Interview with Kimberly J. Howard, CFP

Income Tax Deductions To Remember

At tax time, every possible deduction can help when money is tight. Yet many available legal deductions go unclaimed each year, simply because most Americans still don’t know they exist. From cost savings for eyeglasses to approved deductions for airline baggage fees, no matter who you are, you’re likely to find at least one applicable deduction on the list below—and odds are you qualify for more than one. So read carefully, the savings can add up…

• Job-hunting costs are applicable expenses that can be added to your itemized deductions. Did you spend out-of-pocket costs traveling to interviews or spend money stationery for resumes and cover letters? If so, deducting these items can make a big dent at tax time. And one doesn’t have to be officially unemployed to qualify. Searching for a better job, even while fully employed, is perfectly acceptable. Other applicable deductions include food and lodging for overnight stays, cab fares, and employment agency fees.

•If that new job is your first job, any incurred moving expenses may indeed be deductible. To qualify for the deduction, your first job must be 50 miles or more from your previous residence. Those who qualify can deduct the cost of moving and, if you drove your own vehicle for the move, deduct 23 cents a mile plus parking and tolls.

• While everyone recognizes that necessary medical items like wheelchairs and hearing aids may be deducted, few realize that eyeglasses and contacts also fall into the same category. While designer eyeglasses, or drug store magnifiers, may not seem like medical devices, the IRS does allow these deductions – a big cost savings at tax time.

• Though we all known charitable contributions are tax deductible – one of the most common ways that Americans gain tax deductions – many less obvious acts of charity also qualify, Out-of-pocket charity expenses such as the cost of paint and poster board for a school fundraiser, or the cost of delivering meals or chauffeuring other volunteers can be deducted. Such mileage deductions may be totaled at a rate of 14 cents per mile plus parking and toll fees. Deductions of more than $250 will require a written acknowledgement from the charity involved.

• Members of the National Guard or military reserve may claim a deduction for travel expenses to drills or meetings. In order to qualify, the service member must travel more than 100 miles from home on an overnight journey. Applicable deductions include lodging, meals, and 56 cents per mile plus parking and toll fees.

• For those employees who have served on juries in the past year, jury duty may represent a taxable deduction. Many employers continue to pay their employees during the time of jury proceedings, but require the employees to turn over jury pay as a recompense for the time away. To even things out, you can deduct the amount you give to your employer. In such cases, the write-off goes on line 36 – the line totaling up deductions that get their own lines. Add your jury fee total to your other write-offs and write "jury pay" on the line directly to the left.

• Airline baggage fees are another deduction that is rarely recognized by the American traveling public. All told, these fees can add up to serious costs. If you're self-employed and travelling on business, you can add those costs in as approved business deductions.

• While many tax credits for energy-saving home improvements have expired, the most valuable credits still exist until 2016. These applicable credits will effectively refund 30% of the of alternative energy upgrades such as solar hot water heaters and geothermal heat pumps.

• In most cases, one can only deduct mortgage or student-loan interests if one is legally required to repay the debt. But if you’re a non-dependent student who still receives help from mom and dad, you parent’s generosity may help you at tax time. If mom and dad pay your loans, the IRS treats the money as a gift to the child who used it to pay the debt. As such, a non-dependent child can qualify to deduct up to $2,500 of student-loan interest paid. Be advised, however, that mom and dad can't claim the interest deduction. Legally, it’s not their debt.

Just remember, in order to get the most out of your tax returns, you must stay as organized as possible, and do your research—no one likes getting audited. 

Tailor your Taxes: Which Service to Use When Filing Taxes

Every US citizen living and working in the United States or abroad must determine which federal income taxes he or she owes, if applicable. The deadline to pay those taxes for yearly salary earners falls on April 15^th of each year; for those who pay quarterly taxes, this date is generally the last day of the second quarter. Despite which category you may find yourself in from year to year, every working person must choose how they file their taxes before the April 15^th deadline. There are pros and cons to a variety of filing options which ultimately depend on the type of employment status workers procure.

Once you have determined whether or not you are required to file for federal income tax, you must figure out which filing status you qualify for. Because some filing statuses can be more advantageous for some individuals or families than others, it is important to determine the path that best suits your personal and financial situation. Approaching a certified public accountant (CPA) or taxpreparer is a common way to determine your tax situation before April 15^th, but a sizable portion of the American workforce continues to prepare and file their federal taxes themselves.

CPA versus Tax Preparers

Even though CPAs and tax preparers may have significant experience in completing and processing tax forms, there are differences between each role. CPAs, for example, are required to undergo state-mandated certification that make them experts in many areas outside of tax preparation such as accounting matters or other financial services. While customers may very well pay more for the services of a CPA than a tax preparer, the additional cost generally covers the expertise needed to analyze and prepare rather complex tax situations. If you find your tax situation is relatively straightforward and simple, choosing a tax preparer might be a more cost efficient method to file your federal income tax. Another advantage of using these services is the protection that comes with your taxes being filed by another business. In the event of a clear error or miscalculation by a CPA or tax preparer office, the IRS will often hold them accountable before penalizing the filing party.

Individual Filing

Individual or “self-filing” can be an option for those who wish to save money on hiring a CPA or tax preparer and who might also have due experience with the tax system. Those who understand how to file generally choose this option using free forms and other documents found on the website of the Internal Revenue Service. Online services also allow those to enter in their employment information in a wizard that will generate the necessary tax documentation needed to file both state and federal income taxes. These step-by-step online wizards generally charge between $12 and $25 depending on how complex one’s tax preparation is for the service. While these services may be cost efficient and user-friendly, filers run the risk of incorrectly inputting data or taking advantage of a deduction or strategy that could have been otherwise been advised by a CPA office.

The complexity of your employment situation will often dictate which option is best. Those who have changed jobs more than twice in a year or who are independent contractors should probably consult the services of a CPA, while those who have been employed with the same organization for a few years and have a few standard deductions might simply go with a tax preparer or online, self-filing option. Those who are required to file federal income tax should nevertheless conduct their own research well before the tax deadline in order to determine which option is the best for their financial situation.

How to Protect Your Greatest Asset – Your Home

Your biggest investment is likely your home. You can protect it – in ways that go beyond staying current on the mortgage.

A home is more than a financial investment. It is an emotional investment. The feeling of owing your dream house is the experience of a lifetime. You relish having something that's all yours – a place where your own style statement tells the world who you are.

If you are a cash-strapped consumer, debt relief must be your first step to secure this prize. Pay down your home loan, with the goal of being debt-free.

Beyond that, however, hazards lurk that are not strictly financial. They are physical. Failure to protect against them can turn your dream into a nightmare. Only through careful consideration of threats and a systematic approach can you protect your home.

There are three crucial areas to focus on: access control (security), fire prevention-response and maintenance.

Access Control. Break-ins are down in the U.S. by 3.7% last year, the latest in a multi-year slide, according to Justice Department statistics. Nevertheless, in terms of raw numbers, burglaries and home invasions still happen often.  By the tabulations from Safeguardtheworld.com, using federal numbers, 2.5 million break-ins occur annually in the nation or one every 13 seconds.

Keeping out criminals and other unwanted persons is very important. Security measures, from locks to alarms, determine who has access to what and when. They range for sophisticated to traditional, from door handle locks and deadbolts to electric or magnetic locks. You also can protect the home with adequate lighting system, near entry areas, to dissuade burglars from busting in. Then there are alarms, which alert the police or security companies that intruders are on the premises.

Crooks aren’t the only ones to worry about. Babysitters and maintenance people also have combinations for your alarms and locks because they have legitimate business in your house. But they won’t work for you forever. What if they – or someone they know – later look at your home as a target?

Keep changing your lock codes frequently in order to prevent a wanted guest from becoming an unwanted one later.

Fire Prevention and Quick Response. Fire is the single largest cause of property loss in the United States. The National Fire Protection Association says that, in 2013, the nation had 487,500 building fires, causing 3,240 civilian deaths, 15,925 civilian injuries and $11.5 billion in property damage.

Property insurance pays for replacing or repairing fire damage. But the better idea is to stop a fire from spreading and seriously harming your dwelling. Alarm systems linked to fire departments or security services are a big help, especially when you are away. In addition to smoke alarms, consider installing carbon monoxide sensors in the home, and heat sensors in the attic, as well. It gives an alert to dangerous heat levels in the home.

Maintenance. Little things can get out of hand: mildew, termites, drainage. Your house must be maintained from time to time to bolster its value in the market. It’s good to fix problems sooner rather than later.

You can arrange sprinkler systems to ensure proper landscaping and water consumption. Master control computers can remind you of repetitive maintenance, such as when to clean gutters and change HVAC filters.

Your home is your castle. But it needs a good moat.

Kimberly J. Howard, CFP, CRPC, ADPA, is the owner of KJH Financial Services, a fee-only practice located in Newton, Mass. and Denver, CO (781-413-4879). Please visit her at www.kjhfinancialservices.com or email Kim at kjh@kjhfinancialservices.com.

New Year’s Financial Resolutions

It is that time of the year again to make your New Year’s resolutions! Each year most people decide on a number of changes to make for the coming year. How about including your financial life in this year’s resolutions. Let’s take a look at some ideas.

Investigate 401k Employer Matching Contributions:  Most 401k plans provide for employer matching contributions. The match consists of the employer contributing a certain dollar amount to your 401k account based on the dollar amount you contribute. For example, your 401k plan has a dollar for dollar employer match up to $1500. For every dollar you contribute to your account, your employer will also contribute the same amount to your account. Once you have contributed $1500, your employer will stop contributing. Think about it – you put in $1500 and your employer puts in $1500, now your 401k account is worth $3000! That is called ‘free money’ from your employer. Each plan is different so you need to check with your Human Resource manager to determine about your employer’s matching contributions.

Start A Savings Account:  Are you always having problems saving? A good solution is to have a set dollar amount automatically taken from your paycheck and deposited into a separate account. This account can be a saving, money market or mutual fund account. Start off slow, $25, $50 or $100 each month. Come June, you should double the amount. If you deposited $25 a month and double to $50 in June, by this time next year you will have $475 extra. Your deposit amount is less than a dollar a day which is less than one McDonald’s coffee a day. Put away $50 a month, double to $100 in June, and you will have $950 at the end of the year. For those able to save $100 a month, then double to $200 in June, a total of $1900 will be your savings for the year.  

Track Your Expenses:  Not sure what you and your family are spending on all those expenses? Also, do you have trouble staying on those day-to-day budgets? Try this tip:

Day 1: Spending no more than 30 minutes, write down all your monthly fixed expenses (examples include: mortgage/rent, internet, and car payments) and what dollar amount you spent on each. Do this first step from your memory.

Day 2: Again no more than 30 minutes, look through your checkbook and see what monthly expenses you have forgotten and correct any amounts you misquoted on Day 1. Also, add in any monthly variable expenses (examples include: clothing, groceries, car maintenance and fuel, and home utilities such as electricity, gas/oil and water).  

Day 3: Still just 30 minutes, pull out those credit card bills and come to terms with what and how much you charge on your credit cards. Plus, be sure and note all finance charges and late fees.

Day 4: Pull all those expenses together and see if there are any revelations. At this point, you have some good information. Now, you have the choice to modify your spending habits.

These financial tips can begin with the New Year and last a life time!

Kimberly J. Howard, CFP®, CRPC®, ADPA® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com.

Holiday Spending and Staying Out Of Debt

Are you ready for the holiday rush and buying spree? Traditionally, the holidays bring us a time of sharing and giving. But the cost of giving has increased over the years and you need to be aware of the burden it could put on your financial situation. With the change in most individual’s financial situation over the past year, this is a good time to reevaluate your holiday gift giving.  

Most families spend around $500 on holiday gifts. If you put all those gifts on your credit card, the end result may surprise you. Do you have any idea how long you will be paying off those holiday gifts if you can only make the minimum payment each month?

Let’s do some math:

$500 of holiday gifts: Let’s say you charge $500 on your credit card and only make the minimum monthly payment of $20. Some credit cards now are around the 19.99% interest rate for long period payoffs, you will be paying on those holiday gifts for 3 years! And to top it off, you will be paying the credit card company an additional $153 in interest (see Federal Reserve website - www.federalreserve.gov/creditcardcalculator).  

What if your gifts top the $1000 mark: Now you have an after-the-holidays credit card bill starting at $1000, with the same $20 of minimum monthly payment and 19.99% interest rate. Are you sitting down? It will take you 9 years to pay off those gifts you purchased! The credit card company will be happy because you will pay them $1,167 in interest. Yes, that is correct you will be giving $1000 worth of holiday gifts to your friends and family, plus over time more than a $1000 gift to your credit card company.

Not to be a Scrooge, but there is a downside to credit card use if you can not pay it off in a month or two. Another option is the cash envelope and gift list method. Make a list of people you will be buying for, a dollar amount for each person and some great gift ideas you know they will love. Now hit the mall with list and cash envelope in hand. Your goal is not to purchase more than you have in your envelope.

A last tip to remember: the holidays are not always about the purchased gifts. Think back on all the unwanted, unneeded or forgotten gifts you have received over the years. If you were able to have something different from the giver, what would it have been?  What were the best holiday gifts you have received? Was it the homemade cookies, the framed children’s art work or just being able to spend time with your family and friends? The holidays are truly about sharing and giving; think about using your heart and mind instead of your credit card. 

Have a Happy and Financially Safe holiday!

Kimberly J. Howard, CFP®, CRPC® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter @KimHowardCFP. 

Debt Relief for the Elderly

Too much debt still lingers from the mid-2000s. But if you are elderly or disabled, you have protections from rapacious debt collectors. Know your rights.

People who are employed have the flexibility to manage their financial situation. But senior citizens and the disabled are still struggling to come out from the dark pit of debt. This is because they are not in a position to generate income to pay off their obligations.

This vulnerable population sometimes gets harassed from debt collection agencies that resort to illegal tactics, such as threatening to imprison the borrower, repossess her home or other assets amd garnish her disability or Social Security income.

They often insist on harsh repayment plans and neglect to mention that the borrower might be eligible for relief. They sometimes even offer a huge write-down on already discharged debt. Don’t be fooled by these illegal tactics.

If debt collectors are harassing you and breaking the law, document what is going on and report the collector to the Consumer Financial Protection Bureau.

In many cases, debts can be resolved without bankruptcy or default. Rest assured that debtor’s prisons do not exist in this country. In some states, creditors can’t take your home to settle a debt. If Social Security, pension and disability benefits are the debtor’s only income, the creditors can’t take out money from these sources. This is the case even if creditors sue for the money.

Retirement accounts are exempt, as well. Though your creditors might ask you to withdraw money to pay off your debt, they can’t pull it from your 401(k). Those funds are protected, even in the case of bankruptcy. Individual retirement account assets are also exempt up to $1 million.

This doesn’t mean that debtors can forget about the money that they owe. Enrolling in a debt relief program can help the senior citizens and the disabled to settle their debt without losing too much of their monthly income – and sleep peacefully.

If you hire a debt relief company, professional arbitrators negotiate with the creditors on your behalf. They can lower the interest rate on the principal balance to make it affordable to pay off. Creditors often realize that they can’t demand retirees and handicapped folks to improve their earning power, and they often accept a more lenient settlement.

Senior citizens nearing the end of their life spans might balk at having to pay since they have the option of legal protection and don’t have much incentive to improve or preserve their credit ratings. But settling your account by enrolling in a debt relief program prevents blemishes on your credit report. Even if you don’t plan on taking out loans in the future, there is no telling when you might need good credit.

Kimberly J. Howard, CFP, CRPC, ADPA is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, Mass. (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter at @kimhowardcfp.