The Equifax Data Breach & Why We Should Care

The Equifax Data Breach & Why We Should Care

I’m sure by now you’ve seen the headlines: Equifax had a data breach and a bunch of Americans’ personal information was stolen by hackers.  It’s easy to ignore incidents like these because they’re becoming more commonplace.

The incident with Equifax is a bigger deal, though.  Past incidents like Target and Yahoo have included important pieces of sensitive information, but never the whole picture.

The Equifax breach included names, Social Security numbers, birth dates, addresses, and some credit card numbers.  That’s enough information to take out a loan in your name, rack up credit card charges, claim your tax refund, or even withdraw money from your bank account.  And it happened to 143 million Americans.  That’s 44% of the population.

I’ve gotten a few questions about the Equifax breach this week, so I thought a blog post might help answer a few of them.  This post will cover what happened, why it’s important, what you should do now, and why you shouldn’t trust that they’ll “make things right”.

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Paying for College With Your 401k: Can You? Should You?

Paying for College With Your 401k: Can You? Should You?

Believe it or not, we’re already in “back to school” season.  And to continue our recent series of posts on paying for college, today’s covers a question I’m sure will resonate with many readers:

Should you raid your 401k to pay for your kids’ college?

There are a lot of moving parts to this question.  First, can you even get money out of your 401k to pay for college costs?  Are there early withdrawal penalties for doing so?  And aside from the logistics, is it even a good idea to?  This post will cover whether it’s possible…and whether you should.

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Using a Roth IRA for College Savings: What You Need to Know

Using a Roth IRA for College Savings: What You Need to Know

If you’re in a position to put some money away for your childrens’ future college costs, a 529 plan is typically the most popular home for your savings.  There are some tax advantages, you could get a deduction on your state’s income taxes, and heck, the accounts were created for college savings.  But the knock on 529 plans is that they can be inflexible.  Take money out for anything other than qualified educational expenses and you’re probably looking at a 10% penalty on the account’s earnings.

As an alternative, some people prefer to use a Roth IRA for college savings instead.  You get great tax benefits, and many people don’t realize that you can withdraw funds before retirement age penalty free if they’re used for qualified educational expenses.  So given the limitations of 529 plans, are Roth IRAs really a superior vehicle for college savings?

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College Tuition Tax Credit: A Consolation Prize to Big Tuition Bills

College Tuition Tax Credit: A Consolation Prize to Big Tuition Bills

If you’re a parent, I’m guessing that at some point you’ve freaked out thought about the cost of your child’s future college tuition.  College costs are rising about 7% per year here in the U.S., and don’t look to be slowing down any time soon.  Most conventional advice we hear about ways to afford college costs has to do with starting to save early, or scouring the earth for potential scholarships.  What many of us forget is that we already have saving opportunities build into our tax code, in the form of a college tuition tax credit.

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How to Use Strategic Asset Allocation to Reduce Your Tax Bill

How to Use Strategic Asset Location to Reduce Your Tax Bill

I’m a believer that the biggest factor contributing to the returns in your portfolio is asset allocation.  The amount of your portfolio you choose to invest in stocks, bonds, real estate, or anything else will ultimately have the biggest effect on how your portfolio does over the long run.

In other words, the decision of whether to buy Lowe’s or Home Depot isn’t nearly as important than the decision to be in large cap stocks or international bonds.

If you’re being strategic about your saving, you’ll probably try to utilize tax advantaged accounts like IRAs, Roth IRAs, and 401(k)s as much as you can.  If you’re using them (like most people), after a while your total portfolio will probably be spread across several different types of these accounts.

Today’s post covers asset location.  Rather than replicate the exact same asset allocation in each of your individual accounts, placing your investments across them strategically can work to reduce your tax bill and enhance your after tax returns.

Since some asset classes are more likely to distribute taxable income & capital gains, parking them in the accounts you don’t pay tax on (like a Roth IRA), only seems logical.  When done thoughtfully, asset location can as much as 0.25%-0.75% per year to your portfolio’s returns.

Read on to learn how it works.

 

 
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Defined Benefits Pension Plan: Helping Business Owners Shelter Thousands from Income Tax

The Defined Benefits Pension Plan: Helping Business Owners Shelter Thousands from Income Tax

Taxes are frustrating to nearly every small business owner I speak with.  Most people agree that we should all pay our fair share.  But after working countless thousands of hours to build a viable business, it’s easy to feel like Uncle Sam’s reaching into our pockets too far.  That’s why I focus on helping my clients who own businesses make sure they’re not paying more in taxes than they need to.  One great tool we can use in this endeavor is a defined benefit retirement plan.  Whatever you want to call it, DB plan, defined benefits pension plan, etc., it can be a killer way to defer a huge portion of your income from taxation.

I realize you might cringe when you read the words “pension” or “defined benefit”.  The idea of promising employees a monthly check throughout their retirement may not foster warm and fuzzies.  But if you don’t have employees, or only have a few, a defined benefit plan can offer some pretty major tax advantages.

Read on to learn how you might take advantage of them.

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Grantor Retained Annuity Trust: An Easy Way for Business Owners to Reduce Wealth Transfer Taxes

Grantor Retained Annuity Trust: An Easy Way for Business Owners to Reduce Wealth Transfer Taxes

For business owners starting to think about the next generation, the phrases”estate tax” or “transfer tax” almost seem like curse words.  The bad news is that when you build an estate of a certain size, the IRS wants to get in your pockets regardless of what, when, or how you transfer your assets to beneficiaries.  The good news is that there are plenty of strategies available to help you minimize these taxes.  The grantor retained annuity trust is one of them, and will be the topic of today’s post.  We’ll cover what they are, why they’re beneficial, and how you might go about using one.

 

 

Gift Tax Review

Ok – before we dive into the details, let’s review what taxes typically apply when you gift an asset to someone else.

First off, you’re allowed to give away $14,000 per year, per person tax free.  If you’re married, you and your spouse are both allowed $14,000 per person per year, or $28,000 total.  So, if you and your spouse want to gift each of your kids $28,000 for their birthday every year, you could do so tax free.  (It’d be one heck of a birthday present, too).

You also have a lifetime gift exclusion.  This is the amount that you can give away, either while you’re alive or after you die, without incurring any federal estate or gift taxes.  Anything that exceeds the $14,000 annual limit (or doesn’t qualify) works against your lifetime exclusion.  The lifetime gift exclusion in 2017 is $5.49 million, which inches higher with inflation over time.  Here again you can combine your lifetime exclusion with your spouse, for a total of $10.98 million.

So let’s say that one year you and your spouse decide to gift your oldest child $128,000.  The first $28,000 would be covered under your annual allowance and excluded from tax.  The remaining $100,000 would work against your lifetime exclusion.  Neither you nor your child would owe tax on the gift, but you’d have worked your lifetime exclusion from $10.98 million down to $10.88 million.  If your future gifts (either while you’re alive or after death) exceed $10.88 million, they’ll be subject to the federal gift/estate tax:

Grantor Retained Annuity Trust: An Easy Way for Business Owners to Reduce Wealth Transfer Taxes

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Using a Section 105 Medical Reimbursement Plan to Reduce Your Tax Bill

Using a Section 105 Medical Reimbursement Plan to Reduce Your Tax Bill

“I paid out the ears in taxes this year.  How can I reduce my tax burden?”

This is a question I’m hearing a lot from business owners recently.  And while it may not sound flashy, the best way to reduce taxes is to incorporate some smart planning into your decision making.  More often than not, business owners simply don’t have the time to research and apply the opportunities offered in the tax code.

So to make your life a little easier, today’s post will cover an often unused tax saving opportunity: the Section 105 medical reimbursement plan.

 

 

An Overview of Section 105 Health Reimbursement Plans

A section 105 health reimbursement plan is a tax-efficient way to repay your employees for their health care costs.  Rather than purchasing group coverage that your qualifying employees can opt into, you allow them to find their own coverage and then reimburse them for qualified expenses.  This can include premiums, deductibles, or a wide variety of other out of pocket costs.  (Side note, there are section 105 plans that combine traditional group coverage with reimbursement for qualified out of pocket costs, but that’s a subject for a future post).

Whereas this would not have been a popular way to offer benefits a decade ago, it’s more palatable now that individual health insurance is widely available through the state and federal marketplaces.

The main benefits of section 105 plans are the tax advantages.  Most small businesses deduct the cost of health insurance premiums for their employees, and possibly for themselves.  But when it comes to their own out of pocket health care costs, business owners normally pay for them with taxable dollars.  These expenses can be deductible at the personal level, but only when they exceed 10% of your adjusted gross income.

With a Section 105 plan you can deduct your entire family’s medical expenses with without being subject to the 10% AGI floor.  Even better, it’s a deduction from income tax at the state and federal levels, AND a deduction from payroll taxes.  For some business owners this can be a savings of thousands of dollars per year.

The tax benefits don’t apply to all types of business entities, though.  S-Corps don’t get to deduct reimbursements through section 105 plans from state or federal income tax.  And if you own a sole prop, a partnership, or an LLC you aren’t considered an employee.  That means you can’t be reimbursed by a plan, and would need to employ your spouse in order to reap the benefits.

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Using Business Interruption Insurance to Protect Your Income

Using Business Interruption Insurance to Protect Your Income

Picture it now…

You own a thriving art supply store in your home town of New Orleans.  You’ve put years of your life and thousands of dollars into building the store into what it is now.  You make a nice living, and the business mostly runs itself at this point.

Then Hurricane Katrina comes to town.  The building you lease is ruined.  Your storefront and merchandise are ruined.  You have no cash flow to pay creditors, and are forced to close the store.

This is a pretty extreme example, but is exactly what happened to thousands of businesses in the wake of the disaster in 2005.  It’s also a risk that can be completely covered with business interruption insurance.

Virtually any disaster that is out of your control and risks your business’s profitability can be covered in a business interruption policy.  In other words, you can protect business profits and your personal income from a fire, flooding, earthquake, or other disaster.

This post will cover the ins and outs of business interruption insurance.  We’ll address what it does and doesn’t cover, when you should consider buying it, how much coverage you need, and how to purchase a policy.
 

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How to Tell Whether You Have Enough Money to Retire

How to Tell Whether You Have Enough Money to Retire

“I’m not sure I have enough saved up to retire.”

“How can I know for sure my savings will last after I stop working?”

“I”m concerned I’ll spend through my savings too fast and run out of money when I’m 80.”

These are a few common phrases I hear from people who are approaching retirement.  Many people I speak with in the their mid 50s and early 60s these days have saved diligently for years for their own retirement.  But now as they approach the transition from accumulating wealth to spending their savings, the question of whether they’ve saved enough becomes extremely important.

Plus, when you mix in longer life expectancies, rising health care costs, and expensive stock and bond markets, there’s a lot of uncertainty surrounding the issue.

So in today’s post, I’ll cover some of the leading ways you can determine whether you have enough saved up to stop working.  Without putting you and your family’s future at risk, that is.

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