Mistakes that Cost Us Money

Monday 3/29/2004


There are a lot of ways that money flows out of our pockets.  Some we have choices over – like personal spending decisions.  Some we have no control over – like income taxes.  Some we may have indirect control over – like usage taxes.

Usage taxes – sales tax in NY.  It seems just about everything and every service is taxed these days.  Have you been following the news about the sales tax increase?  It will go up 1% to 8.25% if final approval happens.  I heard someone say that they were going to propose a 3-4% increase a few weeks ago.  That would have taken the tax to 10%. Would that have made you mad?  You buy a $50 item and pay an additional $3.50 in sales tax?  Maybe that doesn’t hurt because it seems so small – but what about all your taxable spending, the plumber, your lawn service, clothing – maybe you avoid some sales tax by purchasing over the internet?  Well, now there is a place on your NYS tax return where you are supposed to add that up and pay it with your income taxes. 

Say you earn $80,000 a year and after regular taxes – federal and state income tax and social security tax – you have $62,000 left.  Then you spend $20,000 of that on sales taxable items – the sales tax cost $1,650.  When it was 7% the tax was $1400 (and not so many things were taxable).  If it goes to 10% the tax would be $2000. 

Why is the sales tax going up? - To pay for nursing home care.  The county and the state are required to each pay ¼ of the cost of care for people on Medicaid.  Which, of course, means that you and I ultimately pay for it.  So when you go to a seminar and an attorney is telling you how you can give away your assets so Medicaid will pay for your nursing home stay – stop and think . . . you will be paying for it – you and your children and grandchildren and your neighbors. There is no free lunch. 

Really.  Why not just get some of that NYS long-term care insurance?


Tuesday 3/30/2004

I was working on my income taxes last weekend – I have to do them myself to understand the annual changes.


I file a corporate tax return for one company I own – that’s due on March 15th..  It’s pretty simple – takes about 90 minutes to prepare.  The other two companies are unincorporated and end up on Schedule Cs on my personal tax return.  The personal taxes – with the two profit and loss forms take about 10 hours to collate including the record keeping I do during the year. I use what is called a one-write system where the checks and their purpose end up – automatically - on spreadsheets.  All I have to do is tally them and then pull in any other records – such as business credit card expenses and my personal deductions. 

What I like about this process is that is gives me an opportunity to look at the year in review.  That’s why it’s really good for you to understand how your taxes work and get involved in the process.  For example, I found that a vendor had received and extra payment from me of about $90.  They did not credit the overpayment on the next month’s billing.  Then I found a $200 reimbursement that was never received.  My 401k had been slightly under-funded – so I increased the percentage to get the full $13,000 in there this year.  Taxes saved – about $1500.

The process also allows me to see exactly what the various categories of business expenses are costing.  This year I worked with my budget spreadsheet at the same time and updated the numbers – so I don’t delude myself into thinking that office supplies cost $100 a month when they were really $3600 for the year.  I used the budget spreadsheet that we posted on the web in May of 2001 called MIE for monthly income and expense.  You can download it and use it as is for your personal expenses – or change the categories, like I did, to match your business expense categories. 

I wonder – maybe I should teach a class on how to understand your tax return to lower your taxes?  Do you think anyone would be interested in that?



Wednesday 3/31/2004

Is it a mistake to wait until you die to give some of your assets to charity?


Here are a couple of things to consider.  You can give away assets today and take a full tax deduction.  You can give away a future interest and take a partial tax deduction. 

If you are 65 and set up a $100,000 charitable annuity you get a tax deduction of about $23,000 right away.  That can save you as much as $10,000 on this year’s tax return.  You get an income of $6000 a year – some of which is tax free. 

When you die, the charity gets what’s left of the money.  All you are giving up is the ability to get at the principal – the money you donated.  The payout rate - $6000 on $100,000 – is 6%.  That includes a return of some principal and interest.  That’s why you don’t get a tax deduction for 100% of the gift – you’ll be getting some of it back. 

If you live to age 85, you get back $120,000 in income – and if the charity has invested well, they get the $100,000 plus whatever growth there was above the amount they were paying you.

Are you married?  You and your spouse can both be beneficiaries of the income from the gift.  Do you have a younger brother or sister you want to include?  Or a son or daughter?  You can do that too.  There may be a reduction in the deduction or the income payout – because two will live – and collect – longer than one – and because the other person may be younger.

Your financial advisor can do the calculation for you.






Thursday 4/1/2004

A big financial mistake we make is not setting up a record keeping system to capture all our tax deductions.


A tax record keeping system does not have to be elaborate – but it should be comprehensive.  If you don’t own a business or investment rental real estate  – which is too bad, because small business is where the biggest deductions are – it can consist of just a few file folders or even a shoebox.

The key is to capture the receipts and records that will get you deductions when you sit down with your taxes next year. 

Here are some things that slip away:

  1. Donations to the Rescue Mission or Salvation Army (by the way, did you hear that the Salvation Army got 1.5 BILLION dollars from Ray Krock – the MacDonald’s empire – from his widow when she died?  Our part of the country got a quarter of it.  What a gift!  And did she ever finesse the IRS.  Do you know how much estate and income tax she saved with that gift?  At least 750 MILLION dollars).  Your charitable donations – for example at the Rescue Mission trailer between Wegmans and Chase Pitkin in Dewitt – get a receipt and itemize and cost out the items you give.  Last year I apparently dropped off over $1600 worth of clothes, furniture, pots and pans and dishes, etc.  The Rescue Mission uses those things to help people who were homeless get set up in an apartment once they’ve gone through programs and gotten work and some stability in their lives.  The year before I deducted my donated car – just be careful who you give it to – the IRS is investigating scams in that area.  Give your car to a solid local charity like the Rescue Mission.
  2. Receipts for small cash donations
  3. Deductible employee business expense items.  Are you a teacher who buys things for the classroom?  Are you an engineer who purchases books to study for your job or are you a professional who takes continuing education classes?  When I go back and look at my “captured” records each year I’m amazed at what I would not remember if it wasn’t in the file.  That would have meant a missed deduction
  4. Fees for accounting, investment, or financial services or advice.

There’s so much more.  You could be keeping hundred or thousands more than you do.

Friday 4/2/2004

A new widow and her two grown children visited me last week.  They asked, among other things, whether they needed an attorney.


Is it a mistake NOT to hire an attorney to help settle an estate? 

Here’s what you need to do:

  1. Get a list of the duties of an executor – we can send you one if you email us from the web at planningsense.com
  2. Collect information on all the assets – if you have a personal financial advisor, they can come up with a list
  3. Sit down with all of it and look at what you will have to do
  4. If it boggles your mind – hire a good estate attorney – don’t go to some local one who does everything.  This is a specialized area.

If you do hire an attorney here’s what you need to do:

  1. Get a referral from someone who works with this kind of attorney a lot – your personal financial advisor is best - they’ll know who is good.  You do not necessarily need an attorney at a big firm.  There are several solo practitioners in Syracuse and CNY who are excellent
  2. Ask what the cost is.  Check with the referrer – perhaps using their name will garner you a discount.  Make sure you ask the attorney after the initial meeting.
  3. Ask the attorney when you call if the initial meeting is at no charge.  It should be – for the first 45 minutes, at least.
  4. Make sure you are prepared for the meeting.  When the attorney sees you are prepared, they will know their time will be less – therefore less cost to you.  That duties of an executor list and all the financial records, deeds, wills, trusts, anything and everything comes with you to the first meeting with the attorney.  If you have a good financial advisor, take them too.  They will be well worth the hour or two you pay them for in helping to interpret your situation to the attorney and helping you decide after the meeting what to do next.



Monday 06/28/2004 Property Exchanges

Monday 06/21/2004 Selling Your Business

Monday 06/14/2004 Investment Thoughts From A Nobel Prize Winner

Monday 06/07/2004 Money Can’t Buy Me Love

Monday 05/31/2004 IRA – Your Biggest Asset - Or Your Biggest Tax Bill?

Monday 05/24/2004 Retirement Blueprints – What’s Your Game Plan?

Monday 05/17/2004 Planning for Death

Monday 05/10/2004 The New Retirement Challenge – Healthcare

Monday 05/03/2004 Taking on The Risk of Loss

Monday 04/26/2004 Is a House a Good Investment?

Monday 04/19/2004 Attorney Selection, Personal Education and Divorce Agreements

Monday 04/12/2004 Estate Planning Curve Balls

Monday 04/05/2004 Can Reading Be Dangerous To Your Future?

Monday 03/29/2004 Mistakes that Cost Us Money

Monday 03/22/2004 Financial Truths

Monday 03/15/2004 The Worst Mistake a Young Couple Can Make

Monday 03/08/2004 More on Money Attitudes

Monday 03/01/2004 Statistics

Monday 02/23/2004 Why Do You Make The Decisions You Do?

Monday 02/16/2004 Empowering Caregivers – What You Need to Know

Monday 02/09/2004 Pay Now or Pay Later: Rules for IRAs and Other Retirement Plans

Monday 02/02/2004 Maybe We Should Call Them Million Dollar Clubs

Monday 01/26/2004 Women on Their Own Face Financial Challenges

Monday 01/19/2004 What Will Happen When You Get There?

Monday 01/12/2004 They’re Closing the Loopholes for Retirees

Monday 01/05/2004 A Fresh Start