Become Debt-Free

The average household carries $137,063 in debt, while the median household income is less than $60,000, according to data from the Federal Reserve and U.S. Labor Department. While it’s easy to get into debt, it can be hard to get out. Here are five tips personal finance experts recommend to lower your debt burden:

List and prioritize

Create a list all of your debts by amount owed and the interest rate you are paying. Then prioritize your repayment based on one of two strategies:

  • The Avalanche. Focus on paying the debt with the highest interest rate first, to minimize the total interest you’ll pay.
  • The Snowball.Focus on paying the debt with the smallest balance first. While this may seem counterintuitive, it’s recommended for those who have difficulty sticking to a repayment plan. The smallest balance gets paid off sooner and then its debt repayments can be devoted to the next debt. This gives you a powerful psychological boost and sense of achievement

Pay more

Pay more than the minimum amount due. Your lender receives more interest income from you if you pay the minimum, but that’s not what you want. Think of ways you can increase your income to make the extra payments, such as:

  • Taking a second job or freelancing.
  • Asking for a raise at work.
  • Asking for a raise at work.

Spend less

Review your monthly expenses to find things that you can eliminate to increase your debt repayment. You can reward yourself by renewing these luxuries, but only after you’ve paid off what you owe. You could cut spending on things like:

  • Cable TV
  • Gym fees
  • Restaurants
  • Entertainment

Downsize and declutter
Not only does it help to spend less, it may also be worth getting rid of what you already have. Consider selling possessions you no longer need, or finding a place to live with lower rent or smaller mortgage payments. Be ready to make some sacrifices in exchange for financial freedom. Things that you may be able to part with include:

  • Sporting equipment
  • Extra or recreational vehicles
  • Electronics, games
  • Collectibles

Negotiate

It’s worth calling your lenders to see if there’s a way to lower your interest rate. They will often do this if you’ve been a longtime customer with a history of timely payments. In some cases, you can even get them to forgive part of your debt. Also consider using zero-percent balance transfer options with different credit card providers. While these may come with fees, 12 months of no interest can be worth it.

Reducing your debt burden can seem overwhelming, but small steps can yield big results.

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Don’t let a divorce be more taxing than necessary

If you’re going through a divorce, taxes may be the last thing on your mind. But divorce involves many potential tax traps and pitfalls. Here are some things to know.

  • Alimony and child support. Alimony is taxable income to the person who receives it and deductible by the person who pays it, as long as it meets certain specific tax requirements. Child support is neither taxable nor deductible. A divorce agreement should clearly spell out the difference between alimony and child support.
  • Property settlement. When a divorcing couple agrees to a property settlement, there are no immediate tax consequences. But when it comes time to sell the property, one of the parties could be in for a nasty tax surprise. That’s because each spouse receives property with its original tax basis, and a low tax basis may trigger a large capital gain down the road. A truly equitable property settlement should consider the tax basis of assets, not just current market value.
  • Children. After divorce, the parent who has custody of a child for the greater part of a year generally has the right to claim that child as a dependent. However, the custodial parent may transfer the dependency exemption to the other parent by signing the appropriate IRS form. Why would you ever give away a deduction? Because it may be worth more to your ex-spouse. In exchange for the dependency deduction, you may be able to bargain for more alimony or a larger property settlement.
  • Tax filing. As a married couple, you probably have been filing a joint tax return. But during divorce proceedings, you may be better off filing separately or, if you qualify, as head of household. Once the divorce is final, your filing status will be either single or head of household. To qualify as head of household, certain requirements for dependents must be met.

Marital status is an important factor in the amount of taxes you will pay. Be aware that in divorce situations some planning might cut your taxes significantly.

New! Small Business Medical Leave Credit

There’s a new business tax credit that partially reimburses employers for providing paid family and medical leave for select employees. But small businesses should be break.informed before they try to use this new Family and Medical Leave Act (FMLA) tax

Basics of the new credit

Employers who provide at least two weeks of paid family and medical leave to employees who earn $72,000 a year or less can claim the FMLA credit to offset some of the cost of that paid leave . some details:

The credit ranges between 12.5 percent to 25 percent of the cost of the leave, depending on whether it pays 50 percent salary to a full salar

At least 50 percent of salary must be paid during the leave for employers to claim the credit

Employees must have worked for at least a year.

Up to 12 weeks of leave are eligible for the credit.

The $72,000 salary cap in 2018 will rise with inflation every year.

 

This credit comes as the result of a law requiring companies with 50 or more employees to provide up to 12 weeks of leave every year. The leave is intended to give employees time to address serious health issues, adapt to new additions to their families from births or adoptions, and to handle family military deployments.

However, small businesses with less than 50 employees aren’t covered by the FMLA, though they can voluntarily adopt a leave policy as an employee benefit and claim the new credit.

Considerations for small business owners

  • The credit currently expires after the 2019 tax year. Congress’ intention is to test adoption of the credit and later make it permanent if it’s popular with employers.
  • It requires administrative setup. You’ll have to draft a leave policy separate from your policies for regular vacation, personal, medical and sick time off.
  • It may create an employee expectation. If you haven’t provided a paid leave benefit before but assess it’s worth it due to the credit, it may be a letdown if the credit expires and you no longer offer the benefit to your employees.

Given the uncertain nature of the life of this new credit, if you plan to offer this benefit to your employees, please be prepared to know what you will do if the credit is not extended past next year.

As always, should you have any questions or concerns regarding your situation please feel free to call.{212-760-1125}

Overlooked Business Metrics

Revenue, gross margin, net profit — these are the basic metrics every small business owner watches closely. But there are also some often-overlooked metrics that can deepen your insight into your business and inform your decision-making. Here are a few:

Customer acquisition cost. Divide the total amount of money you’ve spent on marketing over a set period by the number of new customers you’ve gained. The result is your cost per new customer, also known as your customer acquisition cost. To get an even better read, divide your marketing costs into two buckets; one you spend on current customers and one for money spent to acquire new ones. Now your calculation of customer acquisition costs is even more accurate. Compare this figure against prior years to see if you are becoming more efficient.

Lead-to-client conversion rate. For many businesses, generating leads is an integral part of the selling process. If this is true for your business, clearly define each step of the sales funnel from lead to purchase. You can judge how successful your sales efforts are over time by calculating how many qualified leads are converted to sales. Remember to use these measures to refine and improve your selling process. Even a tried-and-true conversion process can get tired, but if you are not measuring it you may not know until it is too late 

To go a step further, look at how much each new customer spends on average compared with how much it cost to acquire them. Knowing your rate of return for each new customer can help you revise your marketing strategy

 

Website traffic. Use tools such as Google Analytics to find out who is visiting your website, from where, and what they spend the most time on while they’re there. You can learn a lot about your potential customers and your market by keeping notes on how your website traffic changes over time and how it reacts to new content

Seasonality. Understanding and keeping track of the seasonal trends in your business is crucial to managing cash flow and making the most of both busy and slow periods. Examining year-to-date metrics for sales and web traffic can help you prepare inventory and staffing for the busy season. It will also help you time the scheduling of technical upgrades and equipment repairs for expected down periods
Cash burn rate. Keeping a close watch on your cash flow statement as well as your income and balance sheet is the key to keeping your business afloat. Not managing cash flow well is one of the most common reasons for new small businesses to fail. Simply subtract how much cash you have at the start of the month from what you have at the end of the month. You can then divide your reserves by your cash burn rate to see how many months you can sustain that rate.
The key to this measurement is maintaining a forward-looking financial forecast for the next 12 months. This will help you take timely actions to avoid a cash crunch, such as cutting costs, improving sales or collecting accounts receivable
As always, should you have any questions or concerns regarding your situation please feel free to call.

Alimony Tax Changes Require Planning Law change to have dramatic tax impact in 2019 and beyond

The taxation of alimony will change drastically starting in 2019. Here’s what you need to know:

New rules

Any divorce agreement effective after Dec. 31, 2018 will be subject to new rules for alimony, namely:

  • Alimony is no longer tax-deductible for the payer.
  • Alimony is no longer taxed as income for the recipient.

That means that alimony will get much less affordable for those paying it, while those receiving alimony will not have to claim it as income.

What the change means

Because a person paying alimony will no longer have a tax break, he or she may not be able to afford to pay as much. This can affect the amount an ex-spouse will receive. That means tax impacts are going to be even more important part of divorce negotiations.

It also means both alimony and child support will be taxed the same way in agreements signed after 2018 (i.e., neither are tax-deductible for the payer). So if you have children, you’ll want to talk a tax professional to review how payments should be split between the two, depending on whether a divorce agreement is effective this year or later.

Remember, these new tax rules only affect divorce agreements completed in 2019. Agreements made before the end of this year or earlier won’t change. Also be aware that some states require a six-month (or longer) waiting period for couples to either file for divorce, or for a divorce to be finalized.

Helpful tips for handling alimony agreements

Divorce can be unpleasant and traumatic. But if it’s inevitable, you need to do two things:

  • Consider completing a pending divorce agreement this year, before the new alimony rules go into effect.
  • Get tax help. Because these coming tax changes are so new and so drastic, taxes are going to be front and center in any negotiations with your spouse.

Finally, for those getting married, it may make financial sense to create a prenuptial agreement laying how alimony would be handled in the event of divorce. Note that some state laws forbid any agreement in which spouses to waive the right to future alimony payments.

Call if you have any questions about alimony or other tax matters.(212-760-1125)

Avoid the 50% Penalty! Understanding Required Minimum Distribution (RMD) Rules

 

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Every year thousands of taxpayers are hit with a heavy 50% penalty for not withdrawing enough money from their retirement plan(s). Here is what you need to know to ensure this does not happen to you or someone you know.

Who is subject to Required Minimum Distribution (RMD) rules?

  • Anyone who participates in a qualified retirement plan like IRAs (traditional, SEP, SARSEP, and SIMPLE), Roth 401(k), 401(k), 403(b), 457(b) and profit sharing plans AND
  • is 70 ½ years or older,*
  • who is generally retired OR
  • who is the beneficiary of a plan

Exception To determine the amount that must be withdrawn each year you need to go to the correct life expectancy table published by the IRS in Publication 590IRS in Publication 590. There are three tables:

  • : Owners of qualified Roth IRA accounts

The confusion of multiple tables

  1. Joint & Last Survivor.

When to use: Your spouse is the sole beneficiary AND your spouse is more than 10 years younger than you.

  1. Uniform Lifetime Table.
  2.  

When to use: Your spouse IS NOT more than 10 years younger than you OR your spouse is not your sole beneficiary

  1. Single Life Expectancy.

When to use: You are a beneficiary of another account

How much do I need to take out and 

 

when?

Once you find the correct table, determine your life expectancy and divide the result by the balance in your account as of December 31st of the previous year.

  • The amount must be withdrawn by December 31st of the year. Exception: in your initial RMD year you have until April 1st of the following year to withdraw the funds.
  • Thankfully, many retirement account administrators will make the RMD calculation for you. But it is still your responsibility to ensure the calculation is correct.
  • The deadlines are strict so don’t miss them. The 50% penalty can be applied each year, so the impact can be dramatic over time. On the other hand, if you are penalized and have a defensible reason you did not take the RMDRMD, you should try to get the penalty reduced or eliminated.
  • Remember to conduct the calculation each year. Not only do life expectancy numbers change as you age, so does the balance in your retirement savings accounts.

Some Tips to Help Never Forget

Want to make sure this doesn’t happen to you? H

ere are some tips.

  • Calculate the RMD for each account in early January each year. Set up automatic periodic withdrawals from the account to accommodate the RMD.
  • Make a review of your accounts part of your tax planning each year.
  • Ask for help. At first, finding the correct life expectancy table and determining the correct calculation can be overwhelming. Have someone review your calculations until you feel comfortable with the process.
  • Connect your RMD to a key event like your birthday or anniversary. Then give yourself the additional gift of a payday out of your retirement account.

* Can be later if you are still actively working. If, however, you are a 5% or greater owner of the business sponsoring the retirement plan you must take an RMD when 70 ½ whether retired or not.

 

IRS Warns Taxpayers Using Premium Tax Credit

File your tax return or else

In order to continue receiving a Premium Tax Credit in 2017 you must file income tax returns as soon as possible. Any delay could stop eligibility for advance payments of this credit during 2017. Remember, these payments help reduce each month’s health insurance premium. It could also generate notices from the IRS to pay back some or all 2016 advance payments of the credit.

Background

Those who use the Affordable Care Act to purchase health insurance on the Marketplace are often eligible to reduce their insurance premium using the Premium Tax Credit. Many had the credit sent directly to their health insurance company each month to reduce their premium. This is called “advance payments of the premium tax credit” by the IRS.

Current Situation

The IRS is now reviews payments of the Premium Tax Credit. To continue receiving the credit in 2017 you must file tax returns. If you filed an extension and do not plan to file your tax return until October 15th, you could be ruled ineligible for the credit in 2017 because you have not yet filed your tax return.

Impact

Your insurance premiums could increase in 2017 if you are ruled ineligible for the advance premium credit payment. This could cause financial hardship. You may be asked to repay 2016 Premium Tax Credit Payments as well.

Action

If you received any Premium Tax Credit or expect to do so in the future, you must file tax returns as soon as possible per the IRS.

Call if you need a review of your situation.