Your Kids & Money
Are you setting your kids up for financial trouble? Experts say if you’re not talking to them about money, you certainly aren’t helping… So, how can we teach our children to be responsible with money?
Gilmore Jasion Mahler CPA Charlie Heid recently shared some ideas during his monthly appearance on WTOL.
So how young is too young to start talking to your kids about money, and what are some good ideas for parents? Charlie says in his opinion, the earlier you can teach them, the better. Some research has shown that kids as early as 5 to 7 years old understand the concept of money and are already forming the money habits that will stay with them into adulthood.
Show your children what saving looks like
There’s plenty that you can do as parents to instill good habits. Start with showing your kids what saving money looks like. Financial expert Dave Ramsey suggests that you use a clear jar to teach your kids about saving. They can see with their own eyes as the jar fills up… and if they spend money, they see the jar empty out. A piggy bank doesn’t allow them to actually see the money collecting in there.
Set an example
Charlie's next suggestion: Be aware of your own behavior. What are your personal spending habits? Your kids are watching you. If you’re charging on a credit card or impulse buying at every turn, your children are noticing. If you set a healthy financial example, your children will pick up on that too.
Rethink the “allowance”
Charlie challenged parents to get rid of the concept of allowance, or at least rethink it. Instead, he said, have your kids earn money for doing chores around the house. It will help them to understand that money isn’t just handed to us, we have to earn it.
Here are Charlie’s other suggestions he shared on the air:
Challenge your kids to wait to buy something: Some experts recommend the one-day rule. If your child really wants to buy something… ask them to wait at least one day to think about it and weigh the decision, it gives them a chance to really think it through, and to avoid the impulse buy.
Instill the value of giving back. Let your child pick a charity the family can support. It will help them understand the value of doing good for others.
Grocery shopping as a lesson in money: Before you go to the store establish a budget, search together for coupons and make a grocery list. Only buy what’s on the list. Help them to understand that you can’t buy things just because you want them… For example, if they want 2 packages of cookies, explain that you don’t need both, so they can choose one or the other.
For teenagers, here are some thoughts:
- It’s a good time to open their first bank account. This is a good opportunity to have them track their money, deposit birthday and holiday money. If it’s an interest-bearing account, they can see their money grow.
- Educate them about credit – they need to understand that borrowing on credit involves interest.
- Be open about household financials. If you’re comfortable sharing with the kids how money comes in, what bills it pays, etc. they’ll have a better understanding. Even if you make a poor financial decision, sharing the consequences openly with your children will help them learn from your mistakes. If you’re not comfortable talking real numbers, you could just convey using percentages: we spend 20 percent of our income on food, 10 percent in charitable donations, etc.
- Let them stumble. If your child wants to spend all their saved-up birthday money on something and you think it’s a bad idea, consider letting them go ahead with the purchase and see the consequences of the decision. And don’t step in and replace the money for them, so they can learn from the mistake.
CPA Charlie Heid is a partner specializing in tax services, who joined Gilmore Jasion Mahler in 2002. He serves clients across many industries, with a focus on manufacturing & distribution. Charlie appears monthly on WTOL-TV to discuss tax and money issues.
Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.
Three Ways to Lower Your 2018 Taxes
As you race to get all your shopping, wrapping and baking done in time for the holidays, you may want to set aside some time to think about your tax return. Some action now could wind up saving hundreds or maybe even thousands of dollars when you go to file your tax return next spring. Gilmore Jasion Mahler Tax Partner Charlie Heid shared some suggestions on WTOL-11, including three ways to lower your taxes before the end of the year.
#1: Bunch or bundle your charitable contributions
With the new higher standard deduction, which is now $12,000 for individuals and $24,000 for joint filers, smaller charitable donations will no longer get you that tax break that they used to. Many more people will now be taking the standard deduction, and itemizing their deductions won’t apply.
You don’t have to stop giving to charity, just change up your timing a bit. For example, rather than donating $15,000 a year, bump that up to $30,000, but do it every other year instead.
#2: Finalize the divorce
Another change that the new tax law brought will affect anyone going through a divorce right now.
The big impact will be for the person who will be paying the alimony once the marriage is over.
If you’re in the process of a divorce and still finalizing the agreement, be aware that December 31, 2018 is a critical deadline… if you finalize the divorce before the 31st any alimony paid can still be deducted, and alimony received is still considered taxable income. After December 31, that alimony paid will no longer be deductible, nor will it be taxable for the recipient of the alimony. So if you’re in the process of a divorce, and you’re the one who will pay alimony, you want to get it finalized before the end of the year.
#3: Feed the 401k
You can protect a good portion of your income from taxes by moving it into a 401k. You won’t pay tax on the money until it is withdrawn during your retirement. You’re allowed to contribute up to $18,500 to your 401k this year. If you’re over 50, you can contribute up to $24,500.
If you don’t have a 401k you can put the money into an IRA. The great news with the IRA is that you have up until April 15th of 2019 to move the money to that IRA and still have it count as a 2018 contribution.
One final thought: If you sold any investments this year and made money, you may be looking at paying capital gains tax… you could take a look at any of your holdings that show a loss and sell them to offset the gains. If you have more losses than gains, you might be able to deduct the difference, up to $3,000 per year.
Tax Partner Charlie Heid contributed this blog. He joined Gilmore Jasion Mahler in 2002 and brings decades of experience to his clients. Charlie serves individuals as well as business clients across many industries, including manufacturing & distribution, retail and construction. He shares timely information on tax and money issues monthly on WTOL's Your Day.
Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers outsourced accounting services and provides comprehensive services including assurance, business advisory, tax, risk advisory and healthcare management. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.
The “manufacturers’ deduction” isn’t just for manufacturers
The Section 199 deduction is intended to encourage domestic manufacturing. In fact, it’s often referred to as the “manufacturers’ deduction.” But this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies.
Sec. 199 deduction 101
The Sec. 199 deduction, also called the “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.
Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.
The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.
How income is calculated
To determine a company’s Sec. 199 deduction, its qualified production activities income must be calculated. This is the amount of domestic production gross receipts (DPGR) exceeding the cost of goods sold and other expenses allocable to that DPGR. Most companies will need to allocate receipts between those that qualify as DPGR and those that don’t — unless less than 5% of receipts aren’t attributable to DPGR.
DPGR can come from a number of activities, including the construction of real property in the United States, as well as engineering or architectural services performed stateside to construct real property. It also can result from the lease, rental, licensing or sale of qualifying production property, such as:
- Tangible personal property (for example, machinery and office equipment),
- Computer software, and
- Master copies of sound recordings.
The property must have been manufactured, produced, grown or extracted in whole or “significantly” within the United States. While each situation is assessed on its merits, the IRS has said that, if the labor and overhead incurred in the United States accounted for at least 20% of the total cost of goods sold, the activity typically qualifies.
Contact your tax advisor to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2016 return.
The investment interest expense deduction: Less beneficial than you might think
Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make this itemized deduction less beneficial than you might think.
Limits on the deduction
First, you can’t deduct interest you incurred to produce tax-exempt income. For example, if you borrow money to invest in municipal bonds, which are exempt from federal income tax, you can’t deduct the interest.
Second, and perhaps more significant, your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included.
However, any disallowed interest is carried forward. You can then deduct the disallowed interest in a later year if you have excess net investment income.
Changing the tax treatment
You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.
If you’re wondering whether you can claim the investment interest expense deduction on your 2016 return, please contact your tax advisor. We can run the numbers to calculate your potential deduction or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.
Learn more about GJM’s tax expertise.
Deduction for state and local sales tax benefits some, but not all, taxpayers
The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat.
Your 2016 tax return
How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.
Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).
2017 and beyond
If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.
Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.
Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us your tax advisor — they can help you maximize your 2016 savings and effectively plan for 2017.
Learn more about GJM's tax expertise.