Posts by Mike D

www.vickerytax.com
Phone: Main 470-839-9001

Is a Tax Trap Lurking in Your Paycheck?

Does your paycheck look a little higher than normal? If so, it could be a tax trap.

The Problem

A payroll tax holiday effective September 1 was recently signed via a presidential executive order. Payroll tax holidays typically provide forgiveness of Social Security and Medicare taxes that are normally withheld from your paycheck.

This year’s tax holiday, however, is NOT necessarily a forgiveness of Social Security and Medicare taxes because the order is not yet supported by an underlying legislative action. So even if your employer removes your Social Security and Medicare tax from recent paychecks, there is a possibility you will need to pay it back at a later date. That could mean a pretty large tax bill for you in early 2021!

What you need to do

• Compare paychecks. Get your last paycheck from August and your first paycheck from September. Compare the amount of Social Security and Medicare taxes withheld from your August paycheck to your September paycheck. If the amounts are the same, then your Social Security and Medicare taxes are still being withheld.  If you notice that the amounts are different, or that no Social Security or Medicare taxes are withheld from your September paycheck, then that’s a signal you may have a tax repayment bill in early 2021.
• Remember to keep checking each paycheck. Companies are struggling to figure out if they are required to comply with the presidential executive order, payroll providers are trying to figure out how to comply, and everyone is wondering whether the tax obligation will be permanently forgiven.
• Be prepared to pay it back. If no Social Security or Medicare taxes have been withheld from your paycheck through the end of 2020, be prepared to write Uncle Sam a check to pay these taxes in early 2021. If possible, open a savings account to set aside the Social Security and Medicare taxes that were not withheld from your paychecks. When it comes time to pay your taxes, the money will be ready to go.
• Check back here for updates. There’s a chance Congress passes a law that forgives the Social Security and Medicare taxes not withheld from your paychecks. If this happens, you will have a nice start on an emergency savings fund should you need it.

If you have any questions about how this payroll tax executive order affects you, please call.

www.vickerytax.com
Phone: Main 470-839-9001

Don’t Run the Risk of a High Tax Bill!
Know when you should ask for professional help.

Before taking action talk to your tax adviser.

How many times have you seen this legal disclaimer? Unfortunately, all too often taxpayers do not follow this advice and then must pay the price with an unnecessarily high tax bill.

Here are some of the most common situations that can save you money by seeking advice before you act.

• Getting married
• Selling a home
• Donating stocks and investments
• Getting divorced
• Change in dependent status
• Approaching retirement
• Starting a business
• Managing participation in tax-advantaged retirement accounts like 401(k), 403(b), and various IRAs
• Death and birth of loved ones
• Donating high-value items
• Selling stocks, bonds, mutual funds or business property (rentals)
• An audit
• Tax-efficient transfer of your estate
• Selling or buying high value assets (art, collectibles, real estate, and small business assets)
• Determining Social Security benefit strategy

In advance of any of these events, or when in doubt, please ask for assistance. There are too many stories that include the words “If only they had talked to someone first!”

www.vickerytax.com
Phone: Main 470-839-9001

Is a Tax Time Bomb Lurking in Your Paycheck?

Does your paycheck look a little higher than normal? If so, it could be a tax time bomb.

The Problem

A payroll tax deferral beginning September 1 was recently signed via a presidential executive order. The potential deferral of your portion of Social Security as an employee could raise your take home pay temporarily until January 2021. Beginning in 2021, the deferred Social Security will then need to be paid.

This year’s tax deferral is NOT currently a tax holiday. So if your employer removes your Social Security tax from your paycheck, there is a real possibility you will need to pay it back between January 2021 and April 2021. That could mean a pretty large tax bill for you in early 2021!

What you need to know

• The payroll tax deferral is optional for most employers. Your employer is not required to defer your Social Security payments. However, federal employees will be seeing this tax reduction from September through December of this year. If your employer chooses to defer your Social Security taxes, in all likelihood, they will let you know.
• Compare paychecks. If you are unsure whether your employer is participating in the tax deferral, get your last paycheck from August and compare it with your most recent paycheck. If the amounts are the same, then your Social Security and other taxes are still being withheld. If you notice that the amounts are different, or that no Social Security taxes are withheld from your current paycheck, then that’s a signal you may have a tax repayment bill in early 2021.
• Remember to keep checking each paycheck. Companies are struggling to figure out if they are required to comply with the presidential executive order, payroll providers are trying to figure out how to comply and everyone is wondering whether the tax obligation will be permanently forgiven. So you will need to keep checking your paycheck throughout the balance of 2020.
• Be prepared to pay it back. If taxes have been deferred from your paycheck through the end of 2020, be prepared to have your paycheck withholdings increase substantially beginning in 2021. If possible, open a savings account to set aside the taxes that were not withheld from your paychecks. When it comes time to pay your taxes, you will have funds to weather the repayment storm.
• Check for updates. There’s a chance Congress passes a law that forgives the deferred taxes. If this happens, you will have a nice start on an emergency fund should you need it.

If you have any questions about how this payroll executive order affects you, please call.

www.vickerytax.com
Phone: Main 470-839-9001

Reminder: Third Quarter Estimated Taxes Due
Now is the time to make your estimated tax payment

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The third quarter due date is now here.

Due date: Tuesday, September 15th, 2020

Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:

• Avoid an underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
• Self-employed need to account for FICA taxes. Remember to account for your Social Security and Medicare taxes as well. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter when you pay your estimated taxes.
• Don’t forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you’re required to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you meet these quarterly estimated tax payments as well.

* If your income is over $150,000 ($75,000 if married filing separate), you must pay 110 percent of last year’s tax obligation to be safe from an underpayment penalty.

ArseneauAdvisory.com
Kurt Arseneau,
Investment Advisor Representative
Registered Financial Consultant
Direct: (470) 839-9005
Email: kurt@arseneauadvisory.com

When Your Emotions Fail You

The greatest enemies of the equity investor are expenses and emotions – Warren Buffet.

In a perfect world, logic would always guide our financial decisions. Emotions wouldn’t come into play. But we don’t live in a perfect world. Far from it. Fear, anxiety, ad greed can make us impulsive. These emotions can blind us to logic and make us vulnerable to all sorts of biases. That is never more true than when we feel threatened or stressed.

When we are faced with uncertainty, fear and instinct can take over and push logic right out of the window. Your brain will make you want to react quickly to protect yourself and avoid the pain you anticipate from potential losses. Ironically, these instincts often make things worse. Emotional reactions can lead to poor choices and the losses you were trying to avoid in the first place.

That means our emotions impact our financial choices more than we realize. Shockingly as much as 95% of our purchase choices are made subconsciously, driven by our emotions – as little as 5% are based in logic (and that is when we are in a good headspace and feeling comfortable and secure).

No matter how much investing experience you have, uncertainty can get in the way of making good financial decisions. In fact, when market turbulence lets fear creep in, you can become vulnerable to herd behavior, panic, and irrational choices. And that can mean acting against your interests and opening yourself up to more losses. There is an easy way around that, though. It involves changing some of your thinking and reactions in the face of financial stress and uncertainty.

When emotions run high and impulse takes over, we are usually focused on reacting quickly to protect ourselves. This can lead to short-sighted, riskier decisions. It can also result in more losses. That is the essence of what Warren Buffet is saying above. But that is not all he is saying. He is also telling us that the emotion, like any perceived enemy, can be fought – that you have power to set emotion aside and make better financial choices, no matter how uncertain the outlook may be.

The truth is that emotions are essential to the human experience. When they take the driver’s seat in financial decision making, however, they can skew your perspective and undermine logic.

Counteract this by recognizing intensive emotions and giving them some time to cool down before you make a choice. This can give you a space to see the facts more clearly – and potentially lead to better, more logical financial decision making.

If you are like most investors, you think you are are ahead of the curve. In fact, research shows that nearly 2 in every 3 investors say they know more about finances than at least 70% of the population. Yet, 56% can’t pass a financial literacy test. They get at least 6 out of 10 questions wrong. This disconnect between what we think versus what we actually know can lead to overconfidence. Even for us pros. That is why we use research, processes, and systems to make decisions. To protect us from our own overconfidence. As easy as it can be to fall into the overconfidence trap, there are things you can do to avoid it. If you can stay realistic and keep an eye on your longer-term objectives, you can keep your confidence in check and empower yourself to make better financial decisions.