Life Financial Planning Thank you to the Brazos Valley Chapter of the Texas Society of Certified Public Accountants for providing written content for this special advertising feature in The Eagle.
Will wealth make you a happy retiree?
Tracy B. STewarT What makes retirees happy? That was the subject of a session at the recent American Institute of Certified Public Accountants’ (AICPA) annual Advanced Personal Financial Planning Conference. The expert is a Texas Tech University professor, Dr. Michael S. Finke, director of retirement planning and living in the Department of Personal Financial Planning. According to Dr. Finke, your goal is
to get the most of your retirement years and here is how you can do it. Will Wealth make you happy? Yes, because people spend more when they have more money. But wealthier retirees don’t spend as much more as you would expect. Dr. Finke’s example is that someone with $700,000 of wealth may likely spend only 10 percent more each year than someone with $200,000 of wealth. Often the wealthy under spend. They are not comfortable spending their wealth. People who have saved all their lives will continue to save; they’re not comfortable increasing their spending in retirement. In the top wealth category, consumption is less than income. These are the net savers in retirement. These people
feel good when they save some of their pension. invest in your health What do people actually do in retirement? They sleep and watch TV more than two extra hours a day. They also have more time to make meals, take care of their homes and do their own gardening. The wealthy are more physically active during retirement than the less wealthy. They spend less time watching television. They are investing in their bodies. As a result, they have fewer geriatric conditions. There is very clear evidence that higher wealth individuals are making an investment in their health. Some element of health is random and some we can influence. But overall, health is a strong predictor of a
happy retirement. Don’t be a recluse Wealthy retirees generally spend more time eating, drinking and socializing. A 2011 Gallup poll indicates that retiree happiness climbs with more hours of socializing. The more you hang out with your friends, the more likely you will have life satisfaction. Weekly contact with friends is a big predictor of happiness in retirement. invest in your relationship Married people are happier. You are way happier if you have a positive relationship with your spouse. Generally speaking, if your spouse is working and you are retired, you are less happy. You will have separate social networks. Your spouse’s
network will be related to work friends and yours will not. The positive and negative aspects of your relationship are more important with your spouse during retirement because you are around each other so much more. If you are having marital issues in retirement, those issues will go from bad to worse. You should see a marriage counselor to craft a lifestyle that you can both be satisfied with. Trust me when I tell you that divorce is very expensive. Divorce reduces your wealth. Who is the happiest? Based on Dr. Finke’s research, the happiest people in retirement are women who divorced between the ages of 60 and 65. This is helped by the fact that women
have and keep a larger social network than do men. That being said, the peak happiness comes between ages 66 and 70. You have to time your retirement just right -not too early and not too late. life is about balancing We have to balance how much happiness to have prior to versus during retirement. This is not easy, but it is important to happiness during your retirement. If, during your working years, you save enough money and invest it wisely, you won’t have to work during your retirement. While wealth makes retirees happy, earned income does not. Contact Tracy B. Stewart, CPA, PFS, CFF, CDFA, CFP® at www. TexasDivorceCPA.com.
where to clip coupons. Sometimes you can print coupons directly online or load discounts to a shopper loyalty card.
watch television, you may be able to reduce your cable or satellite package. Figure out if bundling services really does save you money. Add up how many minutes you use on mobile phone plans as well as the amount of data. You might find that you do not need the
biggest phone plan after all.
How to easily grow your savings Metro Creative ServiCeS
One of the keys to successfully managing money is to save money. Conventional financial wisdom recommends men and women have between three and four month’s worth of earnings in their savings accounts to cover themselves in case of an emergency. But many people live paycheck to paycheck, while others are mired in debt. A 2013 survey from BankRate.com found roughly threequarters of Americans have little emergency savings. Many working professionals find it hard to save any money once they have paid their monthly bills, including home expenses, child care and other common expenses. Although many Canadians are not saving enough, there seems to be a silver lining with regard to money management in that part of North America. The percentage of people who claimed they could not save dropped from 28 percent in 2012 to 17 percent in 2013, according to a BMO Financial Group report on household savings. Statistics Canada reported that the household saving rate rose to 5.4 percent in the third quarter of 2013, which is up from 5
percent in 2012. Financial analysts point to consumer trends among younger generations as one possible cause of the dwindling emphasis on saving money. Previous generations were taught the benefits of saving and being frugal, but nowadays many people struggle to distinguish between necessities and luxuries. More readily available access to credit and a more materialistic culture may also be contributing to fewer dollars being saved. While saving may seem like an uphill battle, a little saving can go a long way. Explore these relatively painless ways to cut back and save more money. • Do it yourself. Make a list of all the service providers used — from manicurists to hair stylists to lawncare professionals — and figure out where cuts can be made. Doing all or a portion of the work yourself can save a considerable amount of money. Do your own weeding and edging, only paying a landscaper to perform the more time consuming task of mowing the lawn. Skip an in-salon coloring treatment for an at-home application. Spend a day preparing meals for the week and eliminate much of your dining out expenses or fast food excursions.
• review your shopping cart. Impulse buys can bust budgets. When grocery shopping, take some time before getting in line to review your potential purchases. Compare items against your list and figure out if any items can go back on the shelf. Do the same when shopping online. Before you proceed to checkout, review items in your cart. Chances are you can delete one or two from the list. • consiDer new stores. If you find yourself spending more than you feel is necessary when shopping, look for new stores. Smaller markets may offer produce and other items at a fraction of the cost of large chain stores. Instead of doing all of your shopping in one place, shop around and buy items where they are the least expensive. For example, you may find paper products are more affordable at a pharmacy than at the supermarket. • learn to coupon effectively. Although you need not go to extremes, use coupons when shopping and learn how to pair sales with coupons to earn even greater discounts. Many blogs and websites help make the process easier, telling you when and
• scale back on certain services. Assess your lifestyle to determine which services you can live without. If you rarely
Saving does not have to be challenging. Opportunities to save money present themselves at every turn. Master the little ways to shave off expenses and grow your savings.
Accounting, Auditing, Income and Estate Tax, and Advisory Services
2100 E. Villa Maria Ste. 100 • Bryan, Texas 77802 T 979-776-2600 • F 979-774-7759 • www.ingram-wallis.com
Life Financial Planning Thank you to the Brazos Valley Chapter of the Texas Society of Certified Public Accountants for providing written content for this special advertising feature in The Eagle.
Understanding the value of a certified public accountant
JAMES LARKIN “Tax preparer” is a term frequently heard during tax season. With the April 15 deadline quickly approaching, taxpayers are steadily bombarded with commercials, radio spots, news segments and even sidewalk mascots advertising these services. Today, consumers have countless choices when looking for tax assistance, but a CPA’s education, experience and high professional standards can help make the process a little less stressful. The CPA designation is one of the most widely recognized and highly trusted professional designations in the business world. CPAs are distinguished from other
finance professionals by stringent qualification and licensing requirements. They must meet continuing education requirements, undergo peer review, and are held to a high level of accountability for their ethical conduct and professionalism. Members of the Brazos Valley Chapter of the Texas Society of Certified Public Accountants (TSCPA) have worked hard to obtain the CPA designation, and they are committed to working even harder to deliver the value that it conveys. Even if your needs are not complex, you may still find the help of a CPA to be cost effective if you have experienced a major lifestyle change, such as retiring, divorcing or assuming full-time care for a relative. Additionally, the Supreme Court’s landmark decision on the Affordable Care Act has resulted in challenges and uncertainties among many individuals this tax season. 2015 is the first year taxpayers must report minimum essential health care
coverage on their returns or face possible penalties. CPAs can provide valuable guidance to help you make the most timely, well-informed health care and tax planning decisions. This year also marks
the 100th anniversary of TSCPA, and the centennial anniversary of accounting as a certified and licensed profession in the state of Texas. For nearly 100 years, the public has relied upon and trusted the skill, integrity and
high standards of CPAs throughout the state. The Brazos Valley Chapter members are extremely proud to be a part of a profession with 100 years of historical success, and we look forward to providing the public with valuable and trusted tax
advice for many years to come. James Larkin is the president of the Brazos Valley Chapter of the Texas Society of Certified Public Accountants and also a partner at Thompson, Derrig & Craig, P.C.
Second homes and the temptation of football weekend rentals
JodI JoNES With a strong local real estate market along with having Texas A&M University within our community, some individuals may be considering purchasing a second home/ vacation home or renting their home out for football weekends. If you are contemplating the purchase of a second home or renting your home out for a few days, you should understand the potential tax consequences or benefits that arise. The tax code allows for interest paid on two qualified personal residences to be deductible as an itemized deduction. Therefore, the interest paid on a principal residence and on a second home/ vacation home would both be deductible. However, this is only allowed if the second home/ vacation home is used solely for personal use. Additionally, this
deduction is limited if the total acquisition debt exceeds $1.1 million for married filing jointly filers and $550,000 for single filers. If the second home or vacation home is used solely for personal use, then real estate property taxes that are paid for the second home would also be deductible as an itemized deduction. However, any additional expenses that are related to the upkeep, maintenance, management fees and other miscellaneous expenses would not be deductible. The taxpayer has the option to rent their second home/ vacation home when they are not using it. If the taxpayer does choose this option, then they should be aware of the vacation home rules. These are the rules that apply if you decide to rent your home out for football weekends, and can get quite complicated. If the home is rented for less than 15 days during a calendar year, then the taxpayer does not have to report any of the rent income on their federal return. However, they may not deduct any expenses (other than property taxes and mortgage interest)
related to the property. Please note that this pertains to federal tax only and does not include discussion of local taxes such as the hotel and motel occupancy taxes. Please make the appropriate inquiries with the City of Bryan and City of College Station for their rules of registration and possible liability of local taxes. If a vacation home is used for personal use, the greater of 14 days or 10 percent of the days that the property is rented to others at fair rental, the vacation home is considered to be used as a residence. When the vacation home is considered to be used as a residence, the income from rental activities is reported on Schedule E. This income may be offset by expenses attributable to the rent by prorating expenses such as utilities, maintenance, mortgage interest, property taxes, depreciation, advertising, insurance and management fees. These deductions are limited to the rental income and the excess may be carried forward to subsequent years. A loss cannot be recognized on the rental income if the vacation home meets the above test and is considered to be used as
a residence. In determining the above 14 days or 10 percent test, it is important to understand what use of the property qualifies as personal use. If the property is rented to anyone at a value that is less than a fair rental value, then these days of use are considered personal use. Any days that are used by the owners, or family members of the owners, are also considered to be personal use days even if the family members pay rent. The only exception to this rule is if that family member is using the property as their principal residence. If the taxpayer spends substantially all of their time on the property repairing or maintaining the property, then these days do not count against their personal use days. To allocate expenses, all expenses except for property taxes and interest are allocated based on number of days used for personal use and number of days used for rental. There is a discrepancy between the IRS and the tax courts on how to handle allocating expenses on mortgage interest and property taxes. The IRS allocates mortgage interest and property taxes in the
same manner as other expenditures. It is based on the number of days used for personal and the number of days rented. However, the tax courts view mortgage interest and taxes to be applicable for the entire year, so it should be allocated to rent income based on the number of days rented to the total days in the year. This is more advantageous to the taxpayer because any excess property taxes and mortgage interest will flow through to itemized deductions. It could otherwise be limited to a net of zero on Schedule E. If the taxpayer does not use the property for personal use for the greater of 14 days or 10 percent of the days that the property is rented out, then the home is not considered a vacation home, and it is not restricted to the vacation home rules. The deductions will not be limited to the income from rents. Any losses from this activity will likely be subject to the passive activity loss rules. In addition, even though the property is not considered a vacation home, the taxpayer must still allocate expenses between personal use and non-personal use.
It is possible for the taxpayer to subsequently sell the second home and not recognize a taxable gain/ loss on the sale. If the taxpayer decided to move into the second home/ vacation home, and used it as a principal residence for two of the last five years, then the taxpayer could potentially exclude up to $250,000 of gain for single filers and $500,000 for married filing jointly. However, if the house was previously depreciated, then there will likely be some gain to recognize when it is disposed. Before diving in and purchasing a second home, it is important to know the potential implications. The rules are very complicated in regards to vacation homes, and each taxpayer’s situation is unique. The taxpayer should always consult a professional tax advisor on how the rules will apply to their individual circumstances. Your CPA can help you understand and work with you to develop a plan. Jodi G. Jones is a CPA and tax partner with Seidel, Schroeder & Company in College Station. See www.ssccpa. com.
Tax season organization Metro Creative ServiCeS Tax season is here. Organization and good record-keeping are keys to filing an accurate return in a timely manner. Failure to submit income and expenditure information can subject a person to an audit and additional financial repercussions.
To stay organized, set aside a folder to contain any items applicable to your tax filings. Make a list of expected documents, including income summaries from work, bank interest statements, student loan information, mortgage documents, charitable donation receipts and similar items.
Check these documents off your list as you place them in the folder. If documents are missing, promptly seek them out from the appropriate sources. Once all of your necessary documents have been compiled, make an appointment with an accountant or get to work on filing your own taxes.
1470 Copperfield Parkway • College Station, TX 77845 (979)846-8980 • www.ssccpa.com