Emergency funds: Why they’re worth it

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Let’s start this out with some harsh reality……  If you cannot save something every month to cover emergencies and other to-be-expected unusual expenses….you are not living within your means.  Having access to a credit card is not the same as emergency funds.  If you can put something aside every month…YOU ARE SPENDING TOO MUCH MONEY!  There, I said it.
Emergency funds can be a lifesaver. Do you have extra funds saved for unexpected times? If not, it’s time to consider how much you’ll need if you fall on hard times.
Emergency funds can be helpful for everyone. Any unexpected hit to your finances, and unanticipated illness or a natural disaster might all be reasons you may need money right away.
What is an emergency fund?
An emergency fund is designed to keep your life intact during temporary setbacks and to help you avoid unnecessary debt. That means things like car insurance premiums and regular home maintenance (and other anticipated bills) should not be considered emergencies. The same is true of credit card bills for vacations.
How much emergency savings is enough?
In general, your emergency fund should cover three to six months of expenses. How much you’ll need will vary based on your financial situation, including the vulnerability of your income.
For example, a one-earner household is more vulnerable than a two-earner household when it comes to paychecks. So the one-earner family should generally set aside more for emergencies. Or if you don’t have disability insurance, you might consider setting aside a bigger balance in an emergency account.
Check with your employer about benefits
Some companies provide payment for accrued vacation and/or sick leave to laid off employees. If your company provides such benefits and you maintain significant balances in these accounts, you may not need as much in an emergency fund (at least to help you weather an unexpected layoff).
Here are a few items to consider as you plan your emergency fund:
• Consider your ongoing debt payments. Putting excess cash toward high-interest credit card balances might make more sense than funding a savings account that earns four percent interest. The best option is to put money toward both your debt and your savings.

• Determine what can be reduced and postponed. These may be items like retirement plan contributions, vacations and entertainment. Ask yourself, “How much will I need to cover my minimum monthly expenses without resorting to credit cards or lines of credit?”

• Don’t wait to start saving. You can start small and increase contributions as you receive pay increases or windfalls. The money should be liquid — easy to get at — so don’t put it in investments with withdrawal penalties. A savings or money market account is a great place to set aside cash for a rainy day.

 

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Want to know what you can do to help your CPA prepare your taxes this year?

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* Take your documents out of the envelopes! Don’t make us open your mail or take something out of an envelope that you put back into it.

* Use the organizer they sent you to organize your documents. Make sure you have everything you are supposed to have or let them know what you are missing and when they can expect it.

*Look at any hand-written pages you are providing and make sure they are easy to follow. Summarize information on a cover page. We don’t need to see the list of amounts that you used to get to a total, we mostly just want the total. I know the sheet made sense to you when you started to create it, but can we easily follow it without too much clutter on the page?

* Keep in mind that we are getting an enormous amount of information from a lot of people and in a lot of different ways. Write your name on any sheets or documents you are providing if they do not have your name on them. If a piece of paper gets separated from your file, would we be able to know who it belonged to?

* If you have questions, email them, or write them down. Again, we are talking to a ton of people and it is so much easier if we do not have to take notes from a voice mail or a conversation if you could just write your questions down and answer our questions in writing, email is great for that. Voice mail means we have to take notes, when what we really want is documentation of your responses, not our notes of them.

* Remember that our response time may get slower. We have a lot of appointments with clients and when working on a tax return, need to focus and concentrate on that. Answering the phone and immediately responding to email makes it pretty tough to get anything done while keeping your train of thought on the tax return in front of you. We really appreciate a little patience and understanding.

Do I sound a little cranky? Well maybe. We do a ridiculous amount of work in a very short time and managing the information of 100 to several hundred clients is a huge task in and of itself. The clients that get that and respect the challenges of this season make me want to kiss them! We find a way to make sure they know how much we appreciate their efforts to make our job easier. We buy a ton of gift cards!!

 

What you need to know right now:

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Recognize when you’re being scammed. The IRS will never call you and demand immediate payment using a prepaid debit card or wire transfer.

You can check the status of your 2017 amended return on the IRS website. As a reminder, it could take up to 16 weeks to process it.

Don’t ignore notices from the IRS. Seek help early on to avoid any possible penalties and interest charges. The IRS will not go away.

Why walking away from sunk costs is the best option

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Business owners and managers can let emotions dominate the decision-making process. Instead, move past sunk costs with grace and confidence knowing it’s the smartest business decision to make.

Emotions make us human. They can also cause us to make rash decisions. Business owners and managers often let emotions dominate the decision-making process. This is especially true when choices are based on “sunk costs.”

Why sunk costs can lead to trouble

Broadly defined, sunk costs are past expenses that are irrelevant to current decisions. For example, many firms hire consultants who sell and install software. In some cases, a company is left waiting for years for a functional and error-free system. Meanwhile, costs continue to escalate. But are those costs relevant?

Managers, especially those who initially procured the software and contractor, may reason that pulling the plug on a failed contract would be wasting all the money spent. Not true. That money is “sunk.”

Other examples of sunk costs may be found in the areas of product research, advertising, inventory, equipment, investments and other types of business expenses. In each of these areas, companies spend money that can’t be recovered — dollars that become irrelevant for current decision-making.

Sunk costs are a waste of time — move on

Truth be told, the only relevant costs are those that influence the company’s current and future operations. Throwing good money after bad won’t salvage a poor business investment — or a poor business decision.

Deciding to continue with a non-performing contract or a money-losing idea instead of staunching the flow of cash and changing course is irrational. It may be difficult to admit that a mistake was made. It may bruise the ego of the decision maker. But abandoning the sunk costs is often the wisest decision.

Time to go through your tax records? Consider this

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You’re probably getting ready to go through last year’s records and prepare for this year. But what should you keep and what can you throw away? Here are some things to keep in mind as you sort through your records.
Chances are you’re a little confused about what to keep and what to throw when it comes to tax and financial records. No worries. It’s time to sort through what you’ve got and keep only the important stuff. Here’s what to keep in mind:
• Keep records that directly support income and expense items on your tax return. For income, this includes W-2s, 1099s and K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.
• The IRS can audit you within three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years.
• Retain certain records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested and any major gifts you make or receive.
• Hold on to copies. Keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for Social Security purposes.
For our clients, we are now using a cloud based secure storage system where they can scan documents and keep them in these files for as long as they remain a client of ours.  Keeping records in the cloud is a great way of having a backup of your documents without them taking any space in your home or office.
Please call our office if you have questions.

Big tax law changes mean even bigger opportunities for taxpayers. Take a look at some of the changes to come out of the Tax Cuts and Jobs Act and consider how they could affect you.

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The Tax Cuts and Jobs Act was passed at the end of December 2017 with some of the most sweeping changes taxpayers have seen in 30 years. Here are a few big changes to come out of the new act — and what you can do about it.
1. The medical expense deduction threshold was lowered to 7.5 percent.The tax reform bill retroactively lowers the threshold to deduct medical expenses in 2017 to 7.5 percent of adjusted gross income. The previous threshold was 10 percent. This new 7.5 percent threshold remains in place for 2018, but reverts back to 10 percent in the following years.
What this means: You may want to consider using the medical expense deduction this year. If there are any qualified medical expenses you can make (drug purchases, medical equipment, etc.) to push you over the new, lower threshold, consider doing so in 2018.
2. The healthcare individual mandate penalty stays in place until 2019.The shared responsibility penalty (also known as the individual mandate) in the Affordable Care Act is effectively repealed by the tax reform legislation, but not right away. The penalty is set to zero in 2019, but remains in place for 2018.
What this means: You still need to retain your Forms 1095 this year in order to provide evidence of your healthcare coverage. Without proof of coverage, you may have to pay the higher of $695 or 2.5 percent of your income. Unless there are further changes coming, 2018 may be the last year you’ll need to worry about the individual mandate penalty.
More changes to consider for 2018 tax planning
We’re experiencing some of most significant tax law changes since the 1980s. There will be a lot of things to consider for tax planning this year. Here are some of the most significant:
• Reduced income tax rates• Doubled standard deductions• Suspension of personal exemptions• New limits on itemized deductions, including:             * Combined state and local income, property and sales tax                       deduction limited to $10,000                     * Casualty losses limited to federally declared disaster areas                     * Elimination of miscellaneous deductions subject to the 2                       percent of adjusted gross income threshold• Boosts to:                      * The child tax credit ($2,000 in 2018)                      * A new $500 family tax credit                      *529 education savings plan expansion for K-12 private school                         education                       * The estate tax exemption (doubled)
Stay tuned
There will surely be more details on the tax reform changes and how they are implemented by the IRS in the weeks to come. In the meantime, contact us if you have urgent questions regarding your situation.

Considering converting your IRA?

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You won’t be able to make contributions to a Roth IRA if your income goes above a certain level. However, you do have the option to convert a traditional IRA to a Roth IRA no matter how high your income. People often like Roth IRAs because qualifying distributions are tax-free and annual distributions are not required after age 70½. Make sure to consider that a conversion to a Roth is a taxable event as you do your 2018 planning. Let us know if you have questions.