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10 ways Americans and US expats can minimize their Tax Liability

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By Mark Strohl

Special to the Financial Independence Hub

On your journey to financial freedom, tax season will always be an obstacle you have to deal with. However, taking advantage of the various deductions and credits provided can lead to less money owed to the government, and more money remaining in your bank account. Some incentives afforded to you are dependent on many factors, such as your status of employment, while others are universal to individuals living in the United States. In this guide, we discuss ten ways you can minimize your tax liability, allowing you to save more towards your goal of financial freedom.

Taking advantage of Tax Deductions

Tax deductions are all about lowering your taxable income. There are two types of deductions you can claim: the standard deduction, or the itemized deduction. The standard deduction is a pre-set amount provided by the IRS, and is dependent on your filing status. For the year 2020, the standard deduction amounts are [all US$]:

  • Married filing jointly – $24,800
  • Single or married filing separately – $12,400
  • Head of household – $16,650

It is estimated that around 90% of tax filers in the US take the standard deduction, including all filing statuses. However, the itemized tax deduction can still be useful, even though the passing of the 2018 Tax Cuts and Jobs Act has reduced the range of items that are counted towards deduction. The following are all items that can still be counted towards itemized deductions:

  • Interest on home mortgages that $750,00 or below
  • Medical and dental expenses that exceed 7.5% of your Adjusted Gross Income
  • Charitable contributions (donations)
  • Stale/local income, personal property, and sales taxes up to $10,000
  • Student loan interest (up to $2,500)
  • Investment interest expenses

In certain circumstances, the amount you owe could be less when deciding to take the itemized deduction. However, these requirements are very specific, and it is best if you work with a qualified CPA to discuss what deduction is best for you.

Contribute more towards your Retirement

Whether you contribute to a traditional 401k or an IRA, retirement account contributions are great for reducing the amount of income that can be taxed. Not only is the amount you contribute exempt from taxable income, but the growth the accounts generate is also not taxable until you withdraw from the accounts. However, keep in mind that only the first $6,000 that you contribute to an IRA can be deferred, and the first $19,500 contributed to a 401k. Continue Reading…

Retired Money: What to do with “Found Money” from the Covid lockdown

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MoneySense.ca: Photo created by pressfoto – www.freepik.com

My latest MoneySense Retired Money column looks at what to do with the “found money” most of us are experiencing during this extended Covid-19 lockdown. Click on the highlighted text to access the full column: What to do with $500, $1,000 or $10,000 right now.

In it, four experts are asked what they’d recommend clients do with an extra $500, $1,000 and $10,000. One was Adrian Mastracci, portfolio manager with Vancouver-based Lycos Asset Management Inc., who suggests any extra savings should be “parked out of sight” for a month or two while you analyze your needs and options.   Repaying debt – particularly high-interest credit card debt – is always a top-notch, risk-free way of deploying cash, Mastracci says.

Certified financial planner Aaron Hector, vice president of Calgary-based Doherty Bryant Financial Strategists, suggests those nervous about their employment status should leave the money parked while they “wait and see” what transpires. “Cash provides flexibility,” he says. You also need to determine if there really are true savings or you are simply experiencing a delayed expense, as may be the case if a planned vacation abroad was cancelled because of Covid. If so, that money will eventually be spent.

Covid-19 has forced everyone to re-think our financial goals and objectives, says fee-only planner Robb Engen, the blogger behind Boomer and Echo, “For some retirees, that has meant putting off large projects such as a home renovation until better times. But for those who have enough income to meet their spending needs and then some, I’d recommend squirreling away any extra cash savings in a high-interest savings account to ensure you can pay cash for your next big-ticket purchase without cashing in any investments.”

Asset Allocation ETFs a good choice for $10,000

Engen — one of the MoneySense experts on the annual ETF All-Stars feature — suggests an asset allocation ETF, assuming all short-term goals have been funded and accounted for. For older folk wanting some fixed income to cushion any further Covid-related market volatility, consider VBAL or VCNS (60% and 40% equities respectively.) Keep in mind that iShares has a similar set of asset allocation ETFs, as does Horizons ETFs, all highlighted in the latest ETF All-stars package. Continue Reading…

5 steps to take to retire before 40

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By Veronica Baxter

Special to the Financial Independence Hub

So you think you want to retire early? Here are five proven steps to take to make that happen, if by “retiring” you mean no longer working.

Step #1:  Work Wisely

Notice that this does not say work hard, or work 80 hours a week. To work wisely means to choose a job or a career that is lucrative and that you get some satisfaction from. You don’t have to love or even enjoy your job but you do have to tolerate it and feel a sense of self-respect in being paid to do it.

If you are still in school there are career services where you can seek counseling about what sort of careers pay well that you might be able to do and feel satisfied doing. Oddly enough, right now our economy needs more tradespeople because the boomers brought their children up to expect to go to college and get a white-collar job. As a result, there are fewer workers in trades such as plumbing, electrical, carpentry, and these people are in high demand.

Whatever you choose to do, ideally, you want to be your own boss eventually. That way you have control over the quality and quantity of work and you also have control over business expenses, which you can then keep to a minimum. Then if you can grow your business and eventually have employees work for you, you can multiply your earnings by however many people work for you. Then, eventually training someone to supervise the work means you can step back and… perhaps retire!

Whatever you decide to do, craft a 2-year plan, a 5-year plan, a 10-year plan, and a 20-year plan. These plans should include training or education goals, financial goals, and a vision of what your work life looks like at every stage. Revisit these plans in an annual self-audit to keep yourself on track, and revise them if necessary. You’ve heard of the phrase, “fail to plan, plan to fail”? Well, it’s true. Harness your imagination and dream big. Reach for the stars, you may get the moon.

Step #2:  Pay Yourself First

This is crucial. When you craft your household budget, the first expense you must pay is into your savings or retirement account. What percentage of your income you put aside is up to you, but first, you will need an emergency fund of 6-8 months’ living expenses, then you will need to put money aside for retirement.

There are online calculators that can help you figure out how much you will need to live off the income from investments, or, you can seek the advice of a financial planner to help you figure out how much to set aside and to select the right investment vehicle for your goals. Keep in mind that if you plan to retire before age 40, you will need investment vehicles in addition to traditional tax-deferred retirement plans because you will be too young to withdraw from those.

Step #3:  Live Below Your Means

Whatever percentage of your income you decide to set aside, you should figure out how to live comfortably on 80% of the remainder. Why? Because having what you perceive as “extra” money at the end of the month gives you a mental boost like nothing else. When you feel like you are in control of your finances and you have more than enough money to do what you need to do, you are activating the law of attraction.

What do you do with that “extra” money? Take a small portion and treat yourself in some small way to reward yourself for being frugal, then invest the rest in your business or deposit it in your investment accounts.

Step #4:  Maintain Good Credit

It is crucial that you pay all bills in full and on time. Take out and use credit cards, especially if there is some sort of reward for use such as cashback or airline miles, but pay them off every month. Get a car loan. Continue Reading…

Comparing the Cost of Living in Cities and Suburbs

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By Holly Welles

Special to the Financial Independence Hub

Are you torn between the city and the suburbs? While the city may have direct access to public transport and popular restaurants, it’s clear that the suburbs allow you to enjoy more space. Both locations have their perks: but urban life costs more, right? Maybe not. Each area has its own expenses that could affect your decision.

Here’s a quick look at the financial differences between cities and suburbs:

1.) Rent and Mortgages

Whether you want to buy a house or rent an apartment, it’s smart to weigh your options. That said, it’s almost always cheaper to buy or rent farther from an urban area. It typically costs more to live within a city’s 15-minute vicinity. In Seattle, it’s hard to find a house under (US)$600,000 unless you look at places an hour away from downtown.

The same data applies to rental expenses. However, rental costs can vary across the country, so the size and location of the city is crucial. For example, these numbers may differ if you live near a smaller urban hub like Pittsburgh or Omaha.

The last piece of the housing puzzle is size. Urban apartments and homes tend to be smaller with minimal outdoor space, meaning the price per square foot will be higher. Meanwhile, suburban residences will likely be larger and offer yards for renters and homeowners to enjoy. It’s important to consider not just how much you’re willing to pay, but what you’re paying for: a prime city location or more private space.

2.) Entertainment and Groceries

Generally, extra expenses like entertainment and groceries cost more if you live near a city. However, it’s often not as straightforward as that: because cost also depends on availability and choice. Cities with large populations might have a higher variety of grocery stores, but they also might lack access to fresh food. The best way to evaluate cost is not just to look at grocery prices, but also the distance to the nearest store and the number of farmers’ markets.

We can apply the same idea to entertainment. While dining out at bars and restaurants will likely be more expensive in a metro area, there are also more food stands and takeout options for those looking to eat more cheaply. Theatres and venues will charge for tickets, but living in the suburbs means you might have to travel far to attend these events in the first place.

There’s no hard and fast rule when it comes to food and entertainment costs. If you like to see plays and musicals with friends, think about those activities specifically. Does it make sense to drive 30 minutes from the suburbs to see productions throughout the year? Your choice is all about your wants.

3.) Transportation

It costs less to travel throughout cities. Most urban locations have public transport systems that you can access with a monthly pass. You won’t have to own a car unless you need to drive to places a bus or subway doesn’t reach. This perk cuts down on vehicle-related expenses like gas, maintenance and insurance. Most cities are also generally walkable, so you won’t always need to rely on public transport. Continue Reading…

8 Creative Financing options for the New Normal

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Companies of all sizes are taking a closer look at budgets and shifting resources around to power through the financial strain of the COVID-19 pandemic. Some are even turning to unconventional methods to finance operations. The ability to solve problems in creative ways is a common trait of innovators and entrepreneurs and will become crucial to staying afloat as we navigate tricky economic situations.

So what are some creative financing options for businesses looking for funds? We asked eight thought leaders to join the conversation and share their innovative methods for financing business operations.

Make products available Online

Selling digital items or services is a great way to gain income without much work. If you are a company with a following on social media, switching to have some products online could benefit both the customers and you. You can also help others sell their services for a cut of the profit. — Andrew Roderick, Credit Repair

Debt Financing

To get through the new normal, companies might consider debt financing options. Based on the type of loan you are seeking, debt financing can be either long term or short term, so this type of loan can be used for whatever your business might need to survive the new normal. — Kimberly Kriewald, AVANA Capital

Equity Financing

Equity financing is a way to raise funds by selling ownership in your company, proving to be a viable option for businesses looking to get creative with their finances. In exchange for money from investors, you give them a portion of ownership and control in your business. The investors may be angel investors, venture capitalists, or even a family member or friend. — Rex Murphey, Montauk Services

Consider a Line of Credit

The only type of financing businesses should consider is a line of credit if you have a profitable business. Continue Reading…