Twila Van Leer

Tax Breaks For the Self-Employed

February 17, 2015 By Twila Van Leer

Make sure you take all the deductions allowed when you are self employed.

The segue from holidays to tax time is fast. If you are self-employed or if you freelance to supplement your income, you can make the move smooth by being prepared in advance to take advantage of the tax breaks offered to those in this category.

If you work at home, the government might subsidize what are considered personal expenses. If you regularly use part of your home or apartment for business matters, part of your utility and insurance costs may be deductible. You can write off part of the rent or the depreciation if you own your own home.

To help those who might have failed to claim this deductible because of the scary bookkeeping, the IRS has simplified the process. You may deduct $5 for every square foot of space that qualifies. On a 3,000-square-foot home, for instance, the deduction is $1,500.

Health insurance premiums and expenses also are eligible for deduction, but you must itemize. And the deduction is only to the extent that your medical expenses exceed 10 percent of your adjusted gross income (7.5 percent for those age 65 and older.)

If you are still running your business after you become eligible for Medicare, you can deduct the premiums for Medicare Part B and Part D as well as the cost of supplemental (medigap) policies. You don’t have to itemize to claim these deductions and don’t have to factor in the 7.5 percent of AGI tests that apply to itemized medical expenses for those 65 and older.

Employees can’t deduct the 7.6 percent of pay that goes into Social Security and Medicare. But if you are self-employed and have to pay the full 15.3 percent tax yourself, you may write off half of what you pay. The deduction is on the Form1040, so you needn’t itemize.

When you work for yourself, options for tax-sheltered retirement plans are available to you. You may choose to contribute pre-tax money to a Simplified Employee Pension (SEP) or a solo 401(k), either one of which has a higher annual limit than regular individual retirement accounts. You may opt for a regular IRA account. Each of the plans has its own set of tax requirements that you must be aware of.

Buying equipment for your business also provides a tax benefit. You may depreciate the cost over the number of years the IRS has established as the “life” of the particular item. A computer, for instance, has a life of five years, so the tax break can be broken down into that time period. But it isn’t as simple as deducting 20 percent for each of five years. The schedule calls for 20 percent the first year, 32 percent in the second, 19.2 percent in the third, 11.52 percent in year five and 5.76 percent in year six.

Or you may choose the Section 179 deduction that lets you deduct 100 percent of the purchase in one year. Many small business owners find this the least irksome choice. For the 2014 return, up to $500,000 in equipment is eligible for the immediate write-off.

Being aware of these deductions for your personal business could save you money when you prepare your 2014 return.

Consumer Confidence Hits A High

February 16, 2015 By Twila Van Leer

Sentiment Index was still higher than any other time since January 2007.

Americans are feeling more relaxed about the economy, according to the Thomson Reuters/University of Michigan Consumer Sentiment Index (CSI). In January, the survey posted the highest level of confidence since 2004, before the Great Recession sent the country into a nosedive.

The CSI is an important measure that Investors, retailers and economists use to help determine what they will do next. When people are feeling good about the economy, the index rises and the economy gets a boost. Between 2005 and 2014, the monthly index averaged 77.1. The reading for December 2014 was 93.6 and the January 2015 reading was 98.1. Since July of 2014, the index has improved by 20 percent. Economists are encouraged by the fact that that the confidence level rose in households with income under $75,000, as well as in those with higher incomes.

At the root of the improved confidence levels are signs that the effects of the Great Recession are beginning to wane. Higher employment rates, small increases in wages and lower gasoline prices are among the factors.

Economic prognosticators, however, remain cautious, predicting that the gains will be slow, if steady. Most workers are expecting only modest gains in income over the next five years, so spending increases also will be moderate. Shoppers are likely to look for big price discounts before they will be convinced to buy, and that contributes to dis-inflationary pressure, the experts say.

Despite the cautious approach to predictions for this year, the signs all indicate that the country is regaining its economic equilibrium.

Credit Cards Help Build Your Credit

February 12, 2015 By Twila Van Leer

Younger people need to understand how having a few credit cards can serve them well.

More people are opting not to have a credit card. Studies show that 63 percent of those is the Millennial group (ages 18-29) don’t have a card. Thirty-five percent of those over 30 ditto, according to Bankrate.com.

Lacking plastic can, in fact, simplify your finances, but it also can cause complications in your financial dealings. Such things as renting cars or checking into hotels these days are based on credit cards. One leading hotel chain has put a $700 hold on a customer’s debit card if he can’t produce a credit card.

While it’s possible to build credit without one, it’s easier with one. Especially young people who don’t yet have mortgages and car loans can find it tough to build credit. That can make it difficult when it comes time to secure a loan. If the only thing on your credit history is a student loan, you may find slow sailing.

Credit scores are based on five categories: payment history (35 percent); amounts owed (30 percent); mix of accounts (10 percent); new credit (10 percent); and length of credit history (15 percent.) A credit card can impact the first three of these categories, affecting 75 percent of your overall score. At least one active account that has been reported for six months or more is necessary to generate a report at all.

A credit card does not inevitably mean interest payments. And you needn’t pay hefty fees. A secured credit card allows you to put down a deposit, which will be returned when the account is closed. Transactions of these cards are reported to the credit bureaus the same as with standard cards.

Paying off a card each month or in the “grace period for purchases” avoids interest and fees. The credit card companies make their money on those who carry balances, especially very large balances.

Capitol One, Wells Fargo and Bank of America are among those institutions that offer secure cards. Inquire at your own bank or credit union to see if you can take advantage of that option.

If you dislike the idea of any amount of debt, use your credit card for a minimal purchase, such as lunch, just once a month. Then pay it off and you reap the benefit of a good credit rating. If you use the card to purchase an item for which you could have paid cash, the same benefit applies. But you’ll notice the difference when it comes time to make a major purchase.

Coke Fans Now Pay More For Less

February 5, 2015 By Twila Van Leer

Smaller sized Coca Cola containers mean larger prices per ounce.

Amid growing health concerns about the effects of popular soda pops, many Americans are cutting back on the number of refreshing sips they allow themselves daily. And some of the producers of such products are paying attention.

Both Coke and Pepsi, the largest of the carbonated drinks purveyors, now offer smaller cans and bottles of product – and charge more for them. The smaller containers have fewer calories, hence less guilt for the guzzlers. But the price is steep. You won’t be saving any money by purchasing the mini cans.The smaller containers can cost twice as much per ounce as standard cans and bottles.

The 7.5-ounce mini-cans and 8-ounce or 8.5-ounce bottles have been around for awhile, but the soda giants are hyping them to ride the health-concern crest. Last year, Coke reported sales of a million mini-cans.

The shift is an about-face for the producers, who have in the past measured the volume of product sold. But they see an opportunity to give the soda drinkers alternatives while health officials are blaming their products for a role in the national epidemic of obesity, especially among children.

When soda sales reached their peak in 1998, the average American was drinking the equivalent of 576 cans a year. By 2013, that average had slipped to 450 cans a year. The smaller containers appeared to the producers a good alternative to seeing sales continue to slip. It fits into the current philosophy of smaller portions of all edibles.

So while the cans get smaller, the price tag gets larger. A regular 12-ounce can of Coke sells, on average, for 31 cents. The 7.5-ounce mini-can one shelf over carries a price of 40 cents each. That means the purchaser is paying 2.6 cents per ounce for the larger version, 5.3 cents per ounce for the cute little can. The result is increased revenue for the producers. Sales indicate that many soda fans are willing to pay the difference. The company’s sales for the smaller versions were up 9 percent through last October, while the old standard sizes only saw an 0.1 percent hike.

Still, the old standbys dominate the industry and nobody knows how long the yen for smaller servings will last.

Coke is hedging its bets with other products that cater to more health-conscious Americans, such as a reduced-calorie drink sweetened with a mix of sugar and stevia, a sugar substitute.

The whole “smaller is better” scenario is a direct about-face after years of increasing the size of soda pop servings. Until 1955, the standard 6.5-ounce bottle was the most frequently sold serving. Then came larger and larger containers, up to and including the three-liter plastic bottle. At the fountain, the availability of 32- and even 64-ounce cups fed the craze.

When it became apparent that all those big gulps of soda were contributing to poor health habits, officialdom began taking steps. In Berkeley, Calif., voters approved a per-ounce tax on the drinks. It seemed prudent for the Coke and Pepsi people to join the crusade for fewer calories. Last fall, the two producers were joined by Dr. Pepper in supporting an initiative to reduce the calories in their drinks by 20 percent over the next decade. Smaller-sized servings will be part of that campaign.

Budget Is The Key To Personal Finances

February 3, 2015 By Twila Van Leer

Budgets help you to meet your financial goals.

Whatever steps you are taking to make yourself financially secure, the word that is at the bottom of it all is “budget.” Without having a clear understanding of what resources you have coming in and what you have going out, everything else is just guesswork.

The process can be intimidating, but it lays the foundation for whatever moves you make. And it doesn’t have to be an awful experience. Get your family together now and get started. Here’s how:

Identify your goals. Your objectives will be guided by your own circumstances, which are likely vastly different from those of others. For instance, if you are retired, your financial map will look considerably different from that of a young married couple anticipating parenthood. Distinguish between short-term goals (getting rid of credit card debt, for instance) and long-term goals such as retirement. Once you have discussed your goals, compromising where necessary, begin creating a budget that will help you achieve these goals.

Identify all sources of income and make a list of monthly expenses and outstanding debts. The living expenses are usually pretty consistent and can’t be waived for other objectives. Then concentrate on debt elimination, even before working on retirement savings. Getting rid of the debt gives you more to stow away for the future. Go over your figures with a fine-toothed comb to see if there are ways to live more frugally so your leeway will be enhanced.

With all the ducks in a row and barring unexpected financial disasters, you are ready to put your plan (budget) into action. You will have a certain amount of money each pay period to pay down debt. Then the trick becomes to avoid the temptation to digress. You may have to adjust (see financial disasters, above) but stick with the budget unless there are compelling reasons to do otherwise.

Even with a budget in place, you need to reassess on a regular basis to be certain you are on track. Monitor spending carefully. It may have been frivolous spending that landed you in debt to begin with. Don’t let it happen again. Look continuously for ways to spend less.

Budgets are vital, but not set in concrete. Flexibility is essential as changing financial facts come into play. Talk about your budget monthly and look honestly at what is working and what is not. Readjust as necessary without throwing in the towel on your basic goals. Too much water under the bridge can wash away your good intentions and delay the progress for which you are reaching.