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In this edition
April 2, 2019

Running Your Personal Finances Like a Business

Podcast: Hiring Your Children to Save Taxes

Are Income Taxes Taking a Bite Out of Your Trusts?

Tax Calendar
Running Your Personal Finances Like a Business
Most individuals don’t regard themselves as businesses, trying to turn a profit and beat the competition. But, occasionally, it may help to look at your financial situation this way to determine where you might cut expenses and boost cash flow. Here are some tips.

Lay Out Your Financials

Where an executive might reach for financial statements to get a read on the company’s standing, you can create or update a net worth statement. Essentially a monetary scorecard, a net worth statement helps you determine where you stand financially and whether you’re on track to meet your goals.

You can calculate your net worth by adding all your assets, including cash and cash equivalents, brokerage account balances, retirement funds, real estate and other fixed assets and personal property. Then subtract your liabilities, including mortgages, personal loans, credit card balances and taxes due.

The result provides some important clues about where your money is going and how you might be able to trim spending and increase savings. Are you over relying on credit cards with high interest rates? Could you cut back on food or entertainment costs?

Practice Risk Management

To maintain their companies’ financial health, business executives also practice risk management. You can do the same by first assessing compensation and benefits elections. A major life change — such as a marriage or birth — may require an update to your W-4 withholding allowances with your employer.

Unexpected medical costs can be a huge risk. Review your health insurance to ensure it’s providing the best value. Now might not be an ideal time to switch to a spouse’s plan but, if it’s a better deal, perhaps make a note to do so when you can. Also, if you have a Health Savings Account or Flexible Spending Account, make sure you’re using it to your full advantage.

Think about other insurance, too. Perhaps your home has increased in value, necessitating a corresponding increase in your homeowner’s coverage. Or maybe you no longer have enough life insurance to protect your growing family. Talk to your insurance professional to determine the right amount of coverage.

Finally, check your credit report. If you wait until something is obviously wrong, it may be too late to prevent significant damage. Federal law requires the three major credit reporting agencies to provide you with one free report per year.

Think About Retirement

Business owners must think about succession planning. But even if you don’t own a company, you should think about life after employment.

If your employer allows you to adjust your retirement plan contributions during the year, consider boosting them to take full advantage of tax-deferred compounding and, if available, employer matching. Similarly, if you plan to make an IRA contribution this year, do so as early as possible to give your assets more time to grow.

Also review your estate plan and, if necessary, update it. Financial priorities change over time, so make sure the beneficiary designations for your retirement accounts and insurance policies still match your wishes. Check your will or living trust to ensure no changes are necessary. And, if you’re looking to reduce the value of your taxable estate, remember that you can make $15,000 ($30,000 for married couples) in annual exclusion gifts per recipient this year without using up any lifetime exemption.

Get Rolling

Some might say that the beginning of the year is the most important time for financial planning. Others might say it’s year end, when you start preparing to file your tax return. In truth, the whole year is important. And right now, with the arrival of spring and the year well under way, is a perfect time to adjust objectives set a few months ago — and really get rolling. Contact us for help.
Contact: Dianna Streed, CPA
Direct: 507.453.5967
Email: dlstreed@hawkinsashcpas.com
Podcast: Hiring Your Children to Save Taxes
Should you hire your child? Listen here to find out the tax benefits of hiring your child and/or spouse.
Are Income Taxes Taking a Bite Out of Your Trusts?
If your estate plan includes one or more trusts, review them before you file your tax return. Or, if you’ve already filed it, look carefully at how your trusts were affected. Income taxes often take an unexpected bite out of these asset-protection vehicles.

3 Ways to Soften the Blow

For trusts, there are income thresholds that may trigger the top income tax rate of 37%, the top long-term capital gains rate of 20%, and the net investment income tax of 3.8%. Here are three ways to soften the blow:

1.)   Use grantor trusts .  An intentionally defective grantor trust (IDGT) is designed so that you, the grantor, are treated as the trust’s owner for income tax purposes — even though your contributions to the trust are considered “completed gifts” for estate- and gift-tax purposes.

The trust’s income is taxed to you, so the trust itself avoids taxation. This allows trust assets to grow tax-free, leaving more for your beneficiaries. And it reduces the size of your estate. Further, as the owner, you can sell assets to the trust or engage in other transactions without tax consequences.

Keep in mind that, if your personal income exceeds the applicable thresholds for your filing status, using an IDGT won’t avoid the tax rates described above. Still, the other benefits of these trusts make them attractive.

2.) Change your investment strategy . Despite the advantages of grantor trusts, non-grantor trusts are sometimes desirable or necessary. At some point, for example, you may decide to convert a grantor trust to a non-grantor trust to relieve yourself of the burden of paying the trust’s taxes. Also, grantor trusts become non-grantor trusts after the grantor’s death.

One strategy for easing the tax burden on non-grantor trusts is for the trustee to shift investments into tax-exempt or tax-deferred investments.

3.) Distribute income . Generally, non-grantor trusts are subject to tax only to the extent they accumulate taxable income. When a trust makes distributions to a beneficiary, it passes along ordinary income (and, in some cases, capital gains), which are taxed at the beneficiary’s marginal rate.

Thus, one strategy for minimizing taxes on trust income is to distribute the income (assuming the trust isn’t already required to distribute income) to beneficiaries in lower tax brackets. The trustee might also consider distributing appreciated assets, rather than cash, to take advantage of a beneficiary’s lower capital gains rate. Of course, doing so may conflict with a trust’s purposes.

Opportunities to Reduce

If you’re concerned about income taxes on your trusts, contact us. We can review your estate plan to assess the tax exposure of your trusts, as well as to uncover opportunities to reduce your family’s tax burden.
Contact: Matt Eckelberg, CPA
Direct: 715.384.19956
Email: meckelberg@hawkinsashcpas.com
Tax Calendar
April 15  

  • Besides being the last day to file (or extend) your 2018 personal return and pay any tax that’s due, 2019 first quarter estimated tax payments for individuals, trusts and calendar-year corporations are due today.

  • Also due are 2018 returns for trusts and calendar-year estates and C corporations, FinCEN Form 114 (“Report of Foreign Bank and Financial Accounts” — though an automatic extension applies to October 15), and any final contribution you plan to make to an IRA or Education Savings Account for 2018.

  • SEP and Keogh plan contributions are also due today if your return is not being extended.

May 15  

  • Original due date for exempt organization returns (Form 990).

June 17  

  • Second quarter estimated tax payments for individuals, trusts, and calendar-year corporations are due today.
More Resources from CPA-HQ
QuickBooks Update: March 15, 2019
Check out the latest articles in our QuickBooks Update and sign up for the email subscription.


Podcast: Items That Can Drastically Change Your Return
Listen in or read the script and learn about things that can have a significant affect on your return.

Is Now the Time for Some Life Insurance?
Learn more about when you may need life insurance, calculating how much you should get, and what kind.


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