Single and divorced men are always eager to discover more avenues for increasing the amount of expendable or disposable income they have at the end of every month.
The first place to look is right on your paycheck stub.
It is quite possible that as a single man, you are having too much in taxes deducted from your paycheck every pay period. This is true if you always find yourself looking forward to the receipt of a substantial tax refund with every coming tax season. Recent reports indicate that so far this year, the average tax refund is approximately $2,800.
If you’re interested in making ends meet right now, filing a new W-4 form with your employer will insure that you get more of your money when you earn it; when you would likely benefit the most from it.
It is important to be proactive if your employer offers a medical reimbursement account. These are often referred to as flex plans. These plans allow you to divert a portion of your salary to an account which you can then use to cover medical bills. The benefit of this type of account is the avoidance of income and Social Security taxes on funds contributed to the account. This simple strategic plan of covering medical expenses with pretax money can save you up to 35% or more in comparison with spending after-tax money to cover those same expenses.
If you are fortunate enough to have an employer who offers the latest variation of 401(k) – a ROTH 401(k), you should consider taking advantage of this invaluable benefit by thinking of it as the tax planning tool that it is. Unlike the regular 401(k), you will not receive a tax break when your money goes into a Roth, yet unlike a regular 401(k), money being distributed from a Roth 401(k) in retirement will be tax-free … at a time when you may fall in a higher bracket.
You may also save on your tax bill if you relocate in order to begin a new position. If the new job is a minimum of 50 miles farther from your former home than your prior job was, you can deduct costs associated with the move.
This is true even if you do not itemize expenses. If you move following remarriage, and either you or your new spouse has a job at the new location, you can deduct the cost of moving yourselves and your personal property. If you drive your own car, you can claim the current I.R.S. mileage deduction, in addition to parking and toll expenses.
If you are currently unemployed and searching for a position in the same field in which you were once employed, you can deduct costs accrued during your job search, including, but not limited to, food, lodging and transportation, should your search require an overnight stay. These costs are often characterized as miscellaneous expenses.
If you receive restricted stock as a fringe benefit from your employer, consider making what is referred to as an 83(b) election. This allows you to pay tax sooner on the value of the stock rather than waiting until the restrictions disappear when the stock "vests." Why pay tax sooner rather than later? It is important to remit this tax as soon as possible because you pay tax on the value at the time you get the stock, which could be significantly less than the value at the time the stock vests. Tax on any appreciation that occurs in between will then qualify for favorable capital gains treatment.
Should you borrow from your 401(k), you should make every effort to pay back the loan prior to leaving that particular job. Should you not do so, the loan amount will be considered a distribution that will be taxed at your top income bracket and, if you have not reached the age of 55 in the year you leave the job, you will incur the 10% penalty.
A ROTH IRA is often used by divorced men when saving for another home. All contributions may be withdrawn from a Roth at any time, tax-free and penalty-free. When the account has been opened for five years, up to $10,000 of the earnings may be withdrawn tax-free and penalty-free for the purchase of a first home.
In the event you are covering the costs of your own tuition for graduate courses or other training, you may qualify for the Lifetime Learning Credit that is currently worth 20% of up to $10,000 of qualifying expenses. The right to claim this tax credit is, however, phased out if your income exceeds $50,000 on a single return or $100,000 on a joint return.
It is often wise to deduct expenses even if you do not itemize. The only reason to use the standard deduction is if it is more substantial than the total you could deduct if you itemized. Many things may be deducted even if you do not itemize, including student loan interest, job-related moving expenses, costs incurred by reservists and performing artists and contributions to health savings accounts and IRAs. Also, in 2009 homeowners who don’t itemize can boost their standard deduction amount by up to $500 for single filers or $1,000 for a joint return for property taxes paid.
If you are planning to remarry near year-end, you will need to consider the tax consequences of this decision. The tax law still includes a "marriage penalty" that causes some couples to pay more combined tax as a married couple than as singles. In addition, prior to your remarriage, you will need to get a W-4 form and figure how to arrange withholding from your paycheck to match your new tax status as a married individual.
If a relative or other individual bequeaths to you a 401(k) plan, take advantage of a rule enacted in 2007. This rule allows you to roll over the account into an IRA and space payouts (and the tax bill on them) over your lifetime. This can be a tremendous advantage over the old rules that generally required these accounts to be cashed out, and all taxes paid, within a five year period.
Certain investments will allow you to benefit with regard to falling into a lower tax bracket. You must, however, own an investment for more than one year for profit to qualify as a long-term gain and receive the preferential tax rates. The "holding period" starts on the day after you buy a stock, mutual fund or other asset that qualifies as a capital gain, and it ends on the day you sell it.
Time is truly of the essence when considering investing in a mutual fund. Prior to investing in a mutual fund near the year’s end, check with a financial advisor or tax professional to determine when the fund will distribute dividends. On that day, the value of shares will fall by the amount paid. It is wise to buy just before the payout and the dividend will effectively rebate part of your purchase price. You will, however, owe tax on the amount. If you wait and purchase after the payout, you will receive a lower price with no tax bill.
On a final note, it is also prudent to make your IRA contributions as early as possible. The sooner funds are deposited in your account, the sooner the funds begin to earn tax-deferred or, in the case of a Roth IRA, tax-free returns. This can lead to a sizable account once you near retirement age.
Milandria King is a Senior Attorney in the Memphis, Tennessee office for Cordell & Cordell, P.C., admitted to practice law in the state of Tennessee. Additionally, Ms. King is admitted to practice before the Sixth Circuit Court of Appeals and before the United States District Court for the Western District of Tennessee. Her memberships include the American Bar Association, the Memphis Bar Association, the Tennessee Bar Association, as well as the Association for Women Attorneys.