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Financial Planning for Young Clients

By | Food for thought, SH&J Blog, Tips | No Comments

Most of the time when people hear the term “financial planning” they think of retirement planning. If you’re in your 20’s and 30’s, you may think retirement is too far in the future to even consider meeting with a financial planner. However, the reality is, there is much more to financial planning that can benefit young clients. Financial planning can be done in every stage of life. As young clients begin their financial journey, there are transitions and changes to work through such as new jobs, paying down student loans, starting a business, buying a home, marriage, or starting a family.

Early in their career, young clients can benefit from education on how to make the most of their earnings, manage their cash flow, and develop good habits. Working with a financial planner can help clients wade through the differences and importance of employer sponsored retirement plans, such as 401(k)s, 403(b)s and stock purchase plans, and other retirement vehicles like IRAs and Roth IRAs as well as after-tax investment accounts. Education on what type of account to start contributing to given your current situation and goals is a great start to maximizing cash flow. By further understanding the ins and outs of their cash flow, young clients can better determine when they will be able to afford that new car lease, vacation, apartment, or first home purchase. If such a goal is important enough, are they willing to reduce spending on other things? Developing good spending and savings habits from the beginning can tremendously help decision making in the long run.  

A second step further in cash flow management is debt management. As more and more individuals enter the work force with student loans, debt management becomes an integral part of financial planning for young clients. With so many types of loans out there, figuring out what is required and how to tackle the loans can be overwhelming. Which loans should be paid first or consolidated? Planning can be done to help clients understand their options and create a repayment strategy.  

In financial planning, it is important to protect what you have, and as young clients get married and start families, it may become increasingly important.  There are more issues and individuals added to the equation that need to be considered.  Planning can be done to help young clients make the most of their employer provided benefits such as life insurance, health insurance and disability insurance.  Is the employer offering sufficient, or are there gaps that need to be filled?  Building a strong foundation from the get-go can help mitigate the likelihood of a financial crisis down the road.

Financial planning encompasses a wide variety of topics, many of which are not mentioned here, and none of which fit a perfect mold each time.  For a complimentary consultation, contact Sharkey, Howes & Javer at 303-639-5100 to discover more about the services we offer.  

Life After College: When Kids Move Back Home

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Often referred to as “the boomerang generation”, a high percentage of recent college graduates move back to the nest. In 2010, an astounding 85 percent of seniors said they intended to move back to their parents’ home after graduating from college, according to an article by CNN Money.  Some parents debate whether to allow their young adult children to live at home and some try to put parameters around the living arrangement by charging rent or asking young adults to cover utility bills. As a parent, you should prepare financially for your children to move back home as part of a good backup plan. It’s also prudent to help your children develop good financial habits so they can, ultimately, choose a place to live that they can afford on their own income as they become financially independent.

Setting Them Up to Succeed

Teaching your child the basics of financial planning can help him or her avoid very costly mistakes down the line, such as bankruptcy, civil lawsuits from credit card companies, tax audits, and poor credit. After graduating college, some young adults simply don’t make enough money to pay off student loans as well as pay rent. Rent costs, according to officials, continue to climb higher every year. Teaching your child to keep their rent costs below 15-20% of their gross monthly income can help them get off on the right foot, depending on each personal financial situation. High living costs are one of the easiest ways to get into debt, yet also one of the easiest choices to control.

To help avoid giving a young adult a sense of entitlement, it is often wise to insist on some form of buy-in whether it’s paying rent, covering the cost of utilities or groceries, or some combination thereof while they are establishing themselves financially. If you decide such a buy-in is appropriate, be sure to give your adult children total privacy. Don’t invade their private apartment. Yet, remember to make your own boundaries clear as well.

Thinking Like an Investor

As a parent, you invest in your children’s education and future. Housing is one of the most expensive costs your child incurs in life, but most recent college graduates have low or no credit, low income and student loan debt all of which may delay their ability to purchase a home of their own. Therefore, in most cases, they rent and rents can be high. A potential win-win approach to consider is renovating or converting part of your home into a separate apartment that your young adult can rent. Because multigenerational living is an increasing trend, the renovations will likely boost your home’s value. Many new home builders design the “home within a home” concept specifically for boomerang children and multi-generational households.

Another option is to buy an investment property such as a duplex and rent a portion of it to your young adult child. Make your young adult child the official property manager even if he or she does not have handyman skills. He or she will get to practice management and organizational skills by collecting rent and hiring maintenance technicians to take care of the property.

Both of these scenarios allow you to recoup some of the costs associated with creating a workable solution without creating a sense of entitlement in your adult child.

Instead of waiting until graduation, plan ahead together to arrive at the best solutions for your family. At Sharkey, Howes & Javer, we enjoy working through financial challenges such as those discussed above. For more tips on preparing your children to make financially sound decisions after college, please contact us today.

Work/Life Balance: Does it Still Exist?

By | Food for thought, SH&J Blog | No Comments

60 seems to be the new 40 in our current society when it comes to hours of work per week. In order to keep up with the expected level of productivity, Americans are putting in more and more hours in hopes of continuing to juggle as many balls in the air as possible.

If it is thought that fewer hours of work per week could lead to less stress, higher productivity, and overall higher satisfaction in life, then why do we continue to put in so many hours? Research from a Salon article answers, “…everybody knows that working crazy hours is what it takes to prove that you’re “passionate” and “productive” and “a team player”- the kind of person who might just have a chance to survive the next round of layoffs.” However, the cost of this mentality is steep.

The Washington Center for Equitable Growth wrote a thought-provoking article titled “Overworked America: The Economic Causes and Consequences of Long Work Hours”. Their research concluded that long work hours are not only detrimental to a human workforce, but it is also detrimental to a company’s bottom line. “Research shows that accidents and mistakes become more common after nine hours of work. After 12 hours, the accident rate doubles.” Research also shows that long hours are associated with declining gains in productivity. When companies choose to employ less people with longer hours, they are likely taking on more risk than they realize.

Sharkey, Howes & Javer has actively helped clients create the necessary strategy to craft their own 6-12 month “sabbatical” between jobs. Each of these clients were so burned out from high stress that they needed a break from running on the hamster wheel.

We focus on helping our clients create a financial plan where their retirement goals are consistent with their work/life balance. If you are interested in planning your retirement, call Sharkey, Howes & Javer at 303-639-5100 to schedule a complimentary consultation.

Four Great Places to Retire on a Budget

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When we imagine retirement, many of us have visions of relaxing, taking up new hobbies, traveling to exotic places, being a part of a community, and feeling like we have reached another important milestone in our lives. Living our retirement dreams takes forward planning and an amount of financial discipline. Before we take a brief look at some beautiful, and fairly low-cost places to live in retirement, let’s just remind ourselves what good financial planning can help us avoid. According to AARP:

  • 1 in 10 homeowners owe more than their home is worth.
  • In 2013, almost 1 in 3 households aged 55 and above did not have any retirement savings.
  • 6 in 10 people 50 and older give financial support to an adult family member.

Planning early and putting aside money will help prepare you for retirement. Those who do plan ahead may consider moving to a new place to enjoy retirement. Here are four cities to consider.

 

Tulsa, Oklahoma

Tulsa is a small city with an art deco downtown district, art museums, a lot of green space, and the Arkansas River flowing through it. After sitting in traffic and behind desks for all those years, retirement often encourages us to get fit. The good news is that Tulsa has over 25 miles of walking and cycling trails. Tulsa also boasts an international film festival, a cultural festival, and it has just celebrated its third Indian Art Festival. The median house price in Tulsa is just $125,000, with a sales tax of 5.5%, and there is no state tax on Social Security benefits.

Cheyenne, Wyoming

As George Strait sang in his #1 hit, “I Can Still Make Cheyenne,” there are lots of reasons why people do make Cheyenne their retirement home. This “Magic City of the Plains” has a lot of history attached to it. The spirit of the West lives on in its friendly, slow-paced style of life, open spaces, and low-rise buildings. The local police sponsor “Neighborhood Night Out” events just so everyone can feel part of their community and stay close to their neighbors. On a larger scale, the annual Cheyenne Frontier Days attracts rodeo fans and visitors from all over the country. The median house price is $201,800, and the overall cost of living hovers around the national average. Plus, Wyoming boasts no State income tax and no tax on Out-Of-State Retirement Income making it even more attractive to retirees.

Cañon City, Colorado

Not to be left out of the country music scene, this beautiful and intriguing city was immortalized by Jerry Jeff Walker with his opening line of “Navajo Rug: It’s just a Cañon, Colorado diner, a waitress I did love.” There is a lot to love about Cañon City. Retirees can enjoy the skiing, the mountain vistas, and unique excursions, and avoid expensive, tourist-laden locations such as Vail or Breckenridge. Cañon City has every sort of activity from wineries to museums, and from kayaking to riding through the Royal Gorge. The population is around 30,000, so no big-city bustle for retirees! The median house price is $124,000, and the overall cost of living hovers around 9% below the national average leaving plenty of discretionary spending power.

Port Charlotte, Florida

Many retirees long for warm winters when they can “shovel sunshine,” not snow, sit on the beach, and visit all the places the travel ads tell them about such as Walt Disney World, St. Augustine (America’s first city), the World Golf Hall of Fame, and Cape Canaveral; the list goes on. But, again, many retirees cannot afford to live in Naples or Miami Beach. The good news is that by living in Port Charlotte, you can still enjoy the Florida lifestyle with a median house price of $150,600, and an average cost of living index that is 94% of the national average.

Port Charlotte has many miles of fresh and saltwater canals, and is right on the shore of Charlotte Harbor; Florida’s second largest bay. With good road links, retirees can enjoy easy travel to every tourist attraction in the state.

Where Will You Live When You Retire?

We have so many beautiful towns and cities to choose from – both local and far off. Wherever you may want to live, it pays to plan ahead to be sure you will have the finances you need to meet your goals. However you answer the question “where will you live when you retire?”, the sooner you start thinking and planning, the more certain your future can be.

How to Keep Track of Your Passwords

By | SH&J Blog, Tips | No Comments

With the help of the address book in our cell phones, we no longer have to worry about remembering phone numbers when we want to call a friend or family member.  Now, instead of trying to remember phone numbers, we not only have to keep track of various passwords but also what website or member login they are paired with.  Security experts say to make passwords unique using both letters and characters, and recommend not using the same password for everything.  But, in today’s world of multiple online bank accounts, retail accounts, email, and social media, how are we supposed to track and remember them all?

1. Password Manager Services

If you don’t mind paying a fee for the service, consider using a password manager to help organize and store your passwords online.  You’ll have to create a strong master password, but at least you will only have to remember one.  Be cautious when choosing a manager and review their security measures since you will be storing everything in one place and relying on their protection.  

2. Log-in through Social Media or Google

Some sites now allow you to log in using your Facebook, Twitter, or Google account information.  You likely won’t have the option to do this for bank accounts, but perhaps you can get away from creating yet another password when you visit your favorite retail or food delivery website.  Similar to using a password manager service, if you are using the same social media password to log in multiple places, make sure it is a strong one.

3. Store them in an encrypted document

If you don’t want to pay for a password manager service, but still want a place to list and store all of your passwords, consider saving them in a password protected and encrypted document on your computer.  Go one step further in protecting the document and refrain from storing it in the cloud.

4. Write them down

When all else fails, write your passwords down on paper.  Store and treat the list as you would any other important document and don’t keep it next to your computer or in your wallet.  Do your best to list the passwords with as little additional member login information as possible.

Tracking and protecting your online security is a significant part of protecting your overall financial foundation. Contact Sharkey, Howes & Javer at 303-639-5100 to meet with a Certified Financial Planner® to learn about additional ways to protect what you have worked hard to build.

The History of the American Stock Market (Part II)

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In Part I we looked at the beginnings of debt markets, and the early days of company stock ownership and trades. The 20th Century saw huge changes in the world’s economies, political systems, and population growth. The History of the American Stock Market both reflects these changes and used them to develop into what we see today. Next we will explore the New York Stock Exchange, NASDAQ, and S&P 500.

The New York Stock Exchange

As we saw in Part I, what was called the New York Curb Market moved indoors into a new building on Greenwich Street in Lower Manhattan. By now, it had established codes of conduct and listing requirements. By 1930, despite the Great Crash of 1929, The Curb Exchange was the world’s leading stock market, and listed more foreign issues than all of the other U.S. securities markets combined.

Radio was developing, and in the 1950s, Radio Amex began to broadcast stock prices and market changes so investors and traders could have up-to-the-minute information. Between 1950 and 1960, the share value traded on the American Stock Exchange had more than doubled to $23 billion.

In 1971, the NYSE and Amex brought many of its informational and other services together to form the National Securities Industry Automation Corporation, or SIAC. One result of such a development was educational services on, for example, options trading. Trading stocks had become a much more complex process, so the intention was to help investors learn more about markets and make more informed decisions.

Trading options and futures are two such examples. Options give buyers and sellers the right, should they choose, to trade an asset at a given price at some point during the life of that contract. Futures trading is similar, but buyers and sellers must trade at that price. Making profitable decisions now about what someone may or must do in the future demanded reliable information.

In 1993, Amex introduced derivative trading. A derivative is a security whose price is based on and depends on or is derived from, the value of underlying assets. These underlying assets include stocks and bonds, commodities, currencies, interest rates, and overall market indices.

In 2008, Amex was bought by and merged with NYSE Euronext. Euronext was a European stock exchange that traded in cash and the derivatives markets. It also produced market data for traders to use. The world, indeed, became more accessible when these major exchanges and market analysts merged across the two continents.

NASDAQ

“NASDAQ” stands for the National Association of Securities Dealers Automated Quotations System. Beginning in 1971, it was the first electronic exchange, where investors could buy and sell online, without having to meet on a trading floor. NASDAQ is, today, a world-wide provider of financial technology information and trading services. It operates in 26 countries around the world. NASDAQ’s online services have enabled the world’s stock markets to evolve dramatically. Because it is an all-electronic service, it attracted companies such as Apple, Microsoft and Dell.

Today, NASDAQ services many thousands of clients and publishes approximately 41,000 global indexes covering all kinds of industries and market sectors. This data enables trading professionals to analyze markets in detail and to advise their clients accordingly.

NASDAQ major business segments all use its technology and software to generate and publish the data. The technology then enables approximately 3,100 companies, representing approximately $10.1 trillion in market valuation, to list with NASDAQ. The listings bring buyers and sellers together so they can trade in the many different asset classes offered. As a result, the NASDAQ Stock Market is the largest single pool for trading in US equities.

S&P (Standard and Poor’s)

The company began as the Standard Statistical Company in 1923, when its indicator included only 233 publicly traded companies. It merged with Poor’s Publishing in 1941, resulting in the index showing 416 companies.  It was on January 1, 1957 that it hit the famous 500 mark.

It is, now, an index that tracks the value of 500 large companies, currently representing approximately $7.8 trillion of corporate valuation, that are listed on the NYSE and on NASDAQ, hence “S&P 500.”

S&P now does more than publish corporate indices. It also publishes indices on small, mid, and large cap companies and groupings including the S&P Composite 1500, and the S&P 900. It also publishes financial market intelligence across the world, and calculates credit ratings for companies, cities, states and provinces, and entire nations.

Final Comment

The history of the American stock market is rich in fact and action. It enables individuals, institutions, and corporations to invest, raise capital, spread risk, and to speculate on individually listed corporations as well as on company groups and entire market sectors.

SOURCES Part 2:
NASDAQ
http://www.investopedia.com/terms/n/nasdaq.asp http://www.investopedia.com/terms/e/euronext.asp
https://en.wikipedia.org/wiki/List_of_stock_exchanges_in_the_Americas
http://business.nasdaq.com/intel/market-data-feeds/Index-Data
Standard and Poor’s
http://www.investopedia.com/terms/s/sp.asp
http://www.investopedia.com/terms/s/sp500.asp
http://www.investopedia.com/video/play/index/
First Sub head includes info from the links in Part I: https://www.nyse.com/publicdocs/American_Stock_Exchange_Historical_Timeline.pdf http://bebusinessed.com/history/history-of-the-stock-market/

The History of the American Stock Market (Part 1)

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The first stock markets got their start as kings, merchants, and adventurers traveled to new, unexplored lands in search of new riches. But it was the development of new technology that helped transform early markets into the exchanges we all know and recognize today.

A Brief Introduction to the Markets

The first exchanges were for debts, rather than assets. Medieval kings and crusading lords had to borrow money to fund their expeditions and wars. They borrowed the money from wealthy merchants by selling part of the debt to other merchants in exchange for a share in the profit when the debts were repaid with interest. Today, we call this trading of debt “bond markets”.

In order for the great shipping nations of Europe to explore and discover new lands and resources such as gold, spices, raw materials, and other luxuries, the fleets of ships being used had to be funded. In some cases, the monarch funded the exploration. Ferdinand and Isabella of Spain funded Columbus’s voyage of 1492, for example. In other cases, the funding came from merchants. Rather than merely lend the money and trade the bonds to reduce the risk, merchants began to join together to form a company that funded their own venture. They were, literally, the first venture capitalists.

Initially, a new company would be formed for each voyage and be disbanded when the fleet returned. As the process evolved, the same company with the same jointly held stock (hence joint-stock company) owned by the same merchant adventurers would fund new trading ventures. Many companies grew wealthy, and their stock became a valuable, highly sought after asset in its own right.

Instead of buying stock shares for cash, they could simply be traded. Because not every ship would return to port, laden with goods for sale, merchants would spread their risk by exchanging stocks in one business venture for stocks in another.

The regular trading of stock certificates in the sixteenth and seventeenth centuries grew into an official, formal, and controlled element of modern-day finance. The world had become a larger place with international trade.

Now let us jump ahead and look at the more recent history of the stock market.

The First Stock Exchanges

Great Britain was the center of one of the greatest empires as well as the center of trade, commerce, and industrial output in the late 18th century. London saw the world’s first official stock exchange open in 1773. The London Stock Exchange (LSE) could not actually trade stocks at the time: unscrupulous business owners had caused so much financial damage that the speculative trading of stocks was illegal until 1825. Outside financing was needed for new ventures, so investors bought stock in these new companies (they just could not trade existing stock certificates among themselves).

In 1792, the New York Stock Exchange (NYSE) opened its doors. New York was the center of America’s domestic and international trade, banking, and manufacturing. The NYSE was America’s second stock exchange, the first one being the Philadelphia Stock Exchange, which began in 1790. Both markets were able to speculatively trade in stocks. The NYSE quickly outgrew its Philadelphia competitor and is, today, the largest stock market on the planet.

NYSE’s Early Days

Stock traders used to meet on the open street, and were known as “curbstone brokers”. As they formalized their role and location, 24 of America’s leading brokers met under a buttonwood tree to sign “The Buttonwood Agreement” which created the NYSE, and they moved their location to Wall Street.

The brokers established rules and set fees for trading. They copied many European practices, and the NYSE became a wealthy organization. The most important regulations the NYSE established were “listing requirements.” For a company to be quoted and traded on the NYSE, it must meet certain standards.

Listing requirements cover, for example, a company’s size (its annual income or its market value) and its liquidity. Liquidity essentially means how quickly its stock can be traded at a given value. Any stock can trade quickly at a bargain price, but overall stability is needed for owners who buy and sell the stocks. Today, if a company wants to be traded on the NYSE, it must have issued at least 1.1 million shares for public-trading, and they must be worth at least $100 million.

As America’s economy and its place in the world grew, so did the power and authority of its stock markets. New stock exchanges opened in other major economic areas. For example, Chicago in the Midwest and Los Angeles on the west coast.

Existing industries grew and new industries began. Rules and regulations developed to cope with both business complexity and the expanding world of international trade brought on by the rise of technology. Traders and owners (including pension companies) and other institutional investors needed new clear and trusted methods of stock valuation and comparison. New trading floors opened their doors to address the needs of the new marketplaces.

In Part II of this blog, which will be posted in a few days, we will look at how the stock market has changed to meet the demands of both growth and these new industries.

SOURCES Part 1:
NYSE Timeline and General History https://www.nyse.com/publicdocs/American_Stock_Exchange_Historical_Timeline.pdf http://bebusinessed.com/history/history-of-the-stock-market/
http://www.investopedia.com/articles/07/stock-exchange-history.asp
Buttonwood Agreement
http://www.investopedia.com/terms/b/buttonwoodagreement.asp
Listing Requirements
http://www.investopedia.com/terms/l/listingrequirements.asp http://smallbusiness.chron.com/stock-market-started-whom-14745.html

Weddings: Who is Picking Up the Tab?

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After the champagne has been popped and a new engagement celebrated, reality slowly creeps in as all parties begin to wonder: “who is responsible for paying for this wedding?” Traditionally, the bride’s family has picked up the full tab. However, that is not always the case in modern society. A budget meeting between families is the first step, and one of the main goals is to avoid awkward conversation. Often you will find that opinions vary between families and it can be helpful for parents of the groom and bride to have an idea of how other families approach this delicate topic.

One way to divide and conquer is by splitting up the responsibilities. The bride’s family pays for the flowers, the groom’s family pays for the rehearsal dinner, and so on. There are plenty of articles you can read from websites such as The Knot or The Bridal Guide that will happily provide an opinion on who should pay for what. However, these etiquette guides can become confusing rather quickly and are subject to vast interpretation and opinion.

Another approach is to let each party (bride’s family, groom’s family, and the engaged couple) determine the amount each can responsibly contribute to the costs. Depending on a myriad of factors, the average cost of a wedding in Colorado is $31,435. In reality, you can truly spend any amount you would like on a wedding, from under $10,000 to easily over $100,000. Anyone who has planned a wedding can tell you how quickly the dollars add up.

According to an article by Family Education, “some modern options for paying for a wedding include:

  • The bride and groom pay for the entire wedding
  • Expenses are divided evenly between the couple, the bride’s family, and the groom’s family
  • Each family covers the cost for the number of guests it invites
  • The bride’s family and groom’s family split the expenses evenly”

So what is really happening? A 2014 study indicates that on average, the bride’s parents contribute 43% to the cost, the engaged couple contributes 43%, and the groom’s parents contribute 12% (others account for the remaining 2%). Only 12% of couples pay for the wedding entirely by themselves.

The Huffington Post offers one last critical piece of advice for parents: “If the couple seeks your opinion on certain aspects of the day, consider yourself blessed. But don’t regard your contribution as a way to buy influence over what happens at the wedding—the day is truly about celebrating the couple, and it should be the one day that is theirs.”

If you would like help in making responsible decisions on contributing to celebration costs without hindering your own successful financial future, please call Sharkey, Howes & Javer at 303-639-5100 for a complimentary consultation.

How Financial Planning Can Make a Difference When a Loved One Passes Away

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Earlier this year, Julie Fletcher, CFP®, received a call from a client informing her that his spouse had unexpectedly passed away. When reflecting on the call, Julie said, “It was an incredibly difficult phone call. I had enjoyed getting to know them so much over the previous years. No matter how difficult it was for me, I couldn’t imagine what he was going through. I told him we would do everything we could from our standpoint to take the stress of the financial issues off of his back.”

In the time leading up to the call, Julie and the team at SH&J had been working to help the couple set up investment management and make sure their beneficiaries were aligned with their estate planning documents in order.

Julie commented, “Regardless of your stage of life, it’s important to be prepared for the unexpected. When we work with our clients we always make these 3 recommendations.”

  1. Stay Current
    Regularly check your estate planning documents to make sure they are up to date with fresh signatures and in line with state laws.
  2. Confirm Beneficiaries
    Make sure your beneficiaries are in line with your estate planning documents. Your beneficiary designations supersede your estate planning documents.
  3. Communicate Your Wishes
    Have open and honest conversations about your wishes with your close family members. Julie says, “Talking about the inevitable is the hardest part, but it is so important for them to know what you would want.”

Unfortunately, the call came and the difficult conversation ensued including a review of the details and costs regarding the funeral service. Julie was able to attend the service and later talked with her client about his decision to spend additional funds on the service to make it extra special.  “When I talked to him some time after the service, he said he was so happy he spent the money to honor his loved one. The service was beautiful and moving and truly celebrated his spouse’s life.”

In the weeks to follow, Julie and the team followed SH&J’s streamlined process designed to keep things uncomplicated for both the survivor and the beneficiaries.  She coordinated with the estate planning Attorney to execute on the estate planning that was appropriately in place and also worked with all of the beneficiaries to set up accounts to receive money in their names. Julie met all of them when they were in town for the service and has formed ongoing relationships with them even though they are scattered around the country. “I’m honored to have been a part of this process and to serve the beneficiaries who continue this legacy.”

“After we completed the process, I remember our client saying he felt like it should have been more complicated. As if he had missed a piece of the puzzle. I assured him this is how the process should go when you are prepared.”

When a loved one passes away, you want to focus on what really matters. If you are looking for a financial planning team to help make sure your financial plan is ready for the unexpected, reach out today. We would love to be able to help you.

Medical Expense Deduction

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Medical Expense Deduction

It’s that time of year again, tax season!  As you prepare your 2016 tax return, recall that changes were made to the itemized deduction for medical expenses back in January 2013. The IRS allows taxpayers to deduct medical expenses that exceed 10% of their adjusted gross income, which is an increase from the previous threshold of 7.5%.  There is a temporary exemption on the increase for taxpayers 65 and older, and 2016 is the last year taxpayers 65 and older are able to file under the old 7.5% threshold. Beginning in January of 2017, all taxpayers will be subject to the higher 10% threshold.

Whether you have a CPA prepare your return or you do it yourself, you may find yourself wondering what counts as a qualified medical expense.  The IRS website states, “medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payment for treatments affecting any structure or function of the body.” Unreimbursed medical and dental expenses paid within the tax year for you, your spouse and your dependents all count towards meeting the deduction threshold.     

Below is a short list of expenses taxpayers often forget are eligible medical expenses for deduction purposes. For a more complete list, IRS Publication 502 outlines what medical expenses are includible and how much of the expenses you can deduct.Sharkey, Howes & Javer Denver, CO | Medical Expenses Blog

  • Capital Expenses – amounts paid for improvements or equipment installed in a home or car for medical purposes, including operation and upkeep
  • Acupuncture and Chiropractor
  • Hearing Aids, Artificial Teeth, Contact Lenses, and Eyeglasses
  • Medical Conferences – includes admission and transportation if the conference concerns a chronic illness of yourself, your spouse or a dependent
  • Transportation to and from medical treatments – includes car, bus, taxi, train, plane fares or ambulance service
  • Weight-loss Program – if the program or treatment is for a specific disease diagnosed by a physician

Throughout the year, keep adequate records of your medical expenses showing the name and address of each medical care provider you paid and the amount and date of each payment. Consider keeping a file of receipts, cancelled checks, or bills, along with a description of the care received to support your expenses.