Every December before the end of the year I run down this checklist to make sure that my taxes will be roughly what I had withheld from my paycheck. I try to keep my tax withholding as low as possible; I have no interest in giving Uncle Sam what amounts to an interest free loan, just so I can get a big refund check in April. I also don’t want to end up owing money in April, the Feds don’t really like it if it turns out that they gave you an interest free loan over the course of the year. Landing on a nearly zero return every year takes a little doing, but here are the steps I take to manage my tax burden as the year comes to a close.
1. Calculate Anticipated Taxes
This is fairly straightforward. Grab your most recent paystub (probably November), often it’ll have your total gross income for the year so far, add one additional month of gross salary. Then subtract any deductions that you have taken, things like:
- 401(k) contributions
- Health Insurance Premiums
This is gonna be your guess at your adjusted gross income for the year, then subtract the standard deduction:
- Single or Married Filing Seperately: $6,300
- Married Filing Jointly: $12,600
- Head of Household: $9,300
After that, go ahead and subtract the number of personal exemptions you can take (this is generally one for each person involved in the tax return, ie, one for you and each of your dependents). This determines what tax bracket you’ll end up in, this matters when making marginal decisions, but your actual tax rate (your total federal tax divided by your total income) is much, much lower than your tax bracket.
2016 Tax Brackets
|Tax Rate||Single||Married Filing Separately||Married Filing Jointly||Head of Household|
|10%||Up to $9,250||Up to $18,475||Up to $9,250||Up to $13,175|
|15%||$9,251 – $37,500||$9,251 – $37,500||$18,476 – $74,975||$13,176 – $50,250|
|25%||$37,501 – $90,850||$37,501 – $75,700||$74,976 – $151,375||$50,251 – $129,750|
|28%||$90,851 – $189,500||$75,701 – $115,350||$151,376 – $230,700||$129,751 – $210,100|
|33%||$189,501 – $412,000||$115,351 – $206,000||$230,701 – $412,000||$210,101 – $412,000|
|35%||$412,001 – $413,650||$206,001 – $232,675||$412,001 – $465,350||$412,001 – $439,500|
|39.6%||Over $413,650||Over $232,675||Over $465,350||Over $439,500|
2. Compare your income with MAGI breakpoints
What are MAGI breakpoints you ask? Well, a bunch of stuff in the tax code really cares about what your modified adjusted gross income (MAGI) is. Rarely, if you increase your income just above a MAGI breakpoint an additional dollar of income can cost you more than a dollar in tax. For example, if you earn a dollar less than $30,750 you can claim the saver’s tax credit (worth $200). If you earn a dollar more than $30,750 you lose the saver’s tax credit. These few dollars cost you $200 in taxes. Below is a table of credits for various MAGI’s:
|Tax Credit||Single||Married Filing Separately||Married Filing Jointly||Head of Household||Value (Maximum)|
|Saver’s Credit (50%)||AGI less than $18,500||AGI less than $18,500||AGI less than $37,001||AGI less than $27,750||$1000|
|Saver’s Credit (20%)||$18,501 – $20,000||$18,501 – $20,000||$37,001 – $40,000||$27,751 – $30,000||$400|
|Saver’s Credit (10%)||$20,001 – $30,750||$20,001 – $30,750||$40,001 – $61,500||$30,001 – $46,125||$200|
|Roth IRA Phaseout||$117,000 – $132,000||$0 – $10,000*||$184,000 – $194,000||$117,000 – $132,000||Lose the Roth IRA 🙁|
|Traditional IRA Loses Tax Deductibility||$61,000 – $71,000||$0 – $10,000*||$98,000 – $118,000||$61,000 – $71,000||Lose IRA deductibility 🙁|
|EITC No Children (Phaseout – Cap)||$8,270 – $14,880||N/A||$13,820 – $20,600||$8,270 – $14,880||$506|
|EITC 1 Child (Phaseout – Cap)||$18,340 – $39,617||N/A||$23,930 – $45,207||$18,340 – $39,617||$3,400|
|EITC 2 Children (Phaseout – Cap)||$18,340 – $45,007||N/A||$23,930 – $50,597||$18,340 – $45,007||$5,616|
|EITC 3+ Children (Phaseout – Cap)||$18,340 – $48,340||N/A||$23,930 – $53,930||$18,340 – $48,340||$6,318|
|Child Tax Credit||$75,000||$55,000||$110,000||$75,000||$1,000 per child|
*This isn’t a typo, the roth ira phaseout starts at $0 for married couples filing separately. I gather that this is necessary to avoid people using it as a way to get around the IRA, though I don’t really understand why the ability of a wealthy couple to do this would be such a problem.
3. Tax Loss Harvesting
You can reduce your total MAGI by selling investments that have lost money since you purchased them. You can take up to $3000 of losses above and beyond your capital gains against your income. The only unfortunate part is that, due to the wash-sale rule, you can’t immediately repurchase the investment. You have to wait 30 days before or after the sale to repurchase the investment, if that’s what you plan on doing. This is dangerous because the investment you sell could recover during the period you sold it. In principle, according to the efficient market hypothesis, one investment is basically as good as any other, so selling out of one to buy another (and booking a tax deduction along the way) shouldn’t hurt you any. Unfortunately, markets aren’t precisely efficient, and people often want to sell at precisely the wrong time. Therefore, it bears some thinking to make sure that you’re selling purely for tax reasons, not emotional ones. While this is a violation of our admonishment to be as passive as possible with your investments, the reduction in your taxes could potentially make the activity worth it.
4. Tax Gain Harvesting
If it looks like you’re going to have an unusually low MAGI this year you can take advantage of it by tax gain harvesting. In this case the wash-sale rule doesn’t apply, so we don’t worry nearly so much about the admonishment to be passive, as you should be able to get nearly the same price for your repurchase. Basically the strategy is to take your gains in years where your capital gains taxes will be low. For more details on the strategy check out: Tax Gain Harvesting. This works pretty well if you’re a ways under one of the breakpoints or if you’re in the bracket in which capital gains aren’t taxed. This has to be done in the calendar year though!
5. IRA conversions
If you’re planning on converting your traditional IRA to a Roth IRA you want to do it in a year when it won’t shove you over one of the MAGI breakpoints. Of course, if you expect that all of your future tax years are only going to make this worse, you might as well bite the bullet and do it now. I check if I want to convert any traditional IRA’s near the end of the year, unfortunately I haven’t really had a good opportunity to do that quite yet.
6. Buy Business Equipment and other Business Expenses
I’m not a real accountant, I’m just a dude online, so you’ll want to carefully analyze this strategy with your CPA, but it seems to me if you’re going to buy an ad campaign or something you might be able to load some of your costs into the current tax year by making purchases before the tax year ends. I believe this will reduce your MAGI, and it could take you under an important breakpoint, say….the savers tax credit, or one of the havin’ a kid tax credits. It’s worth a check.
7. Bundle your below-the-line deductions
These are sometimes called itemized deductions, and these won’t change your MAGI. If you’re like me you might very often take the standard deduction. It probably makes sense to go ahead and save the items which you might be able to take a deduction on to do them all in the same year, for example, if you normally give $4,000 per year to charity, and take the standard deduction, it probably makes sense to instead give $8000 every other year. The charity still gets the same amount of money over time, but you get to take an $8,000 deduction on even years, and still take the standard deduction on odd years. The extra $2,000 deduction if your single can add up to real money over the years. Examples of below the line deductions which make for good bundling are: mortgage interest, charitable contributions, educational tuition, costs related to investment activities, taxes, as well as unreimbursed medical and dental expenses (above 10% of your income).
Make a checklist for lower 2016 taxes!
Every year I go over this and check that there isn’t anything which I missed. The other big one is IRA contributions which can take place at any point up through the tax due-date, but I mainly use traditional IRA and roth IRA contributions to make sure that my total adjusted gross income ends up exactly where I want it to after I receive a W2 from my work and the various 1099’s I seem to collect from the rest of the world. The important thing is to have a process so that you aren’t shocked every year come tax time, wishing you had done a little more to change your tax liability. If you have anything to add I could sure use another couple steps!
A note about contributions
I’ve excluded 401k and HSA contributions as its a little late in the game to talk your employer into making big changes to your withholding, but I’d highly recommend making sure that your 401(k) contributions are where you want them to be about half-way through the year.
PPI Claims and the mis-selling of this insurance product has dominated the UK’s news since 2011, when the banks lost in the High Court, which forced them to pay out billions in compensation to the millions of people that they defrauded. However, many people are perplexed by PPI, what it is and what it stands for. In this article we hope to answer everything you’ve ever wanted to know about PPI.
Today we have a guest post from fellow blogger, Jon. Enjoy!
If you do a search online about investing, you are going to get a lot of search results. Because of this, many investors, both new and old are overwhelmed. They feel that investing and being successful as an investor is a complicated task. In reality though, investing is relatively simple. This doesn’t mean it is easy to achieve success as many factors come into play, but this post will show you just how simple investing really is.
Two Reasons Why Investing Is Simple
#1: Wall Street Is A Business
Every investor has to remember that at the end of the day, the companies on Wall Street are for-profit firms. This means they are out to make money. How do they do this? They primarily make money on fees and commissions. The more you trade, the more they make.
Therefore, it should come as no surprise that the more volatile the stock market is, the better. When it is volatile, many investors will trade on pure emotion. The more trades people make, the more money the Wall Street firms make.
Another area where Wall Street makes money is through offering new products. When Wall Street touts new products, many times they are just old offerings that have been rebranded after a marketing firm helped make it look more appealing.
#2: The More Confusing, The Better
There are a lot of different investment options out there for a reason. The more complicated a subject can seem, the more potential money there is to be made. Think back to the point above. Wall Street makes money by getting you to trade more often. Well, if they can introduce 10 products that essentially do the same thing but look different, there is a chance that some investors will take the bait and switch from their current investment to the shiny new one.
At the end of the day though, it is essentially the same exact product, just marketed differently. This is the same reason why people are so confused when it comes to eating healthy. There are low fat, low sodium, low sugar, no fat, no MSG, all natural, organic and no GMO products out there. Which one is the best one? Which is better than the others? Ask 5 people and you will get 5 different answers.
Breaking Down Investing To Make It Simple
So how do you as an investor weed through all of this nonsense so that investing can be relatively easy for you? Here are the steps below that you need to follow.
Get Your Emotions Under Control
Your emotions are your biggest crutch when it comes to being successful investing. And this shouldn’t be a surprise since we are talking about money here and money is emotional. When the market drops and we start losing money, we sell and run. When the market rises, we get greedy and want more so we keep buying.
But to be successful, you need to get your emotions in check. You do this first by educating yourself. Read some books on investing by the greats. One book that I highly recommend is A Random Walk Down Wall Street. If you can understand the basics of how the market works, meaning that over the long term you can make money, you will be better equipped to deal with your emotions.
Don’t Fall For Gimmicks
The next step to being a better investor is to not fall for gimmicks. Refer to the previous section on how Wall Street makes money. Then read the book I recommended above. You will understand that no one – not even the professional money managers – know what the market will do on day-to-day basis. Because of this, there is no need to overpay for actively managed investments since they can’t consistently outperform the market.
Your best option is to go with a passive investing strategy instead of an active one. The lower costs and earning what the market earns will pay off greatly over the long-term.
Overcome Short-Term Gratification
Lastly, you have to take a long-term approach when investing in the stock market. If you are looking to get rich overnight, you are going to fail miserably. Wealth is built in the stock market over the long-term. If you look at the successful investors over time, like Warren Buffett, you will see that patience and investing for the long-term is profitable.
I know this can be tough in the instant gratification world we live in, but you have to take this approach if you want any hope when it comes to investing.
Overall, investing in the stock market isn’t terribly complicated. If you can learn to control your emotions, invest in low cost mutual funds and ETFs and do so over the long-term, you will see success.
But while these tips make it sound easy, understand that your emotions are a powerful force and the media and Wall Street are out to provoke you to react. The more disciplined you can be, the better chances of you succeeding.
Jon writes at Penny Thots, a personal finance blog that talks about all things personal finance. The goal of the site is to improve your finances one day and one penny at a time.
It’s not uncommon to want to invest but not really know where to start. Sometimes that causes people not to invest at all when they really should be investing for their future. It may seem complicated, but there are ways to make investing in the stock market simple so you can quit putting it off and get started.
What Are Your Goals?
One of the first things you need to know as you get started investing in the stock market is what are you investing for? Are you investing for your future retirement, or are you investing to pay for your children’s future college education? Maybe you are considering investing for a different reason altogether. The point is that the reason you are investing could influence the way you choose to invest.
How Old Are You?
If you are a young investor you are very likely to invest differently than if you are closer to retirement age. For example, young investors who have the advantage of time might make investments that are a bit riskier than those who are middle aged or closer to retirement. Riskier investments traditionally make greater returns and losses that occur can be made up more easily if you are young. However, as you age, you have fewer years ahead of you to make up for losses, so shifting your investment strategy is a good idea. You might choose to increase your contributions to your investments in order to maximize growth in the few years you have left until retirement. Also, putting more of your money into less volatile investments might be a good idea.
If you want more control over how you are investing, take a look at Motif Investing. They offer theme-based investing which allows you to choose your own funds for a flat fee. They do have pre-made funds as well, and they offer low minimum account balance requirements to help you with your investing needs.
How Much Time Do You Have?
Choosing stocks yourself might seem fun, or it could seem scary to you if you feel like you aren’t sure about what you are doing. But no matter which scenario fits you, picking stocks for yourself takes time. In order to be successful, you have to choose the right stocks that are going to make gains rather than losses. How do you know which ones to pick? This is where exchange traded funds, or ETF’s, can help. ETF’s are usually made up of a group of funds but trade as though it were a single stock. This can be a great help to a beginning investor with little time to education themselves on the stock market.
Watch Out for Fees
Another disadvantage of choosing your own individual stocks to trade is the trading fees. They can vary and quickly eat up your returns, which is another reason ETF’s are a good idea. Make sure you find out what the fees are before making a choice of where to invest your money.
If you have considered investing, it is possible to make investing in the stock market simple so you feel more comfortable doing so without the fear of losing everything you have. It doesn’t have to be complicated.
Do you know of other ways to make investing in the stock market simple?
Kayla is a personal finance blogger in her mid-20s who loves to write about money topics of all kinds.
I just got back from the mechanic and my car (bluebook ~$9,000) needs $3,000 worth of repairs to be made drivable again. Part of it seems to be routine maintenance but the other part is just part failure. I don’t want to be regularly paying these kind of repair bills, but I’m also not sure I should get a new car just yet. How do I tell when it’s time to give up on a car and just get a replacement.
Well, first off, if you’re going to replace your car consider buying a used car. The rule of thumb is that a car loses 25% of it’s current value annually. This means that the depreciation on that $9,000 car is currently running you roughly $2,250 annually. That seems like a lot of money to me. Similarly, this is a huge repair bill. As far as we’re concerned with maximizing value what you’d really like to do is know what the future repairs on the car were going to be, then you could just compare this with the depreciation and maintenance on the other car and go with whatever costs the least. Unfortunately, my crystal ball is cloudy.
Great, so when do I replace my car?
Fortunately, I do have more information for you than a shrug. First off, if the cost of the potential repair is more than the value of the fixed car, it’s time to get rid of the car! This is well known, the car is “totaled”.
I would back out the part of the cost here that is routine maintenance. If you have, say, tires that are supposed to last 5 years, you don’t really have to worry about them going out, and further you should have saved for that part of the car wearing out in any case. Tires don’t wear out any faster on an old car than a new car. Same goes for things like timing belts and clutches. So from that $3,000 I’d subtract the routine maintenance cost. Next, I’d compare the remaining value to two things, first the expected depreciation of the car (1/4 the current, working, blue book value), and second the expected depreciation on the car you’re thinking about buying.
Let’s say that the total cost of your maintenance repairs was $500, and the other $2500 was catastrophic failure of your headlight fluid pump (I am a car expert guys). You take the $3,000 subtract off the $500 to get the remaining $2500. Then, calculate the expected depreciation of your vehicle. You can use the rule of thumb or instead calculate the difference in blue book value between your car and the one year older model. (What I mean by this is, if you have a 2008 Chevy Cobalt, check the blue book value of the 2007 Chevy Cobalt. The difference in the annual depreciation.)
Since we don’t have a model from your vehicle, I’ll just use the rule of thumb. If we take 25% of $9,000 we get $2250 as I mentioned earlier. This is less than your anticipated spending. Then, we check the depreciation of the replacement car you’re thinking about getting. Suppose you’re going to buy a $16,000 car. The depreciation would be roughly $4000. Since the repair is less than $4000 but more than $2250 I’d probably decide not to replace the car. If I was thinking of getting a car that was more like $10,000 (estimated depreciation $2,500) I’d be more inclined to go ahead with the purchase. If the repair bill I was looking at was higher I’d probably go ahead and replace it. If a larger percentage of the bill was routine maintenance go ahead and replace This is right about where it’s close, and frankly other concerns might trump the economics. Do you like the car? Is it a relatively safe car?
Would I replace the car
I’d probably replace the car and buy a cheap two-door that runs, somewhere in the $4,000 to $6,000 range. This keeps my annual car costs fairly low and I’ve experienced very few maintenance issues with this strategy, though the depreciation costs over $100 per month are making me sad.
You could try to harass your mechanic into giving you future estimates of the cars maintenance costs. You could also think about another rule of thumb, over a car’s lifetime the depreciation, maintenance and fuel of a car all cost about the same. So, for a $20,000 car, the lifetime maintenance, and fuel are also each about $20,000. You might be able to get from there to an annual estimate of maintenance, though to be honest I’m not sure how! I suppose I leave that as an exercise to the reader (maybe it involves assuming that some types of maintenance, like oil changes, and tire replacements, are evenly distributed throughout the cars life, and other maintenance comes in sudden jerks?)
I thought that now would be as good a time as any to share my process for finding and investing in individual stocks. I should first disclaim that most of my money is in index funds which won’t be touched by me for quite some time. I’m still quite firm in my belief that the best returns are had by investing like a dead person. That being said, I do invest other money, thinking that I can outperform the market by focusing in areas that professional investors have difficulty being effective in. Therefore, I look for very illiquid stocks trading for less than $50 million.
Good Times (GTIM) fits at least this criteria. If you live in Colorado it’s been a staple of fast food for quite some time. The food quality has declined somewhat over the last 5 to 10 years, but that’s been true of nearly every other chain around here. Maybe my tastes were simpler when I was a teenager, I don’t know. I looked at the company as a possible investment four or five years ago and concluded that it was probably going to go out of business, so I passed. Turns out, I was wrong.
Good Times situation now
Good Times currently owns two restaurant concepts Good Times Burgers and Frozen Custard as well as Bad Daddy’s Burgers. Good Times Restaurants owns and franchises 37 Good Times Burgers locations and owns 19 Bad Daddy’s Burgers locations. Over the last year or two the company has basically been flat as far as earnings are concerned. While it might be tempting to look at the price of GTIM stock at this point, instead I suggest on attempting to come up with an independent valuation first. I don’t know a ton about what makes a restaurant valuable, so it looks like its time to get at least a grounding in the subject.
How to Value a Restaurant
All businesses are only worth whatever cash owners can pull out of the business in the future, discounted to the present. This applies whether your talking about restaurants, biotech, or railroads. It seems to me that the first place we should start to get an idea of how much money the business will make in the future is to check out what management’s ideas for the company are, and see if it passes our initial shit-test.
According to management’s most recent conference call, 9 to 11 new Bad Daddy’s Burgers locations in 2017, three in Colorado and three in North Carolina. To fund this expansion they plan on using a new $9 million debt facility along with $6 million of cash on hand. In the first 9 months of the previous year (the most recently available data) the company had $3.6 million in cash flow. So the question is, can these 9 to 11 restaurants open on roughly $19 million? Between 2016 and 2015 they opened five Bad Daddy’s Burgers locations. They also spent $7 million on property, plant and equipment investments. For the purposes of our back of the envelope, we go ahead and estimate $1.4 million per restaurant. Twice as many restaurants might be twice as much, or $14 million. This is basically consistent with management’s guidance for paying $14.7 million for capital expenditures in fiscal 2017 (October 2016 to September 2017). So management probably is being basically truthful about their upcoming plans, or at the very least the numbers aren’t insanely wrong, and it seems unlikely that the company will go bankrupt in the next year. This is a very important thing to check!
The next step in my view, is to check what the value of the chain of restaurants as it is, would be worth. I’m always nervous about paying for growth. I’d prefer to pay a reasonable price for, you know, stuff that actually exists. So, what is the expected gross profit from the 37 Good Times Burgers restaurants? There isn’t a lot of growth happening here and the company breaks out the profits for that segment. Based on the most recent quarterly report for Good Times along with the most recent annual report, I estimate that the 37 Good Times Burgers locations will generate about $570,000 in net profits annually. I value this stream of profits at $5.7 million (applying a 10% discount rate).
The Bad Daddy’s Restaurants are somewhat more difficult to get a good picture of. If we only look at the amount the restaurants are earning as they open we significantly underestimate the profits of the restaurants. Unfortunately, this is also an important segment. Measured in sales the Bad Daddy segment is much larger than Good Times. Sales for the 10 restaurants that were open all year over the trailing twelve months was $26 million or $2.6 million per restaurant. Management’s claim that the locations earn a 15% operating profit seems consistent with operating profit numbers from the company’s previous annual report. I, therefore, estimate total sales of roughly $50 million from the Bad Daddy’s segment. A 15% operating profit indicates $7.5 million in profits, we then need to remove the corporate tax, we’ll say roughly 35%, giving us just about $5 million. I value this stream of profits at $50 million (again applying a 10% discount rate).
Last we have to subtract out the value of corporate expenses. From the most recent quarterly report I estimate about $600,000 in ongoing corporate expenses. Discounted at 10% this works out to be a value of -$6 million. Subtracting this from the Good Times Burgers locations and Bad Daddy’s Restaurants we get a total valuation of roughly $49 million for the entire company.
Worth more Dead or Alive?
The company’s balance sheet is $37 million. I can’t seem to find any reason to believe that the real-estate Good Times holds is worth substantially more than it is being held on the books for. This is about the only reason I can think of that the company’s assets, if liquidated, would be worth more than book value. It’s entirely possible, given that much of their expansion took place over 10 years ago. That might merit further study but as a first pass, I’m guessing that Good Times is better valued on its profits than its property.
Comparison to Good Times’ Market Value
Now we get to check our valuation against the valuation the market gives, or the market cap. This is relatively straightforward as Good Times doesn’t have a very significant amount of debt. The current market cap of Good Times is about $39 million. Our valuation indicates that Good Times could possibly be undervalued by 25%. This isn’t a screaming bargain, but rather indicates that the company merits a further look. It looks like Good Times is a misnamed company at this point, and the investment really comes down to whether the Bad Daddy Burger locations can achieve 15% operating profit and sustain $2.6 million in sales, the Good Times locations probably won’t make a massive difference in the value of the company, assuming nothing fantastically bad happens.
Given that I live in the area, I’ve opened a starter position and am headed to try Bad Daddy Burgers, we’ll see how it is.
I am long GTIM (Good Times Restaurants) I wrote this article myself, and it expresses my own opinions. This is not a investment recommendation. I am not receiving compensation for it (other than from the owner of the blog District Media Corp). I have no business relationship with any company whose stock is mentioned in this article. Always do your own research before making any trade, buying or selling any stock mentioned.