

Make sure you get your business’s quarterly tax reports filed and paid to the IRS. Assess your business’s financial situation and estimate income for the rest of 2024. Estimating your tax liability and making timely payments helps you avoid any tax surprises.

MAXIMIZE DEDUCTIONS AND CREDITS

Consider organizing a summer team building event or a client appreciation outing. The costs associated with these activities may be deductible. Keep detailed records and receipts to substantiate these expenses.

If you have a legitimate business reason to travel somewhere that might mix well with a family vacation, you may be able to deduct your individual business-related expenses, but not the family’s.

Business renovations and improvements are often best done during the summer months. Consider whether this summer is the time to tackle those projects. Before starting, make sure you understand which expenses — energy efficient improvements, for example — qualify for tax deductions or credits. You could reduce your potential 2024 tax bill.

ESTIMATE YOUR TAX LIABILITY

One common mistake business and personal taxpayers make during summer, and any other season’s, tax reviews is underestimating their potential tax liability come year-end.

Underestimating income can result in an underpayment and possibly penalties. Relying only on online tax calculators or generic tax advice can lead to oversights and missed opportunities for tax savings. That’s why many tax experts recommend you secure professional guidance.

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Do You Feel Wealthy?

Making it into the millionaires’ club isn’t what it used to be, at least according to data from an online study by Logica Research in 2023. The respondents, who had a mean household income of $93,000 and median income of $68,000, said that $2.2 million in personal net worth was needed to “be wealthy”. Paradoxically, about half of those same individuals reported feeling well off with an average net worth of only $560,000. The chart summarizes how 1,000 survey respondents across America described what wealth means to them.

Do You Feel Wealthy
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Legal Powers: Prepare Your Child for College

Off-to-college checklist: dorm and study supplies, clothes, personal items, computer and printer, headphones, cellphone and other electronics, debit card, medical and financial powers of attorney… Stop. What? Along with other things necessary for a move to college, your student should have medical and personal powers of attorney (POA).

MEDICAL POA

Without a medical POA, if your adult child is hurt in an accident or becomes ill, the campus medical center or hospital staff is legally prevented from providing any information about their condition to you or any other friends or family members. Also, you cannot make important medical decisions on behalf of your child.

FINANCIAL POA

A financial POA lets your unmarried children authorize you to handle their financial transactions when they are unable to do so. As their agent, you can sign documents, pay bills from their accounts, file tax returns, monitor investments, deposit checks, and handle other transactions. Your legal professional can execute POAs for your child.

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June 2024 Question and Answer

QUESTION:

I’m fairly new to investing and am thinking of branching out from mutual funds. What can you tell me about exchange-traded funds?

ANSWER:

Simply put, an exchange-traded fund (EFT) is a basket or bundle of individual securities that track an index, sector, commodity, or other assets. Unlike their “cousin” mutual funds, EFTs are marketed on a stock exchange like stocks. They may contain a single investment type or be a mixture, including stocks, commodities, bonds, or currency. Some ETFs offer U.S.- only holdings, while other may include international securities. ETFs have low expense ratios and are generally less costly than buying the stocks individually.

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Start Your College Grad on the Path to Becoming a Millionaire

You may be able to do this utilizing any unused funds in the student’s 529 Plan. The IRS now allows rollovers of these funds to a Roth IRA in the child’s name.

REQUIREMENTS

You must have owned the 529 account for at least 15 years before rollovers are allowed. Contributions made in the five years before distributions start — including the associated earnings — are ineligible for a tax-free rollover. Rollovers can’t exceed the 2024 annual Roth contribution limit ($7,000/$8,000 for ages 50 and older).

The lifetime 529 rollover limit is $35,000, so you’d have to do a rollover annually for several years. As the owner of the Roth IRA, your graduate must have earned income at least equal to the amount of the annual rollover.

THE MILLIONAIRE PART

Look at the hypothetical example (chart) of making rollovers of $35,000 in remaining funds over five years. It assumes the annual contribution limit remains $7,000, your child makes no additional contributions, and the IRA earns a hypothetical 7% compounded interest monthly for 45 years. Consult your tax advisor about your situation.

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June 2024 Client Profile

Maureen’s yoga center has grown faster than expected, so she’s considering using a third-party service to handle payroll processing and management.

Maureen consulted her tax professional and looked at IRS Tax Tips for guidance. She found she could best protect her business by hiring one of these types of services:

Certified professional employer organizations are generally only liable for filing employment tax returns and making deposits and payments for the taxes their customers report on wages and other compensation.

Reporting agents are generally limited to depositing taxes with the Electronic Federal Tax Payment System (EFTPS). Employers retain responsibility for seeing that filing returns are filed and taxes paid on time.

Section 3504 agents withhold, report, and pay employment taxes and share liability for all federal tax withholding responsibilities with the employer. Employer returns are submitted with the agent’s Employer Identity Number (EIN). Generally, customers must still file FUTA tax returns with their EINs.

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