Looking Ahead to 2019 Taxes

You have your 2018 tax return filed, or perhaps on extension, and now it is time to look forward to the changes that will impact your 2019 return when you file it in 2020. Keeping up with the constantly changing tax laws can help you get the most benefit out of the laws and minimize your taxes. Many tax parameters, such as the standard deduction, contributions to retirement plans, and tax rates, are annually inflation adjusted, while some tax changes are delayed and take effect in future years. On top of all that, we have Congress considering the retroactive extension of some tax provisions that expired after 2017 as well as proposing new tax legislation. The inflation adjustments shown are not the only items adjusted for inflation. For a full list, see IRS Revenue Procedure 2018-57. At any rate, here are some changes that might affect your 2019 return:

1. Solar Credit – Although the solar credit remains at 30% for 2019, as a reminder, the credit rate will drop to 26% in 2020. This means that for each $1,000 spent on qualified solar property, the credit will be $40 less in 2020 than if the expense were paid and the credit was claimed in 2019. However, this is a non-refundable credit, meaning it can only offset your tax liability, but the unused credit can carry over to a future tax year as long as the credit is allowed; it is currently scheduled to end after 2021. So, be cautious of overzealous salespeople trying to talk you into an expenditure for which you may not get the full credit.

2. Plug-In Electric Vehicle Credit – Although the credit amounts have not changed, the credit begins to phase-out for each manufacturer after it produces its 200,000th qualifying vehicle. For example, the very popular Tesla vehicle did qualify for the full credit in 2018. However, Tesla has entered the phase-out stage, and for 2019, the credit is only $3,750 for purchases in the first 6 months of the year, then drops to $1,875 for vehicles bought through the rest of 2019, and is zero for post-2019 purchases. If you are contemplating buying a plug-in electric vehicle, check the IRS website for the current credit by manufacturer.

3. Penalty for Not Being Insured –The Affordable Care Act required individuals to have health insurance and imposed a “shared responsibility payment” – really a penalty – for those who didn’t comply. The penalty could have been as much as $2,085 for most families. That penalty will no longer apply in 2019 or the foreseeable future.

4. Medical Deductions Further Restricted – Unreimbursed medical expenses are allowed as an itemized deduction to the extent they exceed a percentage of a taxpayer’s adjusted gross income (AGI). As part the Affordable Care Act, Congress increased that percentage from 7.5% to 10%. That increase was temporarily rescinded in the most recent tax form. However, starting with the 2019 returns and for the foreseeable years, the AGI medical floor will be 10% of AGI. This is where the “bunching” strategy may benefit your ability to deduct medical expenses. This means paying as much of your medical expenses as possible in a single year so that the total will exceed the AGI floor and your overall itemized deductions will exceed the standard deduction.

Example: Your child is having orthodontic work done, which will cost a total of $12,000, and the dentist offers a payment plan. If you pay in installments, you will spread the payments out over several years and may not exceed the medical AGI floor in any given year. However, by paying all at once, you will exceed the floor and get a medical deduction.

5. New Alimony Rules – For divorces and separation agreements entered into after 2018, the alimony paid is not deductible, and the alimony received is not taxable. In addition, the alimony recipient can no longer make an IRA contribution based on the alimony received. It is important to understand that this treatment of alimony only applies to alimony payments paid under agreements entered into after 2018 or under prior agreements modified after 2018 that include this new provision. For agreements entered into before 2019 that haven’t been modified, the old rules continue to apply: the alimony paid is deductible, and the alimony received is included in income. Also, an IRA deduction can be made based upon the taxable alimony received.

6. Standard Deduction – The standard deduction, which is inflation adjusted annually, is used by taxpayers who do not have enough deductions to itemize. For 2019, the standard deductions have increased as follows:

• Single: $12,200 (up from $12,000 in 2018) • Married filing jointly: $24,400 (up from $24,000 in 2018)

• Married filing separately: $12,200 (up from $12,000 in 2018)

• Head of household: $18,350 (up from $18,000 in 2018) Individuals who are blind and/or age 65 or over are allowed standard deduction addons. These add-ons are for the taxpayer and spouse but not for dependents. The add-on amounts are $1,300 for those filing jointly (unchanged from 2018) and $1,650 for all others (up from $1,600 in 2018).

7. Increased Retirement Contributions – All IRA and retirement contributions are subject to inflation adjustment, meaning the allowable amounts may be increased each year. This gives you the opportunity to increase your retirement savings in 2019.

• Simplified Employee Pension (SEP) Plans – The maximum amount for 2019 is $56,000 (up from $55,000 in 2018).

• Individual Retirement Accounts (IRAs) –For both traditional and Roth IRAs, the maximum contribution has been increased to $6,000 (up from $5,500 in 2018). This is the first change to IRAs since 2013. The additional amount taxpayers age 50 and over can contribute remains unchanged at $1,000.

• 401(k) Plans – The maximum employee contribution has been increased to $19,000 (up from $18,500 last year). The additional amount for taxpayers who’ve reached age 50 remains unchanged at $6,000. • Simple Plans – The maximum elective contribution is $13,000 (up from $12,500 in 2018). The additional amount for taxpayers age 50 and older remains unchanged at $3,000.

• Health Savings Accounts (HSAs) – Although meant to be a way for individuals covered by a high-deductible health plan to save money for future medical expenses, these plans can also be used as a supplemental retirement plan. Contributions are deductible, earnings accumulate tax-free, and if distributions are used for qualified medical expenses, they are tax-free. However, when used as a supplemental retirement plan, the distributions would be taxable. The following are the contribution limits for 2019:

o Self-only coverage: $3,500 (up from $3,450 last year)

o Family coverage: $7,000 (up from $6,900)

8. Federal Tax Brackets – The tax brackets were inflation adjusted (by approximately 2% over the 2018 brackets), meaning more of your income is taxed at a lower bracket in 2019 than it was in 2018. As an example, here are the brackets for 2019 for taxpayers using the single filing status:

• 10%: $9,700 or less

• 12%: More than $9,700 but not more than $39,475

• 22%: More than $39,475 but not more than $84,200

• 24%: More than $84,200 but not more than $160,725

• 32%: More than $160,725 but not more than $204,100

• 35%: More than $204,100 but not more than $510,300

• 37%: Applies to taxable incomes of more than $510,300

These are the brackets for married taxpayers filing jointly:

• 10%: $19,400 or less

• 12%: More than $19,400 but not more than $78,950

• 22%: More than $78,950 but not more than $168,400

• 24%: More than $168,400 but not more than $321,450

• 32%: More than $321,450 but not more than $408,200

• 35%: More than $408,200 but not more than $612,350

• 37%: Applies to taxable incomes of more than $612,350

For other filing statuses, see Revenue Procedure 2018-57.

Note: These are step functions, so for example, the first $9,700 of taxable income is taxed at 10%, the next $29,775 ($39,475 − $9,700) is taxed at 12%, and so forth.

For further information or to request a 2019 tax planning appointment, please give us a call.

How Does Combining a Vacation with a Foreign Business Trip Affect the Tax Deduction for Travel Expenses of a Self-Employed Individual?

Article Highlights:

• Primarily Business
• Primarily Vacation
• Special Circumstances
• Foreign Conventions, Seminars and Meetings
• Cruise Ships
• Spousal Travel Expenses

Note: effective for years 2018 through 2025, the Tax Cuts and Jobs Act of 2017 suspended the deduction of miscellaneous itemized expenses that must be reduced by 2% of the taxpayer’s adjusted gross income. Employee business expenses, including travel expenses, fall into this category. Therefore, this discussion only applies to self-employed individuals for years 2018-2025.

When a self-employed individual makes a business trip outside of the U.S. and the trip is 100% devoted to business, all of the ordinary and necessary business travel expenses are deductible, just as if the business trip were within the U.S. On the other hand, if the trip also incorporates a vacation, special rules determine the deductibility of the travel expenses to and from the destination; when the other business travel expenses, such as lodging, meals, local travel and incidentals, can be deducted; and when they must be allocated. So, whether you are just visiting one of our neighboring countries or traveling to Europe or even more exotic locales, here are some travel tax pointers:

Primarily Vacation – If the travel is primarily for vacation and only a few hours are spent attending professional seminars or meeting with foreign business colleagues, none of the expenses incurred in traveling to and from the general business location are deductible. Other travel expenses must be allocated on a day-by-day basis, and only the business portion is deductible.

Primarily Business – If the trip is primarily for business and meets one of the conditions listed below, the expenses incurred in traveling to and from the business destination are deductible in full (same as for travel within the U.S.).

• The travel outside the U.S. is for a period of one week or less (seven consecutive days, excluding the departure day but including the day of return). In addition, all other ordinary and necessary travel expenses are fully deductible.
• Less than 25% of the total time outside the U.S. is spent on non-business activities. In addition, all other ordinary and necessary travel expenses are fully deductible. (If 25% of more of the total time is spent on non-business activities, a day-by-day allocation of all travel expenses between personal and business activities is necessary and only the business portion is deductible.)
• The individual incurring the travel expenses can establish that a personal vacation or holiday was not a major consideration. In addition, all other ordinary and necessary travel expenses are fully deductible.
• The taxpayer did not have “substantial control” over arranging the trip. (For self-employed taxpayers, who would generally have substantial control over the trip arrangements, this provision likely won’t apply.) In addition, all other ordinary and necessary travel expenses are fully deductible.

When determining what constitutes business and non-business time, business days include: days en route to or from the business destination by a reasonably direct route without interruption; days when actual business is transacted; weekends or standby days that fall between business days; and days when business was to have been transacted but was canceled due to unforeseen circumstances.

Nonbusiness days are days spent on nonbusiness activities as well as weekends, holidays and other standby days that fall at the end of the business activity, if the taxpayer remains at the business destination for personal reasons.

Foreign Conventions, Seminars or Meetings – Tax law does not permit a deduction for travel expenses to attend a convention, seminar or similar meeting held outside of the North American area unless the taxpayer establishes that:

• The meeting is directly related to the active conduct of the taxpayer’s trade or business, and
• It is “as reasonable” for the meeting to be held outside of the North American area as it is within the North American area.

The IRS defines “North American area” quite broadly and includes not just the U.S., Canada and Mexico, as you would expect, but also Bermuda, several countries in the Caribbean basin, U.S. possessions such as American Samoa and other Pacific island nations, and some Central American countries as well.

Cruise Ship Conventions – In order for a taxpayer to deduct the cost of attending a convention related to his or her trade or business on a cruise ship, the ship must be a U.S. flagship, and all the ports of call must be within the U.S. or its possessions. In addition, the maximum deduction is limited to $2,000 per attendee. Substantiation requirements include certain signed statements by both the taxpayer and an officer of the convention sponsor.

Spousal* Travel Expenses – Generally, deductions are denied for travel expenses for a spouse, dependent or employee of the taxpayer on a business trip unless:

1. The spouse is an employee of the taxpayer, and
2. The travel of the spouse, etc., is for a bona fide business purpose, and
3. The expenses would otherwise be a deductible business travel expense for the spouse.

*These rules also apply to a dependent or employee of the taxpayer.

Since a spouse, dependent or other individual who is an employee will be denied a deduction for business travel expenses in years 2018 through 2025, condition #3 can’t be met. This means that “spousal” travel expenses won’t be deductible for years 2018 through 2025.

However, the law allows a deduction for the single rate for lodging on qualified business trips, and frequently, there is no rate difference between one and two occupants. Thus, virtually the entire lodging expense for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the business-related transportation would be deductible. This would generally also apply to taxis at the destination.

As you can see, determining the tax deduction for a foreign business trip of a self-employed individual that is combined with a vacation can be complicated. If you need additional tax guidance or help planning such a trip, please give this office a call.

Student Loans–YECH!

As a general rule, most debt isn’t helpful to you. In fact, I could probably state that more clearly: debt can be a massive load on your financial future.

And, of course, that is especially true of student loans.

Now, much can be written about the explosion of student loan debt over the last decade (and has), but today I wanted to throw out an idea to you, if you carry these kinds of loans. It’s perhaps a “dangerous” idea, but it is the kind of financial thinking that, when followed, can build habits of wise investment and careful risk-taking that often mark a wealthy, successful life.

But before I get there, a quick follow-up to my note from last week.

I wrote about optimizing our mental machine, and keeping clear of the dogmatic opinion-sharing so prevalent on social media and outlet media.

But I’m also reminded of that old Abraham Lincoln quote: The mind is like a parachute; it functions best when open.

(Yes, I know Lincoln didn’t actually say that.)

In their excellent book, Think Like a Freak, best-selling “Freakonomics” authors Steven Levitt and Stephen Dubner wrote about the rising phenomenon of dogmatism — and how it significantly hampers our ability to see solutions to problems very clearly.

In my opinion, there are many serious problems in our culture. Many people are being abused, repressed and victimized.

But shouting, lecturing, militarizing and browbeating won’t get us there. While social media can certainly play an important hand in bringing attention to, and opening dialogue on, some of these situations and issues, let’s be careful to maintain a tone with one another that is respectful and open to the validities in others’ thoughts.

In other words, let’s all pour a small bucket of ice water over our heads around some of our cultural hot topics — and be sure we’re listening first and speaking last, shall we? Myself included, for sure.

Now, let’s talk about student loans and investments…

Dennis Bridges’

“Real World” Personal Strategy Note

A “Dangerous” Financial Strategy That Isn’t So Dangerous

“Go confidently in the direction of your dreams. Live the life you have imagined.” – Henry David Thoreau

The media is certainly good for this: bringing awareness to the rising, crushing wave of student debt. In fact, the average student in the Class of 2016 has $37,172 in student loan debt. And while this is a big number, it doesn’t have to cripple your financial future.

In fact, some students may be better off not taking their parents’ advice on how to get out of debt. Because unlike many other forms of debt, student loans are usually best when paid as slowly as possible.

Yes, as I said previously, almost all debt is bad. But, there are two areas in which this general rule is not as hard-and-fast: home mortgages and student loans. Wise financial stewards can, in fact, use these types of debt to their advantage.

Graduated students are often told that they need to discharge their student loan debts as early as possible so that they can start building real wealth. Make extra payments, and the process accelerates. So, is that always the best strategy?

Well, it depends. You see, if you’re careful, you can take advantage of a financial principle that can help you make later financial decisions: “the spread”.

You see, the lower the rate of interest on your loan and the higher the average market return (as now, when the market is, in fact providing excellent returns), the more it makes sense to invest your extra dollars instead of paying down on your loan. The difference between a debt and investment rate is known as the “spread.” for example, if market rate of return is 11% and the interest on your student loan is 4%, then, the “spread” is 7% (11% minus 4%).

Let’s look at this in the real world. Madison and Tim each have $20,000 in student loans which are to be paid over 10 years at 4% interest. Tim pays his monthly payments of $202 plus an extra payment of $100 extra so he can clear that debt ASAP. Which, because he makes those extra payments, he’s out of debt in six years, instead of ten. No more debt now, and Tim actually invests the full $302 per month that he had been putting towards his debt. Ten years after graduating, Tim has paid off his school debt and his investments have grown to $16,728.

Madison does it differently. Instead of paying extra on her loans, Madison pays only the minimum amount of $202. And now, she ALSO puts $100 per month (that she could have used to make extra payments) and she wisely invests it. She does this for ten years. But, when you look at the math, her investments have grown to $21,700, beating Tim’s return by $4,972.

I’ve written before about “the time value of money”, and this is a sterling example. That’s because, in Madison’s case, instead of making extra payments as Tim did, she invested her money for a longer period of time.Tim’s four years of investment (even with a larger sum), can’t beat Madison’s TEN years of (smaller) investments, because she harnessed the power of compounding interest.

Oh, and there is one additional reason students might consider this: Student loan interest, like home mortgage interest, is still tax deductible (which of course, you KNOW I love). Even under the new tax law, there is a tax deduction of up to $2,500 for student loan interest (as long as you meet some basic requirements). The tax code is, in effect, helping to subsidize the cost of your loan. The faster you pay down principle, the faster you lose your tax deduction, which is one more reason that paying just the minimum may be the best option for some. And, with the savings from your tax deduction, you have more money to invest at higher rates of return.

So, yes, this is a “dangerous” strategy. And you should look at the numbers for YOUR situation. The smaller the spread between your loan interest rate and the average market return, the less appealing this strategy becomes.

Plus, there are other important cases to be made, of course, for working to be debt-free as quickly as possible, especially from a mental standpoint.

Here’s the critical component of this strategy: you must save and invest your money. If you don’t invest the extra money (and you simply spend it), you would have obviously been better off putting your extra dollars toward the repayment of your loan.

So, consider this carefully. Research your loans, your rates. Make sure you have an emergency fund, don’t get saddled by credit card debt, and make sure you are handling other financial basics.

But remember: one of the greatest strategies to building wealth is TIME. Start investing as early as possible, do it smart … and don’t get scared by “conventional wisdom”.

We Love Sharing Good News: A Happy Tax Story

Here at eTruckerTax, we love cutting income taxes for
you, just so you can keep a LOT more of your hard-earned
money.

And we also love helping individuals and businesses
that have run afoul of the IRS, for whatever reason. We
make no judgement of anyone that requests our help,
because, well, nobody is perfect.

Very often people end up in trouble though no fault of
their own. And occasionally, we get referred a case where
someone purposely caused trouble for a taxpayer.

We mentioned this case recently, and we are
proud as a peacock to tell you the result.

First, the details:

Our client is an owner/operator. He had an
ex-girlfriend, to whom he was paying child
support.

She got greedy and took him back to court for
additional child support. However, when we prepared his
current 4 years of tax returns, a different picture
emerged.

They would have resulted in a decrease in child support
if she followed through.

His ex-girlfriend went into a rage.

To get even with our client, she set fire to
the shed at his home that contained all of his tax
records.

That was bad enough. But, then she did the
unthinkable.

She made a fraudulent whistle-blower call to
the IRS, telling them that he had substantially understated
his income for 2013 through 2016. And that he had no
documentation whatsoever.

He contacted us and shared this disgusting chain of
events. When he forwarded the audit letter to us from the
IRS, it was obvious to me that this was a
whistle-blower audit.

They wanted documentation for
everything!

After disallowing all his business expenses for
all four years, they had him owing $161,000.

He had precious few records that we were able to get
from third party sources. Nonetheless, we appealed their proposed
assessment, which required the most creative,
outside-the-box effort that we have ever made in appealing
an audit assessment.

This was truly a team effort.

We were hoping for at least a modest reduction in the
fat tax bill they had saddled him with, from his ex’s
horrific actions.

When we received the reduction notice from IRS, we were
almost afraid to open it, knowing that it was very possible
they made no reduction at all.

We couldn’t believe our eyes:

They cut his IRS bill down to $66,000! A huge
cut of more than $95,000!

There were tears of joy around our office. Okay, I
admit, I got choked up too.

When Sierra reached our client to give him the
amazing news, it was as if the weight of the world has been
lifted from his shoulder!

And there’s even more good news — we can
now appeal for an even further reduction!

We are seriously hoping to get the ultimate settlement
down to maybe $24,000 or even less. And this final amount
he can actually pay over several years.

Our entire team is basking in the joy and
satisfaction of restoring one person’s hope. And
transforming his life.

It’s at times like these that we
know we’re where we’re meant to be…

Restoring people’s lives, their finances and
most of all, their hope.

Who do you know that’s hanging on by the barest of
threads?

Chances are, you know someone that’s trying to feel
their way through a broken relationship, a substance issue
or even cancer, or a severe financial hardship.

If we can help one of your friends with a
severe (or minor) IRS problem, or just offer a word of hope
and encouragement, we’d love to help!

Dennis Bridges Shares On Family Life on a Single Income

Last week I wrote about preparing for financial chaos, and gave you some step-by-steps for what your priorities should be right now.

Got a bunch of wonderful feedback, so THANK YOU for taking the time to do that. I see every email that comes my way, and I love getting responses to what I put out there for you.

So, I’m continuing along with the theme then, and while this doesn’t, perhaps, pertain *directly* to financial preparation, it’s a circumstance that some families are forced into, others choose, and still others take it up for other financial reasons.

I’m referring to sustaining your family on one income. And whether or not this is on the horizon for you, it’s worth considering in advance because sometimes, well, things aren’t always as stable.

Including the tax code. There are changes coming in the tax code that (depending on what Congress decides upon) could mean significant tax increases for some families.

And aside from the tax situation, and as I think we can all agree, these next few months and years will be extremely “interesting” … and it’s all the more reason why it’s so good that you have someone like me in your corner. Because those who don’t have someone who can plan ahead on their behalf are going to be facing some significant changes on the tax horizon, whether they like it or not.

So … whether you are planning ahead, perhaps dealing with unemployment, or are looking at one spouse staying home for other reasons (like children!), here is a great way to think about living on a single income…

Dennis Bridges Shares On Family Life on a Single Income
“We have to dare to be ourselves, however frightening or strange that self may prove to be.” – May Sarton

I’ve recommended before that couples who are ultimately planning on one person staying home with children, start running their finances and their budget that way from the beginning. That’s simply the best way to be prepared for what is to come.

I’ve also pointed out that one of the best times to save is before having children. But with marriage happening later and later in our culture (and the transition into parenthood for those marriages therefore happening perhaps a bit more quickly than it otherwise might), this important savings period has been crunched. So here’s some quick advice for those who are single: realize that you are saving now for your future family’s financial life.

That aside, here is some advice for those who are starting down this road toward a single income for their family, or even for those who already find themselves walking it out…

Try It Out In Advance
I recommend that couples contemplating a stay-at-home arrangement first take a period of living as if they had only one income for at least three months before one of them quits a full-time job. They may find that even though their expenses will be cut for needs such as day care, transportation and clothing, they may find it hard to continue to dine out frequently or splurge in other ways. If that’s you, it’s a good idea to bolster an emergency fund to cover unexpected things that come up, such as household repairs.

It’s even better if this “trial run” can begin at the start of a marriage, which should allow for a fantastic period of saving before having children.

More Life Insurance
Couples should buy life insurance on both partners, not just on the working spouse. If the stay-at-home parent dies, the surviving spouse can use the benefits to pay for outside child care, live-in nannies, housekeepers and other functions that had formerly been handled by the stay-at-home parent.

I see clients using this advice, and then dropping the insurance as their youngest was heading to college — and that’s smart.

Home-Based Tax Deductions Used Correctly
If the stay-at-home parent or both parents operate a home-based business, both should be listed on IRS Schedule C and all related business documents when they file taxes.

I’ve reviewed past returns (which we do for free, for non-clients — our clients, of course, already being well taken care of!) where only the information of the spouse who actually filed the taxes was submitted, in effect denying the other spouse from accumulating Social Security benefits.

Finally, what is most important: YOU. 
Stay-at-home parents should make sure they are well on their way to funding their own retirement before paying for a child’s college education. The best thing you can do for your kids is to take care of yourself first. If your children have to take out student loans, despite all the bad publicity, they do have 40 years to pay those loans back — and at favorable interest rates, at that.

Again, I welcome your thoughts …

Warmly (and until next week),

Dennis Bridges
(770) 984-8008
E. Dennis Bridges, CPA

Four Good Reasons To Give, No Matter The Tax Deduction

“When in doubt as to what you should do, err on the side of giving.” – Tony Cleaver 

As often is the case, when I tell someone my profession this around time of the year, I get cornered for tax tips and advice.

Here’s what I WOULD respectfully suggest to the Scrooge of Giving: four good reasons why you should strongly consider giving money to your favorite charity, right now — regardless of the tax deduction or even the impact the money will create…

1. Your heart changes.
Studies show that when individuals spend money on gifts for friends or charitable organizations, their happiness increases — while those who spend on themselves get no such boost. Even Scrooge can agree that everyone wins.

2. You’re likely to just blow it on something dumb anyway.
As pious as you are, there’s still extra money in your budget somewhere. Create a budget for charitable donations, then take some of your extra money (each month or each year) and donate it to your favorite cause. Use your spending money to make a difference instead of spending it on Brookstone junk you’ll use just once. And if you think you don’t have enough, take that extra 2% you’ll be earning next year and put that toward a charity fund. For someone making $100,000, that’s $2,000.00!

3. Face it: If you don’t help now, you never will.
Don’t pretend that instead of giving money, you’re going to donate time. When was the last time you volunteered at a soup kitchen? Don’t let your mind fall for this trick. Send the money now or you’ll end up giving nothing.

4. Be a leader, not a follower.
This is the biggie, in my opinion, and perhaps the most important. There’s something intangible that happens in your psyche when you cut a big (or relatively big) check to someone in need, or to a charity organization. You feel more powerful — more dynamic. You signal to your own soul: “Money doesn’t rule me. I have more than enough, so much more than enough that I’m giving it away.” Then, of course, something special often happens: more money seems to find itself in your hands.

I’m not advocating a mystical pay-it-forward scheme or weird “prosperity-style” theology; I’m simply making the observation over years of being a student of how money works. And, perhaps ironically, it just seems to find itself in the hands of those who give it away.

Resisting Financial Automation

What if we thought differently about autopay?

What if we were to take a moment to consider the consequences of so much convenience, not just with scary robots intersecting our daily lives, but for the sake of what it might be doing to our pocketbooks?

Small business owners and those with more complicated incomes know what it is to write checks for quarterly taxes, and, I believe, they tend to have a deeper sense for what they are paying, as a result.

In fact, I think our country would be a different place if everyone had to write a personal check and send in their taxes like this. If people really saw what they pay (or don’t pay) I think they would feel differently about their tax burden.

This is a common refrain among certain political observers — but it has me thinking about what it might mean for YOUR family, Dennis  …

In fact, this is part of the genius of financial guru Dave Ramsey’s “envelope system” for family budgeting (whereby you place cash into specified envelopes, and pay only as much cash as remains in the envelope for different budget categories). “Automating away” our obligations can lull us into financial slumber.

Which is why I now propose that you REMOVE automation from certain checks that you write each month. (Again, this is aside from automated savings, as I’ve previously discussed.)

Now, allow me to interject a word of caution: The only danger to this approach is that you run the risk of focusing too much on scrimping pennies. I certainly advocate wise budgeting, but it’s important to remember that thinking overmuch about saving money can constrict your mind away from important “risks”, which can often be worth taking — like starting that business, making a new investment, etc. Don’t let this technique keep you from expanding your financial mindset.

So, here are a few suggestions for what you might DE-automate, for the sake of personal clarity:

1) Just once, receive your paycheck in cash (instead of ACH’d), or cash the full amount when you receive it. Because, have you ever HELD one paycheck’s worth of money before?  It’s really hard to fully comprehend how much you’re bringing in until you physically feel those stacks of $20s in your hand. I can guarantee you it’s a lot harder to spend it when you’re seeing it in person rather than online.  And it hurts frittering it away more, too.

2) Pay your mortgage manually. Feel the burn of this large check, every time you write it. It will trickle into how you think about the other bills which you pay such that even if this is the only bill you take off of “auto-pay”, you’ll be wiser with your remaining funds each month.

3) Only purchase vehicles for cash. If you had to pay outright, wouldn’t you end up with a cheaper car? Probably. Just because many are used to setting up loans and payments for vehicles, does NOT mean it’s wise — in fact, this is one of the primary markers for the “quiet millionaires” (those who are getting ahead financially, even on relatively smaller salaries). Yes, your pride might suffer when you’re not rolling around in a 2018 Audi … but considering the real cost of that vehicular pride-booster does wonders for calming your egoistic tendencies.

In short, paying in cash (or with a manual check) helps you to consider the following questions:

* Is this ____ still WORTH it?

* Is there a way I can cut it down a bit?

* What’s the best way to pay for it right now? (c/c, check, cash?)

Again, some of this could literally take seconds, but the point of it all is that you STOP to think about it. With automation, you don’t get the “ping” every month because it’s already doing the thinking for you.

You’ll learn a LOT more about the financial “you” this way than you would otherwise, I’m certain.

It’s really about paying closer attention.

And we could all use more of that in our lives.

What to Do When You’re A Saver and Your Spouse is a Spender (or Vice Versa)

Hi everyone, Sierra here! (I know, where is Dennis? He let me take over this one because he loses his mind for a few months after tax season)

Dennis and I have had numerous talks about how much of a saver I am while my wonderful husband, Landon, is on the complete opposite end of the spectrum. It’s funny because Dennis and his wife, Robin, are pretty much the same as us in this regard (sometimes I think Landon and Dennis are two peas in a pod with how similar they are, which is definitely not a bad thing!)

We get asked a lot (especially by our parents) what we do to handle the different way we view finances. I’ll be honest…IT’S HARD! As much as we have in common, this is not one of them. If it were up to me, every bit of spare money would be put into the savings account, and he would take that as an opportunity to buy a new video game. So, we have to work together to make sure there is balance, and these are a few ways we do:

**Have A Game Plan**

I like having a plan for everything possible, and Landon usually goes along with those plans. That’s how we operate. We allocate a certain amount to savings each month that is automatically taken from our checking account and transferred to our savings account (you know Dennis preaches the importance of this!). We also decide if we want to add anything further to our savings. We have to talk about finances together (everything about what comes in to what goes out). If you’re in the same situation, communication is more important than anything!

**Have a Budget/Be Aware of Monthly Bills**

Landon and I have a list and a shared Google calendar that lists all of our bills and when they are due. Both of our phones buzz with a reminder every time a bill is due, and we have most of them set up on auto-draft (pro tip: sometimes phone companies or other services will knock off a few bucks off of your bill every month if you sign up for auto-draft every month). We know we have to budget for those items and we also take into account groceries, household items (we have kitties to support here!), and we also try to account for any miscellaneous things that might pop up throughout the month (like if school requires me to get another book or if we need new work clothes). It’s important to us to have an idea of how much money we have left over every month, especially if we are allocating some as “fun money”. Priorities come first (that means any debt you have too)!

**Set Aside Some Fun Money for Your Spender**

Allowances. No, I’m not saying you should treat your spouse like a child, but coming to an understanding is important. It’s like a diet. If you totally take limit yourself, you’re going to miss that chocolate cake and find yourself standing in front of the fridge at midnight stuffing your face. You have to set aside a little money for fun things. They don’t have to be extravagant, and you don’t have to blow hundreds of dollars to have a good time either. Our idea of fun is a trip to the comic book store sometimes (I know, Nerd Alert!). So, we set aside a certain amount of money each month for our hobbies, activities we do together, etc. This is much easier for Landon than it is for me. I get the urge to just send that money to our savings account. This is where the balance comes in. He knows I need to do things for myself sometimes, and I know when he needs to reign things in sometimes.

**Don’t be Afraid to Take More of the Lead**

Over the almost six years we have been together, Landon has realized that sometimes it’s better if I take over our finances a little more than him (you can tell I married him for his intelligence). He knows he isn’t always the most responsible for money, so any major transfers or bill money allocation is on me…and that works for us! Currently, only I have access to our savings account and our credit cards, and Landon is totally on board with that. Compulsive spending is a trait he and most of his family share, so he understands that we have to have “protections” in place. I know what you’re thinking, “Shouldn’t he have enough self-control to not go overboard?” One day, I know we’ll get there, but right now we have agreed that this works for us. It doesn’t mean I don’t trust him, this is just a work in progress. Sometimes when you combine finances with a spender, you have to do what’s going to make the relationship successful and able to flourish.

Note that these tips work for us, but the best way to figure out how to reach a good financial place with your spouse is to TALK ABOUT IT! Don’t learn that the hard way, and don’t let money problems dominate your relationship.

Alright, I know you miss the boss man and his silly self, so I’m signing off!

Sierra

Making Money Work In a Marriage

Many young couples start out married life without a clear idea of how to handle their finances — leading to stress, arguments, and long-term marital problems.

And correspondingly, there are some couples for whom finances have become a painful wedge. So, though I don’t fashion myself to be a “marriage expert”, I have seen many financial partnerships work well … and more than I’d like, of those that didn’t.

Here are some ideas for you, as well as a little gift idea at the end.

Don’t avoid the hard stuff.
Whether you are in a pre-marriage stage, or are already working through your partnership, it’s crucially important to learn the skill of conversation about finances. There can be so much mental anguish over shame, fear, and past pain that unhealthy communication patterns begin to emerge.

So give yourselves the gift of honesty, and make a list of hard topics that you can tackle over time.

As an example, many couples are afraid to talk about the three D’s: debt, death, and disability. Take time to discuss these fears instead of avoiding them. Planning will help you both feel better.

Talk through your different money backgrounds.
How we were raised has an enormous effect on how we deal with money. Depending on what your home was like as a child, you likely heard many different attitudes expressed around the dinner table, and they have doubtless shaped your financial paradigm as an adult. Whether from poverty, or from abundance, your background is extremely powerful.

So, if your money attitude differs from your spouse’s, talk about how you were raised and work toward a compromise where you can strengthen each other’s weaknesses.

Put yourself in each other’s shoes.
If one of you usually pays all the bills, switch for a couple of months. You or your partner may get a crash course on how much running the household actually costs. Keep track of all spending for at least one billing cycle (usually one month) to actually see where your money is going, and decide which expenditures can be decreased or eliminated. You might even find opportunities to give.

Maintain (small) independence.
A joint checking account is useful, but maintain some kind of separate amount of money as a “slush fund” of sorts, whereby you can each make purchases without mutual consent. Keep these amounts small (you always want partnership in the big amounts), but a sense of independence (however symbolic) will help both of you feel you have equal footing in the relationship, even if you have a big difference in salaries.

Work together to build something financial.
Find a way to work together on a small, money-related project, whether playing the stock market or saving towards some small goal. Pick something that doesn’t carry emotional weight, and see it as an exercise. You’ll find that working together in a small way will help you in a BIG way, as your decisions become more significant.

Agree together that you won’t lose on your taxes.
Obviously, this is what we are here for, and perhaps one of the best gifts you can give yourselves is a workable plan as it relates to a tax strategy.

Tax Tips for First Time Return Filers

Maybe you’re a student or you made enough money at that summer job to file a tax return, and you’re totally lost! Here are a few tips to keep in mind and get started.

First of all, make sure you even need to file! You can go to the IRS website and take a quick survey to determine if you’re eligible to file:  https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

Keep your documents organized! This is especially important for any of you that did any freelance work or had any self-employment income (which will be reflected on Form 1099). Make sure you save those documents and make copies of any forms, important receipts, etc.

Check with your parents to see if they are claiming you as a dependent! If they have been claiming you previously and you still qualify as a dependent for them, you will need to know that information when filing. You will need to indicate whether or not someone is claiming you as a dependent on their return when filing your own.

File early or at least give yourself enough time to file! The deadline to file is around the middle of April (this past year it was the 18th). Don’t wait until the last minute to file in case there is any confusion or if you need help. If it comes down to the wire, make sure you at least file an extension. This gives you an additional six months to file (but not to pay if you were to owe anything).

Do NOT fall for tax scams! Our very own Sierra’s brother-in-law had a roommate who fell for one of these scams. She had never filed her own return before (her parents always took care of it), and received a call from the “IRS” claiming that there was a warrant for her arrest due to unpaid taxes. They asked her for over $1000 in iTunes gift cards (by the way, the IRS 1) doesn’t initiate contact by phone unless perhaps the taxpayer has reached out by phone and 2) DO NOT EVER ask for payment with iTunes gift cards!!!!). She had no experience with dealing with her taxes, didn’t contact her parents, and went right up to the street to a Best Buy and bought the gift cards.

Don’t be afraid to ask for help! Whether it’s your parent or a professional, if you are confused AT ALL, ask for help before you make an error on your return.

Use your refund wisely! You might feel compelled to spend that refund on all the fun things, but maybe put that in a savings account, pre-pay a bill you have, or invest it! It is never too early to start being smart with your money.