A Trusted Surprise AZ Professional’s Thoughts For Your 2019 Taxes

A Trusted Surprise AZ Professional’s Thoughts For Your 2019 Taxes

November is a wonderful start for holiday season with several traditions to match: pumpkin-spiced everything, no-shave November (apologies to those spouses affected), watching football and of course … Thanksgiving.

Sorry to poke my accountant’s green shades into all those festivities, but it also happens to be a perfect time to strategize. (Add that to your new November “traditions” list.) We’re going to look at five key tax moves you can make it in November. Before we know it, spring will bloom and you’ll be glad you read this.

But just reading/talking about these moves is one thing — acting on them is what will save you money in the future.

Now THAT’S a tradition worth celebrating no matter the month.

Please reach out to me so that we can start implementing some of these strategies ASAP. You bring the latté; I’ll bring the game plan.

A Trusted Surprise AZ Professional’s Thoughts For Your 2019 Taxes

“Let us remember that, as much has been given us, much will be expected from us, and that true homage comes from the heart as well as from the lips, and shows itself in deeds.” -Theodore Roosevelt

In Q4, we often strategize for our 2019 taxes. But this is also a vital time to take 2020 into consideration. Don’t wait until January 1 to make some sort of new year tax resolution. We all know how those end up most of the time.

Instead, let’s get a jump start on this year and next. The first step is to determine your income thus far in 2019, then forecast what that number will be by year’s end. Once you have that number, we can decide what 2020 will look like (More? Less? The same?) — and strategize accordingly. Doing this allows us to defer and/or accelerate write-offs. I’ll help you get this process started!

Itemized vs. Standard Deductions

The two-year strategy also allows you the option to itemize or use larger standard deduction amounts. The Tax Cuts and Jobs Act (TCJA) 2019 standard deduction is $12,200 for single filers and twice that amount if filing as a married couple.

There are a few more strategies to look at when it comes to deductions. And we’re best served sitting down together to discuss your unique tax situation.

Focus on Form W-4

The TCJA certainly shifted tax rates and income amounts taxed beneath those rates. Unfortunately, many were not ready for the refund they received last spring because they were unaware of rate changes.

In an effort to adjust your expectations, this IRS withholding calculator will take your paycheck and provide a more accurate forecast for the spring. This is a crucial move in November because we can get a sense of what paycheck changes need to happen now — there’s still time to spread paychecks out moving forward.

Invest in Your Health

Many Surprise AZ companies offer a medical flexible spending account (FSA), and if you’re one of those lucky individuals it’s time to schedule that doctor appointment. Many FSA accounts require that the money saved is spent by December 31, so don’t hold onto that cash too long.

‘Tis the Giving Season

Naturally, November and December present a big push for nonprofit + charitable giving opportunities. If you aren’t factoring how these giving strategies could affect your tax strategy, then we must meet to discuss why it’s so important. However, if taxes are the only reason you’re giving to a charity, I might suggest you rethink “why” you give.

If there are no organizations on your radar, do some research in your area. It’s vital to support Surprise AZ local businesses, and therefore communities, with the money that’s been entrusted to you.

For those of you in AZ, don’t forget about the AZ tax credits.  AZ will reduce your state tax liability dollar for dollar AND if you itemize, you can take the deduction for those donations on the federal return as well.  You will have to make these AZ donations prior to 12/31 to get the benefit on the federal return for 2019.  There are more than $4,000 in state tax credits available, however these are not refundable tax credit and will only reduce your tax liability.  Let’s talk more about that.

And there you have it! There are certainly more November tax strategies, but these are a good start. Please let me know if you have any questions. I’d be more than happy to start a conversation.

Until then, may we prepare our stomachs for the Thanksgiving feast. And more than good food and drink, may we look for ways we can serve others in need — so that we can all truly give “thanks” this holiday season.

Warmly,

 

Jeff Baugus

(623) 243-1214

Tax Beacon, LLC

Jeff Baugus’ Tips For Using Credit Cards And Avoiding Credit Card Debt

Jeff Baugus’ Tips For Using Credit Cards And Avoiding Credit Card Debt

Do you remember that old Visa commercial? It had quite a run during sporting events about a decade ago … everything in the restaurant/market is running smoothly — chefs are shipping up meals, customers are moving in an orderly fashion, credit card payments are keeping the line short, and then…

…the main character pulls out his wallet, thumbs for some CASH and ruins everything.

Credit cards are now so woven into the fabric of our society, it’s hard to imagine the slower, cash-centered society of yesterday. And with smartphones constantly evolving into new kinds of app-based payment systems on their own, the process is accelerating further.

Money can start to become mere numbers on a computer screen. And that’s when things can get really out of control for many Surprise AZ families.

So managing all of this — especially the credit card accounts — has become a more essential skill than ever.

Jeff Baugus’ Tips For Using Credit Cards And Avoiding Credit Card Debt

“To contract new debts is not the way to pay old ones.” – George Washington

Let me say off the bat: it is not a bad thing to own multiple credit cards. However, if you possess multiple credit cards that you rarely touch, it’s time to pare down. Signing up for in-store credit cards, for instance, to capitalize on savings and rewards is okay if you shop there often.

But please consider credit cards only if you will use them on a regular basis. And then set a budget for each one.

Psychologically, buying things with a credit card is a cinch — all you do is run a piece of plastic through a machine. But before you know it, all that swiping adds up to a heaping amount of debt. In 2018, the average American household possessed an average of $5,700 in credit card debt.

An unfortunate statistic, but something we can take steps toward alleviating if we stick to a regular budget. Here is a list of the best online budgeting tools (but if you use one, make sure you check and update it on a weekly basis):

Whichever option you choose, consider downloading the app to your smartphone (available on all three resources listed). The more you get in the habit of checking your credit card spending, the better handle you will have of your money.

Rewards and Reports

Credit card reward systems have redefined financial strategy for countless Americans over the last decade. Many credit cards offer cash back, discounts or other free rewards in exchange for the amount you swipe. If you are going to swipe a credit card, at least make it count with a certified system.

Lastly, running a regular credit report is essential if you have any credit cards on file. Visit Annual Credit Report to have the three major credit bureaus — Experian, TransUnion and Equifax — run a credit report for you today. A credit report will tell you how many delinquencies you have against your credit (i.e. how late you are to pay credit card pills) and your debt-to-credit ratio.

This is much more than “knowing your score” — which many platforms now provide. It’s a way to verify that you don’t have extraneous accounts piling up, and that you are also not getting victimized by account or identity theft.

When you adhere to credit card budgets, rewards and reports, you are well on your way to managing the plastic. Because the amount of credit card debt has soared so high over the years, credit cards often receive a bad rap. But, like many facets of adulthood:

“With great power comes great responsibility.”

Funny how a little rectangular piece of plastic can have so much power over your life, and that’s why you should use it wisely — at your discretion. The benefits of credit card use can be vast: track spending, maintain a credit score or receive cash back.

But if they are causing out of control spending … it’s a smart idea to just kill them altogether. Go full-on Dave Ramsey before you find yourself buried.

The main thing is to keep yourself in check, and stay that much closer to wise spending.

Warmly,

 

Jeff Baugus

(623) 243-1214

Tax Beacon, LLC

Jeff Baugus’ Guide for Lending Money to Family Members

Jeff Baugus’ Guide for Lending Money to Family Members

Family can take so many different forms these days, whether it’s biological or otherwise, but for a certain segment of my Surprise AZ clientele, there is a particular privilege that might kick in this week:

The parent tax.

If you have children, what better way to teach them about the realities of our taxation system than by skimming 25% of their collected Halloween candies and setting them aside?

Shoot, you could even get creative and do some “parent tax planning” — i.e. making proactive plans with your children about particular kinds of candies that are subject to greater tax, and others that can be collected tax-free (in my opinion, anything “Reeses” should be double-taxed, but that’s just me).

Just giving you some #ideas. 🙂

But there’s another “privilege” that occasionally presents itself among family and close relationships, that can bear unplanned consequences — that is, unless you do it right.

Lending money to family members.

Yikes. Let’s dive in.

Jeff Baugus’ Guide for Lending Money to Family Members

“Families are the compass that guides us. They are the inspiration to reach great heights, and our comfort when we occasionally falter.” – Brad Henry

Individuals who are strapped for cash and in a pinch often look to family members for help, and rightfully so — your immediate family has been with you since day one, and to ask a friend (even a really good one) for money can be uncomfortable with too much that can go wrong.

But there are a few tax ramifications you should know before cutting a check to those closest to you. And if you have any further questions after the following points, please do not hesitate to call and ask.

Family Is Informal

Often, transactions between family members are informal and not properly documented (the agreements don’t have an interest rate or require regular payments). Parents or grandparents who offer a loan often won’t hold the recipient to a payment schedule (depending on the severity of one’s financial troubles).

But according to tax rules, sharing within family presents a conundrum. Any family loan payment without an interest rate is charged as income to the parent from the child. Therefore, the interest is accumulated through that “income” and parents or grandparents are responsible to report interest income on their taxes.

It’s important to note, in 2019, that parents or grandparents can classify the loan as a “gift” up to $15,000. And a married couple can give a total of $30,000.

A Formal Agreement

To keep things from getting tricky on the tax side of things, please consider a formal, written agreement when sharing money between family members. (I can help answer questions for you on this process.)

In short, the document should include an agreed-upon (IRS-approved) interest rate depending on how long the loan exists — monthly, quarterly, etc.

The borrower should make these payments on a regular basis. If he or she does not, then the IRS could question if the loan was really a loan in the first place, and might count the amount as a gift in sum.

Two important rules on imputed interest:

  1. A loan less than $10,000 is tax-exempt — that small of an amount isn’t something the IRS will fret over.
  2. However, loans over $10,000 are a little different. Parents or grandparents that offer such a larger loan have the ability to report imputed interest at a lower federal rate.

A Real Life Example

Take (fictional) Billy and his (fictional) parents: Scott and Karen.

Billy wants to buy a home, and Scott and Karen would like to help him with the down payment. They give Billy $100,000 and charge 3.22% interest — the approved interest rate at the time compounded semiannually.

An option for Billy is to count the loan as a second mortgage on his home. That way, he could potentially deduct imputed interest on his tax return. Scott and Karen’s loan to Billy is a nice gesture, but hurts them financially in the long run. They could have received investment income on the loan paid to Billy, and now it will reflect on their income taxes through imputed interest.

But the real problem for this family of three, and your Surprise AZ family should a similar situation arise, is when things are not formally documented and agreed upon. A quick internet search will provide a loan agreement form, or I can guide you in the process.

The key is over-communication and filing away the information correctly. Nothing in life is guaranteed, and if you write down important information within the context of a family loan, then you might prevent problems for others down the line.

Helping family is a good thing. But even though I’m biased, making sure your taxes are squared away is nearly just as good.

Warmly,

 

Jeff Baugus

(623) 243-1214

Tax Beacon, LLC

Jeff Baugus’ Three Keys To Get Out of Debt

Jeff Baugus’ Three Keys To Get Out of Debt

The World Series is here, football seasons are in full swing, school is deep in session, and the weather is shifting for sure.

Fall has a way of running along faster than we realize.

It’s kind of like our financial picture: things can change REAL fast, and before you know it, we’re buried under a pile of something that we’d rather not be under.

So, here’s what I’m getting at: If you’d love to get out of debt, raise your hand.

Because I can’t physically see you right now, let’s just play the percentages and assume you’re raising your hand. And by “play the percentages” I mean that, according to a Pew Survey on Debt, at least 80% of Americans are trudging through some sort of debt to their name.

Now, before we go any further, I want to address two forms of “debt reduction” that might come with some setbacks…

  1. Debt Settlement: This method means inviting a third party to negotiate out of standing debt in your name. However, it’s deceiving in that you often end up paying more out of pocket than if you had just taken on the debt yourself.
  2. Debt Consolidation: The consolidation method is used by companies that essentially roll all your debt into one lump sum, then charge you at a lower interest rate. And although that seems nice to start with, it actually (usually) just means you’ll be in debt for a longer period of time.

So let’s look instead at three simpler methods you can use to get out of debt. Of course, nothing worth doing well is going to be a quick fix. But if you start today, you can begin chipping away at debt (read: stress) and get back on track ASAP.

Jeff Baugus’ Three Keys To Get Out of Debt
“Budgeting has only one rule: do not go over budget.” -Leslie Tayn

Let’s put things in three easy steps, shall we?

Strategize: List out all debts (ALL DEBTS) and go
It’s incredibly hard to chase after goals that aren’t clear or concrete.

The first thing I want you to do is list out all the debt you have. Ideally, find a room with a whiteboard and go to town. This is helpful because you can snap a picture afterward.

When you list it all out, make sure you organize the list from the smallest debt you have to the largest. You will use this list as a reference guide throughout the duration of your debt domination. It might seem discouraging to list it all out at once, but view it as giving your enemy a face — now you know who you’re fighting; now you can go and win the fight. This will help for when you…

Pay: Make minimum payments on large debt first. Then think small.
Again, with your debt listed out for reference, start with those larger payments and the minimum payments you can start putting toward each piece of debt.

“How do you eat an elephant? One bite at a time.”

Now, the smaller pieces of debt that come along — medical bills, short-term bank loans,  etc. — are still very important to pay off. But you can eliminate them in one fell swoop through hard work and dedication. What does that look like exactly? In today’s gig economy, picking up a “side hustle” or small job on the side is doable and advantageous for your resume/career. It also is a smart strategy to say, “All the money from this side gig will go toward paying off X debt.”

Paying off debt isn’t a cake walk, but the sooner you pay it off, the less guilty you feel eating cake.

Persist: Paying off debt should be consistent … until it’s gone!
Eating an elephant is no small task. But persistence is IMPERATIVE when it comes to eliminating debt.

In addition, while you are on this quest — please don’t get discouraged when other people post pictures or talk about living a debt-free life. Those people crossed their finish line. And good for them! It’s an accomplishment worth celebrating. But you have YOUR race to run. And it might take a few extra months or years, but imagine the payoff. That’s what I want for you, your friends and family.

Please reach out if you have any further questions on reducing debt. I’d love to help you take the first step. Everyone’s story is different — everyone’s story is important.

Warmly,

Jeff Baugus
(623) 243-1214
Tax Beacon, LLC

Baugus’ Rules of Thumb for Life Insurance

Baugus’ Rules of Thumb for Life Insurance

Autumn is here, and in some parts of the country, apparently that already means snow…

Weather is a close second to “life” in terms of unpredictability.

So I think that means two things:

  1. You should always carry an umbrella.
  2. Your life insurance policy should be clear and up-to-date.

Today, we’re going to focus on that second item and how life insurance is CRUCIAL for the good of your family and loved ones.

Think you’re set in this area? That’s great. But there are still some items to keep in check. Because remember: just like a tax return that hasn’t been planned for (ahem), life is unpredictable and I want you prepared for what can happen.

Here’s what I mean…

Baugus’ Rules of Thumb for Life Insurance

“The future has a way of arriving unannounced.” -George F. Will

I often get asked about what level of insurance my clients should carry, so I thought I’d put this to you to keep for reference, and hopefully act upon. Even if you have this thing down pat, feel free to send to someone else you know is in need of some help.

I’m happy to help think this through with clients, or really, anyone who needs some unbiased advice.

For Starters

If you have a spouse and/or kids, please secure life insurance AS SOON AS POSSIBLE. And even if you don’t, paying for basic life insurance coverage is a solid budget item to get you in the habit of paying necessary insurance.

Term Life Insurance is the safest bet for starters. This policy will be in force for a certain number of years and will pay out a certain amount if you die during that term.

Note: Some people encourage policies that are versions of a Whole Life policy (a.k.a. universal life, indexed universal life, variable life, etc.). These can be great and, in some cases, very compelling tools. But they are not mandatory for your basic coverage.

The Amount

Now, let’s break down what an average policy could look like.

In the breakdown, it’s important to consider two primary factors:

  1. The term (length in years you are going to pay and be covered)
  2. The face amount (the amount the policy will pay when you get hit by the proverbial bus)

Let’s first look at the amount…

  • Start at $50,000
  • Add enough (in round numbers, to the closest $10,000) to cover any consumer debt, student loans, and mortgage balances.
  • Add $500,000 for each kid you have under ten years old
  • Add $250,000 for each kid you have over ten years old.

The total amount is how much you should have in coverage. If you are married, this is the amount of coverage the spouse with the lower income should carry. The primary or larger income spouse should carry double this amount.

The Term

Next, you want to calculate a reasonable term for your policy.

  • If you have any kids under ten, use a 20-year term.
  • If you are under 40 years old, use a 20-year term.
  • If you are between 40 and 55, use a 15-year term.
  • If you are between 50 and 55, use a 10-year term.
  • If you are over 55, you need to contact a professional, as the rates get way more complicated.

Many of you already know that I also own an insurance agency so we would be happy to shop for the best policy for your situation.  Just call the insurance office at 623.-584-0071.

The Legal Documentation

To tack a bow on the life insurance conversation, I want to also address the importance of a will and/or trust.

I HIGHLY RECOMMEND reaching out to a local Surprise AZ lawyer or paralegal soon who can help you file this basic legal documentation. (we can recommend someone for this as well)

We will dive a little deeper into wills and trusts in the near future, but I leave you today thinking about the importance of life insurance and how it will eventually impact your friends and family. In the same way, make sure they know the importance of a policy and how it can benefit.

Because in the unpredictability of this roller-coaster life, the least we can do is help one another buckle up.

Warmly,

 

Jeff Baugus

(623) 243-1214

Tax Beacon, LLC

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