Savings and Taxes!!!

As we approach the end of the 2018 year, I wanted to quickly go over some of the key concepts we’ve learned this year about savings and taxes. (I know this sounds boring, but I promise I will try to keep it concise and finish before you fall asleep)

One of the biggest concept I realized from all of the financial resources out there, was if you have the opportunity to take advantage of pre-tax savings/investments we should definitely try our best!

What does that even mean? Well for starters, most of us who work a “regular” job, that we get a W-2 at the end of the year, most likely have options from our employers to put our earnings into investments before taxes are taken out. Typically this is offered as a 401k or for government employees 403b. Basically, this means we have the opportunity to invest 10-30% more money and have that amount grow until we are ready to take it out, versus just paying that that 10-30% as taxes to the government that year.

Some background, I’ve always contributed to my 401k through my company ever since I’ve gotten a full time job. However, I’ve only been contributing the amount that the company will match (as a benefit of employment). My employer intially only matched up to 3% of my earnings if I was willing/able to contribute that much. For my situation that was am easy decision, why not take “free” money. So as a benefit of employment, most employers will give some kind of “match” with a “vesting” schedule. Vesting is basically how much of the “matched” contribution you can keep if you decide to the leave your current employer.

So I took a leap of faith this year after listening and researching into how to best take advantage of this pre-tax investment opportunity. Based on the 2018 tax bracket (provided below from the IRS website), I would personally would be taxed up to 24% on some of my income, which means a majority of my income and my wife’s income will be taxed at 22%. Let’s put this into some more relatable numbers, imagine that I earn $1,000 that will be taxed at 22%. That means I will pay in taxes $220 of that $1000 I earned. Once I understood that I was pretty frustrated…I thought to myself what can I do about this?!?!?!?

This is where utilizing the employer’s retirement investment option such as the 401k became very appealing to me. Long story short, I changed my contribution to my 401k from 3% of earned income to an amount that would allow me to get as close as I could to the current maximum 401k contribution limit of $18,500 (for 2018, it will be $19,000 in 2019). I am pleased to say that although I did not reach the limit, but I was able to contribute $17,806. I will definitely make it a goal of mine for 2019 to contribute the maximum amount of $19,000 into my 401k. To put this into perspective, if I had not elected to contribute $17,806 into this pre-tax savings account, I would have essentially paid ~$3,917 in federal taxes on those earnings.

That is definitely a simplistic overview of the situation but I believe it overall explains the main concept of how advantageous contributing to a 401k or any pre-tax investment account can be, when we simply look at how much we are saving that year in taxes. Beyond that we are getting to choose what to do with that money in the mean time until we get to pull that money out, of course there are more rules and regulations to how that money can be moved, used and taken out. (That is a whole book in itself) There are definitely a lot of options out there and some we haven’t even talked about in this post including 457, Traditional IRA, and Roth IRA accounts. If you want to learn a little more about that I did find a good overview in a table format to make it a little bit easier to understand. Savings account overview. <- we do not endorse the company that has put this material together but merely sharing because we found it to be very helpful, keep in mind that this information will change for the 2019 tax return.

So my take home message is, if you are financially able, consider placing your money in these beneficial pre-tax investment accounts and have the money you work so hard for, potentially earn you money!!! (Or you can just decide to pay thousands of dollars more in taxes)

Mr. Bzness, is in a completely different scenario, being that has a personal business venture. This means he doesn’t have the luxury of an employer having all of this 401k structure available to him. He is also convinced this is a great way to maximize his earnings as well (work smarter not harder, right?), so he is on his own journey to set up a solo 401k. Definitely be on the look out for this because once we get a little more traction on setting up a solo 401k, we will explain how the process was for him and give details on what we have learned about that journey.

Remember, “Work smarter not harder!”

Happy New Years to all!

Please let us know if you have any questions about anything in this post either in the comment section or through email.

Southwest Business Card

Happy Holidays All!

Updating everyone this week on the Southwest Companion Pass journey. (It has been a rocky one)

So it seems that some things have been changing and it getting a little bit more difficult to get these credit cards. Unfortunately, it seems that I was denied the Southwest Business credit card with the reasoning “Too many requests for credit or openers accounts with us.”

Based off of all the information out there we are suppose to be okay if we stayed within the rules of 5 in 24. Which is not opening 5 credit cards within the past 24 months. I have not done so, but it seems that not having my business Tax ID before applying the first time has hurt my chance of getting approved.

I am definitely disappointed it not being able to take advantage of this opportunity to obtain more bonus points that available to help reach the Southwest Companion Pass 🙁 .

I did get to reach out to some other individuals that I know have gotten this Southwest Companion Pass and it seems that they were able to obtain this pass when Chase was still allowing one individual to open multiple personal Southwest Credit Cards.

I did try to give Chase lending department a call explain the situation and after about 30 minutes, I was given further reasoning that my business was to “new” and had insufficient revenue to be approved. The representative definitely was not helpful at all and was very dodgy on most of my questions.

So moral of this story is credit cards are a good way to optimize rewards for money we are already spending but applying for them seem to be a science of its own. Banks definitely have an algorithm that is being used to approve or deny credit card applications and it seems I haven’t gotten the science of this down yet. However, I am learning and want to share my experience with everyone who is trying to explore these options as well.

My recommendations:

  • Do not apply for Business Credit Cards until you have applied for a EIN (Business Tax ID) with the IRS.
    • This seems to make the process much smoother and no request for proof of business should be needed.
    • Also, I wanted to let everyone know I have had a personal business before but just have never filed for a sole proprietorship.

With the bad news going into the holiday season, I am going to try to turn this around and look on the bright side. I will at least get the bonus points from the personal Southwest Credit Card and plan to use those points up for my expected travel and maybe try again later in the 2019 year. If that application doesn’t work again then I will probably just cancel the Chase Southwest personal credit card.

No small win this time! But definitely learning!

I hope someone can find this information to be helpful! If anyone has any other insight for myself please let me know 🙂

Southwest Companion Pass

It’s now mid December and the saga for the Southwest Companion Pass is well underway!!! Hoping for more small wins!

So, update on my progress so far:

  • I was approved for the Southwest Rapid Rewards Credit Card
  • I am close to the $1000 spend requirement for the card to receive the 40,000 bonus points
    • FYI…I had to stop the spending on it for 2 weeks to make sure the bonus points wouldn’t be awarded in the 2018 fiscal year. (Remember that the accumulation of the 110,000 points must be awarded in the same year, so in my case 2019)

One of the new challenge with obtaining the companion pass now is that, they’ve created a rule that won’t allow one person to have 2 personal Southwest credit cards. Which means, the only other option is to open the Southwest Premier Business Card. 

I tried to open the business card in early November of 2018, but was denied because I couldn’t show proof of owning a business (some of the accepted documentation was mentioned in the previous post). So, I had to go find proof, even if I already had a business. So it seemed that I needed to legitimize the things I was doing for my business in order to get approved for this card. The route I chose was to apply for a Sole Proprietorship with my county tax office, this costed me $20 and would probably help me in the long run anyways. I’ve posted the fee schedule for different applications just to help everyone visualize how inexpensive, legitimizing a home business can be.

I did not enjoy having my application denied last time so I wanted to make improve my chances even more than just having a sole proprietorship paperwork (I really hate getting denied). So, I went ahead and applied for a business tax ID [EIN] with the IRS, through the IRS website. This is actually an even easier process. If you apply for it online you will get your EIN number immediately. 

I think I’ve done all I can and let’s see how this goes. I went ahead and applied for the card again today and received a reply that they will need to review further. Worst case scenario I will at least get the bonus points from the personal card. -_- 

ChooseFI, is a great resource and one of their recent podcast essentially goes over all of this at a little higher level. If you haven’t listened to it, you should definitely check it out. 

104R | Travel Rewards | End of Year Planning

Let’s hope I can report soon that this will be another small win!!

Credit Card Hack 2.1

It is Friday!!! Time to recap on some of the small wins throughout the week!

So I have some exciting news about the referral program that we mentioned last week, after going over some details with a friend about how beneficial credit card rewards points can be, he signed up for one of the best credit cards currently out there to start off with the Chase Sapphire Preferred Credit Card (in my opinion). Then to my delight I received an email from chase confirming I will be receiving the referral points!!! 

To be a little bit more specific on the time frame, the person applied for the credit card  and was approved on Nov 20th and on Dec 6th, I received the confirmation email that I will see the bonus points on the next month’s statement. So, it seems that the approximate timeframe is about ~20 days and BAM someone gets paid at the very least $100 but potentially even more if used through affiliate programs (see previous post for info). 

Now, onto what we had mentioned at the end of the last post, the almighty Southwest Companion Pass…

What is the Southwest Companion Pass? 

Essentially, it is a “perk” that if you can accumulate 110,000 Rapid Rewards Points, in 1 (one) calendar year then you will be able to get a free ticket for a “companion” for every flight you book with Southwest Airlines. So for example, you buy an Southwest Airline ticket to Denver, you can also book a “companion” ticket for free on the same flight!!

So maybe not completely free…there are some fees that will need to be paid see above. 

There are a lot of mentions of this is a great way to travel for less and an awesome credit card airline hack…but how exactly can someone get this 110,000 qualifying points?!?!?!? Well, I am starting this small journey myself and will document the process I am taking. 

One of the key things that I am reading, is that the qualifying points that will be counted in the 110,000 points need to be earned in the same calendar year. Once the Companion Pass is earned you essentially have this pass for the rest of the year and until December of the following year. So if the pass is activated February 2019, you will have the pass active until December 2020. That means, if you time it correctly you have a Companion Pass for almost 2 years! 

This is where it can get a little tricky, (at least for me) I opened the Southwest Rapid Rewards® Plus Credit Card November 2018 and plan to charge $1,000 on this card to obtain the 40,000 points to be awarded in 2019.  Then I will apply for the Southwest Rapid Rewards® Premier Business Credit Card and charge $3,000 in the first 3 months to obtain the 60,000 point bonus. That should give me 100,000 points and I will only be 10,000 points away. I am hoping to get a referral bonus in early 2019 to get my last 10,000 points 🙂 . So if anyone is feeling giving and is going to try to get the companion pass as well please try to use the Southwest Credit Card link in the post to apply for the credit card. 

The business credit card requires a little more information/effort to get. You have to have proof of an actual business to apply for this. A couple of ways this can be done, if you have a Tax ID for the business, then that’s it! If not, then you could prove it by having your tax return show you declared a business. 

I am hoping to have this companion pass by March or April of 2019, wish me luck!!! 

If you have any questions or comments please let me know!