PROFESSIONAL FREEDOM TAX SERVICE

WE WON'T FILE UNTIL YOU SMILE!

Tax Service Blog

Blog

IRS investigating Liberty Tax

Posted on February 19, 2019 at 3:37 PM Comments comments (74)
The Internal Revenue Service and the Department of Justice have pursued multiple cases against Liberty Tax franchises in recent years, but the IRS has also been investigating the company itself, according to a Liberty Tax financial filing. Multiple cases have been brought against individual franchisees who collectively operated hundreds of stores. In April, the Department of Justice sued to shut down a longtime Florida franchisee with corporate connections, accusing it of filing fraudulent tax returns. Under “other matters” in the filing, the company says "the IRS has been conducting an investigation of our policies, practices and procedures in connection with such tax return preparation activities.” The case, which seeks $1 million in what the federal government described as ill-gotten gains, is pending in a Florida federal court. In 2016, at least 70 franchise locations were shut down and scrutinized by federal authorities.
Liberty Tax founder John Hewitt had been ousted as the CEO that year after an internal investigation determined he could be fired for cause. He was ultimately fired without cause but remained in control of the board of directors because of the class of shares he owned, causing a management shakeup.
Among the fixes the company said it had made: buying Hewitt out of his stock and forcing his resignation from the board, forcing the resignation of his appointed board members, hiring a new chief financial officer and retaining franchisee Nicole Ossenfort as the company’s CEO and president, electing new board members and hiring Ernst & Young to review its corporate governance practices.

6 Tax Red Flags That Can Get You Audited

Posted on December 6, 2014 at 12:31 PM Comments comments (52)
Nobody wants to be audited. But about 1 in 150 of us will experience some type of audit in our lifetime. That’s the bad news. The good news is that if you avoid these six potential red flags, you may be able reduce your chances of getting the dreaded audit notice in the future.
 
1. You don’t disclose all of your income.
 
This one sounds like common sense, but you’d be surprised. The IRS gets copies of your W-2’s, 1099’s that report your interest, dividends, capital gains and losses from investments (sales of stocks, bonds, mutual funds, etc), compensation paid to you as a self-employed independent contractor, and other income items. Make sure you collect all of your statements from work, investments, etc., because they sure will. Also, when it comes to taxes, it’s smart to measure twice, cut once. Make sure that someone (whether it’s you or your accountant) double checks your return.
 
2. You have a big mouth.
 
Never, never brag (especially on social media) that you pulled a fast one on the IRS. In today’s economic climate, the IRS does more trolling than ever before — especially on social websites like Facebook and Twitter. Not to mention the fact that whistleblowers can earn some significant rewards (15% to 30% by filing form 211) for turning in cheats.
 
3. The dreaded home office tax deduction.
 
The home office tax deduction has been a long-standing audit red flag item. The IRS recently created a limited safe harbor that allows taxpayers to take a deduction of $5 per square foot up to 300 square feet. Remember to ask yourself whether an office is being provided for you by your employer even if you work a good amount out of the home — better safe than sorry.
 
4. You have an unincorporated business (Schedule C Sole Proprietor).
 
If your tax return includes Schedule C, which is used by sole proprietors and self-employed independent contractors to report their business income and deductions, you have a higher likelihood of being audited by the IRS. Schedule C filers are more likely to file an incorrect tax return, as many are self-prepared, and they tend to under-report income and over-report deductions. Also, as a Schedule C filer reporting operating losses over a period of years, the IRS could consider your business a hobby if you haven’t turned a profit over three of the last five years. If this happens, you could have your deductions disallowed by the IRS.
 
5. You make too much money.
 
Sounds like a high class problem, right? But the statistics back it up. As you make more money, you have a higher percentage chance of facing an audit- especially business owners that have an LLC or an S Corporation. Here are the odds:
  • Those making $200,000 to $500,000 approximately 1 in 50
  • Those making $500,000 to $1,000,000 approximately 1 in 25
  • Those making $1,000,000 to $5,000,000 approximately 1 in 10
  • Those making $5,000,000 to $10,000,000 approximately 1 in 5
  • Those making $10,000,000 and above approximately 1 in 3
 
6. You were too charitable.
 
Donating is great, but you run a higher risk when you claim above $500 in non-cash charitable donations. To mitigate this risk, be sure you file form 8283 and have very clear documentation. A good website to use for basic item valuations is www.satruck.com (see the Donation Value Guide).
Part of the auditing process is highly randomized, so you may not be able to avoid an audit regardless of how careful you are. But using these tips can help shrink your risk!

Police warn of IRS scams during tax season

Posted on March 26, 2014 at 2:05 PM Comments comments (36)
During the current tax season, the Police Department has seen a drastic increase in fraudulent IRS related incidents and would like to caution residents who may be purchasing a Green Dot, or other prepaid debit card, under threat of prosecution for tax issues.

Several cases have been reported in which victims received phone calls from individuals claiming to be local law enforcement officers and/or agents with the IRS. In each case, the caller claimed the victim was delinquent in his/her tax payment and instructed the victim to purchase pre-paid debit cards in order to repay the taxes, threatening that the victim would be arrested if he/she failed to comply. During each of the incidents, the caller(s) have been concealing their phone numbers in order to give the appearance that the phone calls are originating from law enforcement or the IRS.

Neither the IRS, nor any law enforcement agency, will ever request payment over the telephone. If you receive any suspicious calls instructing you to provide money or personal information over the telephone, ask for a call back number and contact the local police department in order to verify the legitimacy of the caller. If you believe that you have been a victim of a similar scam, call the police or the IRS to report the incident.

Top 10 most taxed U.S cities

Posted on August 22, 2013 at 3:47 PM Comments comments (15)
While federal tax rates stay the same regardless of where the taxpayer lives, the same is not true for state and local taxes. The tax burden of taxpayers living in different parts of the United States varies due to differences in state and local income taxes, property taxes, sales taxes and automobile taxes. So how does your city stack up?
 
Drumroll please…
 
The top ten cities* with the highest tax burden for a hypothetical family of three making $50,000 in 2011:
 
#10 Boston, MA
 
Paul Revere made his famous midnight ride on horseback here — but today, trading in the horse for a car of your own would cost $303 in taxes per year. The total tax burden for our hypothetical family in Boston sits at 12.2%, or about $6,125 annually.
 
 
 
 
#9 Burlington, VT
 
Vermont’s largest city, home to the very first Ben & Jerry’s, was ranked by Forbes as one of the prettiest towns in America — and we’re sure its 42,500 residents agree. But at a 12.3% tax burden ($6,150 per year), it’s #9 on our list of the most taxed cities in America.
 
#8 Providence, RI
 
The city of Providence is known for its historic and cultural attractions; it was first settled in 1636 by Roger Williams and was one of the original Thirteen Colonies. As of the 2010 census, 178,042 people lived within the city of Providence — and our hypothetical family paid $6,034 in taxes in 2011. $3,876 was property tax alone.
 
#7 Louisville, KY
 
There’s much more to Louisville than just the Kentucky Derby, but while River City’s 741,096 residents enjoy the biggest party in the South, they’re probably not as keen on the 12.7% tax burden ($6,346).
 
#6 Chicago, IL
 
The 3rd most populous city in the US is the sixth most taxed. Whether they’re Cubs or Sox fans, our hypothetical family of three forks over $6,412 (12.8%) in taxes every year. That’s a lot of ballpark hot dogs.
 
#5 Los Angeles, CA
 
Though inhabitants of the City of Angels owe no income tax, sky-high property tax rates are responsible for the city’s #5 spot. Over $5,100 of our average family’s $6,634 tax bill is property tax.
 
#4 Columbus, OH
 
The capital of Ohio was named by BusinessWeek as the best place to raise a family in 2009 — and it’s home to five Fortune 500 companies, including the Limited Brands and Nationwide Mutual Insurance. 787,033 people lived here in 2010. In 2011, our average family of three paid more than $7,200 in state and local taxes.
 
#3 Philadelphia, PA
 
This former temporary U.S. capital was home to over 1.5 million people in 2010.
In addition to its rich history and excellent cheesesteaks, Philadelphia also boasts one of the highest tax burdens in the nation. In 2010, a typical family of three would have paid $8,327, or nearly 17% of their income in various state and local taxes.
 
#2 Newark, NJ
 
New Jersey’s largest city sits 8 miles west of Manhattan (#14 on the list of most-taxed cities). Our $50K family of three would pay $8,327 per year in taxes, a whopping 18.3% of their household income.
 
#1 Bridgeport, CT
 
Connecticut’s largest city is one of NYC’s outlying suburbs, and an average family of three forks over a staggering 24.5% of their income to state & local taxes. That works out to about $12,250, over $10,000 of which is property tax alone.
 
Okay, so the Northeast is expensive. And for the record, the least-taxed cities on the list were Billings, MT (6.4%), New Orleans, LA (5.7%) and Cheyenne, WY (4.3%).

10 Ways Getting Married Affects Your Taxes

Posted on August 16, 2013 at 2:16 PM Comments comments (82)
 
1. Filing status. Once you get married, the only filing statuses that can be used on your tax return are married filing jointly (MFJ) or married filing separately (MFS). Your filing status is determined on December 31 of each year, so even though you were not married the entire tax year, you do not have the option of filing as single. Generally, married filing jointly provides the most beneficial tax outcome for most couples. One reason for this is that some deductions and credits are reduced or not available to married couples filing separate returns.
 
2. Tax brackets. Tax brackets are different for each filing status, so your income may no longer be taxed at the same rate as when you were single. When you’re married and file a joint return, your income is combined — which, in turn, may bump one or both of you into a higher tax bracket.
 
3. Additional exemption and increased standard deduction. Married couples filing a joint return get to claim two personal exemptions (one for each of you) on the tax return instead of one as when you filed as a single individual. Additionally, the standard deduction allowed on the tax return is highest for married couples filing a joint return. For 2012, single taxpayers are allowed a standard deduction of $5,950 while married couples filing a joint return are allowed a deduction of $11,900.
 
4. Changing your W-4. Because of the additional exemption and higher standard deduction you are allowed to claim on a joint tax return, it may be wise to change your Form W-4 with your employer to reflect these changes.  Claiming an additional allowance and/or changing withholding to the “married” rate on your Form W-4 means that less taxes are withheld from your pay.
 
5. Buying your first home or selling one. Once you get married, your combined incomes may allow you to purchase your first home or you may choose to sell individual homes owned before the marriage. When you own a home, interest you pay on your mortgage is deductible on your tax return as an itemized deduction. If you’re selling a home, the amount of gain that can be excluded from income doubles from $250,000 to $500,000. Be cautious, though: if only one of you owned the home before the marriage, the $500,000 exclusion applies only if you both live in the home at least two years.
 
6. Itemizing vs. claiming the standard deduction. When you file your return each year, you have to determine if it is more beneficial for you to itemize versus claim the standard deduction. Once you are married and own a home, many people find that it is more advantageous to itemize their deductions — typically because deductions such as mortgage interest result in a higher total deductible amount than the standard deduction.
 
7. Children. A dependent standard deduction is allowed for each child claimed as a dependent on the tax return. This amount is generally $3,800 per child (for 2012).
 
8. Gift taxes and estate planning. Spouses are allowed to give unlimited gifts of cash or other property to one another free of gift taxes. This provision has important implications for estate planning purposes, so be sure to get your estate plan redone once you get married.
 
9. Name change with Social Security. Because your return is filed under your Social Security number (SSN), it is important to ensure that the Social Security Administration has been notified of any name changes that take place. The SSA must process the change in the system and relay that information to the IRS before filing your return. You should wait to file your return until after the name change process has been completed to avoid any complications that could arise if the name on the return does not match the SSN on file with SSA.
 
10. Marriage penalty. A marriage penalty exists when two individuals filing a joint return pay more tax than the sum of their individual tax liabilities calculated as if they were filing as single taxpayers. One reason this occurs is when the MFJ income tax brackets and standard deduction are not equal to twice the single income tax bracket and standard deduction. Under current law, the marriage penalty is partly alleviated because the lower income tax brackets (10% and 15%) and standard deduction for MFJ are exactly double that of single individuals. However, that may not be the case after 2012 as the provision providing for relief from the marriage penalty is set to expire. At this time, it’s unclear if Congress will extend the relief.
 

Changes in Technology in Business

Posted on July 30, 2013 at 12:08 PM Comments comments (37)
The changes in computer, information and communication technology are influencing all aspects of the business world, from marketing and networking to research and development. Understanding and utilizing the advancements in the technology industry are vital for any business owner, worker, or investor if they want to continue growing their business and attracting new customers and clients.
Accessibility
  • Advancements in mobile technology allow employers and employees to communicate in newer, faster ways. Laptops, tablet computers and mobile devices like PDAs keep workers constantly connected, raising networking to another level. Companies have access to their clients and customers on-line and vice versa, increasing the frequency and speed of communication, and making companies more available to their customers.
Application
  • By utilizing the connectivity offered by changes in technology, businesses can easily keep customers and clients up-to-date with the latest information and news. They can also use this access to conduct faster research on what clients are looking for, leading to more rapid business development. Many businesses are already using social networking tools like Facebook, Twitter and LinkedIn to stay in constant contact with their customers and learn more about how they can better their company.
Benefits
  • Speed is key in both the world of business and technology. Companies are constantly developing their products and services in the hopes of reaching their desired audience first. The changes in all forms of technology today allow workers to communicate with one another and customers from all around the world quickly and easily. Advancements in communication technology in particular opens up more job opportunities, as many companies are allowing their workers to be more mobile, and a potential employee may not need to live in a certain place in order to qualify for a job. It also allows smaller businesses to compete with big business, helping them find customers outside of their neighborhood.
Potential
  • Technological advancements are already having a large impact on business marketing, as most companies have recognized the value of having an updated website and other on-line resources. As changes in technology allow the Internet to become more interactive, businesses will have the opportunity to interact more directly with their fellow employees, their competition and their customers. This change could help the business world become more transparent, leading to growth and development that will benefit workers and anyone who needs the services they provide.
Expert Insight
  • Changes in technology and their effect on the business world can be viewed from a few different perspectives. According to a study conducted by the Center for Information Systems Research at the Massachusetts Institute of Technology, three distinct perspectives include trying to improve a business or company, trying to surpass the success of competitive companies and trying to decide whether or not to join a specific business or industry.

Steps to form a 501 C3 Organization

Posted on July 11, 2013 at 11:28 AM Comments comments (17)
First, does the Organization have an Appropriate Legal Form? The organization must be organized as a trust, a corporation, or an association.
 
When you incorporate the organization’s articles it must contain certain provisions.  In addition, an organization's assets must be permanently dedicated to an exempt purpose.  This means that if an organization dissolves, its assets must be distributed for an exempt purpose described in section 501(c)(3), to the federal government, to a state or the local government for a public purpose.  To establish that an organization's assets will be permanently dedicated to an exempt purpose, the organizing document should contain a provision insuring their distribution for an exempt purpose if the organization dissolves.
 
 
Second, the organization must apply for a EIN (Employer Identification Number) You can apply for an EIN online at http://www.irs.gov/ or by completing Form SS-4. You may also obtain an EIN via telephone, by calling 1-800-829-4933.
 
Next, The organization must have an exempt purpose, it must be charitable, religious, scientific, literary, and/or nonprofit organizations.
 
Has the organization existed for at least three tax years?
 
If not, then new organizations must give financial statements for the current year and proposed budgets for the next two years, including a detailed breakdown of revenue and expenses. A section 501(c)(3) organization provides this information on Part IX, Form 1023 which will be discussed below.
 
Once the above three are complete, now you must complete and sign the correct application and attached exact copies of the organization's organizing documents .
 
To be recognized as exempt, an organization must submit a completed, signed, and dated application. If an organization is seeking recognition of exemption under section 501(c)(3) of the Code, it must complete and file Form 1023, Application for Recognition of Exemption.
 
Please note. Organizations described in section 501(c)(3) are commonly referred to as charitable organizations.
 
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual.
 
Please note. A user fee is required for applications. User fees are discussed in part XI on Form 1023.
 
If you have completed everything above, then you are now ready to submit the organization's completed application to the following address:
 
Internal Revenue Service
P.O. Box 12192
Covington, KY 41012-0192
 
Applications shipped by express mail or delivery service should be sent to:
 
Internal Revenue Service
201 W. River center Blvd.
Attn: Extracting Stop 312
Covington, Ky. 41011
 

Don't be a Victim of Identity Theft

Posted on June 18, 2013 at 11:28 AM Comments comments (16)
Tips for Taxpayers, Victims about
Identity Theft and Tax Returns
 
FS-2013-3, January 2013
 
The Internal Revenue Service is taking additional steps during the 2013 tax season to protect taxpayers and help victims of identity theft and refund fraud.  
 
Stopping refund fraud related to identity theft is a top priority for the tax agency. The IRS is focused on preventing, detecting and resolving identity theft cases as soon as possible. The IRS has more than 3,000 employees working on identity theft cases – more than twice the level of a year ago. We have trained more than 35,000 employees who work with taxpayers to recognize and provide assistance when identity theft occurs.
 
Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.
 
Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name:
 
Tips to protect you from becoming a victim of identity theft
 
  • Don’t carry your Social Security card or any documents with your SSN or Individual Taxpayer Identification Number (ITIN) on it.
  • Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
  • Protect your financial information.
  • Check your credit report every 12 months.
  • Secure personal information in your home.
  • Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
 
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Mon. - Fri., 7 a.m. - 7 p.m. local time; Alaska & Hawaii follow Pacific Time).
 
If you believe you’re a victim of identity theft
 
Be alert to possible identity theft if you receive a notice from the IRS or learn from your tax professional that:
  • More than one tax return for you was filed;
  • You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return;
  • IRS records indicate you received more wages than you actually earned or
  • Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change.
 
If you receive a notice from IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
 
If you did not receive a notice butbelieve you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 right away so we can take steps to secure your tax account and match your SSN or ITIN.
 
Also, fill out the IRS Identity Theft Affidavit, Form 14039. Please write legibly and follow the directions on the back of the form that relate to your specific circumstances.
 
In addition, we recommend you take additional steps with agencies outside the IRS:
 
  • Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
  • File a report with the local police.
  • Contact the fraud departments of the three major credit bureaus: 
  • Close any accounts that have been tampered with or opened fraudulently.
 
More information:
 
 
Help if you have reported an identity theft case to the IRS and are waiting for your federal tax refund
 
The IRS is working to speed up and further streamline identity theft case resolution to help innocent taxpayers.
 
The IRS more than doubled the level of employees dedicated to working identity theft cases between 2011 and 2012.  As the IRS enters the 2013 filing season, we now have more than 3,000 employees working identity theft issues. Despite these efforts, the IRS continues to see a growing number of identity theft cases.
 
These are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years. Cases of resolving identity can be complicated by the thieves themselves calling in. Due to the complexity of the situation, this is a time-consuming process. Taxpayers are likely to see their refunds delayed for an extended period of time while we take the necessary actions to resolve the matter. A typical case can take about 180 days to resolve, and the IRS is working to reduce that time period. While the identity theft cases are being worked, the IRS also reminds victims that they need to continue to file their tax returns during this period.
 
For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution to their case, they can contact the IRS Identity Protection Specialized Unit, toll-free, at 800-908-4490. If victims can’t get their issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.
 
More Information
 
It is a top priority for the IRS to help victims and reduce the time it takes to resolve their cases. In addition, the IRS continues to aggressively expand its efforts to protect and prevent refund fraud involving identity theft before it occurs as well as work with federal, state and local officials to pursue the perpetrators of this fraud.
 
For more information, see the special identity theft section on IRS.gov and IRS Fact Sheet 2013-2, IRS Combats Identity Theft and Refund Fraud on Many Fronts.
 

The Top Jobs for 2013

Posted on December 19, 2012 at 10:54 PM Comments comments (49)
 
Computer System AnalystStruggling to find a job? If you’re an accountant, computer systems analyst or event coordinator, there's a good chance your luck will change in 2013.
 
These three professions are among the best jobs that require a bachelor's degree for 2013, according to a new study by CareerBuilder and Economic Modeling Specialists Intl. (EMSI).
 
The study used EMSI’s rich labor market database, which pulls from over 90 national and state employment resources and includes detailed information on employees and self-employed workers, to find the 18 top jobs for 2013, based on the occupations with the most jobs added since 2010.
 
“The list identifies occupations that are on an upward trajectory regarding employment,” says Matt Ferguson, chief executive of CareerBuilder. “Job seekers can gain insights into where companies are expanding and opportunities that are available.”

Calculating your net worth

Posted on October 12, 2012 at 6:50 PM Comments comments (19)
What’s your net worth?
On the surface, that might sound like a silly question—how many of us walk around knowing the exact figure for the ratio of our debts to our assets? But calculating your net worth isn’t the dry, academic exercise it might sound like. Calculating your net worth means taking a long, hard look in the mirror and accurately assessing your financial situation. It’s the first step on the process towards more advanced financial planning, like saving for retirement or paying off your debts.
Resources, such as worksheets or calculators, exist to help you calculate your net worth. The worksheets ask you to add assets on one side of the page—things like cash on hand, cash in checking, market value of your home, market value of your property and the value of your retirement account, among other assets. Then once you have that total, you subtract the total of your liabilities to get to your net worth. Liabilities are the balance owed on your loans—from student loans to credit card to mortgages—as well as unpaid utilities and back taxes, among other money you know you’re going to have to pay in the future.
 
For instance, your net worth calculation might look like this:
Assets VS LiabilitiesCash in checking: $2,000, Student loans balance: $11,000, Cash in savings: $5,000, Balance owed on credit cards: $1,150, Value of car: $10,000, Balance owed on car loan: $8,000, Value of 401(k): $16,000, Balance owed on other loans: $2,000. Total Assets: $33,000Total Liabilities: $22,150
Subtract total liabilities ($22,150) from total assets ($33,000) = $10,850
In this example, your total net worth is $10,850.
 
You may find that the number is negative, meaning you have more liabilities than assets. Don’t be discouraged! While it’s not a rosy picture of financial health, you can’t fix the problem until you know the extent of the damage. Remember that net worth is unique to your situation, and a negative number doesn’t always mean your affairs are out of order. For instance, a doctor just graduating med school is likely buried in student debt, but due to the steady future income stream and employability conferred by the new degree, a negative net worth isn’t as bad as it appears. That’s what we found when we saw that NerdWallet recently challenged five contestants in the personal finance reality show ‘So You Think You Can Finance’ to create a net worth statement. Many of the contestants are young and just making the jump to financial independence—so the majority of them came up with a negative net worth number. Of course, it’s better to have a positive number—your net worth is an accurate way to measure how much money you truly have, so the larger your net worth number, the more well-off you are right now.
Once you have assessed your net worth, the next level is to figure out how to get from your current state to where you want to go. Again, it’s a highly individual process, but for many it will include creating a time line for becoming debt-free, as well as creating or optimizing a retirement savings plan. Let’s take the example of Jia, one of the contestants on ‘So You Think You Can Finance’. She did a great job on the net worth challenge – but the judges questioned whether she was ready to build on her net worth foundation to achieve her long-term financial goals. Had she begun incorporating her retirement savings into what she described as a balanced and healthy net worth picture? Also, she talked a lot about how her plans for marriage to her boyfriend figured into the future—but how would he fit into the financial picture? Deciding on joint accounts, prioritizing joint expenditures and aligning future savings is a key part in building on a basic net worth statement. Below are additional examples.
  • If you are planning to save $1,000,000 for retirement, but right now you have a net worth of just $5,000, the first thing you have to do figure out how many years you want to give yourself to reach that goal. Then assign a reasonable rate of return on your retirement savings account (this part will obviously take a little research and guesswork – a financial planner can help). From there, you can calculate how much you must save per month to reach your goal.
  • If you have $2,000 in credit card debt and you decide you want to pay it off in two years, remember to add the interest it will accrue, as well as any annual fees, into your calculation. For high-interest liabilities such as credit card debt, consider if you can it off sooner rather than later, to avoid racking up the interest payments.
Subtracting your liabilities from your assets may seem like a simple math problem, but a well-thought out net worth statement is an important foundation you can build all your future financial planning on top of. So go ahead and calculate your financial worth, and let us know in the comments how you’re going to use it to plan your financial future!