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Client Update Newsletter: April 2023

If it seems like the income tax has been around forever, well, it's sort of true.

The modern Form 1040 was unveiled in 1913, the first year, after paying for the Civil War, that Americans were required pay income taxes to the federal government. With the April filing deadline right around the corner, this month's newsletter has a fun quiz to test your knowledge about this very first individual income tax form.

And with inflation still upon us, included are some great ideas to help manage your money and tips to help reduce your monthly bills. All this and suggestions on identifying and managing scams that are all too frequently targeting older Americans round out this month's newsletter.

As always, feel free to pass this information on to anyone that may find it useful and call if you have any questions or concerns.


Tax Quiz - The Very First Form 1040

Tax Quiz The Very First Form 1040 imageWhile Lincoln introduced the country to income tax to fund the Civil War, the modern 1040 individual income tax form was introduced in 1913. Here's a short quiz to see how well you know what was included on this very first tax form. Enjoy!

  • What was the due date of the initial 1040 tax form?
  • March 1, 1914. The first year Americans were required to report their income was 1913, with the tax return due March 1, 1914. Failure to file on time could lead to a fine of between $20 and $1,000. A 30-day extension could be granted by the tax collector because of sickness or absence. Today we have an additional 45 days to file our tax return (March 1 to April 15) and can file for a six-month extension.
  • What tax rate was applied to most incomes on this first Form 1040?
  • The tax rate applied to most 1913 tax returns was 1%.
  • If you had taxable income that exceeded $500,000, you became subject to the Super Tax. What was the rate on these earnings?
  • 6%. The maximum tax rate of 6% applied to taxable income that exceeded $500,000. The 1913 tax brackets were 1%, 2%, 3%, 4%, 5% and 6%, compared to our current tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
  • Was a marriage penalty built into the original Form 1040?
  • Yes. If single, your exemption amount was $3,000. If you lived with your spouse, your exemption amount was only $4,000. If you and your spouse worked (a rare event in 1913), you could divide the $4,000 exemption any way you wanted to minimize your taxes.
  • Name items that weren't taxed on the original Form 1040 but are taxed on today's form.
  • The most common untaxed items were dividends and net earnings from corporations. The double taxation of corporate earnings we experience today started in 1954.
  • True or False: All the original tax returns required a signed affidavit before an authorized officer of the government before being filed.
  • True. All properly-filed tax returns required affidavits made before an officer authorized by law to administer an oath of accuracy. This could be a justice of the peace, a magistrate, or a certificate from a court clerk. Mailing in your tax return was not an option.

Help Older Adults Stand Up Against Scams

Help Older Adults Stand Up Against Scams imageWhile anyone can become a scam victim, fraudsters usually turn to one demographic above all others: older adults. Here's a look at some of the more common scams that target older adults, along with some ideas to help stand up against these would-be thieves.

The Top Scams That Target Older Adults

According to the National Council on Aging, here are the most common financial scams that target older adults:

How You Can Help

If you know someone who could be a target, consider establishing regular get-togethers so you can inform them of these activities, ask if they have any financial (or non-financial) questions, and find out if they received any suspicious communication that may be a scam.

If you think someone has been scammed, suggest to them the following steps to report the theft:

Great Money Habits

Great Money Habits imageDeveloping and maintaining great money habits can help you lay the foundation for achieving your financial goals. Here are some ideas.

Once you understand the basics of your financial situation, it's time to sit down and proactively plan ahead. Two of the most critical areas you can prepare for are minimizing your taxes and saving for retirement. So plan ahead and feel free to ask for help.

Everyone Wants a Piece of Your Income

There is an old wisdom:

Put a live frog in hot water and he'll jump out.

Put a live frog in cold water, turn the burner on and you'll have frog legs for dinner.

Everyone Wants a Piece of Your Income imageThis wisdom is not lost on some businesses as they know it's easier to sell you a service once and then bill you for it automatically over a long period of time versus reselling the service to you each year. This form of billing, called recurring or annuity billing, is now common practice for most businesses. So who are the biggest users of this strategy?

* often contain multiple annuities within a bill

Action to Take Now

Create a list of your recurring charges. Check your bank account and credit card bills for similar monthly charges. Identify each vendor related to the bill and note what the service is that they provide. Then calculate an annual column for each bill (monthly times 12). Next, add all the costs up to find a monthly and annual total.

Note long-term contracts. Check the contracts for any exit penalties and auto renewal clauses. Write the auto renewal companies immediately to formally move to month-to-month after the initial contract expires.

Review the usefulness of each monthly bill. Now rate each bill on a scale from one to five against how important each one is. Start closing down those that are less valuable to you.

Move to annual billing where possible. While it creates a larger bill upfront, it requires the product to be resold to you each year. If you still love the service, try to negotiate a lower rate. This tends to work well with suppliers like online digital radio services.

Look for alternatives. Perhaps it is more cost effective to drop a group of premium channels in your online viewing lineup or replace cable with an online streaming service.

Eliminate overlap. Many consumers now have multiple streaming services. Rationalize them and consider whether any could be eliminated. The same is true for gaming and music services.

Conduct an annual bill review. A number of providers have multiple recurring charges within each bill! This technique is common with cell phone providers. So conduct an annual review of your bill with a service representative and look for a better deal.

Eliminate autopay. This out-of-site, out-of-mind technique is wonderful for the recurring billers. Paying for a service each month is a simple reminder of the cost of the service and a subtle hint to assess the value of the service to you. So each year, turn off your autopay. Leave it off until you have conducted your annual review. If the service is still of value, then and only then, turn it back on again.

The problem with recurring billing is they slowly carve out portions of your income for many years. Perhaps it is time to jump out of a recurring charge or two and save some money.

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