Monthly Archives: November 2016

How Might Charitable Giving Help Reduce My Income Tax?

Gifts to Charity Section on Income Tax Form

Understand how to reduce your income taxes through your gifts to charity.

Charitable giving tends to reside in our hearts and minds around this time of year. Whether it’s a few coins in the bucket at the grocery store or donating children’s toys to a local initiative, we all have our own ways of doing something for the greater good. Consequently, these acts of giving may also give back to you, in the form of income tax deductions. Let’s take a look at some of the ways your charitable gifts may be able to reduce your income taxes.

Standard and Itemized Deductions

According to the Internal Revenue Service (IRS), there are two main types of income tax deductions: the standard deduction and itemized deductions. Deductions reduce the amount of income to be taxed, so a smaller income means less tax. You can choose standard or itemized deductions, but you cannot choose both.

In general, you may only want to choose itemized deductions if the total amount of your charitable giving (plus other allowances like real estate taxes, personal property taxes, mortgage interest, etc.) is greater than the standard deduction for your filing status.

For tax year 2016, the IRS states the standard deductions as follows:

Single: $6,300

Married Filing Jointly: $12,600

Married Filing Separately: $6,300

Head of Household: $9,300

Qualifying Widow(er): $12,600

If you are a single taxpayer, and you have more than $6,300 in charitable gifts and other qualified deductions, then you may want to take itemized deductions. This may require you to do more paperwork and use additional tax forms, so be sure to speak with a qualified tax professional.

Limits to Charitable Giving

In most cases, there is no limit to how much you can deduct when it comes to donations. If you donate to a public charity known as a 50 percent organization, then you can only claim gifts that add up to no more than 50 percent of your adjusted gross income. If you happen to donate more, then you will have to wait until the next tax year to deduct the remaining amount over the 50 percent.

There are also limits for high-income earners. For tax year 2016, the IRS tells us the limitation for itemized deductions to be claimed begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).

Giving to your favorite charities is a wonderful notion that makes you feel good and may help you out at tax time. Before you make end-of-year donations, be sure to check with your financial advisor and tax professional for any other requirements or limitations that may reduce your income taxes.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Always consult with your tax professional before making any decisions.

What is Financial Planning?

Personal Financial Planning Text on a Napkin

For some people, the idea of financial planning can be quite mystical. Will there be discussions about bad spending habits? How is the financial planner going to know what’s really good for my future? Will they send me away for not balancing my checkbook?

We’ve been in business long enough to hear plenty of myths about our field – as well as some great truths – so we thought now would be a good time to explain what financial planning is, once and for all.

What is Financial Planning?

At its most basic, financial planning is the process of evaluating current finances, establishing financial goals, and creating a strategy to help you get there.

Depending on where you’re at in life (beginning of career, near retirement, etc.), your financial plan may be more or less involved. For example, those who are in the early years of their careers may focus more on paying down student debt and saving for a down payment for a first home. Those who are further along may be discussing an estate plan, social security, and how to fund retirement.

There are several pieces that make up a financial plan, but let’s take a look at the three cornerstones that exist no matter who you are.

Evaluate Current Finances

One of the first steps in understanding what is financial planning, is recognizing the importance of your current financial status.

That means evaluating your current work environment: how long have you been at your job, how is the company doing, do you plan to stay there, and of course – how much do you make and how does the future look?

It also means looking at what types of retirement plans you have in place, whether through your own doing or through an employer plan. You’ll want to talk about life insurance and disability insurance, as well as a power of attorney for your healthcare.

Finally, to be fruitful in financial planning, you’ll need to evaluate your debts. Whether it is student loan debt, credit card debt, mortgage or other types of debt, you’ll want to put it all on the table.

Establish Financial Goals

Once you really understand your financial situation, you can set goals.

Maybe you want to buy your first home in five years, or you want to start your own business. Perhaps you plan on supporting a spouse and children, as well as your parents as they grow older. Is there a dream of owning a vacation home or moving to another country later in life? You’ll want to talk about all of it.

Next, you’ll want to figure out how you can support your family if something should happen to you. If you die or become unable to work, how will you continue to pay your bills and save for retirement?

And on that note, what does retirement look like for you? Your financial plan can be drastically different if you plan on working later in life. If you plan for long-term care insurance and other medical necessities ahead of time, you can also impact how comfortable your retirement can be.

Create a Financial Planning Strategy

The last step in understanding what is financial planning, is to create a financial strategy. This involves putting together the facts about your current finances and your financial goals, to discover how you can work towards them.

If you work with a financial planner, you can have them devise a long-term strategy that can help you get where you need to go. He or she can make recommendations on where to spend and where to save, ultimately helping you make important decisions to improve your financial wellbeing.

If you need assistance with your financial plan, it’s never too late to get started. Contact Guidant Wealth Advisors to set up a consultation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Low-cost Retirement Investments for Military Servicemembers

Military Retirement Text on Paper

The low cost of retirement investments for military personnel offers distinct advantages.

Military servicemembers are privy to incredible financial benefits, not the least of which are federal retirement savings plans. Equipped with unique tax advantages and some of the smallest fees around, these low-cost retirement investments give members of the military some compelling reasons to start saving for the future.

Let’s take a look at these less expensive investments available to all military servicemembers.

Thrift Savings Plan (TSP)

The TSP is like a 401(k) for members of the U.S. military. One of the biggest differences between a TSP and a private employer 401(k) is the fees; the TSP has one of the lowest, just 29 cents for every $1,000 invested.

According to the Federal Retirement Thrift Investment Board, military service members can contribute up to $18,000 to a TSP in 2017 (combining traditional TSP and Roth TSP accounts), plus an additional $6,000 if they are age 50 or older. If the person is receiving tax-free income while deployed, then he or she can contribute up to $54,000 in 2017 – as long as it goes to a traditional TSP. Roth TSP accounts have some restrictions.

Roth TSP

The Roth TSP, introduced in 2012, is a newer program and not as familiar to servicemembers. While it is also a low-cost retirement investment plan (it carries the same fees), the Roth TSP differs from a traditional TSP in its tax rules.

In a traditional TSP, contributions are not taxed when they go in, but the money is taxed when withdrawn in retirement. In a Roth TSP, contributions are taxed before they go in, so there are no taxes when the money is withdrawn in retirement. In both plans, the money grows tax-deferred until retirement.

Because the Roth TSP is tax-free in retirement, it’s an attractive investment option for military servicemembers who expect to have a higher tax bracket in retirement.

The contribution limits for the Roth TSP are the same as the traditional TSP (see above), except when it comes to tax-free income during deployment – you can only contribute up to $18,000 in 2017 in a Roth TSP under these circumstances. However, if you are in a combat zone and receiving tax-free income, you can put money into the Roth without being taxed and you get to take the money out, without being taxed. It’s a double benefit that can help you build wealth faster.

Keep Your Low-cost Investments after Service

Military personnel who leave the service can still take advantage of these valuable, low-cost retirement investments. By rolling over private sector 401(k) plans or Individual Retirement Accounts (IRAs) into the TSP, members of the military can retain the low fees on investment accounts.

Questions on retirement savings? Reach out to us at (847) 330-9911, and we can connect you to one of our financial planners or wealth advisors.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

What Is Disability Insurance, and Why Should I Have It?

What is Disability Insurance Text on Image of Lady in Wheelchair

Disability insurance is one of the most important financial protections you may have never heard about before.

Many people have life insurance, health insurance, auto insurance, and assorted other policies, but some have never even heard of disability insurance. The truth is, it could be one of the most important coverages when it comes to your financial plans. Follow along as we define what is disability insurance and why you may want to consider it in the future.

What is Disability Insurance?

Disability insurance, also called disability income insurance, replaces a percentage of your income if you are unable to work. Per the National Association of Health Underwriters, it can sometimes pay anywhere from 45 to 65 percent of your gross income on a tax-free basis. To receive benefits, you must be unable to work due to injury or illness.

Why Should I Have It?

You never know when a major injury or a long-term illness can happen. If it affects your ability to work, then you may struggle to pay your mortgage, credit cards, loans, and other bills. Disability insurance can ensure you have enough cash to make ends meet while you recover, but it can only do that if you enroll before the injury or illness occurs.

By enrolling in a disability insurance plan before you may need it, you could also protect your savings and investments if you are unable to work. The insurance may help you cover your day-to-day living expenses, so you can avoid tapping into your retirement accounts. You can sometimes protect your immediate and long-term future with this plan.

Some employees have disability insurance through their employer. What they don’t realize is this coverage is sometimes significantly less than what is available under a separate disability income insurance policy. It can be helpful to have your own coverage as well as the one through the employer.

Finally, life insurance policies do not pay out benefits if you are unable to work. Life insurance only pays benefits when the insured passes away.

Conclusion

Your disability insurance policy is a valuable piece of the financial plan. It can protect your everyday finances when you are unable to work, and can keep your savings intact for retirement. Consider a disability policy to insure your financial plan can survive in an emergency.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.