Archives for March 30, 2018

When you use your car for both personal and business reasons and you are not fully reimbursed through your employer for the business expenses, you can deduct those costs from your taxes. How do you go about claiming these deductions? Assuming that you itemize, you have two general paths:

Standard Mileage Method – The IRS prints flat rates of reimbursement per mile driven for each calendar year. For 2017, the reimbursement rates actually decreased from 2016 levels. For business use of your vehicle, the standard mileage rate is 53.5 cents per mile, down from the 2016 value of 54 cents per mile. For 2018, the standard mileage rate will increase to 54.5 cents per mile for business miles driven.
Actual Expense Method – Rather than calculate an average based on miles, you can calculate the actual expenses related to the non-personal use including gas, oil, maintenance costs, depreciation, tolls, parking fees, insurance, and other applicable expenses such as lease payments. IRS Publication 463 covers these in more detail.
If you qualify for both methods, it is worth calculating the total deduction by both methods to see which method works best for you. Employees deducting car expenses must fill out either Form 2106 (partial reimbursement from employer) or Form 2106-EZ (no reimbursement). This will give you the value to enter on Schedule A for itemized deductions. Note that these expenses are among those subject to the limit of 2% of adjusted gross income (AGI).

The Tax Cuts and Jobs Act (TCJA) of 2017 did away with many miscellaneous deductions subject to the 2% AGI cap, including the mileage deduction. This tax season will be the last time you can claim mileage, so make the most of it.

Follow the Instructions for Form 2106 to calculate the actual expenses. Part II of the form discusses allowable and non-allowable actual expenses.

If you lease your vehicle, you are still able to deduct leasing costs, but there may also be an inclusion amount that reduces your lease deduction. IRS Publication 463 gives details on the lease inclusion.

The default method for depreciation calculations is straight-line depreciation. However, if your personal car was used more than 50% for business purposes, you also have a choice between the 200% or 150% declining balance methods. Tables are included in the Form 2106 instructions to illustrate the difference. There are several alternatives for special cases, such as Section 179 depreciation and the special depreciation allowance for the first year of service. Consult Publication 463 for help in determining the best method for your use.

If you are self-employed, deduct your expenses on the appropriate form for your business: Schedule C, Schedule C-EZ, or Schedule F.

Form 2106 allows input for up to two personal vehicles used for business purposes. You can add a separate Form 2106 for two more vehicles. Beyond that, you are considered to be operating a fleet and this deduction is not available.

For leased vehicles, if you use the standard mileage rates, you are required to use the standard rates throughout the total life of the lease. You cannot switch to actual expenses in future lease years.

You can also claim a deduction on the use of your personal car for medical or moving purposes, as well as for charitable purposes. For medical and moving expenses, the 2017 rate is down to 17 cents from 2016’s 19 cents. Use of your vehicle to serve charitable organizations is still at 14 cents per mile for 2017.

Moving expenses are claimed in a fashion similar to business expenses under IRS Form 3903. The TCJA eliminated the deduction for expenses on moves taking place after 2017, except for members of the military on active duty who relocate due to a military order. However, thanks to the new law, starting in tax year 2018, you will be able to claim the portion of medical and dental expenses that exceeds 7.5% of your AGI, down from a floor of 10% in 2017.

For charitable use, see IRS Publication 526 for details. Actual expenses for charitable uses are limited to gas, oil, parking fees, and similar simple expenses. Depreciation, insurance and general maintenance fees are not included. The TCJA allows you to claim charitable contributions worth up to 60% of your income, an increase from 50% in the past.

If the use of your personal vehicle qualifies under one of these categories, explore your deductible options. There is no reason not to take any deduction to which you are entitled. However, make sure you keep meticulous records on any reimbursements that you decide to take.

To balance out the loss of many itemized deductions, the TCJA raised the standard deduction to $12,000 for single filers and $24,000 for married filing jointly. This may well make itemizing less worthwhile for many filers going forward.

Maybe you received a very nice monetary gift for your birthday and you just don’t know what to do with the money. We are glad you are being careful about its use, and would suggest the following points for your new funds.

Prioritize your long- and short-term goals. Goals should be realistic and specific. Your goals are the guidelines for what to do with the money. For example, if you would like to purchase a house in the near future, the money might represent a down payment. Money to be used in the short term should be held in more conservative investments than money needed further down the road.

Establish an emergency reserve:

A fund for unexpected expenses is always good to have. Financial planners usually recommend three to six months of living expenses, depending on the individual’s unique situation. For example, a self-employed person may want more of a reserve just in case business is bad for a period of time. Money set aside for this purpose should be kept in a readily accessible, conservative account, such as a savings account or money market fund.

Pay down debt:

The first step is to know who and how much you owe. Make a list of the creditors, amount of the debt, monthly payment, interest rate, and due date. You can use your credit report to confirm the debts on your list. A monthly bill payment calendar could give you clarity on the situation. Next, decide which debts to pay off first. You might want to pay off your high interest credit cards first. Seek reputable professional debt counseling help if you feel you need it. As you pay off debt, you will have additional cash each month to use for other purposes, such as retirement or building that emergency reserve.

Retirement funding:

Retirement is expensive. The earlier one starts saving for retirement, the better. Depending on your needs, you might consider a contribution to a Traditional or Roth IRA. You will need to review the eligibility requirements for these plans if this becomes your choice. If your employer offers a retirement plan, such as a 401(k), consider swapping the dollars by making larger contributions to the plan in exchange for using the gift money to live on. This will put your money into a vehicle that will grow tax-deferred or tax-free in the case of a Roth 401(k).

Buy a home:

Your gift might represent the down payment on a home. Before you buy, consider all the aspects of home ownership. The monthly mortgage payment is only one part of the total expenses. Factor in costs such as home maintenance, repairs and insurance. Consider how long you might live at this location. In the end, you have to decide if home ownership is the right path for you.

Research:

Consider reading one of the many books on personal finance that are available today. These will help you see where your finances might need some work and get you started. “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko will provide some insight into wealth accumulation. “Financial Life: Personal Finance in Your Twenties and Thirties” by Beth Kobliner touches on many areas of personal finance. Even people past age 20 or 30 could benefit from reading it.

Consider a small indulgence:

Life is about balance – saving for tomorrow versus having fun today. In view of this, you might want to spend a small amount on something you would have never done otherwise. Perhaps a nice dinner at a fabulous restaurant with a few friends would do the trick.

Money is no game to Brandon and Amiyrah Martin. Two of their three children get allowance, but they’re not the only ones pocketing it. The couple also sets money aside for the adults in the house. They call it their ‘fun money’.

Brandon explains, “If you want to have spending money, we’ll take $100 a week, or take a certain amount, and break it down. That’s how much you get and this is how much she gets.” Then, that’s their money to do with what they want, no questions asked. Amiyrah says, “We’ve decided we want to use it differently and it doesn’t have to be something that you both agree on how you’re going to use it.”

With money being a major source of stress for couples, experts say adult allowances can be a real relationship saver. Banks and other financial groups are even getting in on the trend, setting up special systems and apps for a digital-based adult allowance.

“We all have very complicated lives, very busylives and it can be very easy to forget that we’re trying to stick to a budget or stick to a particular allowance,” explains Ramy Serageldin, with the app Honeyfi. It tracks personal spending and purchases, so you don’t blow your allowance or your budget.

Serageldin says, “It’s really about them being able to do whatever they want with that money without their partner judging them or keeping track of it.”

Some argue couples should be able to just set a budget and stick to it, without the bank or an app setting strict personal spending mandates on a daily, weekly and monthly basis.

The Martin’s, who run the budgeting website 4HatsandFrugal.com, say it really is about being able to limit spending, no matter what tool you use.

“I’ve always had an allowance and a goal. It plays back into how I was raised,” explains Brandon.

It’s finally spring – the time when a young man’s or woman’s fancy turns to thoughts of…summer jobs! With dreams of healthy paychecks fueling summer fun or special purchases, it is easy for teens to spend their money, even before they start working. So now is the perfect time to sit down with your child and help them make smart financial choices.

And according to Alecia Blair, director of Military Saves, part of the non-profit America Saves initiative of the Consumer Federation of America, it is never too early or too late to have conversations with children about the importance of saving money. A military spouse and mother herself, Blair noted there are many age appropriate ways to make your children savers, not spenders, something she is doing in her own home.

“My son is 8 and last year we set up a joint savings account for him for a vacation we were planning,” explained Blair, “so that he would have some of his own spending money during that vacation.” She said the object was to help him understand that money comes from somewhere and build an appreciation for that. “It might be a good idea to set up a joint savings account even at a younger age so they can see the safety of those types of accounts and understand the concept of interest as they see their savings grow,” Blair added.

Even younger children can learn the value of saving money with the help of the old, reliable piggy bank. “I recently had a conversation with my 5-year-old daughter about saving money in her piggy bank when she gets birthday money or special gifts. It may not seem that you are having a real conversation about personal financial management but those seeds stick with our children,” said Blair. Youngsters can easily grasp the concept of saving money in a piggy bank now for a later reward. She said you can talk to your child about goals for the money — a new toy, or trip to a candy store — to help them learn there is a benefit to waiting, that they don’t need to spend it right away.

Getting teens involved in the family budgeting process is a great way to model healthy personal financial management recommended Blair. “When your child starts their first job or even earlier, include them in the process of discussing some basic household financial management and get them to look at the cost of things like groceries, clothes, entertainment,” she said. “You’re teaching them that things just don’t show up, there are costs associated with that.”

For that first time worker, Blair noted parents have an opportunity to talk with their child about what they are going to do with their earnings. “Help them think about putting a portion of each paycheck into savings; write out a budget with them — maybe some of the money can go towards things they want to purchase such as clothing or entertainment, but help them look at long term goals such as college savings,” she said.

Helping your teen set financial goals and create a budget will also help them learn impulse control, especially in this era of instant pay with cell phones or debit cards, Blair added. Military Saves and the Military Youth Saves program offers a savings pledge for teens and a simple savings plan on the militarysaves.org site to assist in the process. “Our research has shown that those who have a plan are twice as likely to achieve their savings goals and students who have even a small amount of college savings are more likely to attend and complete college then those who do not,” she stressed.

Teen workers can also turn to American Saves and the America Saves for Young Workers program for more financial tools. The Young Workers resources help teens think about what they’d like to do with their money and develop a budget that includes the fun stuff, along with long-term saving goals. According to Amelia O’Rourke-Owens, America Saves for Young Workers Program Manager, the organization wants to reach young people at the time they’re earning their first paycheck to create a connection between earning and automatically saving.

“At America Saves for Young Workers (americasaves.org/organizations/current-initiatives/first-time-workers) young people choose a savings goal for themselves that motivates them towards the savings behavior,” explained O’Rouke-Owens. The program helps teens avoid impulse purchases by building an alternate behavior — a behavior of plan-for-what-you-want-and-save-to-get-it she noted. To help teens stay focused on their savings goals, they can sign up to receive automated messages of good savings tips and motivating reminders for the individual’s goal on their phones or other electronic devices.

Blair called financial training an on-going process for families. “There are a lot of external influences in our society that teach children the opposite of saving — for parents we have to keep instilling the idea of saving,” she shared. Building strong savings habits is especially important for all service families due to the unique stresses of military life. “Having lived this life for 15 years I understand that having an emergency fund has been extremely helpful to deal with the nuances of military life,” noted Blair. “And if you model good financial behavior in the home it may not feel like your children are getting it, but if you model it enough those seeds will be planted and they are going to learn good habits.”

To get your whole family on the path to financial wellness, visit militarysaves.org to find a wealth of helpful resources. To learn more about the Military Youth Saves program, click on the link under the ‘For Savers’ tab at the top of the site’s home page. You’ll find a link for your teen to take the Military Savings Pledge. There is also a direct link to the America Saves for Young Workers website, with more tools and tips for managing money. The whole family can benefit from the programs’ efforts to encourage and support you as you build more savings, reduce debt and increase wealth for the future.