Episode 29: How to Think Bigger and Create Change in the World with Pat Flynn
HOW DO I FIT DONATIONS INTO MY FINANCIAL JOURNEY?
This week I sat down with entrepreneur, blogger and podcaster, Pat Flynn.
Pat is the crash test dummy of online business. He experiments to find out what works, and what doesn’t online. He’s a dad and a husband, and the proud owner of SmartPassiveIncome.com, a website dedicated to helping people discover how to do business online and take their existing businesses to the next level.
HERE’S WHAT YOU’LL LEARN FROM THIS EPISODE:
Why Pat continues to celebrate his “Let Go” Day each year
How practicing gratitude can impact your life
How the serve first mentality can influence your path and the relationships you build
The different forms that Giving Back can take and how you can incorporate in into your personal and professional life
How and where Pat is pulling inspiration to go bigger and better with his giving back
How you can involve your spouse and children in your giving back strategy
Which can be the most impactful – giving back of time or money
How your passion and charitable giving goals can evolve over time
If you need to be financially successful in order to begin giving back
How a separate account for charitable giving can keep you on track with your financial goals
Why asking the right questions is important to your finances
It may seem unbelievable, but the end of the year is quickly approaching. But before we say goodbye to 2015, know that there’s still time to make most of this year — especially in your financial life! You can start by making these money moves before the clock strikes midnight on December 31. The following actions will help you maximize your savings, take advantage of tax breaks, and prepare yourself for 2016. You can start the new year off on a the right financial footing, and give yourself a little boost on any money-related resolutions you might want to keep next year.
Consider Maxing Out Your 401(k)
You can contribute up to $18,000 in your 401(k) plan in 2015, so if you haven’t contributed that max consider doing so before December 31. Some employers offer free money in the form of a 401(k) match, where they match every dollar you contribute to your 401(k) up to a certain amount. Don’t let this money get away! In addition, contributing to your 401(k) also reduces your taxable income, which could put you in a more favorable tax bracket. At the same time, determine if you could contribute additional money to your Traditional or Roth IRA. With these IRAs, you contribute a maximum of $5,500 if you’re under 50, and $6,500 if you’re over 50. A traditional IRA reduces your taxable income immediately, whereas a Roth IRA is money you’ve invested after-taxes.
Spend Down Your Flex Plan
It’s time to use it or lose it. Some employer-offered flexible savings accounts require you to spend all the money you’ve accumulated over the year before December 31. Don’t let this money slip through your fingers simply because you didn’t visit the doctor enough.Not sure what you can spend your flexible savings account on? Check out thislist of approved expenses.
Reevaluate Your Company Benefits
Around this time of year, many Human Resources departments are sending out healthcare plan information. Whether or not your healthcare coverage is changing, review your company benefits as whole and see if the plan you have right now works best for your family.For instance, if you’re a single person with few health issues, you may be paying too much for a gold-level plan. Do you really need access to 20,000 doctors throughout the nation? You may if you travel a lot, but you may also be covered just as well by a healthcare plan that offers a Health Savings Account.Review your options now before plan coverage kicks in on January 1.
Evaluate Your Investment Portfolio
As we close out the year, it’s time to check out your portfolio and evaluate its performance. This year had some ups and downs, so you could have either gained or lost money this year. Depending on your situation, discuss with your tax professional or Certified Financial Planner and see if it would benefit you to do tax-loss harvesting. If you do decide to sell some of your investments, the end of the year is also a good time to ensure your portfolio is balanced with a diversified mix of investments. Again, how you balance your portfolio will depend on your situation, and your tax professional or CFP can give you more guidance.
Make Charitable Donations
The end of the year is a great time to review any charitable contributions you’ve made throughout the year and determine if you could (or want to) do more, and consider maxing out other investment plans you have. Many people donate to charity throughout the year, so gather up any receipts you’ve collected, especially the ones Goodwill or other donation centers have provided you. You may realize you still have the capacity to donate more, and get a deduction for your charity.
Review Your Income
If you’ve seen an increase in your income or expect to see an increase the following year, you may want to see if your current traditional IRA is right for you. Depending on your current income and your projected income in the future, a Roth IRA conversion may be a better option.Roth IRAs are particularly good for younger employees, who will likely be in a higher tax bracket in the future. But it’s best to evaluate your future plans before making this decision. The money moves you make before December 31 may differ slightly, depending on your current situation and any anticipated changes in 2016. If you’re expecting an addition to your family, you may want to consider investing in a college savings 529 plan, where you can save money in a tax-advantaged account for college expenses.Or you may anticipate a big medical procedure you’re having done in 2016 and may want to increase your contributions to a Health Savings Account or your Flexible Spending Account. Considering these financial costs will help you set up accounts and plan out your savings throughout 2016.By considering these money moves before December 31, you will put yourself on solid ground for 2016.
Not looking forward to tax time come April 2015? You may be able to make some last-minute moves to ease the burden of your tax obligations next spring. In order to get your taxable income down and take advantage of deductions and credits, make preparations now. Once the doors close on December 31st, you’ll no longer be able to take advantage of certain strategies that can lower your taxable income and therefore your tax bill for 2014. These end of year tax considerations can help you make the most of what you’re entitled to when it comes to deductions and credits.
You should maximize charitable giving before the last day of the year by making contributions and donations to qualified institutions. Remember, keep your receipts! The IRS is now requires proof of donations regardless of the value. Keep in mind you’re not limited to the typical donations of clothes and material items. You could open up a donor-advised fund. If you open a donor advised fund, you can contribute to it whenever you have the money to do so and obtain a tax deduction in that year. You can give the money away immediately, or you can let it stay in the account, invest it, and give it away at some time in the future. And you can directly donate stocks to a charity if you have any that appreciated. You won’t have to pay capital gains tax on them, and you’ll receive a full deduction for the current market value of the asset.
Max Out Tax-Deferred Retirement Contributions
Have you maxed out your retirement contributions yet? Doing so can help lower the amount of taxable income you earned. You can put $17,500 toward your 401(k), 403(b), TSP or similar plan for 2014. Even if contributing up to the limit on your retirement accounts isn’t a realistic possibility, anything you contribute helps lower your taxable income, so be sure to consider extra funds you may have at yearend from a bonus or big contract you’ve landed
Sell Off Losing Funds
In order to offset gains, you can sell off assets that may have experienced a loss this year in personal accounts. You can deduct up to $3,000 of losses each year and carry forward the balance. If you’ve had more losses than gains, then you’ll be able to take advantage of the deduction. This is typically referred to as “harvesting losses”. Be aware that according to the IRS’ Wash-Sale rule, if you do sell assets at a loss, you can’t buy “substantially similar” assets until 31 days have passed. Look at Your Flexible Spending Account Do you have funds left in your Flexible Spending Account? Clean it out! You might be able to carry $500 into the new year as per new IRS rules, but check with your company first. They would have had to opt-in for you to be able to do this. Otherwise, you’ll lose the money that you had in your account, as many FSAs don’t roll over year to year.
Review Itemized Deductions
Before we talk about itemizing, it’s important to note that it’s only worth itemizing deductions if they will exceed the standard deduction. For 2014, the standard deduction is $6,200 for singles, $12,400 for married couples filing jointly, and $9,100 for heads of household. Take the time to review any itemized deductions you might be eligible to take. We’ve already gone over charitable contributions, but consider mortgage interest. If the interest you paid on your mortgage is greater than the standardized deduction, then you should itemize. And for sales and state tax, if you’ve paid a decent amount of income tax to the state or local government, you should itemize – but only if it’s greater than the standard deduction. Unreimbursed medical and dental expenses can’t be deducted unless they’re greater than 10% of your AGI (this also includes glasses and contacts), in which case you can try to bunch deductions. Bunching deductions could be worth it if you’re close to hitting the thresholds required. For example, if your medical expenses are at 9% of your AGI, try fitting in another appointment before the end of the year to push the amount to 10% to receive the deduction.
Other Small Things to Check
It might be too late this year, but you should check your withholding and make sure that it’s appropriate. Ideally, you don’t want to owe anything or receive a refund.
If you’d benefit from deferring your income and you receive a year-end bonus, ask if it can be paid out in January instead.
Don’t sell assets that produce capital gains until January.
If you’re self-employed, try sending invoices out in early January instead of December.
Are you a small business owner? Buy office supplies that you’ll need in advance.
If you’re a homeowner, you can make January’s mortgage payment in late December in order to write off more interest.
Make Your Moves Now
The end of 2014 will be here in no time, so don’t put off any of these actions longer than needed! If you run out of time, make sure you keep these end of year tax considerations in mind when filing for next year. As always, please consult with a financial professional when it comes to your own situation. The tax code is complicated, and it’s better to be safe when dealing with the IRS.
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