Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

The 80/20 Year of 2020; How Your Emotions Can Positively Affect Your Finances

I read a Garfield comic when I was about 12 years old that I’ll never forget. “When is the most popular day to start a diet? Tomorrow.”

We’re at that time of year when people make New Year’s resolutions. I’ll tell you though, I can’t stand New Year’s resolutions. If you’re going to change, don’t pick an arbitrary date in the future to change full-scale. Telling yourself you’ll change later while remaining the same in the present is a logical fallacy.

Regarding the influential comic I read as a child and diets in general, I have read that doctors recommend following diets 80% of the time while playing fast and loose with the other 20%. A quick search lead to, Shape Magazine and WebMD all recommending this dietary approach. Following the 80/20 rule isn’t medically superior to keeping a 100% clean diet, it’s just easier to…. stomach. Puns aside, there’s a psychological aspect to dieting that must be addressed. The 80/20 rule is one of the most successful answers to people being unable to keep to a 100% clean diet. Full-scale, cold turkey change, while possible, isn’t often recommended.

Now stay with me for a moment as I apply this theory, and share a little of my own theorems, to your personal and family finances. In my professional experience, not many families are able to successfully stick to a budget. In fact, only a very small percentage of our thousands of clients even have a written budget, much less follow it to any degree. The psychological problem with a budget is the finality of it. Necessitating expenses be kept within certain parameters can be emotionally taxing (that’s my last pun, I promise).

Rather than keeping to 100% “clean” finances, which puts enormous emotional and psychological pressure in an area of your life that’s already difficult, let’s see what applying the 80/20 rule could look like.

  1. You’ve got to pay the bills
  2. You need to look to the future with savings and retirement
  3. You need to allow your emotions to have some type of financial outlet

Now #3 isn’t so popular with many financial experts as we tend to live in a math-oriented world. The approach I take with my clients is thus: First we remove all emotion from your finances, then we use data to diagnose obstacles, challenges and opportunities, and finally we inject the emotion back into it and make actionable plans to help improve your finances.

As you gain a better grasp on your total financial picture, you will exercise that 20% fast-and-loose more sensibly. Also, let’s clarify one thing. The 20% doesn’t represent 20% of your gross or even net pay. The 20% is a number we must diagnose after points #1 and #2 above.

My wife taught me about cheat days during my immortal days of being 23 years old when I thought I’d never gain an extra pound. Cheat days are there to help keep you sane when trying to implement a strict diet. What she taught me, which I personally also found to be true, was that after putting in really hard work all week, once your cheat day came you’d be more measured than was necessary when deciding how to cheat on your diet. Due to the things you’d learned and how you’d grown, you wouldn’t want to undo all the hard work you’d put in. So sure, you’d use your cheat day and go off diet, but you wouldn’t rubber band all the way back to eating some of the garbage you did before.

This same sentiment holds true as the steward of your own finances. Diagnose the obstacles and challenges, structure a plan to work through them, and then expect to only get 80% of the way. Once your expectations are at the 80% marker, you’ll find ways to stretch that to 85% or more because you’ll see that your choices and actions have a direct positive impact on your plan.

There are many different financial concessions you can make and still reach your financial goals. However, there are a few areas that don’t have much flexibility. The one I’ll focus on presently is your tax filing obligations. You can’t just send the IRS 80% of your tax return or report just 80% of your income. Your tax return has a direct impact on your finances, either positive or negative, and it doesn’t stop there. You need to be able to diagnose areas on your return that can be improved upon. While 2019 may now be a matter of historical record, you can make changes and improvements to help positively influence things now and in the future.

Contact us

Come see us at Molen & Associates; we’ll take care of your tax filing obligations for 2019 and help guide you through some fundamental planning as we enter the 80/20 year of 2020.

Kevin Molen
Tax Advisory Manager

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

The Ultimate Guide to Streamlining Your Small Business Finances

Streamlining your small business finances doesn't have to be a complex puzzle. Running a small business is a thrilling endeavor, but it often comes with a multitude of financial responsibilities that can leave even the most passionate entrepreneurs feeling...

Navigating Self-Employment Taxes with Molen & Associates

Embarking on the path of self-employment is a dream many aspire to, and you're one step ahead with both the vision and resources to make it a reality. To ensure your entrepreneurial venture thrives without being encumbered by tax-related complications, Molen &...

Maximizing Tax Benefits for Your Home Office

How to maximize your tax benefits for your home office? For over four decades, Molen & Associates, a trusted tax and accounting firm established in 1980, has been aiding small-business proprietors and entrepreneurs in optimizing their tax advantages through the...

2024 Tax Updates

Navigating the 2024 Tax Landscape: What You Need to Know   Introduction: As we gear up for the upcoming tax season, it's crucial to stay ahead of the curve and be aware of the changes that will shape the 2024 tax landscape. In this blog post, we'll explore key...

Mastering the 199A Deduction: Your Ultimate Guide

How to master the 199A Deduction? Tax season often resembles a maze, with twists, turns, and seemingly endless complexities. But fear not, fellow entrepreneurs, for we're about to shed light on a powerful tool that can guide you through this intricate terrain—the 199A...

Cruising to a write off

How to cruise a write off? First things first, let’s remember our general rules that before we can deduct a business expense it must be ORDINARY and NECESSARY, meaning “An ordinary expense means it’s typical in your business, both [in terms of] amount [as well as in]...

Shielding Your Business: The Power of IRS Representation in Tax Matters

Tax matters can be a labyrinth of complexities, especially for small business owners juggling a multitude of responsibilities. The mere thought of facing the Internal Revenue Service (IRS) can send shivers down the spine. But fear not – there's a potent guardian in...

Corporate Transparency Act – Beneficial Ownership Reporting: Are You Prepared?

The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, introduces significant changes in beneficial ownership reporting requirements for certain entities operating in the United States. These regulations, set to take effect on...

The IRS is Cracking Down on S-Corp Salaries: How To Ensure Your Reasonable Compensation is Safe

The IRS is turning its attention to S-Corporations (S-Corps) and the salaries paid to shareholder-employees. Ensuring that you are paying yourself a "reasonable compensation" is crucial to staying compliant with the law and avoiding potential financial consequences....

Should You Be Making Quarterly Payments?

Tackling your taxes as a small business owner can often feel like a high-stakes game of strategy and a little guesswork. One of the key moves in this intricate game is mastering the art of quarterly tax payments. If you're looking to stay ahead in the tax arena and...

Request an Appointment Today

4 + 8 =

Call us at

Pin It on Pinterest

Share This