February 2019 -

How to Speak “Tax”

This time of year and into April, we begin to hear a different vocabulary come to life: “Credit.” “Exemption.” “Adjusted Gross Income.” It can seem as if your accountant speaks a different language from you.

While we’ll do our best to explain the tax terms we use during your appointment, we’ve compiled a list of them for those of you who’d like to be more “in the know.” Not only will this better equip you to keep up at your next social gathering, but it will allow you to ask the right questions when you meet with your tax professional.

TY = Tax Year

If you file your taxes on time, the tax year is always one year behind the year we’re in. In 2019, you will be filing your TY 2018 tax return.

FY = Fiscal Year

Fiscal year is a one-year period for accounting purposes. Most businesses make their fiscal year the same as the calendar year: January 1^st through December 31st. Others run their business with start and stop dates different from the calendar year. A common fiscal year is July 1st to June 30th.

EIN = Employer Identification Number

This is a unique identification number assigned to a business by the IRS.

Form 8879 = IRS e-file Signature Authorization

This form must be signed for your return to be efiled, and it can be digitally signed.

Form 1040 = U.S. Individual Income Tax Return

This is the main form used when reporting individual income. It includes the taxpayer’s basic information, dependents, and tax calculations. If the taxpayer is a sole proprietor or a single-member LLC, their business activity is reported on their personal tax return.

Form 1120 = U.S. Corporation Income Tax Return

When reporting C corporation income, this form is used. S corporations are reported on Form 1120S.

AGI = Adjusted Gross Income

AGI is equal to your total income subject to income tax minus specific deductions you may be eligible to take. AGI is calculated before applying the standard or itemized deduction. Many credits are subject to AGI limitations, meaning that if your AGI is above a certain amount, you may be disqualified from certain deductions and credits.

MFJ = Married Filing Jointly

This is one of five possible filing status categories.

MFS = Married Filing Separate

This is another one of five possible filing status categories. You may see these acronyms frequently in tax articles explaining how new laws affect the different types of taxpayers.

TCJA = Tax Cuts and Jobs Act

The name bestowed upon the largest tax law changes approved by Congress, many of which went into effect for TY 2018.

SSTB = Specified Service Trade or Business

This term specifically relates to Section 199A, which is a new tax law that allows for up to a 20% deduction on “qualified business income” (“QBI”) for any “qualified trade or business” (“QTB”) other than a “specified trade or business” (“SSTB”). This deduction is available to sole proprietors and passthrough entities.

This list will get you started, and if you run across another tax term, feel free to contact P.T. Anderson Accounting to find out more.

Money and Marriage

One of the biggest things that can cause fights in a marriage is money. No matter where you are in a relationship, it’s a good idea to discuss these major money topics so you’ll know where you stand.

Show me the money: Combine or keep separate or both

One of the best ways to avoid conflict is to put your money into three separate piles: yours, your spouse’s, and a joint set of accounts. In this arrangement, each of you has control over some money that is all your own. The household spending will then come out of the joint account, and you both will make contributions to it on a regular basis.

As a couple, you’ll need to discuss who will pay for what as well as what your regular contribution will be to the joint account. This is no small discussion. The more thorough you are, the less conflict you’ll have over money.

One spouse or partner will normally handle the joint finances, and it’s typically the person with the most accounting knowledge. However, you both should have access to this account in case of emergency.

Savings and future purchase goals

Do you have goals about upcoming large purchases? These might include:

A home purchase or improvement
Children’s education
Health care needs
Saving for retirement
A car purchase
A second home purchase
A vacation
Another item such as a boat, furniture, technology gadgets, a plane, or something else
A nest egg or cushion

If so, calculate how much you need and make a plan to set aside the money you need in the time frame you agree on.

Spending

Do you like to spend more than your spouse? Or is it the other way around? When money is flowing, there is usually no problem. When money is tight, that’s when the problems come in.

When there are conflicts in the area of spending, the best course is to focus on priorities. If you can agree on your priorities and goals, it can often shift spending habits.

Budget

You may want to set a budget to stick as close as possible to expected spending limits. Start by recording current spending in these areas, and then agree on the amounts you want to spend in the future.

Rent or mortgage payment
Utilities, including electric, gas, water, garbage, phone, internet, cable
Food and supplies, including grocery, kitchen items, liquor, and eating out
Entertainment, including travel, vacations, local events, holiday decorations, Netflix subscriptions, tech gadgets, books, etc.
House maintenance including repairs, cleaning, lawn care, appliances, and decorating
Automobile, including gas, insurance, licenses, and maintenance
Clothing and accessories, including dry cleaning
Health care, including pharmacy, doctor’s visit, and HSA contributions
Personal care, such as haircuts, nail care, etc.
Tuition and/or education expenses
Contribution to retirement and savings accounts
Charitable contributions
Taxes, including federal, state, local, school, and property
Paying down credit card or student loan debt

Retirement

What does retirement look like to both of you? Having this conversation will be enlightening. Know that dreams and goals can change over time as retirement approaches.

You’ll want to have an idea about what you’d like to spend during your final years so that you can make plans to start accumulating that wealth now. The sooner you start, the more years you have to build up your retirement assets.

Monitoring your progress

Keep an eye on your account balances to make sure everything is as it should be. Review bank and brokerage account statements and/or your budget once a month or at least once a quarter so there are no surprises or trends that sneak up on you.

When you reach your goals, reward yourself. Managing money is hard work, and you deserve to pat yourself on the back when a goal is achieved. If there is anything we can do to help you make your financial dreams come true, contact P.T. Anderson Accounting to get started.