Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, Certified Public Accountant and Attorney at Law. For over five years, I have worked as a tax professional helping clients with tax mitigation strategies, tax controversies, business transactions, wealth preservation structures, tax-exempt organiations, and estate plans.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Budgets and Goals on Mint.com Part II

In my previous post, I discussed using Mint.com to track outgoing and incoming cash, categorizing line items on the Transactions menu, and integrating these items with Budgets. The topic of this post is Mint's Goals.

To set up a goal, click the Goals tab, select one of the predefined goals or a custom goal, and answer the questions as prompted, such as source of funding, target date for reaching that goal, desired monthly contribution, etc. Each goal should be linked to an account so that Mint can track the balance and report on your progress. The Goals function is a particularly good fit for the situation I addressed in my previous post, paying off a credit card balance you are carrying.

The difficulty some have experienced with Goals on a Budget is that while Mint can reduce your projected monthly net income by the goal contribution amount, the goal amount is not linked to any Budget payment. This means that there is no indication on the Budgets tab whether a payment was actually made towards a goal in a month and no goal contributions appear on any report of expenses, net income, etc. If you create a budget item for the goal amount, the contribution toward the goal will essentially be double counted on the Budget.

The workaround for this is to add the goal amount as a budget item and exclude the goal amount from the Budget calculation. This is done by clicking on the Budgets tab, scrolling down to the goal, clicking Edit Details, and opting to exclude part or all of the goal amount from the budget calculation. This is also the appropriate way to treat a goal where the funding for that Goal comes from an account that is not linked to Mint. For example, if you set a retirement goal, employer contributions to a retirement plan would never appear as income, so that monthly goal contribution should be excluded from your budget calculation.

In summary, in order to set Goals, categorize transactions, and establish Budgets in Mint and have your reports provide accurate information, the key is to focus on each account type and the unique interaction each account has, if any, with other accounts being tracked by Mint.

Budgets and Goals on Mint.com

My wife and I have used Mint.com for personal finance management for over three years now. While it is not perfect, it is low-maintenance, fairly intuitive, and completely free. After signing up, Mint accesses the transactions from your financial accounts and helps you categorize income and expenses, establish budgets, set goals, and generally stay on top of your personal finances.

Many Mint users have expressed frustration at understanding the relationship between Mint's Budgets, fund transfers reporting, and Goals; this is one of the areas of Mint that is not always intuitive. Hopefully, the following explanation helps.

The first thing to understand is how income, expense, and transfers are handled in Mint. When you deposit your paycheck or pay for movie tickets with a debit card, you have income and expense respectively; Mint's treatment of cash coming in from or going out to an outside source is straightforward.

If you pay for a movie with a credit card, and pay off the credit card at the end of the month, Mint records three transactions: the charge to the credit card, the debit to the checking account when the payment is made, and the credit to the credit card account when the payment is received. The net result is the movie expense; the two payment transactions, if properly classified as a Transfer, net to zero. Everyday income, expense, and credit card transactions are grouped in the Cash and Credit section of the Transactions menu and appear on Mint's Budgets.

All payments or transfers from one account to another, where both accounts are Cash and Credit accounts, should be categorized as a Transfer and net to zero. If you have a loan such as a mortgage, activity on the mortgage account will appear on the Loans section of the Transactions menu, as opposed to Cash and Credit. Payments from your checking account to your mortgage account should be categorized as an expense, as opposed to a Transfer, and will appear as a cash outlay in Budgets.

In contrast to Mint's treatment of a traditional loan, suppose a large emergency expense occurs in one month, such as a medical bill, and you charge it to a credit card and plan on carrying a balance. In this situation, the "loan" will appear as a large expense in one month and the payments will be categorized as a Transfer in subsequent months. In other words, there will be no budgeted cash outlay in Budgets in subsequent months; each time a payment is made on the credit card, there will still be a debit to the checking account when the payment is made and a credit to the credit card account when the payment is received.

If you classify the debit to the checking account as an expense so that it shows up on Budgets as a cash outlay, the credit to the credit card account will still be listed as a Transfer and ignored on the Budgets, and your budget over time will ultimately count the large expense twice. The initial credit card charge will be an expense in month one, and each subsequent credit card payment will also be an expense. You are faced with either double counting your expense over time or not being able to effectively budget for the cash outlay each month a payment is made. The solution to this problem may be Goals, which I will discuss in my next post.

Educational Assistance Programs

Companies who hire students or potential students can offer educational benefits that would be more beneficial to both employer and employee than a standard wage offer would be. This can be accomplished through the fringe benefit known as an Educational Assistance Program.

An Educational Assistance Program allows an employer to provide an employee assistance in paying for tuition, fees, books, and supplies for education. Benefits provided under this program will not be subject to income or employment taxes, and the first $5,250 will be excluded from the employee's income each year.

The requirements are as follows: (1) The program must benefit employees who qualify under rules set up by the employer but that do not favor 5%-or-more owners or employees earning more than $115,000; (2) the program may not provide more than 5% of its benefits during the year for shareholders or owners; (3) the program may not allow employees to choose to receive cash or other benefits that must be included in gross income instead of the educational assistance, (4) the employer must give reasonable notice of the program to eligible employees, and (5) the program must be in writing.

To illustrate how such a program can be better for both an employer and an employee who is indifferent about receiving wages or educational assistance as compensation, assume that an employer is contemplating offering an employee an annual raise of $5,000. Were this raise to come in the form of a salary increase, the employer would need to first deduct 6.2% for social security, 1.45% for medicare, and some amount for income tax withholding, say 5%, for a total of $632.50, leaving the employee with $4,367.50. The employer must pay out, in addition to the $5,000, an additional $382.50 for the employer portion of social security and medicare, for a total of $5,382.50.

In contrast, if the annual raise is in the form of educational assistance, neither the employee nor the employer is subject to any of the above taxes. If the employer offers a raise of $5,250.00, the total payout will be $5,250.00, a savings of $132.50. The employee will have $5,250.00 of his or her educational expenses paid for, a net benefit of $882.50 compared to receiving a salary and paying for tuition with after-tax dollars.

Certainly, an educational assistance program isn't appropriate in all cases, but it can provide savings and incentives to both the employer and employee for whom the situation is right.