When I Meet With My CPA …

Derive happiness in oneself from a good day’s work, from illuminating the fog that surrounds us.

- Henri Matisse

Believe it or not, I don’t do my own taxes.

Sure, I know the tax code much better than your average professional (it is, after all, a big part of what we do around here), but I’m learning to live my life by a simple philosophy:

If I can delegate it, do so.

Now, of course, that little motto carries a bunch of “caveats” and exceptions. For instance, I can *technically* delegate almost every aspect of running my firm, but that wouldn’t exactly be wise. Just like you can technically delegate pretty much every aspect of raising children, but there are just some things that only Mommy or Daddy can do.

But the process of preparing taxes lends itself to being done by someone who sees these forms every day, who knows the pitfalls (they see them weekly), and can accomplish in two hours what will take me ten.

(A little bit like estate planning, actually. < ahem > )

But just because I delegate, doesn’t mean I dump! I’m a pretty good planner–if I do say so myself — so, I thought I’d share with you a little checklist I threw together to make sure I don’t miss anything when I meet with my CPA.

This will help YOU to delegate this sometimes-painful process effectively. I hope it’s helpful!

Oh..and if you need a good CPA in the area, I know of someone that can certainly help you.

Just one more note regarding last week’s blog on building financial character (and character overall) for kids.  Check this friend’s website out for ideas on how you can instill character in your kids.  www.kidofcharacteroffer.com

Rowel Manasan’s

“Straight Talk” Personal Strategy

Manasan’s Tax-Time Checklist

This list is mostly complete–but I’m always looking to add to it! Let me know if you think I missed anything.

Personal Data

Social Security Numbers (including spouse and children)

Child care provider tax I.D. or Social Security Number

Employment & Income Data

W-2 forms for this year

Tax refunds and unemployment compensation: Form 1099-G

Miscellaneous income including rent: Form 1099-MISC

Partnership and trust income

Pensions and annuities

Alimony received

Jury duty pay

Gambling and lottery winnings

Prizes and awards

Scholarships and fellowships

State and local income tax refunds

Unemployment compensation

Homeowner/Renter Data

Residential address(es) for this year

Mortgage interest: Form 1098

Sale of your home or other real estate: Form 1099-S

Second mortgage interest paid

Real estate taxes paid

Rent paid during tax year

Moving expenses

Financial Assets

Interest income statements: Form 1099-INT & 1099-OID

Dividend income statements: Form 1099-DIV

Proceeds from broker transactions: Form 1099-B

Retirement plan distribution: Form 1099-R

Capital gains or losses

Financial Liabilities

Auto loans and leases  (account numbers and car value) if vehicle used for business

Student loan interest paid

Early withdrawal penalties on CDs and other fixed time deposits

Automobiles

Personal property tax information

Department of Motor Vehicles fees

Expenses

Gifts to charity (receipts for any single donations of $250 or more)

Unreimbursed expenses related to volunteer work

Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions)

Investment expenses

Job-hunting expenses

Education expenses (tuition and fees)

Child care expenses

Medical Savings Accounts

Adoption expenses

Alimony paid

Tax return preparation expenses and fees

Self-Employment Data

Estimated tax vouchers for the current year

Self-employment tax

Self-employment SEP plans

Self-employed health insurance

K-1s on all partnerships

Receipts or documentation for business-related expenses

Farm income

Deduction Documents

State and local income taxes

IRA, Keogh and other retirement plan contributions

Medical expenses

Casualty or theft losses

Other miscellaneous deductions

I think this list is pretty complete, but as I said before, I’d love to hear feedback on anything I may have missed.  I hope this helps!

To your family’s financial and emotional peace!

Gradually Giving Your Children Wings

“The self is not something ready-made, but something in continuous formation through choice of action.”

- John Dewey

We love children around here.

Of course, one of our primary tasks is to walk alongside families as they secure the financial futures of their little ones (and, uh, not-so-little ones!). For us, putting together the legal documents, making sure that intangible assets are passed down … well, I won’t say it’s EASY, but we do it every day.

Much harder, of course, is to raise children with financial smarts — especially in an environment of means.

That’s why so many wills and trusts are set up as they are — to kindly, and effectively, transfer wealth, without spoiling our children rotten!

But what about BEFORE that wealth is “transferred”?

Well, I’ve seen a lot of models for this, and I won’t say that this is the definitive guide … but I advocate a gradual shouldering of financial responsibility.

And, it can look like this…

Rowel Manasan’s

“Straight Talk” Personal Strategy

How To Gradually Grow Your Children’s Financial Smarts

I’ll spare you the stories, but needless to say: I’ve seen so many otherwise-loving and wise parents somehow forget to ready their children for the financial realities of adult life. Instead, they simply hand them credit cards, pack up their cars and head to school.

I’ll go out on a limb here, but I believe that it is this deficiency in financial education which has led, in part, to an adult population that spends beyond its means, engages in unsafe borrowing practices, and accumulates record amounts of  debt.

Still, if we decide to instruct our kids how to responsibly manage their money — much as we teach them how to read, tie their shoes, and ride bikes — then perhaps they might avoid a Great Recession-like event in their own adult lives.

Sure, that all sounds good in theory, but how do you go about instilling proper financial values into your children?

1) Tackle the task as if you are once again teaching your kids to ride bikes. You first need to let them get comfortable on training wheels, and prepaid cards are the training wheels of personal finance. So co-sign for prepaid cards, load a certain amount of money biweekly and allow your children to spend freely. This will force them to learn how to budget and, since most prepaid cards allow online account management, you will be able to review their purchases with them.

By the way, I did some online searching, and these are some good choices for pre-paid cards for teenagers, etc.

Visa UPside: http://www.upsidevisa.com

MasterCard Facecard: http://www.facecard.com

American Express Pass: http://bit.ly/heWJRS (shortened link)

Visa Buxx: http://usa.visa.com/personal/cards/prepaid/visa_buxx.html

2) Once you are confident that your kids have exhibited responsible prepaid card use for at least a year, you can graduate to monthly cash allowances. This progression, which is tantamount to taking one training wheel off their bikes, will provide them with greater financial independence (given that you cannot monitor their spending with cash). It will also more thoroughly test their responsibility because the odds of losing money or exhausting too quickly are heightened with a monthly cash allowance.

3) If your kids demonstrate the requisite discipline after a year of cash allowances, you can take the other training wheel off. Do so by co-signing for and opening checking accounts in their names and depositing slightly higher monthly amounts while requiring them to pay for more of their own expenses.

With checking accounts, children will garner much needed experience writing checks and purchasing with debit cards. They’ll learn how to avoid overdrawing their accounts and bouncing checks –  and if they can’t learn these lessons quickly enough, you can screw that training wheel back on and regress to cash spending. After all, when you took that last training wheel off, you didn’t let go of the bike completely! You still had a grip on the handlebars and were providing assistance as needed.

4) If your kids’ financial balance seems solid after 6-9 months, you can release the handlebars and either co-sign for student credit cards or give them small lines of credit as authorized users on your credit card accounts. Doing so will help teach them the principles of responsible credit use, such as spending within one’s means and paying bills in full each month. Remember though that you are simply taking your hands off to see if your kids can ride. If they wobble, catch them.

This financial education progression will instill within your children various skill sets that will surely serve them well when they leave the nest. It’s important to employ such a practical approach because it lets kids learn and inevitably falter while the stakes are low. Additionally, you can ensure that your children know how to handle their money before becoming independent, providing yourself with the kind of peace of mind that is valuable to any parent.

So before sending your kids out into the world, make sure they are ready for the financial implications of that independence!

Best to you!

A simple tool you shouldn’t go one more week without

One person with a belief is equal to ninety-nine who have only interests.

- John Stuart Mill

Last week, I preached to the choir a bit — as I was laying the foundation for why it’s so important for you to have an estate plan.

Why do I write about this regularly?

A few reasons, actually.

1. It’s important that I “make the case” from time to time, to ensure that everyone understands how critical it is to plan ahead on these issues.

2. Even those with estate plans in place need reminding of why it was such a good decision — and to update their plans!

3. People ask me these questions, all the time — really! So, it’s important that I set the record straight, so to speak.

Well, I promised that I would explain one simple tool which makes so much of our planning possible, and is often misunderstood. It’s a Living Trust. I break down this important vehicle in this week’s Note…

The Right Tools For The Right Job

A will is a simple legal document which describes what should happen to your assets upon death…and it’s, frankly, not enough for most families. That’s because the actual distribution is controlled by probate, without a plan in place. Upon your death, the will becomes a public document available for inspection by all comers. And, once your will enters the probate process, it’s no longer controlled by your family, but by the court and probate attorneys.

Oh, this can be cumbersome, time-consuming, expensive, and an emotional trauma–all added on to a family’s time of grief and vulnerability. Con artists and others have been known to use their knowledge about the contents of a will to prey on survivors. This, as you can imagine, must be avoided at all costs.

What’s great about a Living Trust, is that it actually avoids probate and keeps everything totally private–because your property is owned by the trust. That way, technically there’s nothing for the probate courts to administer! Whomever you name as your “successor trustee” gains control of your assets and distributes them exactly according to your instructions.

And one more big thing: a will doesn’t take effect until you die, and is therefore no help to you with lifetime planning. As we all start to live longer, this is an increasingly important aspect of these considerations. A Living Trust can help you preserve and increase your estate while you’re alive, and offers protection should you become disabled.

A few questions I often receive:

“Who are the trustees for my Living Trust? Can I be one?”

YES. In fact, most Living Trusts have the people who created them acting as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your hand-picked successor trustee assumes control over your affairs, not the court’s appointee. That’s nice peace-of-mind!

“Does a Living Trust help me to avoid income taxes?”

NO. You see, the purpose of creating a Living Trust is to avoid living probate, death probate, and reduce or even eliminate federal estate taxes. It’s not a vehicle for reducing income taxes (see an accountant for that!).

In fact, if you’re the trustee of your Living Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created.

We manage these trusts for our clients — and we update them too! ( More on that in a  future Note, perhaps.) So, if you want to set one up (and I don’t blame you), send me an email, or give us a call: (909) 843-6427 — and we’ll get this process started for you.

Murderer inherits victim’s estate

He who loses wealth loses much; he who loses a friend loses more; but he that loses his courage loses all.

- Miguel De Cervantes

Yes, it’s true. I saw this story at the end of last week, and I’m just as horrified as the next person.

http://www.nypost.com/p/news/local/richest_con_in_the_can_dtw5Nf7ilQ9KhzuSXPDeQK

But it’s looking like this will be a completely legal transfer, and would abide by the law. But as Charles Dickens famously wrote in Oliver Twist: If the law supposes that, then the law is an ass.

Now it’s obvious that this is a special kind of “bad situation”, which I highly doubt you’ll ever encounter … but is your estate plan an ass?

[Forgive the salty language there, I'm going with the Dickensian motif, and perhaps getting carried away!]

The reason I ask, is that I’ve seen wills and estate plans which are completely blind to the realities of human frailties, just like this sad story.

Even worse, they’re blind to the positive traditions and assets which you want to establish for your family line.

When I see story after story like this, I’m reminded of why having a good estate plan is so much more than avoiding the “estate tax”.

[This article may "preach to the choir" for most of our existing clients, so it's a very good idea to share with friends ... or, to use this story I mentioned above as a cautionary tale to have you take a hard look at your succession plans in particular, and update your estate accordingly, with our help.]

Why You Need An Estate Plan NOW

Most of us spend a considerable amount of time and energy in our lives working for our families and accumulating wealth.

But unless you’re careful, all of it will be going to waste.

That’s why a well-crafted estate plan is so critical. It ensures that your hard-earned wealth (including intangible, non-financial assets) can pass intact to those you intend to be your beneficiaries, instead of being siphoned off to government processes and bureaucrats or even being lost. We all dislike handing over our resources to those who don’t have our best interests in mind.

Our estate plans guarantee that this will NEVER happen to your family!

“But Rowel, what happens if I don’t create an estate plan? Doesn’t the judicial system have easy steps in place for families?”

Yep, and it’s called “probate” (Latin for “prove the will”), and it’s an ugly process.

You see, “probate” guarantees government interference in how you transfer your estate (however large or small). Documents must be filed and approval must be received from a court to pay your bills, pay your spouse an allowance, and account for your property. Oh, and even worse–it all takes place in the public’s view.

If you fail to plan your estate, not only do you lose the opportunity to protect your family from an impersonal, complex governmental process (that is a burden at best) but it’s slapped across the public domain for all to see.

Then, of course…there’s taxes. You think the government is incentivized to keep those low on your behalf? There’s a variety of solutions for each family’s particular situation…but the plain fact is that working without a plan is U-G-L-Y no matter how you slice it.

When it comes right down to it, planning is a gift for your family (the people you love most) because if you don’t take care of things while you are living and able, they’ll have a mess to clean up when you are gone.

Next week, I’ll give you a very simple tool, which will help you put a good plan in place.

But, if you want a head start (and I don’t blame you), send me an email, or give us a call: (909) 843-6427 — and we’ll get this process started for you.

About those goals…

“The best years of your life are the ones in which you decide your problems are your own. You don’t blame them on your mother, the ecology, or the President. You realize that you control your own destiny.”

- Albert Ellis

Well, now the holidays are truly behind us, and this is the week where reality sets in for everybody.

No more extended family (which might be a relief?), no more parties, no more presents. Just … daily life. And, in my opinion, this week is actually crucial to how the rest of your year goes. Why?

Because intentions and actions matter. No, I don’t subscribe to a mystical “universal” law of attraction–but I DO believe that how we act out what we intend sets a sub-conscious belief system in place which can have an impact for months at a time.

So … are you making resolutions? In some ways, this whole ritual of “resolution-making” can become very cliche, but look–we all need little “nudges” to help us actually make changes in our lives. I see it as my role in your life to not only provide authoritative and actionable advice for your family’s future, but also of course to play the role as a “coach” for what you can do now.

This is why our clients and their friends seek us out for *more* than simple estate-planning, but a whole host of other services as well–from end-of-life issues, to business services, to simple encouragement. I get to be someone in your life who says: “You can do this. You’re not alone.”

It’s my great hope that our relationship will continue to grow into 2011, and beyond. And not just for “business purposes”. We love our clients … you’re a family to us! I should say I mean that in the *positive* sense…we all might be a bit “familied-out” right about now!

So, with my coach hat firmly in place, here are some thoughts for effectively creating and pursuing your personal financial goals, as we move into 2011…

How To Set Those Pesky Financial Goals

Not to make you feel guilty, but for every seven years you delay saving and investing for the future, you cut in half the income you would enjoy at the end of your life. So, let’s make 2011 the year we get on the right financial course, shall we?

Here are some suggestions to get started…

1) Set Realistic Goals First, ask the right questions and stay the course until you’ve found the answers. Goals that are shared are ten times more likely to be acted on. Don’t wait until you have everything set up to seek out accountability.

2) Make those goals concrete and then document them. Set your savings goals as a specific annual percentage of your adjusted gross income (AGI). It’s a great idea to save at least 10% of your AGI in tax-free retirement accounts and another 5% toward retirement in taxable investments. If you are behind on your savings, you may want to save even more in order to catch up.

Third, craft the best strategy to implement your goals, including prioritizing the appropriate retirement vehicles. Start by investing just enough to get the entire match from a company’s 401(k) plan (if you have one) and then fund your Roth IRA accounts next. After these two, make certain you have enough nonretirement savings.

Fourth–and this is a BIG deal– automate your plan. Automating putting money in an employer-defined contribution plan is easy. Automating a taxable savings plan is just as painless. Most banks or brokers offer an automatic money link between an investment account and a checking account. They should also offer a monthly automatic transfer between the two accounts.

Going into further detail would actually entail sitting down and creating a true, full financial plan–which is impossible over email!

But I will say one last thing: the most critical component of wealth management in the new year will be tax minimization. With the potential for tax rates to fluctuate even more than the stock market in 2011, it’s never been more important to monitor what “Uncle Sam” is seeking to take from your wallet!

Best to you.