One thing that has bugged us for years is that while we should be planting many of our seeds now, it is really still too cold and many young plants are lost due to cold and windy conditions.  There are also certain things we’d like to grow but haven’t had much success with, mainly due to cool conditions.

The solution: a greenhouse!

My dear husband did the research and found a kit for purchase and we put it together on weekend.  (Warning: this is a fairly intense project!)

It was a lot of work, but it’s a surprisingly sturdy contraption, with a “foundation” of 4″ x 6″ boards, anchored to buried concrete blocks and filled in with local rock we had delivered.

Here are some pictures of the assembly:

Since assembly, we’ve added shelves and planted seedlings.  I’m considering some Key Limes – it’s like Florida in there!

We can’t wait to see how the greenhouse improves our garden results this year.  Happy Spring!

Ani had lots of great questions about the sometimes confusing – but extremely important- world of retirement assets, which play a big role in many divorce settlement negotiations.

During the podcast, we discussed the following topics:

• Retirement Accounts 101: What’s so special about retirement accounts? (3:00)
• Employer Retirement Plans vs. Personal Retirement Accounts: What’s the difference? (4:22)
• Explaining common Employer Retirement Plans — 401(k), pension (5:51)
• Explaining common Personal Retirement Accounts — traditional IRA, Roth IRA, annuity (8:48)
• Divorce Settlement Strategy: When should a divorcing spouse seek none/part/all of the retirement assests in their divorce settlement? Assessing liquidity, tax impact, and  balance. (12:10)
• How I work with individuals and couples (18:00)

Listen at kem-law.com: Retirement Assets & Divorce

Listen at iTunes: Retirement Assets & Divorce

Ani Mason hosts “The Divorce Resource,” a podcast designed for listeners who are contemplating, going through or recovering from a separation or divorce. Each episode features an interview on a divorce-related topic. Her approach to divorce – like our podcast – is holistic, touching on the legal, financial, psychological, spiritual and practical implications of separating from a spouse. She also blogs at kem-law.com, the website for the Collaborative Law and Mediation Offices of Katherine Eisold Miller.

An experienced family lawyer, Ani Mason serves clients who are seeking less destructive options for divorcing, including collaborative law and mediation. Family conflict is comprised of many elements—legal, financial, psychological—and Ani is committed to providing her clients with divorce options that address the full spectrum of their goals and concerns, as holistically as possible. Her approach is to demystify the law and explain legal concepts in understandable terms so that families, who are the true experts in how best to resolve their conflict, have all the information and tools they need to make the right decisions about their future.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sara Stanich, CFP and not necessarily those of RJFS or Raymond James. Investments mentioned may not be suitable for all investors. Withdrawals from bank savings accounts may have tax liability if income is earned. Taxes are not owed when qualified distributions are taken from IRA accounts; however, non-qualified withdrawals may be subject to taxes and/or penalties. You should discuss any tax or legal matters with the appropriate professional. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.

 The opinions and services of Ani Mason, Katherine Eisold Miller and kem-law.com are independent of Raymond James. Any links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

What is Costs

I took these prices for the 2013-2014 school years from the websites of selected private schools in Brooklyn and Manhattan (try not to choke):

Look at the total row and think about that a second.  Now think about the balance in your 401(k).  Which is greater?

If you are a parent considering a top private school, $33K per year might not have sounded that bad at first.  After all, you may be paying that for a nanny when your child is very young.

But have you added up the cost through grade 12?  The “total” of $442K is sobering for many.

Of course, there are less expensive options.  Many private parochial schools cost far less, as will schools outside of NYC.  Financial aid may be available in some cases as well.

However, that isn’t the full cost anyway. 

What is Really Costs

Parents need to take the less obvious costs into account: the impact of taxes, inflation and multiple kids, additional expenses of private school, and the opportunity cost.

Taxes.  The tuition price is after-tax dollars.  If you are in the highest income tax bracket and live in this city, your combined marginal income taxes (federal, state and city) are close to 50%.

To pay $34,000, you would likely need to earmark nearly $68,000 of your gross salary for tuition.  Do you really want to do that?

Inflation.  Do you think prices posted this year will stay the same for the next 12?  I don’t.  Inflating the average cost by 2.5% per year (pretty conservative, in my opinion), would raise the total (K-12) cost above $500K.

Multiple Children.  If you have 2 or 3 kids … you have 2-3 times the expense.

Additional Expenses.  Private schools are constantly raising money.  Activities and such cost extra too.  And it’s pretty safe to predict that when your kid’s friends have expensive toys, yours will want them too.

Opportunity Cost.  Let’s assume you can pay the tuition.  OK, but will you need to sacrifice in other ways?  Many would argue that they will gladly sacrifice or “nothing is too good” for their kids.  But is that good for you?

Will this expense prevent you from saving for the future, buying the home you want to live in, or generally enjoying your hard-earned money?  If you are not saving for retirement, will your kids or grandkids need to take care of you?  If so, can you really afford it?

You don’t want to realize you are in over your head in a few years.  It’s much harder to consider taking your 2^nd or 3^rd grader out of private school, than sending them to public school in the first place.  It’s not a place I want you to be.

What is the Alternative?

Public school!

If you don’t like your zoned public school, you can request a variance to attend another school or you can consider one of the many charter schools popping up all over.  If you want more academic enrichment activities for your child, classes, camps and after-school programs for every interest abound.

You CAN get a great education in public school.  I actually have proof – I have clients whose New York City public school educated-kids have gone on to the Ivy League.

And I totally understand the attraction to private schools … our son is heading to Kindergarten in the fall and I have toured public and private schools in my area.

I’ll be the first to admit that I find the NYC schools a little intimidating and BIG.  Of course I worry that he’ll be bored or fall in with “bad” kids.  The whole process is extremely stressful. 

But I have done the math, and taken the highest-priced schools off the list.  It’s just not the best thing for the whole family.

If you are considering private school, please consider the effect on your entire financial picture.  If you can afford it, great!  But if you are not sure, think long and hard before making a 13-year financial commitment.

Good luck!

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sara Stanich, CFP® and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional.

Hard to believe, but the time has come to get back in the garden, even though it’s been cold and we’ve even had a little snow this month.  I love to see the progress of the garden (and I do get comments about it) so just like last year, I plan to post once a month about what happened there.

March is is all about planning and planting.

What did we plant first in the ground?  The lettuce family goes in early, under cover to keep them warm:

• Arugula
• Cabbage
• Mesclun
• Spinach (2 kinds)
• Swiss Chard

What went in the greenhouse?  Seedlings from the mini indoor greenhouse will be transplanted outside in a month or so.

• Herbs (Basil, Cilantro)
• Peppers (try, try again)
• Eggplant
• Brussel Sprouts

What else went in the ground?  Mid month in the ground, we planted:

• Beets
• Broccoli
• Carrots
• Green beans
• Marigold
  

  seedlings

• Nasturtium

In 4-6 weeks, we will do another “tranche” of the same, plus a few other things I’m sure.

We also did some other maintenance and preparation: spreading out the compost that started cooking last year, re-assembling the greenhouse, repairing and improving fences.  (I use the term “we” loosely because hubby does all the heavy labor around here – you’re the best, honey!)

It’s exciting to see the fruits of last year’s labors!  Green shoots of Garlic planted last fall popped up mid month.  Rosemary and Sage have over-wintered and look surprisingly healthy.  Asparagus should be poking out soon.  And I expect grapes and blueberries this year!

Looking forward to a good year!

I bought and sold a co-op years ago, but was also turned down once by a co-op board back in the day.  (Me?  The nerve!)

I chalk it up as one of those “only in New York” experiences, but I wouldn’t wish that on anyone.

So I recently asked Jim Winters, a real estate broker with the Corcoran Group in New York City, for tips on the co-op interview.

If you are asked for an interview with the co-op board, does that mean you are good as approved?

You are 75% of the way home. Most boards won’t waste their time (or yours) with an interview, if they, or the managing agent, aren’t happy with the application.

Do you have any tips for the co-op interview itself?

Yes, there are three, in particular, that I ask my clients to remember:

• Review your application
• Arrive on Time
• Never Ask Questions

1. Review Your Application.

Candidates will be expected to answer questions about their application quickly and accurately, so we always stress that they review their application and bring a copy with them to the interview.

2. Arrive on Time.

This sounds ridiculously simple, but I can’t tell you how many stories I’ve heard about candidates arriving 10 to 30 minutes late. The corollary to this is do not arrive early. The interviews are often times conducted in someone’s apartment and it can be unnerving to know that you still have to wait 10 minutes for the rest of the board to show up.

3. Never Ask Questions.

So, this is the suggestion I get the most pushback about because people have lots of questions for the board.  For example, they want to know when the co-op is going to replace the building’s windows. When the exercise room is to be completed? When is the maintenance going up? Are there any assessments? When will they be able to start our gut renovation? Etc.

I always try to explain that the purpose of the board interview is to decide whether they are going to become a member of the co-op – not the other way around.  Candidates need to allow the board to ask questions and conduct the interview. It’s what the board members have prepared for.  Also, long before our clients begin shopping for a purchase we make sure they understand that the board interview is not the time to decide if they want to purchase the apartment.  Any questions they have should have been answered during the due diligence phase of the transaction.

What is due diligence?

Due Diligence refers to the inspection of the co-op apartment and those common elements that a shareholder will co-own, maintain, and pay for through their monthly maintenance charges. The physical building, the land, the property taxes, the leased commercial space, the doorman’s salary, and the parking garage, are all examples of common elements in a co-op.  During the due diligence phase, the buyer’s real estate attorney will review the co-op’s legal and financial documents, any available meeting minutes, and the contract of sale from the seller’s attorney.   A building inspector is also often hired to help suss out any mechanical issues with the apartment or building.

Thanks for the tips, Jim!  I bet people ask the wrong questions all the time!

Jim Winters works as a licensed real estate broker in Brooklyn and began his career in 2004.  He started the website, From The Stoop to share his real estate experience, give advice, and educate the public.

Jim has lived in Brooklyn for 23 years. He can be contacted through the Corcoran website here or you can find him early mornings along Eastern Parkway walking some combination of children and dogs.

Jim Winters is not affiliated with Raymond James Financial Services.  Any opinions are those of Jim Winters and not necessarily those of RJFS or Raymond James.

Links are provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. 

I really strive to explain complex topics in a straightforward way.  But the AMT is a toughie.

Our “main” tax code is complicated enough.  But there is actually a second set of tax rules: the Alternative Minimum Tax rules.

What is the AMT?

The Alternative Minimum Tax (AMT) is a parallel tax system that does not allow many of the deductions, exemptions and credits that many taxpayers use to reduce their tax bills under the regular rules.  As a result, more income may be taxed under the AMT.

Although more income is taxed under the AMT, it may be at a lower rate than under the “regular” tax system.  The top AMT rate is 28%.

Anyone subject to AMT must calculate their taxes under both sets of rules and pay the higher of the two.  The law was created in 1969 to prevent high income earners from completely eliminating tax liability using deductions.

The AMT Exemption and Tax Rates

The AMT exemption is basically a standard deduction for taxpayers hit by the alternative minimum tax.

For 2012, the AMT exemption amounts are:

• $50,600 for single and head of household filers,
• $78,750 for married people filing jointly and for qualifying widows or widowers, and
• $39,375 for married people filing separately.

The exemption amounts mean that this amount of AMT taxable income is not subject to the AMT. Income over these amounts may be subject to AMT. Unlike the ordinary tax rates, the AMT has only two tax brackets of 26% and 28%. The AMT tax rate is assessed only on AMT income over the exemption amount.

Who Pays the Alternative Minimum Tax?

Several factors determine whether you will be subject to the AMT, including income, itemized deductions and personal exemptions.  People likely to pay the AMT include:

• High Income Earners.  Households in the $150,000 to 415,000 income range are likely to pay the AMT.
• Residents of high-tax states.  Deductions for real estate taxes and state and local income taxes aren’t allowed under the AMT.  As a result, residents of high-tax states like New York, New Jersey and California are more likely to pay the AMT than residents of low-tax states.  (Lucky us!)
• Incentive Stock Option (ISO) exercisers.  The AMT treats the difference between the exercise price and the market value on the day of the exercise as a taxable event.  This paper profit is not taxable under regular tax rules.

What’s New: No More Patch

As part of the fiscal cliff negotiations, Congress boosted the AMT exemption for 2012 and agreed to index future exemption levels to inflation.  (The exemption was not tied to inflation in the past, which led to a last-minute annual “patch” to increase it every year.)

I think this is great news – the rules are still complex, but at least they don’t change every year.

Can I Avoid the AMT?

The short answer is no.

However, it may be time to consider additional tax planning.  It may be possible to group income or deductions to help you avoid the AMT in a specific year.  Although tax software will compute the AMT for you, you may want to consult a tax professional for advice for your situation.

Please note, changes in tax laws may occur at any time and could have substantial impact upon each person’s situation.  You should discuss tax or legal matters with the appropriate professional.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.

New parents are busy.  When it comes to financial planning, they just want to make sure they are doing the right things for them and not missing anything important.  Perfect for this situation: a checklist!

There are eight items on my financial planning checklist for new parents: Positive Cash Flow, Emergency Fund, Debt within Reason, Adequate Insurance, Retirement Savings, Education Savings, Tax Planning and Estate Planning.

Address each of these, and you should have more confidence about your financial future.

Positive Cash Flow

Your expenses are up, and income may be down.  You can expect increases in child care costs (obviously), groceries, medical expenses, clothing and housing if you decide to increase the size of your space.  At the same time, your household income will likely be down if one parent takes extended maternity leave or reduces their work schedule.

This double whammy makes it very difficult to keep your cash flow positive, but the alternative is to accumulate credit card debt and/or spend down your savings.

It’s a good time to start tracking your expenses more closely, to keep your expenses under control and make adjustments where needed.  You can track it yourself with a spreadsheet, or use one of the many websites and apps out there for the purpose.  (I like mint.com, which is free.)

Emergency Fund

Emergencies are suddenly more likely.  With one more dependent person in the household, you are suddenly more likely to have extra expenses for medical needs, real needs like a car seat or stroller, or just an upfront deposit at a daycare or camp.  And those expenses keep coming, even if a parent suddenly loses their source of income.

It’s important to have cash on hand for life’s little emergencies.  How much is enough?  A good start is an extra month’s expenses in your checking account.  After that, 3-6 months of basic expenses is fine for dual-income households, but 8-12 months is prudent for someone who is the sole breadwinner or has a very unstable income.

Automate a monthly transfer to savings if you aren’t there yet.

Debt within Reason

If you have credit card debt, make a plan to pay it off.  It may be motivating to add up what you have paid in interest and fees over time.  Think of what else you could do with that money!

Student loans and mortgage may be worthy investments, but make sure you are making progress on those as well.

Adequate Insurance

It may be time to increase your insurance coverage.  There are three types of insurance you should review: Life, Health and Disability.

Having a child increases your need for life insurance.  Someone is dependent on your income – what if something happens to you?  Even if you have some coverage through your employer, you may want to purchase more.  A common rule of thumb is to have a life insurance benefit equal to five times your salary.

Make sure you understand your health insurance policy as it relates to your new baby.  Are routine visits (“well baby”) to the pediatrician covered?  Is your pediatrician “in-network”?  If you and your partner are both eligible for coverage under an employer-sponsored plan, compare the two to make sure you are getting the best value.

Disability insurance replaces a portion of your income if you are unable to work.  It is generally most cost-effective to buy it through a group plan if it is offered by your employer.  You may want to purchase it independently if you don’t already have it.

Saving for Retirement

Keep saving for retirement, or get started if you haven’t already.  Retirement savings contributions can reduce your taxable income which can of course reduce your taxes.

Save in your company retirement plan if you have one.  If you don’t, start a plan for your business (if you are a freelancer or independent contractor) or, if you are eligible, save in a Traditional IRA or Roth IRA.

Saving for Education

You may want to start saving for your child’s education.  If you can make the room in your budget, why not start now?  I find that setting a small but regular monthly contribution to a college savings account is very effective, and parents are glad they did it.

Tax Planning

Your tax situation may have changed a bit.  You should now be able to claim the Child Tax Credit and an additional exemption.  You might also be eligible for a Dependent Care Credit and/or Adoption Credit.  You shouldn’t need to “do” anything there until tax time.  Consult your tax advisor for more information.

There are a few decisions to be made, however.  You may want to take advantage of certain benefits which may be offered by your employer, such as the Dependent Care Savings Account, Flexible Spending Account, or Healthcare Savings Account.  Read those plan documents from HR!

Estate Planning

It’s time to finally get a will, or update it if you have one already.  If something were to happen to you, you want to make sure there is a guardian for your child (one will be appointed by the courts if you have no will), your assets are distributed as you would like them to be, and an executor has been named for your estate.

It may also make sense to set up a trust.  A trust can help make sure funds are used to benefit your children according to your wishes.  Consult an attorney who specializes in Trusts and Estates.

Conclusion

The items on the list — Positive Cash Flow, Emergency Fund, Debt, Insurance, Retirement, Education Savings, Tax Planning and Estate Planning – are the major categories to consider.  Action steps on each will depend on your individual situation.

Were you able to check every item off the list?  If not, get started or get some financial planning help.

This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.

Raymond James and Sara Stanich, CFP®, are not affiliated with and do not endorse, authorize or sponsor any third party websites, their respective sponsors, or user comments found on this or other sites. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

You may have heard that the income tax rate on the highest earners is now 39.6%.

Wow, does that mean if we make $500,000 we’ll pay $198,000 in federal income tax?

Well, no.

The rates you hear on the news are the top marginal tax rates.  Tax payers are divided into tax brackets, which determine which rate taxable income is taxed.

Federal Tax Brackets

The 2012 rates for a married couple filing jointly are as follows:

• 10% on taxable income from $0 to $17,400, plus
• 15% on taxable income over $17,400 to $70,700, plus
• 25% on taxable income over $70,700 to $142,700, plus
• 28% on taxable income over $142,700 to $217,450, plus
• 33% on taxable income over $217,450 to $388,350, plus
• 35% on taxable income over $388,350.

So for the couple above, only the income over $388,350 – $111,650 – would be taxed at 35%?

In theory, yes.

But keep in mind that only the taxable income – not gross income – is taxed.  Many people reduce their taxable income considerably by itemizing deductions and/or making contributions to retirement accounts.

Average Tax Rate

The average tax rate is just that, the total amount of tax divided by total income.  To use a nice round number, let’s say the couple above has $500,000 of taxable income.  What is their average tax rate?

The average rate in this (simplified) example* is 29%.  That is still a lot of taxes, but a bit different from 35%.

Don’t use these examples to try and calculate your own taxes.  Every situation has its own details, and marginal rates interact with interact with other tax rates, including the alternative minimum tax, Social Security tax, and Medicare tax rates.

The point is simply that there is a big difference between the marginal rate and the effective average rate that you will end up paying.  You may be pleasantly surprised.

Please note, changes in tax laws may occur at any time and could have substantial impact upon each person’s situation.  You should discuss tax or legal matters with the appropriate professional.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.
photo credit: Alan Cleaver via photopin cc

Tax time is officially here.  But how should you get it done?  Should you do it yourself or hire outside help?

I have mixed feelings on this issue.

On the one hand, I believe that it is empowering to do your own taxes.  It seems intimidating at first, which makes it feel really good to realize it is not so hard after all.  I did my own taxes with paper and pencil when I started working part time jobs in high school and college.

I went to tax store once in my twenties, but went back to doing it on my own when I realized they were just typing in the numbers I gave them.  There are people that found it surprising and impressive that a young woman (well, I’m not so young anymore) would do her own taxes.

On the other hand, I believe in the value of professional help.  (How could I not?)  The taxes of a business owner, rental property owner, or active investor are more complicated than a W-2 employee.   A tax professional can add value by saving time and money, avoiding mistakes, and reducing the stress in the process.

Professional help also ensures that the job gets done – more than one person has “confessed” to me that they filed their taxes late or not at all!

So, what are your options?

Tax Filing Options

1. Tax Preparation Software

There are many tax software providers out there, including Turbotax, TaxAct, TaxBrain and At Home (H&R Block).

The software does the calculations and prompts you for your information, which should eliminate math errors and ensure you don’t miss anything.  You install the software on your computer or type in your data through a secure website.

You may be able to use tax preparation software at no cost for your Federal return.  The Free File program is open to taxpayers with a 2012 Adjusted Gross Income (AGI) of $57,000 or less, and allows taxpayers to do their federal income tax returns using commercial online software provided by the Free File Alliance companies. You must go to IRS.gov to access Free File.

Cost: $0 – $100 or more, depending on your AGI and the complexity of your return.

2. Tax Professional

Tax professionals are not all equal.  There may be a big difference in their education, experience and cost of their services.

A Certified Public Accountant (CPA) has passed a series of rigorous tests administered by the American Institute of Certified Public Accountants. Although there are many CPAs in the tax preparation industry, many more work in audit and corporate finance functions.  CPAs may represent taxpayers before the Internal Revenue Service.

An Enrolled Agent (EA) is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the IRS.  Enrolled Agents have passed a comprehensive exam and have continuing professional education requirements.  Unlike attorneys and CPAs, who are state licensed and who may or may not choose to specialize in taxes, all enrolled agents specialize in taxation.

Seasonal employees at the retail tax stores go through tax-specific training, but may not be very experienced and likely spend most of their time on simple returns.  Compared to CPAs or EAs, registered tax return preparers have passed a minimal competence test on tax forms for individuals.

Cost: $100 – $1,000 or more, depending on the number of schedules and complexity of your return.  If your taxes are very complex you should be spending more to get a higher level professional.

3. Do it Yourself

You can still mail in the forms, but 89% of taxpayers e-file these days¹.

If your 2012 AGI is greater than $57,000, you can still file for free using Free File’s online fillable forms, which are the electronic versions of IRS paper forms. These are better than paper forms, because they do the math and can be e-filed.

Most would agree that the IRS forms are not as user-friendly as the tax preparation software providers.

Cost: You can file your federal tax return for free.

The Best Tax Filing Option for You

The more complex your tax return, the more value that professional help is likely to provide.

Your tax return is relatively complex if you itemize deductions, are subject to the AMT, own your business, are an active investor, or own rental property.

You can still do it on your own — tax preparation software can handle all these situations, but the process does start to get more complicated.  The cost of mistakes – in terms of missed deductions or penalties — is also potentially greater at higher incomes.

On the other hand, if all your income is on a W-2 and you take the standard deduction, at least try doing it yourself.  It will probably be easier than you expected.  If you really don’t feel comfortable doing your taxes, get help.

How do You File Your Taxes?

¹Source: www.irs.gov/taxstats  

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.
photo credit: Thomas Hawk via photopin cc

Back when you were a young and fancy-free, your taxes were simple as pie. You probably rented a place to live (or these days, lived with your parents), had no kids, and didn’t make that much money anyway. Maybe you could figure out how to file online for free on April 14th and even get a refund. You took what is called the Standard Deduction.

Standard Deduction

The standard deduction is a fixed amount that reduces your taxable income. This is the income you get to completely keep before the remainder of your income is taxed.

Your age and filing status, along with several other factors, determines your standard deduction amount. Here are the basic standard deduction amounts for 2012:

If your filing status is… Your standard deduction is:

• Single or Married filing separately $5,950
• Married filing jointly or Qualifying widow(er) with dependent child $11,900
• Head of household $8,700

Source: IRS Pub 501

Your standard deduction is increased if you are over age 65 or blind, and may be decreased if someone else can claim you (or your spouse if filing jointly) as a dependent.

Itemized Deductions

Life tends to grow more complicated over time. Your tax situation becomes more complex as you earn more money, buy property, or start a business. In such cases, your tax deductions may be greater than the standard deduction noted above. This is where it typically makes sense to itemize.

Common federal tax deductions include:

• Mortgage interest
• State & Local taxes
• Property tax
• Charitable contributions

There are many more, but those tend to be the “biggies”. Mortgage interest on a big mortgage or state taxes on a high income can easily be greater than the standard deduction.

If your total deductions are greater than the standard deduction, you should most likely itemize. Your taxable income is reduced by each dollar that exceeds the standard deduction. Lower taxable income means lower taxes.

Example

Joe and Sue are married and file their taxes jointly. They own their home and paid $11,000 in mortgage interest last year. (This information comes from the 1099-INT form received from their mortgage provider). That’s not enough to put them over the top, but they also paid $5,000 in state taxes. Since the standard deduction is $11,900, itemizing their deductions reduce their taxable income by another $4,100.*

It can get more complicated, but that’s the basic concept.

How Does this Fit into Your Financial Plan?

If you are “on the border” between itemizing (or not), it may make sense to do some tax planning.

In some cases, you can choose the calendar year in which you take a deduction. This is obviously the case for charitable contributions, but other possibilities may be things like paying your January property tax bill in December if you want to accelerate the deduction. Consult your tax advisor.

Please note, changes in tax laws may occur at any time and could have substantial impact upon each person’s situation. You should discuss tax or legal matters with the appropriate professional.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Sara Stanich and not necessarily those of RJFS or Raymond James.

*This example is for illustrative purposes only. Every investor’s situation is unique and you should contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.