The summer is a good time to take a break. Head to the beach. Take a few weeks off. All of that is good and healthy.
However, summer is also a great time to do some minimal tax planning. It won’t take a lot of time to do it and you can still enjoy your summer. Trust us, you can take a few substantial steps now that will help you later.
So, before you pack the cooler and swimsuits, let’s do a few things:
- Retirement planning: You can still make plans by allowing for employer contributions to be made until the extended due date of the return. One way to do it is by making the maximum allowable contribution to your retirement plan. This year, 401(k) and 403(b) have a $20,500 contribution limit. There is also a $6,500 contribution for taxpayers who reach age 50 by 12/31/22.
- Real Estate holdings: The DMV area has a hot real estate market. So §1031 can be used by rolling proceeds from a sale into the like-kind property within a timeframe. (It is specific and must be followed to the letter.)
- Capital gains: You may want to defer the tax liability with an Opportunity Zone investment. This is reinvesting capital gains in an Opportunity Zone within a 180-day window. Then defer the tax on the original gain until December 31, 2026. Opportunity Zone investments can be held for ten years as they will not be taxed by the IRS.
- Depreciation: Depreciation, for business owners, need not be determined when the asset (business property) is used. Bonus depreciation is already automatic. “Out of bonus” depreciation can be claimed for each asset class. Attach a statement to the timely-filed tax return and then depreciate the asset over its life.
- Required Minimum Distributions: Your brokerage can pay your RMD directly to the charity you designate. A qualified charitable distribution (QCD) is not recognized as income. It keeps your adjusted gross income lower, and it may even reduce Medicare premiums. You can still make the standard deduction but remember that you can only claim a total of $100,000 per tax year.
- Donor-advised funds: You are allowed to take a tax deduction in the year that cash or other assets are transferred to a DAF. They can be invested until you recommend the DAF distribute the funds to all of the charities you support. You are not taxed on interest, gains, and dividends generated by investments made by the DAF. It’s a great way to accomplish tax planning goals. You can also claim a deduction for the fair market value of the donated assets and not have to pay capital gains tax on the appreciation.
These are just a few of the ways you can plan for your 2022 tax returns and beyond. Be sure to consult the IRS, your tax advisor, or your accountant. ***
AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation.
We serve the Bethesda, Rockville, and Montgomery County, MD area.
*** For more information on tax preparation, visit the IRS website.
When is a good time to set financial goals? The time is now; in December, when one year is ending a new year is on the horizon. This is the best time to set a few financial goals for the New Year.
So, after the holidays, before you get caught up in work, school, and other busy parts of your life, you can meet with your financial advisor. They can review your current plan and make recommendations.
Before you meet with them, there are several things you can do to improve our financial outlook for 2022 and beyond:
- Set short-term goals: In planning for the coming year, it is best to look at the short-term. You will not accomplish your retirement goals in one year. Make goals that you can accomplish in a few months.
- Create an emergency fund: Hopefully, you will not have some type of emergency and need an emergency fund. An emergency can present itself in a multitude of unexpected ways; it may be medical, unemployment, or automobile related. Ideally, a good emergency fund has 3-6 months of money to pay the bills. This may seem impossible. However, you can start saving a small percentage of your paycheck by placing it into a bank account which you do not touch unless the emergency occurs. (Use this emergency fund calculator to figure out how much to save.) Over time, an emergency fund will accumulate and help you and your family if an emergency occurs.
- Retirement savings: Even though there is Social Security, you may still want to enroll in a retirement savings plan. If your employer supports a 401(3) (k), you should consider signing up for it. Your employer may pay matching funds toward it. If you are self-employed, see your financial advisor for information on the array of retirement accounts that you can enroll in.
- Pay off high-interest debt: Credit card debt and interest are a savings killer. Make it a goal to pay them off as soon as possible and cut up cards that are not needed. Begin with the debt that has the largest percentage of interest and whittle it down. Once you have erased your credit card debt, it will be surprised as to how much money you have available each month.
- Set a budget: This is the last point and, perhaps, the most difficult. Setting a family budget can be agonizing. It calls for discipline and restraint. So, to make it easier, create a spreadsheet with income and expenses. This budget will help you track your spending and saving. It is essential as you check off your goals and make progress.
Setting financial goals can be daunting. But with these financial planning suggestions. They can be accomplished with resolve and hard work. Start now and get on the road to financial freedom.
A.K. Burton has licensed and experienced financial advisors on staff. If you have questions concerning your financial goals, call us at (301) 365-1974 for a consultation. We serve the Bethesda, Rockville, and Montgomery County, MD area.
As we come to the end of 2021, as you are making plans for the Thanksgiving and Christmas holidays, you may want to take some time out and look at your retirement plans, too. No matter what your age, your career advancement, or where you live, it’s not too late to begin, or add to, your retirement plans.
In fact, this is a good time to assess your progress in planning and see if there are any gaps that need to be filled. So, here are several tips on how you can do retirement planning. You need to be informed. You need to know all the retirement options available to you. Discuss your available retirement planning options through your work. Do some quick web research. Consult your financial advisor and tax advisor.
Not enough? The following are possibilities for your retirement plan:
- Taxable brokerage account: These are accounts funded with after-tax dollars. There are no contribution limits. Just remember that capital gains and investment income are taxable.
- Tax-deferred accounts: These include the following: Traditional, SEP, & SIMPLE IRAs, 401(k)s, and 403(b)s. There are contribution limits depending on the plan. Also, depending on your tax bracket a tax deduction for the year that the contribution was made may be applicable (check with your tax advisor). Don’t forget about the required minimum distributions! The IRS requires withdrawals once you reach the age of 72 if your 70th birthday is July 1, 2019, or later. Roth IRAs do not require minimum distributions.
- Medicare: Medicare is a benefit for seniors 65 and older; however, it still has costs to it. Medicare doesn’t cover certain medical expenses like hearing aids, vision care, dental care, and long-term care. It also has large gaps in prescription coverage. In your retirement planning, you may want to budget supplemental medical insurance that goes beyond Medicare. Medicare Advantage and Medigap policies have premium costs and copays that supplement Medicare.
- Consider your cash reserves: Cash reserves help ride out stock market down cycles covering expenses while allowing time for investments to hopefully recover from the downturn.
- It is truly not too late: Don’t be discouraged! If you are 55 years or older without a retirement plan, it is not too late. Jump on the retirement planning bandwagon. It is possible to do!
The main point here is that even if you are older and retirement is on the horizon, you can still make smart and logical decisions for your retirement. Consult with your financial advisor and tax advisor to make the changes you need to before the New Year begins.
A.K. Burton, PC, can help you do your retirement planning. We have experienced staff who can prepare your retirement accounts. Call us at (301) 365-1974 for a consultation. We serve the Bethesda, Rockville, and Montgomery County, MD area.
This is the time of the year when most people are thinking of the holidays and what presents they may be buying for their friends and family. Few people are thinking about retirement planning and that is understandable. Amidst all the turkey, football and naps, you are tempted to take time off from all the work hubbub.
Yet, the Thanksgiving and Christmas holidays are the perfect times to begin retirement planning. The business year is ending. The tax year is ending. If there was a time to start a retirement investment portfolio, it’s now!
So, here a few retirement planning strategies your financial advisor may tell you:
- Charitable contributions: At this time of year, donations to non-profits are at a yearly high. People feel driven to donate to causes such as homeless shelters, food banks, disease research, and other charitable organizations. So, they can do a QCD or Qualified Charitable Distribution. It is complicated but basically works like this: People with IRAs subject to a required minimum distribution have not yet taken it for the year, they can then use the qualified charitable distribution (QCD) provision. Thus, they can make their contributions directly from their IRA. It is then counted toward the RMD and be excluded from income. Thus it creates a tax deduction in addition to the standard deduction. It applies only to IRAs, not to plans, and only IRA owners or beneficiaries who are at least 701/2 qualify. Donor-advised funds and private foundations are not eligible. No gifts can be accepted, either. This must be done by December 31, 2019.
- Roth IRA Conversions: Since 2018, conversions cannot be reversed. Now, they are permanent and the tax is due after funds are converted. Roth conversions qualify for this year if the funds are converted from the IRA or plan by year’s end. There are a lot of things to keep in mind here such as Social Security taxability, Medicare Part B/D premium increases, financial aid and other considerations. Please consult with your financial advisor on this strategy.
- Split inherited IRAs by December 31: If the owner of the IRA died last year and had a number of named beneficiaries, those beneficiaries can use their life expectancy for calculating required minimum distributions. The IRAs are split into separate shares before the year is over following the IRA owner’s death.
- Pay off debt: If you can pay more on your mortgage payments and pay it off early, you can then pay more money into your IRA. Pay off credit cards, car loans, and balloon loans.
- Plan where you will live when you retire: Every state is ranked on which is best or worst to retire in. You choose where you want to live and then calculate how much you will need to retire and begin investing now to do that. There are a number of websites such as www.moneywise.com which rank the states as to which is most retirement-friendly and how much income you need to make to live “comfortably.”
There are a number of other financial moves you can make before the end of the year. So, the best step to take? Consult your financial advisor. They can help you to make the smart moves NOW, before the holidays and the year-end.
Enjoy time with your family and friends. Those memories are priceless. But, retirement isn’t. So, call your financial advisor today and take those first or additional steps that will make your retirement better and smarter.
A.K. Burton, PC, has experienced financial advisors who can advise you on retirement planning, no matter what your occupation or age. Call us at (301) 365-1974 for a consultation. Our accounting firm serves the Bethesda, Rockville, and Montgomery County, Maryland areas.