We are getting very close to the end of the third quarter in 2016 and if your tax bill for 2016 is likely to be much higher (or lower) than it was in 2015, now is the best time to take a look and adjust your income tax withholdings or estimated tax payments. It is also a good time to look at ways to potentially reduce your taxes due for 2016 and potentially save thousands of dollars.
There are several things that can be done before the end of the year and only a scant few things that can be done after 12/31 to reduce your tax bill so now is the time to look at things like:
- Deferring your income if you are going to be in a lower tax bracket in 2017 (moving bonus payments from 2016 to 2017).
- Accelerating income if you are going to be a higher tax bracket in 2017 (offer clients an early pay discount).
- Accelerating deductions from 2017 to 2016 (pay your property tax bill due in 2017 in 2016 or make your fourth quarter State estimated tax payment in 2016).
- Deferring deductions from 2016 to 2017 (pay your property tax bill due in 2017 in 2017 or make your fourth quarter State estimated tax payment in 2017).
There are also credits available for things like installing solar panels on your house… if you are thinking about doing that, doing it now will lower your 2016 tax bill.
Contact me today if you would like to see what options are available to you and how to minimize your tax bill.
William A. Olson CPA, 734-377-3641
The 2016 election is in full swing… and one thing we all want to know is, how are the candidates proposing to change the tax rates? While Donald Trump proposes to collapse the tax brackets from 7 to 3, Hillary Clinton is proposing to add a 4% surtax on incomes greater than $5,000,000.
TRUMP Three tax brackets: 12%, 25%, and 33%.
CLINTON Five tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% plus a 4% surtax on Adjusted Gross Incomes over $5,000,000.
Both will still give favorable tax treatment to long term capital gains and qualified dividends. Taxpayers in all tax brackets and all levels of income will see a tax cut under Donald Trump’s proposal while the wealthiest Americans will pay more under Hillary Clinton’s proposal. This is pretty much what you would expect from each candidate. Of course, they need to get elected first and then get Congress to go along… which is always a long shot.
Want to know how each proposal would affect your taxes? Contact my office for a free consultation. 734-377-3641
In the never-ending quest to save more money, I have a few more ideas I would like to share…
- For small household repairs, use YouTube to teach yourself to do-it-yourself.
- Look for credit cards that offer cash-back rewards. Many cards now offer increased cash back bonuses for spending on certain categories or at certain stores. The Chase Freedom card, for example, offers 5% cash back on a rotating quarterly basis for gas purchases, purchases at Costco, or restaurants/travel.
- Take a mid week vacation instead of a long weekend… hotel rates during the middle of week are often lower than when your stay includes Saturday and/or Sunday.
- Comparison shop for gas… don’t just stop at the nearest station on the way home, use an app like Gas Buddy (available for iPhone and Android) to find the cheapest gas near you.
- Pay off as much of your outstanding credit card debt as possible to avoid costly interest charges.
I hope this helps you keep more of what you earn!
Most people spend a lot of time worrying about how much money that they make and less time worrying about how much money they spend… and a penny saved is not the same thing as a penny earned. Pennies earned are taxed, pennies saved are not. In fact, if you live in Michigan and you are in the 25% tax bracket, saving $1,000 is the same as making an additional $1,585 in salary/wage income.
So how do you save more money? Here are a few tips that have worked for me.
- Make a realistic budget to prioritize your spending. Monitor your progress against your budget to make sure you are on track. Modify your budget as necessary. See How to make a Personal Budget… and stick to it.
- Before you go to the grocery store, make a list and stick to it. And plan your meals around your grocery store’s weekly specials.
- Use cash or debit cards, not credit cards. Often a credit card can seem like a “bottomless pit” of money and will not let you know when you have overspent.
- Stay in instead of going out… invite friends and family over for game night or to watch a movie.
- Ditch the cable television and go with Netflix or Amazon Prime.
- Clean out your closets and donate old, unused items to charity to receive a fair market value tax deduction.
- Instead of buying books, go to the library.
- Wait 30 days before making any major purchase to help you decide if it is really worth it.
Saving money will increase your savings, reduce your stress level, and give you the feeling of accomplishment. If you need help preparing a realistic plan to save money, contact my office at 734-377-3641 for a free consultation.
Why should you even bother to make a budget? “Budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt.” (source www.mymoneycoach.ca)
However, not everybody has a budget because they don’t know where to begin… it can be a daunting task. To help you out, I’ve created a simple road map you can use to create an effective budget (effective = reasonable, achievable, and measurable):
- Determine your goal(s). It could be as simple as “save at least $5,000 per year toward retirement” or “eliminate your credit card debt in two years”. You want your goal(s) to specific and measurable so that you know when you get there. Your goal(s) should have a dollar amount and a time frame in order to meet this criteria.
- Determine how much you’re earning and how much you’re spending going back at least one full year. Most major banks/credit card companies allow you to link your on-line data to websites like Mint.com that will help you summarize your data with relative ease.
- Use the data from step #2 above to prepare a projection that goes out at least one year out showing what would happen if you kept spending at your current levels. You can do this using a spreadsheet program like Excel or Google Sheets (free). This is your starting point… and if you’re meeting the goal(s) you set in #1 above, then you’re done and this is your budget. If you’re not meeting your goal(s) set in #1 above, then you’ve got some work to do.
- Separate your spending into two categories. Things you can control in the short term or discretionary spending (e.g., recreation, restaurants, and groceries) AND things you can’t control in the short term or fixed spending (e.g., mortgage/rent, car payment, and taxes).
- Determine how much spending you’d have to cut in order to meet your goal(s). Use that amount and reduce your discretionary spending in whatever categories that make the most sense… e.g., reduce spending on restaurants by $100 per month and reduce spending on vacations by $500 per year. The result is a new listing of your discretionary expenses that will help you meet your goal(s) or your personal budget. If you can reduce your fixed expenses (e.g., by refinancing your mortgage) include those savings in your personal budget as well.
So now you’ve got your personal budget. How do you stick to it? It is definitely possible with discipline and proper tracking. Here’s a few tips to help you out…
- Open a new checking account with a debit card attached to it (do not use a credit card).
- Deposit an amount equal to your monthly spending budget at the beginning of each month.
- Use this checking account and debit card to pay all your budgeted expenses… when you have close to zero dollars left in this account, you know you’re about to go over your budget.
- Use software and/or apps for your smart phone to track your progress toward your budget on a daily basis. Mint.com is a great, free tool for this purpose.
The key is to set an achievable budget that meets your realistic goals and tracking your progress towards those goals. If you’re doing that, you’re doing it right.
Contact my office at 734-377-3641 or email@example.com if you have any questions or would like help in setting up your personal budget.
Consulting a CPA beforehand can help you determine what you can afford. Because there are tax benefits to homeownership, you may be able to afford more than you think.
Contact me at 734-377-3641 if you have any questions.
A decision by the Supreme Court is due by the end of this month (6/30/15) that could seriously impact several provisions of the ACA. See this article for more information.
If you have questions, call me at 734-377-3641 or email me at firstname.lastname@example.org. Or visit me at wolsoncpa.com.
There are always things you can be doing throughout the year to lower your tax bill at year end. We have almost reached the mid-year point in 2015 which is a perfect time to update your tax planning projection. Full year tax projections are a great way to see how what you do now will make your life easier come tax time in 2016 and they can be updated as your circumstances change… contact me at any time if you would like one prepared for you.
As an additional resource, here is an article from Kiplinger with some good ideas you can implement right now.
William A. Olson, CPA: Contact me at wolsoncpa.com
Here’s a great article that will help you understand the tax brackets and your income tax rate. Many people get confused when I talk about marginal and average tax rates… this article will shed some light on the differences and give you a few tax savings tips to help you move down the tax bracket ladder.
Contact me at wolsoncpa.com if you have questions or would like to set up an appointment.
Give yourself a raise. If you got a big tax refund this year, it meant that you’re having too much tax taken out of your paycheck every payday. Filing a new W-4 form with your employer (talk to your payroll office) will insure that you get more of your money when you earn it. If you’re just average, you deserve about $225 a month extra. Try this easy withholding calculator from Kiplinger now to see if you deserve more allowances.
Increase your retirement savings. One of the best ways to lower your tax bill is to reduce your taxable income. You can contribute to up to $17,500 to your 401(k) or similar retirement savings plan in 2014 ($23,000 if you are 50 or older by the end of the year). Money contributed to the plan is not included in your taxable income.
Go for a health tax break. Be aggressive if your employer offers a medical reimbursement account — sometimes called a flex plan. These plans let you divert part of your salary to an account which you can then tap to pay medical bills. The advantage? You avoid both income and Social Security tax on the money, and that can save you 20% to 35% or more compared with spending after-tax money. The maximum you can contribute to a health care flex plan is $2,500.
For the full list, go here.
If you have questions on these or other ways to reduce your taxes, please contact me at William A. Olson CPA PLLC.