Russell Bailyn's Financial Planning Blog

We’re entering the heart of tax season so I figured now would be a good time to do this post. If you are a client and haven’t brought in your tax documents for 2007 yet, please get in touch with us sooner than later. For those who read my blog from other parts of the world besides New York, here are a few tips that may help you this tax season. Let’s start with the best part: free money the government may give you this year as an ‘I’m sorry’ for the recessionary pressures hanging over all of us. I’d like to thank the broader financial services sector for creating a $500 billion liability we all must grapple with.

Economic Stimulus Package Payments

You’ve probably heard about this economic stimulus package which was recently signed into law. Fortunately, all you need to do is file a 2007 tax return to get your payment. The IRS will automatically figure out how much you are owed and send a check out to you. Here is the once over:

In most cases, payments will range from $300 to $600 for individuals and $600 to $1200 for joint filers. Taxpayers may receive $300 for each qualifying child. Payments could be less, depending on tax liability and Adjusted Gross Income. Phase-out reduction begins at $75,000 for single filers and $150,000 for joint filers.

Stay Organized

Why is it that my clients are always struggling to figure out what is and isn’t tax deductible when tax season rolls around? We should be keeping a tab on our tax-deductible purchases so that when April rolls around they are at our fingertips. How can one do this? The old-fashioned method is to write a note to oneself on the back of a receipt. That note might say “business lunch with Mel” or something like that. The more modern way to do this is by designating one credit card for your business or tax-deductible expenses. This way you can simply reference your credit card statements (paper or online) at the end of the year to know what you can deduct.

On a separate note, good organization can keep your tax preparation fee lower as well. Often CPAs and tax preparers will charge you based on how much time it takes them to prepare and file your return. If you come in with an excel sheet which shows your income sources, itemized deductions (if that applies to you) and above-the-line deductions (student loan interest, IRA contributions, etc) you’ve just saved your tax preparer some time. If your fee is $300 instead of $500, it makes a difference, right? Make sure you collect and organize all of your w2s, 1099s, and other tax documents which ultimately are given to your tax preparer.

Establish a Retirement Plan

If you read my blog from time to time you know by now that I strongly recommend establishing a retirement plan. It’s a tax-savings concept established and encouraged by the IRS. The more you save, the less the government needs to save on your behalf. For this reason, there are lots of different retirement plan options. The plans generally vary depending on whether you work at a for-profit corporation (where you would likely encounter a 401k) to non-profits (most likely a 403b) to self-employed individuals who could see a variety of plans ranging from a SEP IRA to a profit-sharing plan or a smaller version of the 401k.

You can even establish and fund certain retirement plans by April 15th of the following year, rather than by December 31st of the tax year. If you aren’t contributing to a retirement plan at work don’t have an IRA, I recommend you start asking about it.

Always Double-Check your Return

Tax preparers make mistakes--plenty of them. Last year when I was looking over my completed return I noticed that my student loan interest, $860 that year, hadn’t been included on the front page of form 1040. That little error would have cost me a few hundred dollars had I not caught it. Errors can be made when copying figures from one sheet to the next, when calculating tax owed, even missing a 1099 or w2. When your preparer gives you back the return to look over, read through it and try to make sense of the numbers, even if taxes bore you to tears.

Questions or Comments? E-mail me.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

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Becoming wealthy is not only about how good you are at earning money. It’s also about understanding and protecting your money. Below I’ve outlined a few concepts which plenty of people—plenty of very smart people—often overlook. Perhaps you can pick up an idea or two which improves your own personal financial life.

Spend less than you earn – There are those that earn a dollar and spend fifty cents and there are those that earn a dollar and spend a dollar fifty. One may be inclined to think this sort of irresponsible spending happens most frequently with those earning small sums of money. I’ve found that the opposite is most often true. Plenty of individuals who earn over $100,000 per year spend more than that, often without even realizing. Between kids, housing, college costs, cars, vacations, etc, people simply cannot keep up. For many people, the idea of saving money eventually takes a back seat to simply ‘staying afloat.’ If this is you, it may be time to analyze how you’re living.

Protect oneself with insurance – There’s a very good reason why the insurance industry is the size it is. It doesn’t make sense for people to retain certain risks. What can one do? Transfer certain risks to an insurance company, pay the premium, and have some peace of mind. Take a doctor without malpractice insurance as an example. He or she may have worked for 20 years to save a million dollars towards retirement. What if, by accident, a doctor gives a patient medication which they’re allergic to, resulting in permanent injury or death to the patient? You can be reasonably certain the family of the patient will sue the doctor for a huge sum of money, quite possibly more than the doctor is worth. In a situation like this it would be silly not to have insurance. Even if it cost $10,000/year (which it might) to insure the doctor, they can rest assured that their livelihood is not at risk. The same lessons hold true with life insurance, health insurance, homeowner’s insurance, automobile insurance, etc. Proper (not excessive) insurance coverage is crucial to any well designed financial plan.

Carefully organize your finances - A client of mine recently missed a great opportunity to refinance their home because of bad credit. When the client found out he averaged a 600 credit score, he looked flabbergasted, as if that wasn’t possible. After we dissected the report, it turned out he was late one month on a mortgage payment and kept one credit card maxed out, even though he had ample funds to pay it down. I explained to him that credit scoring agencies don’t care how rich you are, they want to see how responsible you are. The point is everybody should be setting up some sort of automatic system for paying bills on time. Missing an opportunity to buy real estate or refinance an existing loan can cost you tons of money in the form of lost opportunity over the years. So please, take your bills seriously.

Take advantage of tax-friendly retirement plans - As much as you may hate Uncle Sam, he is interested in helping you saving for retirement. Why? The more you save, the less the government needs to save on your behalf. For this reason, we have vehicles such as the IRA and 401(k) available to us. These plans give us a tax deduction for the money saved inside and allow the funds to grow tax-deferred assuming you follow a few rules imposed by the IRS. At the end of the day, it’s a good way to save--often better than saving through non-tax-advantaged plans. Also, because contributions are often deferred directly from your paycheck, the savings become automatic and it becomes difficult for you to ‘forget to save.’ I recommend you meet with a financial professional and learn more about these plans. You can even utilize them if you are self-employed. The government doesn’t discriminate.

Diversify your portfolio* - 20 years ago it may not have been so uncommon to own a portfolio consisting only of stocks found in the Dow Jones Industrial Average. We are the US and our economy is the best, right? Well, maybe, but I’d advise you entertain the extent to which we are now a global economy. At my firm, and many others, portfolios must now pay attention to variables such as rapidly emerging third world markets, oil price volatility, currency fluctuation, real estate, etc. And as the world evolves, so do the financial products an investor can find to help them gain exposure to new and less popular asset classes. I recommend you think about the world we live in today and build a portfolio in which you feel invested and protected at the same time.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

*Diversification does not guarantee against loss, it is a method used to help manage investment risk.

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