This year, countless Americans will labor over mountains of paperwork, hunt for rogue receipts, itemize ad nauseum, and search for every possible deduction to ensure they don’t overpay even a single dime to Uncle Sam’s outstretched hand. And when it comes to deductions, you might be surprised at the creativity — or plain stupidity — of your fellow taxpayers. So, as the dark cloud of the April 17th deadline looms, I thought I’d attempt a little humor by relaying a few anecdotes of ridiculous and outlandish deductions desperate taxpayers have attempted to declare that shockingly, didn’t pass the proverbial IRS muster.

Fur to Foster Conversation
One businessman thought he could get away with deducting the mink coat in which he draped his wife when entertaining or speaking to clients. His rationale? This cunning guy claimed that his wife’s lavish coat served as a delightful icebreaker and conversation piece. Too bad he got skunked by the IRS.

Drug and Prostitution Expenses
Shocking though it may be, it turns out that you cannot deduct expenses for careers that are, well, illegal. For those who declare “prostitution” as their profession, the IRS won’t be footing the bill for the fancy lingerie or condoms the job requires. The same is true of marijuana growers and dealers, some of whom have tried writing off the cost of everything from potting soil to the plastic baggies in which they package their “product.”

The Doctor’s System
Sure, doctors require all sorts of high-tech and serious-sounding tools and gadgets to practice medicine, but what exactly is a “time monitoring system”? When one CPA reviewed the taxes of a physician who was being audited came across this rather large deduction, he had the same question. When he asked the doc to explain this mysterious “time monitoring system,” he was treated to a display of the doctor’s blinged out Rolex.

Watch for the Fallout
During the height of the Cold War, one patriot followed the cue of other frightened Americans and constructed a nuclear fallout shelter on his property. Granted, those things aren’t cheap, but none of his other fallout-fearing peers tried to take it as a tax deduction. So just how did he list his new shelter? As “preventative medicine,” of course!

All for Education
One creative Spanish teacher ordered the Spanish-language subscription from his cable provider and, of course, purchased a new television on which to watch his favorite Spanish-language shows. Since he was an educator — and an educator specializing in Spanish, no less — he thought it only appropriate that the IRS reimburse him for these “teaching expenses.” How do you say “Nice try” in Spanish?

Up in Smoke
This one has to be my personal favorite. A failing and frustrated furniture store owner decided the best way to get out of business was to hire someone to burn it down. And as it turns out, this man was very diligent when listing the expenses he incurred in this calamity. Not only did he accurately report the loss of his building, as well as his payout of $500,000 in insurance money, he also listed a $10,000 deduction as a “consulting fee.” As it turns out, no matter how much you consult with an arsonist, the whole thing is illegal. Imagine that. Both business owner and arsonist/consultant ended up in prison.

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During a conversation about this precise question, a wise insurance professional reminded us that while college-bound kids can always get financial aid, there is no such thing as “retirement aid.” And while it’s a nice wish, paying for a child’s education is not an obligation; and it’s certainly not worth taking out a second mortgage, cashing in a life insurance policy, or tapping into your IRA. Those funds can never be replaced, but your children will earn their own money. I can personally attest to this fact. My parents worked hard their whole lives, but simply couldn’t afford to contribute to my college education. While I could see that this pained them, I knew I could take care of myself. I reminded them that I would far prefer that they enjoy the fruits of their labors and live out their golden years without financial or emotional strain. So, I took out copious student loans to attend a private university where I pursued a double major, made the Dean’s list, and graduated with Honors — all while working 40 hours a week behind a bar, serving drinks to my more affluent classmates. I’m still paying those loans, but I’ll never regret the education I received — an education I earned myself.

While at university, I also noticed a powerful trend among my classmates, the majority of whom had their parents paying their way, and even supplementing their lifestyles with allowances and cars. These kids were no less intelligent than I, yet despite my over-burdened schedule, I was earning As while they were struggling to maintain a C average. It occurred to me that one of the reasons I felt so compelled to achieve was that it was my own money — money I was not about to go to waste. My education simply meant more to me, and my friends who were living off handouts were far less appreciative of their good fortune than I — and probably their parents — would ever have expected.

Anecdotes aside, the easy answer to this dilemma is to take care of yourself before you raid your retirement accounts and assets to fund your children’s education. They’ll certainly survive — and perhaps even thrive — knowing it’s something they’ve earned. Armed with an education, they’ll enter the workforce and establish their own retirement funds. With lifespans steadily increasing, your retirement could conceivably last upwards of 30 years, so ensuring you have the funds to support a long retirement means you won’t become a “burden” to your children, relying on them for shelter, money or care. And if this were to happen, what was all your sacrifice for in the first place?

Keep your nest egg, encourage your children to achieve, and with a solid planning strategy and a bit of luck, you’ll lead a long, happy retirement — one that allows you to spend time doing what you love with those you love, like those grandchildren you’re probably looking forward to spoiling!

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Your Options
The earlier you begin taking Social Security benefits, the smaller your  monthly payouts will be. Conversely, the longer you wait, the higher the monthly benefit will be. If you defer your benefits until the maximum age of age 70, your monthly benefit could be as much as double what your “full retirement age” payout would provide. No mater your choice, you’ll receive the same amount of money from the Social Security Administration (SSA) — if you take your funds early, they’ll need to last longer; if you take a later withdrawal, the money you would have earned has simply accrued to a higher amount, due to your older age.

What Is Your Full Retirement Age?
While you can start withdrawing SS benefits as early as age 62, if you were born before 1937, your “full retirement age,” as determined by the SSA  is age 65. If your born after January first of 1938, your full benefit age is 67.

How Much Can I Save by Delaying Retirement?
You can earn quite a bit more per month by taking your benefits later — even if by just a few years — than your full retirement age. This is because the government affords you what’s called delayed retirement credits, allowing older beneficiaries to increase their benefit payouts. Depending on your year of birth, you accrue a sizable yearly rate of increase in your benefit amounts. So, if you were born in 1935-1936, your increase is valued at 6.0 percent. If your birthday was in 1941 or 1942, you’ll receive a yearly increase of 7.5 percent. If you were born in or later than 1943, every year you defer payment earns you an increase of 8 percent annually.

If you cannot delay your retirement until age 70, remember than if you were born after 1937 (making your full retirement age 67), and you elect to start taking SS benefits at age 62, your monthly benefit is cut by more than 30 percent. If you can wait to age 66, however, you’ll only lose about 6.7 percent of your benefit.

Important Factors to Consider
According to the SSA, you should ask yourself the following questions when determining when you plan to begin drawing benefits:

• Are you still employed? If so, could you see yourself working a few years more, or are you ready to get the heck out of there?
• How is your health? There’s no point in continuing to try and work if you’ve somehow become physically disabled, but if you still feel well, some extra time at work could be well worth it.
• Does your family have a history of longevity? Taking family history into consideration is important, but you’re really just making an educated guess with all these methods.
• Will you still have health insurance if you retire early? You won’t be eligible for Medicare until you’re 65, so if you want to stop working at age 62, be sure to consider how you’ll cover your health care expenses in the interim.
• What other retirement assets to you have? If you’ve been planing for awhile and have an annuity, pension, or 401(k) to supplement your income, taking an early Social Security benefit may be your best choice.
• Will any other family members qualify with you on your record?

Your Social Security needs are a great thing to discuss with your advisor or planner, as he or she may have some valuable insight on the matter based on what they know about your particular circumstances. And of course, you can also learn more about Social Security by visiting the website, www.SSS.gov.

• Don’t store all your tax records in one file.  Keeping your tax records all in one place can lead to lost items and mismanagement.  Try purchasing organizational containers like plastic tubs and label them with the tax year.  Items like vendor files, appointment books, bank records Insurance policies, capital asset files, investment accounts, real estate and capital improvement files are important tax documents that need to be filed together under the same tax year.

• Track your mileage.  If you use your vehicle or cell phone for business you’ll want to track your usage accordingly.  While cell phones can be easily archived through your bill, your vehicle is different.  The IRS asks for your total mileage on the tax return, so try keeping a notebook in your vehicle and tracking your mileage for each trip.

• Collect all of last year’s tax documents.  If you haven’t done this yet, create income tax files for last year and this year – and make them stand out.  Throughout the year as taxable transactions occur, collect all documents in the file.  Filing documents like third-party reporting documents such as 1099s, K-1s, W2s, 1098s, etc., and receipts for tax deductable transactions immediately when you receive them will make data compilation much easier.  After archiving these throughout the year you can simply grab the file, a back up of your QuickBooks data, and head out to your tax pro.

• Go green!  Welcome to the 21st century!  Now welcome your bookkeeping system as well, and purchase up-to-date digital accounting software.  Most accounting software programs are easy enough for the non-accounting professional to use.  Now tax return preparation, financial and tax planning are simplified because of the comprehensive reports generated by a decent accounting program.  Imagine not having to peruse through your filing cabinet for hours at a time, and simply pulling it up on your computer instead.  Furthermore, these digital files are easily transferable and take up less space.  Although, beware of the caveat – computer crashes are not uncommon, and losing all your important files in a “virtual fire” can ruin you and your business.  Be sure to implement a routine backup plan where the files can be stored outside of your hard drive.

There are myriad tips that can help you and your business organize your taxes throughout the year, making last-minute tax preparation less of a headache.  If you have tips of your own that you’d like to share please let us know!

This year, make the most of your tax situation by remembering the following deductions that may be available to you.

Refinancing Points: With interest rates at near-historic lows, odds are good that you’ve refinanced your home a time or two over the last few years. If so, any points you paid to refinanced can be deducted for the life of the loan at a $10 per-month basis. While these deductions aren’t substantial, they do add up over time. For example, if you refinanced your house’s mortgage on July 1, 2011 for a 20-year term, six of 240 months will have gone by before year’s end. Therefore, if you paid $2,400 in points, that’s a $60 write-off. You can continue to take a $120 annual deduction until you’ve deducted all your points in full.

Health Insurance Premiums: If your medical expenses exceed 7.5 percent of your adjusted annual gross income, your health care premiums may be deductible. These health care deductions also can be granted to long-term care premiums (depending on your age) as well as Medicare premiums.

If you’re self-employed and have purchased individual health insurance, your premiums are 100 percent deductible. If this is the case, as long as you haven’t included these premiums in other itemized deductions, you don’t have to worry about meeting the 7.5 percent threshold or itemizing these costs.

Noncash Charitable Contributions: If you’ve donated clothing or furniture — in good condition, of course — to Goodwill, the Salvation Army or a similar organization, you can deduct the value of your donations. The trick is to remember to get a receipt whenever you make a donation. If you’ve neglected to get a receipt, you can still deduct these contributions, as long as you understand that if you’re audited and can’t produce a receipt, they won’t allow you to take the deduction. But since you’re unlikely to get audited, most experts agree that you can determine the fair market value of whatever you donated by going to a thrift store to learn the price of comparable items, or you can visit the Salvation Army’s regional websites to help determine the value of donated goods.

Higher Education Expenses: There are two ways to get some money back for your undergraduate or postgraduate education. If you earn less than $65,000 a year (or $130,000 if filing jointly), you may take as much as a $4,000 deduction for each year of your higher education. You may also qualify for a $2,500 credit under the American Opportunity Tax Credit for undergraduate work, or, if you’re working on a graduate degree, you may be eligible for the $2,000 Lifetime Learning Credit.

You cannot take both a deduction and a credit, so determine what’s available to you and go with the option that gives you the biggest tax break.

Energy Savings Home Improvement Credit: If you are an environmentally conscious homeowner, you may be eligible for savings under the Energy Savings Home Improvement Credit. If you perform home improvements such as installing skylights, windows, outside doors, high-efficiency water heaters, pigmented roofs, or central air conditioning, you can take a 10 percent credit for these costs, the cap on which may not exceed $500. If you add alternative energy sources such as wind turbines, geothermal heat pumps or solar water heaters to your home, you can take a 30 percent credit on the costs of these improvements, and there is no cap through 2016.

If you do just a bit more exploring, you may discover even more deductions you’ve never thought of before. Be sure to discuss maximizing your tax refund with your tax preparer, and encourage him or her to help you uncover as many deductions as possible. After all, you worked hard to earn your money, so the less of it you must give to the Internal Revenue Service, the better.

• When it comes to the direction of equity markets on a moment-to-moment basis, a great indicator is the E-mini S&P 500 futures contract, electronically traded at the CME.
• For those without access to real-time futures quotes, an acceptable proxy would be the S&P 500 itself, as represented by the SPDR S&P 500, which is an obligatory “must” monitor for anybody who owns stocks.
• Keep a close eye on high-priced stocks that dominate the indices like Apple, IBM, Chevron and 3M, all which highly correlate to, and often lead, the broader market.

Equally as important as the stock market is the bond market, especially U.S. Treasurys, which can provide an immediate snapshot of the general market mood.  Due to the interconnectedness of global markets and persistent weakness in the U.S. dollar, investors are paying closer attention to currency markets, tracked easily through a number of currency ETFs.  The big players to watch in this category are McDonalds, Coca-Cola and Proctor & Gamble.   Finally, keep gold and precious metals in your sights – they may have been dormant a decade ago, but they’re the hot-money topic right now.
In addition to the stock market 101 listed above, I’ve also provided a short list of stock market lingo to help in understanding what those confusing stock brokers and newscasters are talking about.

• Bearish: To believe the market will go down.
• Bullish: To believe the market will go up.
• Bottom Fishing: After a large sell-off or drop in the market, a slang term for picking oversold stocks.
• Buy & Hold: When you buy a stock and completely forget about it indefinitely.
• Castles in the Sky: When stock prices are extremely overvalued, and not justifiable by future increases in earnings.
• Crash: A large sell-off (-10% or more) in the stock market in a single day.
• Dovish: When the Federal Reserve Governors imply that interest rates may be going down soon.
• Hawkish: When the Federal Reserve Governors imply that interest rates may be going up soon.
• Rubber Band Effect: After a large sell-off in the market, there is a tendency for the market to bounce back right away.

What If Everything You Thought You Knew About Investing Was Wrong?

•    Can Anyone Really Pick the Best Stocks in Advance?

•    Does Your Funds Track Record Performance Really Help You Predict the Future Returns?

•    How much are You Really Paying for Professional Advice that You May Not Know About?

•    PLUS: The “big secret” of what’s killing the return in your portfolio?

• Money.  Can money really buy you happiness?  Well, apparently in your retirement years it certainly can.  Your financial position — at least relative to other people your age — matters to your contentedness in retirement; retirees who said that their financial situation was better than most other people they knew were also happier.
• Concern for others and the planet.  The study found that people who reported high levels of concern for the welfare of others and for the earth tended to be happier in retirement.  What were interesting about the findings of the study was those people who have what the researchers call “outward orientation” — they successfully engage with the world though friendships and activities — were much happier than those who had an “inward orientation” and thus were more isolated.
• Health.  Not surprisingly, the number and severity of illnesses and disabilities you experience in retirement predicts happiness.  The study found that those who suffered from chronic, severe illnesses like cancer or multiple sclerosis tended to be less happy than those who were in better health.
• Traditions.  Upholding traditions can raise a retiree’s happiness.  Not only do traditions such as holiday gatherings and regular family get-togethers help retirees stay content, but the study also found that conforming to social norms can have a factor on retiree’s happiness levels as well.  People with high levels of “enhancement,” which means they care a lot about status, power and what others thought of them, were less happy than those who had lower levels of “enhancement.”

With all the articles I’ve read about planning for retirement it’s refreshing to think less about financial planning and more about emotional planning.  While money still remains the retiree’s main concern, it’s important to look at other factors that determine a person’s happiness.  What’s interesting about these findings is that the three factors listed after money (concern for others and the earth, health and traditions) can be actively practiced through community and family engagement, as well as a healthy lifestyle.  Money, on the other hand, should be managed much more closely and by a professional to ensure successful retirement.

With the help of Encore and the President of Orr Financial Group, we’ve figured out how much these “little things” are costing us.  Assuming that we buy these items five days per week for 40 weeks a year (or 200 out of 365 days per year), and we do  this over a 35-year career, we came up with the following calculations.  (What’s even crazier is that these prices don’t reflect inflation, meaning these impulse buys will most likely cost even more going into the future).

• Latte ($3.95 each) = $27,650
• Energy drink ($3.99 each) = $27,930
• Muffin ($3 each) = $21,000
• Lunch ($8 each) = $56,000
• TOTAL: $132,580

With the implications that in order to solve this problem you’d reduce the amount of impulse buying and start consolidating your purchases, you’d be saving more than $100,000 each year.  But what if you took that money and invested it?  If you put your savings into a 401(k) or Roth IRA each year for the next 35 years (assuming a mere 3% annual rate of return), you’d end up with an extra $246,560.  If you assume an 11.5% annual rate of return, which is roughly what the S&P 500 yielded from 1970 to the present, you’d end up with more than $1.7 million in your retirement account, the report says.

With the understanding that this report goes to the extremes, it’s still important to understand the principle of the findings: many individuals throw away their money on unnecessary purchases – impulse buys that really add up.  What’s more, if the money that’s thrown away on these purchases was allocated towards an investment or savings account, it has the potential to grow exponentially over many years and provide an excellent retirement account for your future.  Regardless if you think this report pertains to you or not, it’s still important to monitor your spending.  Try writing down every single purchase made in a month, and at the end of that month, go back and review your findings, you may find yourself pretty surprised in the end.