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Posts Tagged ‘IRS’

I know that it’s been a while.  And for those who have been dropping by, I appreciate your continued support. Hopefully, others will find their way back and find the fresh perspective enlightening.  In a world of confusion, my mission continues to be to bring to light fresh ideas on how to plan better and wiser for college funding, divorce, retirement and investing.

As I noted in my last post, I became a registered tax preparer and member of the National Association of Tax Professionals.  Through my company Clear View Wealth Advisors, I had acquired the assets and client base of XtraRefunds, an income tax preparation service located in South Lawrence, Massachusetts.

I Survived

My last post was titled “adventures of a tax preparer” and I had hoped to provide some ongoing commentary on how things were going.

Unfortunately, getting the business relocated to new offices, organizing the IT and systems, learning the software and providing tax prep services to walk-in clients took up most of my time leaving me with very little brain power to provide any commentary here.

This has truly been a learning experience.  And I truly believe that it provides me with added tools and perspective to be a better financial adviser to individuals and business owners.

Bringing Financial Planning Services to the Masses

One thing that I had learned as a banker (I was a mortgage banker for more than 18 years you may recall) is the truism of the expression that a bank will gladly lend you money when you don’t really need it.

The same holds true for financial planning.  As a former representative of a wirehouse broker-dealer, I found that everyone wanted to give advice to the very rich and those who are well-off. But more often than not those who had less than some minimum amount of money were shunned and pretty much told “come back when you have more.”

That’s why I formed my financial planning practice as an independent registered investment adviser firm.  People need help at all stages and should not be left out in the cold just because their bank balances don’t have enough zeroes.

This is what I noted on my website and what I truly believe.

So I saw the integration of a tax preparation service as a way to help individuals by being there to offer financial planning tips and services.

Still Working Through the Growing Pains

Time will tell if my ideas in action make sense.

But from the stories that I heard I know that people of all income and education levels can benefit from having access to an objective financial professional who is not going to simply try selling them something.

Cost of Avoiding a Bad Mistake: Priceless

So I created financial plan program options for folks to use like the Advisor-On-Call program: pay one fee for the entire year and get access to me to answer any question on any issue during the year.

I know the need is there. Someone came in to see me and told me about her sister who lost everything when her apartment in Worcester burned down.  She didn’t have any renter’s insurance.  This was  a learning experience and I was able to teach the client why she needed the same type of coverage for herself.

Back in the Saddle

Now that tax season is over and the calendar has turned to spring (despite the weather I see outside my window), I am back on the bike saddle as well.   It’s usually on these long rides I do solo or with my cycling club that I get to clear my head and come up with new topics to write about here in the blog or in my newsletter.

Some of the wisdom that I expect to share with you over the coming weeks:

  • How to build a better retirement income plan using the bucket strategy
  • How to save on the cost of college even if your kid is a senior in high school
  • How to lower the cost of divorce in the long-run by selling the family home
  • How to get better yield outside of a bank money market

Thanks for stopping by and please keep on checking in.

And as always, your comments are greatly appreciated as are any questions or issues or story ideas that you want me to address.

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AMT.  At first glance you might think that some letters have been transposed. But unlike the machine that spits out money to you, the AMT is the stealth tax system that threatens the financial health of millions of Americans each year.

The Alternative Minimum Tax, created decades ago to make sure the super-rich paid their fair share of taxes, has become a sure-fire way for the federal government to scoop up more tax revenues out of the pockets of average taxpayers without really raising taxes while playing  lip service to reducing taxes.

The AMT applies a flat tax rate to income above a certain exemption amount.

Each year more and more working class Americans are caught in the net of the AMT unless Congress approves patches to minimize the impact.  If patches aren’t made to the AMT, it means that more than 21 million additional households will face an average tax increase between $3,000 to $5,000.

No one in Congress really wants to fix the problem because the AMT provides so much revenue to the Treasury’s coffers. Sure, each year patches are usually passed.  But it takes longer and longer for them to do it.  And any real effort to reform the tax code and scrap the AMT system is unlikely.

The AMT is a parallel tax system requiring taxpayers to essentially complete two tax returns each year and pay the higher of the two if certain conditions prevail.  And when you fall under the grip of the AMT, you lose out on lots of your typical deductions and exemptions.  Accordingly, your tax liability goes up (or refund goes down) leaving more in the hands of the government.

Tea Party or not, Congress is fiddling and you may be left with less in your pocket or your ATM because of the AMT.

Going into this past election season, there was much made about the Tea Party activists and Republicans opposing tax increases especially during the fragile economic times we are in now.  There has also been lots of talks about the need for “certainty” in the tax code so that business owners could plan better, invest more and eventually create more jobs.

All are laudable.  But the reality that confronts us now is we have tax uncertainty going into another year.

Like a teenager completing a term paper at the last-minute even though it had been assigned weeks before, Congress has had several years to address lots of issues like the Estate Tax and the Bush-era tax cuts set to expire on December 31.

But because of political posturing, nothing has been done to address these issues.  In fact, if you want to talk about tax uncertainty ask an estate planning attorney since the Congress has left everyone hanging about what rates will apply going forward.

So despite the fact that AMT patches are generally non-controversial, no effort has been made to deal with them as Congress postures and blusters about extending tax cuts that will primarily help multi-millionaires who on average earn more than $1 million each year.

And even though the party about to control power in the House seeks to provide “tax certainty” and not create a drag on the economy, there is a real chance that inaction on the part of Congress will dampen economic activity in 2011.

Why? Think of it this way.  The IRS needs to know what the law is to prepare the forms needed by your tax preparer and the company that makes the software used by your preparer.

Right now the AMT exemptions for 2009 are:

  • $46,700 for single and head of household filers,
  • $70,950 for married people filing jointly and for qualifying widows or widowers, and
  • $35,475 for married people filing separately.

Unless Congress takes action, the AMT exemption amounts for 2010 are scheduled to be lower than the 2009 figures:

  • $33,750 for single and head of household filers,
  • $45,000 for married people filing jointly and for qualifying widows or widowers, and
  • $22,500 for married people filing separately.

Proposals in Congress would set the 2010 exemptions for those who are married filing jointly at $72,450 and $47,450 for singles.

And even if the Congress gets its act together, it may not be enough time for the IRS and tax preparers to set up their systems properly.  This will delay the processing of returns and in turn delay the receipt of billions of dollars in tax refunds.

What do you think that $300 billion more in the hands of taxpayers sooner rather than later will do for an economy needing stimulus?

So while Congress fights over extending cuts to folks who may not even qualify for them in the first place since they may already be subjected to the AMT, it may possibly force millions of others to at best wait for refunds or at worst pay more in taxes despite lip service to the folks who elected them.

Regardless of how this plays out, you really need to keep an eye on how tax policy risks can impact your own personal bottom line.

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