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Think the proposed tax hikes recently won't apply to you? Think again, if you're married and make reasonably good income combined -- check out this article from CNBC on the new tax proposal that would hit married couples making over $450,000.

Biden’s budget proposes tax hike on married filers making more than $450,000 President Joe Biden has proposed a hike on the top marginal income tax bracket for single filers earning more than $400,000 and married couples above $450,000.

If you’re thinking about moving from your current locale, you’re not alone. Americans are on the move for many different reasons: Remote work is increasingly popular and allows employees to live wherever they have access to WiFi, while tax changes introduced by the 2017 Tax Cuts and Jobs Act (TCJA) limited the important SALT (State and Local Tax) deduction to $10,000 for single and married individuals. That deduction had previously made living in high-tax states less costly for affluent individuals.

When you combine those two factors alone, it makes sense that people are looking to see where the grass may be greener. There’s also a strong possibility that states may begin adding new taxes to make up for budget shortfalls – so, it’s no surprise there may be a significant number of people moving. Some say it has already started, using Florida’s net gain of $16 billion in adjusted gross income since 2018 as proof.

Whether states begin adding new taxes or not, it seems clear that people are not staying put the way that they used to, and many are basing their decisions about where to go on tax considerations. If you have found yourself starting to look at real estate ads in a different state, it is important that you take a 360-degree view of what moving would mean for you. As attractive as it may seem to pick up your things and go to a state with a more appealing tax scheme, there are other things to think about, including ensuring that if you move, you do so in a way that accomplishes your tax goals.

Here are the different factors you need to make sure to include in your decision-making process.

TAXES ARE NOT THE ONLY CONSIDERATION

Moving to another community is a shock to the system in more ways than one and moving to an entirely different state will have an even greater impact. Not only do you need to think about the quality-of-life issues involved, but also the implications for those who own multiple homes in multiple states, as they will need to make a choice as to where their primary residence is going to be, and make sure that they can prove that they are compliant. Non-tax-related considerations include:

-- Quality of life issues include your proximity to family and friends, familiarity with where all your resources are, access to mass transportation hubs for those who enjoy travel, culture, and climate are just a few things that have a direct effect on your level of satisfaction and enjoyment of life. Moving may leave you feeling isolated and uncertain after years of confidently navigating life from your current address.

-- Availability of state-of-the-art medical care is not something to be taken for granted. If you currently live in an area where major teaching hospitals are essentially in your backyard and you are moving to a more remote location, you may find yourself regretting your decision, especially as you get older and the infirmities of age start to appear.

-- Different areas of the country have different vulnerabilities to hurricanes, earthquakes and other types of disasters. If you are moving to an area that has a higher risk for any type of weather or naturally-caused damage it makes sense to investigate what your homeowners’ insurance costs are going to be – as well as to think about whether you are really willing to put yourself in the path of nature’s wrath.

THE TAXES WORTH CONSIDERING

If you’ve already included the non-tax considerations listed above and you are still intent on making a move, then it is time to understand what doing so will mean to your economic picture. It’s a good idea to sit down and discuss your plans with your financial advisors long before putting your home up for sale, as you may have second thoughts after thinking about all of the consequences of a move. Among your considerations are:

-- There may be more to a state’s taxes then what you are thinking about. States require tax revenue to provide for public services, so though you may think you are considering a no-tax state, there is really no such thing. If they’re not taxing income, they are taxing something else.

-- If you receive income from a trust you will need to look into exactly how it is taxed at the state level in the state you’re thinking about relocating to. Every state has its own strategy, and you may not be happy with what you learn.

-- If your goal is to gain tax benefits rather than to actually move, you might want to consider taking advantage of friendlier tax laws such as those in Delaware or Nevada. You may be able to relocate your assets in a way that limits taxes and offers confidentiality and creditor protection while staying put where you are. This may or may not be possible depending upon your particular situation, but it may be worth exploring.

-- If your compensation scheme includes deferred bonuses or salaries that will be paid out during your retirement, it is important to find out how the state you are considering relocating to treats deferred compensation, and how your specific pay will be treated.

MADE UP YOUR MIND? HERE ARE YOUR NEXT STEPS.

Like everything else in life, relocating to another state and making it your primary residence is not as easy as just deciding to do it. There are essential steps that need to be followed in order to reap the tax rewards that you are seeking. Here are just a few of those steps: it is important that you do your due diligence to make sure that you have complied with everything required of your new home.

-- Change your vehicle registration to your new address
-- Apply for a driver’s license for your new address
-- Register to vote from your new address
-- Find out whether your state requires a “Declaration of Domicile” or similar document, and if so, apply for it and file it
-- File your federal tax returns from the new address
-- Obtain property and casualty insurance at the new address
-- File state taxes as a new resident, as well as former state tax returns as a non-resident if you earn any income in that state
-- Adjust all banking records, legal documents, and credit card records to reflect your new address
-- Move your belongings to your new address
-- Change the address on your passport
-- Get established with community, professional, religious and social networks associated with the new address
-- Establish relationships with medical providers proximal to the new address
-- Host family and friends at the new address

Getting established in a new community is a challenge, but it is an important step to ensure that you will be able to prove your state residency and get the tax advantages you seek. Include contacting our office on your to-do list to make sure that you have addressed everything as needed and reviewed and updated your estate plan as well. You may also need to address the particulars of where some of your family members live and go to school to make sure that all of the legal and tax requirements have been met.

Today's Member Forum highlight deals with figuring out whether a person should be a 1099 contractor or an employee:

Q: How do you determine if a worker is a 1099 or a W2 employee?

A: You have to check the facts surrounding the individual to determine this. Basically, if the worker is only responsible for the end result of the work, they’re a contractor; if the company is responsible for directing the individual’s work, they’re an employee. In addition, employees are often characterized by the following:

- Reimbursed for expenses
- Company provides all tools and supplies
- Receives benefits

All of these decision points as to whether they’re an employee or contractor should be properly documented in case the IRS asks for an explanation. If the individual is a contractor, they need to complete a W9, and they need to be issued a 1099 if they made more than $600 for the year; employees need to be added to payroll so the proper taxes can be paid on their behalf. Not issuing any of these forms, be it a W2, W9 or 1099 can result in penalties.

Creating a successful business requires a good idea combined with skill, talent, and ambition. But even if you have all of those elements, you may end up falling short if you can’t raise the capital that you need to move forward.

No entrepreneur wants to think about raising funds. It is hard to ask people for money, and even harder to be rejected. But when you’re trying to turn a dream into a reality, having a plan for how you’re going to raise capital for your startup is just as important as having a great product or service to offer. To make sure you’re fully prepared and put yourself in the best possible position to achieve your goals, you must take time to learn the basics of raising capital. The information below will be a good starting point.

-- Do your homework

Before you begin to investigate how funding works, you need to be completely cognizant of every element of your business. Not only will this preparation help you to answer questions with confidence, it will also make you aware of any shortcomings that you can address prior to seeking investment. No funder wants to put their money into a startup that has not been thoroughly vetted for its potential, and it is your responsibility to ensure that you’ve done all of the research into competitors, the marketplace, and the health of the industry in general. You also want to show that you care enough to have projections in hand and a considered estimate of exactly how much you need to accomplish your goals.

The more clear-cut your plans and the more specific and well-documented your answers, the more confidence you will inspire. Make sure you put in the time and effort needed. You will not only feel more secure as you make the ask but will also be more likely to get what you want.

-- Understand who your potential investors are

Just as there are many different types of investment opportunities, there are many different types of investors. The more you understand who your potential investors are and the different ways of approaching investment, the more you will understand about who to go to initially, and who to turn to afterwards if your initial attempts at raising capital fall flat.

There are several different types of potential investors for startups, including:

Founders
Family and friends
Venture capitalists
Angel investors
Single family offices
Business incubators
Investment groups
Crowdfunding

Not all potential investors are right for your business. Some are likely to want to exert more control, some may end up costing you too much in the long run. You may even want to consider going with a simple bank loan instead of involving outsiders. The decision is entirely yours, but make sure that you understand the advantages and disadvantages of each and how they will impact you in the long and short term before moving forward.

-- Be ready for your ‘close up’

When it comes to asking investors for money, the importance of a well-prepared pitch deck cannot be overstated. It is the single-most important tool you have to tell your story and justify your ask, and it is completely within your control. You need to make sure that every page is assembled with your audience in mind: After all, you are not trying to convince yourself about the worth of your business idea, you are trying to convince somebody else, so you need to emphasize their goals at least as much as yours.

That being said, there are certain fundamentals that must be included without going into so much detail that you overwhelm. Try to limit your presentation to no more than 15 slides that encompass the essentials on the company. Include a summary of the market and the competition, your goals and your team, your plans for the future and what you need to move forward. These are the who’s, what’s, why’s, when’s and how’s that investors need to make their decision.

-- Knowing where to find potential investors

One of the most important things that you can do when you’re in the run-up to starting a new business is to make sure you have a lot of contacts. The more people you know and impress, the better, as they will be able to help you once you’re ready.

Keep in mind that there are many ways to impress people, and the most effective is often by helping them. Making yourself invaluable is also a way to inspire people to want to return the favor. That doesn’t mean that they are necessarily going to want to put their money into your business. Not everybody is an investor, and even those who are looking for an opportunity may not feel that your business is right for them. Learn to take rejection gracefully, and to understand that a “no” is not personal.

-- Identify specialized investors

Just as some investors are not going to see your business as the right fit for them, there are some for whom you will be exactly the right fit, especially if you are in a specialty business that has proven successful for others. Many investors opt for niche investments, so do your homework and seek out capital from those who have invested similarly — and successfully — in the past.

-- The last word

Finding capital is not easy, so try not to get too discouraged if you don’t find your efforts are immediately successful. Being prepared is a big part of the battle, but so is timing and the understanding that there will be obstacles along the way. As long as you do your part and remain optimistic and diligent you are putting yourself on the right path.

To discuss your funding options and set your business up for financial success, contact our office.

At Wealth.Tax, we're super interested in real estate investing and the overall market, so we're watching interest rate dynamics pretty closely. Recently, the Fed raised rates for the first time since 2018, and there's sure to be fallout from that, which you need to pay attention to as you plan your next move.

Check out this news from CNBC on recent metrics for mortgage refinance activity.

Mortgage refinance demand plunges 14%, as interest rates spike higher Fast-rising mortgage rates are causing a drop in mortgage demand, especially refinances.

If there’s anything we all learned from 2020, it’s that things can change in a heartbeat and that the unexpected can create real havoc. Though there’s nothing you can do to stop fate’s freight trains from barreling down the tracks, there are steps you can take to minimize the stress you feel in its aftermath. One of those steps is both simple and remarkable in the power of its impact: Start paying your bills ahead of time, before they are due.

At first glance, it may seem like paying bills early won’t change anything. But there are three important ways that it makes a big difference.

1. Boost your FICO® Score and your reputation while lowering your anxiety.

Have you ever found yourself unable to log on to your credit card’s payment site on the day that a bill was due? Not only will paying early eliminate that nightmare from your life, but at the same time it will lift your FICO® Score. More than one third of your credit score is based on whether you pay your bills on time, so getting into the habit of paying early can help a lot, especially if you’ve fallen behind in the past.

The other benefit that you can get from paying bills early is the boost you’ll give to the way your creditors view you. It’s known as a “halo” in the credit world, and though you may not think it makes a difference one way or another, imagine having always paid your rent ahead of time and then suddenly finding yourself short on funds, with a paycheck due two or three days after the rent’s due date. By having established a shiny halo for yourself, you have a much better chance of your landlord being willing to give you that two-or-three-day grace period that you need. And the halo isn’t limited to face-to-face creditors – it will also help you when it comes time to apply for a loan, as one of the first things a bank will look at within your credit score is your payment history.

2. Paying bills early costs less.

If you’ve ever paid your bills past their due date, then you immediately know one of the ways that paying early helps: You eliminate the additional expense imposed by late fees. But in addition to avoiding that penalty, there are also significant incentives and rewards available for those who pay ahead of time.

For one thing, eliminating late penalties will automatically lift your FICO® Score, and that means that you will likely qualify for lower interest rates on any loans you apply for, saving you plenty of money over the long term.

Additionally, there are some creditors who offer discounts to those who pay early. Check your local tax bill to see if you can get a break for paying your real estate tax ahead of time. Some hospitals will offer a discount of 3% for paying early as well.

3. Paying early improves your “credit utilization.”

Have you ever looked closely at your credit score and seen the term “credit utilization?” Most people don’t know what it means, but they should because it represents 30% of their score. It specifically refers to the amount of your available credit that you actually use. If you have a $5,000 spending limit on your credit card and your balance is $4,000, then your credit utilization is 80%. If your balance is $1,000 then your utilization is 20%. In the eyes of the banking world, a lower percentage of credit utilization makes you a safer risk and earns you a higher score. Banks don’t particularly like seeing utilization above 30%.

That is not to say that you shouldn’t use the available credit that you have, but you do need to understand how it works. Credit utilization is based on a moment in time, and specifically on the last day of your billing cycle. Every month on this statement closing date, your creditor calculates how much interest you owe them for any unpaid balance as well as the minimum payment due for the month. On the same day they report to Equifax, Experian and TransUnion about how much you owe relative to your credit – your credit utilization. If you have paid down your bill before the statement closing date – even by only a little – it reduces the percentage of your credit utilization ratio.

Most credit cards will indicate what your statement closing date is, but if it isn’t there then you can call customer service to find out. Just make sure that you remember that this early payment does not count towards the minimum payment due that will be reflected on your next month’s bill. You have to make a payment after the credit card statement has been generated for it to apply to that month’s payment. Even if you can’t pay your bill off in full each month, making a pre-closing date payment and a monthly minimum payment will help you lower your debt, and having the credit utilization lowered a bit will move the needle on your credit score.

Not everybody is able to pay their bills off every month, so trying to pay early can feel like an additional burden. However, making that small change is more about scheduling than about how much you pay – and it can really make a big difference. By starting with this step, you also can begin to think about your debt differently and start taking financial extras like bonuses, cash gifts or tax refunds and start using them to pay off bills.

Today's Member Forum highlight deals with life insurance, and how you should hold the proceeds from an entity perspective.

Q: I recently received the proceeds from an insurance policy – which entity should I use to hold the money: an LLC, estate account, or my personal account?

A: As is often the case, the answer here is “it depends.” It is most dependent on your wealth strategy, which you can formulate by leveraging the Wealth.GPS system to analyze, model and adjust your financial data.

It is common practice for charities to hold auction events where attendees will bid upon and purchase items. The questions often arise whether (1) the money spent on the items purchased constitutes a charitable donation and (2) what kind of charitable deduction the individual who contributed the item is entitled to.

The answer to the first question is some, but not all, of what’s paid for the item may be deductible. So, if you purchase items at a charity auction, you may claim a charitable contribution deduction for the excess of the purchase price paid for the item over its fair market value. Fair market value being the amount the item would sell for on the open market when the parties to the sale are aware of all the facts, are acting in their own interest, are free of any pressure to buy or sell, and have ample time to make the decision.

You must be able to show, however, that you knew that the value of the item was less than the amount you paid for it. For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding. Assuming you have no reason to doubt the accuracy of the published estimate, if you pay more than the published value, the difference between the amount you paid and the published value may constitute a charitable contribution deduction.

As to the second question, if you provide goods for a charity to sell at an auction, you may wonder if you are entitled to claim a fair market value charitable deduction for your contribution of appreciated property when the charity will later sell the item. Under these circumstances, the tax law limits your charitable deduction to your tax basis in the contributed property and does not permit you to claim a fair market value charitable deduction for the contribution. Specifically, the Treasury Regulations (Sec 170) provide that if a donor contributes tangible personal property to a charity that is put to an unrelated use, the donor's contribution is limited to the donor's tax basis in the contributed property. The term unrelated use means a use that is unrelated to the charity's exempt purposes or function. The sale of an item is considered unrelated, even if the sale raises money for the charity to use in its programs.

Another tax issue that is commonly encountered in a charity auction is when someone contributes the use of their second home or timeshare property. This may come as an unpleasant surprise, but the contributor is not entitled to a charitable deduction for donating the “use” or occupancy of a property. Such an arrangement does not constitute a gift of property. It is merely the granting of a privilege for which no charge is made. Thus, granting a charity the use of property does not constitute a charitable gift.

Example – Timeshare – Suppose a taxpayer contributes his or her timeshare week at a beach-front resort to a charity auction. There is no deductible charitable contribution since ownership of the timeshare unit was not given, only the use of the timeshare. Even the cleaning fee paid for the maid service when the winning bidder uses the unit would not be deductible since only expenses associated with services personally rendered by the taxpayer are deductible.

If you have questions related to charitable auctions or charitable contributions in general, please give this office a call.