More people are choosing to become self-employed with one in three Americans leaving their jobs to go on their own.

The Perils and Possibilities of Self Employment

More people are choosing to become self-employed with one in three Americans leaving their jobs to go on their own. According to a twenty-year Harvard University Study republished in November 2018, the top reasons many are leaving stable employment is wanting more control over how and why they work and choosing who they work with for clients. This trend is expected to continue as older and highly educated workers choose the alternative working arrangements of self-employment. 

Other workers are forced to start their own business due to down-sizing by American companies as more companies are choosing to hire contracted labor versus hiring full-time employees and paying benefits. Necessity has also created an entrepreneurial opportunity for many to become self-employed due to technology advances eliminating workers, people working past age 69 in comparison to previous generations, and the slow recovery of business growth resulting in fewer positions with wages above the minimum wage.

Self-employment creates an interesting problem when it comes to benefits that others receive through their full-time employment such as health insurance and a retirement savings plan. Most U.S. workers rely on a three system approach to retirement savings: a governmental savings plan (Social Security), employer savings plans (401(k), etc.), and personal retirement savings.  Self-employed individuals are not always participating in these same savings plans, often they are only paying into the governmental plan of Social Security. 

If you are self-employed or considering becoming self-employed, it is important for you to continue saving for your retirement on a regular basis. Your business may liquidate at some time in the future and provide you with retirement assets, but that is an unknown until the event happens. In the meantime:

• Move your former employer 401(k) into an IRA to manage and avoid liquidating it to fund your business or the lean-times in cash flow.
• Continue health insurance coverage and shop for a plan that is affordable and provides you with protection.
• Keep your property and casualty insurance up to date.
• Plan for retirement by meeting with a financial advisor and have a financial plan done that reflects this major life change of self-employment.
• Set up a self-employment retirement savings plan such as a solo 401(k) and save regularly, even if at a minimal level.
• Keep yourself focused, healthy, and stress-free. Self-employment can be stressful and take a toll on you if you don’t take care of yourself both physically and mentally.

If you have questions about setting up a self-employment retirement savings plan, contact our office to schedule a meeting.

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Freezing Your Credit: What You Need to Know

A credit freeze is a way to protect yourself from a new account or loan being opened with your personal information by businesses (or criminals) without your permission. With a credit freeze the process of accessing your credit information from the credit reporting agencies is blocked. Freezing your credit at the three major credit reporting agencies is now free, thanks to a new Federal Law signed in September 2018.

In order for a credit freeze to be effective, it must be done at all three agencies; Experian, TransUnion, and Equifax. Here’s what you need to know if you’re considering freezing your credit:

• A credit freeze blocks lenders from opening accounts with your information because they’re unable to access your credit report.
• Your credit can be frozen and ‘unthawed’ when you want to apply for credit through using an assigned PIN or logging into your account at the agency to allow a credit report to be accessed. In most instances, the reporting agency will lift the thaw within one hour when you contact them by phone.
• You can freeze your child’s credit for free if they’re under age 16. If your child is over age 16 they must do it themselves. Why freeze a child’s credit? Children’s social security numbers are used for education and medical records and tax filing, making them at risk for identity theft if a data breach occurs or their personal information is compromised.

According to data from the 2018 Identity Fraud Study, the number of identity theft victims in the U.S. rose to 16.7 million in 2017, and over 1 million of those victims were children.

Along with a credit freeze, you can sign up for free one-year fraud alerts from all agencies; active military receives free fraud alerts during their entire deployment regardless of the length of time.

Individuals that have had their identity compromised are entitled to seven years of free fraud alerts when they freeze their credit, but must provide reporting documentation of the crime.

You may want to freeze your credit at all three agencies and order your credit report at the same time to check that the information is accurate. Protecting your identity and preventing fraud using your personal information is as critical to your financial success as managing your credit.

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Freezing your credit at the three major credit reporting agencies is now free, thanks to a new Federal Law signed in September 2018.

Even though 2018 is over, there are tax planning strategies you should think about before you file and plan accordingly for 2019.

Looking Ahead: The Tax Cuts and Jobs Act and 2018 Income Tax Filing

This is the first tax filing season since the Tax Cuts and Jobs Act (The Act) was passed. Even though 2018 is over, there are tax planning strategies you should think about before you file and plan accordingly for 2019. There still remain 7 income tax brackets and the marginal rates have been lowered.

However, many deductions have been eliminated which will necessitate that you plan ahead for 2019 and think about the losses and expenses you had this past year. Some over-looked items that may help to lower your taxable income:

Medical Expense Threshold- For 2018 The Act lowered the floor from 10% to 7.5% of adjusted gross income that must be exceeded in order to take a deduction for medical expenses on your 2018 tax return.

Combine Charitable Giving into the Same Year- The deduction for cash donations to charities has increased to 60% of the giver’s adjusted gross income. Charitable donations can be combined every other year to exceed the new higher standard deduction ($24,000 married; $12,000 single).

The Gift and Estate Tax Exemption- The exemption amount has almost doubled to $11.18 million per person and will increase through 2025 with inflation. The exemption amount is set to return to pre-2018 levels after 2025, so ‘use it or lose it’ if you want to pass assets now to your heirs and tax-free to both parties.

Harvest Your Investment Losses- This past year has been challenging for the stock market and investor portfolios. Consider harvesting your 2018 losses on your taxes to offset the capital gains in your securities portfolio from this past year.

Maximize Pre-Tax Retirement Savings Contributions Now- If your account was open prior to the end of December 2018 and you didn’t fully fund your accounts, now is the time to do so before Tax Day 2019.

Review Your Withholding for 2019- If you haven’t reviewed your tax withholding from your paycheck in the last few years, now is the time you can make adjustments before 2019 gets further underway. It may mean the difference in paying in on your tax return next year or not.

I’m able to provide you with information as it pertains to specific securities investments and their tax consequences, but recommend you consult your tax professional for additional tax savings strategies for your situation.

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When Your Child Inherits

For many parents, planning to leave their estate to their children is a common practice. There are many things to consider when planning to leave your children an inheritance, but the complexity increases when your child is beneficiary to someone else’s estate. What happens when the minor child becomes an heir, or when the child’s parent (a beneficiary) passes away before the benefactor? 

Children can’t legally own property until they become of legal age even if they inherit. This can be a problem when wills and estate plans are not updated, and when the benefactor (a non-parent) doesn’t understand the complications of leaving an estate to a minor. If this is a situation you see your minor child being in, seeking legal advice to help you plan a course of action to address this in your own will or estate plan is essential.

As recent as 2016, the celebrity deaths of Carrie Fisher and her mother Debbie Reynolds show how relatives can die in close proximity. Although Carrie Fisher had no minor children at the time, this illustrates the likelihood a child could receive an inheritance from an unintended source at an unanticipated time.  Planning is crucial for high net worth individuals, those in second marriages, and for those planning to leave their children (especially minor children) an inheritance.

For parents with minor children, having an estate plan for yourself and the other involved parent is important in case you both die in close proximity. Secondly, have a discussion with other relatives that may leave an estate to you or your minor child. Discussing the details of their will and estate plan can be uncomfortable, but relaying the reasons for your concern can make the discussion easier. 

In your own will you have the legal right to determine who will assume responsibility for the management of your assets on your behalf until your child becomes of legal age, or when your will directs the age your estate will pass to your child.  However, be advised that with securities and life insurance policies there are additional requirements and paperwork if you choose to name your minor child as a beneficiary.  

For minor children who inherit in this unintentional way, the timeline of passing the inheritance can be drawn out and expensive as the case moves through probate.  Each state has its own laws regarding passing assets to minors.  Planning for your own state’s laws can be beneficial for the time being, and keeping your will and estate documents updated is crucial while your children are minors.

As always, feel free to consult our office on the requirements for transferring assets to your minor children if part of your estate plan or will.

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There are many things to consider when planning to leave your children an inheritance, but the complexity increases when your child is beneficiary to someone else’s estate.

SAI February 2019 Newsletter Approval 2389818.1

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