Taxes

Beware of These 3 Conflicts Between Husbands and Wives When Both Work, Which Lead to Marital Tensions

According to the Bureau of Labor Statistics, approximately 61.1% of both parents work in families that have children under 18 years of age.  It seems to make economic sense to have both parents working nowadays, but it can create underlying tensions, which you should be aware of:

Independence vs. interdependence: Spouses are interdependent upon one another, but with both spouses working, this can create a lack of unity. Problems may arise by simply and innocently having separate checking accounts for each spouse. The problem is that this can create disunity and a lack of joint decisions regarding financial matters versus working together to make decisions jointly.

Income comparisons: When there is a large disparity of income, which there commonly is, one spouse may look down upon the other spouse as not contributing enough financially to the household. There may also ensue an unspoken, unhealthy competition between each spouse whereas they focus too much effort on who makes more money.

Importance comparisons: Everyone wants to believe that their job is more demanding, more stressful, and harder than others, whether this is real or perceived. Even so, comparisons to your spouse’s job are not going to make for a pleasant conversation at dinnertime.

There are many more, but they are just variations of the overall theme of comparisons and a lack of working together. Can you imagine what a comparison-free, working-together household would look like?

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Do This to Avoid a Big Tax Surprise

If there is one recurring theme from this tax season that caused the biggest tax surprise it is this:

Double-check your withholdings: The withholding tables were revised and many taxpayers were under withheld, which caused them to owe taxes versus receiving a refund. The easiest way to correct this is to see how much you owed and then divide it by the number of paychecks left in the year. Then, either ask your employer to withhold this extra amount or complete a new Form W-4 to request this additional amount to be withheld from your paycheck.

Remember, a lower refund does not mean a lower tax liability. A refund is a function of your withholdings and estimated tax payments versus your tax liability.

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The Instructions Said 20 – 25 Minutes

Recently, I purchased a bed from Wayfair that had to be assembled from four large boxes that it was delivered in. I waited until the weekend to assemble it and learned a few things:

After spending hours and hours assembling and completing the bed, I took a look at the assembly time to see if I was in line with how long it should take to assemble. Over the years I have, or at least I thought I have, become proficient with assembling toys, bikes, trampolines, furniture, and just about everything else. However, the instructions said that it should take 20 – 25 minutes for two people to assemble the bed. It took about that long just to take the pieces out of the box. This made me realize either: I assemble way too slowly (hope this isn’t true, but it is humbling), the time on the instructions apply to professionals who assemble beds on a daily basis, and most importantly, you can’t believe everything that you read.

To apply this in business (hopefully you are not putting together a bed when you should be working), are you spending the proper amount of time on the right activities and minimizing or eliminating tasks that you should not be doing? Are you seeking the help of professionals when necessary? Are you seeking the correct information to determine what you need to do to succeed?

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Some Horrible Ways to Lower Your Tax Bill That are Not Recommended

I don’t think that I ever met anyone that likes to pay taxes. Everyone feels better when their taxes are paid in full with no outstanding balances, but not actually paying them. Sometimes this hatred of paying taxes can go too far and here are a few examples of what not to do:

Understate your income: As a business owner there is a huge temptation to “pocket” any cash that is received or cash checks instead of depositing them to your account. However, if you understate your income too much then you may be facing jail time and massive penalties.

Overstate expenses: Maybe you really like cars and use multiple cars for your business. However, if your spouse does not work in your business then her car payment is not a tax deduction. The same goes for personal meals, personal expenses, and outright lying about your expenses and deductions. Most likely you do not give 15% of your income to charitable. It’s possible, but not very probable.

Losing money in a side business: The main purpose of starting a business is to make money. Maybe some contemporary experts think that you should try to change the world, but most likely you are selling a product or service that is not going to cure illnesses. Sometimes a newer business owner is so intent on losing money to not pay taxes that they never let their business actually become a business. A business can only lose money for so long. The same goes for real estate investments and traditional investing.

Spend a dollar to save a quarter: Do not ever spend money on an unnecessary tax deductible expense just to save taxes. The math is very simple – spend $1 to produce $.25 of tax savings, which equals $.75 lost.

Multi-state taxation: The tax laws are extremely complex and each state has its own set of rules. However, don’t let this stop you from doing business or working in other states to take advantage of opportunities.

Tax-exempt investments: Even though municipal bonds are exempt from Federal taxes and possibly state taxes, this does not mean that they are appropriate for you. You must do the math to make sure you compare after tax returns of taxable investments to tax exempt investments, otherwise you may be worse off economically.

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An Observation Regarding Money Worries

There are a few things that I noticed over the years that seem to contradict each other regarding money worries. There seems to be a link between being charitable, concerns over saving too much, and stress about money.

Charitable giving: some people make a lot of money and give little to nothing to charity, especially as a percentage of their income, and the opposite is sometimes true regarding those with modest incomes. Theoretically, the greater your income then the greater should be your charitable giving. Why does this make sense? I believe that it has to do with a scarcity mentality and a fear of letting go. If you are overly concerned with not having enough money, whether real or imagined, then why would you part with your money?

Overly concerned about saving: Let’s face it, it is daunting to think that we have to make sure to save enough for retirement, college, a house or a larger house, 6 months of expenses for an emergency fund, weddings, sweet 16 parties (they can be over the top nowadays), vehicles, business ventures, and everything else. It even makes me exhausted just writing that! However, some take it too far and save so much or are concerned so much about saving that they get really stressed out. Although I am an advocate for saving up for most of the above (I’m not a big fan of massive weddings and outlandish sweet 16 parties), you have to balance that with current needs or you will be miserable. Who wants to eat the cheap steak to save an extra $10 for their retirement?

Do any of these apply to you? Maybe just a little?

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If You Are Looking for a Good Business Partner Then Pay Attention to What They Do, Not What They Say

Running a business is probably one of the most challenging, while equally rewarding endeavors that only the brave embark on. Some go at it alone, while others choose a business partner because sometimes 1 + 1 = 3 or 5 or 10. However, before choosing a partner you must minimize the risk of choosing the wrong partner by paying attention at what they do or have done, not just what they say.

Look at their past: No one is perfect, but generally, when a person is not able to overcome some of their difficulties, then there is a high probability that they will not magically fix their problems when you are their partner. Rather they will bring these issues into your business and wreak havoc. One time events or actions may not be too meaningful, but repeated patterns are a very bad sign.

Specific examples:

Tax problems: It is not uncommon for business owners to have a tax problem at one time or another due to the complexity and burden of an ever increasing number of taxes, fees, penalties, etc. that they need to be aware of. However, if there is a history of not filing tax returns, especially willfully, or not paying their taxes then watch out.

Health, mental, and addictions: The number of times that I speak to people regarding mental issues or addictions is so high that it doesn’t seem real and seems to be on the rise. Just because someone has a mental illness, doesn’t mean that they will make a bad business partner, unless it is not under control and has been for some time. The same goes for addictions, which can include gambling, spending, drugs, alcohol, and everything else. If the addiction was in the way past and has been overcome, then that is a plus. If it constantly resurfaces or is currently happening then that is a sign that it has not been defeated. Unfortunately, it is hard to know these things, especially if you only know a potential business partner casually. Although, thorough background checks and taking a look at the last year or so of bank statements may shed some truth.

Half truths or lies: Maybe your potential business partner ran a business in the past and it didn’t work out, which is not that uncommon. They may have the issues above, they may not be so good at running a business, or maybe there is another reason. One way to find out is to ask a lot of questions and then try to verify their answers with some research and legwork. For example, they may say that their landlord kicked them out of the building because the building was sold. Well, you can easily find out if the building was sold, speak directly to the old and new landlord, and look at their bank statements to see if they were actually paying their rent. Another example is to ask if they ever filed bankruptcy and then look into the public records to see if this is the truth and/or to have them run a credit report in front of you.

These are all of the bad things to look out for, but what are the good things to look out for? The answer is to look for the exact opposite. As I tell my children often: seek truth.

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When Should Your Parents Stop Being Involved in Your Financial Affairs?

Our parents raised us and shaped who we are today, and there is probably nothing that we can do in comparison to what our parents did for us, except for perhaps raise our own children well. But, when should our parents stop taking charge of our finances, career and/or business?

It is a good for us to always seek counsel from our parents, especially on matters that they may have more experience with or needed expertise. Even when we are in our fifties it is wise to communicate financial issues with a knowledgeable parent. However, make sure to separate having trust in someone versus their ability to competently advise you.

Once you are in the workforce and are an adult, then you need to deal with your employer directly. Several examples have been shared with me regarding parents contacting their adult child’s previous employer over payroll issues. Even worse is that in those situations the adult child was a professional that advises others! Again, feel free to seek the advice of your parents, but do not have them act as your “proxy.” I can just picture this now, “This is Mr. Smith, and I am calling to let you know that Timmy will not be at work today because he is under the weather. Please cancel his meetings with the executive vice-presidents of Fortune 500 Co.”

Sometimes you may own and operate a business and employ one of your parents, which does happen occasionally. Your parent may be able to give you insight that you are not seeing regarding employees, customers, or finances. However, unless you hired your parent as a strategic advisor because they have developed successful companies in the past, or the CEO, which small business owners actually are, then your parent should not be actively deciding the direction of the company or connections with key people.

Anecdotally, it seems that adults who enforce boundaries with their parents make better financial decisions, are more successful, and have more confidence.  I’ll let the psychologists further elaborate on this topic.

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This Will Kill the Economy Long-Term

There are many factors that can help an economy to grow, including productivity gains, wage growth, sound governmental policies, healthy banking systems, etc. A lack of all of these items will hurt economic growth, and there is one more often overlooked item that can and will devastate an economy over the long haul.

It’s probably not what you think, but I’ll give you a hint: think Japan. What is a major issue that is facing Japan? Low birth rates and a disproportionate amount of older persons compared to younger persons. Why does this matter?

Minimum: Statistically, a country needs approximately 2.1 births to have a stable population. If you want to bury yourself in statistics, then you can read reports from the U.N. or The World Bank. Although there are lower mortality rates than in the past, fewer births will mean a declining population and a disproportionate amount of older persons. By the way, the world’s population is expected to stabilize and/or decline by the end of this century.

Disproportion of elderly: In Japan, the population of elderly persons is much higher than in the U.S. Unfortunately, with lower birth rates there are less younger people able to physically take care of the elderly and also financially. Systems like social security will not be able to continue in a healthy fashion if there are not enough younger people available to contribute towards the system.

Basic math: If there are less people available to purchase services and products then economic growth will stagnate or decline. This can be offset somewhat by productivity gains and wage increases to an extent. Also, there will not be enough candidates to fill employment opportunities at businesses, which will stifle growth further.  More people = growing economy.

Myths?: I believe it started back in the 1960’s with doomsday scenarios of overpopulation and a strain on the resources of the planet. It really hasn’t panned out, but there have also been other modern inventions and policies that have stifled population growth. There is one statistic that I’ve heard that states the entire world’s population can fit in the State of Texas comfortably. Even if this statistic is way off and it would take the entire United States, then that would leave the rest of the world wide open.

Solutions: There are a few solutions to address this problem. One is immigration from countries or regions with high birth rates, such as Africa to countries with low birth rates, such as Japan. This would take changes to immigration policies enacted by governments.  The other solution is to encourage families to have more children and not to wait too long to do so. What is the worst that can happen – you may need to buy a massive van to drive your family around?!

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Who Will Come Out Ahead When Filing Their Returns This Season?

Who will benefit the most from the tax law changes this year? The biggest winners will be:

Corporations: With reduced corporate tax rates of 21% versus the previous 35%, most corporations will come out ahead. Although corporations that have income of less than approximately $75,000 may not benefit.

Business owners: Business owners that operate sole-proprietorships, s-corporations, and partnerships that will benefit from the section 199A deduction, which generally is a deduction of 20% of your business income. However, there are limitations based upon the type of business such as healthcare providers, wages paid, income, etc.

Large families: With a child tax credit of $2,000 per child, families with many children will benefit from this credit. However, there are no exemptions this year which offset the benefit of the credit, and there is a phase-out of the credit if your income is greater than $200,000 or $400,000 if filing jointly.

Higher income households: Since the tax brackets have all been lowered and mostly expanded as your income increases, then the more money you make the more you will benefit. The highest individual tax bracket is 37% versus a high of 39.6% previously.

On second thought, who will be available to process all of the returns at the IRS?

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Paid Sick Leave in NJ? What You Need to Know

Another change in New Jersey that affects both employers and employees in the state is paid sick leave, which was effective starting October 29, 2018. Here are the details:

Number of sick days: The New Jersey Earned Sick Leave Law allows employees to accrue 1 hour of sick leave for every 30 hours worked, up to a maximum of 40 hours each year. An employee is eligible to use the earned sick days beginning 120 days after commencing employment.

Permitted usage of sick leave: Sick days can be used for diagnosis, care, treatment or recovery from an employee’s mental or physical illness or for the needs of a family member. The time can even be used by an employee in connection with their child to attend a school-related conference, meeting, or function.

Alternatives: An employer is in compliance if they offer paid time off, including personal days, vacation days, etc. that can be used as sick days, as long as they are accrued at the same or greater rate.

Carry forward: The employer shall not be required to permit the employee to accrue or use in any benefit year, or carry forward from one benefit year to the next, more than 40 hours of earned sick leave.

The interesting aspect of this law is that as an employee-owner, you have to include yourself. When do owners take a sick day?!

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