WGCU Public Media is joining local community organizations in a campaign to promote National Estate Planning Awareness Week, October 19 – 25, 2020, by offering a free digital estate planning guide that will allow users to start organizing their financial assets and thinking through their personal goals.
Estate planning is one of the most overlooked areas of personal financial management. It’s been estimated that more than 120 million Americans do not have proper estate plans to protect themselves or their families in the event of sickness, accidents or death. This circumstance can cost many families unnecessary expenses and financial hardship. Proper planning can help avoid these unintended consequences.
In 2008, Congress passed a resolution proclaiming the third week in October as National Estate Planning Awareness Week. “Public television has long served as an advocate for financial literacy. Estate planning is a critical component of the financial health of most adults,” said Rick Johnson, WGCU general manager.
WGCU will recognize National Estate Planning Week by providing a free personal estate planning guide, which is downloadable. To request your digital planning guide, contact Jennifer Denike at (239) 590-2514 or email@example.com.
“For more than 35 years, WGCU has provided public television programs and educational services to the people in this community. Raising awareness about estate planning is in line with our public service and educational mission,” Johnson said.
Students may review the scholarships available online, as well as a tutorial about how to create and submit the online application. Students may apply for multiple scholarships and have the ability to upload transcripts, SAT/ACT scores, letters of recommendation and the FAFSA Student Aid Report.
Approximately $500,000 in scholarship money is available through more than 100 scholarships for high-school, undergraduate and graduate students from Charlotte, Collier, Glades, Hendry, and Lee counties. Last year, one in five students who applied received a scholarship from the Foundation.
All scholarships require the Free Application for Federal Student Aid (FAFSA) form, available at www.fafsa.gov. For help completing FAFSA, click here.
Properly structuring tax payments requires careful planning, especially in light of tax reform
Withholding and Estimated Tax Payments
Individuals who are working are required to have income taxes withheld directly from their salary. Taxpayers who have little to no income other than their salary usually find their withholding is more than enough to cover their targeted tax payment, and they often end up with a refund when they complete their tax return. The exception to that might be those with larger bonuses, stock option income, etc., where a flat percentage is withheld that may be less than the actual tax rate applied to that income.
Those who have income that is not required to be withheld on – such as investment income, business income orretirement distributions – may find they need to make additional tax payments throughout the year. These payments are calculated by the taxpayer and delivered to the IRS along with a payment voucher, Form 1040-ES. These estimated payments are due on the quarterly deadlines, and late payments of those may result in a penalty beingassessed until the payment is received by the IRS.
Taxpayers who find they missed a payment deadline should not wait until the next payment due date to catch up. The underpayment penalty is calculated on a daily basis, so the sooner the payment is made, the sooner the penalty stops.
For taxpayers whose only income is from a business or investments, where withholding is not typically available,estimated payments are likely the only option for paying their taxes. Taxpayers who have a combination of income that is withheld on and other income not subject to withholding, or retirees whose income consists of pension payments and IRA withdrawals, can typically choose how to cover the tax liability on that other income. As usual, there are pros and cons to each approach:
• By paying the tax on that additional income via estimated payments, the taxpayer can keep control of the income for a longer period of time. They might earn the income at the beginning of the year, but only make the estimated payments on each quarterly due date. However, this requires the taxpayer to be aware of the deadlines and be sure to send their payments on time. It also means they must be careful to set aside some of their income periodically to cover the tax cost, rather than spending or reinvesting it.
• Depending on the amount of non-salary income, a taxpayer could simply increase the withholding on their salary to cover the tax cost of this other income. Doing so relieves the fear of missing the payment deadline, but also means the taxes may be paid perhaps months before the estimated payment would be due.
Planning Around An Unexpected Increase In Income
For taxpayers whose income comes almost exclusively from wages that are subject to withholding, their withholding is usually more than enough to cover 90% of that year’s taxes. But what happens when that taxpayer experiences anunusual increase in their income, perhaps by realizing a large capital gain from an investment? In that case, the
taxpayer can often wait to pay the tax on that income until the April 15 due date for their tax return.
Special Consideration For 2018
The tax reform act passed in late 2017 (the Tax Cuts & Jobs Act) included many significant changes that take effect in 2018 and will impact all taxpayers. Taxpayers will want to take these changes into account when planning their 2018 tax payments. Some of the more impactful changes included in this tax reform are:
• New limitations on many of the deductions taxpayers have claimed in the past.
• A new exclusion for income received from a pass-through business.
• Significant changes that will limit the impact of the Alternative Minimum Tax.
• Lower tax rates applied to virtually all levels of income.
• Changes affecting families, including the repeal of the personal exemption along with the expansion of the existingchild credits.
Article written by Tim Steffen, CPA, CFP®, CPWA® and provided by Rebecca Ross, Vice President and Financial Advisor at Robert W. Baird & Co. Incorporated, member SIPC. She has 34 years of financial services industry experience and can be reached at 239-541-9090 or firstname.lastname@example.org. Baird does not offer tax or legal advice.
An old technique has new value after the Tax Reform bill, Part I
Bunching expenses, particularly charitable gifts, in one year rather than over multiple can provide added tax benefits, especially after the latest tax law changes. And combining that plan with a donor-advised fund can compound the tax savings.
The latest round of tax reform resulted in the limitation, or even outright repeal, of many of the itemized deductions previously claimed by individual taxpayers. In addition, the standard deduction, the base deduction amount that is available to all taxpayers, was nearly doubled. As a result, the number of taxpayers who will simply use the standard deduction rather than itemizing is expected to grow from about 70% to over 90%. While this will certainly simplify the tax filing process for many, it also means that certain expenses are less likely to provide a tax benefit going forward.
However, for taxpayers who have the ability to control the timing of these expenses, there may still be a way to maximize their tax benefit through a technique known as “bunching.” And while the concept of bunching deductions into a tax year when they provide the most benefit has been around as long as there have been income tax deductions, it’s taken on new significance as a result of the tax law changes.
ITEMIZED DEDUCTIONS VS. THE STANDARD DEDUCTION
Taxpayers are able to reduce the amount of their income subject to tax through the use of deductions. The tax code offers all taxpayers two methods for doing this – using the standard deduction or itemizing your deductions. The standard deduction is a flat amount based on your filing status, and under the tax reform bill this amount was increased dramatically.
Rather than using the standard deduction, taxpayers can instead itemize if it results in a larger total deduction. This means deducting specific expenses incurred during the year in order to reduce taxable income. Among the many types of expenses considered deductible are state income taxes (or sales taxes if they are more), property taxes, mortgage interest, charitable contributions, medical expenses, investment expenses, tax preparation fees, unreimbursed business expenses and casualty losses. Beginning in 2018, however, the treatment of many of those expenses has changed.
The combination of fewer expenses that qualify as itemized deductions plus a larger standard deduction means many fewer taxpayers will itemize their deductions going forward. As a result, the tax benefit of those previously deductible expenses will go away, effectively making those items more expensive.
Read the conclusion in Part II next month
Article provided by Rebecca Ross, Vice President and Financial Advisor at Robert W. Baird & Co., member SIPC. She has 34 years of financial services industry experience and can be reached at 239-541-9090 or email@example.com. Baird does not offer tax or legal advice.
Planning for these risks can improve the odds of a successful retirement
Rather than thinking of retirement as the end of something, retirement should be viewed as simply beginning the next phase of life. It’s a phase reached through a lifetime of hard work, dedication, and achievement to one’s career, family and employer, and themselves. And like the earlier phases of life, retirement carries with it a number of risks. While the risks themselves may be similar to what you have faced leading up to retirement – investment risk, inflation, health care, etc. – their impact may be much greater, and the opportunity to adjust to them much smaller.
The way we prepare for retirement has changed substantially in recent history. Nearly gone, for example, are the days of relying solely on employer-provided pension plans and Social Security to fund retirement. Now more than ever, there is a greater reliance on personal savings and investments to supply the income needed in retirement. As a result, the combination of unpredictable investment markets and longer life expectancies (among other risks) has led many to question whether they have enough money to live comfortably in retirement. Below are some of the risks you are likely to encounter which may significantly impact your retirement goals.
Long-term trends have shown that stock investments will provide the best opportunity for investment return, followed by bonds and then cash. During retirement, one approach to reducing overall portfolio risk may be to reduce or eliminate stock exposure. However, a poor asset allocation strategy can have a devastating effect on your retirement income strategy. Being too conservative may cause you to prematurely run out of money while being too aggressive increases your exposure to market volatility.
A sub-risk to this is something known as the sequence of returns risk – the idea that poor market performance in the early years of retirement can significantly impact the long-term sustainability of those assets. Proper retirement planning will include a good asset allocation foundation, along with an understanding of how to respond to different market conditions.
Inflation is sneaky. You may not realize it’s happening over the short term, but over the long term, it can decimate a retirement strategy by eroding the value of assets set aside to meet every-day expenses.
Inflation has historically averaged about 3% annually, which may not seem like much, but that can have a dramatic impact on the purchasing power of your income over the course of your retirement. Just consider the changes in the cost of goods such as gas, milk or bread over the past 25 years for further evidence of inflationary impacts. The increasing cost of goods and services has to be accounted for when building a retirement income plan, either by investing in a way that provides an increasing level of income or by adjusting your retirement goals over time.
Stay tuned next month for part two
Article provided by Rebecca Ross, Vice President and Financial Advisor at Robert W. Baird & Co., member SIPC. She has 34 years of financial services industry experience and can be reached at 239-541-9090 or firstname.lastname@example.org.