Monthly Archives: April 2018

04.18.18
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Dustin Rinaldi Shares Red Flags that Could Alert the IRS

The IRS audited approximately 1.4 million individual tax returns filed in 2012.1 That amounts to approximately 1% of 146 million individual returns filed that year. However, fewer than one-quarter of those audits involved face-to-face meetings with IRS auditors. The rest were conducted through the mail.

Filers earning less than $100,000 had a .58% chance of being audited. Among filers with income exceeding

$200,000, the audit rate was 2.06%; for those earning more than $1 million, it climbed to 9.20%. Audit risk also increased for self-employed taxpayers who filed a Schedule C, Income and Expenses for sole proprietors.

Depending on how much income was reported, the chance of being audited ranged from 1.0% for returns listing gross receipts under $25,000 to 2.7% for those reporting gross receipts of $200,000 or more.1

What Triggers an Audit

The following are some of the red flags that could alert the IRS, aside from earning a lot of money:

1. Running a cash business

2. Claiming the home-office deduction

3. Self-employment

4. Deducting business meals, travel, and entertainment

5. Failing to report all taxable income

6. Claiming 100% business use of a vehicle

7. Making large charitable contributions

8. Claiming a rental loss

9. Taking larger than usual deductions

What the IRS Looks For

Whether the IRS requests a face-to-face meeting or chooses to conduct its audit through correspondence, the following issues may arise:

· Unreported income — The IRS will assess taxes on any “missing” amount plus interest and penalty charges — regardless of whether the omission was accidental or intentional. A finding of significant fraud could even result in criminal prosecution and jail time.

· Personal expenses vs. business expenses — Be prepared to prove that expenses you’ve claimed for business purposes were not actually personal expenses. Auditors pay particular attention to deductions related to entertainment, meals, travel, and transportation. If you own a business, keep all receipts and be ready to answer questions about the connection between each expense and your business.

Even if you don’t expect the worst during your audit, there are several reasons it’s still a good idea to enlist the services of an experienced tax professional to help you navigate the process. For example, a professional is probably more familiar with the complexities of ever-changing tax laws than you, and is also less likely to let emotions cloud his or her judgment. In addition, letting a pro speak on your behalf reduces the chance that you will accidentally volunteer information that could hurt your case.

This communication is not intended to provide tax advice and should not be treated as such. Each individual’s tax situation is different. You should contact your tax professional to discuss your personal situation.

For more information or any questions regarding this topic, contact certified financial planner Dustin Rinaldi or call (239) 444-6111.

1Source: IRS, Internal Revenue Service Data Book, March 2014.

04.18.18
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Dustin Rinaldi’s Steps to Keep Retirement Income Flowing

After years of accumulating assets, the time will come for you to begin drawing on those assets to provide income throughout retirement. Before that day arrives, be sure to consider some steps to assist you in keeping your retirement income stream flowing.

Set a Sustainable Withdrawal Rate

As tax-advantaged retirement savings vehicles such as 401(k)s and IRAs have proliferated, so too has the trend toward self-funding of retirement. In the future, the share of personal assets required to fund retirement is sure to grow, which makes knowing how much you can withdraw from your investment accounts each year — and still maintain a healthy cushion against uncertain market and personal circumstances — a necessity to any retirement income plan.

A number of factors will influence your choice of withdrawal rates. These include your longevity, the potential impact of inflation on your assets, and the variability of investment returns. Therefore, when crafting a retirement asset allocation, a key question will be how much to allocate to stocks.1 Certainly you will want to maintain enough growth potential to protect against inflation, yet you will also need to be wary of being too exposed to stock market gyrations. Generally speaking, those who have planned well and amassed enough assets to comfortably finance retirement may be in a better position to include more stocks in their portfolios than those who enter retirement with less.

Developing a Withdrawal Rate

The goal of your withdrawal plan is to crack your nest egg in such a way as to provide a reliable stream of income for as long as you live. The question is, “How much can I plan to withdraw each year without depleting my financial resources?” Academic studies suggest a yearly withdrawal rate of 4% of your portfolio’s value based on an asset allocation of 60% stocks and 40% cash and fixed-income investments.2 By staying within this withdrawal range you potentially should be able to maintain your portfolio’s value in real, inflation-adjusted terms for an extended period of years, although past performance is no guarantee of future results.

Please contact us for additional help analyzing your specific situation. You should also revisit your personal withdrawal strategy each year, as your situation and tax laws may change.

For more information or any questions regarding this topic, contact certified financial planner Dustin Rinaldi or call (239) 444-6111.

1 Asset allocation does not assure a profit or protect against a loss. Investing in stocks involves risks, including loss of principal.

2 This example is hypothetical and not intended as investment advice. Your results will vary.

04.18.18
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Dustin Rinaldi Shares 10 Investment Mistakes You Should Avoid

Who needs a pyramid scheme or a crooked money manager when you can lose money in the stock market all by yourself. If you want to help curb your loss potential, avoid these 10 strategies.

1. Go with the herd. If everyone else is buying it, it must be good, right? Wrong. Investors tend to do what everyone else is doing and are overly optimistic when the market goes up and overly pessimistic when the market goes down. For instance, in 2008, the largest monthly outflow of U.S. domestic equity funds occurred after the market had fallen over 25% from its peak. And in 2011, the only time net inflows were recorded was before the market slid over 10%.1

2. Put all of your bets on one high-flying stock. If only you had invested all your money in Apple 10 years ago, you’d be a millionaire today. Perhaps, but what if, instead, you had invested in Enron, Conseco, CIT, WorldCom, Washington Mutual, or Lehman Brothers? All were high flyers at one point, yet all have since filed for bankruptcy, making them perfect candidates for the downwardly mobile investor.

3. Buy when the market is up. If the market is on a tear, how can you lose? Just ask the hordes of investors who flocked to stocks in 1999 and early 2000 — and then lost their shirts in the ensuing bear market.

4. Sell when the market is down. The temptation to sell is always highest when the market drops the furthest. And it’s what many inexperienced investors tend to do, locking in losses and precluding future recoveries.

5. Stay on the sidelines until markets calm down. Since markets almost never “calm down,” this is the perfect rationale to never get in. In today’s world, that means settling for a minuscule return that may not even keep pace with inflation.

6. Buy on tips from friends. Who needs professional advice when your new buddy from the gym can give you some great tips? If his stock suggestions are as good as his abs workout tips, you can’t go wrong.

7. Rely on the pundits for advice. With all the experts out there crowding the airwaves with their recommendations, why not take their advice? But which advice should you follow? Cramer may say buy, while Buffett says sell. And remember that what pundits sell best is themselves.

8. Go with your gut. Fundamental research may be OK for the pros, but it’s much easier to buy or sell based on what your gut tells you. Had problems with your laptop lately? Maybe you should sell that IBM stock. When it comes to hunches, irrationality rules.

9. React frequently to market volatility. Responding to the market’s daily ups and downs is a surefire way to lock in losses. Even professional traders have a poor track record of guessing the market’s bigger shifts, let alone daily fluctuations.

10. Set it and forget it. Ignoring your portfolio until you’re ready to cash it in gives it the perfect opportunity to go completely out of balance, with past winners dominating. It also makes for a major misalignment of original investing goals and shifting life-stage priorities.

For more information or any questions regarding this topic, contact certified financial planner Dustin Rinaldi or call (239) 444-6111.

1Sources: ICI; Standard & Poor’s. The stock market is represented by the S&P 500, an unmanaged index considered representative of large-cap U.S. stocks. These hypothetical examples are for illustrative purposes only, and are not intended as investment advice.