So Minn Financial Guide 2021

SOUTHERN MINNESOTA’S

Financial Guide 2021 A special publication from the Faribault Daily News, Owatonna People’s Press, Northfield News, St. Peter Herald, Waseca County News, Le Sueur County News and the Kenyon Leader.

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SOUTHERN MINNESOTA FINANCIAL GUIDE

February 2021

Focused on

YOUR FUTURE Don’t leave what lies ahead to chance. We can help with insurance and financial planning to protect what matters most to you.

Contact us today to discuss your financial goals.

Daniel Hummel Agent 301 Division St. | Northfield, MN 507.645.4212 Daniel.Hummel@fbfs.com

Brad Schmitz Wealth Management Advisor 10438 185th St. West | Lakeville, MN 763.347.4876 Brad.Schmitz@fbfs.com

Auto, Home & Life Insurance | Investments | Retirement & College Funding Securities & services offered through FBL Marketing Services, LLC,+ 5400 University Ave., West Des Moines, IA 50266, 877/860-2904, Member SIPC. Advisory services offered through FBL Wealth Management, LLC.+ Farm Bureau Property & Casualty Insurance Company, +* Western Agricultural Insurance Company, +* Farm Bureau Life Insurance Company +*/West Des Moines, IA. Individual must be a registered representative of FBL Marketing Services, LLC or an investment adviser representative with FBL Wealth Management, LLC to discuss securities products. Individual must be released by FBL Wealth Management, LLC to offer advisory services. Individual must be licensed with issuing company to offer insurance products. +Affiliates. *Company provider of Farm Bureau Financial Services. SR080 (2-21)

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

PAGE 3

We Understand Commitment You can rely on Edward Jones for one-on-one attention, our qualityfocused investment philosophy and straight talk about your financial needs. To learn more, call today.

Faribault Cate Grinney, CFP®, ChFC®

Jim Harding

Tom Klemer

404 Heritage Place Faribault, MN 55021 507-334-1666

404 Heritage Place Faribault, MN 55021 507-334-1666

200 NW 8th Ave Ste 7 Faribault, MN 55021 507-334-3149

Greg Lee

Jacob L Womeldorf

1645 Lyndale Ave N, Ste 101 Faribault, MN 55021 507-334-9936

318 NW 4th Street Faribault, MN 55021 507-332-2957

Christian Lockner, ChFC®, CRPS®

Brian T Panettiere

Financial Advisor

Financial Advisor

Greg Pierce, CRPC®

1250 Highway 3 South Northfield, MN 55057 507-645-0270

205 West 3rd St Ste B Northfield, MN 55057-1756 507-664-1191

509 Division St P.O. Box 664 Northfield, MN 55057 507-663-8809

Eric A Piper

Jon M Snodgrass, CFP®

158 North Water Street Ste 4 Northfield, MN 55057 507-663-0325

158 North Water Street Ste 4 Northfield, MN 55057 507-663-0325

Financial Advisor

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www.edwardjones.com Member SIPC

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SOUTHERN MINNESOTA FINANCIAL GUIDE

February 2021

Personal Finance Basics:

Financial Moves You’ll be Thankful for Later SUBMITTED BY DAN HUMMEL

your “survival number” — the monthly costs of just your essentials, like housing, food, healthYour financial future is in your care, utilities, etc. — to help inhands — making just a few ad- form you of how you can balance justments and taking some small saving and spending. steps can set you up for financial success down the road. Whether 2. Build your savings. If 2020 your goals include traveling, has taught us anything, it’s that funding a child or grandchild’s we can’t predict the future. If you education, purchasing a home don’t have 3-6 months of your or retiring comfortably, taking expenses saved, you should make a few actions to improve your that a priority. If you have a savfinancial well-being in the next ings account, consider switching few months can lead to signifi- to a high-yield savings account cant strides toward your goals. where you can earn more in inHere are 16 personal finance tips terest. that you can start using today: 3. Max out your retirement 1. Create a budget — and stick savings match opportunities. If to it! Budgeting is about deter- your company-sponsored retiremining your priorities and hon- ment plan (such as a 401(k) or oring those priorities. It may also 403(b)) includes a match from be enlightening to determine your employer, always take full

advantage of that. It’s free mon- help you avoid going out to eat ey! or calling for delivery because you’re not sure what you have at 4. Review your subscriptions. home.

Do you have cable but also pay for multiple streaming services? 7. Reuse. Utilize thrift stores Are you still getting a clothing (in-person and online) to buy subscription box but have no- and to sell. Look for refurbished where to wear your new threads? electronics when you buy and be You may be able to cancel some sure to trade-in or sell your old subscription services to save electronics when you upgrade. money.

8. Keep on top of updating 5. Do some research to deter- your will and your beneficiary mine if refinancing your home information. While you won’t loan is a smart financial move. directly benefit from this, you This year has brought historically can rest easy knowing your low interest rates and you may wishes are known and your loved benefit from refinancing. ones are cared for.

6. Plan your meals. From a purely financial perspective, not only will this keep you on track at the grocery store, it will also

It’s possible to achieve the retirement of your dreams.

Prepare now, so that when the time comes, you can enjoy retirement on your own terms. Contact me to learn more today.

Dan Pumper 1220 7th Street Ste A Faribault, MN 507.331.2345 danpumper.com/ Securities & services offered through FBL Marketing Services, LLC,+ 5400 University Ave., West Des Moines, IA 50266, 877/860-2904, Member SIPC. Farm Bureau Property & Casualty Insurance Company,+* Western Agricultural Insurance Company,+* Farm Bureau Life Insurance Company+*/West Des Moines, IA. +Affiliates. *Company providers of Farm Bureau Financial Services. PR-RET-A (2-21)

12. Meet with your financial advisor to review your portfolio.

This year has been a whirlwind in the market and your portfolio may look very different now than what you intended. Reviewing this regularly with your financial professional ensures that you’re working toward your goals in a way that best fits you.

13. Explore free resources, like your local library, and double check benefits of your membership organizations. You might be surprised that your insurance company provides discounts to hotel chains or your membership to your local museum also gets you into the historical society for 9. Put pay increases toward free. your retirement. Unless you aren’t able to make ends meet, 14. Pay off your high-interest it’s unlikely that a 2% increase debt as soon as you can. Interin your salary will make much est payments take a significant difference in your day-to-day. chunk out of your wallet — and However, when you take into that’s money that doesn’t do anyaccount compounding interest, thing to serve your future interthat $1,000 a year pay increase ests. can pay off big later in life.

15. Institute regular no-spend 10. Conduct regular mainte- days. Pick one day a week to nance on your home appliances commit to not spending any and vehicles to save on costly money. You’ll be surprised at repairs down the road. A $20 how easy it is — and how much filter or $100 repair could extend you can save! the lives of your costly machinery and appliances.

16. Finally, ask for help. Connecting with a financial advisor 11. Open a 529 plan to start may be the best thing you can do saving for education expenses. for your financial future because The cost of secondary education they can help you build on your is increasing every year. To pre- strengths and overcome your pare your children for success, weaknesses when it comes to start saving now. planning for your goals.

Securities & services offered through FBL Marketing Services, LLC+, 5400 University Ave., West Des Moines, IA 50266, 877/860-2904, Member SIPC. Advisory services offered through FBL Wealth Management, LLC+.

Individual must be a registered representative of FBL Marketing Services, LLC or an investment adviser representative with FBL Wealth Management, LLC+ to discuss securities products. Individual must be released by FBL Wealth Management, LLC to offer advisory services.

Property-casualty insurance products are offered through Farm Bureau Property & Casualty Insurance Company+* and Western Agricultural Insurance Company+*/West Des Moines, IA and are intended for residents of AZ, IA, KS, MN, NE, NM, SD and UT. Fixed life insurance and annuity products are offered through Farm Bureau Life Insurance Company+*/West Des Moines, IA and are intended for residents of AZ, IA, ID, KS, MN, MT, ND, NE, NM, OK, SD, UT, WI and WY. Individual must be licensed with issuing company to offer insurance products.

MPORTANT: The information and material contained on this website is not an offer to sell or a solicitation to buy any security or any insurance product in any jurisdiction. No security or other insurance product is offered or will be sold in any jurisdiction in which such offer or solicitation purchase or sale would be unlawful under the securities, insurance or other laws of such jurisdiction. Not all products are available in all states. Exclusions, limitations and reductions may apply.

This website briefly highlights Farm Bureau’s insurance policies and their benefits. The contract is contained only in the policy. +Affiliates *Company providers of Farm Bureau Financial Services.

• Copyright © 2021 FBL Financial Group, Inc.

SOUTHERN MINNESOTA’S

Financial Guide 2021 REGIONAL PRESIDENT: STEVE FISHER | REGIONAL GENERAL MANAGER: CHAD HJELLMING REGIONAL MANAGING EDITOR: SUZANNE ROOK | REGIONAL DIRECTOR OF SALES: TOM KELLING

ADVERTISING: JORDAN ANDREAS, AMBER CASTERTON, KATHLEEN DAVIES, VICTORIA DAVIS, JENNIFER FLOWERS, CRYSTAL HOBART, BRITNEY MARR, TIM MART, MARK NELSON, DEANNA WALTERS All advertising contained herein is the responsibility of the advertisers. This publication is ©2021 by APG Southern Minnesota and no content can be reproduced without permission.

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

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Unemployment Tax The 2020 pandemic left millions of Americans unable to work as businesses around the country paused their operations or permanently closed.

Fortunately, the government assisted those without a job with the CARES Act’s Federal Pandemic Unemployment Compensation program. However, if you accepted the benefits and live in a state that collects income tax, the additional funds may lead to an increased liability when taxes are due.

full-time employees to be without work.

• Only 15% of those who couldn’t work received some payment from their employer.

• June showed 16% of employed people could not work for at least four weeks because their employer closed or lost business.

Check out these statistics from the United States Bureau of Labor Statistics to discover how Americans were affected by the coronavirus pandemicrelated closures.

• In June, 40 million people reported that they had been unable to work at some point during the month.

• People who typically worked part-time were twice as likely as

Since state laws vary by location, your financial responsibility may be difficult to track if you received unemployment benefits. Follow the advice offered by the National Foundation for Credit Counseling to avoid problems during the tax season.

Why is Unemployment Taxed?

Because the money you received

while unemployed is considered income, it is usually subject to the same tax requirements as regular wages. However, the revenue differs from a salary by avoiding payroll taxes, which typically pay towards Social Security and Medicare. Your state’s laws will determine whether you are required to pay taxes on your unemployment benefits.

For instance, local governments that do not charge residents an income tax can avoid the fees.

How to Pay The easiest way to avoid a surprise expenditure at tax time is to have your state’s unemployment office withhold your check’s expense. This should have been discussed when you first applied for the benefits.

Another option is to pay in estimated quarterly payments. It’s an excellent strategy to avoid penalties for failing to pay

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you only expect to receive the benefits for a short period.

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SOUTHERN MINNESOTA FINANCIAL GUIDE

February 2021

Make the Most of Deductions

We can make it happen!

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While tax deductions are like exemptions, the factors that qualify under each category differ. The purpose of both is to lower your taxable income to lessen how much you owe at tax time or increase the return.

If you’re filing your forms at home, you may be missing out on significant reductions.

Hiring a CPA will cost more than a DIY online program, but it may surprise you how their impact can improve your bottom line. An expert will analyze your yearly income and spending habits to find qualifying deductions that you probably missed. Entrusting your federal and state documents to a qualified professional, also ensures that you’re protected from mistakes that may cause delays or raise red flags by the Internal Revenue Service.

Check out how an expert can efficiently lessen your taxable income by maximizing deductions that are often forgotten.

Health Care Premiums As medical insurance costs increase, the IRS assists taxpayers by allowing for deductions for a portion of the expenses. For instance, in 2020, Americans may deduct the total qualified unreimbursed medical care fees that exceed 10% of their adjusted gross income. This is an increase from last year when the threshold was only 7.5% of an AGI. Self-employed workers who are solely responsible for their health care costs may be eligible for a 100% deduction of the premium cost.

Child Care If you have children, the year 2020 likely through a wrench in your budget regarding child care. As schools closed around the country for the COVID-19 pandemic, parents were rushed to rethink their plans to remain

at work. Fortunately, the fees you paid for a babysitter are partially deductible on your taxes. A CPA will understand your state’s child care tax laws’ intricacies, but many require a tax ID number, name, and address of the home or facility.

Sometimes, the allowable deduction can place you in a more beneficial bracket, rather than itemizing.

Lifetime Learning The United States tax code includes a lifetime learning credit for qualified tuition and related expenses paid for students enrolled in an eligible educational institution. Taxpayers can claim it to help pay for undergraduate, graduate and professional degree courses. There is no limit on the number of years the $2,000 credit can be used.

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

PAGE 7

Whole vs. Term Life Insurance: What Are the Differences?

SUBMITTED BY DAN HUMMEL

Penalties and Interest

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The Internal Revenue Service holds taxpayers responsible for ensuring their taxes are filed correctly.

When an issue is noticed, expect to be contacted by an agent to resolve the delinquency. Failure to file or missing deadlines will result in increased payments after penalties and interest are applied.

with your quarterly estimated tax payments, or through withholding, when required.

Here are a few reasons you may be imposed with higher fees, according to the IRS.

The Costs of Penalties The IRS sticks to a set of guidelines when charging individuals interest and penalties for late or improper tax returns. Take a quick look at the Internal Revenue Code §6651(a)(1) to discover how they calculate fees for failure to file returns.

• Failure to file: when you don’t file your return by the due date, April 15, or extended due date if an extension to file is requested and approved.

• Dishonored check: when your bank doesn’t honor your check or other form of payment.

• Failure to pay: when you do not pay the taxes reported on your return in full by the due date, April 15. An extension to file does not extend the time to pay.

• Five percent of the unpaid tax is required to be reported.

• Failure to pay proper estimated tax: when you don’t pay enough taxes due for the year

• Applies for a full month, even if the return is filed less than 30 days late.

• Charged each month or part of a month that the return is late, up to five months.

If you are responsible for paying penalties on unreported income, the IRS demands that the costs are paid in full within 21 days of the notice. Or, if the balance equals or exceeds $100,000, the due date is only 10 days. Missing the deadline for payment will result in an interest charge of 0.5% of the unpaid balance.

Disagreeing with Penalties If you feel that the penalties or interest costs have been reached in error, you can discuss the terms by calling the toll-free phone number listed on a notice.

You may even qualify for relief from some penalties if you tried to comply with the law but could not meet the tax obligations.

term runs out, but the premiums may increase (significantly). This policy type is designed to provide Deciding to purchase life insur- a death benefit to your beneficiaance is a smart move. A move ries should you pass away during that ensures your loved ones’ the term of your coverage. futures are protected. But before you purchase a life insurance Term policies are appealing bepolicy, it’s important to under- cause they generally have a low stand the differences between premium, creating an affordable two main types of coverage — way to get the coverage you need. whole and term life insurance. Because of the low cost, term life Here, we break down the dif- policies are an attractive option ferences between whole life and for younger people and families. term life insurance so you can choose the right coverage for Whole Life Insurance you.

Whole life insurance is a type of permanent life insurance, which Term Life Insurance offers protection for your entire A simple way to think about lifetime as long as premiums are term life insurance is to view it kept current. as temporary coverage. With this coverage type, your premiums One major benefit of a whole life remain fixed for the term (set insurance policy is that you’ll number of years). You can opt have coverage for life. Since to continue coverage when the coverage is guaranteed for life

you won’t have to worry about the premiums increasing as you grow older.

You also accumulate cash value for your whole life insurance policy as you pay your premiums. This cash value grows on a tax-deferred basis, which can help your funds grow faster.

And, with a whole life policy, you have the option to borrow against your policy.

Because the premium cost is typically higher on a whole life policy, this option may be more attractive to those who have more income to put toward premiums.

A whole life policy may also appeal to those who want to use the policy’s accumulated cash value to create a supplemental income for things like long-term care, re-

DIFFERENCE

Continued on page 8

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SOUTHERN MINNESOTA FINANCIAL GUIDE

February 2021

The Path Forward

PROVIDED BY: BRAD CON- the later innings of the pandemNORS, PRESIDENT ic. Following increased restrictions to quell the holiday surge, “In the new daily COVID-19 cases and short-term, hospitalizations have peaked, the market and are down significantly the is a popupast few weeks (source: COVID larity conTracking Project). Reopening is test. In the taking place as well, highlighted l on g - t e r m ,

by New York City’s plans to bring the market back indoor dining by Valentine’s is a weigh- Connors Day. Meanwhile, the distribution ing machine.” of currently approved vaccines is Warren Buffett well underway—and accelerating. The United States has added 2021 is under way, as our nation over 1 million shots per day over and the rest of the world look to the past week (source: CDC) and begin to put the global pandemic 1.5 million per day is quite posbehind us. The path forward for sible soon. Adding to this optithe US economy, as well as that mistic trend, new vaccine canof the global economy, will con- didates from Johnson & Johnson tinue to depend heavily on the and Novavax have also shown success of combatting the virus. efficacy in combatting the effects of the virus and new mutations.

While many of the risks present- If these two candidates are aued by the outbreak of COVID-19 thorized for use as most experts persist, it appears we may be in expect, the boost in supply will

be a welcome development in the tinued to grow at a solid 4% in US and abroad. the fourth quarter despite the holiday surge in COVID-19 Despite the positive trends in cases. This improving economic COVID-19 data, volatility began backdrop has provided tailto return to the stock market in winds to corporate profits, which the final days of January, as retail should help stocks grow into traders set their eyes on Game- their elevated valuations. S&P Stop (GME) stock and other 500 Index earnings for the fourth heavily shorted securities, capti- quarter are impressively trackvating the nation’s imagination. ing 9 percentage points ahead As Warren Buffett explained of consensus expectations, while above, while many of these se- more than 80% of companies curities may be popular now, the have beaten earnings estimates real winners will likely be inves- (source: FactSet). Meanwhile, tors with longer-term horizons. housing remains extremely While these developments could strong nationally and manufacbe another sign of excessive opti- turing data continues to show mism in certain segments of the an economy that is firmly on the equity markets, we do not believe mend. they represent a sign of a broader market bubble or indicate a ma- The improving economic backjor correction is forthcoming. drop, along with US government and Federal Reserve policies After the powerful snapback of designed to boost the economy, economic growth seen in the suggest the environment for third quarter, the economy con- risk assets may remain favorable

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DIFFERENCE

Continued from page 7 tirement or keeping a business in your family. Policyholders who already have term life insurance have the option to convert to whole life for cash benefits like these.

Whole life insurance is one of two options for permanent life insurance. Another form of permanent life insurance is universal life (UL) insurance, which differs from other life products because it offers flexible protection and flexible payments.

Similar to whole life policies, UL policies build an accumulated value based on your premium payments. You can use the accumulated value to borrow against while you’re still living for things like purchasing a home, starting a business or even creating supplemental income for your retirement.

Find the Right Fit for You We understand your life insur-

in 2021. Don’t get complacent though; after the S&P 500 Index rallied more than 70% since the March 2020 lows, some volatility would be perfectly warranted.

Remember, they say that the stock market is the only place where things go on sale, yet people run out of the store screaming. Have a plan in place to be ready to take advantage when the sales come, and don’t run out screaming.

For more information about iWealth, please visit www. iWealth4me.com or call 507835-9111.

for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

Securities and Advisory Services offered through LPL Financial a Registered Investment Advisor, Member FINRA/ SIPC.

All index data from FactSet. T his Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; howThis material is for general information ever LPL Financial makes no representaonly and is not intended to provide spe- tion as to its completeness or accuracy. cific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable

ance needs change over time. We can help you choose the right type of life insurance that fits your needs through all of life’s changes. Each option differs in price and coverage characteristics, but all serve as protection for those who matter most to you. No matter which type of coverage you choose, life insurance premiums are almost always lower when you’re younger and healthier, so don’t wait! Contact your Farm Bureau agent to schedule a SuperCheck® to discuss your specific life insurance needs.

Securities & services offered through FBL Marketing Services, LLC+, 5400 University Ave., West Des Moines, IA 50266, 877/860-2904, Member SIPC. Advisory services offered through FBL Wealth Management, LLC+.

offered through Farm Bureau Property & Casualty Insurance Company+* and Western Agricultural Insurance Company+*/West Des Moines, IA and are intended for residents of AZ, IA, KS, MN, NE, NM, SD and UT. Fixed life insurance and annuity products are offered through Farm Bureau Life Insurance Company+*/West Des Moines, IA and are intended for residents of AZ, IA, ID, KS, MN, MT, ND, NE, NM, OK, SD, UT, WI and WY. Individual must be licensed with issuing company to offer insurance products.

IMPORTANT: The information and material contained on this website is not an offer to sell or a solicitation to buy any security or any insurance product in any jurisdiction. No security or other insurance product is offered or will be sold in any jurisdiction in which such offer or solicitation purchase or sale would be unlawful under the securities, insurance or other laws of such jurisdiction. Not all products are available in all states. Exclusions, limitations and reductions may apply. This website briefly highlights Farm Bureau’s insurance policies and their benefits. The contract is contained only in the policy.

Individual must be a registered representative of FBL Marketing Services, LLC or an investment adviser representative with FBL Wealth Management, LLC+ to dis- +Affiliates *Company providers of Farm cuss securities products. Individual must Bureau Financial Services. be released by FBL Wealth Management, • Copyright © 2021 FBL Financial LLC to offer advisory services.

Group, Inc. Property-casualty insurance products are

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

PAGE 9

Avoid a Tax Audit

Becoming the focus of an IRS tax audit can lead to expensive penalties and sometimes legal problems. The easiest way to ensure you’re safe from an investigation is to file your taxes correctly.

Numerous things on your return can raise red flags within the bureau’s system. that shows the earned income through the position. An employer will turn in the same information to the IRS, so the totals must match to avoid receiving a bill for the difference.

Keep track of your salary in case the company doesn’t send a 1099 document.

False Business Expenses Claiming business deductions is best left to a professional tax expert. For instance, if you claim expenses like unreimbursed employee travel costs and a business travel deduction, the IRS will likely flag your return and contact you. If the com-

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Income Tax Preparation Tax Planning QuickBooks Consulting Business Consulting Accounting & Payroll

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sent. The conversation will usually notify you of the incoming document and set an appointment for an in-person meeting.

initiate the process through text message or email. However, an m agent may reach out through the following avenues:

• Unannounced visits. In some cases, an agent will arrive at your property to discuss tax delinquency without notice.

• Phone call. You may receive a phone call after a letter has been

When you are approached by someone claiming to be with

l

Dependency Issues Another way to wind up under scrutiny for your tax return is to claim a dependent who is being claimed on someone else’s return. It’s also an issue if you have an adult child on your return who files as an independent on their own taxes.

Now Taking Appointments

y

e lIf you are faced with an audit, -it’s crucial to avoid scams by understanding how you will be m rcontacted. The Internal Reveynue Service says they will never

pensations you assert as part of your company are considered a hobby rather than an actual expense, they may ask some questions.

the IRS, you must ask for credentials. The Official Guide to Government Information and Services states that imposter scams are commonly conducted to cheat people out of false tax payments.

Protect yourself and limit your risks of an audit by understanding how red flags are raised.

Unreported Income Taxpayers who work a single job can easily avoid unreported income because an employer provides their W-2. However, those employed as contractors or hold multiple positions may be required to turn in numerous documents.

As an independent worker, you should receive a 1099 form

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SOUTHERN MINNESOTA FINANCIAL GUIDE

February 2021

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PAGE 10

Know your Filing Status

The Internal Revenue Service allows taxpayers to file under five different statuses. Choosing the right one determines the amount due, your standard deduction total and your eligibility for credits.

Since the correct status can change throughout the year, it’s essential to understand the varying ways to file.

Generally, the status you need

to select depends on if you were single or married on Dec. 31.

When your relationship standing changes before New Year’s Eve, that determines how you

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file for the entire year. These guidelines from the IRS will help you find out more about the different options for filing and how life changes can alter your status.

Single If you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree on the last day of the year, you qualify as single.

Married There are two statuses to choose between for couples who are legally wed by the end of the

year. First, married filing jointly creates a joint return where you report your combined income and deduct the collective allowable expenses.

When married filing separately, you are only responsible for your individual income, which is beneficial when the method results in less tax than a joint return.

Head of Household To qualify for this status, there are several requirements you must meet:

1. You are unmarried or considered unmarried on the last day of the year.

qualify, you should expect lower tax rates and a higher standard deduction.

2. You paid more than half the cost of keeping up a home for the year.

Qualifying Widow(er) with Dependent Child If your spouse dies, you can use married filing jointly as your status, but only during the death year. However, some may be eligible to use a qualifying widow(er) with a dependent child as your filing status for two years following your significant other’s death.

3. A qualifying person lived with you in the home for more than half the year, except for temporary absences (a dependent parent is not required to live with you.)

Filing as head of household has certain advantages over choosing the single status. If you

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

PAGE 11

What to know before claiming Social Security benefits

Hardworking adults spend years striving to achieve their professional goals. Along the way, planning for retirement is a way to ensure all that hard work pays off when the time comes to call it a career.

In the United States, men and women nearing retirement age may be thinking about when they should begin collecting their Social Security retirement benefits. Social Security is a social insurance program instituted

by President Franklin Delano Roosevelt in 1935. The program consists of retirement, disability and survivor benefits, and workers in the United States contrib-

ute to Social Security each week.

The decision about when to claim Social Security retirement benefits is one all those who have contributed to the program must eventually make. In recognition of the difficulty of that decision, the Consumer Financial Protection Bureau offers the following tips to people wondering when they should begin collecting their Social Security benefits.

Claiming your benefit before you reach full retirement age will lead to a permanent decrease in your monthly benefits. Conversely, claiming after you reach full retirement age will lead to a permanent increase in your monthly benefits. Since the stakes are so considerable, it’s vital for adults to confirm their full retirement age before they claim their benefits.

• Confirm your full retirement age. Full retirement age refers to the age at which people can begin collecting their full benefits.

Depending on the year you were born, you can begin collecting your full benefit at age 66 or 67.

• Delay claiming if you can. The CFPB notes that you can expect to get an additional 5 to 8 percent in monthly benefits for every year you wait to claim your Social Security benefits after age 62, maxing out at age 70. If you can

afford to do so, wait to claim your full benefit until age 70, as doing so can translate to a benefit that’s 32 percent higher than it would have been had you claimed your benefit at age 62.

• Budget for retirement. Shortand long-term budgeting for retirement can help you assess how much money you will need to cover your expenses when you stop working. This step can help you understand how much a reduced or increased Social Security benefit will affect your bottom line in retirement.

• Continue working. Remaining in the workforce full-time or even part-time can have a considerable impact on the size of your Social Security benefit.

The CFPB notes that continuing to work for one or two additional years can replace low- or no-income earnings from your earnings record, thereby increasing your benefit.

spouse to wait to collect his or her benefit until he or she reaches full retirement age.

The decision about when to collect your Social Security benefit is complex. Discussing your options with your spouse and financial advisor can help you make the most informed decision.

• Consider the long-term needs of your spouse. Surviving spouses receive the higher of the two spouses’ benefits. So it makes sense for the higher earning

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SOUTHERN MINNESOTA FINANCIAL GUIDE

What is the 50-30-20 approach?

Effective financial strategies vary depending on which stage of life a person is in. For example, a recent college graduate working his or her first professional job will not have the same financial strategy as someone on the cusp of retirement. But one financial strategy that people of all ages can look to for guidance is the 50-30-20 approach. Popularized by United States Senator Elizabeth Warren, the 50-30-20 approach to financial planning can be a valuable resource for anyone trying to develop a budget. The approach is simple yet effective. Under the 50-30-20 approach, income is allocated based on this breakdown:

• 30 percent of money is spent on wants, including hobbies, dining out and travel • 20 percent of money is allocated to savings

Proponents of the 50-30-20 approach note that calculations should be based on after-tax income, or what’s often referred to as “take-home pay.” Professionals with steady paychecks can easily determine their 5030-20 breakdowns by saving a month’s worth of pay stubs and establishing their monthly budget based on what’s coming in. The task can be trickier for self-employed or freelance workers, who may benefit from • 50 percent of money is spent working with financial planners on needs, including housing as they seek to create monthly costs, health insurance, car pay- budgets based on the 50-30-20 ments, and groceries approach.

Lisa Ackerman

Accountant/Tax Preparer 507-451-3399 • 221 Mineral Springs Rd Ste A lisa@ackermanaccounting.com • ackermanaccounting.com

February 2021

The various ways to pay off student loan debt Students and families invest heavily in higher education.

Many students rely on student loans to finance their educations.

In fact, students amassed $1.56 trillion in student loan debt by 2020.

According to Forbes, American student loan debt is now the second highest consumer debt category, exceeded only by mortgage debt. The Institute for College Access and Success says the average student loan debt is $32,731, while the median student loan monthly payment is $222.

Some students feel like paying off student loan debt is impossible.

Many loan repayment schedules kick in shortly after graduation, and certain borrowers may not yet be making enough money to afford even the minimum payments on their student loans.

Thankfully, there are ways to get out from under student loan pressure.

ages Americans to move to rural Kansas to help discourage population decline and to give others the benefits of a lower cost of living. Seventy-seven Kansas counties have been authorized to offer • Investigate income-driven restudent loan payment incentives. payment. IDR will lower student loan payments based on your • Work in public service. A Pubincome, and some plans even lic Service Loan Forgiveness propromise to forgive any remaining gram, or PLSF, enables student balance once the repayment peloan forgiveness in exchange for riod is up. That period can take working for a nonprofit or workbetween 20 and 25 years. ing in government.

refinance their student loans at a lower rate or choose new loan terms, including variable or fixed rates. Maturity dates can even be renegotiated in certain instances.

It’s possible to save thousands of dollars in interest by refinancing, particularly if borrowers have a credit score of at least 650.

minimum payments, you can pay down the principal more quickly. Designate tax refunds and salary increases to pay down student loan debt.

• Ask for help. Speak with your boss about whether he or she can help pay off student loans. Some employers offer conditional stu• Make more than the minimum dent loan repayment to employpayment. Financial advisor Dave ees.

Ramsey says making the minimum payments on student loans These are some of the ways that will not get them paid off fast, student loan debts can be repaid • Make a move. The Rural Op• Refinance the loans. Graduates and the interest could pile up as quickly, efficiently and creatively. portunity Zone program encourmay not be aware that they can well. By paying more than the

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

PAGE 13

Tax Changes As the year nears to a close, it’s time to start thinking about filing taxes again. While tax laws regularly make minor alterations each season, your 2020 return includes significant changes.

Find out how the coronavirus pandemic is impacting the requirements established by the Internal Revenue Service.

Waived RMDs The IRS defines a required minimum distribution as the minimum amount you must withdraw from your retirement plan each year. Generally, taxpayers begin pulling funds from an IRA, SEP IRA or simple IRA at the age of 72. This year, the Coronavirus Aid, Relief and Economic Security Act of 2020 waives these minimum distributions.

Since an RMD typically counts as taxable income, this onetime exoneration means that many retirees will have a lower responsibility, leading to less federal income taxes.

Higher Standard Deductions A standard deduction reduces the amount of your income that qualifies for federal taxes. Each year, these deductions usually increase to catch up with inflation. For 2020, the IRS reports these amounts for tax-filing statuses.

• Married filing jointly: $24,800, an increase of $400 from 2019.

• Married filing separately: $12,400, an increase of $200.

• Head of household: $18,650, an increase of $300 • Single: $12,400, an increase of $200.

Make sure you file with the correct status to avoid delays on your return.

Charity Deduction Guidelines Tax-deductible donations to charity are commonly used to itemize deductions rather than taking the standard course. This year, as a way to ask Americans to donate to causes affected by the coronavirus, the CAREs Act

enables taxpayers to deduct up to $300 in monetary contributions during 2020, even when taking the standard deduction.

More Valuable Credits For 2020 filings, the tax credit for qualified adoption expenses increases to $14,300. That’s up from $14,080 from the previous year. You will also be granted upturns for both the income limits and the Earned Income Tax Credit’s maximum credit amount. Here are the eligibility qualifications if your adjusted gross income is not more than:

• Married filing jointly: $56,844, up from $55,952.

• Other filing statuses: $50,594, up from $50,162.

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PAGE 14

SOUTHERN MINNESOTA FINANCIAL GUIDE

February 2021

Questions to ask after taking a pay cut The outbreak of the novel coronavirus COVID-19 in the winter of 2019-20 left no part of life as the world knew it untouched.

Students were instructed to stay home from school, professionals were told to avoid their offices and families were told to limit the size of gatherings for momentous occasions like birthdays and weddings.

Unemployment rates skyrocketed across the globe seemingly overnight. While global unemployment figures are difficult to determine, estimates from the International Labour Organization in June 2020 indicated that working hours fell by 14 percent during the second quarter of 2020. That equates to roughly 400 million lost full-time jobs.

ployed throughout the pandemic have taken pay cuts as their employers try to stay afloat during what’s proven to be a time of unprecedented economic challenges. Pay cuts can throw professionals’ carefully formulated financial plans into disarray. But salary reductions need not derail those plans, especially if professionals ask the right questions when informed that their pay is The economic fallout of the pan- Many people who have been being reduced. demic has been considerable. fortunate enough to remain em-

When will the salary reduction take effect?

This is an important question for any professional to ask, but it can be especially so for workers who use automatic bill pay.

You will want to ensure that your accounts have enough money to cover the month’s bills before they come due, so don’t hesitate to ask when pay cuts will go into effect if that information has not been shared.

How much is my salary being reduced?

Many companies have instituted uniform pay cuts during the pandemic, while others have not. Some may be asking higher paid executives to take more significant, percentagebased pay cuts, while others have postponed bonuses. Reductions can be highly complicated, and employees should not hesitate to ask just how much their pay will be reduced. Knowing what’s coming in is an essential com-

ponent of financial planning, so professionals whose employers have been vague with details can reach out to human resources to determine just how much their bottom lines will be affected.

How long will the pay cuts last?

Long-term financial planning is based on long-term salary expectations, so it’s alright to ask if the company has an idea about how long reductions will remain in place. Some may be indefinite, and that knowledge can help professionals reconfigure their budgets so their long-term financial plans stay the course as much as possible.

Will cuts be made elsewhere?

Ask if health care costs will rise as a result of salary reductions. In addition, if the company matches 401(k) contributions, inquire if that will continue. If the company does not intend to continue matching, professionals who can afford to do so may want to in-

crease their own 401(k) contributions to account for the loss of matched funds.

Does the company anticipate additional cuts in the future?

Some companies may be straightforward and acknowledge that the uncertainty surrounding the pandemic makes it likely that future pay cuts will be considered. Others may already have strategies in place that allow them to make the pay cuts a one-time thing. Employees can seek this information to alleviate stress and to inform decisions about their short- and long-term finances.

Salary reductions have taken place at many companies throughout 2020. Employees concerned by such pay cuts can express those concerns to their employers by asking some thoughtful questions.

February 2021

SOUTHERN MINNESOTA FINANCIAL GUIDE

PAGE 15

Invest your Tax Return When you’re expecting a significant chunk of change from Uncle Sam, it’s wise to invest your newfound fortune in future investments. mitting to investing each season can substantially account for growth. Consider using the annual funds to contribute to purchasing high-earning stocks or an aggressive interest-paying savings account.

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Try to only use the growing nest egg as funding for other money-growing investments. You should keep this fund separate from your regular savings fund that covers emergencies and necessities.

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Make Home Renovations If you’re planning to sell your

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home, think about making valuable upgrades or renovations to boost your asking price.

Here are some projects that add value, as suggested by Home Advisor.

• Increase light and space.

• Landscape and curb appeal.

• Consider adding a deck.

• Finish a basement.

• Update the kitchen and bathroom.

During a real estate transaction, it’s good practice to work with an expert Realtor who can recommend the popular updates in your local region.

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e Plemel Insurance Agency Inc Judy Plemel ChFC, Agent 920 Hoffman Dr Ste 1 Owatonna, MN 55060 Bus: 507-451-4619 © ADOBE STOCK

If you don’t need the funds for immediate emergencies, there are numerous ventures you can take to make it grow your portfolio or pad a retirement account.

the benefits of purchasing real estate and flipping it for a profit.

Or an expert can recommend you save your money until an investment presents a lucrative opportunity.

If you’re new to investing, working with a financial planner can give you exceptional advantages. They can guide you on optimistic stocks or show you

When looking for wise ways to spend your return, consider a few ideas to strengthen your financial position.

Pay Down Debts Carrying around high-interest debts on things like credit cards or personal loans can be stressful and make it challenging to save money. If your return doesn’t cover the total amount owed, consider rolling the remaining balance over to one account. This will limit your financial responsibility to a single bill per month while eliminat-

ing a compound of interest from multiple debts.

Like a good neighbor, State Farm is there.®

When you purchase your monetary freedom with a tax return, you can focus your future capital on investment prospects.

Seed Your Future While this year’s tax return may not be significant enough to pad your entire future, com-

It can be hard to picture, but retirement is closer than it seems. So do your future self a favor and start planning now. A little today can add up to a lot tomorrow. Call me to get started.

State Farm Bloomington, IL 2001630

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SOUTHERN MINNESOTA FINANCIAL GUIDE

320 4th St NW, Faribault, MN 55021

February 2021

507-334-8888

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