The 3 Biggest Tax Refund Mistakes to Avoid

This year, about 85% of American will experience a Sudden Money event in the form of a federal tax refund. If you’re one of them, it behooves you to think ahead to make sure you put that money toward its best purpose—before it lands in your bank account.

The average refund will be about $2,800, and even though 75% of Americans nearing retirement age have less than $30,000 in their retirement accounts, research tells us that some still plan to spend the financial windfall (mostly on vacations and consumer electronics). Happy Female Accountant Holding Income Tax Return

As we know from our work with Sudden Money clients, people tend to mentally account for money based on where it came from.

Now, I know that you know that a dollar is a dollar no matter if it’s in your bank account or in your hand.

However, it has been shown that most people treat money differently based on whether it came in the form of their monthly payroll deposit, a Christmas check from their grandparents, or their annual tax refund.

However, this kind of thinking is flawed, so I am here to encourage you to resist…

Here are the 3 biggest tax refund mistakes to avoid:

  1. Don’t Be a Lottery Winner
    Don’t relate to this check like anything other than your hard-earned money! You did not win the lottery, you simply loaned the money (interest free, no less!) to Uncle Sam for a year. Spend it in the same conservative way you’d spend your paycheck.

  2. Don’t Be Like Mike (Tyson)
    Don’t squander the money. If you’re on track with your savings goals for the year, and have stayed on budget, then do as you will. However, if you’re in debt or off track on your savings, tonight’s big expense is often tomorrow’s big regret. I say, go for the CZ’s and the faux fur, Mike.

  3. Don’t Get Cold Feet
    Saving for retirement ain’t necessarily sexy—but don’t let yourself refuse to make the commitment or develop a wandering eye. The extraordinary power of compounding will turn that $3K into $30K and even more if you invest it right and nurture it with patience. Don’t give up on your plan to have this money make a difference in your life over the long-term!

Most people are getting this one right these days, though.

To reaffirm your faith in your fellow Americans, here are some of this year’s National Retail Foundation survey results for the question, “What do you plan to do with your tax refund?” 

  • By far the largest percentage of Amerians expect to save at least some of their tax refund: 43.8%

  • 39.8% will use some of the money to pay down debt

  • 28.7% will pay for everyday expenses

  • Major purchases, such as a television or new car, are anticipated by 12%

  • And 11% of Americans intend to enjoy their tax refund with a vacation

Point of interest: The Internal Revenue Service reported in 2012 that it cut checks for $337 billion of tax refunds for tax year 2011. Wow.

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Stockman’s Doomsday Prophecy

David Stockman: Trying to Scare You.. and on EASTER, no less!

When David Stockman, a former White House Budget Director who never actually balanced the federal budget, suddenly claims to have the power to forecast a major economic crisis, frankly, it’s hard for us to understand why anybody pays attention.

The revelation

But David Stockman, Ronald Reagan’s budget chief back in the 1980s, has received a lot of attention for his scorching Easter Sunday article in the New York Times, telling us that America’s future is bleak and everybody should get out of the investment markets as quickly as possible.

Stockman’s advice is getting a lot of attention from triumphant doomsayers who have been predicting America’s downfall for decades, and from us economists, who wonder where Mr. Stockman learned basic math.

If You Buy His Book, He Wins

The article was written to publicize Stockman’s newly-released book, called The Great Deformation, and what it shows is that Stockman knows how to generate a lot of attention. It calls the Federal Reserve “a rogue central bank,” and declares that the US is fiscally, morally and intellectually bankrupt. It predicts a global currency war that America will lose. So what is Stockman’s sage advice? “Hide out in cash.”

Interestingly, the article says that the problems began in 1933, when the American dollar went off the gold standard, and have worsened since.

What Happens to People who Hide Out in Cash?

Anybody who hid out in cash since 1933 would have missed the greatest period of stock market returns in world history–not to mention the enormous strides in standards of living.

Predictions of Extended Doom & Gloom Have Always Been Wrong

Even the Great Recession meltdown in 2008 has been followed by a long, steady recovery that has produced new market highs. And despite 80 years of disconnect from the gold standard, the dollar remains strong, and is the reserve currency against which all others are measured.

Predicting doom is a great business to be in, because our minds are wired to spook at the first sign of danger, and our eyes are instantly attracted to warning signs. People buy because they’re afraid not to. The only problem with the doomsayers who have made these predictions is that they have never actually been right. Betting on the end of the world, or the end of the U.S. economy, or the death of the stock market, has never been a winning choice. So far, in the history of time, every single market downturn has been followed by a steady and strong recovery.

Stockman’s Lack of Credibility

In addition, you have to wonder how credible Stockman is to be telling us our economic future. Never balancing the federal budget puts him in pretty good company, but Stockman has had an undistinguished Wall Street career at Salomon Brothers and the Blackstone Group, and his job as CEO at Collins & Aikman Corp. led, less than two years later, to the company filing for Chapter 11 Bankruptcy protection.

If Warren Buffett tells us to get out of stocks, I will listen carefully to his arguments, and you WILL hear from me about them.

However, when David Stockman peddles gloom, because he seems to be the only Wall Street executive who has to supplement his income by book revenues, we simply put our hands over our ears and continue with our investment policies.

What You Would Miss Out on is Far More Frightening

If you had retreated to cash in 1933, when the S&P 500 was trading at 6.25, (not a typo) and stayed out while it rose to (recently) over 1,550.

Missing out on 24,700% overall growth might be too scary even for David Stockman to contemplate.

By Bob Veres and edited by Hilary Martin, MBA, CFP®


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This ONE Thing Will Help You Achieve Your Retirement Goals

Retirement Goals

Are you serious about achieving your retirement goals?

Have you ever had the experience, along your path to achieve a goal, that doing one simple little thing moved you forward exponentially toward that goal?

Sometimes we take a series of small, seemingly meaningless steps and then BAM!, another seemingly small action adds tons of clarity and gives us a strong sense of accomplishment.

This is one of those things. Personally, I do this at least once a week, but usually every day. Well, okay, every WEEK day. I recommend to my clients that they do it, and I help them get there.

Actually, not only does  it help you achieve your retirement goals, but it gives you tremendous peace of mind about your money. Yes, this is one of those things that definitely has benefits in multiple areas.

So much so that my blogger pal Joel Zaslofsky, who authors Value of Simple, which is about how to simplify, organize and be money-wise, offered to publish a guest post by me on the subject.

So if you’re wondering what this whiz bang tool is to achieving your retirement goals, and I hope you are by now, check it out by clicking here!

PS. If you’re my client, and we haven’t done this together yet, check in with me and I’ll make sure you get on that Yellow Brick Road.


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What You Need to Know About Estate Planning in 2013

Wondering what impact the new new tax law had on your estate planning and what you need to do now? Here’s a summary of what you need to know…

Estate Planning


The conventional wisdom among the attorneys and CPAs who plan for estate taxes, right up until the new Fiscal Cliff legislation was signed into law, was that the $5 million exemption was probably too good to be true. Couples could gift up to $10 million to their heirs without paying any gift taxes, and if you died with less than $5 million in your estate, your spouse could pick up the remainder and add it to his/her exemption, meaning that any family with less than $10 million in assets passing on to heirs could, with virtually no planning, escape federal estate taxes altogether.

A deal like that won’t last in this age of budget deficits, right? During calendar 2012, the assumption was that Congress would set a lower exemption of anywhere from $1 million to $3 million per individual. So estate planning professionals busied themselves drafting irrevocable grantor trusts and advising their clients to put millions of dollars out of reach of the anticipated new estate tax realities.

Then something funny happened: when it passed the American Taxpayer Relief Act of 2012, Congress not only made the $5 million exemption permanent, it also indexed those historically-high exemption amounts to inflation, so that this year the personal estate tax exemption climbs to $5.12 million. And contrary to virtually every professional expectation, Congress also kept the gift tax exemption at the same level as the estate exemption–and made THAT permanent. Many were speculating over the past couple of years that the linkage between the gift tax and estate tax exemption had been a careless mistake by the committee members who had drafted prior legislation.

The result? Assuming these thresholds stay permanent, the overwhelming majority of American citizens won’t have to face an estate tax ever again. They won’t have to consult with an expert to concoct a lot of fancy strategies, like putting their investment assets in an LLC and then gifting shares of the LLC at a “minority interest valuation discount” (don’t ask), or buying permanent life insurance inside a carefully-crafted insurance trust, or creating a grantor trust that is defective under IRS rules so that the grantors also pay the taxes on those assets on behalf of their heirs.

Meanwhile, a lot of trusts that were set up in the last two years are probably unnecessary under the new tax regime, and trusts are often not the most tax-efficient vehicles on the planet. The new 39.6% top tax rates affect taxpayers with more than $400,000 (individual) or $450,000 (joint) in income. But that highest rate kicks in at just $11,950 in non-distributed income for a trust. A trust’s capital gains are hit almost immediately at the highest possible rate–20% plus the 3.8% Medicare tax. This is true even if the beneficiaries are in a much lower tax bracket.

Meanwhile, one of the more amusing consequences (assuming you’re one of the few people who finds estate tax issues humorous) is the sudden impact all this is having on the 16 states which currently impose their own estate taxes. Suppose, for example, a person with $4 million in assets lives in New York, which has a state estate tax exemption of $1 million. After that, the state taxes the deceased’s assets at a 16% rate. But currently there is nothing to prevent this person from gifting $3.1 million to her heirs on her deathbed, thereby taking her state-taxable estate below the threshold.

For many people, these permanent higher thresholds are great news, and will greatly simplify their lives. Millions of dollars will no longer have to be spent on trusts and creative strategies, streamlining the economy. Now just need to figure out something that the attorneys and accountants who crafted fancy ways to reduce the tax bite can do with all their free time.

Written by Bob Veres and edited by Hilary Martin

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Update 2013: Income Taxes You Need to Know About and The Fiscal Cliff

Hi, Here are Hilary and Peggy with our income tax and Fiscal Cliff update for investors in January of 2013. Please watch the video and send in your questions. We look forward to your feedback!


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The Best Gift Cards: Holiday Gift Giving Tips

The holidays are upon us, and shopping for gifts for everyone on your list can be overwhelming–so it’s tempting to just send gift cards to those hard-to-buy-for loved ones. But, which gift card should you buy?

Of course, stores and banks aren’t going to go through the trouble of putting value on plastic cards if it isn’t going to generate revenue, so understand what you’re getting into. Gift cards can be more secure than cash, but you should make sure you’re not paying expensive fees and that the cards can be replaced if stolen.

NerdWallet, a San Francisco based personal finance site, recently completed a comprehensive study of the costs, features and benefits of the 96 most popular gift cards on the market. Here are the highlights of that study:

There are three types of cards: store gift cards, bank gift cards and prepaid debit cards.

If you select a store gift card, make sure the card can be replaced if lost or stolen (preferably without a receipt) and that the store doesn’t charge you a fee for shipping the card.

Bank cards are more likely to be replaced if lost or stolen, but a full 100% of those cards carry a transaction fee and many cards charge inactivity fees beginning after 12 months.

Some prepaid debit cards seem to be the worst option, most of them charge either an activation or a monthly fee, and 31% of them charge for every PIN transaction!

The favorite gift card of the study was the American Express Bluebird, but there is good reason to believe that American Express, which offers the Bluebird card in conjunction with WalMart, will begin inching up fees as the card becomes more popular. Also, the card is only accepted where American Express is accepted, so your loved one might face disappointment at the register if they’re not paying attention.

The final lesson on gift cards is this: Never, ever use gift cards to give more than a trifle of value, maybe $25, $50 or $100, but not more. Consider cash if you can hand the gift directly to the recipient. If you want to give a gift larger than $100, I suggest doing so via personal check or an interbank or bank-to-bank transfer.

As for me, I’m folding up a crisp $50 bill and handing it to my 12yr old godson this Christmas. If he loses it, he’ll cry crocodile tears but it is my hope that he’ll learn the lesson of taking care of his money.


For the details on NerdWallet’s study, click here.

Also, check out this cool infographic:


Prepaid Gift Cards

Via: NerdWallet

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The Fiscal Cliff and Taxes: What You Need to Know BEFORE 2013

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How to Plan for an Inheritance

If you have recently received or expect to receive an inheritance of any size, the question of how to plan for that inheritance should be of paramount importance to you. An inheritance can improve your financial future, but unfortunately too many people don’t plan adequately, reject the advice of professionals, and end up making tragic mistakes that they cannot repair. If you plan appropriately for your inheritance, you can ensure that you maximize its value to you and the people you care most about, thereby honoring the loved one who left it to you. The right decisions not only leave you with peace of mind and freedom from regret about your financial choices, it lets the giver make the lasting impact on future generations that motivated the bequest.


1. Take the Time to Understand Your Emotions about the Inheritance

For many, grief from the loss of a loved one overshadows any opportunities that an inheritance creates. If you find yourself debilitated by grief, you may not want to look at account statements, and making responsible choices with the inheritance might feel opportunistic. For others, the grieving process leads them to make destructive choices like over-spending an inheritance that really ought to be saved and invested. Still others have deeply seated beliefs that money should be hard-earned, and an inheritance can lead to inexplicable depression and financial paralysis. If you take the time to grieve appropriately and allow the strong emotions to pass, you can separate these debilitating beliefs from your thoughts about the money you’ve received, and to allow the gift of the inheritance to bring lasting value to your life.

2. Understand the Impact of the Inheritance on Your Financial Goals 

How much money do you need in order to retire? Can the inheritance, if invested appropriately, help you get there? Your inheritance may move you closer to your retirement goals, but maybe only if you don’t spend lavishly or even at all. You may choose to do these calculations on your own, or you may choose to hire a financial planner, but do not skip this part of the process. In business, you absolutely must know your revenue and sales numbers, in weight loss, you absolutely must know your caloric intake, and in financial planning, you absolutely must know where you are now, where you want to go, and how fast you’re getting there.

3. Make a Plan 

I strongly encourage to hire a financial advisor to partner with you on this work, don’t go this on your own.  My experience is that people who receive lump sums of money and don’t already have a trusted relationship with a financial professional often regard the industry with distrust and believe they can manage the inheritance on their own. It breaks my heart when people come to see me after they’ve already squandered most, if not all of the inheritance… the nature of a one-time financial windfall is that it cannot be recovered and won’t be repeated. The fees good advisors charge are justified by the value provided to clients whose financial futures we secure with proper planning and professional investing

4. Implement Your Plan

It isn’t until this phase of the process that you will know how much, if any, of your inheritance you can spend and still achieve your financial goals. For many, when we think of receiving sums of money, the process is just two steps—receive and spend. I strongly encourage you not to skip the interim steps I’ve detailed here that will maximize your opportunity to achieve your financial goals. Ultimately, money is just one resource that can help you live the life you want to live, and handling it responsibly can help you achieve everything that is important to you.

If you would like to discuss your personal situation, with no obligation, I’m happy to talk with you and offer my insight.


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Happy Anniversary Black Monday – What’s Happened Since?

by Craig Martin, MSFS, CFP®, CLU, ChFC

Today is my 67th birthday. True! But no, I didn’t think that momentous occasion had enough universal appeal to force you to read about it. Today is the Silver Anniversary of Black Monday: October 19, 1987, the day of the largest ever one-day stock market decline.

To remind you…


Black Monday, By the Numbers

  • Dow Jones Opening Value: 2248
  • Dow Jones Closing Value: 1738
  • Loss in Market Value: $500 Billion
  • Market Decline: 22.6%, which still ranks as the largest percentage drop in one day
  • Cause of Black Monday? Unknown

A closing thought about the “disaster” of Black Monday from someone with almost 40 years in the financial planning industry:

I bet you probably don’t remember the details I listed above describing what happened on Black Monday. Take heart, it really doesn’t matter that you may not remember, because…

The Dow Jones closed on December 31, 1987 at 1939. But do you know what it is today?


Which represents nearly a 6x return on a dollar invested the morning of Black Monday.

Yes, the markets have recovered fully since then, and as I think about it, this is the story of EVERY market movement.

As for me, all is well in spite of my age. For sure, I am very grateful for my health and all the people in my life, including Peggy who is my wife, my family, friends and acquaintances, and especially our family business.

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