SMART Financial Life Planning Goals and Objectives

Whether you are working with a professional or creating your own financial plan, a comprehensive list of goals and objectives is an important starting point in the establishment of a tax and financial plan. Many people make the mistake of jumping into certain aspects of the financial planning process without a clear sense of direction. Even if you are not working with a planner you should start the planning process with specific goals and objectives.

First, start by making a comprehensive list of the things you would like money to help you accomplish in life. Then rank these goals and objectives from the most important to the least important. Establishing personal goals and objectives is your opportunity to identify what is most important to you. There are no right or wrong answers! This may seem like an easy step. However, this step should not be neglected. Goal setting will help define what you look to accomplish during the financial life planning process.

The following are some of the most common tax and financial planning goals that people generally set. I encourage people to be honest with themselves when ranking goals and objectives. Do not feel constrained by this list by any means. Add your own goals if this list does not include an important area of concern in your life.

Rank from 1 (most important) to 12 (least important).

Level of Importance Tax and/or Financial Planning Goal

______ Complete a planned major purchase (home, rental property, automobile, boat)
______ Increase Net Worth through, savings, investments
______ Establish a debt reduction plan to manage consumer debt
______ Manage income and expenses to maintain good cash flow
______ Minimize current income taxes
______ Ensure a comfortable retirement with income to maintain desired lifestyle
______ Provide education funds for children or grandchildren
______ Maximize the benefits of owning a business, provide for business continuation
______ Provide cash and income for survivors in the event of death
______ Protect assets and income against loss in the event of disability
______ Protect property from loss by natural or legal disaster
______ Pass money and property on to the next generation, minimize potential death taxes
______ Achieve Other Goals (Be Specific). Examples include: change jobs, career change, self-employment, learn a new skill or hobby, lose weight, improve physical fitness.

Life Planning Goals

Next, try to set goals that go beyond the traditional areas of focus listed above. These financial life planning goals should tap into your passions and values. These goals provide deeper meaning and purpose to the entire financial planning process.

Life planning goals generally fall into seven different categories. Take a moment and write down your life goals for each of these areas.

• Family
• Career
• Social
• Physical
• Spiritual
• Financial
• Intellectual


Other goals: ____________________________


After you have ranked your goals and their level of importance take the top three and write them down. Make sure that your goals are SMART and follow the guidelines below.

How SMART are your goals?

S = Specific (Be clear and precise)
M = Measurable (Identify how will you measure progress and success)
A = Attainable (Set goals that you are capable of accomplishing)
R = Realistic (Know your limitations but never underestimate your own abilities)
T = Timely (Set a time frame regarding when you would like to accomplish your goals)

The Three Most Important Goals in My Life

1.

2.

3.

Financial life planning goals focus on the “big picture” and provide a deeper meaning to the tax and financial planning process. Focusing on improving your life as it relates to money is the real challenge that you should be called to achieve. This means finding ways to understand how smart money related decisions will have an impact on your life plan. As this exercise should have demonstrated, smart decisions regarding money matters are guided by the establishment of "SMART" goals.

Financial life planning requires a focus on what matters to you the most in life. It starts the thinking process about what is important to you about money. When establishing tax and financial goals you should consider the role that money plays in your life. That is the "smart" way to approach the financial planning process.

Tax Resolution: Identifying the Need for Change

The tax resolution industry is highly fragmented with the largest tax resolution firm commanding less than 1% of the industry share. Unfortunately, tax resolution firms are unregulated and many of the largest firms do not have stellar track records of service and performance. Recently I surveyed some of the marketing slogans of tax resolution firms advertising on television and the internet. Most of the messages these companies use to reach new clients convey offers of hope and encouragement. However, some companies are marred with extensive customer service complaints and broken promises. Others flat out mislead their clients, misrepresent their services, or market “pennies on the dollar” and “one time only- act now!” settlements. Here are some marketing slogans that I came across recently:

“You could reduce your IRS tax debt to a fraction and be tax debt free”
“Settle for pennies on the dollar- Ex IRS Agents”
“End your IRS Fears”
“Get the IRS off your back”
“Do not be another IRS victim”
“IRS tax problems ruining your life?”

What do all of these statements have in common? They are attempting to reach at the most common emotions shared by a significant number of taxpayers that owe the IRS: FEAR and DESPARATION. The one thing that is missing sometimes is a message that promotes empowerment and accountability while offering the professional expertise that is often needed to help resolve tax problems. It is true that the financial stresses of debt can be overwhelming and debilitating. The IRS and collection agencies can make even the strongest willed person feel powerless and overmatched. Unfortunately, many desperate people make a huge financial mistake when they let fear guide their decision regarding where to seek tax assistance.

Tax representation firms understand the underlying fear and procrastination that is associated with the typical tax resolution client. Emotions and psychological factors play a key role in the tax resolution process. Tax representation firms also understand that some people with tax problems do not usually possess a high degree of financial literacy. That is why the typical American with tax problems is at risk of being taken advantage of when dealing with the IRS.

The following are some of the most common mistakes that people make when seeking to resolve tax problems with a tax resolution or tax representation firm:

* Focusing solely on getting rid of tax debt rather than on changing the underlying financial behaviors that helped create the tax problem.

* Financing the cost of tax representation services only to dig deeper in debt.

* Allowing their fears and doubts to increase the chances they will make an emotional decision with respect to choosing a tax representation firm.

* Failing to realize that an Offer in Compromise (resolving tax debt for less than the amount owed) is not for everyone.

* Falling for the lure of a commissioned sales agent providing empty promises they will qualify for an Offer in Compromise when more realistic alternatives exist.

* Hearing what they want to hear (“you can get out of tax debt”) rather than what they need to hear (“you can take control of your tax and financial situation”).

* Settling for high interest IRS payment plans when other resources are available to pay off the tax debt faster and with lower interest and penalties.

* Getting taken advantage of by not taking the time to do their homework with respect to seeking professional tax resolution guidance.

* Assuming that their tax professional will do all the work and neglecting to send in relevant documents and paperwork needed to proceed with their case.

* Trying to resolve tax problems without a plan.

Rather than simply offering promises of hope and resolution, I prefer to be upfront with my tax resolution clients and let them know that dealing with tax problems is part of a bigger financial process of change. This process may require a great deal of work on their behalf to implement the tax and financial planning recommendations. The end result of the hard work is a genuine sense of financial freedom and is definitely worth the effort. If you or someone you care about has a tax problem, always remember that the ideal solution starts with a personalized tax and financial plan.

Protecting Your Investment Assets From Future Tax Rate Hikes

With the potential for significant tax law changes looming on the horizon strategic planning becomes necessary now more than ever to help preserve and build wealth. From a historical perspective, Americans are currently enjoying favorably low income tax rates. Unfortunately for affluent individuals and families this is soon likely to change. With massive government spending and growing federal deficits it is becoming apparent that changes to the tax code are inevitable and significant tax hikes will likely occur in the not too distant future. So, beyond participating in tax deferred retirement accounts (401k, 403b, IRA, Roth IRA, etc.) what can investors do to protect their current and future assets from these expected tax rate increases?

There are a number of different tax strategies available to consider in advance of these expected tax increases. However, one thing to keep in mind is that tax considerations should never be the sole basis for a planning strategy. Income tax planning is just one part of a comprehensive financial plan. Consider the following strategies as you adapt your financial life plan to the possibility of higher taxes.

Establish a comprehensive plan
The best starting point in preparation of future tax increases is to have a plan in place prior to tax law changes. One of the biggest mistakes that many investors are making today is taking a "wait and see" approach and not being proactive. Comprehensive planning strategies help prepare for life's uncertainties and add meaning and purpose to important decisions related to taxes and other money matters. If you are investing for future life goals and objectives, be sure that you have a written set of guidelines to help you track investment decisions. An investment policy statement should be used to help monitor investments and take into account all potential tax implications.

Shifting income
While there is no guarantee that we will see an increase in tax rates during 2010, it does not hurt to be prepared. In some cases it may make good sense to receive ordinary income in 2009 rather than in 2010 when tax rates may be higher. The highest marginal income tax rate is currently 35%. If you have non-qualified stock options you should consider exercising the options in 2009 if you anticipate moving into a higher tax bracket the following year. Small business owners and investors who have control over when income is received should also consider receiving ordinary income in 2009 rather than in a later year when rates may increase.

Capital gains
If the tax cuts that were initiated during the Bush Administration are allowed to expire, the highest capital gains rate will move from 15% to 20%. If you have investments that have increased in value over the past few years you could consider taking capital gains in 2009 while rates are at their lowest levels. Of course this should only be done if it makes sense from a strategic asset allocation perspective and you were planning on selling within the next 3-5 years anyway.

Tax efficient mutual funds and ETFs
Some mutual funds do a better job than others with tax efficiency. As income tax rates rise, the importance of monitoring the tax efficiency of investments held in taxable accounts becomes essential. As an investor, it is necessary to find money managers who are capable of balancing investment returns with tax considerations. Keep in mind that after-tax investment returns should be taken into account. Do not simply focus on pre-tax investment returns.

Index mutual funds and exchange traded funds (ETFs) are excellent investment vehicles from a tax efficiency standpoint. Traditional index funds and ETFs are, by nature, tax efficient — and cheap. The mutual fund industry also has a wide selection of tax-managed offerings that focus on minimizing taxation. The bottom line is as tax rates go up, the need to focus on tax efficient returns increases for investments held outside tax advantaged accounts such as IRAs or 401ks.

Variable Annuities
Although variable annuities are not my favorite investment vehicles due to cost and other factors, they do have a place in some financial planning situations. Annuities allow investors the opportunity for tax deferred growth and investment gains are not taxed until they are withdrawn. Upon withdrawal variable annuity income is taxed at ordinary rates (penalties may apply to withdrawals prior to age 59 1/2). The tax deferral of annuities becomes more appealing in a rising interest rate environment. If you are considering variable annuities, focus your search on low cost options available through a Fee Only financial planner.

Municipal Bonds
Municipal bonds are another investment vehicle that becomes increasingly appealing for taxable brokerage accounts as tax rates increase. This is due to the increase in the taxable equivalent yield of municipal bonds. Municipal bonds and municipal bond funds provide federally tax-exempt interest. In some cases state and local taxes may also be tax-exempt. If you are reviewing alternatives for the fixed income portion of an asset allocation plan, be sure to consider municipal bonds for your brokerage account.

The taxable equivalent yield calculation is as follows:

Tax-Equivalent Yield = Tax-Free Interest Rate ÷ (1 – tax rate)
So, if the municipal bonds interest rate is 3% and the highest tax rate increases to 40% the tax equivalent yield is 5% (3 divided by .60 equals 5%).

Buy and hold, but do not forget
I have never been a strong advocate of active trading. Active trading adds additional costs and historically underperforms passive investment approaches. The most important determinant of investment performance over time is asset allocation. While investors cannot control the movements of securities markets, they can control costs. As capital gains rates increase, the tax deferral strategies when using a buy and hold approach provide a valuable element of defense. If you have a long-term time horizon for investments, you will likely see a variety of tax law changes during the lifetime of your investment holdings. Buy and hold strategies help defer capital gains taxes until the actual sale.

In summary, aside from Roth IRA's, 401k's, and other tax deferred retirement accounts there are other options investors must be aware of to protect themselves from an increase in tax rates. As the old saying goes, the only constant in life is change. Tax laws in America are about to do just that- change. We don't know exactly when or how much, but tax rate changes are coming. The biggest line of defense is to be proactive and establish a comprehensive financial plan that focuses on investments, taxes, and other aspects of your financial life.

LifeSpan Tax Resolution: Free Book Giveaway

I am pleased to announce that my firm is currently giving away free copies of a book on tax resolution planning. This current promotion is designed to increase the awareness of tax resolution planning. "Tax Resolution and Financial Freedom: Using the Financial Planning Process to Resolve IRS Tax Problems" (ISBN- 9780578014777, $24.95) was released in March 2009. The purpose of "Tax Resolution and Financial Freedom" is to help individuals and small business owners make the smartest decisions possible when trying to deal with IRS tax problems. Free copies of the print version of Tax Resolution and Financial Freedom will be distributed to the first 25 people that sign up for a complimentary Tax Resolution Analysis. A limited number of copies are also available to tax professionals seeking to incorporate basic financial planning techniques with the tax resolution process.

Tax debt problems are a growing concern for millions of Americans. Recently the tax gap in the United States was estimated at $290 billion. The Internal Revenue Service announced in January that they are willing to work with taxpayers experiencing difficulty meeting their tax obligations. However, with the recent levels of government spending and the growing need to close the tax gap IRS collection efforts are likely to increase for taxpayers that ignore previous collection efforts. Many different solutions exist for taxpayers having difficulty resolving their tax problems. The LifeSpan Process of Tax Resolution and Financial Freedom was designed to help people choose the most cost effective solution to their problems related to money and taxes. Most importantly, a tax resolution plan follows basic principles of the financial planning process. Many tax resolution efforts fail over the long haul because they only treat the symptoms of tax debt rather than the underlying problem- lack of a genuine tax and financial plan.

LifeSpan Financial Planning, LLC currently provides a free Tax Resolution Analysis for our prospective clients. The confidential analysis generally lasts 30-45 minutes and is completed by phone, in-person meetings, or via secure video conferencing. This brief analysis is designed to provide a basic action plan to help people take the steps necessary to resolve tax debt problems using a tax resolution plan. LifeSpan encourages people with tax problems to look at all of their options and always do their research when choosing whether or not tax representation is necessary.

The Tax Resolution Analysis is a no-blame, no shame, no obligation opportunity to take the first steps toward financial freedom. Relatively few financial planners specialize in tax resolution planning. I think it is essential for people with tax debt to receive objective, unbiased guidance as they try to get their financial lives back on track. As a Fee Only financial planner, my firm is obligated to uphold the fiduciary responsibility to our clients. In general, this means that we will always act in the best interests of the client as they work to resolve tax debt related issues.

To reserve a free copy of Tax Resolution and Financial Freedom contact me toll-free at 877-TAX-9110 or send an email to scott@lifespanplanning.com with the subject line BOOK OFFER.

Money and Relationships

One common problem in marriages is a disagreement on how to manage money. Unfortunately, comments such as “you spent how much on that?” are more common than the ultimate question- “how much should we be spending?” It is not surprising that financial disagreements are often cited as the number one reason couples end up getting divorced. Many couples struggle with the task of openly discussing their finances. The tax and financial planning process requires couples to work together to achieve a common goal of financial freedom. This means that both parties need to take action and make the commitment to change financial behaviors.

Money and taxes should not be viewed as an issue of mine and yours. As a couple you should view everything as an “ours” issue. Talking about money with anyone can be very difficult because money is such a taboo subject in American culture. When that special someone is your spouse the talk can be even more complicated.

Why does money have such a powerful impact on our relationships? This is a difficult question that I encourage couples to explore. Money represents different things to each partner. One partner may view money as a symbol of power and success. The other may see money as a symbol of comfort and security. If the topic of dealing with tax or financial matters and thus taking control of personal finances makes one or both parties emotionally uncomfortable or defensive, you should seek the help of a financial planner or financial counselor. Professional counseling is also available for couples experiencing problems communicating about money.

Make a commitment to one another to handle your tax or financial problems as a couple. This is especially important if debt or other financial problems were assumed prior to the marriage or a non-liable spouse is involved. Simply determining that your partner’s debt is not your problem is not an effective alternative. Blaming will also do nothing to help the situation. Other unhealthy habits include sabotaging personal spending plans by secret spending or hiding financial decisions from the other spouse.

Each spouse should be accountable to the other. Aim to create a tax and financial plan that works for both of you. Make sure that the commitment to work toward financial freedom is a vision that you both share. If only one person is doing the work then you have a major problem brewing.

Communicating About Money
How we communicate with each another can be just as important as the message you are trying to get across to the other person. If you have a recent history of tax or financial problems it is easy to let emotions and the past take over the discussion. When talking to a spouse or significant other about money it is also easy for things to get lost in translation. Always be aware of how you are actually communicating with a spouse or loved one about money matters. Never forget that how you say things is just as important as what you actually say. Talking about money is not something that comes easily for most people. Try following these basic communication tips when talking about taxes and money matters.

1. Set a date
Schedule a convenient time to talk about money. Try to pick a time during the week when you are both available to have a calm discussion free from any distractions (e.g., no children, no television).

2. Establish open lines of communication
Remember that what you say is sometimes not as important as how you say it. Use “I” messages to improve communication.

3. Talk about your life experience with money
What lessons did you learn early in life about money?

4. Give and Take
If you are going to ask your spouse to sacrifice something you need to be willing to do the same.

5. Set boundaries on what can and cannot be discussed
Stay focused. Do not bring up off-limit topics.

6. Avoid secret-spending
Be open and honest with your spouse.

7. Agree on a personal spending plan
A budget or personal spending plan will not work unless you both work the plan together.

8. Discuss your financial matters on a regular basis
This is a key element to staying focused and on track.

9. Seek professional assistance if necessary
Know when to seek assistance. If you cannot talk to your spouse or significant other about money then you may need help. Marital counselors and financial life planners can both be helpful.