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Social Security Planning Starts Now

12/27/2022

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Even those in their 20s should review this tip!

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Although you won’t become eligible for Social Security until your 60s, there’s a lot you can do to prepare before then. Here’s a rundown of steps you can take during each decade of your life:
  • In your 20s: If you’re like a lot of people, you’re embarking on a career. At this point, there’s no guarantee that Social Security will be around in its current form when you’re ready to retire. The smart move is to build up retirement savings on your own. For instance, you should be participating in a 401(k) or other qualified plan at work. If done, Social Security benefits will be a pleasant surprise when you retire.
  • In your 30s: As you continue making retirement contributions, begin checking on your Social Security wage history. Go to the Social Security Administration (SSA) website to set up and review your account. Eventually, benefits will be based on your work history. Make sure your wages are being reported correctly and correct any errors that occur. As the same time, increase retirement plan contributions.
  • In your 40s: Typically, this is a time when your earnings increase significantly. Be aware of the key rules relating to Social Security benefits. For example, realize that the SSA uses your average earnings for the 35 highest-earning years to calculate your payments in retirement. So keep track of this and continue to have lower income years be replaced with higher income years. This will result in higher benefit checks when you retire.
  • In your 50s: Circle a target date for retirement. While not etched in stone, having a target date allows you to analyze whether you’ll be able to sustain your current lifestyle based on your expected income and expenses. This exercise is more important if you’re considering early retirement. Continue to check income being reported to the SSA and create a forecast for the future. If you wait until your 60s to begin this planning process, it may be too late to save enough to meet your retirement goals.
  • In your 60s: Decide whether you want to begin taking benefits at age 62 (the earliest age), age 67 (the current full retirement age), or somewhere in between. The longer you wait, the greater your monthly benefits will be, but you'll be giving up use of the money in the meantime. Factor in aspects like your health, plan payouts, required minimum distributions and other earnings. Finally, remember that up to 85% of Social Security benefits are taxable at the federal level, so it's worth to start planning now!
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Taxes and Uncollectible Debt

12/19/2022

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Tax ramifications can be good or BAD!

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There are few things as frustrating as not being paid what is owed to you. If it becomes clear the debt is not going to be paid, you might be able to recoup some of the lost money via a tax deduction. The IRS has two classifications for bad debt: business and non-business, each with its own deductibility rules.

Business bad debt
In order to be considered a deductible business bad debt, the IRS states that the debt must be closely related to your trade or business. To qualify as a deduction, both of the following must be true:
  • The amount is or has already been included as income or as an asset
  • The debt is considered to be partially or completely worthless

There are many ways to determine the worthlessness of a debt, but at a minimum, you should be able to produce a summary of your collection efforts. If you determine that the debt is indeed bad debt, you can deduct it as a business expense if the aforementioned statements are true.

Non-business bad debt
All bad debt not defined as business-related is classified as non-business. For a non-business bad debt deduction, the debt must be considered 100 percent worthless. There is no partial deduction available. In addition, you need to prove that the debt is a loan intended to be repaid and not a gift – especially if loaned to a friend or family member. The best way to prove this is with a signed agreement.

If you determine the bad debt is valid, you can report the amount as a short-term capital loss. The loss is subject to capital loss limitations and you need to submit a statement with your tax return that includes the following:
  • Description of the debt
  • Amount of the debt and when it became due
  • Name of the debtor
  • Business or family relationship between you and the debtor
  • Efforts you made to collect the debt
  • Why you decided the debt was worthless

The other side of the coin
If, on the other hand, you owe someone money and they write off the debt, the tax code generally requires you to record the forgiven debt as income on your tax return. There are cases, however, when this is not required. So if during the year you have forgiven debt, you should ask for a review of your tax situation. This is especially true if the forgiven debt is a discharge of:
  • A home mortgage
  • Student loans (especially for failed schools)
  • Pandemic-related debt forgiveness

While no one wants to be in a position to write off debt, it’s nice to know that you can at least benefit from a tax deduction. If you find yourself in this situation or are planning to loan funds in the future, call to set up a plan of action.


"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.  
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA;  Janice Papais, CPA
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Fund Your Retirement or Your Child's College?

12/12/2022

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Towards the end of the year, many are undergoing an annual review of their retirement funds. It certainly was a tough year and one of the decisions many parents are grandparents are facing is the difficult decision to either save for retirement or use funds to pay for their children’s or grandchildren's college education. Here are some thoughts on the matter:

Prioritize retirement over education
In most cases it is more important to put the financial needs of retirement ahead of college education. Here's why:
  • Retirement funds will be used to cover your basic needs for daily life for as many as 20, 30 or even 40 years. While education for children is important - and expensive - it is secondary to your long-term well-being.
  • Financial aid and numerous other programs are available for your child to take advantage of to help them afford college. This includes current and future student loan forgiveness programs.
  • If necessary, your child can take out student loans. While it may take years for them to repay a student loan, they will have future income potential to do so. Your income will be lower or even stop upon retirement.
​

Ways to plan for both
There are plenty of opportunities to fund both retirement and college education in a tax-advantaged way. Consider funding basic retirement needs first, then look at educational savings accounts and related programs. Here are some suggestions:
  • Start saving early. Use time to help grow the value in your retirement and education savings accounts. Take advantage of employer-provided 401(k) or similar retirement programs, especially if there is an employer match. After that, look into Coverdell Education Savings Accounts and Section 529 plans to maximize your education savings potential.
  • Research and apply for grants and scholarships. Start researching early, as there are college scholarships available for children as young as 5 years old!
  • Consider in-state public colleges. They are generally less expensive than private or out-of-state colleges. If an out-of-state college is preferred, check to see if they have reciprocity agreements with your home state.
  • Look into work-study programs. Many schools provide part-time jobs for students to help them pay for school while keeping up with their studies. These programs vary based on a student's financial needs.


Making financial decisions like this can be tough, but with proper planning and insight, a path that works for you can often be found. Call if you want to discuss your specific situation.


"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.  
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA;  Janice Papais, CPA
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Consider Donating Appreciated Stock & Mutual Funds

12/7/2022

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One way to reduce your tax bill this year is to donate appreciated stock to a charity of your choice versus making a cash donation. While this will be a tough challenge in today's market, it is still one of the best tax planning strategies available to you. This part of the tax code provides a tax benefit in two ways:

1. Higher deduction. Your charitable gift deduction is the higher fair market value of the appreciated stock on the date of your donation and not what you originally paid for it.

2. No capital gains tax. You do not have to pay tax on the profits you made after selling the stock. As long as you have owned the investment for more than one year, you can avoid paying long-term capital gains tax on the increased value of your stock.

A Sweet Example
Winnie and Christopher each own 100 shares of Honey, Inc. that they purchased three years ago for $1,000. Today the stock is worth $5,000 (after taking a bit of a sticky hit in the down market). Winnie sells the stock and donates the proceeds to “Save the Bees” while Christopher donates his stock directly to “Honey Overeaters: Finding a Cure”. Assuming a 15% long-term capital gains tax rate*, a 25% income tax bracket, and no other limitations:

Not only does Christopher see $750 in additional federal tax benefit by donating his appreciated stock, but Honey Overeaters has $600 in additional funds to use for their charitable program.

Other benefits
  • The Alternative Minimum Tax (AMT) does not impact charitable deductions as it does with other deductions.
  • Remember, this approach also provides more funds to your selected charity. By donating cash or check, those additional funds are instead paid as federal taxes.
  • This tax benefit could be worth even more if our honey lovers have more income. The maximum long-term capital gain tax rate can be as high as 20%, and also be hit by a potential 3.8% net investment income tax.
  • This benefit is for everyone who itemizes deductions that have qualified assets, not just the wealthy.

Things to consider
  • Remember this benefit only applies to qualified investments (typically stocks and mutual funds) held longer than one year.
  • Be careful as investments such as collectibles and inventory do not qualify.
  • Consider this a replacement for contributions you would normally make to qualified organizations.
  • Talk to your target charitable organization. They often have a preferred broker that can help receive the donation in a qualified manner.
  • Contribution limits as a percent of adjusted gross income may apply. Excess contributions can often be carried forward as deductions for up to five years.
  • How you conduct the transaction is very important. It must be clear to the IRS that the investment was donated directly to the charitable organization.

If you think this opportunity is right for you, please contact a trusted advisor to ensure you handle the donation correctly.
* The total tax rate on this type of investment can be as high as 23.8% (20% capital gains tax plus 3.8% net investment income tax) if you have qualified investment income above applicable threshold amounts.


"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.  
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA;  Janice Papais, CPA
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Phone: (630) 320-3720

Monarch Accounting Group Inc
145 Tower Drive, Suite 10
Burr Ridge, IL 60527-7836
Email: [email protected]


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  • Home
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