This lack of repeal will increase taxes for 17 million seniors an average of $2,034 per year according to the Heritage Foundation, a Washington D.C. non-profit think tank.  That is approximately $170 per month!  Many seniors will find themselves dipping into savings to pay the taxes, if they have savings at all.

             For 42 million families with children, the average tax impact will be an additional $175 each month.  In my experience of working with families, few have the reserves in their budget to be able to afford this additional tax increase.  This will further slow the economy in all likelihood. 

             Business owners will also see tax increases. Many of the 26 million small businesses in the US today are already struggling with the decline in revenue caused by the weakening economy.  Many will be forced to close their doors if they see an estimated tax increase of $3,637 per year. In addition, the death tax, which is the leading cause of termination of successful small businesses, will be reinstated.

              Finally, the marriage penalty tax will be reestablished, forcing married couples to pay more in taxes than single taxpayers.  In the year 2000 the average cost for couples punished by the marriage penalty tax was $1480 per year.  It is estimated that 44 million people will be affected by this tax increase.

             The Wall Street Journal has described this as “the biggest tax increase in our nation’s history.”  What most people fail to remember is that right after the Bush tax cuts were implemented, state and city governments immediately raised taxes and many of the federal funds for the states and cities were cut off.   Those high state and city taxes are still in place to this day.  Adding to the taxes that already exist will result in a substantial burden for individuals, families, seniors and businesses.

To save time and money on home renovations, consider these two ideas.

Age has privilege based on certain, milestones like turning 65 and gaining eligibility for Medicare, health care at a reduced rate, and reduced real estate taxes. At age 59½ money can be withdrawn from retirement with no penalties. At 24 a student receives financial aid based on his own salary and not his parent’s income.

If income is too low, one can receive food, free medical costs, reduced rent, free tax money, free education, free day care, reduced utilities, and free legal aid.

If net worth is low and income is low, people can have many of the privileges outlined in the previous paragraph. In addition, one may be eligible for free nursing home care.

 Specific occupations also have privilege. For instance, individuals in the military or clergy do not pay taxes on the expense of housing. Veterans receive discounts at many retail stores and can also receive, if qualified, free health care, funeral expenses, education, financial counseling and can receive job preference. If one works for certain non-profit organizations or for the government, student education loans can be forgiven. Parents who work for the government also receive preference for their children on financial aid for college.

With the right knowledge, small business owners can structure income to their advantage from an income tax standpoint. There are numerous benefits that can be offered to employees structured to the advantage of the owner of the business. Profits of the company or business can also receive preferential treatment tax wise.

More recently we see first time home buyers, car buyers, union members, Congress, and attorneys receiving preferential treatment, even in the face of incompetence. Certain large businesses like banks, insurance companies, and auto companies have received advantages created by legislation coming out of Washington. The difficulty in having this preferential treatment is that by the time people discover what benefits are available, the time period to take advantage of these benefits has expired. As a result it benefits only those who keep informed or those who lobby help. In addition, it always results in taking from some people and redistributing it to others. Those who benefit receive value not by their own efforts, but by circumstances.

In United States societies of the past (50’s and 60’s) the check for business greed was customer service and customer satisfaction. The check mate for government is our Constitution; but Congress, as well as the judicial and executive branch of government, has over-reached its authority. The result will lead to socialism. It is not, nor has it ever been, the role of government to give charity, because it always leads to corruption. The church needs to take back it’s authority over feeding the poor, healing the sick, strengthening the weak, and providing clothes and shelter to those in need.

             Proverbs 19:2 says, “It is not good to have zeal before knowledge.”  We live in a society that has zeal and limited knowledge so we miss out on the hidden manna that is available to everyone.

             We have seen many examples where people have sought help at the wrong place or with the wrong people.  Others have found the right people but didn’t know the correct questions to ask.  We know numerous veterans who may be eligible for help but aren’t receiving it because they do not know the rules.  It is often not enough to simply ask a question about taxes and expect to get the right answer from the IRS knowing there are over 71,000 pages of the code. 

             People assume that if they take their taxes to the accountant that the accountant will show them how to pay less in taxes next year.  If you only see your accountant between January and April 15, don’t expect this bleary-eyed person to come forth with all the ways you could have structured your income to pay less in taxes. 

             Equally complex is the college tuition eligibility and financial aid process for reducing college costs.  We have a process for no debt college.  To optimize the result, planning should begin in the eighth grade.  For some we have helped reduce the cost after graduation.

             Most people do not understand the whole process of borrowing and establishing your credit score.  The credit score determines the amount of interest you will pay on a loan.  Our job is to improve the credit score to reduce your interest rate and thus improve your cash flow.

             Food costs can be dramatically reduced by simply understanding how stores merchandize their products and by setting up rules for yourself before entering the store.  Making up lists, using coupons, and checking receipts will add additional money to your pocket.  Even the process of choosing the right store is important to know.

             Utility costs can be dramatically reduced with proper insulation, routine maintenance of your furnace and air conditioner, and attention to energy usage ratings of your appliances.  Additional savings can be found by using water restrictors, fluorescent bulbs, and water efficient toilets.  If the cap and trade agreement happens, you can expect increases of $150 to $250 per month in utility expenses.  Begin making your house energy efficient now. 

             There is so much information available to us today that it becomes overwhelming very quickly.   Be determined and discerning in your search for the best possible solutions.

             Robert Ostrander, CFP®

            SWS Advisors, Inc.

        If the recession has touched your life financially, you might want to do some tax planning to either postpone or accelerate your tax deductions and/or income.   For those anticipating more income this year than next, it may be prudent to accelerate deductions and postpone income.  For those anticipating less income this year than next, consider postponing deductions and accelerating income.  Here are some ways to do that. 

        One example might be to do a conversion of a Traditional IRA to a Roth IRA. This will result in more income in the year completed, but will reduce taxes in future years, particularly after the Roth has been in place five years.  It will be necessary to look at how the additional income will affect your taxes this year before you do complete the process. 

        Another option is to review the assets you hold that have appreciated in value.  As we do anticipate higher capital gain taxes in the future, this may be a good year to sell and take the capital gain in a low income year.  Again, a review of the affect on your overall taxable income is appropriate before selling. 

        From a deductible expense standpoint, consider paying real estate taxes for the year either in December or January depending on which year you anticipate being in a higher tax bracket.  This can result in two real estate tax deductions in one year and none in the other year.  This strategy makes the most sense for those close to a threshold of a higher tax bracket or for those who have itemized deductions that barely exceed the threshold for the standard deduction ($11,400 for married, $5,700 for single).  For those who do not itemize but do pay real estate taxes, this year you can deduct $1,000 ($500 single) for real estate taxes in addition to the standard deduction.  You may have the opportunity to prepay other itemized expenses on your tax return as well.  

        This is a good time of the year to review whether you need to reduce or increase withholding of your taxes.  Most people over withhold and, as a result, they end up making interest free loans to the government.  Many of these same people are borrowing money at excessive interest rates with credit cards.  If you received a substantial refund this past year, file a W-4 form with your employer and increase your number of withholdings.

        Another tax strategy is to look for an opportunity to do income splitting with family dependents.  Many business owners hire their children, transferring income into the child’s lower tax bracket to be used for paying school tuition.  It can also be done for estate tax reasons when assets are substantial.

        This is a great time of year to look at charitable planning.  Presenting gifts of appreciated assets to avoid capital gain taxes may reduce taxes at the end of the year.  The savings and tax reduction is greater with the gifts of appreciated assets.

        First time home buyers or those who have not owned a home in the past three years have an opportunity to receive a substantial tax benefit ($8,000) by purchasing before December 1, 2009.  There has been talk of extending this tax benefit but a final decision has not yet been made.

        Finally, review benefits from your employment to make sure you are taking advantage of all the pre-tax living expenses offered by your employer.  I recently published an article that addresses these opportunities in more detail (click here).

 Robert Ostrander, CFP®

SWS Advisors, Inc.

        If you are healthy and have no chronic diseases, life insurance offered through your employer will likely be more expensive than what is offered through non-group coverage. Proper selection of the coverage for reduced rates and adequate coverage is necessary and we can assist in that process. Group insurance may be the best alternative for someone with chronic diseases. It should be noted that a loss of employment will also mean a loss of group coverage.

        If you are without credit card debt, we generally recommend that you take advantage of matching contributions by your employer to your retirement plan. This is why we encourage young people to avoid debt early in their careers. Money invested early and accumulating over many years grows dramatically. Time and compound interest is often referred to as the eighth wonder of the world.

        If your employer offers a flexible spending account (FSA or 125) sit down and review all your medical expenses that you anticipate for the next year. This should include prescriptions, chiropractic medicine, eye glass care, dental, medical costs not covered by health insurance, and any other related expenses. You can find a complete list through your employer or with a Google search of section 125 medical expense deductions. Some plans allow .14¢/mile to and from the doctor’s office with proper documentation. This benefit has tax savings of a minimum of 20% and as much as 40% for some people. Be accurate in your estimates because if you do not use it, you can lose it.

        Some benefit plans allow for pre-tax payment of mass transit deductions to and from work as well as pre-tax parking. This is offered under Section 132 of the IRS tax code. If the cap and trade agreements take place this may be the preferred method of travel because of the high cost of fuel. If your employer does not offer it, suggest to you human resources manager that he/she look into adding it to the options. This plan benefits the employer as well, saving the FICA tax for the mass transit expense.

        Another benefit offered is tuition reimbursement under Section 127 of the code. This benefit allows the employee to be reimbursed for successful completion of educational courses offered that will bring value to the employer. Often it requires a commitment to the employer for a stated number of years. The permissible amount is $5,250 each year. I almost always recommend long-term disability for employees because it represents a catastrophic risk potential. In some cases I recommend supplementing group long-term disability with an individual plan.

        I also recommend short-term disability for those with limited financial resources. I have never been a fan of accident policies or disease specific policies. They require specific risks to occur for collection of the benefit. Sometimes a family history of disease will sway my thinking.

        Dependent care benefits can also be taken pre-FICA and pre-tax for adults or children. Up to $5,000 annually is permissible as a payroll deduction. It is important to have a review of this benefit to see whether to take the pre-FICA benefit or the child credit. Your accountant can assist you with this decision.

        If you are planning an adoption this year, be sure to take advantage of the pre-FICA and pre-tax benefit that allows up to $10,390 to be payroll deducted. In addition, there is also a tax credit available for adoption. Be sure to discuss this option with your employer because this benefit saves your employer as well.

        Proper selection of benefits can be a significant benefit to employees. This is why planning is so important. Each year most of the benefits must be determined in October or November for the next year. It is worthwhile planning how to take these benefits. Be sure to call us if you need help.

Robert Ostrander, CFP®

SWS Advisors, Inc.

        The first option is to sell the home so as to have a more affordable housing expense. Many times homeowners are reluctant because the home would sell below what the family originally paid. This would obviously result in the seller losing money and leave the mortgage company with an unsecured loan for the remainder of the debt. We would call this type of sale a short sale. For such a sale to take place, the mortgage company would have to agree. The homeowner would then have to pay off the unsecured portion of the debt. The advantage would be to protect the family’s credit rating and avoid bankruptcy.

        In some cases the mortgage lender will take a hit on the unsecured portion of the debt, up to 100% of the unsecured amount, to avoid the cost of bankruptcy. If the lender does take a hit, it can result in the issuance of a 1099 to the homeowner for the phantom income, resulting in an income tax on the unsecured portion of the loan. The tax of course would be less than the repayment of the loan. On a positive note, there are some situations where the tax could be avoided.

        There are rescue funds of up to $3,000 available to those in Ohio. Not everyone will qualify, but for certain situations in which a family is behind on their mortgage payments, funds may be available. It is imperative that you can be rescued with the additional funds. They are not inclined to put good money into a bad situation.

        A third option is to file bankruptcy. What hurts the credit score most are multiple late payments. If this is an option to be considered, do not drag out the process if you see that you have no other choice.

        Another, and possibly a more fruitful option, is to take advantage of our Saving Without Sacrifice process. We recently had a riteree come in who was struggling to keep her home. Through our process we were able to identify savings of $500 a month on her $27,000 annual income. It was more than enough for her to avoid foreclosure but because she waited too long, some of the savings could not be realized for one year.

        These are tough times and with some of the proposed changes in government we can only see more difficult times ahead. We encourage you to be more proactive in reducing your living expenses. We would consider it a privilege to be part of your solutions to reduce your monthly costs.

Robert Ostrander, CFP

SWS Advisors, Inc.

The complexity of good stewardship for today’s family has gone way beyond the average person’s comprehension and understanding.  As an independent financial advisor for over forty years, I have found it increasingly difficult to stay abreast of the constant changes in government programs, tax law, health care, debt management, portfolio analysis, technology, food cost reduction, consumer products, automobile maintenance, estate planning, retirement planning, college cost reduction, home financing, extended health care (nursing homes, assisted living, etc.), career management, employment benefits, and personal budget management.  Living expense reduction and asset management is my life’s work, but few financial planners specialize in both of these areas.  If I have trouble keeping up with all the changes, do you think most people in our society have missed taking full advantage of their resources?

 Recently a lady came into my office requesting help because she was about to lose her home.  Her situation was not unlike what I see every day.  In her case, she was eligible for health benefits that would cost her no more than $60 a month, but she was using a plan costing $400 a month.  In addition, she was paying $40 each month for insurance she could never use.  She was also not aware that she was eligible for a property tax reduction of $400.  Because she was behind on her mortgage, she was eligible for rescue funds of up to $3,000 at no interest, yet she had just used a check cashing place at 60% interest to try to keep her home.   There were at least ten other ways that we found for her to save money.  Sadly, she was not tithing during this time so the body of Christ was losing as well.

 You might be thinking the problem is ignorance on the part of the lady, but it’s not.  The systems have become so burdensome that our ‘experts’ don’t know of, let alone understand, all the changes taking place.  I reviewed the lady’s information with a CPA (without revealing her personal data) and he confessed he was only aware of a few of the items that we found would save her money.   A CPA!  And he isn’t the only one.  In the last few years I have helped a financial planner with 30 years experience save over $20,000 and another planner with 15 years experience save $6,000. 

 Saving Without Sacrifice specializes in reviewing over 300 separate ways to reduce expenses, increase income and reduce taxes by analyzing insurance policies, tax returns, business structures, utility bills, investment contracts, deeds, food purchase habits, real estate holdings, employment benefits, debt agreements, government benefits, college cost reduction techniques, and your future goals.   We also assist in providing ways to assist in all future budget purchases.  Our goal is not to change our clients’ lifestyle, although it may be important to do so.  Our goal is to help simplify their life and transform them into wise stewards of the resources that have been entrusted to them.

Every church has vast assets within the body of Christ that either lie dormant or are wasted because people lack the understanding of proper stewardship.  Most churches have responded to programs like Crown Financial Ministries’ ‘Journey to True Financial Freedom’ or Dave Ramsey’s ‘Total Money Makeover’, but for the most part they focus on debt reduction and cutting items out of the budget.  We use our unique principles of living expense reduction to help you save without sacrificing your lifestyle.  Our book, workbook and devotional can help get people started in the right direction.  Our methodical cost containment process will take people from a complex, stressful life of bondage to one of simplistic, peaceful stewardship.  Visit our website, savingwithoutsacrifice.com, for more information.  

Robert Ostrander, CFP®

SWS Advisors, Inc.

             Under the proposed measures to reduce carbon dioxide emissions by our current Congress, called cap and trade agreements, everyone should expect utilities and gasoline expenses to increase.  This increase will primarily impact the low to middle income families as we expect substantial increases in utility bills.  In addition, this will impact heavy users of electricity, primarily in manufacturing, resulting in either the costs to comply with the regulations being passed on to consumers or the transfer of these operations to countries where the cap and trade rules do not apply.  This of course will cause more job losses in this country. 

It is obvious the goal is not to reduce emissions.  The United States has had more reduction of emissions without these agreements than have European countries, which already put these agreements in place.  So what is the point?  The real goal is to introduce a socialist agenda and to create another profit center for energy producing companies.  Ken Lay, former CEO of the now defunct Enron, was a strong proponent of this plan because of the business opportunities and the profits it creates at the consumer’s expense. 

As consumers, we should begin rethinking of ways to reduce utility bills.  Those with low incomes may find there can be help through the Home Energy Assistance Program (HEAP).  Additionally, newer appliances tend to be more efficient than older appliances.   An eighteen year old air conditioner can use as much as twice the energy as a newer model. 

For those in older homes, window replacement may have long-term savings, but measure how long you plan to stay in the home first.  Another great value is to identify energy loss in remote places in the home including crawl spaces, under sinks, and though openings in the basement.  Insulating in and around these areas and caulking around doors and windows offer great benefits in reducing heat and cooling loss.

Attic insulation will yield a high value because it reduces heat loss in the winter and cooling loss in the summer.  It is also important to know that insulation settles over time reducing the R-factor, or energy loss resistance, and should be replaced.  Insulating hot water pipes, changing filters on furnaces, adding hot water heater blankets, and using florescent bulbs rather than incandescent bulbs will also help.  My books Saving Without Sacrifice and Saving Without Sacrifice In Action cover over forty more ways to reduce utility bills.

            Energy cost should double in the next five years because of inflation and the new cap and trade agreements.  As mentioned earlier, fraud is expected to be rampant based on Europe’s experience with these regulations.  The environmental effect is considered so remote that it will not be measurable.  The economic impact could be devastating.  Preparation for what is coming is always the best cure.

            Robert Ostrander, CFP®

            SWS Advisors, Inc.

 Having been engaged in financial planning for over forty years I am fascinated by the lack of care taken by employees, business owners, ministry leaders and their advisers in the structure of compensation.   Too often significant dollars are spent needlessly because of a lack of understanding of some of the fundamental tax laws.   Structuring compensation properly can benefit the owner, the business or ministry, and the employees, saving thousands of dollars.

I always begin this process by reviewing the personal budget of the owner or ministry leader.  From there we identify future goals of the decision maker so that we can look at what new employee benefits we may want to introduce in the future.  Next, a review of the business budget is done to identify tax liability levels for the company and how money is being spent.  We begin to methodically look at reducing any items in the business budget that may decrease operating expenses.  Businesses can be structured to pay healthcare costs, dental, long term care insurance, eyeglass care, childcare, transportation, parking, adoption, life insurance, disability insurance, educational reimbursement, prescriptions, and moving costs on a pre-tax basis.  Additional deductions can be realized with retirement plans and, in some cases, utilities and housing allowances. 

Casting income differently can often make a dramatic change in the level of tax being assessed.  Using an S-corporation and rental or lease agreements offer ways to achieve income splitting goals.  Other methods involve having children perform duties for the business and for them to receive compensation in a child’s lower tax bracket.  These earnings can then be used to fund various college expenses.  For those charitably minded, there are various techniques that use the business or ministry to make charitable contributions.  This allows for more dollars to go to charity and reduces the taxes paid on most normal charitable contributions.  Most contributions go to charities after twenty percent tax has already been paid and, with current government proposals, we may see that percent go higher.

Employees also have a choice of which benefits they receive.  Most workers take benefits because they have been convinced by the benefit provider’s agent to buy them.  With proper education, we can often reduce the costs and increase the value of the benefits chosen, putting money back in the pockets of the employee.  We do this by reviewing the budgets of each employee to help them choose benefits based on their best value.

The net effect of this process saves taxes, reduces living expenses for the employees, reduces business overhead expenses, and increases both business and employee income.  It doesn’t get any better than that!  Choosing the way money is received and the way expenses are paid is critical in our complex culture.  For more information on how this can be done and resources that can help, visit our website at savingwithoutsacrifice.com.

Robert Ostrander, CFP®

SWS Advisors, Inc.