Why Today’s Retirees Need to Pursue Tax-Minimization Strategies

Today’s retirees face many obstacles, from an unpredictable market to a lack of guaranteed income in retirement. While these are important challenges to address, they would be remiss to ignore their future tax burdens. We’ll likely see increased taxes in the future, and this will affect today’s retirees more than tax increases have affected retirees in the past.

Retirement Then vs. Now

Today’s retirees are the first IRA generation: Whereas previous generations could primarily rely on Social Security benefits and pensions to cover their retirement expenses, many of today’s retirees find themselves having to fund a much larger portion of their retirement through their own pre-tax retirement accounts. And while retirement accounts such as 401(k)s and IRAs have significant benefits, they also come with downsides, namely that all of the withdrawals in retirement are taxable as ordinary income at the current tax rates in our country.

This means that if tax rates were to rise, the retiree living off of IRAs will have to pay more in taxes and therefore live off of less after-tax income. Previous generations saved their money in after-tax accounts, meaning if tax rates were to rise, it would not affect them the same way it will for this IRA generation. When we look at the history of taxes and the Biden administration’s tax-increasing proposals, it’s clear that retirees need to have a tax-minimization plan.

Could We See Taxes Increase?

We need to plan for the tax rates of the future, not the present. Previously, tax increases primarily affected wage earners. The Social Security payroll tax and income tax increases had little effect on Social Security beneficiaries and retirees who saved in after-tax accounts. However, those who take distributions from a tax-deferred retirement account and who invest in the market are affected by both income tax increases and new taxes.

These could include:

  • The possible elimination of the favorable long-term capital gains taxes rates for the wealthiest investors. This could mean those with incomes of $1 million or more might pay up to 39.5% on their gains, rather than the current top rate of 20%.
  • Lowering of the current standard deduction. Many retirees don’t itemize their deductions and rely on the standard deduction.  Therefore, if the current standard deduction is lowered, people’s taxes could go up.
  • Imposing the Social Security payroll tax on workers or households earning over $400,000 annually. This tax — in which employers and employees each pay 6.2% and the self-employed pay the full 12.4% — helps pay for Social Security benefits.
  • Lowering the federal estate tax exemption amount, which could affect estates above about $5 million.

Retirees should note that we may be experiencing tax rates at 100-year lows now, and that this could end in light of recent increased government spending. Our already large national debt increased during the pandemic, with the CARES Act of 2020 costing $2.2 trillion and the American Rescue Plan Act of 2021 costing $1.9 trillion. We will have to pay for this eventually, and retirees with large tax-deferred IRAs could be the ones to do it.

When we look at history, we see that after a period of increased government spending during World War II, income tax rates in the following decades were much higher than they are now. In 1944, the top rate peaked at 94%, and by 1964 it had only gone down to 70%. This doesn’t mean that an individual’s tax bracket will go from 22% to 70%, but there is a lot of room in between where retirees could feel the effects.

When running a financial plan, retirees need to calculate how much taxable income they will have and how much of that will be left after taxes. If tax rates rise, retirees could need to withdraw more from their taxable retirement accounts to be left with the same amount of income, ultimately drawing down their savings faster.

RMDs

Taxes on retirement income can become more burdensome starting at age 72. Most retirees must take RMDs (required minimum distributions) from their traditional retirement accounts starting at age 72, and the amount they must withdraw is based on their age and account balance.

RMDs could force someone to withdraw more than they normally would from their tax-deferred retirement account, causing them to jump into a higher tax bracket. Retirees under the age 72 should look to do careful planning that may minimize this effect by the time they reach this age.  (Keep reading for an idea on how to help do that below.)

Taxes and Your Legacy Goals

RMDs can also potentially increase a beneficiary’s tax burden due to the SECURE Act passed in 2019. It ended the “stretch IRA,” which allowed beneficiaries to stretch out distributions from an inherited retirement account over their lifetimes. Now, most non-spouse beneficiaries must empty traditional accounts within 10 years of the original owner’s death.

Those who want to pass on their retirement accounts should consider tax minimization strategies when creating an estate plan. One possibility is a charitable remainder trust.

What Can Retirees Do Now to Prepare for Higher Taxes Later?

Those who will draw a significant portion of their retirement income from taxable retirement account should take note, and work to minimize their overall tax burden. There are many strategies they can employ, including converting part or all of their traditional 401(k) or IRA to a Roth IRA. This involves paying tax on the amount converted and eventually withdrawing it from the Roth tax-free. If we see taxes increase in the future, a Roth conversion at today’s rates could potentially be a good strategy for those whose tax burden won’t substantially decrease in retirement.

In addition to providing tax-free income, a Roth is also exempt from RMDs. This means that the money in a Roth IRA can continue to grow throughout the owner’s lifetime tax-free. When it’s inherited, the beneficiary will have to drain the account in 10 years, as with a traditional IRA. However, distributions from traditional IRAs, distributions from Roth IRAs are not taxable and will not incur an early withdrawal penalty as long as the account is at least five years old.

The Bottom Line for Retirees

Retirees who have both traditional and Roth IRAs can strategically withdraw from each to avoid going into a higher tax bracket, continue to reap the tax-advantage benefits of a retirement account after age 72, and pass on potentially tax-free wealth to their beneficiaries. Those who think tax hikes are on the horizon and who don’t plan to live on significantly less income in retirement should consider tax-minimization strategies such as a Roth conversion.

Investment Advisory Services offered through Epstein and White Financial LLC, an SEC Registered Investment Advisor.  Epstein & White Retirement Income Solutions, LLC is a licensed insurance agency with the state of California Department of Insurance (#0K53785).  As of March 31, 2021, Epstein and White is now a part of Mercer Global Advisors Inc. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an Investment Adviser with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. The information, suggestions and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting, or insurance purposes.  Epstein and White Financial is not a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Please consult with your own accountant and financial planning professional to determine how tax changes affect your unique financial situation. A copy of Epstein & White Financial LLC’s current written disclosure statement discussing advisory services and fees is available for review upon request or at www.adviserinfo.sec.gov.

Founder and CEO, Epstein and White Retirement Income Solutions

Bradley White is founder and CEO of Epstein and White. He’s a Certified Financial Planner™ and has a bachelor’s degree in finance from San Diego State University. He’s an Investment Advisor Representative (IAR) and an insurance professional.

Source: kiplinger.com

Paying taxes as a freelancer

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Paying taxes as a freelancer can be a bit more involved—and expensive—than paying taxes as a W-2 employee. When you’re a freelancer, you’re the boss. That’s great if you want some flexibility, but it also means you’re self-employed, so you are responsible for both the employer and employee parts of employment taxes.

When you work for someone else, your paycheck amount is your pay minus all appropriate deductions. That includes deductions for federal and state income taxes as well as Medicare and Social Security contributions.

But what you might not realize is that your employer covers part of the Medicare and Social Security amounts. As a self-employed individual, you have to pay the total amount yourself. That’s 12.4 percent for Social Security and 2.9 percent for Medicare—a total of 15.3 percent of your taxable earnings, not including federal and other income taxes.

When Do I Have to Start Paying Taxes as a Freelancer?

According to the Internal Revenue Service, if you earn $400 or more in a year via self-employment or contract work, you must claim the income and pay taxes on it. The threshold is even lower if you earn the money for church work. If you earn more than $108.28 as a church employee and the church employer doesn’t withhold and pay employment taxes, you must do so.

What Tax Forms Should I Know About?

Freelancers report their income to the IRS using a Form 1040, but they may need to include a variety of Schedule attachments, including:

  • Schedule A, which lists itemized deductions
  • Schedule C, which reports profits or losses from their freelancer business
  • Schedule SE, which calculates self-employment tax

These are only some of the forms that might be relevant to a freelancer filing federal taxes. Freelancers must also file a tax form for the state in which they live as well as with any local governments that require income tax payments.

If you’re planning to do your taxes on your own as a freelancer, it might be helpful to invest in DIY tax software. Look for options that cater specifically to home and business or self-employment situations. These software programs typically walk you through a series of questions designed to determine which forms you need to file and help you complete those forms correctly.

Six Tips for Doing Your Taxes as a Freelancer

As a freelancer, chances are you spend a lot of your time attending to clients and getting production work done. You may not have a lot of time for business organization tasks such as accounting. But a proactive approach to paying taxes as a freelancer can help you prepare to do your taxes and pay what can be a surprisingly big bill each year.

Here are six tips for handling taxes as a freelancer.

1. Keep Track of Your Income

Track your income so you know how much you may need to pay in taxes every year. Keeping track of your numbers also helps you understand whether your business is profitable and how you’re doing with income compared to past years.

You can track your income in a number of ways. Apps and software programs such as QuickBooks and Wave let you manage your freelance invoices and track income and expenses. Some also help you generate financial reports that might be helpful come tax time.

Alternatively, you can track your income in an Excel spreadsheet or even a notebook, as long as you’re consistent with writing everything down.

2. Set Money Aside in Advance

It’s tempting to count every dollar that comes in as money you can use. But it’s wiser to set money aside for taxes in advance. Depending on how much you earn as a freelancer, you could owe thousands in federal and state taxes by the end of the year, and if you didn’t plan ahead, you might not have the money to cover the tax bill.

That can lead to tax debt that comes with pretty stiff penalties and interest—and the potential for a tax lien if you can’t pay the bill.

3. Determine Your Business Structure

Make sure you know what your business structure is. Many freelancers operate as sole proprietorships. But you might be able to get a tax break if you operate as an LLC or a corporation. Talk to legal and tax professionals as you set up your business to find out about the pros and cons of each type of organization.

4. Know About Relevant Deductions

As a freelancer, you may be able to take certain federal tax deductions to save yourself some money. Tax deductions reduce how much of your income is considered taxable, which, in turn, reduces how much you owe in taxes. Here are a few common deductions that might be relevant to you as a freelancer.

Home Office

You can take the home office deduction if you’ve set aside a certain area of your home for use by the business. The IRS does have a couple of stipulations.

First, you have to regularly use the space for your business, and it can’t be something you use regularly for other purposes. For example, you can’t claim your dining room as a home office just because you sometimes work from that location.

Second, the home has to be your principal place of business, which means it’s where you do most business activity. You can’t claim the deduction if you normally work outside the home but sometimes answer work emails while you’re in the living room.

Equipment and Supplies

You can also deduct the cost of equipment and supplies that you buy for your business. That includes software purchases and relevant subscriptions, such as if you pay monthly for Microsoft 365 or annually for a domain name.

Make sure you have backup documentation for any business expenses you deduct. That means keeping receipts that show what you purchased so you can prove that the expenses were for business. You also have to be careful to keep business and personal expenses separate—art supplies for your child’s school project, for example, wouldn’t typically be considered valid business expenses.

Travel and Meals

Meals and travel expenses that are related to your business may be tax deductible. If you stay in a hotel, book a flight or incur other travel expenses that are necessary for the running of your business, you can claim them as a deduction. The same is true for 50 percent of the value of meals and beverages that you pay for as a necessity when doing business.

The IRS does set an “ordinary and necessary” rule here. For example, if you’re traveling to meet with a client and you need to eat lunch, that is likely to be considered necessary. But if you opt for a very lavish meal for no other purpose than to do so, it might not be allowed under the “ordinary” part of the rule.

Business Insurance

If you carry liability or similar insurance for your business, you can deduct it as a cost of doing business. You may also be able to deduct the cost of other insurance policies if they are necessary for your trade.

5. Estimate Your Taxes Quarterly

The IRS offers provisions for estimating your employment taxes on a quarterly basis. Self-employed individuals, including freelancers, can make these estimated tax payments, too. Paying as you go means you won’t owe a large sum every April, and if you overestimate, you may get a tax refund.

Quarterly payments are due in April, June, September and January. They can be mailed or made online. Depending on how much you earn, you may need to make quarterly estimated tax payments to avoid a penalty at the end of the year.

6. Consult a Tax Professional

As you can see just from the basic information and tips above, paying taxes as a freelancer can get complicated quickly. Consider talking to a tax professional to understand what all your obligations are and how best to reduce your tax burden using legal deductions. You might be missing a major deduction every year that could save you a lot of money.

And remember that as a freelancer, you’re running your own small business. That means paying attention to all your finances, including your credit report. If you ever want to take out a business loan or seek other funding to grow your business, you might need to rely on your good credit score.

Check your credit score, and if you find inaccurate negative information making an impact on your score, contact Lexington Law to find out how to get help disputing it.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

8 Best Disability Insurance Companies of 2021 (Short-Term & Long-Term)

Data from LIMRA’s 2018 Insurance Barometer finds that roughly 3 in 5 American households have some form of life insurance.

In other words, there’s a good chance you have — at minimum — a term life insurance policy and therefore have some experience choosing a life insurance policy that fits your financial needs and life goals.

It’s far less likely you have experience searching for another type of insurance you probably need. That would be disability insurance, a vital income replacement solution for workers unable to work productively due to serious injury or illness.

If you or your family rely on your employment income to make ends meet or support a lifestyle you’ve become accustomed to, disability insurance is nearly as important as life insurance. After all, not all life-altering accidents and illnesses result in death.

And not all life-altering events that qualify for disability coverage are tragic. According to internal data from the Guardian Life Insurance Company of America, new mothers make more than one-quarter of the company’s short-term disability insurance claims.


Best Disability Insurance Companies

Obtaining a disability insurance policy isn’t all that different from obtaining a life insurance policy. And many of the best life insurance companies also write disability insurance policies, so you’ll see plenty of familiar names along the way.

Always shop for insurance using an aggregator like Policygenius. But the following disability insurance providers, in particular, are among the best for U.S.-based workers.

There are two main types of disability insurance coverage: short-term disability and long-term disability. All of the companies on this list offer long-term disability coverage, some offer short-term disability insurance, and many of them (or their close affiliates) offer other insurance products, such as term life and annuities.

This evaluation incorporates:

  • Financial strength ratings from A.M. Best, which measures insurers’ financial stability and overall capacity to make promised benefit payouts
  • Customer satisfaction ratings from the Better Business Bureau (BBB), a leading evaluator of general business quality
  • Overall suitability based on each company’s product mix, strengths, weaknesses, and markets served

When evaluating disability insurance companies and policies, pay close attention to policy specifics like:

  • The length of the elimination period (the waiting period before benefits kick in)
  • The length of the benefit period itself (which is usually longer for long-term policies)
  • The monthly benefit amount
  • Actual disability insurance costs (monthly premiums)
  • Whether the policy offers “any occupation” or “own occupation” coverage (or both)

1. Breeze Financial & Insurance Services Group

  • Breeze LogoA.M. Best Financial Strength Rating: Not available
  • BBB Customer Satisfaction Rating: A+
  • Great For: Very affordable policies; 100% online process with no salespeople

Breeze offers short- and long-term disability solutions that are all about convenience and affordability. Its 100% online application process cuts traditional salespeople out of the equation, allowing would-be policyholders to focus on what matters most: finding and securing the right amount of disability coverage at the right price.

Young, healthy workers with low coverage needs qualify for long-term coverage for as little as $9 per month — significantly less than many mainline insurers charge.

Despite its technology-driven approach, Breeze prides itself on an unusually transparent process that walks applicants through the entire scope of coverage and can accommodate a range of nontraditional situations, including solopreneurs and small-business owners with complex insurance needs.

And Breeze offers low-risk applicants an instant approval option that waives the usual medical underwriting requirement — no invasive medical exams or time-consuming labs required.

Learn More


2. Northwestern Mutual

  • Northwestern Mutual LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Supplementing employer-sponsored disability plans; specialized plans for part-time workers and stay-at-home parents

Northwestern Mutual specializes in long-term disability plans with variable-length elimination periods that bridge the coverage gap between what employer-sponsored disability plans pay and policyholders’ pre-disability income.

But traditional employees with existing disability coverage aren’t the only folks Northwestern Mutual’s worthwhile for. The company also offers nontraditional products and add-ons for part-time workers and stay-at-home parents whose emotional labor is so often undervalued.

Plus, it’s regarded as one of the strongest insurance companies on the market, which is no small thing for those seeking peace of mind.

Learn More


3. MassMutual

  • Mass Mutual LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: B-
  • Great For: Retirement savings protection; tying benefit growth to salary

MassMutual’s customizable disability insurance products protect between 45% and 65% of policyholders’ pre-disability income, but that’s far from the whole story.

Powerful riders, some of which aren’t widely available elsewhere, help policyholders keep their financial plans on track, even as they pay into their policies or (if it comes to that) collect benefits.

For example, the retirement savings protection rider earmarks some income for policyholders’ retirement plans, keeping their long-term investment strategy on track when they’re temporarily unable to work.

Another rider pegs benefit growth to salary growth, adding protection as policyholders’ careers advance.

Learn More


4. Guardian Life Insurance Company of America

  • Guardian Life Insurance LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Coverage for self-employed workers; group plans for small employers

Guardian Life Insurance Company of America offers short- and long-term disability insurance for self-employed individuals, group plans for employers, and supplemental policies for workers looking to add to their employer-sponsored coverage.

Because its policies are only available through licensed insurance brokers or employers themselves, Guardian requires all would-be policyholders to go through a middleman and definitely caters to small-business owners and executives looking to retain employees with attractive disability coverage.

But it’s a solid choice for self-employed workers with variable income, a group that tends to be perceived as high-risk (and is therefore underserved) by most disability insurance providers.

Learn More


5. Principal Financial Group

  • Principal Financial LogoA.M. Best Financial Strength Rating: Not rated
  • BBB Customer Satisfaction Rating: A+
  • Great For: Existing Principal Financial clients and those willing to work with a Principal advisor

Like Guardian’s, Principal Financial Group’s disability insurance offering is gated, available only to clients of Principal Financial Group advisors and those willing to establish an advisory relationship (even if temporary) to obtain disability coverage.

The advantage: All Principal policies are written for individuals, not employers, and are therefore portable, meaning they remain in force when the policyholder changes jobs.

Because Principal clients’ relationships extend well beyond disability insurance, they can sometimes qualify for lower premiums than those available through one-off individual policy transactions. However, the most critical factor in any pricing decision is the perceived risk of disability.

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6. RiverSource Life Insurance Company

  • Riversource LogoA.M. Best Financial Strength Rating: A+ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Option to tie benefits to salary; potential for high coverage limits

RiverSource Life Insurance Company offers two disability insurance solutions: Income Protection and Income Protection Plus.

The main difference between the two is a higher level of coverage with the latter, though both are customizable based on policyholders’ incomes and long-term goals.

And both come with optional riders that tie benefits to salary increases, ensuring peace of mind with every raise. Like Guardian and Principal, RiverSource offers disability policies through a network of advisors — in this case, those working with Ameriprise Financial.

Learn More


7. Mutual of Omaha Insurance Company

  • Mutual Of Omaha LogoA.M. Best Financial Strength Rating: A+ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: High coverage limits, optional coverage until age 67

Mutual of Omaha Insurance Company’s long-term disability insurance offering has two distinct advantages: high coverage limits (up to $12,000 per month) and the option to extend coverage until age 67, two years past the usual cutoff date for long-term disability benefits.

If you continue to work full-time and pay your premiums, your policy could remain in force until age 75, but Mutual of Omaha reserves the right to cancel your policy at any time after age 67.

The main drawback here: As with some competitors, individual Mutual of Omaha disability insurance policies are only available through licensed agents.

Learn More


8. Assurity

  • A.M. Best Financial Strength Rating: A- (Excellent)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Longer coverage periods, flexible benefit amounts (including total disability coverage)

Assurity is a flexible option for workers with longer-term disability income insurance needs. Its coverage periods start at one year and continue up until retirement age.

Customizable benefit amounts range from partial disability (for those transitioning back to the workforce) to total disability coverage for policyholders unable to work at all.

Assurity also stands out for its commitment to any occupation coverage. Even if you’re able to perform some duties in a role or profession other than the one you held before your disability, you can remain out of the workforce (and earning benefits) until you’re once more able to do the job you were trained for.

Learn More


Final Word

Health insurance is a prevalent employment benefit. And it’s a valuable one — so much so that many workers accelerate or delay job changes based on the availability or absence of quality, affordable employer-sponsored health insurance.

Employer-sponsored disability insurance isn’t offered as widely and isn’t as high on workers’ must-have lists as health insurance. But it’s still a fairly common employment benefit. If you’re not sure whether your employer offers it, dig up your new-hire packet or log into your HR portal to see for yourself.

If it’s an option, investigate further. It could be a better deal than what’s available on the individual market to someone in your risk class.

Then again, it might not be, which is why it always pays to shop around.

Source: moneycrashers.com

The Benefits of Working Longer

Financial planners and analysts have long advised workers who haven’t saved enough for retirement to work longer. But even if you’ve done everything right—saved the maximum in your retirement plans, lived within your means and stayed out of debt—working a few extra years, even at a reduced salary, could make an enormous difference in the quality of your life in your later years. And given the potential payoff, it’s worth starting to think about how long you plan to continue working—and what you’d like to do—even if you’re a decade or more away from traditional retirement age.

Larry Shagawat, 63, is thinking about retiring from his full-time job, but he’s not ready to stop working. Fortunately, he has a few tricks up his sleeve. Shagawat, who lives in Clifton, N.J., began his career as an actor and a magician. But marriage (to his former magician’s assistant), two children and a mortgage demanded income that was more consistent than the checks he earned as an extra on Law & Order, so he landed a job selling architectural and design products. The position provided his family with a comfortable living.

Now, though, Shagawat is con­sidering stepping back from his high-pressure job so he can pursue roles as a character actor (he’s still a member of the Screen Actors Guild) and perform magic tricks at corporate events. He also has a side gig selling golf products, including a golf cart cigar holder and a vanishing golf ball magic trick, through his website, golfworldnow.com. “I’ll be busier in retirement than I am in my current career,” he says.

Shagawat’s second career offers an opportunity for him to return to his first love, but he’s also motivated by a powerful financial incentive. His brother, Jim Shagawat, a certified financial planner with AdvicePeriod in Paramus, N.J., estimates that if Larry earns just $25,000 a year over the next decade, he’ll increase his retirement savings by $750,000, assuming a 5% annual withdrawal rate and an average 7% annual return on his investments.

Do the math

For every additional year (or even month) you work, you’ll shrink the amount of time in retirement you’ll need to finance with your savings. Meanwhile, you’ll be able to continue to contribute to your nest egg (see below) while giving that money more time to grow. In addition, working longer will allow you to postpone filing for Social Security benefits, which will increase the amount of your payouts.

For every year past your full retirement age (between 66 and 67 for most baby boomers) that you postpone retiring, Social Security will add 8% in delayed-retirement credits, until you reach age 70. Even if you think you won’t live long enough to benefit from the higher payouts, delaying your benefits could provide larger survivor benefits for your spouse. If you file for Social Security at age 70, your spouse’s survivor benefits will be 60% greater than if you file at age 62, according to the Center for Retirement Research at Boston College.

Liz Windisch, a CFP with Aspen Wealth Management in Denver, says working longer is particularly critical for women, who tend to earn less than men over their lifetimes but live longer. The average woman retires at age 63, compared with 65 for the average man, according to the Center for Retirement Research. That may be because many women are younger than their husbands and are encouraged to retire when their husbands stop working. But a woman who retires early could find herself in financial jeopardy if she outlives her husband, because the household’s Social Security benefits will be reduced—and she could lose her husband’s pension income, too, says Andy Baxley, a CFP with The Planning Center in Chicago.

Calculate the cost of health care

Many retirees believe, sometimes erroneously, that they’ll spend less when they stop working. But even if you succeed in cutting costs, health care expenses can throw you a costly curve. Working longer is one way to prevent those costs from decimating your nest egg.

Employer-provided health insurance is almost always less expensive than anything you can buy on your own, and if you’re 65 or older, it may also be cheaper than Medicare. If you work full-time for a company with 20 or more employees, the company is required to offer you the same health insurance provided to all employees, even if you’re older than 65 and eligible for Medicare. Delaying Medicare Part B, which covers doctor and outpatient services, while you’re enrolled in an employer-provided plan can save you a lot of money, particularly if you’re vulnerable to the Medicare high-income surcharge, says Kari Vogt, a CFP and Medicare insurance broker in Columbia, Mo. In 2021, the standard premium for Medicare Part B is $148.50, but seniors subject to the high-income Medicare surcharge will pay $208 to $505 for Medicare Part B, depending on their 2019 modified adjusted gross income. Medicare Part A, which covers hospitalization, generally doesn’t cost anything and can pay for costs that aren’t covered by your company-provided plan.

Vogt recalls working with an older couple whose premiums for an employer-provided plan were just $142 a month, and the deductible was fairly modest. Because of their income levels, they would have paid $1,150 per month for Medicare premiums, a Medicare supplement plan and a prescription drug plan, she says. With that in mind, they decided to stay on the job a few more years.

The math gets trickier if your employer’s plan has a high deductible. But even then, Vogt says, by staying on an employer plan, older workers with high ongoing drug costs could end up paying less than they’d pay for Medicare Part D. “If someone is taking several brand-name drugs, an employer plan is going to cover those drugs at a much better price than Medicare.”

Even if you don’t qualify for group coverage—you’re a part-timer, freelancer or a contract worker, for example—the additional income will help defray the cost of Medicare premiums and other expenses Medicare doesn’t cover. The Fidelity Investments annual Retiree Health Care Cost Estimate projects that the average 65-year-old couple will spend $295,000 on health care costs in retirement.

Long-term care is another threat to your retirement security, even if you have a well-funded nest egg. In 2020, the median cost of a semiprivate room in a nursing home was more than $8,800 a month, according to long-term-care provider Genworth’s annual survey.

If you’re in your fifties or sixties and in good health, it’s difficult to predict whether you’ll need long-term care, but earmarking some of your income from a job for long-term-care insurance or a fund designated for long-term care will give you peace of mind, Baxley says.

And working longer could not only help cover the cost of long-term care but also reduce the risk that you’ll need it in the first place. A long-term study of civil servants in the United Kingdom found that verbal memory, which declines naturally with age, deteriorated 38% faster after individuals retired. Other research suggests that people who continue to work are less likely to experience social isolation, which can contribute to cognitive decline. Research by the Age Friendly Foundation and RetirementJobs.com, a website for job seekers 50 and older, found that more than 60% of older adults surveyed who were still working interacted with at least 10 different people every day, while only 15% of retirees said they spoke to that many people on a daily basis (the study was conducted before the pandemic). Even unpleasant colleagues and a bad boss “are better than social isolation because they provide cognitive challenges that keep the mind active and healthy,” economists Axel Börsch-Supan and Morten Schuth contended in a 2014 article for the National Bureau of Economic Research.

A changing workforce

Many job seekers in their fifties or sixties worry about age discrimination—and the pandemic has exacerbated those concerns. A recent AARP survey found that 61% of older workers who fear losing their job this year believe age is a contributing factor.  But that could change as the economy recovers, and trends that emerged during the pandemic could end up benefiting older workers, says Tim Driver, founder of RetirementJobs.com. Some companies plan to allow employees to work remotely indefinitely, a shift that could make staying on the job more attractive for older workers—and make employers more amenable to accommodating their desire for more flexibility. “People who are working longer already wanted to work from home, and this has helped them do that more easily,” Driver says. To make that work, though, older workers need to stay on top of technology, which means they need to be comfortable using Zoom, LinkedIn and other online platforms, he says.  

More-flexible arrangements—including remote work—could also benefit older adults who want to continue to earn income but don’t want to work 50 hours a week. Baxley says some of his clients have gradually reduced their hours, from four days a week while they’re in their fifties to three or two days a week as they reach their sixties and seventies.

That assumes, of course, that your employer doesn’t lay you off or waltz you out the door with a buyout offer you don’t think you can refuse. But even then, you don’t necessarily have to stop working. The gig economy offers opportunities for older workers, and you don’t have to drive for Uber to take advantage of this emerging trend. There are numerous companies that will hire professionals in law, accounting, technology and other fields as consultants, says Kathy Kristof, a former Kiplinger columnist and founder of SideHusl.com, a website that reviews and rates online job platforms. Examples include FlexProfessionals, which finds part-time jobs for accountants, sales representatives and others for $25 to $40 an hour, and Wahve, which finds remote jobs for experienced workers in accounting, insurance and human resources (pay varies by experience).

Job seekers in their fifties (or even younger) who want to work into their sixties or later may want to consider an employer’s track record of hiring and retaining older workers when comparing job offers. Companies designated as Certified Age Friendly Employers by the Age Friendly Foundation have been steadily increasing and range from Home Depot to the Boston Red Sox. Driver says age-friendly employers are motivated by a desire for a more diverse workforce—which includes workers of all ages—and the realization that older workers are less likely to leave. Contrary to the assumption that older workers have one foot out the door toward retirement, their turnover rate is one-third of that for younger workers, Driver says.

At the Aquarium of the Pacific, an age-friendly employer based in Long Beach, Calif., employees older than 60 work in a variety of jobs, from guest service ambassadors to positions in the aquarium’s retail operations, says Kathie Nirschl, vice president of human resources (who, at 59, has no plans to retire anytime soon). Many of the aquarium’s visitors are seniors, and having older workers on staff helps the organization connect with them, Nirschl says.

John Rouse, 61, is the aquarium’s vice president of operations, a job that involves everything from facility maintenance to animal husbandry. He estimates that he walks between 12,000 and 13,000 steps a day to monitor the aquarium’s operations.

Rouse says he had originally planned to retire in his early sixties, but he has since revised those plans and now hopes to work until at least 68. He has a daughter in college, which is expensive, and he would like to delay filing for Social Security. Plus, he enjoys spending time at the aquarium with the fish, animals and coworkers. “It’s a great team atmosphere,” he says. “It has kept me young.”

New rules help seniors save

If you’re planning to keep working into your seventies—which is no longer unusual—provisions in the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act will make it easier to increase the size of your retirement savings or shield what you’ve saved from taxes.

Among other things, the law eliminated age limits on contributions to an IRA. Previously, you couldn’t contribute to a traditional IRA after age 70½. Now, if you have earned income, you can contribute to a traditional IRA at any age and, if you’re eligible, deduct those contributions. (Roth IRAs, which may be preferable for some savers because qualified withdrawals are tax-free, have never had an age cut-off as long as the contributor has earned income.)

The law also allows part-time workers to contribute to their employer’s 401(k) or other employer-provided retirement plan, which will benefit older workers who want to stay on the job but cut back their hours. The SECURE Act guarantees that workers can contribute to their employer’s 401(k) plan, as long as they’ve worked at least 500 hours a year for the past three years. Previously, employees who had worked less than 1,000 hours the year before were ineligible to participate in their employer’s 401(k) plan.

Delayed RMDs. If you have money in traditional IRAs or other tax-deferred accounts, you can’t leave it there forever. The IRS requires that you take minimum distributions and pay taxes on the money. If you’re still working, that income, combined with required minimum distributions, could push you into a higher tax bracket.

Congress waived RMDs in 2020, but that’s unlikely to happen again this year. Thanks to the SECURE Act, however, you don’t have to start taking them until you’re 72, up from the previous age of 70½. Keep in mind that if you’re still working at age 72, you’re not required to take RMDs from your current employer’s 401(k) plan until you stop working (unless you own at least 5% of the company).

One other note: If you work for yourself, whether as a self-employed business owner, freelancer or contractor, you can significantly increase the size of your savings stash. In 2021, you can contribute up to $58,000 to a solo 401(k), or $64,500 if you’re 50 or older. The actual amount you can contribute will be determined by your self-employment income.

chart that shows payoff from putting off retirement for a few yearschart that shows payoff from putting off retirement for a few years

Source: kiplinger.com

The Benefits of Working Longer

Financial planners and analysts have long advised workers who haven’t saved enough for retirement to work longer. But even if you’ve done everything right—saved the maximum in your retirement plans, lived within your means and stayed out of debt—working a few extra years, even at a reduced salary, could make an enormous difference in the quality of your life in your later years. And given the potential payoff, it’s worth starting to think about how long you plan to continue working—and what you’d like to do—even if you’re a decade or more away from traditional retirement age.

Larry Shagawat, 63, is thinking about retiring from his full-time job, but he’s not ready to stop working. Fortunately, he has a few tricks up his sleeve. Shagawat, who lives in Clifton, N.J., began his career as an actor and a magician. But marriage (to his former magician’s assistant), two children and a mortgage demanded income that was more consistent than the checks he earned as an extra on Law & Order, so he landed a job selling architectural and design products. The position provided his family with a comfortable living.

Now, though, Shagawat is con­sidering stepping back from his high-pressure job so he can pursue roles as a character actor (he’s still a member of the Screen Actors Guild) and perform magic tricks at corporate events. He also has a side gig selling golf products, including a golf cart cigar holder and a vanishing golf ball magic trick, through his website, golfworldnow.com. “I’ll be busier in retirement than I am in my current career,” he says.

Shagawat’s second career offers an opportunity for him to return to his first love, but he’s also motivated by a powerful financial incentive. His brother, Jim Shagawat, a certified financial planner with AdvicePeriod in Paramus, N.J., estimates that if Larry earns just $25,000 a year over the next decade, he’ll increase his retirement savings by $750,000, assuming a 5% annual withdrawal rate and an average 7% annual return on his investments.

Do the math

For every additional year (or even month) you work, you’ll shrink the amount of time in retirement you’ll need to finance with your savings. Meanwhile, you’ll be able to continue to contribute to your nest egg (see below) while giving that money more time to grow. In addition, working longer will allow you to postpone filing for Social Security benefits, which will increase the amount of your payouts.

For every year past your full retirement age (between 66 and 67 for most baby boomers) that you postpone retiring, Social Security will add 8% in delayed-retirement credits, until you reach age 70. Even if you think you won’t live long enough to benefit from the higher payouts, delaying your benefits could provide larger survivor benefits for your spouse. If you file for Social Security at age 70, your spouse’s survivor benefits will be 60% greater than if you file at age 62, according to the Center for Retirement Research at Boston College.

Liz Windisch, a CFP with Aspen Wealth Management in Denver, says working longer is particularly critical for women, who tend to earn less than men over their lifetimes but live longer. The average woman retires at age 63, compared with 65 for the average man, according to the Center for Retirement Research. That may be because many women are younger than their husbands and are encouraged to retire when their husbands stop working. But a woman who retires early could find herself in financial jeopardy if she outlives her husband, because the household’s Social Security benefits will be reduced—and she could lose her husband’s pension income, too, says Andy Baxley, a CFP with The Planning Center in Chicago.

Calculate the cost of health care

Many retirees believe, sometimes erroneously, that they’ll spend less when they stop working. But even if you succeed in cutting costs, health care expenses can throw you a costly curve. Working longer is one way to prevent those costs from decimating your nest egg.

Employer-provided health insurance is almost always less expensive than anything you can buy on your own, and if you’re 65 or older, it may also be cheaper than Medicare. If you work full-time for a company with 20 or more employees, the company is required to offer you the same health insurance provided to all employees, even if you’re older than 65 and eligible for Medicare. Delaying Medicare Part B, which covers doctor and outpatient services, while you’re enrolled in an employer-provided plan can save you a lot of money, particularly if you’re vulnerable to the Medicare high-income surcharge, says Kari Vogt, a CFP and Medicare insurance broker in Columbia, Mo. In 2021, the standard premium for Medicare Part B is $148.50, but seniors subject to the high-income Medicare surcharge will pay $208 to $505 for Medicare Part B, depending on their 2019 modified adjusted gross income. Medicare Part A, which covers hospitalization, generally doesn’t cost anything and can pay for costs that aren’t covered by your company-provided plan.

Vogt recalls working with an older couple whose premiums for an employer-provided plan were just $142 a month, and the deductible was fairly modest. Because of their income levels, they would have paid $1,150 per month for Medicare premiums, a Medicare supplement plan and a prescription drug plan, she says. With that in mind, they decided to stay on the job a few more years.

The math gets trickier if your employer’s plan has a high deductible. But even then, Vogt says, by staying on an employer plan, older workers with high ongoing drug costs could end up paying less than they’d pay for Medicare Part D. “If someone is taking several brand-name drugs, an employer plan is going to cover those drugs at a much better price than Medicare.”

Even if you don’t qualify for group coverage—you’re a part-timer, freelancer or a contract worker, for example—the additional income will help defray the cost of Medicare premiums and other expenses Medicare doesn’t cover. The Fidelity Investments annual Retiree Health Care Cost Estimate projects that the average 65-year-old couple will spend $295,000 on health care costs in retirement.

Long-term care is another threat to your retirement security, even if you have a well-funded nest egg. In 2020, the median cost of a semiprivate room in a nursing home was more than $8,800 a month, according to long-term-care provider Genworth’s annual survey.

If you’re in your fifties or sixties and in good health, it’s difficult to predict whether you’ll need long-term care, but earmarking some of your income from a job for long-term-care insurance or a fund designated for long-term care will give you peace of mind, Baxley says.

And working longer could not only help cover the cost of long-term care but also reduce the risk that you’ll need it in the first place. A long-term study of civil servants in the United Kingdom found that verbal memory, which declines naturally with age, deteriorated 38% faster after individuals retired. Other research suggests that people who continue to work are less likely to experience social isolation, which can contribute to cognitive decline. Research by the Age Friendly Foundation and RetirementJobs.com, a website for job seekers 50 and older, found that more than 60% of older adults surveyed who were still working interacted with at least 10 different people every day, while only 15% of retirees said they spoke to that many people on a daily basis (the study was conducted before the pandemic). Even unpleasant colleagues and a bad boss “are better than social isolation because they provide cognitive challenges that keep the mind active and healthy,” economists Axel Börsch-Supan and Morten Schuth contended in a 2014 article for the National Bureau of Economic Research.

A changing workforce

Many job seekers in their fifties or sixties worry about age discrimination—and the pandemic has exacerbated those concerns. A recent AARP survey found that 61% of older workers who fear losing their job this year believe age is a contributing factor.  But that could change as the economy recovers, and trends that emerged during the pandemic could end up benefiting older workers, says Tim Driver, founder of RetirementJobs.com. Some companies plan to allow employees to work remotely indefinitely, a shift that could make staying on the job more attractive for older workers—and make employers more amenable to accommodating their desire for more flexibility. “People who are working longer already wanted to work from home, and this has helped them do that more easily,” Driver says. To make that work, though, older workers need to stay on top of technology, which means they need to be comfortable using Zoom, LinkedIn and other online platforms, he says.  

More-flexible arrangements—including remote work—could also benefit older adults who want to continue to earn income but don’t want to work 50 hours a week. Baxley says some of his clients have gradually reduced their hours, from four days a week while they’re in their fifties to three or two days a week as they reach their sixties and seventies.

That assumes, of course, that your employer doesn’t lay you off or waltz you out the door with a buyout offer you don’t think you can refuse. But even then, you don’t necessarily have to stop working. The gig economy offers opportunities for older workers, and you don’t have to drive for Uber to take advantage of this emerging trend. There are numerous companies that will hire professionals in law, accounting, technology and other fields as consultants, says Kathy Kristof, a former Kiplinger columnist and founder of SideHusl.com, a website that reviews and rates online job platforms. Examples include FlexProfessionals, which finds part-time jobs for accountants, sales representatives and others for $25 to $40 an hour, and Wahve, which finds remote jobs for experienced workers in accounting, insurance and human resources (pay varies by experience).

Job seekers in their fifties (or even younger) who want to work into their sixties or later may want to consider an employer’s track record of hiring and retaining older workers when comparing job offers. Companies designated as Certified Age Friendly Employers by the Age Friendly Foundation have been steadily increasing and range from Home Depot to the Boston Red Sox. Driver says age-friendly employers are motivated by a desire for a more diverse workforce—which includes workers of all ages—and the realization that older workers are less likely to leave. Contrary to the assumption that older workers have one foot out the door toward retirement, their turnover rate is one-third of that for younger workers, Driver says.

At the Aquarium of the Pacific, an age-friendly employer based in Long Beach, Calif., employees older than 60 work in a variety of jobs, from guest service ambassadors to positions in the aquarium’s retail operations, says Kathie Nirschl, vice president of human resources (who, at 59, has no plans to retire anytime soon). Many of the aquarium’s visitors are seniors, and having older workers on staff helps the organization connect with them, Nirschl says.

John Rouse, 61, is the aquarium’s vice president of operations, a job that involves everything from facility maintenance to animal husbandry. He estimates that he walks between 12,000 and 13,000 steps a day to monitor the aquarium’s operations.

Rouse says he had originally planned to retire in his early sixties, but he has since revised those plans and now hopes to work until at least 68. He has a daughter in college, which is expensive, and he would like to delay filing for Social Security. Plus, he enjoys spending time at the aquarium with the fish, animals and coworkers. “It’s a great team atmosphere,” he says. “It has kept me young.”

New rules help seniors save

If you’re planning to keep working into your seventies—which is no longer unusual—provisions in the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act will make it easier to increase the size of your retirement savings or shield what you’ve saved from taxes.

Among other things, the law eliminated age limits on contributions to an IRA. Previously, you couldn’t contribute to a traditional IRA after age 70½. Now, if you have earned income, you can contribute to a traditional IRA at any age and, if you’re eligible, deduct those contributions. (Roth IRAs, which may be preferable for some savers because qualified withdrawals are tax-free, have never had an age cut-off as long as the contributor has earned income.)

The law also allows part-time workers to contribute to their employer’s 401(k) or other employer-provided retirement plan, which will benefit older workers who want to stay on the job but cut back their hours. The SECURE Act guarantees that workers can contribute to their employer’s 401(k) plan, as long as they’ve worked at least 500 hours a year for the past three years. Previously, employees who had worked less than 1,000 hours the year before were ineligible to participate in their employer’s 401(k) plan.

Delayed RMDs. If you have money in traditional IRAs or other tax-deferred accounts, you can’t leave it there forever. The IRS requires that you take minimum distributions and pay taxes on the money. If you’re still working, that income, combined with required minimum distributions, could push you into a higher tax bracket.

Congress waived RMDs in 2020, but that’s unlikely to happen again this year. Thanks to the SECURE Act, however, you don’t have to start taking them until you’re 72, up from the previous age of 70½. Keep in mind that if you’re still working at age 72, you’re not required to take RMDs from your current employer’s 401(k) plan until you stop working (unless you own at least 5% of the company).

One other note: If you work for yourself, whether as a self-employed business owner, freelancer or contractor, you can significantly increase the size of your savings stash. In 2021, you can contribute up to $58,000 to a solo 401(k), or $64,500 if you’re 50 or older. The actual amount you can contribute will be determined by your self-employment income.

chart that shows payoff from putting off retirement for a few yearschart that shows payoff from putting off retirement for a few years

Source: kiplinger.com

Getting a Low Mortgage Rate

Are you planning to buy a new house, and want to save money along the way? Then here are some ways to get a good interest on your home mortgage, as well as minimize the amount of money you’ll shell out throughout the payment period.

Tip #1: Keep Your Job or Get Promoted

If you’ve been gainfully employed for the past two years, you’re in good shape. If you got promoted during that span, that’s even better. Your application may be disapproved if your employment record is spotty, or if you demonstrate declining earnings.

It’s even tougher when you’re self-employed. You’ll be asked to present your income tax returns over the past two years, and may even be required to accomplish IRS Form 4506, which will let them verify whether your ITR’s are the same ones in the IRS’s records.

Tip #2: Save Up Enough to Cover the 20% Down Payment

When you qualify for a mortgage, you have the option to pay a down payment as low as 5%, but this tends to hike the interest rate and increase the amount of money you’ll shell out in the long run. To get the best interest rate for your situation, opt to pay a 20% down payment.

The reasoning behind this is that a loan with a 5% down payment is considered high-risk, and they’ll cover that risk by raising the interest rate accordingly. On the other hand, paying a higher down payment is an indication of stable earnings and money in the bank, so they can afford to give you a lower interest rate.

Another tip: They’ll also expect you to have enough cash reserves to cover your mortgage payments for the next 60 days. These cash reserves can be in the form of savings and checking accounts, certificates of deposit, or money market funds. It does NOT normally include retirement funds – unless you’re willing to pay additional taxes and penalties.

Tip #3: Keep Your Credit Score Up

In most cases, a credit score of 620 is the minimum required to take out a home loan – and it will likely get you a higher interest rate. On the other hand, you’ll get the best interest rates when your credit score is at 760 and up. How well do you score?

Study your credit score right now, correct any errors, and work on bringing it up over the next several months. With professional credit repair help, you could raise your credit score by over 100 points in a matter of months.

Tip #4: Check If You Qualify For Special Programs

There are special programs out there that qualify you for lower interest rates on your home mortgage, or allow you a smaller down payment with no additional interest. If you or your spouse is a war veteran, you can qualify for a Veterans Affairs loan, which offers protection when you fall behind on your payments.

Other programs benefit first-time home buyers, such as those of the Federal Housing Administration and the US. Department of Housing and Urban Development. And if you plan to buy a house in a rural area, the U.S. Department of Agriculture mortgage program will help you.

Do Your Homework Ahead of Time

Ideally, you should study your home mortgage options two years in advance. This gives you enough time to get your finances in order to get the best deal possible.

Source: creditabsolute.com

How to Save Money on Business Travel – 21 Ideas To Reduce Trip Costs

It doesn’t matter if you’re an executive at a large corporation or a small-business owner. It’s likely you sometimes have to travel for work.

Business travel is also becoming more common. According to Statista, worldwide business travel spending has more than doubled since 2000. While spending has recently declined due to the COVID-19 pandemic, traveling for work is still a reality for some and should eventually recover.

Business travel often involves international travel or significant domestic travel. Trade shows, conferences, networking events, and meeting new clients can require you to hop on a flight to do business in a new city or country. With airfare, hotel costs, transportation, and general travel expenses, costs rack up quickly.

If you want to save money on business travel, you’re in luck. There are numerous ways to reduce travel expenses beyond just booking economy.

Saving Money on Business Airfare

Of all business travel expenses, airfare is often the costliest. Booking flights in advance and sticking with economy are the two most straightforward ways to cut travel costs. But there are other ways to find cheap flights and reduce airfare costs.

1. Book Cheap & Discounted Flights

If you’re trying to save on business travel, booking flights early is the best way to find deals. Last-minute flights are usually expensive, and the more time you have to shop around, the better.

But that’s not the only trick you can use to find cheap flight options.

  • Book flights with layovers, provided the savings are worth the extra travel time.
  • Use airline search engines like Expedia, Travelocity, and CheapOair to find low-cost airfare.
  • Try alternate airports to your closest airport if they have lower prices.
  • Book directly through an airline carrier since some airlines don’t appear on airline search engines.
  • Take a red-eye (overnight) flight.

You can also take travel planning a step further and possibly score free flights or serious discounts. One popular strategy is to buy airline miles during a promotion, which is essentially buying a future flight at a discount. You can also earn airline miles without a credit card by opening a Bask Bank account or even participating in focus groups.

As long as you browse travel sites for deals and remain flexible, there’s no reason your next business flight should be full price.

2. Avoid Airline Fees

Finding cheap airline tickets is an effective way to reduce travel costs. However, if you aren’t careful, unnecessary airline fees can turn an otherwise frugal trip into a significant business expense.

The best way to avoid airline fees is to read the fine print carefully and stick with the right carrier. Some airlines, like Southwest and United, are generally lenient with checked bag fees and carry-on luggage, and you can sometimes avoid paying for these conveniences altogether.

If your airline charges for checked baggage, consider traveling light and just bringing a carry-on. If you need a suitcase to pack business attire, use a luggage scale to weigh your bag at home to avoid paying for overweight baggage.

Finally, resist paying for airline fees like early boarding or picking your seat if you aren’t picky about getting the aisle or window seat. These sound like luxuries, but these expenses add up quickly and don’t necessarily improve the quality of your flight.

3. Skip Airport Parking

Another common airport travel expense is parking. If you’re traveling for a week or longer, the daily cost of airport parking adds up. For example, at John F. Kennedy International Airport in New York, 24 hours of parking is $18 in the economy lot, meaning seven days of parking is an additional $126.

Thankfully, you can avoid parking fees entirely. One method is to take an Uber or Lyft to the airport. Alternatively, having a co-worker or family member drop you off is your next best bet. Public transportation is also worth the extra time if it saves you from expensive daily parking fees.

4. Book Through Rewards Websites

Booking your flight and hotel through a rewards website helps you save money on vacation and personal trips. But the right website can also cut business travel expenses.

Rakuten lets you earn cash back for shopping at thousands of partners. Creating an account is free, and once you shop at an eligible partner, you earn cash back in your account. You get paid quarterly as long as your account has $5, which is easy to do if you score cash back on a flight or hotel stay.

Rakuten has numerous travel partners, including:

  • Travelocity
  • CheapOair
  • OneTravel
  • Cheapair
  • Orbitz
  • Priceline
  • Holiday Inn
  • Extended Stay America
  • Hotels.com

Rakuten also has non-travel partners you can use to save even more money. For example, it lets you earn up to 5% cash back at thousands of restaurants, which helps you save if you eat out or take clients out for meals. Additionally, Rakuten partners with office supply companies, print shops, and electronics retailers, so you can save on a variety of business-related expenses.

It might seem strange to use a rewards website for business expenses. But if you’re trying to cut costs, every bit of savings counts.

Read our Rakuten review for more information.

5. Always Use a Travel Rewards Credit Card

If you’re a frequent business traveler, you need a travel rewards credit card. Typically, these cards let you earn points for travel-related expenses like flights and in-flight purchases alongside everyday spending.

You can often redeem points for discounted flights and even free airfare if you stack enough points. Plus, many travel rewards credit cards offer additional perks like hotel discounts, priority boarding, and airport lounge access.

Popular travel rewards credit cards include:

  • Chase Sapphire Reserve Card: Earn a $750 travel bonus for spending $4,000 in your first three months; $300 annual travel credit; triple points on travel and dining; perks like lost luggage and trip cancellation coverage; $550 annual fee
  • American Express Platinum Card: Earn a $750 bonus for spending $5,000 in your first three months; $200 annual airline fee credit; quintuple points on flights and prepaid hotels; $200 annual savings on Uber rides and food delivery; various hotel upgrades and discounts; $550 annual fee
  • Chase Sapphire Preferred Card: Earn a $750 travel bonus for spending $4,000 in your first three months; double points on travel and dining; quintuple points on Lyft rides; perks like lost luggage and trip cancellation coverage; $95 annual fee

There are other travel credit card options, including lucrative cash-back credit cards. If you’re a business owner, you can also look at small-business credit cards like the Chase Ink Business Preferred credit card. This card has numerous travel perks and an impressive $1,250 account opening bonus if you spend at least $15,000 within the first three months of becoming a cardholder.

Ideally, your credit card should offer enough travel perks and other rewards to help you save money even with the annual fee.


Saving Money on Accommodations

Finding a pleasant hotel or rental can help foster a successful business trip. Ideally, the location is close to clients or any event you need to attend and has ample access to restaurants for client meetings. Ultimately, you want to strike a balance among comfort, convenience, and affordability.

That can be difficult to get right. The worst-case scenario is that employee performance suffers because of location or simply being too cheap when booking. On the flip side, always sticking with 5-star luxury suites isn’t cost-effective.

As with airfare, there are several tips you can use to reduce how much you spend on accommodations.

6. Negotiate With Hotels

As an independent traveler, calling a hotel and negotiating room prices isn’t always feasible. But business travelers have a slight advantage, especially when traveling in larger groups.

Hotel chains want to incentivize visits from business travelers because it’s reliable, repeat business. If you’re heading out of town for a conference or meeting, take time to call nearby hotels to see what they can offer.

If it’s a frequent trip and you plan to return regularly, let the hotel know. You might find the manager is willing to drop your room price or at least give a free upgrade to keep you happy.

7. Try Dosh Travel

Dosh is a popular cash-back reward app that pays you for shopping at hundreds of partners. Once you link a credit or debit card to Dosh, you automatically earn for shopping at eligible retailers. That’s different from apps like Ibotta that require you to preselect offers before shopping.

Dosh works with dozens of companies, including:

  • Walmart
  • Pizza Hut
  • Sephora
  • Macy’s
  • Uber
  • Old Navy

Currently, you can earn with Dosh at over 100,000 stores across the United States. However, Dosh is also a way to save money on your next business trip.

With Dosh Travel, you can earn up to 40% cash back for booking a hotel through the app. Dosh works with more than 600,000 hotels globally, so there’s no shortage of choice.

You need at least $25 to withdraw your balance, but a single hotel stay can easily earn this amount. Additionally, Dosh partners with local restaurants and Uber Eats, so you can save money taking clients out and feeding your employees. With partners like Walmart and Office Depot, you can also earn cash back for buying office supplies, which can help you reach $25 faster.

Read our Dosh app review to learn more.

8. Consider Airbnb

If your company is traveling with multiple employees, it’s likely everyone needs their own room. Ultimately, that means a substantial hotel bill, even if you negotiate prices or find a deal.

Before you spend thousands of dollars on multiple hotel rooms, search Airbnb’s business accommodations. The platform has grown beyond vacation rentals, and you can find top-rated homes and boutique hotels that also have collaborative workspaces. Plus, Airbnb listings also mention nearby activities and attractions you can use for team building.

Airbnb isn’t always cheaper than hotels, but large groups are likely to save money. Even when you factor in cleaning charges and service fees, Airbnb has some remarkably low nightly prices. Plus, you can negotiate with hosts to get a lower price, and your amenities are likely better than a single hotel room.

If you want to save money and increase your comfort, using Airbnb for your next business trip is certainly worth it.


Saving Money on Food

It’s standard practice for employers to pay for employee meals during business trips. And taking clients and potential customers out for food and drinks is common during business travel. But expenses like client dinners and catering for your team add up quickly unless you implement some money-saving tips for food costs.

9. Schedule Breakfast & Lunchtime Meetings

The practice of wining and dining exists for good reason. For existing relationships, taking clients out shows them you appreciate their business. Similarly, taking a prospect out for food and drinks helps establish a more personal relationship and lets you discuss business in a less formal environment.

However, dinner is almost always more expensive than breakfast or lunch. If you treat a client to a nice dinner with a main course and drinks, you could easily spend $100 or more for the meal, depending on where you go and how many diners you have.

For example, at Scarpetta, a popular Italian restaurant in New York City, most dinner entrees range from $30 to $45. If you add two drinks and an appetizer, that’s another $50 or so for your bill. With an 18% tip, you’re paying around $140 for dinner for just you and one client. When you multiply that by several dinners over a business trip, expenses rack up quickly.

To save money on client meals, schedule breakfast or lunch meetings instead. The brunch menu at Scarpetta, which runs until 3pm, is noticeably cheaper than the dinner menu, with most entrees costing $18. Even with drinks, brunch or lunchtime dining likely brings your bill down to around $80, saving you over 40% on your meal with a client.

For breakfast, you can also find trendy restaurants and cafes suitable for client meetings, like La Parisienne, where a breakfast meeting for two costs around $40 to $50.

You don’t have to go to fast-food restaurants to save money on taking clients out. Instead, research several restaurants with affordable lunch and breakfast menus in the city you’re traveling to so you have some options.

10. Use Corporate Meal-Delivery Services

You may also need to feed your team on business trips. For that, you can save even more using corporate food-delivery services instead of catering companies, time-consuming reimbursement, or cash per-diem allowances.

For example, if you’re running a team event, try using DoorDash for Work to order everyone’s food. Perks of DoorDash for Work include:

  • No delivery fees
  • Lower service fees
  • Easy-to-create group orders
  • Spending limits and reimbursement options to let employees expense their meals

Uber Eats also has a corporate option that lets team members place group orders. As an employer, you can create rules like stipends and hours during which you cover employees’ expenses.

11. Scout Ahead for Cheap Food Joints

Often, if you book accommodations in a city’s downtown business district, you’ll find yourself surrounded by expensive restaurants and bars. But if you’re a mile or more out of downtown, you can probably find cheaper restaurants that are still suitable for client meetings and employee dining.

When booking accommodations, scout the area for affordable restaurants and nearby grocery stores. You should also search for quick and cheap restaurants or even food trucks that are nearby. That’s especially handy if you’re attending trade shows or events and only have time for a quick bite during a lull in the day.

12. Book Cooking-Friendly Accommodations

You don’t need a hotel with a complete kitchen for business travel. But having a microwave and small stovetop means you and your employees can cook some meals rather than relying on hotel food services and eating out constantly (a boon for those on special diets or with food allergies or restrictions).

The savings can add up quickly. For example, if you book a room with a stovetop, you can make a quick breakfast of eggs and toast rather than eating out each morning. That means you’re spending $1 to $2 at most for breakfast instead of $10 to $20 going out. However, if the cost of the room is significantly more expensive than a room without a kitchen, the savings likely aren’t worth it, so consider how impactful potential food savings is when booking accommodations.

For long business trips, companies like Extended Stay America have rooms with a full kitchen and let you save up to 31% on nightly rates if you book for 30 nights or longer. Booking an Airbnb is also ideal for saving on food since you typically have access to a full kitchen.


Saving Money on Transportation

While transportation usually doesn’t cost as much as airfare or accommodations, getting around a new city can still be a significant business travel expense. If you want to cut costs, there are several tricks you can try.

13. Use Rideshare Apps

As a business traveler, your first instinct might be to use an airport car rental service or even a higher-end rental company like Silvercar. However, when you consider car rental upsells and various hidden fees, it can be challenging to find a cheap car rental option.

Plus, if your trip consists of meetings and conferences, you won’t spend much time behind the wheel, making your rental car a near waste. In that case, you’re better off using rideshare apps like Uber and Lyft to travel.

Uber and Lyft also simplify corporate travel budgeting. For example, companies can set travel stipends and track ride history to ensure employees are only expensing business rides rather than personal.

If you’re responsible for approving reimbursement requests, you can quickly check the time, pickup, and drop-off location of every ride an employee expenses. If a ride seems like it wasn’t for business purposes, ask for clarification so your company doesn’t accidentally pay or attempt to take a tax deduction for personal employee expenses.

14. Book Accommodations in the Right Location

In an ideal world, you can skip renting a car or using rideshare apps altogether by booking accommodations within walking distance to wherever you need to go for your business trip.

If you’re attending a trade show or conference, check to see if they have arrangements with nearby hotels to offer special prices for attendees. Alternatively, book your own accommodations within walking distance. Even if you pay slightly more per night, the savings on a rental car or rideshare apps is probably worth it.

15. Save Money on Gas

For some business trips, renting a car or driving your own vehicle is more economical than taking a flight or using rideshare apps. But if you’re driving, anything you can do to save money on gas helps make your trip cheaper.

For starters, use a gas credit card to earn rewards for refueling. Popular gas credit cards include:

  • CitiBusiness AAdvantage Platinum Select Mastercard: Earn 65,000 bonus miles for spending $4,000 within your first four months; earn 2 AAdvantage miles for every $1 you spend at gas stations and car rental companies; earn unlimited 1 mile per $1 you spend on other categories; $99 annual fee that’s waived for your first year
  • Costco Anywhere Visa Card by Citi: Earn 4% cash back on gas for the first $7,000 per year and then 1% thereafter; 3% cash back on restaurants and travel purchases; 2% cash back on Costco and Costco.com purchases; 1 cash back everywhere else; no annual fee
  • Wells Fargo Propel American Express Card: Earn a $200 bonus for spending $1,000 in your first three months; earn unlimited 3% cash back on gas, restaurants, rideshares, transit, flights, hotels, and car rentals; earn 1% cash back everywhere else; no annual fee

To complement your gas credit card, use apps that help you find cheap gas stations, like GasBuddy. With GasBuddy, you can also get up to $0.25 off per gallon by signing up for Pay With GasBuddy, a free fuel rewards card you use like a debit card to pay at the pump and save.

Finally, when driving, use an app like Waze to avoid traffic and find the most efficient route possible. That’s especially important in an unfamiliar city where you don’t know your way around very well. Driving more efficiently helps reduce fuel consumption, ultimately saving more money.

It’s essential to conduct a cost-benefit analysis of driving versus flying and using rideshare apps or a rental car. But if the savings point toward driving, there’s no reason to pay full price at the pump.


Other Tips to Save on Business Travel

If you can cut down on airfare, accommodation, and transportation costs, you’re already on track to keep business travel more affordable. But there are other tips you can use to save money and keep trip planning simple.

16. Have a Trip-Approval Process

If you want to cut business costs, you need to understand your annual expenses to identify areas of wasteful spending. Therefore, every business budget should have a designated portion for business travel expenses and an approval process for trips.

You don’t need an extensive corporate travel policy to take a client out for lunch or drive across town for a meeting. But for out-of-town trips, it’s worth getting management involved. Ideally, employees should submit a trip summary that includes:

  • The purpose and length of a trip
  • The employees who are attending
  • A rough estimate of cost

The summary should then pass to human resources or management for approval.

While this might seem redundant, this process is useful for tracking costs and whether trips result in business development. Plus, as a business owner, you might find that you can skip certain trips or involve fewer employees after reviewing the details more closely.

17. Create a Travel Stipend

A trip approval process helps an organization budget for business travel expenses and forces teams to put more thought into deciding to travel in the first place.

But your business travel policy should also outline a daily employee stipend.

Creating a travel stipend for business travel benefits everyone. For employers, a travel stipend makes budgeting simpler. For employees, a stipend helps clarify limits and ensures there aren’t any awkward post-trip conversations about expensive restaurant or bar tabs.

You should also decide on a reimbursement method. One option is to open a business credit card for traveling employees. For example, Ramp lets you create unlimited virtual and physical cards for employees and pays 1.5% cash back. Plus, there’s no annual fee, and Ramp also collects and stores receipts automatically to help track spending.

Alternatively, you can let your employees spend with their own cards and submit expenses for reimbursement. However, ensure your employees know they need to provide receipts.

But weigh the pros and cons of leaving it in your employees’ hands. Making employees pay for expenses means they have to front significant costs like hotels and flights. That could put employees having financial issues in a tight spot they’d rather not discuss with their employer. And it also means they get to leverage their own credit card rewards that otherwise would have gone to the business.

18. Look for a Corporate Travel Agency

If you’re booking a simple business trip, working with a travel agency probably isn’t worth it. Travel agents used to be incredibly helpful because they could find exclusive deals and would book your trip for you. These days, booking travel plans online is straightforward, and you can find travel deals with a few searches.

But if you’re planning a complicated business trip with multiple employees and hotel bookings, a corporate travel agency could be worth it. Agencies charge a fee to ensure a smooth journey, but it could pay for itself if it prevents one of your employees from taking time out of their day to plan an entire trip.

19. Always Keep Receipts

Another simple way to save on business travel is to keep receipts for tax season. There are numerous tax deductions for self-employed individuals and small-business owners, but you need to track expenses to claim them accurately.

Business travel expenses are also deductible. Examples of deductible expenses include:

  • Travel by train, airplane, bus, or car between your home and business destination
  • Shipping baggage or business products to other work locations
  • Using your car for business purposes
  • Accommodations and business-related meals
  • Tolls, parking fees, and rental car usage for business purposes
  • Dry cleaning
  • Taxis and shuttle services

Keeping paper receipts is one way to track your spending. Alternatively, personal finance apps like MoneyPatrol let you save receipts on your smartphone to ensure you’re ready for tax season.

20. Plan Ahead

If you leave trip planning until the last minute, it’s almost impossible to find low prices or deals. That means paying more for flights, hotels, and transportation. Plus, feeling rushed is a surefire way to have a worse trip and potentially forget a critical part of planning.

Give your organization more time to plan trips whenever possible. Ideally, your company should have a calendar of upcoming trips throughout the year to help budget and plan business travel.

That responsibility can fall to department heads or relevant employees, but it needs to be prioritized if employees regularly travel for work.

21. Prioritize Impactful Savings

One of the worst ways to reduce business travel spending is to save money in a way that hurts your business’s image. For example, if you take a client out for lunch, choose a decent restaurant instead of a fast-food joint and cover the bill.

Similarly, there’s little point in nickel-and-diming your way toward a cheaper travel budget. If you spend hours agonizing over rental car prices to save $15, that’s hardly worth your time as an employee.

Ultimately, you should focus on efficient trip planning and tackling major expenses. Find cheap airfare and accommodations, consider sending fewer employees on trips, and always maximize rewards with the right business credit card.


Final Word

Business travel can be a significant expense. But as long as you plan and budget accordingly, there’s no reason for business trips to hurt your bottom line. In fact, business trips are an excellent way to increase business revenue if they create new opportunities.

Just remember to factor upcoming trips into your annual budget and create a trip-approval process and travel stipend. You can also conduct a yearly business checkup to review whether business travel costs have paid for themselves with new opportunities.

Source: moneycrashers.com

Moving for a Job: Tax-Deductible Expenses & Relocation Assistance

Did you move to take a new job this year, or are you considering moving for work soon?

According to the U.S. Census Bureau, just over 12% of the more than 32 million people who relocated in 2019 did so because of a new job or job transfer. If you’re one of them, you may have heard moving expenses are tax-deductible and want to know how you can benefit.

Unfortunately, thanks to the Tax Cuts and Jobs Act (TCJA) of 2017, moving expenses are no longer deductible for most people. However, the deduction is still available for some taxpayers, and there are other ways to offset the cost of moving. But how you offset your expenses depends on whether you’re filing under the old rules or new rules.

Deducting Moving Expenses: The Old Rules

For 2017 and prior, taxpayers can deduct moving expenses if they meet the following requirements:

  • Related to the Start of Work. The move must be related both in time and place to the start of work in a new location. Relocating expenses incurred within one year from the date you report to work are generally considered to be related in time. Expenses are related in place if the distance from your new home to your new job is not greater than the distance from your old home to your new place of employment.
  • Distance Test. Your new job location must be at least 50 miles farther from your former home than the distance from your former home to your former job. If you did not have a job, then the new place of employment must be at least 50 miles from your former home.
  • Time Test. There are different time tests if you’re an employee versus self-employed. If you’re an employee, you must work full-time for 39 weeks in the first 12 months following your arrival in the area of your new job. If you’re self-employed, you must work 39 weeks in the first 12 months and 78 weeks in the first 24 months following your arrival in the area of your new work location.

Note: If you’re married and filing a joint return, either you or your spouse can meet the time test, but you cannot meet the test by adding your weeks of employment to your spouse’s weeks of employment.

Exceptions to the Time Test

There are several situations in which you do not need to meet the time test, including:

  • Your primary job location was outside the U.S., and you moved to the U.S. because you retired.
  • You are the survivor of someone who worked abroad at the time of their death, and you moved to the U.S.
  • Your job in the new location ends because of death or disability.
  • Your employer transfers you for their own benefit or terminates your employment for a reason other than willful misconduct as long as you were working full time and expected to be employed long enough to meet the time test.
  • You are in the U.S. armed forces, and you moved because of a permanent change of station. A permanent change of station includes moving from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S. This definition applies whether military members buy or rent a home.

Deductions You Can Take Under the Old Rules

For moves in 2017 and earlier, if you met the above tests, you can deduct the following expenses:

  • Moving your household goods and personal effects, including packing, crating, and transporting as well as in-transit storage
  • Connecting or disconnecting utilities
  • Shipping your car or pet
  • Traveling (transportation and lodging, but not meals) to your new home (as long as you travel by the most direct route). The IRS doesn’t consider side trips for sightseeing or visiting relatives or friends part of the move. If you drive your own car, you can deduct either actual expenses (if you keep an accurate record) or a standard mileage rate. For 2017, that rate is 17 cents per mile driven. With either method, you can also deduct tolls and parking expenses. You cannot deduct general auto repairs or maintenance, insurance, or depreciation.

If your employer reimburses any of the above expenses and does not include the reimbursement as taxable income on your W-2, you cannot deduct those expenses on your return. Similarly, if your employer reimbursement is greater than the cost of your move, you must include the excess in your taxable income.


Deducting Moving Expenses: The New Rules

The TCJA suspended moving expense deductions for tax years 2018 through 2025 for all nonmilitary taxpayers. Active-duty military members who move due to a permanent change of duty station can still deduct moving expenses. A permanent change of station includes a move from your home to your first post of active duty, from one post of duty to another, or from your last post of duty to your home or a nearer point in the U.S. If you use your own car to drive yourself, members of your household, or your personal effects to your new home, you can either deduct actual expenses or a standard mileage rate of 17 cents per mile (for 2020 moves).

If you qualify, use Form 3903 to calculate your moving expense deduction. If you need help determining whether you can deduct your moving expenses, check out the IRS moving expenses deduction tool.

Also, while the federal government has suspended the deduction for moving expenses, some states still allow taxpayers to claim a deduction on their state income tax returns, so check the state tax laws where you live. The American Institute of Certified Public Accountants maintains a list of each state’s department of revenue.


Employer Reimbursements for Moving Expenses

Some employers offer relocation assistance to help existing employees relocate to a new city for work or to woo talent from outside their geographic area. However, this form of employee benefit is not very common.

According to the Society for Human Resources Management, only 34% of employers offered a lump-sum payment toward moving expenses to employees in 2019. And only 18% reimbursed the cost of shipping an employee’s household goods.

Before 2018, an employer could pay for or reimburse an employee’s qualified moving expenses. The payment was a tax-free fringe benefit, meaning they didn’t include it in the employee’s taxable income for the year. However, under the TCJA, employers must now include all moving expenses in an employee’s wages, and the payments are subject to income and employment taxes. Members of the U.S. armed forces can still exclude qualified moving expense reimbursements from their income if:

  • They are on active duty
  • They move pursuant to a military order and incident to a permanent change of station
  • Their moving expenses would qualify as a deduction if they didn’t get a reimbursement

In light of the deduction changes, it’s a smart move to negotiate a relocation package from your employer whenever possible. According to HomeAdvisor, a cross-country move typically costs anywhere from $2,417 to $6,211, depending on the size of your home and how far you’re moving. It can cost even more if you hire a moving company to handle everything from packing and cleaning to unpacking boxes in your new home.

If your employer is willing to reimburse those costs, you’ll pay income and payroll taxes on the reimbursement, but you’ll still be better off than you would be if you covered the entire cost out of your own pocket.

Plus, some employers will “gross up” their moving expense reimbursements to counteract the fact that reimbursements are now taxable — meaning they’ll give an employee more money than necessary for the move to cover the added taxes.


Final Word

Moving is a hassle, and with moving expenses no longer providing a tax break for most taxpayers, there’s less incentive to relocate for a new job — at least for now. However, both the moving expense deduction and the moving expense reimbursement exclusion are set to return as of Jan. 1, 2026, as long as Congress doesn’t decide to make the change permanent.

In the meantime, you can still take steps to save on your move by doing most of the work yourself and shopping around to compare prices. And don’t forget to negotiate a relocation package from your employer. That’s money in your pocket, even if the government takes a cut.

For more tax advice, check out our complete tax filing guide.

Did you move to take a new job this year? Did your employer offer relocation assistance, or did you cover the costs on your own?

Source: moneycrashers.com