What does it take to be the master of your money? In this month’s feature article, we asked two entrepreneurs to offer their advice.
Scroll down for tax tips from Michael Egan, CFP® a founding partner at the Northern VA financial services firm Egan, Berger & Weiner, LLC.
Also below, you’ll find thoughts from Lisa McLeod, author of several best-selling books, including her latest, Selling with Noble Purpose. This small-business owner explains how she made peace with paying taxes.
And, we bring you additional tax advice from the finance experts at our new media partner, AllBusiness.com.
Wishing you prosperity and peace as you make your way to and through April 15. — The Inkandescent Team • Illustrations by Michael Gibbs
Ready for Tax Season? Here Are Seven Tips to Remember Before You File Your Taxes
By Michael Egan, CFP®
Egan, Berger & Weiner, LLC
In our financial planning practice at Egan, Berger & Weiner, LLC, we do not prepare tax returns, but we do receive many tax-related questions around this time of year. Listed below are some important items that people tend to overlook when preparing their taxes. We hope that this information is helpful. As always, we recommend consulting a tax professional before you submit your tax return.
1. Retirement Plan Contribution Deadlines. You can still make an IRA or Roth IRA contribution for the 2014 tax year before April 15, or on your tax filing date, whichever comes first. The contribution limits for 2014 are $5,500, plus an extra $1,000 catch-up contribution if you are age 50 or older.
- Remember that if you are making a traditional IRA contribution and you are not eligible for the deduction, you will need to file Form 8606 with your taxes.
- If you are self-employed, you can still make employer contributions to an Indv(k) by your tax-filing deadline. This may include an extension — provided the plan was opened on or before 12/31/2014.
- You can also make and/or establish SEP-IRA contributions on or before your tax-filing date.
2. Professional Service Fees. Remember to add up and total the fees you spend on professional services. They may be deductible. Fees for tax preparation, legal, and financial management services are deductible to the extent that they exceed 2 percent of your AGI (Adjusted Gross Income) and have not been phased out by your income limits.
3. Long-Term Care Premiums. These premiums may be tax deductible, provided that you purchased a “tax-qualified” plan. Your Long-Term Care premiums can be added to your medical expenses up to certain limits as follows (for 2014, per-person premium limits):
- Age 51-60: $1,400
- Age 61-70: $3,720
- Over age 70: $4,660
Medical expenses, including Long-Term Care premiums, may be deductible as an itemized deduction if they exceed 10 percent of your AGI. Note: The limit is for 7.5 percent of AGI if you or your spouse are age 65 or older.
4. Capital Gains. Do not forget to include your cost basis (which is what you have already paid taxes on) when filing your Form 1099.
If the securities were purchased more recently, the cost basis is probably included right on the 1099 itself. If the securities were purchased several years ago, then the cost basis will probably not be included on the 1099. One mistake that we notice people make very often when they do their own taxes is that they include the dividends and capital gains listed, but miss or do not include the “gross proceeds” section.
Then they receive a letter from the IRS stating that they owe a significant amount of money, simply because they forgot to include the sales and cost basis value for the securities on the tax return. Completing this step correctly the first time can save you considerable unnecessary stress.
5. 529 Plan Contributions. In most states, contributions to that state’s 529 college saving plan will allow you to receive a state tax deduction up to certain limits, provided you are a resident of that state. For example, a Virginia state resident who contributes to a Virginia 529 Plan, and who is also the owner of the plan, may qualify for the deduction.
6. Same-Sex Married Couples. Same-sex married couples may now file a joint return. If you were legally married in a state that recognizes same-sex marriage, you are now eligible to file a joint return with your partner.
7. Foreign Bank Accounts. The IRS and the government are really cracking down in this area of the financial sector, so do not forget to claim any foreign bank accounts. Failure to disclose assets held overseas may result in serious consequences and possible prison sentences.
How I Reframed Paying My Taxes: Why Self-Talk Matters
By Lisa Earle McLeod
Keynote Speaker and Author
McLeod & More, Inc.
With taxes due this month, here’s something to consider: Do you like paying taxes? I own my own business, which means I write quarterly checks to the IRS. And I confess, in the past I didn’t enjoy paying them. Every Friday we have a meeting to go over the cash flow, the receivables, and the projected revenues. We also track our tax liability — at the top right corner of the weekly report is an account labeled “Taxes.”
We set aside a chunk of every check to cover taxes so that we won’t come up short at the end of the month. After several years of business ups and downs, this has been our best year ever. I’m grateful. Yet as we made more money, the number in the Taxes account grew bigger, too, and I found myself getting more and more frustrated.
I often found myself saying, “I can’t believe we have to send that much of our money to the government.” I didn’t like how that statement made me feel. I was turning into a curmudgeon.
Then one day it clicked: I have to pay taxes whether I like it or not; why am I creating such a negative experience for myself? So we changed the name on the ledger from “Taxes” to “America’s Money.” The next week when we went over the reports, the difference in our attitude was amazing. The conversation went something like this, “Here’s the income, here’s the cash, here are the receivables, and here’s America’s money. Wow, she’s doing great!”
All of a sudden there was a shift in my perception. I realized that this wasn’t our company’s money, it was my country’s money. We began to feel like proud sponsors as we fantasized about the possibilities. What was America going to buy with our money? Holy cow, we almost had enough to pay for a teacher, or a soldier’s rehab. The line item was no longer depressing; it was exciting.
Perhaps you’re reading this and thinking, “She is out of her mind! Doesn’t she know how much money our government wastes?” The answer is yes, I do know that our government wastes money, and I don’t agree with everything it spends tax dollars on.
But that’s a different conversation, a political conversation. This is a personal conversation about how you can feel great about doing something you have to do anyway. Changing the name on the account from “Taxes” to “America’s Money” reframed our thinking. We went from loathing that line on the worksheet to being proud of it. Sure America wastes money, but I mentally earmarked our tax money for things we feel great about. As the account grew, we found ourselves getting more and more excited. My husband says what we did “made us feel more patriotic; it loosened our attachment to the money.”
The bottom line is this: There’s a price to be paid for everything. You can whine about it, or you can enjoy it. Being a parent costs you time and money, being married costs you some personal freedom, and doing business in America means that you have to pay taxes.
Quite frankly, I think it’s a bargain. When I look around at the rest of the world, the checks I write to my country are a price I’ll happily pay. Now when I send in a check for the quarterly taxes we owe, I sign it with a flourish. It’s America’s money and I’m damn proud to send it to her. You go to work, you make the dinner, you raise your kids, and you pay your taxes. In the end, you’re the one who decides whether those are good things or bad things. Learn more about Lisa McLeod here.
Are You a Small and Growing Business?
From the Finance & Accounting Center
Taxes are one of the most important issues facing small and growing businesses. And like a company’s profits, its annual tax bill will in part reflect the owner’s skills and knowledge. Business owners need to be sure that they are meeting all of their responsibilities to the taxman — and also seizing every opportunity to reduce their taxes.
1. Deductions: Businesses can deduct all “ordinary and necessary” business expenses from their revenues to reduce their taxable income. Some deductions are obvious — expenditures in such areas as business travel, equipment, salaries, or rent. But the rules governing write-offs aren’t always simple.
2. Employee Taxes: If a business has employees, a variety of taxes will have to be withheld from their salaries. Among them are withholding, employer matching, and unemployment tax.
Click here to read more Tax Tips for Entrepreneurs.