Castle Rock Financial Planning
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Thanks to review specialist Expertise for ranking Castle Rock as one of 2019’s Best Financial Advisors in St. Paul! Expertise reviewed dozens of financial advisors serving the St. Paul area. Castle Rock is thrilled to have made the shortlist of the Top 15 Financial Advisors in St. Paul! Thanks to the team at Expertise for their research, focus on quality, and commitment to ensuring all consumers can make confident decisions in the experts they select.
April is Financial Literacy month! What a great opportunity to talk to our children and young adults to find out what they know and how to improve on it.
High school students do most of their learning about money and finances from parents. But many parents do not feel equipped to teach their children about financial issues. In 2018, the research group Brookings Institute published a large-scale review of youth financial literacy, which showed a continued failure of U.S. high school students to pass simple financial literacy tests. In fact, in a 2008 literacy test by Jump$tart, high school seniors averaged 48.3%—more than 10 points lower than a passing grade. We need to do better for the sake of our children. And we can start both at home, but also in supporting our schools.
Talk to your children’s teachers and school administrators and discover what they provide in financial literacy. In 2011, Minnesota passed the Minnesota K-12 Social Studies Standards that went into effect in the 2013-2014 school year. The goal of these Standards was to provide Minnesota students with some training in economics. Of the 34 economic education benchmarks for students 1-12 grade, 5 are related to personal finance.
While most schools do not have the funding to add programs, there is support available for schools. BestPrep is a Minnesota based non-profit organization that provides educational programs to students in grades 4-12. They have developed many programs which are available at no cost to schools. One such program is Money Matters. They provide volunteers from the financial industry who go into schools and teach classes about personal finance. They have financial experts volunteering to develop presentations that not only address the Social Studies Standards, but go beyond. They work with students on understanding money basics like budgeting, credit vs. debit, and credit scores. Additionally, BestPrep provides volunteers e-mentors for classrooms as they discuss financial topics. The students can e-mail questions to their e-mentors who respond not only with answers, but with new ways to look at their personal finances.
Another way you could be involved is to volunteer with a group of students and participate in the Stock Market Game. You do not need to be a financial expert to run this game. BestPrep provides training and on-going support. The curriculum not only provides students with an education in business, economics, and financial literacy, but also gives students a richer understanding of the U.S. economic system, current events, and teamwork. To see all that BestPrep has to offer go to www.BestPrep.org.
There are many organizations that not only work with students, but provide individual guidance for any adult interested in helping youth achieve financial literacy. Check out some of the great resources listed below to learn more about what you can do!
Share Save Spend – www.sharesavespend.com
The Financial Educators Council – www.financialeducatorscouncil.org
The Mint.org – www.TheMint.org
One of the unexpected gifts from the Tax Cuts and Jobs Act of 2017 was the virtual elimination of the so-called “marriage penalty.” But at the same time, the new tax regime imposes a new “stealth” marriage penalty which will show up for taxpayers in higher-tax states.
The marriage penalty is roughly defined as assessing higher federal taxes on married couples with two incomes than would be assessed on the same couple if they had filed individually. For example, under the old regime, two single filers making $50,000 would each pay at a 25% tax rate. But a couple who each earned $50,000 ($100,000 total household income) would have been assessed at a 28% marginal rate.
Obviously there was no penalty if the family had only one income; in fact, for those increasingly rare households, there would be a marriage bonus. If the sole breadwinner, under the old tax regime, were single, and that person was making $50,000, he or she would still have been subject to a 25% tax. But if the breadwinner happened to be married, and moved into the “married filing jointly” category, his or her income would then have been taxed at a 15% rate.
| 2018 Personal Income Tax Rates | ||
| Rate | Married Filing Jointly | Single |
| 10% | $0 – $19,050 | $0 – $9,525 |
| 12% | $19,050- $77,400 | $9,525 – $38,700 |
| 22% | $77,400 – $165,000 | $38,700 – $82,500 |
| 24% | $165,000 – $315,000 | $82,500 – $157,500 |
| 32% | $315,000 – $400,000 | $157,500 – $200,000 |
| 35% | $400,000 – $600,000 | $200,000 – $500,000 |
| 37% | over $600,000 | over $500,000 |
Source: Nolo.com
So how has this changed? As you can see from the chart, the tax brackets for “married filing jointly” are exactly twice as high as the “single” brackets—up to the very highest brackets, when a marriage penalty finally kicks in. A couple earning $50,000 each, under our current tax regime, would pay income taxes at a 22% rate, whether they were married or filing individually.
It gets a bit interesting at the highest two brackets, however. As you can see from the chart, if two individuals were to make, say, $350,000 in any tax year, they would each fall comfortably into the 35% bracket. However, if they get married, suddenly they must pay tax at a 2% higher rate (37%) for the first combined $100,000 they make over the $600,000 threshold. It’s not a lot of difference, but there is clearly a penalty involved.
What about the stealth marriage penalty? The new tax law sets a hard $10,000 limit on the amount that you can deduct for state and local taxes—including state income or sales taxes and property taxes. That applies to individuals, and the same limit applies to households. Single persons would get to deduct up to $10,000 for these various taxes, each, but when they get married, their deduction gets cut in half: only $10,000 for the household as a whole.
Of course, this only applies to people who would have significant state and local tax obligations—some states impose zero state taxes—so for some, there is no stealth marriage penalty at all. To get up to where they have to worry about the marriage penalty, they would also have to join the 1%.
Thanks to Bob Veres for this guest content.
When things get tight, many people get insular. That is, they cut ties and obligations with anything that doesn’t protect themselves, and their own. However, this is when charitable giving is needed the most. Don’t look at budgeting for philanthropy as an either-or situation. It’s not either I help myself and my family or I have money for charitable giving. It’s about getting smart in how to do both.
Charitable giving isn’t all about having a big budget. It’s about making an impact. You can incorporate volunteer work into your family’s set of values. Budgeting time is just as important; create a regular schedule of events that the whole family can participate in.
Talk to people about their philanthropic giving. Ask about how they make charitable giving choices, when they give, how much they give (if you have that level of trust). These conversations connect you with causes you might not have heard about any other way. If you’re a transparent advocate for giving, even if you’re not able to give as much as others, you’ll be doing good for the world. Your word of mouth support of your causes (and even just giving as a way of life) may help someone you know prioritize it in their budget.
As you earn more income, ensure your charitable giving grows too. Think critically about how you can be generous; if your income decreases, can you donate time? Statistically, wealthier people actually tend to give a smaller percentage of their income to charity. This trend leaves the people who most benefit from the services that charities provide shouldering more of the burden. Those who have been or are currently in need know first-hand the benefits charities can provide. If you’re not currently or haven’t ever been on the receiving end, be extra generous.
The biggest change with the current tax laws is that the benefit for giving has been greatly reduced, except for those who donate a large amount. There are a few simple ways to work this system, if you can’t donate enough to qualify for the tax break every year. Save what you would be donating one year, and add it to the next year’s donations, bringing your total up to the threshold, just every other year. Or, better yet, set up a donor-advised fund which you can contribute to every year, or every other year, while still supporting you and your family’s causes annually.
Your giving is creating the world you want to see, the one you hope your children will grow up in! It teaches many beautiful things about the value of humanity. It’s definitely worth including in your budget.
Are you ready to prioritize charitable giving? We can help you stay philanthropic and reduce your tax liability through donor-advised funds. Contact us today to start the conversation.
The new tax laws that went into effect at the start of 2018 are making many paychecks a little larger and many people a little happier. The last thing we want, though, is to have this positivity take a turn at the end of the year. One thing many don’t know, or maybe aren’t thinking about yet, is how the decreased deductions and exemptions may impact your tax bill come April. It may turn out that you have a larger tax bill than in previous years despite lower tax rates. In this spirit, we took stock of some of the key points of the new tax law, so you won’t be caught off guard in a few months.
Changes to Individual Taxes
Tax Brackets – There will still be 7 tax brackets.
Top Tax Rate -For individuals is reduced from 39.6% to 37%.
Personal Exemptions – Drop from $4,050 per exemption, i.e. yourself and your dependent children, to $0.
Standard Deduction – Increase from $12,700 (Married Filing Joint, “MFJ”) to $24,000 MFJ; $6,350 (Single, “SGL”) to $12,000 SGL; $9,350 (Head of Household, “HOH”) to $18,000 HOH.
Child Tax Credit – Increased from $1,000 to $2,000 (for children under age 17).
Investments – Capital gains rates, the ability to choose which lots of investments are sold and net investment income tax will all remain as they are.
Education Funding – Student loan interest deductions up to $2,500 will remain; Tuition deduction of up to $4,000 will be retained; and American Opportunity Tax will remain at the maximum of $2,500 for 4 years (this cannot be used in combination with the tuition deduction).
529 Plans – In 2018, will be able to be used for education costs from elementary education through college rather than just college, as it is currently.
Changes to Itemized Deductions
State and Local Taxes – Currently both state and local taxes are deductible. Starting this year, these will be limited to a combined $10,000 in 2018, including property taxes and state and local income taxes.
Mortgage Interest Deduction – Currently, up to a $1,000,000 in loans which can be up to 2 homes. This will be changed to up to $750,000 in loans which can be on up to 2 homes.
Home Equity line of Credit Interest Deduction– Currently, interest on a home equity line of credit up to $100,000 is deductible under Mortgage Interest Deductions. This will be eliminated in 2018.
Medical Deduction – Currently amounts greater than 10% of Adjusted Gross Income (“AGI”), are deductible, in 2018 it will be amounts greater than 7.5% of AGI.
Charitable Deductions – Currently up to 50% of AGI, will increase to 60% of AGI in 2018.
Miscellaneous Deductions – Currently the greater than 2% of AGI are deductible. These will be eliminated in 2018. (These include unreimbursed employee expenses, tax preparation fees, investment expenses, trust fees)
Casualty and Theft Losses – Currently, amounts greater than $100 and 10% of AGI. This will be eliminated in 2018.
We don’t know what additional changes will come up at the close of 2018. Some of the above itemized deduction changes may shift again, or perhaps there will be more new shifts to individual taxes. We do anticipate a change in regards to alimony. Currently, alimony paid is deductible for the payor, and alimony received is included in income for the recipient. For divorces occurring in 2019 and beyond, this will be repealed. (Divorces having occurred previously will retain these income modifications.)
We will keep you up-to-date as new information is published in the coming months.
Take some time to read about the new laws, and consult with an accountant to help determine how the changes will impact you. The IRS has created a wonderful, user-friendly withholding calculator that we are recommending to all our clients and friends! Find it here: https://apps.irs.gov/app/withholdingcalculator/
If you have additional questions or would like to talk about the tax reform, call our offices at 651-294-0013.