Winter 2014 Vol. XIX. No. 2 Newsletter

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Winter Notes:

winterSince our last newsletter, we’ve been busy implementing changes to our practice. Our paperless initiative has been successful. Our e-filing initiative has been accomplished and is firmly in place for every client. The secure electronic portals have been helpful for our clients when they send us sensitive information. We are working on quicker turn-around times so that clients will have their tax returns back within ten days (or fewer). The expansion of our corporate practice has exceeded our expectations. Our goal during 2014 to increase our personal financial planning business has been well received by clients. In addition, our fabulous bookkeepers, Becky & Robin, have continued to provide their expertise with Quickbooks. In summation, all these positive changes have allowed me to spend much more time meeting with clients and discussing their important issues.

This past September, I am happy to report that we hosted another fabulous dinner seminar, this time in the new private room at Eggspectation in Ellicott City. Our topic was “Investing in Uncertain Times”. Our guest speaker was Farley Shiner from the Choice Portfolios at Sterling/BB&T, and his presentation was well received by the forty or so in attendance. I’d also like to extend a big thank you to Matt Horn and Martin Miller from Scott & Stringfellow/BB&T who were our co-presenters. Sometime in the late-January or early-February time period, we will be hosting a lunchtime seminar at our offices, entitled “Estate Planning Lite”. We’ll be sure to send out invitations when we have set a definite date.

During the course of the year, we have many Baltimore Orioles baseball tickets. Also, we now have Washington Wizards basketball tickets too! If you are interested in attending a game, please don’t hesitate to call.

As we head into what promises to be a very busy and challenging tax season, I would like to thank the many individuals and corporate officers who came in to visit with us for year-end tax planning. I think you’ll agree that it was certainly time well spent.

Caring:

Some CPA’s receive a steady stream of new business referrals from clients. Others receive occasional referrals. What’s the difference between these two groups? Is it professional competence? Charisma? Magic? Conceivably, it might be any of these qualities, but it probably isn’t. At our practice we explain it like this: The formula for getting referrals from clients is caring. Caring is thoughtfulness for another’s welfare, well-being or success and, sometimes, an almost hovering attentiveness to the other’s concerns or problems. Caring according to us goes beyond the ordinary. Clients assume their CPA is skilled and efficient. They trust that the finished work will be what they expect, done on time, and for the agreed upon price. None of these items constitutes caring. Caring calls for doing the extraordinary and being continually alert for opportunities to serve better. In professional pursuits, caring might be:

  • delivering the work well in advance of the date expected.
  • a follow-up letter that is written from the client’s viewpoint.
  • avoiding surprises that could cost the client dollars or time.
  • emphasis on tax planning and tax savings as opposed to mere compliance.
  • volunteering firm resources to help clients get through a difficult time.
  • visiting with clients throughout the year.
  • listening with all senses active and without interruption.
  • anticipating future needs, large and small, to help make client lives easier and more successful.
  • developing mutual interests with clients.

Caring may take some time but more importantly, it takes thought. Among professionals who regard themselves as eternally busy, taking time out for thought may be a significant challenge. Yet as we see it, thought that leads to caring may produce the most powerful marketing strategy a CPA could ever devise…

Retirement Savings:

The contribution limits for tax-favored retirement savings programs will increase in 2015. This includes the Thrift Savings Plan (TSP), the 403(b) and 401(k) plans. The elective deferral limit will increase from $17,500 to $18,000. For those age 50 or older, the catch-up adjustment will rise from $5,500 to $6,000. These plans allow participants to put in money on a pretax basis with the understanding that their later withdrawal(s) will be taxable. For those using the Roth design, participants can invest to the maximum with after-tax contributions, and their associated earnings are tax-free upon withdrawal.
Year-end Tax Saving Tips:

  • Review and make any last minute donations. Donate cash and non-cash items. Remember to deduct your charitable mileage as well.
  • Sell targeted investments. Take advantage of offsetting ordinary income with capital losses of up to $3,000.00.
  • Accelerate expenses. Prepay next month’s mortgage, state estimated payments, or property taxes if it makes sense.
  • Reimburse yourself for business mileage at 56 cents per mile.
  • If self-employed, open up a SEP retirement plan and fund it in early 2015.
  • Consider a Roth IRA. Once you fund money into a Roth IRA on an after-tax basis, all future growth and distributions are tax-free.
  • Open a 529 College Savings account. The money you put away in a 529 college savings plan grows tax-free and future withdrawals for college education expenses are tax free.

Social Security and You:

Social Security constitutes roughly twenty percent of the federal budget. Most Americans will depend on Social Security for a dignified retirement. When you work and pay Social Security taxes, you earn credits for every quarter worked. Once you have accumulated forty credits (ten years of work) you will have the required number of credits. Both workers (and employers) contribute a substantial percentage of wages and salaries - 12.4 percent - throughout their working lives to cover benefits in their retirement years. Your benefit payment is based on how much you earned during your working career. Higher lifetime earnings result in higher benefits.
To deal with the projected retirement of the huge baby boomer generation, Congress in 1983 raised the payroll tax and gradually extended the retirement age for boomers from age 65 to 67 (for those born in 1960 & later).

You may choose to keep working even beyond your full retirement age and increase your Social Security benefits in two ways: Each additional year you work adds another year of earnings to your Social Security record. Also, your benefit will increase automatically (by eight percent) for every year you delay taking benefits past your full retirement age, until you reach age 70.

One myth about the Trust Fund is that the Social Security surplus was spent, not lent. That is incorrect. The government borrows from the Trust Fund just as it borrows from issuing Treasury bills, backing them with the country’s full faith and credit. Despite widespread skepticism among the young about the future of Social Security, the program is more important now than ever before. With median income stagnant over the past three decades and rising costs for education, housing and health care, it is challenging for many to save large amounts for retirement. This is especially true since most employers have switched away from generous defined benefit pension plans to the much cheaper defined contribution plans (which allow employees to set aside some earnings in a tax-sheltered retirement account).

Deciding when to retire is an important yet personal decision. Regardless of the age that you choose to retire, it is a good idea to contact Social Security in advance to make an informed decision. You should apply for benefits about three months before the date you want your benefits to start.

2015 Dollar Limitations for Retirement Plans:

Annual dollar limit for defined contribution plans, SEP’s

$53,000

Maximum salary deferrals for 401(k), 403(b) plans  

$18,000

Catch-up contribution limits for 401(k), 403(b) plans   

$6,000

Maximum salary deferral for SIMPLE IRA plans  

$12,500

Maximum IRA contribution  

$5,500

Catch-up contribution limits for IRA’s   

$1,000

Social Security taxable wage base 

$118,500

            

Happy Holidays!

 

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Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046