Michael J. Dobrowski CPA LLC » Blog http://RenoTaxServices.com The Most Trusted Tax & Accounting Professional in the Reno Area ~ Call (775) 329-0843 Thu, 11 Mar 2010 20:14:51 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 Audit-proof Your Life http://RenoTaxServices.com/664/audit-proof-your-life http://RenoTaxServices.com/664/audit-proof-your-life#comments Fri, 05 Mar 2010 03:23:49 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=664
“The past does not define you, the present does.”
- Jillian Michaels

I hope your weekend went well–our family has been enjoying the Olympics, and, in particular, many of the stories which go with it.

Now…there’s stories like this, and, of course, the stories of our own lives which capture most of our attention. And here’s a BAD chapter to live through: an IRS audit.

We’ve dealt with this for clients in the past, and it’s never fun. So, with that in mind, I’ve put together some excellent ways to MINIMIZE your chances of getting audited. Unfortunately, I can’t *guarantee* that you would never get audited…but following this advice will significantly reduce your chances.

Read on, and send feedback!

Michael Dobrowski’s
“Real World” Personal Strategy
8 Ways To Keep The IRS Audit-Hounds at Bay

1. Don’t make indefensible claims

There are so many old wives tales saying that certain items trigger an audit: home office deductions, passive losses, schedule C (sole proprietorship) activities, etc. But you really can’t predict the trigger (and you can drive yourself crazy trying), but you *can* adopt the “be reasonable” mantra about every item on your return (with our help, of course), including these. So if you don’t have a decent claim for a home office, we’ll help you not to claim it. If your money-losing sole proprietorship is really more a fun hobby, treat it as such.

Look–don’t be scared to take deductions and losses you’re entitled to, but don’t take tax positions you aren’t comfortable defending. If you take reasonable tax positions, you’ll likely find you won’t end up needing to defend them. And if you do face an audit, it will likely be far easier.

2. Make sure it all adds up!

This seems like it should go without saying, but make sure you add, subtract and multiply accurately. Check your numbers through each step and do some simple math checks when you finish. If you do make a math mistake, you are likely to get a math correction notice from the IRS. This isn’t an audit. But our goal is to minimize your interaction with the IRS bureaucracy, which, ah… isn’t known for the best mail handling practices.

3. Don’t miss a 1099

This can be confusing, because the Form 1099 comes in many varieties, including 1099-INT for interest, 1099-DIV for dividends, 1099-G for tax refunds, 1099-R for pensions and 1099-MISC for miscellaneous income. These forms are sent by payers of such funds to both you and the IRS.

So regardless of how many 1099s you receive, make sure they all are accounted for on your return. There are also Forms 1098 which lenders send (to you and the IRS) recording how much interest you paid. The IRS matches your return against the 1098s and 1099s. So one sure way to guarantee an IRS query is to fail to account for something! If a Form 1099 is wrong–say it reports more income than you had–you can explain or deduct it on the return, but you need to first report it.

4. Report “just enough”

I’m not talking about under-reporting income, or holding necessary information back. But you’d be surprised how many professionals and amateurs alike try to submit too much *supporting* information. True, if your return is complex, you may need to add explanations or disclosures in footnotes. Be concise, truthful and accurate, but don’t provide copies of sales agreements, settlement agreements, bank statements, etc., unless you are later asked to by the IRS.

Disclosures can be made on regular paper or special IRS forms. A Form 8275 “Disclosure Statement” on plain paper can be used any time you need to disclose something that can’t be adequately disclosed on the forms. Form 8275-R “Regulation Disclosure Statement,” is for disclosing positions that are contrary to IRS Regulations or other authority. You shouldn’t be filing a Form 8275-R–or taking a tax return position that would require it–without professional help.

Frankly, though, any disclosure statement should be checked with someone who can take you by the hand and ensure it’s done properly (ahem).

5. Don’t fight what you don’t need to fight

Here’s where some clients have gotten in trouble in the past, despite our admonitions: If you take reasonable tax positions, and complete your return accurately, checking your math, why should you pay a bill if the IRS sends you one? Frankly, it’s a matter of practicality (and wisdom) rather than principle. It just doesn’t pay to fight with the IRS on small matters. So don’t get into the bureaucratic system and risk bigger problems for a few dollars. Just pay it and move on.

6. Avoid minor amendments

Here’s the reverse situation of my previous point: amended returns are reviewed much more regularly than initial returns. So if you forgot a deduction or otherwise think you can get a small amount back by amending, think twice before amending your return (i.e.–consult with a pro). Consider whether you might have bigger problems if other matters on your return, unrelated to the amendment, are reviewed. Yes, you can win a battle…and lose a larger one.

7. Don’t ask for cash

Perhaps you’ve received a notice that you are entitled to a refund. Well, you might consider applying it to your next year’s tax payments, rather than asking for the refund in cash. If you have a big refund, you’ll simply have a lower “profile” to the computers and to the bureaucrats if you file a return applying a whopping refund to estimated tax payments for the current or future years. This logic applies to both initial returns and to amended ones.

8. Go with a pro

Yes, this is a bit self-serving–but I’ll also make a “damaging admission” here: some tax professionals argue that a return prepared by a professional is less likely to be audited.  However the facts are that there’s little reliable data to support it. That being said, having a professional prepare your return–or at least advise on anything quirky–is simply a wise investment.

So to absolutely ensure that whatever happens, you’ll have someone at your side–give us a call: (775) 329-0843.

And a last word: No matter how careful you are, there’s no way to guarantee you’ll never have a tax controversy. Sometimes your number just comes up. But when your number is called…make sure you aren’t alone.

I hope this helps. Warmly,

Michael Dobrowski
]]> http://RenoTaxServices.com/664/audit-proof-your-life/feed 0 Financial Communication In Marriage http://RenoTaxServices.com/659/financial-communication-in-marriage http://RenoTaxServices.com/659/financial-communication-in-marriage#comments Fri, 05 Mar 2010 03:15:57 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=659 “Lots of people want to ride with you in the limo, but what you want is someone who will take the bus when the limo breaks down.”
- Oprah Winfrey

So, this is the big question of last week: how did Valentine’s go?

Some say it’s a “Hallmark Holiday”, but well–some spouses think otherwise, right? Well, if you blew it, I’ve heard that it’s NEVER too late. Make this week count, my friend.

Now that day’s festivities aren’t the only experience I have with the language of love. You see, we meet with married couples almost every week in the course of preparing taxes and handling other such matters. It’s part of what we do–and, as we do so, we get sort of a crash course in marital communication.

Before you get worried–know that we don’t pass judgment on anybody’s marriage! Everyone has their own, unique relational dynamic. And every marriage works a little bit differently–it’s part of what makes it a wonderful institution.

That said, however, I’ve noticed that *finances* can be a major sticking point in a good marriage.

But there are simple steps you can take (five, by my count), which will ensure that you don’t ever fall into the trap of letting a good marriage be spoiled by money miscommunication.

Read on, and send your feedback! And, of course, if you need help with any of this, that’s exactly what I’m here for!

Michael Dobrowski’s
“Real World” Personal Strategy
Financial Communication In a Marriage

Money problems can ruin the love affair with your spouse. The work of blending two lives in harmony requires certain basic commitments. It’s a fact that many families today are financially troubled.

Most of these are in denial. The rest of them are looking for a quick fix. Even a financial planner can’t help unless the couple is willing to make five simple commitments. You can always choose to find something to fight about. But if you are serious about removing the financial obstacles in your love life, you should commit to the following money management rules.

1) First, take the time to provide open accounting to your spouse. Most financial arguments are not about how to spend your money–but about how the money was actually spent. Just like every publicly traded company is required to give a public accounting of its finances, couples should do the same. In the public sector, it’s considered a scandal when a corporation fails to provide its financial information in a timely fashion. The same rules should apply at home. Financial accountability, openness, and honesty are essential in marriage.

2) Next, make saving investment in yourselves your first priority. Pay yourself first. Couples should agree on a savings and an investment rate and should prioritize their savings above all other budget categories. Savings should be automated and protected from impulse spending habits.
I’ve come to believe that savings should even be prioritized above debt reduction. I’ve found that couples that are in debt cannot seem to get out of debt because they are using what should be going into savings to service their debt, rather than adjusting their lifestyle so that they are spending less than they make.

3) Set a limit on what you can spend without first getting the approval of your spouse. Each spouse must sign off on spending that might be a budget buster. If you are young or your finances are in trouble, the amount should be fairly low. As you get more experience and your finances are in harmony, you can raise the amount. Any purchases above that amount should require the agreement of both spouses.

In the same way, any purchases beyond what was budgeted should require the agreement of both spouses as to which budget category is going to be reduced in order to make up the difference. If your spouse asks you to wait before making the purchase, lean toward waiting graciously. Ask what you would do if you did not have the money at all. Then, do that instead. Delaying a large purchase even by a month can significantly increase your financial health.

4) Set rules for the acceptable use of credit. In my experience, the easy use of credit cards ruins much financial harmony. It is better when the use of credit cards is limited to only certain required budget items. Using a credit card for groceries or gasoline may be harmless. But when credit cards are used for clothes or eating out, optional spending is unnecessarily inflated.

There are several advantages to using credit cards. But each of these advantages becomes powerful disadvantages for a family struggling to make ends meet. Credit allows couples to avoid asking the tough question about what they would do if they did not have the money. Credit makes spending easy and simplifies check-writing. These advantages are as helpful as giving an alcoholic a place to sleep in the back of the bar.

Either spouse should be able to veto the use of credit cards entirely. Only if both parties agree to the use of credit cards, should they be allowed – and then only within certain guidelines.

Credit should only be used for specific required monthly categories, and then only by the spouse who is less apt to make extra purchases on impulse. If you are struggling with your finances, stop using credit cards entirely.

5) Lastly, agree together that ignorance is no excuse! Both parties must be willing to learn. Just like a good love life, finances cannot be handled well by just one party. Many problems stem as much from ignorance and abdication by one party than spending by the other. If you don’t have the time or the interest to be involved in the family’s finances, then you may be the problem. Ask for help and start learning.

Look, I’m not a marriage counselor. But I DO know good communication when I see it.

I hope this helps.
Warmly,

Michael Dobrowski


]]> http://RenoTaxServices.com/659/financial-communication-in-marriage/feed 0 Haitian Blues http://RenoTaxServices.com/626/haitian-blues http://RenoTaxServices.com/626/haitian-blues#comments Thu, 28 Jan 2010 21:47:37 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=626 He who loses wealth loses much; he who loses a friend loses more; but he that loses his courage loses all.

- Miguel De Cervantes

While the scope of the Haitian tragedy is very different, “mopping up” after a family tragedy can be just as devastating.

Which is why, simply put, it pays to be prepared.

Yes, there have been significant estate tax changes this year–but did you know that estate planning is *much* more than just avoiding the “estate tax”?

In fact, the great majority of our clients aren’t in the wealth category affected by the estate tax legislation. But that doesn’t mean that estate planning shouldn’t be sought. You’ll see what I mean below.

(Oh, and by the way–next week, I’ll return to my surprisingly popular theme re: mistakes made during tax season. Thanks for your nice feedback!)

Let me know your thoughts…and, of course, if you’d like to talk this over with us we DO have some open appointments for now. That will quickly change, however.

“Real World” Personal Strategy

Part 2: Common Myths About Estate Planning

A few weeks ago, I wrote about these common myths–still held by the majority of Americans.

In fact, as of this writing, it’s a fact that almost 60% of Americans don’t have a basic will, and that’s a big problem.

Much of the reason for this is because of misconceptions about estate planning, and I dealt with two already:

Myth 1. Only rich people prepare estate plans.

Myth 2. Everything goes to your spouse, if something happens.

Well, I’ve got three more for you to chew on, and dispense with.

Myth 3. After I create my will or living trust, there’s nothing else to think about.

Well, if you follow this line of thinking, it could lead to a lot of problems. For instance, once you set up a trust, you need to re-title the assets you want to transfer to the trust. Otherwise, the trust doesn’t help a thing.

On top of that, families need to periodically update their will or trust to reflect major life events, such as a divorce or the birth of a child. You’ll also want to revisit your estate plan if you move to another state.

In fact, it’s a good idea to meet with us every 3 or 4 years to make sure your plan is fully up-to-date. (Which, incidentally, we provide free to certain clients.  Ask us about that.)

Myth 4. If I have a will, my estate automatically won’t go through probate.

Well, again–that’s not the case. In fact, ALL wills are subject to “probate”.  This is a process in which a court determines whether the document is actually valid and ensures that relatives and creditors are notified. This process can take several months and drain thousands of dollars from your estate.

So here’s one way to avoid that entirely–create that living trust. Essentially, a living trust is a legal document you create which holds property (such as brokerage accounts and real estate). When you die or are incapacitated, the property is smoothly transferred to your beneficiaries. This transfer occurs outside of the probate process, which saves a TON of hassle.

Not everyone needs one of these documents, but it’s something which you can’t paint over with a broad brush.   This is why it’s important to walk with a competent guide on these matters.

By the way, if you own property in more than one state, a living trust is a no-brainer. Going through probate in multiple states is a nightmare.

Another advantage to a living trust is privacy. A will is a public document, and anyone can come to the probate hearing to see if any fights break out. Living trusts aren’t published in any courthouse, so people can’t gain easy access to them. That’s quite nice.

Myth 5. I could be held responsible for a deceased parent’s debts.

No, you’re not responsible for credit card debts from your parents.

In general, children aren’t responsible for a deceased parent’s debts, and in some cases spouses are often exempt as well. Again…you can’t paint it with a broad brush. But as a general rule, the estate is responsible for paying debts. If there isn’t enough in the estate to cover the amount owed, the debts usually go unpaid.

I hope all this helps.

To your family’s financial and emotional peace…

]]> http://RenoTaxServices.com/626/haitian-blues/feed 0 Turns Out You Might Get Taxed, After All… http://RenoTaxServices.com/516/turns-out-you-might-get-taxed-after-all http://RenoTaxServices.com/516/turns-out-you-might-get-taxed-after-all#comments Sat, 08 Aug 2009 01:29:04 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=516 “Morale is when your hands and feet keep on working when your head says it can’t be done.”
- Benjamin Morrell

As you know, from previous notes we’ve exchanged, I really do try to steer clear of political disputes. My clients hail from all sides of the political spectrum, and it does me no good to tick off a bunch of friends to somehow “prove” my bona fides to another.

But I think we can all agree that our political system isn’t what it should be. That said, I still believe we live in the best country on the planet–despite how disappointed we can be with individual politicians. And with these individuals, I think it’s fair and appropriate to point out that “promises” made on the campaign trail sometimes must bow to facts on the ground.

Why do I write about this?

Well, it’s now in the news that President Obama may indeed be contemplating a tax increase on middle-class families, despite his promises to the contrary: http://finance.yahoo.com/news/2-Obama-officials-No-apf-2491158742.html?x=0&.v=7 . Again, people may (vigorously) disagree about the particular economic strategy of raising taxes in the midst of a downturn, but after working with the IRS for years, I’ve discovered this unassailable truth…

The government really likes to have your money.

And sure–putting yourself in their shoes, it’s hard to blame them! Of COURSE individual bureaucrats and politicians believe that THEIR particular initiatives deserve funding–it’s normal human nature, right? It’s just that the funding comes in the form of being taken from your and my paycheck.

Which is why we do what we do here.

I’m all for paying my fair share–I just hate when I see families hit with a “stupid tax” because they didn’t know all the relevant tax code…or because they worked with somebody who didn’t take the kind of time we take.

On to this week’s Personal Strategy Note: now’s a great time to get the education you’ve been putting off to advance your career. Once you’re done (hopefully) the job market will be MUCH better than it is now! I’ve got some money-saving tips for you this week…

“Real World” Personal Strategy
Go Back To School…At No Charge!

Recessions often see a “boom” in adult education, and this one’s no different. But if you’re seriously considering how to get ahead, do NOT leave behind these strategies to get the thing paid for!

Scholarships
Many scholarships don’t have age limits, which makes anyone eligible to apply. Check out www.Fastweb.com and www.SuperCollege.com to search for available scholarships.

Professional and Trade Organizations
Local and national professional and trade organizations often offer grants and scholarships. For instance, The San Diego Foundation (http://www.sdfoundation.org/grant/ ) has several scholarships for adults. Begin by doing an Internet search for your particular locale and specialty. You can also contact your local Chamber of Commerce to see if they have any information on local grants and scholarships.

Colleges and Universities
Many schools offer scholarships created especially for adults who are returning to school. Check a school’s individual Web site or contact the admissions office for details.

The Government
Individual states may also provide grants to help people attend re-training programs that they sponsor. Information and links can be found at www.careeronestop.org . In addition, the Obama administration has launched www.opportunity.gov to help unemployed adults return to college. The site includes information on a variety of federal student aid programs.

Employers
A large number of employers still offer tuition assistance, especially if you can show how the educational program will help your job performance. For adults who want to return to school while they are still working, this is another avenue to consider.

The Bottom Line
With a little research and a little effort, returning to school may be a whole lot easier…and a whole lot cheaper…than you think!

Hope this helps!

]]> http://RenoTaxServices.com/516/turns-out-you-might-get-taxed-after-all/feed 0 There ARE Some Shady Tax Pros Out There http://RenoTaxServices.com/512/there-are-some-shady-tax-pros-out-there http://RenoTaxServices.com/512/there-are-some-shady-tax-pros-out-there#comments Mon, 27 Jul 2009 19:35:39 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=512 “A lot of people like to do certain things, but they’re not that good at it. Keep going through the things that you like to do, until you find something that you actually seem to be extremely good at. It can be anything.”
- George Lucas

This subject came up in a note I wrote in mid-June, and the topic is back in the news.

You see, unlike my clients, there is a growing number of individuals and families who feel like they get a bit taken advantage by unethical and poorly-trained tax preparers and professionals. Families get sold on promises of fat refunds and excellent service…and then reality sets in. Errors, unfulfilled promises and worse–audits (!) come down the pike, and these families are left hanging in the lurch.

Well, the federal government is considering requiring a license for *anyone* who prepares taxes on another’s behalf. And yes…you might think I’d be opposed to these additional standards and licenses, but, in fact, legitimate businesses generally welcome higher standards as a way of announcing to our clients that we meet those standards! The American Bar Association and H&R Block are just two of the organizations that have announced they support the IRS effort.

Further, you can add your own comments for the IRS here: http://www.irs.gov/newsroom/article/0,,id=211141,00.html . Feel free to add your thoughts–it will NOT increase your likelihood of an audit :) .

Moving on to the subject of this week’s Strategy Note, we’ll be talking CARS. Specifically, of the “clunker” variety, as the new federal program started on Friday. Plus, there’s some other ways you can save on your taxes through qualifying vehicle purchases, which I lay out in this week’s note.

Oh, but before I go there, let me remind you of our “Independence Month Special”, esp. for your friends who may want the peace-of-mind from having some REAL professionals review their previous years’ returns–up to three years previous can still trigger an amendment which can save on taxes!

“Real World” Personal Strategy
Cars, Cars and CARS…

Two items today, re: vehicle purchases…

There’s been a bit of controversy surrounding the new program for trading in low-mileage vehicles (see here: http://abcnews.go.com/Business/story?id=8154897&page=1) , but regardless of your opinion on the program, it started on Friday.

To recap…

*Trade-ins must be 1984 models or newer, get no better than 18 miles per gallon, and have been registered and insured for the past year. (An interesting note is that buyers’ trades will actually be completely scrapped and have no value to the dealership above the amount of the voucher. A 10-year-old Lexus might qualify for the biggest ($4,500) voucher, but it’s almost certainly worth more than that on the open market, so you should keep that in mind.)

* The mileage you get in your daily driving does not matter one bit. What matters is what’s on record with the government; its source of data is www.fueleconomy.gov. A muffler-dragging 23-year-old Honda may meet the popular definition of “clunker”, but if the government’s estimates show it should get more than 18 mpg combined new, it’s not a clunker. You’ll see two sets of fuel-economy numbers for most cars: one calculated under an older EPA system, the other recalculated to reflect a new formula. Use the new one.

*The numbers:
- New passenger vehicles must have a combined mpg of 22mpg; “Light duty” trucks must be 18 mpg; and trucks over 6,000 lbs. must get 15mpg

- To qualify for the program, the “old” vehicle must get…

>Passenger vehicles– 4 mpg LESS than the new for $3500 credit; 10 mpg LESS than the new for $4500 credit

>”Light duty” trucks– 2 mpg LESS than the new for $3500; 5 mpg LESS for $4500

>Trucks over 6K lbs– 1 mpg LESS than the new for $3500; 2 mpg LESS for $4500

Let us know if we can help…

SEPARATELY from “Cash for Clunkers”…

A special deduction will be available on your 2009 individual tax return, next year, whether you itemize deductions or not.

If you purchase a new passenger vehicle between February 16, 2009 and before January 1, 2010, you may qualify for the deduction. There are income limitations after which a phase-out will occur. For example, if your modified adjusted gross income is between $125,000 and $135,000 for individual filers, or between $250,000 and $260,000 for joint filers, the deduction may be discounted or disallowed.

No matter whether you purchase a new car, light truck, motor home or motorcycle, this deduction will be limited to the state and local sales and excise taxes paid on up to $49,500 of the original purchase price of the vehicle. According to the IRS, this deduction will enable you to buy now and get cash back later on your 2009 tax return.

Hope this helps!

]]> http://RenoTaxServices.com/512/there-are-some-shady-tax-pros-out-there/feed 0 Summer Time is Tax Cutting Time! http://RenoTaxServices.com/505/summer-time-is-tax-cutting-time http://RenoTaxServices.com/505/summer-time-is-tax-cutting-time#comments Thu, 23 Jul 2009 17:10:13 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=505 No life ever grows great until it is focused, dedicated, disciplined. - Harry Emerson Fosdick

It’s pretty crazy that we’re already nearing the end of July! Is it just me, or is time really flying by? More than halfway through 2009…

Well, I often try to avoid discussing taxes with you in these personal notes. I find that too many tax professionals and accountants are so full of tax jargon, that the regular family just ends up buried in a blizzard of gobbledy-gook.

I hope you can already tell that I take a different approach :) . And, of course, it’s our JOB (and our true pleasure at my firm) to take care of most of that stuff on your behalf in the first place!

But I did want to make some suggestions this week for how you can plan ahead NOW to avoid getting nailed next tax season.

That’s my subject for this week’s Personal Strategy Note…read on, and leave your feedback or questions!

“Real World” Personal Strategy

Tax Cutting Tips For The Summer

Here are just a few summertime tax-saving ideas to consider:

* If spring cleaning left you with outgrown clothing and household items you no longer use, donate them to charity. Items in good used condition qualify for a tax deduction.

* If you and your spouse work, consider sending your children to a summer day camp. The cost may qualify for the dependent care tax credit.

* If you operate an unincorporated business, consider hiring your children to work for you this summer. You can deduct reasonable wages paid to them for the work they perform, and there’s no social security tax on their wages if they are under age 18.

* Summer is great for entertaining customers or clients. Keep records of the cost, the date, who was entertained, and what the business purpose was. However, your tax deduction is limited to 50% of your cost.

* Combine business with your summer travel, and you may be able to take a tax deduction for the business portion of your costs.

Need To Make Some Home Improvements?

Make energy efficiency changes and you might be able to cut your 2009 tax bill at the same time.

The 2009 tax law signed in February expanded energy tax credits in order to encourage homeowners to make improvements that will make their homes more energy-efficient and save money over the long run.

Qualifying improvements – such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems – could cut your taxes. Previously the credit for energy improvements was 10% of the cost, with a $500 lifetime limit. The new law increases the credit to 30%, with a $1,500 limit.

The new law also eliminates the cap on the 30% tax credit for alternative energy equipment, such as solar water heaters and geothermal heat pumps installed in homes.

For details and guidance in maximizing the enhanced energy credits for your home improvement projects, give us a call. We’re here to help you benefit from every available tax break!

Hope this helps!

To a LOW tax bill for you!

]]> http://RenoTaxServices.com/505/summer-time-is-tax-cutting-time/feed 0 More on Achieving Financial Independence http://RenoTaxServices.com/503/more-on-achieving-financial-independence http://RenoTaxServices.com/503/more-on-achieving-financial-independence#comments Thu, 16 Jul 2009 02:44:09 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=503 “A true conservationist is a man who knows that the world is not given by his fathers, but borrowed from his children.” – John James Audubon

Thanks for your responses from last week’s Strategy Note on achieving financial independence. It was so well-received, that I thought I would spend a bit more time on that subject in this weeks’ note for you.

But, before I get there, I’d like to speak some encouragement to you. A few people wrote to me saying that they were feeling pretty dispirited about their personal situation…and that anything discussing “financial independence” really seemed like a pipe dream, and unrealistic for them.

As usual, I know that when a few people write about it, there’s many more that think it, and I’d like to speak a word to you, if you’re in that category.

Don’t give up.

Yes, simplistic perhaps–but with all of the folks in this economy who are going through hard times, it’s easy for them to believe that there isn’t a light at the end of the tunnel. Did you know that most millionaires have previously been bankrupt at some point? In fact, it’s often the “fire” of these times of trouble which serve to clarify things–and get you making smart decisions, perhaps for the first time.

So, if you’re feeling the financial heat right now, look out for the blessings in the midst of pain. I know it’s hard–but chances are, you’re being reminded of what’s REALLY important…and often, seeing this again can be a launch pad for living the kind of life that you really want to live.

So go for it!

Well, I’ve got some additional thoughts for you about what I wrote in last week’s Personal Strategy Note…

“Real World” Personal Strategy

How To Achieve Financial Independence (Part 2)

Money has no value unless you’ve got the time and good health to enjoy it. In fact, if you have to be poor, would you rather be poor now or at retirement? By planning carefully and investing wisely, you shouldn’t have to make this choice.

Planning for Financial Independence

I believe that you ought to save early and often, making regular scheduled investments in the stock market through the use of mutual funds.

Over the long term, the U.S. stock market yields an annualized return of about 10% (assuming dividends are reinvested). Yes, things are volatile right now…but “market risk” is not the greatest danger to your savings – inflation is the greatest danger. The value of your retirement erodes at a rate of roughly three or four percent every year.

But the stock market has always recovered from even the steepest declines.

Here’s an historical note for you (pertinent now): the worst one-year period for the Dow ran from 01 July 1931 to 30 June 1932. It lost 68.92% of its value. Would you have bought stock then? If your goals were long term, that’s exactly what you should have done. The best 30-year period for the Dow ran from 01 July 1932 to 30 June 1962, during which time it offered an average annual return of 14.34%.

Becoming Financially Independent

Reaching financial independence isn’t always easy. It takes time and work. You cannot accomplish your goal of achieving it by wishing. It takes doing. It takes being committed to and being absolutely determined to act.

One way you can act now, is to take a look at your personal expenses. Here’s some tips to cut them…

* If you and your partner both work, try to live on only one income. Invest the other.

* Save an emergency fund, but don’t make it too large. I like a small (one-month of expenses) emergency reserve, with everything else invested in mutual funds.

* Never borrow money, except to buy a home. If you use credit cards, use them only as a convenience, not to borrow.

* Pay yourself first. Every month, invest some portion of your income for your future.

Finding more money to actually invest is the best way for you to reach financial independence. And one great way to find extra money is to cut back on your existing expenses.

Yes, you can achieve financial independence, but you can’t get there overnight, and you can’t get there without setting goals and making sacrifices.

So start now.

Hope this helps…

To your greater independence!

]]> http://RenoTaxServices.com/503/more-on-achieving-financial-independence/feed 0 How to Achieve Financial Independence http://RenoTaxServices.com/501/how-to-achieve-financial-independence http://RenoTaxServices.com/501/how-to-achieve-financial-independence#comments Tue, 07 Jul 2009 16:55:14 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=501 No bird soars too high, if he soars with his own wings. - William Blake

I truly hope you enjoyed your Independence Day festivities.

Interestingly, did you know that the Declaration of Independence was actually approved on July 2nd, and most of the delegates didn’t sign it until August 2nd? While John Adams expected Americans would celebrate July 2, the date on the publicized copies of the document was July 4th…so that’s why we celebrate it then!

Some other facts you may not know about our just-passed holiday…

* Three presidents died on July 4th: Thomas Jefferson and John Adams in 1826, and James Monroe, in 1831. Calvin Coolidge was the only president born on July 4th, in 1872.

* The Massachusetts General Court was the first state legislature to recognize July 4th as a state celebration, in 1781.

* The first recorded use of the name “Independence Day” occurred in 1791.

* The U.S. Congress established Independence Day as an unpaid holiday for federal employees in 1870. They changed it to a federal paid holiday in 1931.

For those of you who enjoyed a paid holiday on Friday–thank the Great Depression-era Congress!

So…all of this about “independence” got me thinking about YOUR *financial* independence. Are you on track for it?

I’ve got some thoughts for you about how to get there in this week’s Personal Strategy Note…

“Real World” Personal Strategy

How To Achieve Financial Independence

Often, as we strive to keep our heads above water in these financially crazy times, it’s easy to lose sight of why we’re doing this. What is the goal? What is it we’re trying to accomplish by earning wealth? For me – and for many others – the answer is Financial Independence.

I would define this as “having an income sufficient for your basic needs and comforts from sources other than paid employment”. Financial independence implies freedom. It’s the condition of having saved enough money that you can do whatever you choose. Whether you elect to keep working doesn’t matter – you have enough saved and invested to follow your dreams.

But is financial independence just a pipe dream? Is it something only for the lucky and the strong? No, it’s a goal that anyone can fulfill as long as they’re armed with some basic knowledge, as long as you make smart choices.

As I see it, there are four keys to accumulating wealth:

1. Start investing as early as possible. It takes significantly less money to accomplish what you want, and you have more time working for you.

2. Be determined to save on a regular basis. It is an easy way to accumulate wealth.

3. Begin investing with the largest possible sum you can. You will have more money working for you over a longer period of time.

4. Reach for the highest rate of return you believe you can safely receive on your money over time. Each additional percent is important. The higher the rate, the less money it takes to accomplish what you want.

Financial independence is built upon these four guidelines.

Confronting your financial challenges

In order to save money, you must fight to keep from spending it. I encourage you to set goals, to prioritize wants. Since money can be spent only once, you need to decide which wants are most important. To do this, it may be helpful to place a value on each of your wants.

So…here’s an exercise for the week: Pull out a piece of paper and list your wants.

These can range from a new house to a hot tub to a trip to London to a new blender for the kitchen. Next to each item, write why you want it. (You might want a hot tub, for example, because it would allow you to relax with family and friends.)

When you’ve finished, take another piece of paper and re-order the list based on how important each want is to you. If a trip to London tops the list, are you still willing to delay it by spending $40/month for that gym membership you rarely use?

Confront this issue first (keeping in mind those four keys mentioned above), and I’ll be back with more thoughts for you next week.

Hope this helps!

To your greater independence…

]]> http://RenoTaxServices.com/501/how-to-achieve-financial-independence/feed 0 All This Debt Can Get You Down…What To Do? http://RenoTaxServices.com/494/all-this-debt-can-get-you-downwhat-to-do http://RenoTaxServices.com/494/all-this-debt-can-get-you-downwhat-to-do#comments Tue, 30 Jun 2009 16:13:27 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=494 “For beautiful eyes, look for the good in others; for beautiful lips, speak only words of kindness; and for poise, walk with the knowledge that you are never alone.” - Audrey Hepburn

Well there’s potentially depressing news all over the place these days. The loss of an American Icon (two, if you include Farrah Fawcett), unrest around the world and all of the political developments can leave your head spinning, I bet!

Further, if you do follow the news, we continue to get barraged with stories like this:

http://www.istockanalyst.com/article/viewiStockNews/articleid/3317499

Essentially, not only are many Americans falling into debt…but so is the country! It would be even worse were it not for the fact that many other established countries are in even worse shape (UK, Germany, etc.).

But here’s my advice on this: Enlightened Ignorance. By “enlightened”, I mean that it’s not a bad thing to be aware of the fact that our national money situation ain’t great. But by “ignorance” (despite the negative implications of that word), I mean that you CANNOT waste your time worrying about things you can’t control (outside of the ballot box).

It doesn’t help you to spin your wheels in worry and frustration over our national debt. In many ways, it’s just like how it doesn’t serve your peace-of-mind (or even your wallet), to be endlessly spinning about your own personal situation. In fact, debt and financial unrest can be a cleansing process–it can help you remember what’s MOST important in your life (and it’s not money). Embrace the clarification which your situation is bringing.

Perhaps our country can have a similar, national epiphany. We’ll see.

But speaking of our nation, there’s a new law coming, and we’re starting to get questions around here about it: “Cash for Clunkers”.

In this week’s Personal Strategy Note, I break down what you need to know about this new bill, and what it could mean for your wallet.

Enjoy, and leave your feedback and questions!

“Real World” Personal Strategy

The Truth About “Cash for Clunkers”

The new law, which offers owners of older vehicles up to $4,500 to trade them for brand-new vehicles, came into law this week…but beware!

Official-looking sites have sprung up, offering information on the program and asking for personal data or preregistration. Here’s a quick way to know if it’s not official: If it uses the term: “cash for clunkers,” it’s not official at all. The program’s *official* name is the Car Allowance Rebate System.

All the details aren’t yet in stone–regulators have 30 days to set up the details and a system for distributing and collecting vouchers, making late July or early August the soonest the incentives could be available.

But the bill does provide $1 billion for the program through November, 2009. An estimated 250,000 vouchers will be issued on a first-come, first-served basis.

Here’s how it’s likely to go down: Dealers will let you know that your trade qualifies, credit the amount to your down payment, then apply on your behalf for the voucher. Only new vehicles qualify — domestic or imported, purchased or leased — and they must have sticker prices under $45,000.

IMPORTANT: Buyers do not have to register or apply for any part of the program. Dealers do.

Some other guidelines for you:

* Trade-ins must be 1984 models or newer, get no better than 18 miles per gallon, and have been registered and insured for the past year.

(An interesting note is that buyers’ trades will actually be completely scrapped and have no value to the dealership above the amount of the voucher. A 10-year-old Lexus might qualify for the biggest ($4,500) voucher, but it’s almost certainly worth more than that on the open market, so you should keep that in mind.)

* The mileage you get in your daily driving does not matter one bit. What matters is what’s on record with the government; its source of data is www.fueleconomy.gov . A muffler-dragging 23-year-old Honda may meet the popular definition of “clunker”, but if the government’s estimates show it should get more than 18 mpg combined new, it’s not a clunker. You’ll see two sets of fuel-economy numbers for most cars: one calculated under an older EPA system, the other recalculated to reflect a new formula. Use the new one.

* The numbers:

- New passenger vehicles must have a combined mpg of 22mpg; “Light duty” trucks must be 18 mpg; and trucks over 6,000 lbs. must get 15mpg

- To qualify for the program, the “old” vehicle must get…

>Passenger vehicles– 4 mpg LESS than the new for $3500 credit; 10 mpg LESS than the new for $4500 credit

>”Light duty” trucks– 2 mpg LESS than the new for $3500; 5 mpg LESS for $4500

>Trucks over 6K lbs– 1 mpg LESS than the new for $3500; 2 mpg LESS for $4500

Finally, don’t let the ring of “$4,500 in free money” hitting the table distract you. Negotiate on a new car the same way you always would. The only thing different is that all the parties involved know exactly what the trade is worth upfront.

Hope this helps!

To a contented summer!

]]> http://RenoTaxServices.com/494/all-this-debt-can-get-you-downwhat-to-do/feed 0 We All Get Taxed! http://RenoTaxServices.com/449/we-all-get-taxed http://RenoTaxServices.com/449/we-all-get-taxed#comments Mon, 22 Jun 2009 22:20:12 +0000 Michael J. Dobrowski CPA LLC MST PFS http://RenoTaxServices.com/?p=449 “If you want a happy ending, that depends, of course, on where you stop your story.” – Orson Welles

I hope your Father’s Day was special…that you took the time to thank (or remember) your father, wherever he may be.

On to the subject of my note: You know, I deal with taxes all the time of course…it’s my job, right?

But that still doesn’t mean I <span style=”text-decoration: underline;”>like</span> paying taxes–who does? Certainly none of us are opposed to contributing to the necessary functions of our government–police, roads, fire, administration, etc.

Yet I must say that I really do take a special pleasure in helping my clients keep their tax obligations to a minimum. Dave Ramsey calls the unnecessary fees and payments we make when we don’t make wise financial decisions the “stupid tax”.

Well, I won’t be so blunt perhaps–but the unnecessary taxes which many families pay because they just don’t have the time to follow all the changes and updates to our gargantuan tax code…well, that’s another kind of “stupid tax.”

A couple items from last week really brought this to my mind, the first I’ll just mention briefly and the second will be the subject of my full Personal Strategy Note.

First–did you see this? <a href=”http://money.cnn.com/2009/06/12/technology/irs_cellphones/index.htm?postversion=2009061215″>http://money.cnn.com/2009/06/12/technology/irs_cellphones/index.htm?postversion=2009061215</a> Looks like in their never-ending search for new sources of revenue, the IRS is considering taxing usage of an employee cell phone for non-work purposes. Watch this space…I’ll let you know if they end up following through.

But the bigger news is the health care debate, and how to pay for all of the changes which are being considered. Whatever they decide may affect you, so read on… and let me know if I can help!
<h2>”Real World” Personal Strategy</h2>
<h2>Taxing Health Care…and What It Could Mean For You</h2>
I pay attention to Washington politicians and their tax tendencies so you don’t have to!

You see, President Obama has announced he is open to the idea of taxing Americans on the value of their employer-provided health benefits. Right now, benefits are not taxed, but the congressional Joint Economic Committee estimates that this tax “break” costs the Treasury $226 billion per year in revenue.

The goal, here, would be to raise revenue to thereby pay for coverage for those who currently have no insurance, those who can’t afford the insurance they do have, and those struggling to pay for continued health insurance in the wake of losing their job.

It’s a new proposal, and the details aren’t all out there. However, what I think is the most likely scenario, is that they would seek to tax coverage above a certain ceiling. If Congress sets that ceiling at $1,000 per month, and your employer pays $1,250 per month for your coverage, you would be taxed on the extra $250 per month.

Taxing benefits would reverse decades of tax-free treatment dating all the way back to World War II. It’s a thorny issue for Obama because of promises he made on the campaign trail not to tax these items…but they seem to be pretty serious about getting something done on the health care front.

Unfortunately, the proposal would likely mean substantial middle-income tax increases. That’s because the extra tax is tied to the value of health care benefits, not income. Many middle-income earners with comprehensive benefit packages, like teachers and other municipal employees, could see their tax obligation shoot up.

Health care reform has been a consistent issue in Washington. Back in 1984, President Reagan proposed taxing benefits above $2,100 per year. Back then, strong opposition, especially from labor unions, torpedoed the idea. But healthcare costs have soared to the point where the average family’s health insurance premium is often more than the average family’s mortgage. So while this latest proposal is no sure thing, we all have to take it seriously.

<strong>Fortunately, there are strategies that employers and families can use to cut the overall cost of health care.</strong> And many of them rely on the tax code–and it’s something we can help you with. Flexible-spending accounts, Health Savings Account plans, and Section 105 Medical Expense Reimbursement Plans can all help beat the high cost of health care.

So…if you’re worried about your health care costs, call us or drop me an email to see how we can help. We can take you by the hand and walk you through this stuff. We can even give you ideas to take to your employer!

When it comes to rising health care costs–and the taxes which may accrue–don’t ever believe you don’t have anybody on YOUR side!

To your family’s financial health!

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