KNS Financial

Personal Finance From a Biblical Perspective

Budgeting In A New Life

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This guest post was written by Crystal at Budgeting in the Fun Stuff where she writes about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way. If you’d like to see more, feel free to follow BFS via RSS, Email, Twitter, and Facebook. Thanks for reading!

For those of you who haven’t met me yet, hi, my name is Crystal and I am a blogging addict.  In fact, I started blogging in February 2010 and just quit my day job last week to pursue blogging full time!  I am officially self-employed!  I am loving every minute of this new career freedom, but there are some personal finance aspects of my new life that I have to take into account.

Income

First and foremost, I always knew I wouldn’t let go of my day job until I could replace its income completely through my online work.  I am a huge fan of stability and the comfortable lifestyle my husband and I have formed, so I knew I was going to have to work my butt off on two jobs at once to eventually work from home.

Specifically, I was making $35,500 a year from my day job.  After taxes and benefits, I was taking home about $970 in every biweekly paycheck.  That meant that I needed to be able to consistently bring in $2500-$3000 a month from my online endeavors to cover my income and what I would need to cover health insurance and higher taxes.  That was a struggle with only one income stream from my main blog, so I started branching out.

Over the last year, I started staff writing as an income stabilizer and also looked into other options.  I finally decided to put my cum laude Marketing degree to work.  Crystal-For-Hire Blogging Services was born and I started taking on miscellaneous blogging jobs.  I also started offering my services to run other bloggers’ advertising for a commission since many bloggers don’t have the time to capitalize on all of the little deals we are offered on a daily basis.  I was surprised by the great response!  That service has been extremely successful and I was able to hit my $3000 or more goal per month.

I finally had the income part taken care of, which couldn’t have come at a better time since I had been working 16-17 hours a day for most of April, and all of May, June, and the beginning of July.  Whew!

Benefits

My secondary concern was replacing benefits like my health insurance.  Luckily, my husband has a semi-stable position as a public school librarian.  I have always known I could join his plan for about $125 a paycheck and be covered for my health, dental, and eye care.  What wasn’t as known was how I would save for retirement.  Taking that into account, my husband and I opened a second Roth IRA and fully funded it already for this year and will be doing so from here on out.  We are also going to attempt to throw even more into the stock market.

Long story short, I am now tackling my first weeks of dealing with self-employment tax.  I will be sure to let everyone know if all of my planning worked out or not.  One way or another, I will succeed.  I won’t accept any other outcome.  Let’s see if I can do it on my terms or not, lol.

Have you ever been self-employed?  What advice or suggestions would you have for me?

photo by Don Hankins

How The IRS Wants To Help You With Your Job Hunting Expenses

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Normally, when we talk about tax deductions, we immediately think of IRA contribution limits, the standard mileage rate, or self employment tax. However, with so many people being out of work or working part-time hours, the job market is being flooded with applicants. This is why it is important to look at the tax deductions related to job hunting expenses.

Summer used to be the season for job hunting. I received a ton of announcements and advertisements for career fairs, resume services, and headhunters during the summer. However, since the economy has tanked, I get them all year long!

Due to this fact, the IRS has released a list of tax benefits for job seekers. So, while our Senators debate another payroll tax holiday, see if you qualify for any job search deductions.

A Few Guidelines Regarding Job Hunting Expenses:

  • You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
  • You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.
  • If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
  • To qualify for a deduction, the expenses must be spent on a job search in your current occupation.

So, be sure to save all records of any of these job hunting expenses. Don’t forget things such as printing and copying your resumes, paying headhunters and agencies, and even travel costs.

Other Things To Note About Job Hunting Expenses:

  • You may not deduct expenses incurred while looking for a job in a new occupation.
  • You cannot deduct job search expenses if you are looking for a job for the first time.
  • You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

So, in order to deduct job search expenses, it can’t be your first job search and it can’t be in a new field. Of course, just to complicate things, the IRS does not go on to specify what a “substantial break” actually is. However, if you decide to start your own business and become a young entrepreneur, then there is another set of tax laws that govern your situation.

To find out more about deducting job search expenses, see IRS Publication 529. If you have any questions regarding any other issues, please visit our tax help page. Also, be sure to contact us for professional tax preparation once you are ready to file.

Be sure you are aware of the tax filing delay, as well as the fact that the tax filing deadline has been extended this year. To get the most out of your financial situation in 2011, you should know the IRA Contribution Limits, 401k Contribution Limits, and the Income Tax Rates for 2011!

photo credit: nidhug

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Which Of The Free Tax Forms Should I Use To File?

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Many people are confused by the different free tax forms available to use. Of course, if you come to KNS Financial for tax preparation, then you won’t have to worry about finding free tax forms!

Choose The Simplest Free Tax Forms For Your Situation

In order to file a tax return, you will have to determine which form to use (unless you decide to e-file). Since the IRS is no longer mailing out paper tax packages to taxpayers, the choice will become that much more difficult!

Because of this, the IRS has released the following guidelines to follow in order to determine which option is best for your tax situation when looking at the free tax forms:

What To Look For When Choosing Your Free Tax Forms

Use the 1040EZ if:

  • Your taxable income is below $100,000
  • Your filing status is Single or Married Filing Jointly
  • You and your spouse – if married — are under age 65 and not blind
  • You are not claiming any dependents
  • Your interest income is $1,500 or less

Use the 1040A if:

  • Your taxable income is below $100,000
  • You have capital gain distributions
  • You claim certain tax credits
  • You claim adjustments to income for IRA contributions and student loan interest

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. Among the reasons you must use the 1040 are:

  • Your taxable income is $100,000 or more
  • You claim itemized deductions
  • You are reporting self-employment income
  • You are reporting income from sale of property

Now that you know what to look for, here is a link to get the Internal Revenue Service Tax Forms that you need. If you don’t want to deal with the headache of checking these figures, then be sure to contact us for tax preparation!

If you are brave enough to prepare your own income tax return, then I would recommend using TurboTax – this software will actually choose the correct paperwork for you!

Be sure you are aware of the tax filing delay, as well as the fact that the tax filing deadline has been extended this year. Also, you should know the IRA Contribution Limits, 401k Contribution Limits, and the Income Tax Rates for 2011!

photo by Arvind Balaraman

401k Contribution Limits

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Below you will find the 401k Contribution Limits for employees, employers, and also for participants who will be at least 50 years old by the end of the calendar year. You should also consult the IRA contribution limits before completing your retirement plan.

201620152014
401 (k) Contribution Limit$18,000.00 $18,000.00 $17,500.00
401 (k) Catch-Up Contribution Limit$6,000.00 $6,000.00 $5,500.00
401 (k) Contribution Limit for Those Over 50$24,000.00 $24,000.00 $23,000.00
401 (k) Employer Contribution Limit6.0%6.0%6.0%

As you can see, there was no cost of living adjustment from 2015, meaning that the 401k contribution limit for 2016 has stayed the same since last year.

As in previous years, plan participants who will be 50 years of age by the end of the year will be able to make a “catch-up” contribution. The catch-up contribution is an additional amount that those close to retirement are allowed to make. As you can see, the catch-up contribution limit will continue to be $6,000 for calendar year 2016.

Also note that the employer 401k contribution limit remains at 6% of the employee’s pre-tax salary. What this means is that an employee that has a gross salary of $100,000 will be able to contribute up to $18,000 during the year. If they will be at least 50 years old by the end of the year, they will be eligible to make a catch-up contribution up to $6,000; bringing their total annual contribution to $24,000.

401KContributionLimits

If they contribute enough to gain their full 401k employer match, then their employer will kick in an additional $6,000 toward the employee’s retirement. This means that the employee in our example will put away $30,000 this year for retirement!

I’ve talked before about contributing enough to qualify for your full 401k employer match, so be sure to read that article to see why it is so vital to your financial health. Basically, I show how you can earn a return of 167% on your 401k before you begin investing!

With this type of return, and the generous amounts that we are allowed to set aside, contributing to a 401k should be at the top of your list of New Year Resolutions!

photo by MJTR

401k Advice – Stop Passing Up Free Money!

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There are many things that we do in life that revolve around money. Much of the time we are working hard to earn more. Unfortunately, this desperation surrounding money doesn’t carry over to claiming our 401k employer match. People will do things out of character, work past the point of exhaustion, and even fall for obvious scams, all in pursuit of money.

Turning Down Free Money?

However, it seems like many of us are passing up free money with every paycheck! According to a recent study by Financial Engines, “39 % of [401 (k)] participants [are] not saving enough to receive the full employer match”! One of the most basic things that you can do is to quality for your 401k employer match.

The situation looks even worse for younger workers. The study reports that, “of participants under age 40, 47% failed to save enough to receive the full employer match.”

Most companies that offer 401 (k) plans will also offer a 401k employer match. What this means is that these companies will match the amount that you put into your plan up to a certain percentage of your salary. Let’s look at an example:

Let’s assume that your gross salary is $52,000 and you are paid every two weeks.You employer promises to match any contribution that you make to your 401 (k) dollar-for-dollar (100%), up to 6%!

You have more pressing concerns than saving for retirement, so you decide to start off slow at 1%. That means that with each paycheck you put aside $20 for retirement, and your company matches – giving you a total of $40!

Sounds pretty good, right? However, you just threw away $100 of FREE MONEY!!! How? Well, let’s take a look:

If you contributed 6% instead of just 1%, then your employer would match your $120 with $120 of FREE MONEY! Sounds a lot better than $20, huh? So, failing to contribute enough to receive the employer match (and only saving 1%), costs you $2,600 per year! Even more if you get a bonus, raise, or commissions!

I don’t know about you, but I would hate to have someone offer me $2,600 and I just light it on fire.

So, I guess you can see that I am in favor of everyone contributing enough in their 401 (k) plan to get the full employer match. If not, then you’re turning down FREE MONEY!!!

Actually, I’d go a step further and have every employee automatically signed up to contribute that amount, and have to opt out in order to change it. That would cause a lot more people to be aware of what their negligence costs them!

Want The 401k Employer Match, But Can’t Afford to Reduce Your Take Home Pay?

Keep in mind that a contribution to a traditional 401 (k) plan is made with pre-tax dollars. That means that taxes are not taken out of your pay until AFTER you make your contribution – leading to you paying less taxes!

Taking this example a little further will help us see this more clearly. Remember that I am making a few assumptions about your tax status in order to simplify the example:

Let’s say that your net pay is usually 25% lower than your gross, or $1,500. Contributing 6% of your salary ($120) will reduce your net pay to $1,410. This is a reduction of only $90 instead of the full $120 that you saved.

Actually, you managed to save $240 for your retirement by reducing your take home pay by only $90! That’s a return of 167% before you even started investing!!!

Is A 410k Employer Match In Your Future?

I hope you’ve read enough to convince you to take full advantage of your company’s 401 (k) match. The only thing worse than not getting the full match is using your 401(k) for credit card debt! Of course, in order to plan carefully you need to know the current 401k contribution limits, and even consider the prospect of a 401k rollover!

photo by AMagill

Reader Questions:

  1. Does your employer currently offer a 401 (k) plan?
  2. If so, are you contributing enough to get the full employer match?
  3. If you are contributing less than that, what’s your reason?

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