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Tax Filing 2024

By on March 1, 2025

The deadline for filing your 2024 taxes is just 6 weeks away – April 15, 2025. Most of us don’t look forward to this, but this month I’ll offer a few tips to help you get organized and hopefully reduce the pain.

First of all, you can easily extend this deadline to October 15, 2025 by sending in Form 4868. You’ll also need to submit the taxes owed for 2024 to avoid interest and penalties. People often wonder how to avoid these charges when filing late. Some people estimate their 2024 taxes and pay that amount. This can be time consuming, so happily the IRS has provided a way to make a payment based on your 2023 taxes. (This is called the Safe Harbor Rule.) Here’s how that works:

  • Pay at least 90% of your current year’s tax liability (e.g., for 2024 taxes, pay 90% of what you owe by April 15, 2025).
  • Pay 100% of your prior year’s tax liability (or 110% if your AGI was over $150,000 in 2023).

For example, if your 2023 tax owed was $10,000, then:

  • You must pay at least $10,000.
  • Or, $11,000 if your AGI > $150K.

That covers your federal liability, but what about state taxes? It’s actually pretty similar to the federal rules, but with one wrinkle. Here are the Safe Harbor Rules for Colorado. (Rules vary state by state.)

  • 90% of your current year’s tax liability: Pay at least 90% of the tax you owe for the current year.
  • 100% of your prior year’s tax liability: Pay an amount equal to 100% of the tax you owed in the previous year. This applies only if the previous year was a full 12-month tax year and you filed a Colorado tax return. (See the wrinkle? The 110% federal provision doesn’t apply to Colorado.)

Okay, one more thing. If you file quarterly estimates, you must make quarterly payments to the IRS and to your state by April 15. Here’s how to avoid penalties and interest. For federal taxes, pay:

  • 90% of your estimated 2024 total tax (divided into four equal payments).
  • 100% of your 2023 total tax (110% if AGI > $150,000) and split into four payments.

For example, if your 2023 federal tax owed was $20,000, then:

  • Pay 100% or $5,000 per quarter ($20,000 ÷ 4).
  • If your AGI > $150K, pay $5,500 per quarter ($22,000 ÷ 4).

For Colorado estimated payments, suppose your 2023 state tax owed was $10,000, then:

  • Pay 100% or $2,500 per quarter ($10,000 ÷ 4).

Okay, now let’s develop a sort of checklist to follow whenever you file (April 15 or October 15).

1. Gather your documents early

  • Income forms: W-2s, 1099s (freelance, investments, etc.), K-1s (if applicable).

Note: See last month’s blog to understand the different between deductions and credits.

  • Deduction records: Mortgage interest (Form 1098), student loan interest, charitable donations, medical expenses.
  • Tax credits: Child Tax Credit, Earned Income Tax Credit (EITC), education credits (Form 1098-T).

2. Watch for tax law changes

  • Some pandemic-era tax breaks have expired, so refunds may be smaller than in previous years.
  • If you have student loans, the pause on interest and payments ended in 2023, so interest payments might be deductible.

3. Maximize deductions & credits

  • Standard deduction (2024):
    • Single: $14,600
    • Married Filing Jointly: $29,200
    • Head of Household: $21,900
  • Consider itemizing if deductions (medical expenses, mortgage interest, state/local taxes) exceed the standard deduction.

4. Contribute to tax-advantaged accounts

  • You can still contribute to an IRA, HAS or 401(k) accounts for 2024 until April 15, 2025, to lower your taxable income.
  • 401(k) contributions for 2024 max out at $23,000 ($30,500 if 50+).

5. Avoid common mistakes

  • Double-check Social Security numbers, bank account details (for direct deposit) and filing status.
  • Report all income, including side gigs and cryptocurrency transactions.

6. File electronically & choose direct deposit

  • E-filing is faster, more secure and reduces errors compared to paper filing.
  • The IRS typically processes refunds within 21 days for electronic returns with direct deposit.

7. Beware of scams & identity theft

  • The IRS will NEVER call, text or email demanding payment.
  • Consider getting an Identity Protection PIN (IP PIN) for extra security.

8. Use free filing options (if eligible)

  • The IRS Free File program offers free tax software for those earning $79,000 or less.
  • Volunteer Income Tax Assistance (VITA) is available for lower-income taxpayers.

9. Hire a professional (if needed)

  • If you have complex taxes (e.g., business income, major investments or rental properties), consider a CPA or enrolled agent.
  • Or, consider using a professional to just reduce your stress and free up some valuable time.
  • Ensure your tax preparer has a PTIN (Preparer Tax Identification Number).

Whew, who said filing taxes was easy! But, we’re here to help. So, if you’d like to further talk about taxes, or any other financial matters, we can discuss things in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

 

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National Caregivers Day – February 21, 2025

By on February 1, 2025

National Caregivers Day is observed to recognize and honor the dedication and hard work of the approximately 53 million caregivers who provide essential support to individuals in need of care due to aging, illness or disability.  These caregivers may include professional caregivers, family members or friends who offer physical, emotional and practical care.  In the United States, National Caregivers Day is observed on the third Friday of February each year – February 21st in 2025.  The day raises awareness of the vital role caregivers play in improving the lives of those they care for.  It acknowledges their selflessness and often underappreciated contributions, encouraging people to show gratitude and support.

Ways to Celebrate

  • Thank a caregiver:  Sit down and talk with them, send a note or send a gift to express gratitude for their efforts.
  • Offer help:  Provide a break by offering to help with caregiving tasks such as cooking.
  • Support self-care:  Treat them to a massage or cover for them while they see their own doctor.
  • Raise awareness:  Share posts or stories about caregiving to spread appreciation.
  • Donate:  Support organizations that provide resources and support for caregivers.

Caregivers & Taxes

In addition to the person-to-person support discussed above, there is some financial support available through our tax system.  As a reminder, the tax laws offer two basic ways to lower the amount you owe in taxes.  There are credits and deductions.

Tax Credits

A tax credit directly reduces the amount of tax you owe, dollar for dollar.  So, for example, if you owe $2,000 in taxes and qualify for a $500 tax credit, your tax bill decreases to $1,500.  There are two varieties of tax credits:  refundable and nonrefundable.  With refundable tax credits, if the credit exceeds your tax liability, you get the remaining amount as a refund.  On the other hand, nonrefundable tax credits can only reduce your tax bill to zero but won’t result in a refund.

Tax Deductions

Tax deductions reduce your taxable income, which lowers the amount of income that is subject to tax.  As an example, if you earn $50,000 and claim a $1,000 deduction, your taxable income becomes $49,000. The actual tax savings depends on your marginal tax rate (e.g., 22%, 24%).  As with credits, there are two kinds of deductions:  standard and itemized.  A standard deduction is what you take if you don’t itemize your deductions.  For 2025, the standard deduction is $30,000 for joint filers.  Itemized deductions include specific expenses you can claim instead of the standard deduction (e.g., medical expenses, mortgage interest and charitable donations).

Okay, back to the topic at hand, caregiver credits and deductions.  This can become a little complicated as caregiving can include children, parents and others.  For this article, let’s focus on tax effects of providing care for our aging parent or parents.

Dependents

Being a dependent is essential to receiving caregiver tax breaks.  The IRS says that to claim your parent as a dependent you must meet the following tests:

  1. You (and your spouse if filing jointly) are not a dependent of another taxpayer.
  2. Your parent, if married, doesn’t file a joint return or files a joint return only to claim a refund of income tax withheld or estimated tax paid.
  3. Your parent is a U.S. citizen, U.S. national, U.S. resident alien or a resident of Canada or Mexico.
  4. You paid more than half of your parent’s support for the calendar year.
  5. Your parent’s gross income for the calendar year was less than $5,050.
  6. Your parent isn’t a qualifying child of another taxpayer.
  7. If your parent is your foster parent, they must have lived with you all year in your main home and as a member of your household.

If your parent is a qualified dependent, here are some tax breaks that may apply.

Child and Dependent Care Credit

If you pay for care services to enable you to work or seek employment, you may qualify for the Child and Dependent Care Credit.  This credit allows you to claim a percentage of up to $3,000 in caregiving expenses for one qualifying individual or $6,000 for two or more. To be eligible:

  • Dependent Status: Your parent must be physically or mentally incapable of self-care and meet certain dependency criteria.
  • Work-Related: The care must be necessary for you (and your spouse, if filing jointly) to work or actively look for work.

Credit for Other Dependents

If your parent qualifies as your dependent, you may be eligible for a nonrefundable tax credit of up to $500 under the Credit for Other Dependents.

Medical Expense Deduction

If you itemize deductions, you can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.  This includes medical expenses you pay for your parent, provided they qualify as your dependent.  Eligible expenses encompass a wide range of medical costs, such as:  Doctor visits, prescription medications, medical equipment and home modifications for medical reasons.

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)

Contributions to FSAs and HSAs are made with pre-tax dollars and can be used to pay for qualified medical expenses for you and your dependents.  Utilizing these accounts can lower your taxable income while covering out-of-pocket healthcare costs.

Caregiving has numerous aspects.  For example, we didn’t even get into caregiving for children in this article.  If you’d like to further talk about caregiving, taxes, or any other financial matters, we can discuss things in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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Individual Bonds versus Bond Funds

By on January 1, 2025

You probably know that bonds are fixed-income securities where you loan some money to an entity for a specified interest rate and period of time.  Here are the types of bonds you can choose from:

  • Government:  Government bonds are considered safest, since a government can always “print more money” to pay its debt.  In the United States, these are United States Treasury securities or Treasuries.  Due to the safety, the yields are typically low.
  • Agency:  In the United States, these are bonds issued by government agencies such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corp. (Freddie Mac) and Federal National Mortgage Association (Fannie Mae).
  • Municipal:  Bonds issued by state and local governments and agencies are subject to certain tax preferences and are typically exempt from federal taxes.  In some cases, these bonds are even exempt from state or local taxes.
  • Corporate:  Bonds are issued by corporations.  All corporate bonds are guaranteed by the borrowing (issuing) company and the risk depends on the company’s ability to pay the loan at maturity.

When investing in fixed income, you may choose between individual bonds and bond funds.  This month we’ll look at the differences and help you understand which one might be right for you.

Individual Bonds.  This is a loan directly from you to a government, municipality or corporation in exchange for periodic interest payments and the return of the face value at maturity.

Pros:

  • Predictable income:  Fixed-interest payments until maturity.
  • Control over holdings:  Investors choose specific bonds and issuers.
  • Fixed maturity:  You know exactly when you’ll get your principal back (if the issuer doesn’t default).
  • Risk management:  Can hold bonds to maturity to avoid market volatility impacting value.

Cons:

  • Liquidity:  May be harder to sell before maturity without incurring a loss, especially for less-liquid bonds.
  • Diversification:  Building a diversified portfolio can be costly and require significant capital.
  • Reinvestment risk:  When bonds mature, reinvesting at comparable rates may not always be possible.
  • Research requirement:  Requires thorough evaluation of credit risk and market conditions.

When to Choose Individual Bonds:

  • You want predictable cash flows and are comfortable holding until maturity.
  • You have sufficient capital to create a diversified bond portfolio.
  • You value control over your investments.

Bond Funds.  These are pooled investment vehicles that hold a portfolio of bonds. The bond fund purchases individual bonds and you purchase shares in the fund.  (Actually you have two options here:  mutual funds and Exchange Traded Funds.  For this article, we’ll refer to them collectively as bond funds.)

Pros:

  • Diversification:  Broad exposure to many bonds, reducing risk tied to a single issuer.
  • Liquidity:  Shares in the fund can generally be bought or sold daily.
  • Professional management:  Fund managers handle research and selection.
  • Low entry point:  Invest with smaller amounts compared to buying individual bonds.

Cons:

  • No fixed maturity:  Funds are perpetual.  They don’t return principal like individual bonds at a set date.
  • Interest rate sensitivity:  Fund value fluctuates more with market interest rates.
  • Management fees:  Expense ratios reduce overall returns.
  • Less control:  The investor cannot choose specific bonds within the fund.

When to Choose Bond Funds:

  • You prefer instant diversification with lower upfront investment.
  • You don’t want to research individual bonds.
  • You prioritize liquidity and can tolerate some price volatility.

For most of us, a percentage of our investments should be in bonds.  As you can see, there are two clear ways to do this.  Of course, it needn’t be one or the other.  Some investors actually prefer a hybrid approach:  holding individual bonds for income and bond funds for diversification. The choice depends on goals, risk tolerance and the need for flexibility.  There are other considerations such as tax efficiency, whether the bonds are callable and so forth.  If you’d like to learn more about bonds, or talk about any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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2025 Tax Law Changes

By on December 1, 2024

As you make your plans for the coming year, it’s important to take note of the changes in contribution limits and other tax changes in 2025.  The information that follows was gathered from the IRS and other relevant government agencies.

Social Security
Social Security payments will increase 2.5% in 2025.

401(k)
I view 401(k) plans as a high priority — especially if your employer does contribution matching.  For the under-50 crowd, you can contribute $23,500 this year – a $500 increase.  If you’re 50 or older, you can also use the catch-up contribution which will be $7,500 – same as 2024.  In 2025, if you are between the ages of 60 and 63 by the end of the calendar year, your catch-up contribution will be $11,250 (rather than the $7,500 for those in the 50-60 age range).

IRA
For both traditional and Roth IRAs, contribution limits will be the same as 2024, $7,000.  Catch-up contributions for those 50 and older also remain unchanged at $1,000.  For traditional IRAs, whether these contributions are deductible depends on something called your Modified Adjusted Gross Income or MAGI.  (That’s basically your Adjusted Gross Income with certain deductions added back in.)

For traditional IRAs, joint filers who have a MAGI of less than $150,000 may deduct their entire contribution.  Those with a MAGI greater than $165,000 can’t deduct anything.  (The deduction amount is phased between those two thresholds.)

For a Roth IRA, there is no deduction since it’s funded with post-tax dollars.  There is however, a MAGI limit as to whether any contribution is permitted.  For joint-filers with income is less than $236,000, they may make the full $7,000 contribution to their Roth IRA.  No contributions may be made with a MAGI above $246,000.  (The limit is phased between those two levels.)

Tax Rates
Marginal tax rates remain unchanged in 2025.  The dollar thresholds for particular brackets have increased due to inflation.  Here are the rates for single and married joint filers for 2025.  (That is, for income earned in 2025 which will be taxed in 2026.)

  • 37% for incomes over $626,350 (over $751,600 for married couples filing jointly)
  • 35% for incomes over $250,525 (over $501,050 for married couples filing jointly)
  • 32% for incomes over $197,300 (over $394,600 for married couples filing jointly)
  • 24% for incomes over $103,350 (over $206,700 for married couples filing jointly)
  • 22% for incomes over $48,475 (over $96,950 for married couples filing jointly)
  • 12% for incomes over $11,925 (over $23,850 for married couples filing jointly)
  • 10% for incomes of $11,925 or less ($23,850 or less for married couples filing jointly)

Standard Deduction
The standard deduction for those who do not itemize will increase to $15,000 for single filers and $30,000 for married couples filing a joint return.

Here’s an early warning for 2026 taxes:  Unless congress acts, the standard deduction will revert to pre- Tax Cuts and Jobs Act of 2017 (TCJA) levels (adjusted for inflation).  This means the deduction amounts will be substantially lower than the amounts in effect from 2018 to 2025.  As an example, the married-filing-jointly deduction is expected to be around $14,000 (down from ~$30,000 in 2025).

Estate Taxes
Estates will be exempt from Federal taxes up to $13,990,000 per person.  The limit in 2024 was from $13,610,000.

Required Minimum Distributions
Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year.  You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).

Account owners in a workplace retirement plan (for example, 401(k) or profit-sharing plan) can delay taking their RMDs until the year they retire, unless they’re a 5% owner of the business sponsoring the plan.

Roth IRAs do not require withdrawals until after the death of the owner.  At that time, a spouse who inherited a deceased partner’s IRA can roll the funds into their own IRA or an Inherited IRA.  Other beneficiaries may be subject to the 10-year distribution rule. This rule requires all assets in the account to be distributed by the end of the 10th year from when the original account owner died.

As a reminder, there was a change for Roth accounts that are held in 401(k) or 403(b) plans for 2024 and later years.  They no longer require RMDs.

Health Savings Account (HSA)

A Health Savings Account (HSA) is a personal savings account that lets you set aside money to pay for qualified medical expenses such as deductibles, copayments, coinsurance and some dental, drug, and vision expenses.  You can use HSA funds tax-free, and the interest earned on your account is also tax-free. You can also deduct your voluntary contributions to your HSA from your taxable income. To be eligible for an HSA, you must be covered by an HSA-eligible plan, also known as a High Deductible Health Plan (HDHP). With HDHPs, you usually pay more out-of-pocket for health care costs before your insurance company starts to pay.

The HSA contribution limit for 2025 is $4,300 for self-only coverage and $8,550 for family coverage. This is an increase of $150 for individuals and $250 for families from 2024.  Individuals 55 and older may contribute an additional $1,000.

Health Flexible Spending Account (FSA)

A Health Flexible Spending Account (FSA) is an employee benefit that allows you to set aside pre-tax money to pay for certain healthcare expenses such as insurance copayments and deductibles, qualified prescription drugs, insulin, medical devices, contact lenses and eyeglasses, dental cleanings and hearing aids.

An employee who chooses to participate in an FSA may contribute up to $3,300 through payroll deductions during the 2025 plan year.  Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.  Also, if your plan permits, up to $660 may be rolled over for a FSA in 2025. This is an increase from the 2024 maximum of $640

Naturally there are other changes in the tax laws and there are a lot of details as to what applies to whom.  So, if you’d like to discuss how the 2025 tax rules affect your situation, or any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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How Much Should I Save Each Month?

By on November 1, 2024

How much to save is such an important question and it can vary quite a bit depending on your age and goals.  Nonetheless, there are some rules of thumb that many professionals recommend.  This month we’ll take a look at some of them.

A widely accepted strategy is the 50/30/20 rule.  It simply states that we use 50% of our gross income for essential living expenses, 30% for discretionary expenses and 20% for saving.  (Percentages rather than dollar amounts allow this approach to work for all income levels.)  Gross income is the total amount of money you earn before any deductions or taxes are taken out — that’s your annual salary if you are a salaried employee.  Essential living expenses are the basic, non-negotiable costs you incur to maintain a stable, healthy lifestyle. These cover the essentials you need for day-to-day life and typically include:  housing, utilities, groceries and household supplies, transportation, healthcare, insurance, debt payments and childcare.  Discretionary expenses are the non-essential costs that support your lifestyle, hobbies and enjoyment. These expenses are typically flexible and can be adjusted based on your budget. Here are some common discretionary expenses:  dining out and entertainment, hobbies and recreation, travel and vacations, shopping for clothing and so forth, personal care and gifts and special occasions.  Now, let’s look a little more closely at saving.

With a target of 20%, you may wonder what kinds of savings this is meant to cover.  In short, it covers all savings.  A common rule of thumb is that 10-15% is reserved for retirement and the remaining 5-10% is allocated for a new home, college expenses, an emergency fund, a rainy-day fund and so forth.

With this income allocation plan in mind, here are a few of the time-tested principles of saving.

  • Start now. No matter how much you’re able to put aside for savings, starting now is way better than waiting until you can chip in a certain percentage.
  • Automate savings. It works so much better to have a portion of your paycheck automatically deposited into a savings account.  (Or maybe several accounts – retirement, college, etc.)
  • Prioritize retirement. You’ll need a lot of money for retirement and time (compounding) is your friend.  You can take out loans and find other ways to help pay for other items, but other than Social Security (and maybe a pension), you alone must save for your retirement.  Starting younger (in your twenties) is always helpful, but it’s quite important that you begin no later than 40.  (You can, and should, start even if you’re older, but you’ll face certain challenges such as larger savings requirements.)

With these guidelines in mind, you may wonder about the details of a personalized savings plan for your family.  It might be helpful to see some of the articles I’ve previously written on this topic.  In addition, we can discuss a solid plan for you, or discuss any other financial questions, in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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What is a Credit Card CVV?

By on October 1, 2024

The CVV (Card Verification Value) is a security feature for credit card transactions, typically used in online or phone purchases. It is a three- or four-digit number printed on your credit card — separate from the card number.

  1. Location: On Visa, MasterCard, and Discover cards, the CVV is a three-digit number on the back of the card, usually next to the signature strip. On American Express cards, it is a four-digit number on the front of the card.

  1. Purpose: The CVV helps verify that the person making the purchase physically possesses the card, as it is not stored in most databases (like the card number might be). This reduces the risk of fraud in online or in other “card-not-present” transactions.

Here’s how a CVV helps protect you:

  1. Prevents Unauthorized Use Without the Physical Card:
  • The CVV is not stored in merchant databases when you make a purchase. Even if a hacker obtains your credit card number through a data breach, they would still need the CVV to complete a transaction.
  • Since the CVV is physically printed on the card and not stored digitally, it adds protection in case your card number is compromised.
  1. Reduces Fraud in Online Transactions:
  • Many websites require the CVV as part of the payment process to verify that the buyer physically has the card. Without this code, it becomes difficult for a fraudster to make an online purchase, even if they have your card number.
  • The CVV is not embedded in the card’s magnetic stripe or chip, meaning it is not transmitted during in-person transactions. This limits the possibility of it being stolen through skimming devices.
  1. Stops Some Automated Fraud Attempts:
  • Many fraudsters use automated systems to try different credit card numbers for purchases. However, without the correct CVV, those systems are less likely to succeed, as most websites won’t process transactions without the CVV.
  1. Prevents Fraud in Case of Merchant Data Breaches:
  • In the event of a merchant database hack, where your credit card number is stolen, the CVV is usually not part of the stored information. This ensures that the stolen data alone isn’t enough to make fraudulent purchases.

While the CVV adds an extra layer of security, it’s important to keep your card details, including the CVV, private to avoid fraud. Here are some tips for ensuring CVV safety:

  1. Never Share Your CVV: Don’t share your CVV number with anyone, even if they claim to be from your bank or credit card company. Banks will never ask for your CVV number over the phone, email or text message.
  2. Avoid Storing Card Information Online: While some websites offer the convenience of saving your card details, it’s safer to avoid storing both your card number and CVV on e-commerce platforms, as this data can be compromised in data breaches.
  3. Use Secure Websites: Always ensure you’re shopping or entering your CVV on websites that use secure connections (look for “https” in the browser bar).
  4. Monitor Transactions Regularly: Frequently check your credit card statements for unauthorized transactions. Many banks offer real-time alerts via text or email for transactions made on your account.
  5. Enable Two-Factor Authentication (2FA): Some financial institutions offer two-factor authentication for online purchases, adding an additional layer of protection beyond just your card and CVV details.
  6. Use Virtual Credit Card Numbers: Some banks provide virtual or temporary card numbers for online purchases, which can help keep your real card number and CVV safe from potential hackers.
  7. Keep Your Physical Card Secure: Ensure that no one can easily see your card, especially your CVV, when making in-person transactions. If you lose your card, report it immediately to your card issuer.

As you can see, the CVV code significantly increases the safety of credit card transactions.  This can help protect the money that you’ve worked so hard to accumulate.  If you have credit card questions, or any other financial questions, we can discuss them in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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Blending Finances for Couples & Newlyweds – Part 2

By on September 1, 2024

This is the second part of an article that talks about the three approaches available for combining your finances.  Last month’s article discussed keeping finances separate and partially combining finances (hybrid approach).  This month we’ll wrap up this discussion by talking about completely combing your finances and we’ll also give you some information on separating your finances should that become necessary.  Let’s get back to our discussion.

Completely Combined Finances.  Completely combined finances in marriage involve pooling all income and expenses into joint accounts and sharing financial responsibilities equally. Completely combining finances can foster unity, transparency and collaboration in managing a couple’s financial life. However, it requires a high level of trust, communication and agreement on financial priorities and habits. Couples considering this approach should ensure they have a solid foundation of mutual understanding and a shared vision for their financial future. Regular financial check-ins and open discussions can help maintain harmony and address any emerging issues.

Pros

  1. Simplicity and Streamlined Management
    • Unified Finances:  Easier to manage finances with a single set of accounts.
    • Simplified Budgeting:  Creating and adhering to a budget is simpler when all income and expenses are combined.
  2. Increased Transparency and Trust
    • Full Visibility:  Both partners have complete visibility into all financial activities.
    • Trust Building:  Full transparency can enhance trust and partnership.
  3. Shared Financial Goals
    • Unified Objectives:  Easier to set and achieve shared financial goals, such as saving for a house, retirement or vacations.
    • Collaborative Planning:  Joint decision-making can lead to more cohesive financial planning.
  4. Equal Responsibility
    • Shared Burden:  Both partners equally share financial responsibilities, reducing the burden on any one person.
    • Mutual Support:  Allows for mutual support in managing finances and tackling financial challenges.
  5. Emergency Preparedness
    • Combined Resources:  Pooling resources can provide a stronger safety net in case of emergencies.
    • Joint Savings:  Easier to build a comprehensive emergency fund and save for future needs.
  6. Potential Financial Benefits
    • Better Rates:  Combined finances can sometimes lead to better mortgage rates, credit card terms and other financial benefits.
    • Joint Tax Benefits:  Possible tax advantages from filing jointly, depending on the jurisdiction.

Cons

  1. Loss of Financial Independence
    • Autonomy:  Individual financial autonomy is significantly reduced.
    • Personal Spending:  Personal spending decisions might require consultation and agreement.
  2. Potential for Conflict
    • Spending Disagreements:  Differences in spending habits and financial priorities can lead to conflicts.
    • Financial Control:  One partner might feel dominated if there is an imbalance in financial control or decision-making.
  3. Vulnerability to Financial Mistakes
    • Shared Risk:  One partner’s financial mistakes or mismanagement can directly impact the other.
    • Debt Issues:  Joint liability for debts means one partner’s debt can become a shared burden.
  4. Income Disparities
    • Fairness Concerns:  Significant income disparities can lead to feelings of inequality or resentment.
    • Contribution Imbalance:  The partner earning more may feel they are contributing disproportionately.
  5. Complicated Separation
    • Dividing Assets:  In case of separation or divorce, untangling completely combined finances can be complex and contentious.
    • Legal Implications:  Legal processes may be more involved when all finances are intertwined.

You’ve made great progress once you and your significant other have agreed on how you want to approach your finances!  There are still many details to be discussed including budgeting and, if your finances are partially or completely separated, how to contribute to joint expenses.  This is especially true if one of you earns a lot more than the other or has much higher debt.

There’s also the matter of thinking through separation should it occur.  A lawyer is important to understand this and the rules vary from state to state.  There are three concepts that are essential for you to understand here.

  1. No-Fault Divorce.  A no-fault divorce is a type of divorce in which the spouse filing for divorce does not have to prove any wrongdoing or fault on the part of the other spouse. Instead, the filing spouse only needs to state that the marriage has irretrievably broken down or that there are irreconcilable differences, meaning that the marriage cannot be saved and there is no reasonable expectation of reconciliation.  In this situation, the court does not consider the behavior of either spouse when making financial decisions.  Colorado is a no-fault state.
  2. Community property.  Community property refers to a legal framework used in some states to determine how property and debts are divided between spouses during a divorce. Under community property laws, most property acquired during the marriage is considered jointly owned by both spouses and is typically divided equally upon divorce.  Colorado is not a community property state. It is an equitable distribution state.
  3. Prenuptial Agreements.  A prenuptial agreement (often called a prenup) is a legally binding contract created by two individuals before they get married. The purpose of a prenup is to establish the property and financial rights of each spouse in the event of a divorce or the death of one of the spouses.  Importantly, a prenup can override community property laws in a divorce, even in states that follow community property laws. A prenup is a contract between future spouses that can address issues like property division, alimony and debt. If a prenup is valid and doesn’t violate state or federal law, a judge will likely accept it as proof that the couple agreed to a different split of their assets than the default 50/50 split in community property states.

So, in summary, a series of open and empathetic conversations about how to handle finances when you are getting married or forming some other kind of committed relationship is essential.  We can help you work through this process, or discuss any other financial matters, in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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Blending Finances for Couples & Newlyweds – Part 1

By on August 1, 2024

If you’re engaged in a committed relationship with another person, there are many things you’ll want to discuss and to find a way of dealing with them that works for both of you.  I previously wrote about how you can achieve this alignment and it might be good to read that article before digging into this one.  Okay, now that you have some ideas about how to discuss finances with each other, let’s explore options you have for blending your finances.

There are three basic ways to handle your finances as a couple.  These are:  Keep finances separate, partially combine finances (hybrid approach) and completely combine your finances.  There is not a best approach for each couple.  You’ll need to work this out between yourselves.  However, knowing about these three options can help you explore what’s best for you.  This month, we’ll discuss the first two approaches.  Next month we’ll dig into completely combing your finances and we’ll also give you some information on separating your finances should that become necessary.

Separate Finances.  Keeping finances completely separate in marriage is a financial arrangement where each partner maintains individual control over their own money, accounts and financial responsibilities.

Pros

  1. Financial Independence
    • Autonomy:  Each partner retains full control over their own income and spending decisions.
    • Self-Sufficiency:  It can foster a sense of independence and self-reliance.
  2. Easier Budgeting for Personal Expenses
    • Personal Accountability:  Each person is responsible for managing their own finances, which can simplify personal budgeting.
    • Individual Goals:  Easier to pursue personal financial goals without needing to compromise.
  3. Avoiding Conflicts Over Money
    • Reduced Tension:  Less potential for arguments over spending habits or financial priorities.
    • Privacy:  Each partner can maintain privacy over their financial matters.
  4. Protecting Individual Credit Scores
    • Credit Protection:  Individual financial missteps won’t affect the other partner’s credit score.
    • Debt Management:  Personal debts remain separate, avoiding shared liability.
  5. Simplified Asset Division in Case of Separation
    • Clear Boundaries:  Assets and liabilities are already separated, which can simplify legal and financial matters in case of divorce.

Cons

  1. Lack of Transparency
    • Financial Secrecy:  Keeping finances separate can lead to a lack of openness about each other’s financial status.
    • Trust Issues:  Potential for trust issues if one partner is unaware of the other’s financial situation.
  2. Complicated Shared Expenses
    • Expense Management: Managing shared expenses like rent, utilities and groceries can be more complex.
    • Equitable Contributions: Deciding how to fairly split joint expenses can be challenging.
  3. Potential for Inequality
    • Income Disparities:  Differences in income can lead to feelings of inequality if one partner cannot contribute equally to joint expenses or savings.
    • Financial Imbalance:  One partner may end up shouldering more of the financial burden.
  4. Reduced Financial Cohesion
    • Disjointed Financial Goals:  It can be harder to align on shared financial goals and long-term planning.
    • Less Collaboration:  Reduced opportunity for teamwork in managing finances and achieving joint objectives.
  5. Missed Financial Benefits
    • Joint Accounts Perks:  Missing out on benefits such as combined savings interest, better mortgage rates and joint tax returns.
    • Emergency Situations:  In emergencies, pooled resources might be more effective than separate funds.

Partially Combined Finances.  Partially combined finances can offer a balanced approach, allowing couples to enjoy the benefits of shared financial responsibilities while maintaining personal financial independence. Successful management of this approach requires clear communication, mutual understanding and regular financial check-ins to ensure both partners feel comfortable with the arrangement.

Pros

  1. Balance of Independence and Unity
    • Autonomy:  Each partner maintains some financial independence with their own accounts.
    • Teamwork:  Joint accounts for shared expenses foster a sense of partnership and teamwork.
  2. Simplified Shared Expenses
    • Joint Accounts for Bills:  Easier management of shared expenses like rent, utilities and groceries through joint accounts.
    • Expense Sharing:  Clear mechanisms for contributing to joint expenses while maintaining personal spending control.
  3. Transparency and Trust
    • Openness:  Joint accounts provide transparency about shared financial goals and expenses.
    • Trust Building:  Partial sharing fosters trust while allowing personal financial privacy.
  4. Flexibility
    • Adaptability:  Easier to adjust contributions and responsibilities as circumstances change.
    • Personal Goals:  Each partner can pursue individual financial goals without affecting the joint budget.
  5. Financial Security
    • Emergency Fund:  Combined resources in joint accounts can be beneficial in emergencies.
    • Shared Savings:  Easier to save for shared goals like vacations, home purchases or children’s education.

Cons

  1. Complex Financial Management
    • Tracking Issues:  Managing both joint and individual accounts can be more complex and time-consuming.
    • Coordination:  Requires careful coordination to ensure all expenses and contributions are managed effectively.
  2. Potential for Disagreements
    • Spending Disputes:  Differences in spending habits can still cause disagreements over joint account usage.
    • Contribution Imbalances:  Disparities in income or contributions to joint accounts may lead to tension.
  3. Partial Transparency
    • Limited Openness:  Not all financial matters are shared, which may lead to misunderstandings or lack of full financial insight.
    • Privacy Concerns:  Balancing transparency with personal privacy can be challenging.
  4. Income Disparities
    • Fairness Issues:  Differences in income can make it difficult to decide how much each partner should contribute to joint expenses.
    • Resentment:  One partner may feel burdened if they contribute more to the joint account due to higher earnings.
  5. Legal and Tax Implications
    • Complex Tax Filing:  Partial combining may complicate tax filing and financial planning.
    • Legal Issues:  In case of separation or divorce, dividing partially combined finances can be more complicated.

I hope this article gives you some useful information on this very important topic.  Please return next month for the second part of this story.  In the meantime, if you’d like to begin discussing the best way to combine finances, or discuss any other financial matters, in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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Roth 401(k) Plans

By on July 1, 2024

You probably know there are two commonly used types of retirement plans:  Individual Retirement Plans (IRAs) and 401(k)s/403(b)s offered by employers.  Further, they come with different tax treatment choices, Traditional and Roth.  In short, the Traditional option is funded with pre-tax dollars and withdrawals (contributions and growth) are taxed as ordinary income.  The Roth option is funded with after-tax dollars and withdrawals are generally tax-free.

Roth 401(k) Overview

Prior to the SECURE Act 2.0 (enacted in late 2022), Roth 401(k) contributions and taxation treatment differed between employee and employer contributions in that employee contributions went to the Roth option, but employer contributions were required to go the Traditional option.  This act really simplified things by allowing both employee and employer contributions to be deposited to the same option.  Let’s take a look at some of these changes.

Employee Contributions

No changes here.  Employee contributions to a Roth 401(k) are considered ‘after-tax’ and are not deductible by the employee.

Employer Contributions

Under the SECURE Act 2.0, employers can now make matching or non-elective contributions to Roth 401(k) accounts. However, these contributions must be included in the employee’s taxable income in the year they are made, which differs from the previous rule where all employer contributions were pre-tax and allocated to traditional 401(k) accounts.  As a consequence, the employee’s Adjusted Gross Income will increase by the amount of the employer’s contribution leading to a somewhat higher tax bill.

This change allows for Roth treatment of employer contributions, making future withdrawals of these contributions tax-free, provided other Roth requirements are met (e.g., holding the account for at least 5 years and reaching age 59½).

Required Minimum Distributions (RMDs)

The SECURE Act 2.0 eliminated the RMD requirement for Roth 401(k) accounts starting in 2024. Previously, Roth 401(k) account holders had to take RMDs during their lifetime, just like traditional 401(k) holders. This change aligns Roth 401(k) accounts with Roth IRAs, which do not have RMDs during the account holder’s lifetime.

Is a Roth 401(k) Right For You?

This really depends on your circumstances.  If you expect your tax rate to be lower in retirement, this may not be the best choice.  If your tax rate might be higher than it is now, this could be the perfect way to go.  Since it’s hard to see the future and since tax laws change, many people opt for a stream of tax-free income.

So, in summary, the SECURE Act 2.0 introduced significant changes that provide more flexibility and potentially more tax benefits for Roth 401(k) account holders by allowing employer contributions to Roth 401(k)s and eliminating RMDs.  We can discuss whether a Roth 401(k) plan is right for you, or any other financial matters, in a no-charge, no-obligation initial meeting.  Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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Handling the Estate of a Love One

By on June 1, 2024

The death of a spouse/partner, parent, child or anyone you’re close to can be very difficult.  If your loved one has recently died, please accept my sympathies for your loss.  Or maybe you’re just getting organized before a death occurs.  In either case, I hope that this article will prove helpful to you.

Unfortunately, there are quite a few steps to go through when someone dies – especially if you are acting as the personal representative (also called the executor in many states.)  Here is a pretty good basic list to get you started.

Overview:

  1. Avoid Major Decisions.  Many of us have our thinking clouded in the early stages of grief.  Therefore, it’s important to defer any major decisions unless they absolutely require immediate attention.
  2. Get Help.  Contact your estate attorney or another lawyer that you use.  Contact your financial advisor.  (We previously wrote an article on the role of a financial advisor when a spouse dies that may be useful.)  Contact your CPA or tax preparer.  Your professional team can help with many of the steps that follow.  Their expenses are typically paid for by the estate.

Immediate Actions:

  1. Pet Care.  If the deceased lived alone and had pets, it’s essential to contact someone to be sure they’re taken care of right away.
  2. Notify Close Family and Friends.  Inform immediate family members, close friends and any other relevant individuals about the death.
  3. Contact Medical Professionals.  If the death occurs at home, contact emergency services or the attending physician to confirm the death and obtain a death certificate.
  4. Contact Funeral Home.  Arrange for the transportation of the body and make initial funeral or cremation arrangements.
  5. Secure Important Documents.  Locate the will (and letters of instruction if they exist), life insurance policies, birth and marriage certificates, Social Security card and any other important documents.
  6. Don’t Do This Immediately.  Keep your loved one’s phone active to receive important calls.  Also, don’t cancel their primary credit card immediately until you can handle automatic payments and the like.

Legal and Financial Steps:

  1. Obtain Death Certificates.  Request multiple copies (10-12 are often recommended) of the death certificate from the appropriate authorities. You’ll need these for various legal and financial purposes.
  2. Notify Employer and Financial Institutions.  Inform your loved one’s employer or former employer’s benefits department since in many cases, you’ll still be covered by your spouse’s health insurance if his/her company offered such coverage.   Contact banks, investment firms, and other financial institutions of the death.  Also, note that accounts and safe deposit boxes may be temporarily frozen, so be prepared for that.
  3. Contact Insurance Companies.  Notify life insurance, health insurance, and other relevant insurance providers of the death and initiate the claims process.
  4. Review and Execute the Will.  If there’s a will, contact the personal representative/executor if it’s someone other than you.  If it is you, review it carefully and consult with an attorney to begin the probate process if necessary.  (We previously wrote an article on probate that you may wish to consult.)
  5. Credit Agencies.  Contact Experian, Equifax, and TransUnion and inform them of the death.  Put a fraud alert on the deceased’s Social Security number.  Also, request final copies of their credit reports.
  6. Handle Accounts and Subscriptions.  Close or transfer your loved one’s accounts, including bank accounts, credit cards, utilities, subscriptions, and memberships.

Practical Matters:

  1. Make Funeral Arrangements.  Plan the funeral, memorial service or celebration of life according to your loved one’s wishes or religious/cultural traditions.  You’ll need to write an obituary unless the deceased wrote their own.  If the deceased is a veteran, he/she may have burial benefits, so check with Veterans Affairs.
  2. Manage Property and Assets.  Secure your loved one’s property and assets, including their home, vehicles, and personal belongings.
  3. Address Debts and Expenses.  Pay any outstanding debts, including medical bills, credit card debts, and funeral expenses — from the estate if possible.
  4. Update Legal Documents.  Review and update legal documents such as deeds, titles, and beneficiary designations as necessary.
  5. Contact Social Security.  If the deceased was your spouse, it’s likely that Social Security benefits will change.  Often, your total benefits will decrease, but the amount that you personally receive will increase.
  6. Taxes.  There are two kinds of taxes to take care of.  First, there are personal income taxes that need to be paid for the deceased for the year that they died.  Second, there may be estate taxes depending on state in which the deceased resided and the amount of assets in the estate.  Colorado does not have estate taxes.

Emotional and Personal Support:

  1. Seek Emotional Support. Lean on friends, family, support groups or a therapist for emotional support and guidance through the grieving process.
  2. Take Care of Yourself.  Remember to prioritize your own well-being during this difficult time. Get enough rest, eat properly and engage in activities that bring you comfort.
  3. Consider Practical Help.  Accept offers of practical assistance from friends and family members, such as help with meals, childcare or household chores.

Dealing with the death of a loved one can be overwhelming, so take things one step at a time and don’t hesitate to ask for help when needed. This article can serve as a guide to help you navigate the practical and emotional challenges that arise during this difficult time.  There are many other things to consider such as stopping prescription deliveries, returning any medical equipment and so forth.  We would be happy to meet with you to review your situation through a no-charge, no-obligation initial meeting.  To set up a meeting, please visit our website or give us a call at 970.419.8212.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

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