A few times over the summer I have written about looking toward the future. This has mostly come from the point of view of keeping a business moving forward, though. So this time, I wanted to spend some time thinking about your personal future and putting money aside for retirement.
First, this is obviously a good idea that everyone appreciates on some level. So if you have nothing put aside, start small. If you have some money siphoned out of your paycheck before it ever feels ‘real’ in your bank account, it is easier to get by without it than you think. You can then increase that amount every year (or more) and really start to build some momentum. This should be especially true if you get a raise of any sort. Add some of that increase to what you save. You then will be serving your future while still seeing more money in your paycheck.
For many, much of this future money is put into either a 401(k) or a Roth IRA. No matter which one you utilize and/or which one your job offers, the fact that it is a good idea to use it remains the case. They are not quite the same thing, though, when it comes to taxes.
From here on out, take everything in this article as generality and not as any sort of recommendation for your personal situation. Individual instances come with enough nuance that needs to be taken into account before making personal decisions. I still think this general information is good for when you start thinking your situation, though, and a lot of it is not always well known.
For instance, most people know that these types of accounts are meant for putting away money for the future, but that is about it. So the first thing I would you to take into consideration is if your employer offers any sort of match with that money. If they will also contribute money up to a certain percentage of your pay and you are not yet funding your account to that percentage, think about doing it. If you do not, that is essentially free money you are leaving on the table.
Next, the type of account you have comes with those differences in taxes I mentioned. If you are contributing to a 401(k), those funds are taken from your paycheck before incomes taxes are deducted. Essentially that means the money you put in there has not been taxed. This also means that the money will be subject to taxes when you take distributions from the account in retirement (or before, but that will come with a penalty for doing so).
In a Roth IRA, the funds placed in it come after your taxes have already been computed in your paycheck. That means the money placed in there has already been taxed, so you do not have to pay tax on it in the future when you start taking distributions. This is especially advantageous if you expect to be in a higher tax bracket when you retire than when you make the contributions.
That again tips off that the most advantageous way to use these accounts will vary on a person-by-person basis. So yes, use them, but if you are looking at how to use them best, don’t hesitate to set up a meeting with us to help discuss your situation.
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Last week I wrote about how the complications inherent in the tax system made it impossible for the IRS to release a promised postcard-sized tax return. Since then, the agency has unveiled a draft of a new, more complicated W-4 form and a redesign of their online tax withholding tool.
The first bit of evidence as to how these are attempting to help one through a difficult system is how the online tax withholding estimator is a rebranding of the withholding calculator. A strict calculation was possible when more people worked one W2 job and their tax picture was more straightforward because of it. That situation has become rarer, though, so the numbers are now more honestly labeled estimates.
These estimates are better, though, for they take into account things left out in the past. One thing that was simple but not always taken into account through older forms and calculation was if a spouse earned money, too. Now, the IRS is trying to accommodate that situation.
One of the biggest pieces left off people’s calculations that is now being handled is money one makes as a contractor. The gig economy is not only inhabited by those who work full-time in those gigs, but by those working on the side for some extra money. Often, those people can be under the impression that the money begin taken out of their paychecks at those primary jobs is going to cover their tax obligation. If you have not personally taken into account that you are going to make that money, though, then chances are good it is not being covered. These new tools allow you to put that money into the calculations and keep surprises from happening come tax time.
Unfortunately, many people do not make these adjustments until it is too late. I can’t always fault people for this either. If you’re only working these side gigs to make a few hundred dollars a month, that amount of money helps pay the household bills, but it does not seem like a giant amount that’s wildly going to affect your taxes. When at the end of the year, though, those months add up to a few thousand dollars – well, now you’re looking at a tax hit that could be enough to cause an issue.
So let this stand as a warning/recommendation/compulsion to put these more advanced calculations/estimations to work for you. This way you can make sure that when you file your taxes you don’t’ have to worry about getting an extra bill with it. Or maybe you even want to make sure that you keep getting a refund with it (although let’s also talk about how you can get some money automatically put into an account that will get you some interest and give you access to it for emergencies instead of waiting for a government payout). No matter what, staying on top of things will help you know what’s going on, and that knowledge can be powerful. And as always, we are here to help you arrive at the answers you want to find.
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I do suppose I’ve been too nice towards the IRS lately.
(Oh no, did I just get myself on some list by saying that?)
The agency has made moves recently that seemed more taxpayer-friendly. One of these was its working toward a postcard-sized 1040 form. And if this was really possible, it could be seen as a friendly act. But then there was the fact that the draft wasn’t quite postcard-sized, other forms likely would have had to be involved for a full return, and of course it didn’t actually make the tax rules any easier. This all came out of rhetoric in the wake of the passage of the Tax Cuts and Jobs Act. No matter how you feel about the content of that act, its claim that it was going to help make tax returns easier takes a big hit now that the plans for this postcard-sized form have been scrapped.
A few weeks ago I wrote about the fact that a new 1040 form was in draft form, but didn’t quite realize at the time that meant the quiet death of that postcard sound bite. My point when writing then, though, was that the tax landscape did not suddenly become simple, and this just confirms that point.
And since things aren’t simple, let this be a reminder for those whose 2018 tax return is on an extension that you are starting to run low on time. I know that most of you in this situation are groaning and saying you still have a couple months left. I’ll counter in a clearer voice, though, to say that if you take it back to February, you’ve had six months to get it done and still haven’t, so two more isn’t that much.
It is not a bad time to remember how difficult the system can be for those looking toward next year, too. It is easy to groan in that situation, too. You filed your tax return months ago and are glad that you don’t have to think about it for months more. But do you know what your tax return is going to look like when it does come time to file again?
If you do, and you are happy with what is going to look like, great, you do get the chance to sit for a few months and not give any more thought to the topic. If you do, and you are not happy with what the return is going to look like, then this is the time when you can still put some plans in place to make it look a little bit better.
And for those who do not know what their tax return is going to look like, maybe it is time to make an appointment and see whether or not you will be happy with what it is going to look like. This is especially important if you have had any life changes that are will affect the return (change in marital status, new job, new salary, new child, etc.).
For this road is never simple, but we can help you travel down it.
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It is easy to hear people talk about things you can do to make your business work better (and it even happens in this space). It is easy then to agree in your mind that following those steps would help you grow and succeed. It is much more difficult, however, to put these things into action. This can be more easily accomplished with one thing – planning.
One of the biggest problems when it comes to putting those things into action is procrastination. You think that the ideas sound great, you honestly intend to put them into action, but it gets pushed back in the mind to happening after another initiative is implemented or it gets a ‘next year’ appended onto it. When something lives in a mythical time period, actually making it happen is likely to also remain a myth.
So instead, what exactly are you planning?
It is fine if you read a great bit of business advice but are not in a spot to put it into action. That can certainly be a legitimate situation. Are you putting other things into action, though? There can be first steps, but they are only first steps if you actually take them. Forward momentum is critical, but also impossible to accomplish if no steps are being taken in that direction.
So then, do these plans exist somewhere other than in your mind?
It is necessary to have some concept about where you want go in our business, but if it only exists in your mind, then you don’t really have anything to be accountable to. Simply writing it down gives you a visual reminder, though, it forces you to think about the step and adds that extra layer of accountability.
But then, do you have a time period for when it is going to be accomplished?
If you don’t want things to remain ethereal, put a deadline on them. Even if you aren’t accountable to anyone else or anything other than your own written plan, putting dates on that plan will make it more concrete.
And if you really want to make it more concrete, make that deadline earlier than you think possible. If you only do things when they feel comfortable, you will not be accomplishing as much as you could. Comfort is nice, but big steps are more often taken when you are uncomfortable. Would you rather be comfortable now or be even more comfortable down the road because you pushed yourself a bit, tried new things, and found more success because of it?
So push a little bit, make those plans, and don’t be afraid to try new things. The more malleable you are, the more chances you are willing to take and the more adversity you will be able to handle. It is easy to have good thoughts about where you want to go, but you can get there faster than you believe.
Be mindful, be bold. Then even when some parts fail (and yes, they will), you will know that you tried and that is easier to take than wondering what could have been. And it won’t be as painful as it could be, for you will continue following the successful steps.
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Running a business involves a lot of work. Running a business should also involve a lot of breaks.
I know when you are in the heat of the action, it never feels like you have time to take a break. I mean, why should you allow yourself down time when your to-do list still has a dozen things on it? Because taking that time will could actually get you through that list faster than if you force yourself to remain hunkered down.
Those rest points can be difficult because they feel selfish. If you take it as just a thought exercise, however, I would wager that most people believe taking a break when feeling overwhelmed or frustrated can provide a needed reset and help you perform better when you return to the task. Also, I think most agree that they work better after a good night’s sleep.
Allowing yourself to get one can be difficult, though, when that to-do list is not finished.
I am not going to pretend to have any experimental data to prove this point, but I truly believe that those rest periods make you more productive and save time in the end. I mean, I’m sure I’m not the only person who has found myself frustrated while fixing my own mistakes on a task I tried to accomplish when a bit worn down.
And now it turns out that small breaks, even ones that can be measured in seconds, help your mind process what you’re doing and learn better. I came across this in an Inc.com article written by suspiciously appropriately named business writer Peter Economy.
This article discusses a study that has found that taking a 10-second break allowed participants to enter a short number sequence they just learned faster than those who did not take a break. It seems the brain really does work better if you give it a chance to take in what you’re doing.
So when you are in nose-to-the-grindstone mode, you may feel like you’re getting a lot done, but you may not really be processing what you’re doing. Sure, this can be fine for some mindless tasks, but for the most part, the more you remember about what you did the better.
Recently I have written about the wisdom of delegating tasks and prioritizing getting help from others when you feel like you are doing too much. That is one way to give yourself a break, but now we also see that is important to give yourself personal breaks within the work you are taking on yourself.
All told, let’s consider this in the mode of self-forgiveness. There is a level of hard work and perseverance that is critical to success. There is also a level of rest and relaxation, however, which is necessary to prevent burnout. This can be small – I mean who doesn’t have 10 seconds? – but just keeping it in mind that not only do you deserve some rest periods, but that they are beneficial, is key to long-term success.
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