Finances

Just Married? Financial and Legal To-dos for Newlyweds

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Wedding season is upon us. September and October are typically the most popular months to tie the knot. And despite the pandemic still raging in many parts of the country, the wedding industry is forecasting a temporary boost in revenue, with the number of fall weddings scheduled already close to pre-pandemic levels for now.

Many engaged couples and their families are remaining hopeful and cautiously planning for their big day. Whether you’re preparing for a wedding celebration now or later, it’s important to remember the administrative tasks to address when you say, “I do.”

 Housekeeping chores for name changes

The majority of pre-marital tasks relate to taking your spouse’s name or vice versa. If your name is changing, here’s the protocol after you’re legally wed:

  • Visit your local SSA office. Notify the Social Security Administration (SSA) after you’re married to protect Social Security benefits and credit ratings. To get a new Social Security card, you need to complete an application and provide proof of identification with your old and new names, such as a driver’s license and a marriage certificate. If you were born outside the United States, you’ll also need proof that you’re a citizen or legally in the country. Keep in mind, the SSA doesn’t accept photocopies, notarized copies or your old Social Security card as evidence of identity.
  • Update IRS records. The SSA informs the IRS about name changes, and the tax agency’s records are generally updated 10 days later. If you don’t notify the SSA and file a tax return with your new married name, IRS computers won’t be able to match the new name with the Social Security number.
  • Spread the word. Once your name is officially changed with the SSA, share the good news with everyone else. To avoid confusion, also be sure to update your driver’s license, passport, tax records, voter registration, vehicle registration, utility records, retirement plans and more.

When you get back to work, consult your company’s HR department to evaluate how your change in marital status affects your benefits options. For example, you might save money by eliminating duplicate healthcare or life insurance coverage.

Joining your finances

Are you combining your savings, checking and credit card accounts into one? Even if you decide to maintain separate accounts, it may be helpful to have at least one joint account to pay for shared expenses, such as rent, mortgage costs, household expenses or childcare.

A joint account can also help avoid trouble in certain situations. When a spouse or common law partner dies and there are separate accounts, the survivor will be excluded from the separate account if the estate goes into probate. That could take months. CPAs often help newlyweds establish joint financial goals, including annual budgets and contingency plans in case a spouse passes away, becomes disabled or gets laid off.

Managing legal matters

From a legal perspective, you’ll need to update deeds, wills and power of attorney documents. Your attorney can also discuss the full array of estate planning tools, such as various trusts, that might be relevant now that you’re married.

People who have been previously married bring additional financial issues to the table, especially if there are children, alimony payments and child support involved.

  • Do you have business debts or obligations with your former spouse?
  • Are you required to keep a former spouse on your insurance?
  • Does a former spouse have a claim on your employer-sponsored retirement account?
  • If you’re entitled to assets from a former spouse (for example, an inheritance or other financial interest) will your remarriage end that entitlement?

Marriage is a celebration — but it also involves a lot of paperwork. Don’t let administrative chores prevent you from living happily ever after. Contact the CPAs at Magone & Company at (973) 301-2300 to help tackle the critical tasks head on.

Overhead Expenses Starting to Accumulate? Manage Them Now Before They Get Out of Hand

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It’s not uncommon for overhead expenses to increase over time. In fact, it’s part of doing business.

But when overhead begins to mushroom out of control, it’s critical to confront the situation in a timely manner to avoid bigger problems down the road. Here are a few tips to help you manage runaway overhead costs:

Oversight is essential. Always be aware of your overhead expenses. Set time aside regularly to review them. Being conscious of what you are spending alerts you to changes that must be made.

Conduct an overhead review. The goal of your overhead review should not be only to reduce costs, but also to make certain those reductions allow you to deliver anticipated service levels to customers and clients. To that end, you must be aware of what your clientele expects from you. Involve employees in making a list of what your customers most value about your services and what they think might be improved. Awareness of customer satisfaction levels gives you a head start in determining what overhead cuts might be detrimental to your business.

Calculating overhead expenses. Use this simple equation to decide if you need to conduct an overhead review:

(Overhead ÷ monthly sales) x 100 = Overhead percentage

Recommended overhead ratios vary by industry. However, an overhead percentage that is no higher than 35 percent of total sales is considered positive.

Classify overhead activity. Overhead activity can be categorized into three areas: core, support and diversionary. Core activities such as sales add direct value to the company. Support activities such as record keeping do not add direct value, but they support the core activity. Diversionary activity such as time spent on correcting errors adds no value to the business. Since diversionary activities can account for as much as 20-40% of total overhead activity, special attention must be given to this category in determining overhead reductions.

Ideas for reducing overhead. These are some of the key areas you should look at in deciding overhead reductions:

  • Renegotiate your lease. The US Chamber of Commerce recommends that you make sure you know how much of a reduction to ask for based on market conditions and your business’s financial projections.
  • Evaluate your utility usage. Determine the levels of service your business actually requires. Odds are that you’ll find you’re spending much more than you need to, especially with the advent of competing utility services.
  • Rethink Insurance. Keeping certain that you remain adequately covered, review your policies to see what might safely be cut. Failing that, don’t auto-renew when your policy comes due annually. Ask your broker to shop around, as rates can vary widely.
  • Rent equipment instead of buying. This eliminates many upfront and maintenance costs. Leasing is not only less expensive, it also helps you keep your technology current.
  • Review your contracts. Cancel contracts you may no longer need, and renegotiate the necessary ones.

Benefits of an overhead review

According to the Managers-Net Archive, a properly executed overhead review can result in at least a 20% reduction in overhead costs, usually within a 10- to 14-week period.  But it also can benefit your company in other ways. The changes you make can result in improved services critical to your customers. It can make you aware of costly diversionary activity and present the opportunity to minimize it. And it can help provide your management team with a better understanding of the current state of the business, resulting in commitment to your proposals for improvement.

Self-employed? Showing Proof of Income is Easier Than You Think

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You’ve found the home of your dreams. Your credit is excellent, and you’ve saved enough for a generous down payment. But when the loan application asks for proof of income, you start to panic. Fortunately, qualifying for a mortgage doesn’t require a nine to five or a weekly paycheck.

For the 57 million freelance workers in the United States, proving an income can be challenging. But with some extra effort and preparation, you’ll be able to demonstrate a stable financial history — and get that mortgage, apartment lease or car loan approval even without a W-2 form or biweekly pay statements. These strategies can help:

  • Use an online payment service. To document income, an online payment service like com records and tracks who pays you, how much money is disbursed and where the money is coming from, so the information is easily accessible when you need it.
  • Ask your bank for an ACH report. An Automated Clearing House (ACH) report can serve the same purpose as a ledger from an online payment service. The ACH report will show when payments were made, along with the amount of each payment for easy tracking.
  • Hold on to your past tax returns. Once your taxes have been filed, keep copies of your returns for at least three years (preferably 7-10). This will help ensure that your income is reported accurately year in and year out.
  • Save your 1099 forms. You may have dozens of clients over the course of a year. To make your life easier, set up a filing system for all those 1099 forms. Take it a step further and scan each form as it’s received, keeping electronic versions on file as well.
  • Average your monthly income. It’s not uncommon for freelancers to have peaks and valleys in income. Over time, you may detect an earning pattern despite the variations. If you hope to qualify for a loan, track your monthly income carefully, averaging out the numbers to reflect your true annual earnings.

Freelance work offers a unique freedom and flexibility, while still affording you the opportunity to make a comfortable living. And if you check all the boxes of meeting a loan’s requirements, proving your self-employment income doesn’t have to be a daunting process. The expert CPAs at Magone & Company assist self-employed workers with our extensive tax and business knowledge. Contact us today (973) 301-2300 for more information.

 

The Proposed Tax Hike’s Effect on Families: Even Those Not Considered “Rich”

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President Joe Biden’s address earlier this week confirmed many of the plans that were being laid out in the preceding months; specifically, as they relate to real estate, capital gains and estate taxes.

Although the proposals have a long way to go before becoming law, a Democratic majority in the House and a tie-breaking vote in the Senate held by Vice President Harris creates a scenario in which the proposal will pass — provided the Democrats are able to hold their members in line.

There are three provisions which affect real estate in the Biden administration’s tax proposal.

The first, which has been talked about extensively, is the increase in the capital gains rate from 20% to 39.6%. This proposal is directed toward households making over one million dollars.

In the northeast, it doesn’t take a lot to push households to this level given residential and commercial real estate prices. This could mean an individual could pay as much as 43.4% in federal taxes alone and possibly over 50% when factoring in state taxes.

The second is the proposed elimination of the 1031 tax-free exchange when gain on a property is greater than $500,000.

This tax break allows owners of investment and business real estate to defer the gain by enabling them to purchase like-kind property within 180 days of the sale of the original property. This has been an often used technique to allow property owners to defer the entire gain on the sale of their property.

Finally, included in the tax proposal is the elimination of the “step-up“ in cost basis for inherited property.

Although we’re speaking about real estate, this applies to all property such as stocks, bonds, etc. The concept of stepping up the original cost to the fair market value at the date of the death of the owner has been in the tax law for decades, and ensured that beneficiaries who sold inherited property paid little if any capital gains tax on the immediate sale of the inherited property. This substantially reduced the tax burden for beneficiaries upon sale of the property.

Based on the likely passing of the above in some form, if you are contemplating a sale of investment or business property, careful examination should be given to the tax effect.

In prior administrations, when the capital gains rate was changed there was a cut-off date established for gains subject to the new and old rules when passed in the same year. More importantly, review your current will to ensure it is tax efficient, and consider further planning to take advantage of current estate and gift laws prior to potential changes.

Now is not the time to delay sales of property you may have been considered selling, especially real estate with a 1031 exchange.

The above is not tax advice. Please consult with your tax professional for guidance specific to your particular financial circumstances.

Paying Off Student Loan Debt: What They Didn’t Teach You in College

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Once college ends, graduates prepare for life in the real world. Their focus shifts from writing papers and studying for exams to finding a place to live and beginning a new career. But just like the memories of college and the many lessons learned, there’s one more thing that will stay with them for years to come: student debt.

If you’re feeling the stress of student loan debt, here are some tips to help you deal with this often overwhelming financial obligation:

  • Make additional payments. Sure, it might not be an easy thing to pull off, especially when you’re just starting out in the job world. But if you can swing it, extra payments here and there can have a huge impact on the time it takes to settle your debt, as well as the money you’ll save in the long term. Make sure your lender applies the additional amount to the principal balance to reduce the amount of interest you’re paying.
  • Set up automatic payments. Many lenders will offer discounted interest rates for using autopay. It may not make a substantial difference — perhaps a few hundred dollars — but it’s something.
  • Start a dedicated account for student loan payments. Creating a fund reserved for paying off student debt ties into another tip: budgeting. When you get paid, have a portion automatically deposited into this account, and don’t touch it. If you keep this account as a “walled garden”, you’re more likely to resist the temptation to use it for other interests. Shop around for high-interest savings accounts to give your money a boost.
  • Seek out companies or careers that offer student loan forgiveness incentives. Some government and nonprofit agencies, for example, may offer student loan forgiveness programs for employees. And after working for a certain amount of time, you may qualify to have your student loan balance canceled.
  • Refinance — with care. Refinancing your debt can be a good option if your loan carries a high interest rate, or if you have multiple loans that you want to consolidate. Bear in mind, if you refinance a federal student loan, you give up eligibility for government student loan forgiveness or other potential money-saving options.

When it comes to student loans, pitfalls can arise when you don’t know all the rules for managing long-term debt. Advice from a knowledgeable financial resource can save you headaches, complications and most importantly, money as you begin your post-college journey.

 

6 Millennial Money Mistakes That May be Hurting Your Wallet

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By 2025, Millennials will make up 75% of the workforce. This generation — composed mostly of twenty- and thirty-something children of Baby Boomers — is unique in that it faces the most uncertain economic future of any generation since the Great Depression.

But thanks to factors like massive student debt and a fondness for immediate gratification over long-term savings, Millennials also have a reputation of succumbing to some avoidable mistakes when it comes to finances.

Whether you’re a Millennial or not, be aware of the following six behaviors before they get in the way of your financial goals:

  1. Assuming too much credit card debt on too many cards. Building a credit history is an important step to obtaining a mortgage, car loan or apartment. But letting it get out of control can be risky. Stick to a couple of major cards with reasonable terms.
  2. Not maintaining a rainy-day or emergency fund. A rainy-day fund saves you when there’s an unexpected car repair or plumbing backup — a short-term blip. An emergency fund, however, will get you through a job loss, an injury or a pandemic. Most experts recommend stashing away three to six months of living expenses to create adequate emergency savings.
  3. Making big splurges without considering the consequences. It can be tempting to treat yourself to the best of the best while you have the cash. But buying too much too soon can set you up for future regret. Strike a balance between what you can live with now and your goals for the future.
  4. Failing to put away money for retirement. Yes, it may seem far away, and you’d rather use the money to pay for things in the present. But a retirement plan offered by your employer is free money your future self will be grateful for.
  5. Thinking you can save later. Saving is a habit that’s harder to start as you get older and life gets more expensive. By starting early and living beneath your means, you’ll have more time to build a larger nest egg.
  6. Not making — and sticking to — a budget. There are three main categories: needs, wants and nice-to-haves. You need to pay your rent or mortgage, but a luxury car would be just that — a luxury. Knowing what you should and shouldn’t be spending your money on is key to a financially secure future.

The road to financial security can be a long one for any generation. But it’s not impossible when you’re committed to making smart money decisions. With smart strategies for tax planning, the knowledgeable CPAs at Magone & Company can help keep you focused on financial success. To learn more, give us a call today: (973) 301-2300.