Joseph T. Twardy, Jr., CPA LLC

• Why Do I Owe More Income Tax?
• What If I Can’t Pay the Full Income Tax I Owe?
• Gifts & Gift Taxes
• Building a Child’s Roth IRA
• §529 Education Savings Plans
• Minimize Short-Term Capital Gains & Day Trading
• Documents, Guides, & Links
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• Retirement Retirement Types of Retirement Savings Plans Rollovers Withdrawals Required Minimum Distributions (RMDs) Roth Conversions Qualified Charitable Distributions Recordkeeping Requirements Social Security Benefits Medicare
• Taxation 101 Overview Alimony Interest, Dividends, & Capital Gains Self-Employed Individuals Tax Brackets & Tax Rates Filing an Extension Estimated Tax Payments Make Your Tax Payments Why Do I Owe More Income Tax? Where’s My Refund? What If I Can’t Pay the Full Income Tax I Owe? Estate Taxes Trusts
• Tax Tips Tax Tips Overview Shifting Income Gifts & Gift Taxes Building a Child’s Roth IRA §529 Education Savings Plans Minimize Short-Term Capital Gains & Day Trading Donor Advised Funds Tax-Advantaged Charitable Contributions Health Insurance Documents, Guides, & Links

And Save Some More!

I cannot say this often enough Save!  Save!  And Save Some More! Throughout our lifetimes, we will be faced with making various financial planning and purchase decisions, many of which will have significant impacts upon our lives Amongst these are:

• College educations for our children
• Various other good reasons, including giving to charities
• And of course, the proverbial rainy day Isn’t that list daunting?  Scary?  Absolutely The most important of these is an Emergency Fund, which is why it’s listed first None of us can foresee what the future may hold for us To provide cash in the unlikely event that some unforeseen circumstance (illness, loss of job, vehicle accident, etc ) does occur, establish an Emergency Fund that contains enough cash to cover at least six months’ worth of your living expenses

We Americans are constantly bombarded with messages to spend Merchants try convince us that we will enjoy happiness only when we live in the right town, own the right home or vehicle, have the most ornate kitchen, wear the right clothes, take the most exotic vacations, send our children to the “right” college, take the right medicines, etc And they don’t care one iota how much debt you will have to incur in order to enjoy all of these material things

The key to enjoying a comfortable, satisfying and less stressful financial life is to save first, then spend as needed Start savings for all of the above situations as soon as you begin working and continue to do so throughout your life Yes, this is hard to do But if you develop the self-discipline to save every day, you will look back one day and realize just how easy it really was to do And you will cherish that good feeling that comes with living a less stressful financial life

Save!  Save!  And Save Some More! The key strategy to building significant savings nest eggs is to begin by paying yourself first Set aside a portion of the salary and compensation you receive for the above purposes before you pay your bills If you participate in a 401(K) Plan or HSA at work, you’re already doing this Good for you!  If not, get started immediately

The Power of Compounding

The power of compounding is the fundamental, underlying principle behind all investment strategies, education savings and retirement plans Compounding is the process by which an investment asset’s earnings from interest, dividends and capital gains are reinvested into that same investment year after year to generate additional earnings over a (hopefully long) time period It is the reason why individuals should pursue a strong savings and investment strategy as soon as they begin working and continue to do so throughout their working lives

For example, suppose that you make one investment of $1,000 into a bank account, bond, mutual fund, stock, etc And suppose that the yield on this investment is 5% per year After 5 years, your investment would have grown by $276 28 to $1,276 28 Here’s how this occurs: The beauty making such an investment is that you did not have to work even one minute of your life to earn this investment income of $276 28!  The earnings returned on this investment did all of the work for you

Let’s modify the above example slightly Suppose you make the same investment of $1,000 into a bank account, bond, mutual fund, stock, etc , but you do this EACH YEAR The yield on this investment is the same - 5% per year After 5 years, your investment would have grown by $801 91 to $5,801 91 Here’s how this occurs: That’s nearly triple (actually, 290 25%) than the investment result of $276 28 realized in the first example Astounding!  This is the real effect of compounding – the result realized by reinvesting earnings into that same investment year after year to generate additional earnings It is the underlying fundamental principle behind all investment, and retirement and college tuition savings plans