Year-End Tax Tip: Deducting Meals & Entertainment Expenses

A taxpayer may deduct business-related meals and entertainment expenses incurred for entertaining a client, customer, or employee. Entertainment expenses are deductible only if they are both ordinary and necessary and meet one of the following tests:

Directly-related test – The taxpayer must show all of the following:

  1. The main purpose of the combined business and entertainment is the active conduct of business
  2. The taxpayer did engage in business with the person during the entertainment period
  3. There is more than a general expectation of getting income or some other specific business benefit at some future time

Associated test – Even if the taxpayer’s expenses do not meet the directly-related test, they may meet the associated test. Taxpayer must show that the entertainment is:

  1. Associated with the active conduct of the business, and
  2. Directly before or after a substantial business discussion

Generally a taxpayer may deduct 50% of unreimbursed entertainment expenses.

First Posted over here: Year-End Tax Tip: Deducting Meals & Entertainment Expenses

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2017 Year End Tax Planning

As we approach the end of another tax year, it is beneficial to consider certain actions that can not only result in a lower tax bill this year, but also in the years to come. Below are a number of strategies you may wish to utilize prior to December 31:

  • Increase retirement plan contributions – Even though it is the end of the year, there is still time to save! If you find yourself with extra income, make sure to contribute any excess to your retirement plan during the last few pay periods; if you receive a year-end bonus, you can also redirect a portion of that to your retirement plan. Not to mention, you may qualify for a higher employer match.
  • Take advantage of preferential capital gains rates – For those individuals whose income falls in the 15% marginal bracket, long-term capital gains are taxed at 0%. With this in mind, you may wish to consider realizing enough gains to “fill up” the 15% bracket and therefore pay no capital gains taxes on that income. However, be careful as an increase in Adjusted Gross Income (AGI) can affect taxability of Social Security, itemized deductions subject to thresholds, charitable deductions, credits, etc.
  • Review your withholding – To reduce the chances of owing money at tax time, make sure that your current tax withholding is as up-to-date and accurate as possible. You can use online tools to help calculate the correct amount; if you have been withholding too little, try to approximate the amount of additional withholding necessary to break even. To adjust the percentage for the final few pay periods of the year, all you need to do is file a revised W-4 with your employer.
  • Convert your Traditional IRA – If you think you might be entering a higher tax bracket in the future, will be in a lower than normal bracket this year, or think tax rates will rise, it might make sense to convert your Traditional IRA to a Roth IRA. This will allow tax-free growth of your money and future qualified distributions will be tax-free (assuming you meet the necessary qualifications). This strategy can also be beneficial in situations where your account has lost money but will likely recover; a conversion will result in less taxes payable than otherwise would be due to the diminished balance. Consider pairing this strategy with a charitable donation (below) to at least partially offset taxes due on the conversion. Remember – you have until the tax deadline of the following year to recharacterize the conversion if your situation changes or you find yourself unable to pay the tax.
  • Donate to charity – For those who itemize deductions (or plan to) and are charitably inclined, donating cash or property to a qualified organization can have a sizeable impact on your tax bill. In general, contributions to charity can be deducted by up to 50% of AGI, but a 30% limitation may apply to certain organizations. In addition, the IRS allows tax-free Qualified Charitable Distributions (QCDs) directly from your IRA to a charity of your choice in lieu of taking a traditional RMD. To utilize QCDs, taxpayers must be over 70½ and up to $100,000 can be transferred.
  • Remember your RMDs – If you are older than 70½, make sure to take your Required Minimum Distribution from your retirement plans and inherited IRAs. While the IRS tends to be fairly lenient when it comes to missed RMDs, there is a chance that a potentially sizeable penalty could be due (50% of shortfall) if the mistake is not forgiven.
  • Bunch itemized deductions – Taxpayers who do not have enough itemized deductions in a given year may want to consider “bunching” items together in order to exceed the standard deduction threshold. This is especially useful in cases where an item must exceed a percentage of AGI in order to be deducted. For example, if you know that you (and your spouse, if applicable) might need certain medical procedures in the near future, it may make sense to schedule them within the same tax year so that you are able to meet the AGI threshold for deducting medical expenses.
  • Harvest losses – If you anticipate having large capital gains this year, they can be offset by selling other positions at a loss. This can be especially beneficial in situations where the gains will be subject to the higher rate (20%) and/or the 3.8% Medicare Surtax. In addition to mitigating capital gain income, you can also offset up to $3,000 in ordinary income and carry the remaining balance forward for future tax years. Finally, reducing net gains will also reduce AGI which can have a positive effect on certain deductions. An important reminder when utilizing this strategy is to avoid the wash sale rules – this means that if you sell an investment at a loss, you must wait 30 days (either before or after) to purchase that same investment.
  • Contribute to a 529 College Savings Plan – If you would like to help someone save for college, a 529 College Savings Plan can be the perfect vehicle. These accounts let you contribute on a state tax-deductible basis (depending on where you reside) and distributions are tax-free if used for qualified higher education expenses.
  • Review Investment Holdings for large unrealized gains – Many mutual funds pay out dividends and large embedded capital gains at the end of the year, which will be reportable by the owner of the fund as of the “ex-dividend date.” While it may seem like a good idea to buy shares before this date in order to receive the extra income, it is important to be aware that the payout causes the share price to fall by that same amount. Not only that, but even if you automatically reinvest the dividends, you still have to pay tax on that income (assuming the shares are held in a non-qualified account). For some people, it may make sense to sell a mutual fund prior to a large capital gain distribution and reinvest that money in a low-cost ETF in the interim, then re-purchase the fund at a later date (again, be careful of the wash sale rules). Note that this situation usually only benefits people who are holding a fund without a large unrealized capital gain; otherwise, the sale of the fund will trigger its own capital gain on the net proceeds.
  • Make gifts to family – Not only can you help your family financially, you can also receive a tax benefit by gifting certain property. For example, if you gift a stock or mutual fund prior to the ex-dividend date (as mentioned above), the new owner will be responsible for reporting the distributed income. This can make sense if you have a sizeable position with a large expected distribution and can shift the income to a beneficiary in a lower tax bracket than yourself.  You can give $14,000 per year, per beneficiary free of gift tax in 2017. Giving property to family can also help you to reduce your estate.
  • Consider AMT preference items – While the Alternative Minimum Tax only affects 4-5% of taxpayers, it is important to be aware of so that you can limit it, or avoid triggering it in the first place. Certain deductions, like state and local income taxes and property taxes, are not deductible under AMT. Before accelerating certain payments, make sure to consider how these might affect the AMT calculation.
  • Increase retirement plan contributions – Even though it is the end of the year, there is still time to save! If you find yourself with extra income, make sure to contribute any excess to your retirement plan during the last few pay periods; if you receive a year-end bonus, you can also redirect a portion of that to your retirement plan. Not to mention, you may qualify for a higher employer match.
  • Take advantage of preferential capital gains rates – For those individuals whose income falls in the 15% marginal bracket, long-term capital gains are taxed at 0%. With this in mind, you may wish to consider realizing enough gains to “fill up” the 15% bracket and therefore pay no capital gains taxes on that income. However, be careful as an increase in Adjusted Gross Income (AGI) can affect taxability of Social Security, itemized deductions subject to thresholds, charitable deductions, credits, etc.
  • Review your withholding – To reduce the chances of owing money at tax time, make sure that your current tax withholding is as up-to-date and accurate as possible. You can use online tools to help calculate the correct amount; if you have been withholding too little, try to approximate the amount of additional withholding necessary to break even. To adjust the percentage for the final few pay periods of the year, all you need to do is file a revised W-4 with your employer.
  • Convert your Traditional IRA – If you think you might be entering a higher tax bracket in the future, will be in a lower than normal bracket this year, or think tax rates will rise, it might make sense to convert your Traditional IRA to a Roth IRA. This will allow tax-free growth of your money and future qualified distributions will be tax-free (assuming you meet the necessary qualifications). This strategy can also be beneficial in situations where your account has lost money but will likely recover; a conversion will result in less taxes payable than otherwise would be due to the diminished balance. Consider pairing this strategy with a charitable donation (below) to at least partially offset taxes due on the conversion. Remember – you have until the tax deadline of the following year to recharacterize the conversion if your situation changes or you find yourself unable to pay the tax.
  • Donate to charity – For those who itemize deductions (or plan to) and are charitably inclined, donating cash or property to a qualified organization can have a sizeable impact on your tax bill. In general, contributions to charity can be deducted by up to 50% of AGI, but a 30% limitation may apply to certain organizations. In addition, the IRS allows tax-free Qualified Charitable Distributions (QCDs) directly from your IRA to a charity of your choice in lieu of taking a traditional RMD. To utilize QCDs, taxpayers must be over 70½ and up to $100,000 can be transferred.
  • Remember your RMDs – If you are older than 70½, make sure to take your Required Minimum Distribution from your retirement plans and inherited IRAs. While the IRS tends to be fairly lenient when it comes to missed RMDs, there is a chance that a potentially sizeable penalty could be due (50% of shortfall) if the mistake is not forgiven.
  • Bunch itemized deductions – Taxpayers who do not have enough itemized deductions in a given year may want to consider “bunching” items together in order to exceed the standard deduction threshold. This is especially useful in cases where an item must exceed a percentage of AGI in order to be deducted. For example, if you know that you (and your spouse, if applicable) might need certain medical procedures in the near future, it may make sense to schedule them within the same tax year so that you are able to meet the AGI threshold for deducting medical expenses.
  • Harvest losses – If you anticipate having large capital gains this year, they can be offset by selling other positions at a loss. This can be especially beneficial in situations where the gains will be subject to the higher rate (20%) and/or the 3.8% Medicare Surtax. In addition to mitigating capital gain income, you can also offset up to $3,000 in ordinary income and carry the remaining balance forward for future tax years. Finally, reducing net gains will also reduce AGI which can have a positive effect on certain deductions. An important reminder when utilizing this strategy is to avoid the wash sale rules – this means that if you sell an investment at a loss, you must wait 30 days (either before or after) to purchase that same investment.
  • Contribute to a 529 College Savings Plan – If you would like to help someone save for college, a 529 College Savings Plan can be the perfect vehicle. These accounts let you contribute on a state tax-deductible basis (depending on where you reside) and distributions are tax-free if used for qualified higher education expenses.
  • Review Investment Holdings for large unrealized gains – Many mutual funds pay out dividends and large embedded capital gains at the end of the year, which will be reportable by the owner of the fund as of the “ex-dividend date.” While it may seem like a good idea to buy shares before this date in order to receive the extra income, it is important to be aware that the payout causes the share price to fall by that same amount. Not only that, but even if you automatically reinvest the dividends, you still have to pay tax on that income (assuming the shares are held in a non-qualified account). For some people, it may make sense to sell a mutual fund prior to a large capital gain distribution and reinvest that money in a low-cost ETF in the interim, then re-purchase the fund at a later date (again, be careful of the wash sale rules). Note that this situation usually only benefits people who are holding a fund without a large unrealized capital gain; otherwise, the sale of the fund will trigger its own capital gain on the net proceeds.
  • Make gifts to family – Not only can you help your family financially, you can also receive a tax benefit by gifting certain property. For example, if you gift a stock or mutual fund prior to the ex-dividend date (as mentioned above), the new owner will be responsible for reporting the distributed income. This can make sense if you have a sizeable position with a large expected distribution and can shift the income to a beneficiary in a lower tax bracket than yourself.  You can give $14,000 per year, per beneficiary free of gift tax in 2017. Giving property to family can also help you to reduce your estate.
  • Consider AMT preference items – While the Alternative Minimum Tax only affects 4-5% of taxpayers, it is important to be aware of so that you can limit it, or avoid triggering it in the first place. Certain deductions, like state and local income taxes and property taxes, are not deductible under AMT. Before accelerating certain payments, make sure to consider how these might affect the AMT calculation.

Originally Posted over here: 2017 Year End Tax Planning

This Thanksgiving, Don’t Just Stuff the Turkey

Top of mind for many individuals is whether or not they have accumulated sufficient assets to retire and if they’re saving enough to meet their goals and objectives. While determining an approximate amount is a more in-depth exercise involving numerous variables, here are a few tips to help you build a better nest egg:

 

  • Update your budget Creating and utilizing a budget can help establish spending patterns, reveal inefficiencies, and uncover excess cash flow and opportunities for savings. Usually, budgets should not exceed more than a year and should be calculated on a monthly basis. When putting together the budget, make sure to keep it simple; if there is too much detail, you risk making it too difficult to implement and monitor.
  • Make sure you have a healthy emergency reserve – This account can serve as a buffer to your retirement accounts should something unexpected come up. A general rule of thumb is to keep at least 3-6 months’ worth of expenses in liquid assets to protect against unforeseen circumstances (i.e., job loss, disability, unexpected car or home expense, etc.). This fund may consist of checking/savings accounts, money market funds, or short-term CDs.
  • Save your tax refund If you do overestimate your taxes and wind up with receiving a refund, consider using it to fund your IRA, pad your emergency reserve, or pay down debt.
  • Leverage your employer match – Employees fortunate enough to receive these contributions should increase savings to at least the minimum amount necessary to receive the full company contribution. Outside of that, individuals can contribute up to the maximum that the plan allows.
  • Contribute the maximum amount (if you can) – For 2017, employees can contribute up to $18,000 a year to 401(k)s and $5,500 to IRAs. Upon turning age 50, people can begin to make annual catch-up contributions which are $6,000 for company retirement plans and $1,000 for IRAs. In addition, the tax benefits of these plans can allow for increased growth.
  • Check your credit score – Establishing good credit is important for debt management purposes, since it is integral to obtaining loans and securing favorable interest rates. If you have existing debt, you may wish to consider refinancing. The lower your interest rates on loans, the more money in your pocket each month and the more that can be saved.
  • Invest in the market – Contributing as much as is feasible to your retirement accounts is the first step in savings, but equally as important is investing wisely. Overcoming the impact of inflation, while also growing your money, requires prudent diversification and allocation.
  • Consider a new plan – Self-employed individuals should review their current retirement plan to determine if it’s the most effective in terms of cost and allowable contributions. Some of the more popular plans include SEP IRAs, SIMPLE IRAs, and the Individual 401(k), each having different pros and cons.
  • Adjust your tax withholding – If you generally overpay your taxes, you are not only reducing the amount you could be saving, you are also losing out on any compounding interest that could have been accrued on those funds. For these reasons, it is wise to estimate your taxes due ahead of time so that you can withhold the proper amount each year.

Original Post over here: This Thanksgiving, Don’t Just Stuff the Turkey

Dunston Financial Group Featured In Chicago Life on How to Prepare for Retirement

 

At Dunston Financial Group, we work with pre-retirees and retirees on a daily basis. If you’re preparing for retirement, here’s a really helpful article from Tom Groenfeldt, writing on behalf of Chicago Life Magazine, that features some of our own thoughts from the team here at Dunston Financial Group. This is a digital magazine, and you’ll find the article on pages 34-35.

 

Originally Posted on: Dunston Financial Group Featured In Chicago Life on How to Prepare for Retirement

Dunston Financial Group Welcomes Stephanie McElheny, CFP®, ChSNC®, EA to the Team

Stephanie McElheny, CFP®, ChSNC®, EA 

Director of Financial Planning

Dunston Financial Group would like to welcome Stephanie McElheny to the team! A Certified Financial Planner™ professional with more than seven years of industry experience, Stephanie is passionate about identifying opportunities and implementing comprehensive financial planning solutions for both individuals and businesses. As a Chartered Special Needs Consultant™ and an Enrolled Agent, Stephanie’s specific expertise includes special needs planning as well as individual and business taxation.

Prior to joining Dunston Financial Group, Stephanie was the Manager of Financial Planning, and an Assistant Vice President, at PNC Investments. She led a team of 13 professionals who provided financial planning services and solutions to more than 750 advisors across the country. Previously, Stephanie acted as both the Assistant Director of Financial Planning and a Registered Investment Advisor for Hefren-Tillotson, a mid-size wealth management firm. During her tenure with Hefren, Stephanie was responsible for reviewing and auditing financial plans for accuracy and completeness as well as acting as a lead content creator for the blog, newsletter, and radio spots.

A Pittsburgh native, Stephanie served as President and Symposium Chair of the Pittsburgh chapter of the Financial Planning Association (FPA), among other roles. She also spent time on the pro-bono committee, offering financial literacy education to seniors, veterans, and underprivileged families.

Outside of work, Stephanie enjoys spending time with her husband, Steve, and their dog, Myron. She is an outdoor enthusiast who loves hiking, camping, cycling, and snowboarding. Stephanie also takes great pride in cheering on her hometown sports teams and alma mater – the Pittsburgh Steelers, Penguins, and Pirates and the Penn State Nittany Lions.

 

 

First Posted on: Dunston Financial Group Welcomes Stephanie McElheny, CFP®, ChSNC®, EA to the Team

New Additions to the Dunston Financial Group Team

Ryan Bowman, CFP®

Associate Wealth Planner

With more than five years of experience helping individuals, families, and business owners with their unique financial planning needs, Ryan thrives on creating customized financial plans that help clients meet their financial objectives. Ryan strives to develop strong, trusting relationships with every client he serves, and he views every relationship as an opportunity to serve.

In addition to being a CERTIFIED FINANCIAL PLANNER™ practitioner, Ryan is a graduate of the University of Missouri, St. Louis, and holds a BSBA in Finance. During college, Ryan worked as a research/planning intern at a small registered investment advisory firm, and he developed a passion for personal financial planning. Ryan later went on to become a key team member for an investment advisory firm that managed more than $16 billion in client assets.

Prior to college, Ryan served four years in the U.S. Army as an Infantryman. Serving two deployments in Iraq, Ryan earned the Combat Infantryman Badge. Because of his service in the U.S. military, Ryan is passionate about working with military and veteran families.

Ryan loves spending time with his wife, Stephanie, and their pets: Blue (dog) and Buttons (cat).  Ryan also likes the outdoors, and especially enjoys skiing, hiking, and cycling. He is an avid St. Louis Blues fan and, like all native St. Louisans, he enjoys Cardinal’s baseball. Ryan is also a free agent football fan (former St. Louis Rams’ fan) and is excited to now live in Broncos Country.

Rosanna Sabian

Administrative Assistant

Rosanna brings 10 years of business administration experience to the Dunston Financial Group team. Prior to her move to Denver she was an office manager at a CPA office for the past 7 years. Her love for client relations and servicing makes her perfect for her role. Rosanna strives to provide clients with the highest level of customer service and to form lifelong client bonds. Since joining Dunston Financial Group her goals are to help grow the business and assist her team in accomplishing tasks and projects.

As a recent new resident of Denver, Rosanna loves to spend time with her husband, Kosal, and exploring their new hometown. Rosanna is also a major foodie, and she’s excited that she has a plethora of new places to try. She is also looking forward to experiencing all the seasons, including living in a state with snow, and doing a lot of outdoor activities.

Originally Posted right here: New Additions to the Dunston Financial Group Team

Moving to Be Near the Kids in Retirement: Dunston Financial Group in Kiplinger Magazine

“The majority of retirees don’t have to move to get more face time with adult children: More than 50% of older households live within 10 miles of at least one child, according to the Health and Retirement Study, sponsored by the National Institute on Aging. But for those who live farther away, the arguments for and against moving closer to them can be equally persuasive.” Read more…

Originally Posted here: Moving to Be Near the Kids in Retirement: Dunston Financial Group in Kiplinger Magazine

Should You Invest in Cryptocurrency? Dunston Financial Group Featured in CNBC

“Last spring, a man walked in to Dunston Financial Group in a jubilant mood. He told the firm’s founder, Lynn Dunston, that he’d put all of his savings and retirement funds into cryptocurrency, the digital tokens that can be traded from person-to-person anywhere in the world.

‘It’s a real concern when you hear about anyone putting all of their money into highly speculative investments,’ Dunston said.”

Read the rest of the story and our thoughts on bitcoin and other cryptocurrencies here.

Originally Posted here: Should You Invest in Cryptocurrency? Dunston Financial Group Featured in CNBC

4 Tips for Achieving Long-Term Financial Success

As I was working on a client’s financial plan today, I thought one of the recommendations might be helpful for others. Here is the redacted text that made up one recommendation in the cash flow and budgeting section of a client’s financial plan:

Our final recommendation vis-à-vis your cash flow and budget is the hardest to implement and the hardest for us to recommend. Successful financial planning ultimately comes down to cash flow planning. Over the years, our most successful clients have developed financial habits that allow them to live below their means. Living below one’s means can mean different things to different people, but it essentially comes down to a lifestyle decision whereby one embraces frugality and eschews the temptation to spend at one’s income level. Given various societal pressures, such habits are incredibly difficult to adopt. Some best practices to aid you in developing these habits are as follows:

 

  • Live on a set salary. For example, you could consider setting up your household budget so that you only live on your base salary, and you work toward saving all of your additional household income. 
  • As income increases, avoid the temptation to commensurately increase your standard of living.
  • Save heavily and regularly. One strategy here is to save raises and salary adjustments, and to continue living at your previous income level.
  • Save 20% of gross income, and maintain this savings rate as your income increases over time. One mistake people make is that they often max out retirement plans and think they’re saving enough. However, if maxing out a retirement plan only results in a 10% savings rate, then this is likely not enough.

Originally Posted here: 4 Tips for Achieving Long-Term Financial Success