How Cropping Tobacco Was My First Lesson On Taxes & Stimulus 2.0 Bullet Points – Finger Financial Five #12

“The hardest thing in the world to understand is the income tax.”
-Albert Einstein

My first job taught me the difference between taxable and tax-free income. I was a teenager cropping tobacco in the South Carolina summer heat at a farm outside Mullins. Sun up to sun down, with a break for 2 hotdogs, a pack of nabs, and a Coke for lunch, which cost a total of one dollar at Zion grocery. I got paid $25/day tax free. Using quick math on those long summer days, I was getting just over $2/hour.

Minimum wage at the time, was $3.25. After a month in the fields, I switched to a summer job at Myrtle Beach Grand Prix for the obvious pay raise. To my surprise, I saw TAXES taken from my paycheck for the first time. I still got paid more AFTER TAX than cropping tobacco….and the work was a lot more fun.

Taxes are a financial headwind, like swimming upstream or dragging an anchor.   The idea is to reduce the TAX DRAG. Good financial planning goes hand in hand with good tax planning.

With the government pumping tons of stimulus money into the economy and a new administration taking office, now more than ever, good planning can pay good dividends. So, what does that really mean?

Have an advisor that works WITH your CPA. Together they can see your whole picture and decide which options are best going forward.
Some questions that may come up are:

  1. Do you qualify for a Health Savings Account?
  2. Are you contributing to the proper retirement account?  Should it be ROTH or Traditional 401k? Something else?
  3. Should you take some tax losses, if so, how much?
  4. Take some tax gains???  Yes, that is a thing.
  5. Can you get a better AFTER-TAX yield with taxable or tax free fixed income?  Like cropping tobacco vs. Grand Prix job.
  6. ROTH conversion a good idea for you?
  7. What Social Security options would be best for you?
  8. Would a 529 plan be best for educational expenses?
  9. What is the best asset to donate to give to make the most of the current tax environment?

These are just a few of the many questions that need to be answered for proper tax planning.  And guess what?  The questions are always changing, because the rules, change.

On the lighter side, went from a 3-mile shuffle/walk Turkey Trot Thanksgiving Day, to a 10 mile slow run this past Saturday in preparation of the Myrtle Beach Marathon.  Making progress!

Hope all is well with you and your family,

Jeremy Finger, CFP®, CIMA®, CRPC®, CPFA
Founder & CEO
Wealth Management Advisor

By the way, here are a few Covid-19 Stimulus 2.0 bullet points[i]:

  1. Will you get a check? If you are single and made less than $75,000 in 2019, yes.  Married filling jointly under $150,000 yes.  If you made over this amount there are phaseouts.  If you qualify in 2020, but not on your 2019 income, you will get check when you file your taxes. Check amount is $600 currently.  This is for both tax filers and children under 17 years old.  For example, two spouses filled jointly with $140,000 income with 2 children under 17 will get $2400.
  2. No Required Minimum Distributions postpone options.  If you are over 72, you will be required to take your RMD from your qualified account in 2021.
  3. Unemployment benefits are $300/week.  Reduced from $600/week in early 2020.
  4. Deductible medical Expenses-Normally set at 10% of adjusted gross income was lowered to 7.5% in 2019.  This has been extended to 2021, so be mindful of your unreimbursed medical expenses.
  5. Return and Enhancement of the Paycheck Protection Program (PPP)- For those businesses who have yet to receive a loan under the Paycheck Protection Program, the ability to apply for ‘round one’ financing will be reopened. The qualifications and the rules for that program remain largely the same, but if you need round 2 help, other qualifications come into play.
  6. Business Meal Expense– 100% deductible in 2021 and 2022 as opposed to 50% deductibility.

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


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