Broadridge Investor Communication Solutions

Year-End Tax Planning

November 7, 2022 Broadridge Investor Communication Solutions

Adapted from Broadridge Investor Communication Services

As the end of the year approaches, it’s time to consider strategies that could help you reduce your tax bill. But most tax tips, suggestions, and strategies are of little practical help without a good understanding of your current tax situation. This is particularly true for year-end planning. You can’t know where to go next if you don’t know where you are now.

So take a break from the usual fall chores and pull out last year’s tax return, along with your current pay stubs and account statements. Doing a few quick projections will help you estimate your present tax situation and identify any glaring issues you’ll need to address while there’s still time.

When it comes to withholding, don’t shortchange yourself

If you project that you’ll owe a substantial amount when you file this year’s income tax return, ask your employer to increase your federal income tax withholding amounts. If you have both wage and consulting income and are making estimated tax payments, there’s an added benefit to doing this: Even though the additional withholding may need to come from your last few paychecks, it’s generally treated as having been withheld evenly throughout the year. This may help you avoid paying an estimated tax penalty due to underwithholding.

Of course, if you’ve significantly overpaid your taxes and estimate you’ll be receiving a large refund, you can reduce your withholding accordingly, putting money back in your pocket this year instead of waiting for your refund check to come next year.

Will you suffer the alternative?

Originally intended to prevent the very rich from using “loopholes” to avoid paying taxes, the alternative minimum tax (AMT) now reaches further into the ranks of middle-income taxpayers. The AMT is governed by a separate set of rules that exist in parallel to those for the regular income tax system. These rules disallow certain deductions that you are allowed to include in computing your regular income tax liability, and treat specific items, such as incentive stock options, differently. As a result, AMT liability may be triggered by such items as:

The standard deduction
Large deductions for state, local, personal property, and real estate taxes
Exercising incentive stock options

So when you sit down to project your taxes, calculate your regular income tax on Form 1040, and then consider your potential AMT liability using Form 6251. If it appears you’ll be subject to the AMT, you’ll need to take a very different planning approach during the last few months of the year. Even some of the most basic year-end tax planning strategies can have unintended consequences under AMT rules. For example, accelerating certain deductions into this year may prove counterproductive since AMT rules may require you to add them back into your income. If you think AMT is going to be a factor, consider talking to a tax professional about your specific tax situation.

Timing is everything

The last few months of the year may be the time to consider delaying or accelerating income and deductions, taking into consideration the impact on both this year’s taxes and next. If you expect to be in a different tax bracket next year, doing so may help you minimize your tax liability. For instance, if you expect to be in a lower tax bracket next year, you might want to postpone income from this year to next so that you will pay tax on it next year instead. At the same time, you may want to accelerate your deductions in order to pay less tax this year.

To delay income to the following year, you might be able to:

Defer year-end bonuses
Defer the sale of capital gain property (or take installment payments rather than a lump-sum payment)
Postpone receipt of distributions (other than required minimum distributions) from retirement accounts

To accelerate deductions into this year:

Consider paying medical expenses in December rather than January, if doing so will allow you to qualify for the medical expense deduction
Prepay deductible interest
Make alimony payments early
Make next year’s charitable contributions this year

The gifts that give back

If you itemize your deductions, consider donating money or property to charity before the end of the current tax year in order to increase the amount you can deduct on your taxes. As an aside, now is also a good time to consider making noncharitable gifts. You may give up to $16,000 (in 2022; twice that amount for a married couple) to as many individuals as you want without incurring any federal gift tax consequences. If you gift an appreciated asset, you won’t have to pay tax on the gain; any tax is deferred until the recipient of your gift disposes of the property.

Postpone the inevitable

To reduce your taxable income this year, consider maximizing pretax contributions to an employer-sponsored retirement plan such as a 401(k). You won’t be taxed on the contributions you make now, and you may be in a lower tax bracket when you do eventually withdraw the funds and report the income. (Note that if you take withdrawals from the plan before age 59½, you’ll generally be subject to a 10% penalty tax in addition to any income tax due, unless an exception applies.)

If you qualify, you might also consider making either a tax-deductible contribution to a traditional IRA or an after-tax contribution to a Roth IRA. In the first instance, a current income tax deduction effectively defers income — and its taxation — to future years (as with a retirement plan, an additional 10% penalty tax will apply to withdrawals made prior to age 59½ in addition to any income tax due, unless an exception applies); in the second, while there’s no current tax deduction allowed, qualifying distributions you take later will be tax free. You’ll generally have until the due date of your federal income tax return to make these contributions.

Tax planning can be complicated. Consider seeking the assistance of a tax professional to determine what year-end tax planning moves, if any, are right for your individual circumstances.

Sticker Shock: Creative Ways to Lower the Cost of College

August 3, 2022 Broadridge Investor Communication Solutions

Even with all of your savvy college shopping and research about financial aid, college costs may
still be prohibitive. At these prices, you expect you’ll need to make substantial financial
sacrifices to send your child to college. Or maybe your child won’t be able to attend the college
of his or her choice at all. Before you throw in the towel, you and your child should consider
steps that can actually lower college costs. Although some of these ideas deviate from the
typical four-year college experience, they just might be your child’s ticket to college — and your
ticket to financial sanity.

Ask about tuition discounts and flexible repayment programs.
Ask whether the college you apply to offers any tuition discounts or flexible repayment
programs. For example, the school may offer a discount if you pay the entire semester’s bill up
front, or if you allow the money to be directly debited from your bank account. The college may
also allow you to spread your payments over 12 months or extend them for a period after your
child graduates. And if it’s your alma mater, don’t forget to inquire about any discounts for the
children of alumni. Finally, ask if some charges are optional (e.g., full meal plan versus limited
meal plan).

Graduate in three years instead of four.
Some colleges offer accelerated programs that allow your child to graduate in three years
instead of four. This can save you a whole year’s worth of tuition and related expenses. Some
colleges offer a similar program that combines an undergraduate/graduate degree in five years.
The main drawback is that your child will have to take a heavier course load each semester and
may have to forgo summer breaks to meet his or her academic obligations. Also, some
educators believe that students need four years of college to develop to their fullest potential
— intellectually, emotionally, and occupationally.

Earn college credit in high school.
By taking advanced placement courses or special academic exams, your child may be able to
earn college credits while still in high school. This means that your child may be able to take
fewer classes in college, saving you money.

Think about cooperative education.
Cooperative (co-op) education is a type of education where semesters of course work alternate
with semesters of paid work at internships that your child helps select. Although a co-op degree
usually takes five years to obtain, your child will be earning money during these years that can
be used for tuition costs. In addition, your child gains valuable job experience.
Enroll in a community college, then transfer to a four-year college.
One way to cut college costs is to have your child enroll in a local community college for a
couple of years, where costs are often substantially less than four-year institutions. Then, after
two years, your child can transfer to a four-year institution. Your child’s diploma will be from
the four-year institution, but your expenses won’t. Before choosing this route, make sure that
any credits your child earns at the community college will be transferable to another institution.

Defer enrollment for a year.
Your child might be aching to get to college, but taking a year off, commonly referred to as a
“gap year,” can give you both some financial breathing room and allow your child to work and
save money for a full year before starting college. Your child will apply under the college’s
normal application deadline with the rest of his or her classmates and, once accepted, can ask
for a one-year deferment. But make sure the college offers deferred enrollment before your
child goes through the time and expense of applying.

Live at home.
It’s not every child’s dream, but attending a nearby college and living at home, even for a year
or two, can substantially reduce costs by eliminating room-and-board expenses (though your
child will incur commuting costs). This arrangement may work out best at a college that has a
student commuter population, because the college is likely to try to meet these students’
needs. If your child does live at home, you’ll both need to sit down beforehand and discuss
mutual expectations. For example, now that your child’s in college, it’s not realistic to expect
him or her to adhere to a rigid weekend curfew.

Research online learning options.
Taking courses online is a trend that’s here to stay, and many colleges are in the process of
creating or expanding their opportunities for online learning. Your child might be able to take a
year’s worth of classes from home and then attend the same school in person for the remaining
years.

Work part-time throughout the college years.
Part-time work during college can help your child defray some costs, though working during
school can be both a physical and emotional strain. To make sure that your child’s academic
work doesn’t suffer, one option might be for your child to focus on school the first year and
then obtain a part-time job in the remaining years. In addition, encouraging your child to
become an RA (resident assistant) at college could earn them free room and board.

Join the military.
There are several options here. Under the Reserve Officers’ Training Corps (ROTC) scholarship
program, your child can receive a free college education in exchange for a required period of
active duty following graduation. Your child can apply for an ROTC scholarship at a military
recruiting office during his or her junior or senior year of high school. Or, your child can serve in
the military and then attend college under the GI Bill. Your child can also attend a service
academy, like the U.S. Military Academy at West Point, for free. Be aware, though, that these
schools are among the most competitive in the country, and your child must serve a minimum
number of years of active duty upon graduation. For more information, visit your local military
recruiting office, or speak to your child’s high school guidance counselor.

Go to school abroad.
Foreign schools generally offer an excellent education at a price comparable to that of an
average four-year public college in the United States. And in the global economy, many
employers tend to look favorably on studying abroad. Your child will even be eligible for need-
based federal student loans (but not grants), as well as the two federal education tax credits —
the American Opportunity credit and the Lifetime Learning credit.

Look for employer educational assistance.
Does your employer offer any educational benefits for the children of its employees, like partial
tuition reimbursement or company scholarships? Check with your human resources manager.

Have grandparents pay tuition directly to the college.
Payments that grandparents (or others) make directly to a college aren’t considered gifts for
purposes of the federal gift tax rules. So, grandparents can be as generous as they want without
having to worry about the tax implications for themselves. Keep in mind, though, that any
payments must go directly to the college. They can’t be delivered to your child with instructions
to apply them to the college bills.

Planning for Earned Income in Retirement Adapted from Broadridge Investor Communication Services

May 5, 2022 Broadridge Investor Communication Solutions

Adapted from Broadridge Investor Communication Services

If you’re like a lot of people, retirement won’t be the world of gardening, golfing, traveling, and tennis you once envisioned. Rather, retirement will mean relaxing and working. Maybe you’ve retired from your “regular” job and started a business, or perhaps you want to work part-time to stay busy. However, if you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit check.

How your earnings affect your benefit

Your earnings in retirement may increase your retirement benefit

Your monthly Social Security retirement benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration (SSA) calculates your primary insurance amount (PIA) upon which your retirement benefit will be based. Later, your PIA will be recalculated annually if you have had any new earnings that might substantially increase your benefit. So if you continue to work after you start receiving retirement benefits, these earnings may eventually increase your PIA and thus your retirement benefit.

What Are the Warning Signs of Financial Scams Targeting Older Individuals?

November 5, 2019 Broadridge Investor Communication Solutions

If you or someone you know has been targeted by a scam artist who is trying to steal
money or personal information, you’re not alone. According to the Senate Special
Committee on Aging, older Americans lose an estimated $2.9 billion annually to fraud and
exploitation, a number that is probably substantially underreported.

Most scams start with a call, an email, a text, or an official-looking letter that appears to be
from a government agency or a legitimate company. Sometimes the scam artist will go
door-to-door soliciting business or donations to charity.

Scam artists are very good at gaining the trust of well-meaning people by convincingly
impersonating someone authoritative, knowledgeable, or trustworthy — such as an IRS
agent, a tech repair person, or even a relative. They play on your sympathy or make
convincing threats to pressure you to go along with a scam. “Send money or provide
personal information right now, if you want to help someone or prevent something bad
from happening” they say.

Here are some typical scenarios:

IRS scam: “You owe back taxes and penalties. Send payment immediately via a wire
transfer, or you will be arrested.”
Sweepstakes scam: “Congratulations, you’ve won a prize! To collect it, provide us with
your bank account number so we can deposit a check.”
Grandparent scam: “Hi Grandma, it’s me. Don’t you recognize my voice? I’ve been in an
accident and need money for car repairs. Send gift cards, and don’t tell anyone because
I’m embarrassed.”
Home repair scam: “I was just doing some work down the street for your neighbor,
Bob, and I saw that you need some shingles replaced. I can do that for half the price I
usually charge if you pay me in cash today.”

If you are targeted, never give out personal information or send money. You don’t need to
make a quick decision. Call a friend, a relative, or the police for advice. Report the scam
immediately to a fraud hotline such as the Senate Committee’s toll-free hotline, (855) 303-
9470.

Source: U.S Senate Special Committee on Aging, 2019

Teaching Your College-Age Child About Money

August 6, 2019 Broadridge Investor Communication Solutions

When your child first started school, you doled out the change for milk and a snack on a daily basis. But now that your kindergartner has grown up, it’s time for you to make sure that your child has enough financial knowledge to manage money at college.

Lesson 1: Budgeting 101
Perhaps your child already understands the basics of budgeting from having to handle an allowance or wages from a part-time job during high school. But now that your child is in college, he or she may need to draft a “real world” budget, especially if he or she lives off-campus and is responsible for paying for rent and utilities. Here are some ways you can help your child plan and stick to a realistic budget:

Help your child figure out what income there will be (money from home, financial aid, a part-time job) and when it will be coming in (at the beginning of each semester, once a month, or every week).
Make sure your child understands the difference between needs and wants. Your child should understand how important it is to cover the needs first.
Determine together how you and your child will split responsibility for expenses. For instance, you may decide that you’ll pay for your child’s trips home, but that your child will need to pay for art supplies or other miscellaneous expenses.
Warn your child not to spend too much too soon, particularly when money that has to last all semester arrives at the beginning of a term.
Acknowledge that college isn’t all about studying. While you should include entertainment expenses in the budget, encourage your child to stick closely to the limit you agree upon.
Show your child how to track expenses by saving receipts and keeping an expense log. Knowing where the money is going will help your child stay on track.
Encourage your child to plan ahead for big expenses (the annual auto insurance bill or the trip over spring break).
Caution your child to monitor spending patterns to avoid excessive spending, and ask him or her to come to you for advice at the first sign of financial trouble.

Inflation Doesn’t Retire When You Do

May 2, 2019 Broadridge Investor Communication Solutions

The need to outpace inflation doesn’t end at retirement; in fact, it becomes even more important. If you’re living on a fixed income, you need to make sure your investing strategy takes inflation into account. Otherwise, you may have less buying power in the later years of your retirement because your income doesn’t stretch as far.

Your savings may need to last longer than you think

Gains in life expectancy have been dramatic. According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years. Assuming inflation continues to increase over that time, the income you’ll need will continue to grow each year. That means you’ll need to think carefully about how to structure your portfolio to provide an appropriate withdrawal rate, especially in the early years of retirement.

Teaching Your Child and Teen About Money

May 2, 2019 Broadridge Investor Communication Solutions

Ask your 5-year old where money comes from, and the answer you’ll probably get is “from the bank!” Even though children don’t always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely.

Facing the Possibility of Incapacity

May 2, 2019 Broadridge Investor Communication Solutions

Incapacity means that you are either mentally or physically unable to take care of yourself or your day-to-day affairs. Incapacity can result from serious physical injury, mental or physical illness, advancing age, and alcohol or drug abuse.

Even with today’s medical miracles, it’s a real possibility that you or your spouse could become incapable of handling your own medical or financial affairs. A serious illness or accident can happen suddenly at any age. Advancing age can bring senility, Alzheimer’s disease, or other ailments that affect your ability to make sound decisions about your health, or to pay your bills, write checks, make deposits, sell assets, or otherwise conduct your affairs.

Famous People Who Failed to Plan Properly

February 1, 2019 Broadridge Investor Communication Solutions

It’s almost impossible to overstate the importance of taking the time to plan your estate. However, a 2017 survey from Caring.com estimates only 42 percent of American adults have a will or estate plan. Over 80 percent of those 72 and older have made these preparations, but that number drops significantly with younger demographics.

You might think that those who are rich and famous would be way ahead of the curve when it comes to planning their estates properly, considering the resources and lawyers presumably available to them. Yet there are plenty of celebrities and people of note who died with inadequate (or nonexistent) estate plans.

What’s Your Risk Tolerance?

October 25, 2018 Broadridge Investor Communication Solutions

Investing always involves a degree of risk. If you plan to buy securities such as stocks, mutual funds, ETFs, or bonds, it is important to realize you could lose some or all of the money you invest. Finding an investment profile that fits your risk tolerance while still allowing you to reach your goals can be a challenge, but it’s not impossible. The first step is finding out what type of investor you are.