Are You Surprised With Your Tax Return?

While it is common for people to be surprised with their tax return results, ideally, you should not be surprised with your tax return results. There are several things you can do to help minimize surprises and ensure that you have a good understanding of your tax liability:

Tax Planning

  1. Keep Track of Your Income and Expenses: Throughout the year, keep track of your income and expenses, including any deductions or credits that you may be eligible for. This will help you estimate your tax liability and ensure that you are taking advantage of all available tax breaks.
    2. Review Your Withholdings: Review your W–4 form and make sure that you are withholding the appropriate amount of taxes from your paycheck. If you have had any significant changes in your income or family status, it may be wise to adjust your withholding allowances accordingly.
    3. Know where you land in the tax brackets. How much income do you make? Use that number and subtract the standard deduction for your filing status to get an estimate of your taxable income. Then google tax brackets for that year. Observe where you land and see if it makes sense.
    4. Do you have other income, such as investment income, retirement account distributions, self–employment income, rental income? Do you know how that income is taxed?
    5. Stay Informed of Tax Law Changes: Keep up to date with any changes to tax laws or regulations that may impact your tax liability. This will help you make informed decisions when it comes to tax planning.
    6. Work with a Tax Professional: If you have a complex tax situation, it may be beneficial to work with a tax professional who can help you understand your tax liability and ensure that you are taking advantage of all available tax breaks.

By taking these steps, you can help minimize surprises and have a better understanding of your tax liability when it comes time to file your tax return.

Personal Income Tax Course

We are developing a self–study course that teaches you the basics of a personal income tax return so there are no surprises. If you want to be notified when it is available, please enter your email address here.

 

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Secure Act 2.0

Here are some of the highlights of Secure Act 2.0 as it relates to personal finances:

  • Required Minimum Distribution (RMD) Starting Age Is Getting Pushed Back Again
    • In 2020, the Secure Act changed the starting age for RMD’s to age 72. Secure Act
      2.0’s new starting age will be 75–but there’s a phase in. Here’s what it looks like:

  • RMD’s No Longer Required From Roth Employer Plans
    • Previously there were no RMD’s for Roth IRA’s, but you still had to take RMD’s
      from Roth 401k’s, Roth 403b’s, Roth 457’s, etc.
  • New Roth SIMPLE and SEP IRA’s
    • Prior to Secure 2.0, Roth options were not available in SIMPLE and SEP IRA’s.
  • Employers Can Now Make Roth Contributions
    • Prior to Secure 2.0, Employer matches and other contributions to employer
      plans were always traditional (tax deferred) contributions regardless of the
      employee’s contribution.
  • Roth Catch Up Contributions For Wages Over $145K
    • For W–2 Employees, if you earn more than $145K the previous year and you are
      making catch up contributions, they will automatically be Roth contributions.
  • Potential Ability to Transfer 529 Funds to Roth IRA’s
    • There is a $35K lifetime limit for these transfers and several other stipulations
      that must be met in order to allow this transfer to happen (529 must exist for 15
      years, etc.)
    • These transfers can start in 2024, but make sure you look up the rules to see if
      you would be allowed.
  • IRA Catch Up Contributions Will Be Indexed For Inflation Each Year
    • Starting in 2024, the catch–up contributions for those over age 50 will be indexed
      for inflation in $100 increments
  • Employer Plan Catch Up Contributions Will Increase For Ages 60–63
    • Starting in 2025, those who participate in Employer Retirement Plans and who
      are ages 60–63 will be able to contribute more than just the catch up
      contribution.
  • Maximum Annual Qualified Charitable Distributions (QCDs) Will Be Indexed For
    Inflation
    • The annual amount for a QCD has been $100K for 15 years. Starting in 2024,
      QCD maximums will be indexed for inflation.
  • RMD Penalties Reduced
    • Beginning in 2023, the penalty for not taking your RMD for the year is reduced to 25% (from 50%) AND there is a correction window so that you can correct your mistake and reduce the penalty even further to 10%.

 

There are lots of other things in this Secure 2.0 Bill, but the above are the highlights that I feel are the most likely ones that apply to more people.

 

RMD’s (Required Minimum Distributions)

We are approaching the end of the year, and this is when you start hearing people mention RMD’s because they need to be satisfied by the end of the tax year—December 31st.

What are they?

RMD’s are distributions that you must take from a retirement account. Essentially, the government has given you (or the account owner) a tax break for saving this money in a retirement plan and RMD’s help with getting the money back in circulation and tax revenue for the government.

Who has to take them?

This is where it gets complicated. We can break this into two groups of people: age based for your own retirement account and inherited retirement accounts.

  • Age based for your own retirement accounts
    • You must start withdrawing money annually from your retirement accounts (except ROTH IRA’s) the year you reach age 72 (this was age 70 ½ if you reached 70 ½ before 1/1/2020).
    • How much do you have to take? This is based on your age, and you follow the Uniform Life Table from the IRS—there are a few exceptions that may require another table. You can check which table to use on the IRS site. Essentially, if you are required to take a distribution in year 2024, you see what age you will be in 2024 and divide your account value on January 1, 2024 (or December 31, 2023, because they are the same number) by the factor for your 2024 age in the table. You do this each year based on your age until you empty the account, or you are no longer with us.
  • Inherited retirement accounts
    • This is where it gets really tricky. There are a couple of moving parts. The first is figuring out if you are an eligible designated beneficiary. For the most part, this includes surviving spouses, disabled individuals, minor children or an individual who is not more than 10 years younger than the deceased owner.
      • These eligible designated beneficiaries can take distributions over their own life expectancy, except for minor children. Minor children must distribute the account completely within 10 years of reaching age 18.
      • If you are not an eligible designated beneficiary, then you must distribute the account within 10 years from the date of death of the original account owner. You also may be required to take annual distributions during those 10 years as well.

What happens if you do not take them on time?

There is a penalty for not taking your RMD and it is a big one—FIFTY (50)percent! You still need to take the RMD, pay taxes (federal and possibly state) on the amount AND pay a 50% penalty. All of this adds up and eats away at your distribution, so you really want to avoid these penalties.

Bottom Line

The bottom line is that you just need to know that these rules exist. There are people (like Financial Journey!) that can help you with the details of figuring this out—and it will most likely cost you less to hire some help than to pay one penalty of missing your RMD.

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

5 Questions You Should Ask When Hiring a Financial Advisor

Finding the right Financial Advisor for the job is so important! You need someone who is trustworthy, competent, and affordable. 

Questions To Ask Yourself

Before you interview a financial advisor, you need to ask YOURSELF a few questions: 

  • What are you looking for in a financial advisor?
  • What services do you need?
  • What are you willing to pay for them?
  • How often do you want communication (frequent in-person, occasional call, or email)?

Knowing your goals and communication style will help you to quickly determine which financial advisor is the right one for you.

Questions To Ask a Financial Advisor

  1. Are You a Fiduciary?

You want your financial advisor to say yes! Fiduciaries are financial advisors who are required to:

  • Put the client’s interests first
  • Disclose important information, including their fees
  • Reveal any conflicts of interest
  1. How Do You Get Paid?

Financial advisors can make their money in several different ways:

  • Hourly
  • A fee based on a specific service
  • A percentage of the managed assets
  • A sales commission on investment products

To avoid any conflicts of interest, look for an advisor who is “fee-only.” 

  1. What Services Do You Provide?

Different advisors may only support you in certain financial areas, such as:

  • financial plans
  • managing assets
  • investment advice
  • retirement
  • insurance
  • tax planning

Before you hire a financial advisor, know what services are offered and if there are any extra costs for additional services. 

  1. What’s Your Philosophy on Investing?

A good financial advisor should fit your needs. You want someone whose investment philosophy matches yours and uses strategies that you understand. This will help you feel more secure through the ups and downs of the market. 

  1. Who Are Your Typical Clients?

You want to work with a financial advisor who has experience working with people in your situation. 

Conclusion

A good financial advisor should expect questions like these. They understand how important the relationship is between the advisor and the client and want a good fit for both parties which is why you should interview more than one. 

Your financial advisor is an important person in your life. Take your time to consider all the candidates and choose the one who’s best for you.

If you are looking for a trusted partner to help you navigate financial decisions, we are here to help. Schedule a meeting with us today to see how we can help you with your own financial journey. 

 

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

How Am I Doing?

When I meet with people inquiring about my services, the most common thing that clients want to know is ‘how they are doing.’ This is not a question that I can really answer. Why? Because how someone is doing is relative to the outcome they are hoping to achieve.

Continue reading

How to Pay for Travel

I absolutely love to travel. I even have different folders in my email for reservations and plane tickets. These folders are rarely empty because I love having a trip to look forward to. Travelling is not cheap when you think about hotels, airfare, eating every meal out, car rentals and spending money for sightseeing. People approach budgeting for travel in different ways-some save up and purchase everything at once; others pay for things along the way.

Continue reading