Now is the time to do some tax planning before year end. You should defer as much income as you can through the use of a 401(k) if you have access to one. It is good to at least contribute enough to get the company match. This is free money and often results in a minimum of 50 to 100% return on the amount invested in the first year depending on what your company will match. You can always deduct any contributions you have to a traditional IRA up until you file your tax return.
Deductible expenses are::
Healthcare expenses
Taxes both property taxes, the BMV allows you to pre-pay a full year in addition to the remainder of this year at the time that you are getting your initial plates, and state income taxes make sure to pay all the taxes you owe during the year in which they are incurred.
Charitable contributions
Miscellaneous expenses such as lockboxes or moving expenses.
Business expenses if you have a closely held business many things that are not deductible otherwise may be deductible under your business. These may include meal and entertainment expenses, auto expenses, and advertising expenses to name a few.
These are but a few of the items you can consider if you have the leftover cash.
If you need to have a basic retirement plan, one with limited paperwork maybe a simple IRA is for you. With a simple IRA you have the increased contribution levels with much additional paperwork. With contributions up to $12,000 with a catch-up provision of an additional $2500 for those over 50, these are fairly attractive plans without much in the way of paperwork. Overall they provide for low-cost operation with increased contribution limits.
I have always had medical professionals as clients. One
thing this has taught me is that being smart enough to pass med school doesn’t
necessarily translate into financial intelligence. Doctors, as well as any
professionals who have a steadily increasing salary at the start of their
careers, can often make purchases that hurt their cash flow down the road once
their income plateaus. This makes it all the more important to develop an
emergency or “slush” fund early in your career no matter what your occupation.
Then later in life, once your rainy day money has grown, the finer things are
less of a strain on your bank account. The two main purchases that can set an
individual up for financial distress are expensive cars and big houses. Making
the right buys can lead to a life of comfort,
if done correctly.
Fancy Cars
When individuals jump up into the six figure income bracket
one of the first things they want to do is buy an expensive new car. What they
fail to realize is that when they drive their so called “investment” off the
lot, it loses thousands in value immediately. Their new car will then continue
to lose value until the wheels fall off. But Chuck, “How am I supposed to show
off my financial superiority while I’m on the go?” It’s simple. Buy used. Say you think you would look nice in a Mercedes-Benz SLK350.
You’ve worked hard to bring in the money and its time to reward yourself. A new
SLK350 costs over $55,000. A used last year model costs $36,000. Paying an
extra nineteen grand for that “new car” smell seems quite ridiculous. Any other
investment that declined in value by 35% its first year would make you furious.
Even for individuals with more modest tastes, a Honda Civic loses four thousand
in its first year off the lot which is still a 20% decrease. Do yourself a favor and let someone else be the
sucker who has to unload their bad investment in a year’s time.
Living Large
The other mistake many make is
purchasing a house that is too big early in their careers. If your job is
putting fat stacks in your slacks the worst thing you can do is tie yourself down to a house that will pull cash
out of your pocket for the next fifteen to thirty years. We at Prospero
Financial always push to develop a solid emergency account before purchasing an
expensive home. Buying a less expensive home allows you to build that emergency
fund faster. You will then be able to
make a larger down payment on your next home. This will give you more equity to
build on. You will need 20% equity in the property in order to avoid private
mortgage insurance and decrease your mortgage payment.
As unpredictable as the housing market is, you
want to make sure that your house and property are sellable when the time
comes. Choosing your neighborhood wisely can make a huge difference in the
future. Picking the right house in that neighborhood can be just as important.
The most expensive house in a neighborhood will be the hardest to sell. When
prices in housing go up your palace might increase in value, but a home is
worth nothing if there’s no one to buy it. The cheapest house in the
neighborhood can be just as tough. Look for a home that is in the upper middle
price range for the neighborhood you are moving into and you will have made a
safe choice if you ever need to liquidate the property. Lastly, when it comes time to sell a house, you need to leave yourself at least six months
time to keep from leaving money on the table. Selling a home can be profitable,
as long as you make smart decisions along the way.