Author: mansi gupta
Source: articleage.com
There are abundant companies absolute today that action activity allowance policies. Though the body of the action (to ensure a safe and complete activity of an individualย's survivors as able-bodied as to the individual) does not adapt yet companies try to alter with anniversary added by authoritative altered classifications or bifurcations.
Broadly the activity allowance is disconnected into two parts.
1. Term Activity Allowance Policy- Anyone can opt for a appellation activity insurance. This blazon of action is basically meant to awning a personย's abbreviate appellation requirements. For instance if the policyholder abominably meets with a grave accident, he can affirmation for the allowance amount. But it aswell compensates the beggared in the case of afterlife of a ancestors member. All in all it is a action that helps in accoutrement abeyant charge for activity allowance in the abbreviate run.
Term activity allowance is usually a renewable and convertible program. It ranges from one to hundred years. If it is a one year affairs again the bulk of its advantage increases afterwards every one year till the time it expires. Generally the accomplishment is at the age of 75. While if the action is appellation, income tax bracket, to the age of 100 forth with banknote bulk it after becomes a allotment of the allowance for ย'whole lifeย'. Quite generally it is noticed that it is cheaper to buy a accomplished activity allowance action than a non-cash one in bulk Appellation 100 policy.
2. Permanent Activity Insurance- this is activity allowance for the absolute activity of the individual. The bulk of this action increases throughout the time one participates in the program. Agreement such as Par and Non-Par are broadly acclimated in this context. Par accomplished activity advantage generates assets that are a fractional acknowledgment of the exceptional paid for advantage and investment growth. The bulk of assets keeps on alteration from annually. On the added duke the non-par accomplished activity allowance behavior action no dividends. The approaching banknote ethics in these cases are not projected but assured or guaranteed.
ย• Besides this accomplished life-quick pay exceptional behavior are aswell available. In these there is a anchored exceptional that one has to pay for abdicate a abbreviate breach of time till the time it is absolutely paid up. The afterlife account in this action is collapsed and paid up at the time the exceptional ceases.
ย• Whole activity allowance action can aswell be burst in agreement of exceptional payable for 15 years, 20 years and 65 years of age. The agreement and altitude in these cases abide added or beneath the same.
ย• Universal activity allowance action is meant for humans who crave a activity insurance, accept a big bordering tax bracket, accept big RRSP and alimony contributions, paying a acceptable tax on investment income, wish to accept an added approaching assets and accept an investment anticipation for at atomic 10 years. These behavior are advised to be a lot of difficult of all the allowance contracts.
Friday, October 30, 2009
Thursday, October 29, 2009
Death And Taxes
Author: Carl Hampton -
Source: articledashboard.com
"In this world nothing can be said to be certain, except death and taxes"
Benjamin Franklin
I, like many other good citizens from this great country of ours, left it to the very last moment to mail off this year's tax return. As I entered the local post office and saw the long line, I once again promised myself that next year would be different. I really would make the effort to get them off before the last minute rush.
As I moved slowly towards the front of the line, I began wondering, in this day and age is this really the best system our great and wonderful leaders can come up with. After all, we now live in a world that allows a satellite miles above us to read a number plate. We can get the worldwide web on our cell phone, download TV programs that we may have missed or just want to save onto our iPods.
The original tax laws introduced in 1913 were a very simple affair. They began with tax brackets ranging from 1 to 7 percent - a far cry from today's levels. The IRS tax codes, regulations and guidelines now have well over 9 million words. No wonder there's so much confusion. Is there truly anyone who really understands this monster. Let's put this into some form of prospective. The Declaration of Independence has a little more than 1300 words. The Constitution which has served us well for more than 200 years comes in around 5000 words and the Holy Bible makes do with less than 800,000 words.
The Office of Management & Budget estimated in 2004 that we as a nation spent over $200 billion on, income tax bracket, compliance cost. At a time when the nations manufacturing industries, the foundation of any good economy, are all struggling against cheaper imports, shouldn't our leaders be using that money to create "Jobs" for their citizens. Most experts agree that $200 billion would create well over 3 million jobs, which of course creates sales of consumable goods which creates more jobs and sales taxes.
From the moment we wake up in the morning we are being hit by taxes. Everyone is at it -- turn on the light (electricity taxes), run the shower (utility taxes) and my personal favorite the telephone taxes, all 6 million of them, or that's what it seems to me every time I receive a telephone bill.
Has the time come for a simple Flat Rate Tax, something we can ALL understand. There are many countries all over the world who have used this simple to understand and cost effective way of collecting taxes to revitalize their economies. Let's just imagine for a moment what it would be like if we could complete our tax returns on one simple piece of paper. A Flat Rate Tax for individuals and a Flat Rate Tax for businesses. The same rules apply to all regardless of size of income. We all pay the same rate. Most of the successful countries have levied Flat Rate Taxes of less than 17%, with a stating level that protects the lower income groups. Could life ever be that simple again? Would our Leaders really want us to understand what they were up to? And then there's those lobbyist. Oh well, it was nice while it lasted.
Have an opinon or a question you would like me to answer, then write me! http://www.carlhampton.com
Source: articledashboard.com
"In this world nothing can be said to be certain, except death and taxes"
Benjamin Franklin
I, like many other good citizens from this great country of ours, left it to the very last moment to mail off this year's tax return. As I entered the local post office and saw the long line, I once again promised myself that next year would be different. I really would make the effort to get them off before the last minute rush.
As I moved slowly towards the front of the line, I began wondering, in this day and age is this really the best system our great and wonderful leaders can come up with. After all, we now live in a world that allows a satellite miles above us to read a number plate. We can get the worldwide web on our cell phone, download TV programs that we may have missed or just want to save onto our iPods.
The original tax laws introduced in 1913 were a very simple affair. They began with tax brackets ranging from 1 to 7 percent - a far cry from today's levels. The IRS tax codes, regulations and guidelines now have well over 9 million words. No wonder there's so much confusion. Is there truly anyone who really understands this monster. Let's put this into some form of prospective. The Declaration of Independence has a little more than 1300 words. The Constitution which has served us well for more than 200 years comes in around 5000 words and the Holy Bible makes do with less than 800,000 words.
The Office of Management & Budget estimated in 2004 that we as a nation spent over $200 billion on, income tax bracket, compliance cost. At a time when the nations manufacturing industries, the foundation of any good economy, are all struggling against cheaper imports, shouldn't our leaders be using that money to create "Jobs" for their citizens. Most experts agree that $200 billion would create well over 3 million jobs, which of course creates sales of consumable goods which creates more jobs and sales taxes.
From the moment we wake up in the morning we are being hit by taxes. Everyone is at it -- turn on the light (electricity taxes), run the shower (utility taxes) and my personal favorite the telephone taxes, all 6 million of them, or that's what it seems to me every time I receive a telephone bill.
Has the time come for a simple Flat Rate Tax, something we can ALL understand. There are many countries all over the world who have used this simple to understand and cost effective way of collecting taxes to revitalize their economies. Let's just imagine for a moment what it would be like if we could complete our tax returns on one simple piece of paper. A Flat Rate Tax for individuals and a Flat Rate Tax for businesses. The same rules apply to all regardless of size of income. We all pay the same rate. Most of the successful countries have levied Flat Rate Taxes of less than 17%, with a stating level that protects the lower income groups. Could life ever be that simple again? Would our Leaders really want us to understand what they were up to? And then there's those lobbyist. Oh well, it was nice while it lasted.
Have an opinon or a question you would like me to answer, then write me! http://www.carlhampton.com
Tuesday, October 27, 2009
Tax Refunds
Author: Eddie Tobey
Source: download
If the tax you owe is less than the total of the amount of refundable tax credits that you can claim and the amount of the withholding that you paid, then you can expect a tax refund. Why? The most recent tax law provided for a new 10% tax bracket. This means that, depending on your tax category, the first $6,000 to $12,000 of your earnings will be taxed at 10 percent instead of 15 percent. To a lot of Americans, this seems like good news. But is it really?
Many financial experts are quick to interpret the tax refund as a loan that the government borrowed from you - a loan that it is now paying back to you, interest-free. For this reason, some people see tax refunds as an inadequate premium. It is nothing more than excess money you paid, which the government used, and is now giving back to you with no interest.
For a greater majority, however, tax refunds are mere 'savings' - money that the government kept for you that you are now going to get back for use in other things. Many Americans are pleasantly surprised to receive tax refunds each year. Most people use the money to, income tax bracket, pay off debts, beef up savings accounts, and even go on vacations.
To get your tax refund you have three options. You can either let the government directly deposit your tax refund into your bank account, have a check mailed to you, or apply your refund to next year's income tax.
Bank of America, Wells Fargo, and other major banks have a routing number exclusively for direct deposits, which can make your life easier. However, if your account is with a credit union or other type of financial institutions, your tax refund may be rerouted to another institution. Be sure to verify the routing number with your credit union, because it is not always correct on the check. Also, remember that the IRS will not advise you or your bank that your tax refund has been deposited, so it's your job to do follow-up work.
Tax Refunds provides detailed information on Tax Refunds, Income Tax Refunds, State Tax Refunds, Tax Refund Estimators and more. Tax Refunds is affiliated with Property Tax Relief.
Source: download
If the tax you owe is less than the total of the amount of refundable tax credits that you can claim and the amount of the withholding that you paid, then you can expect a tax refund. Why? The most recent tax law provided for a new 10% tax bracket. This means that, depending on your tax category, the first $6,000 to $12,000 of your earnings will be taxed at 10 percent instead of 15 percent. To a lot of Americans, this seems like good news. But is it really?
Many financial experts are quick to interpret the tax refund as a loan that the government borrowed from you - a loan that it is now paying back to you, interest-free. For this reason, some people see tax refunds as an inadequate premium. It is nothing more than excess money you paid, which the government used, and is now giving back to you with no interest.
For a greater majority, however, tax refunds are mere 'savings' - money that the government kept for you that you are now going to get back for use in other things. Many Americans are pleasantly surprised to receive tax refunds each year. Most people use the money to, income tax bracket, pay off debts, beef up savings accounts, and even go on vacations.
To get your tax refund you have three options. You can either let the government directly deposit your tax refund into your bank account, have a check mailed to you, or apply your refund to next year's income tax.
Bank of America, Wells Fargo, and other major banks have a routing number exclusively for direct deposits, which can make your life easier. However, if your account is with a credit union or other type of financial institutions, your tax refund may be rerouted to another institution. Be sure to verify the routing number with your credit union, because it is not always correct on the check. Also, remember that the IRS will not advise you or your bank that your tax refund has been deposited, so it's your job to do follow-up work.
Tax Refunds provides detailed information on Tax Refunds, Income Tax Refunds, State Tax Refunds, Tax Refund Estimators and more. Tax Refunds is affiliated with Property Tax Relief.
Monday, October 26, 2009
History Of The Federal Income Tax
Author: Steve Austin
Source: articleage.com
The powers of Congress, and the limitations set upon those powers, are set forth in Article I of the United States Constitution. Section 8 specifies both the power to collect, "Taxes, Duties, Imposts and Excises," and the requirement that, "Duties, Imposts and Excises shall be uniform throughout the United States."
One of the major concerns of the Constitutional Convention was to limit the powers of the Federal Government. Among the powers to be limited was the power of taxation. It was thought that head taxes and property taxes (slaves could be taxed as either or both) were likely to be abused, and that they bore no relation to the activities in which the Federal Government had a legitimate interest. The fourth clause of section 9 therefore specifies that, "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken."
The courts have generally held that direct taxes are limited to taxes on people (variously called capitation, poll tax or head tax) and property. (Penn Mutual Indemnity Co. v. C.I.R., 227 F.2d 16, 19-20 (3rd Cir. 1960).) All other taxes, income tax bracket, are commonly referred to as "indirect taxes," because they tax an event, rather than a person or property per se. (Steward Machine Co. v. Davis, 301 U.S. 548, 581-582 (1937).) What seemed to be a straightforward limitation on the power of the legislature based on the subject of the tax proved inexact and unclear when applied to an income tax, which can be arguably viewed either as a direct or an indirect tax.
In order to help pay for its war effort in the American Civil War, the United States government issued its first personal income tax, on August 5, 1861 as part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872). Other income taxes followed, although a 1895 Supreme Court ruling, Pollock v. Farmers' Loan & Trust Co., held that taxes on capital gains, dividends, interest, rents and the like were unapportioned direct taxes on property, and therefore unconstitutional.
The Sixteenth Amendment to the United States Constitution removed the limitations on Congress, paving the way for the income tax to become the government's main source of revenue; it states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
A growing number of citizens seeks to challenge the power of the state to collect taxes by finding a way to discount the sixteenth amendment. The italicized paragraphs below are represenative of these attempts:
Lower federal courts sometimes refer to "unapportioned direct taxes" and similar catch phrases to describe the power of Congress to tax income. (See U.S. v. Turano, 802 F.2d 10, 12 (1st Cir. 1986). ("The 16th Amendment eliminated the indirect/direct distinction as applied to taxes on income.")) This, however, does not seem to be the stated position of the Supreme Court.
Yet, despite popular opinion, the 16th Amendment did not give Congress any new taxing powers. In Treasury Decision 2303, the Secretary of the Treasury directly quoted the Supreme Court (Stanton v. Baltic Mining Co. (240 U.S. 103)) in saying that "The provisions of the 16th amendment conferred no new power of taxation," but instead simply prohibited Congress original power to tax incomes "from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment."
The closest the Supreme Court has come to saying that "from whatever source derived" in the amendment expanded the taxing power of Congress was in Justice Holmes' dissent in Evans v Gore (253 U.S. 245, 267 (1920). (Holmes dissent) (Partially overruled by U.S. v Hatter. 532 U.S. 557 (2001), with respect to the prior reasoning about the compensation clause.)). In that case, the Court was considering the effect the 16th Amendment had on the compensation clause, and specifically whether the compensation of judges was unlawfully reduced by the imposition of the income tax. Justice Holmes opined that under the 16th Amendment, "Congress is given power to collect taxes on incomes from whatever source derived …[so] it seems to me that the Amendment was intended to put an end to the cause and not merely obviate" the result in Pollock. (Id.) Even in this case, though, the majority affirmed the more restrictive interpretation of the Amendment. (Id. at 262-263. (Majority opinion))
The federal income tax statutes echos the language of the 16th amendment in stating that it reaches "all income from whatever source derived," (26 USC s. 61) including criminal enterprises; criminals who fail to report their income accurately have been successfully prosecuted for tax evasion. Since the language of the amendment is clearly meant to restrict the jurisdiction of the courts, it is not immediately clear why the courts emphasize the words "all income" and ignore the derivation of the entire phrase to interpret this section - except to reach a desired political result.
Arguments about the meaning of the current income tax has continued for nearly 100 years. Courts are reluctant to support a literal reading of the tax laws in favor of potential taxpayers, since it can lead to tax avoidance. Professor Soled points out why judicial doctrines are used against tax avoidance strategies in general,
"The use of judicial doctrines to curtail tax avoidance is pervasive in the area of income taxation. There are several reasons for this phenomenon: central among them is that courts believe that if the Internal Revenue Code ("Code") were read literally, impermissible tax avoidance would become the norm rather than the exception. No matter how perceptive the legislature, it cannot anticipate all events and circumstances that may unfold, and, due to linguistic limitations, statutes do not always capture the essence of what is intended. Judicial doctrines fill the void left either by the legislature or by the words of the Code. Another reason for the popularity of these doctrines is that courts do not want to appear duped by taxpayers..." (Jay A. Soled, Use of Judicial Doctrines in Resolving Transfer Tax Controversies, 42 B.C. L. Rev 587, 588-589 (2001).)
Of course, if the intent of Congress was to actually reach all income then the simplest way to state s. 61 would be "all income ***however realized.***" Instead, s. 61 mentions sources and other sections of the federal tax code actually lists about 20 sources of income that are specifically taxed. (26 USC ss. 861-864.) A common rule of statutory interpretation is the doctrine inclusio unius est exclusio alterius. This doctrine means "[t]he inclusion of one is the exclusion of another…This doctrine decrees that where law expressly describes [a] particular situation to which it shall apply, an irrefutable inference must be drawn that what is omitted or excluded was intended to be omitted or excluded." (Black's Law Dictionary 763 (6th Ed. 1990).) Since particular sources are listed as taxable in the tax law, then it is reasonable to infer that other sources of income are excluded from taxation. This argument is called the "861 source argument" and the courts refuse to analyze the argument despite consistently holding against it, even going so far as to issue restraining orders against people who publish websites about it. (U.S. v. Bell, 238 F.Supp.2d 696, 698 (M.D. Pa. 2003).''
In 1913 the tax rate was 1 percent on taxable net income above $3,000 ($4,000 for married couples), less deductions and exemptions. It rose to a rate of 7 percent on incomes above $500,000.
During World War I the top rate rose to 77 percent; following the war, the top rate was scaled down (to a low of 25 percent).
During the Great Depression and World War II, the top income tax rate rose again, reaching 91% during the war; this top rate remained in effect until 1964.
In 1964 the top rate was decreased to 70% (1964 Revenue Act), and then to 50% in 1981 (Economic Recovery Tax Act or ERTA).
The Tax Reform Act of 1986 reduced the top rate to 28%, at the same time raising the bottom rate from 11% to 15% (in fact 15% and 28% became the only two tax brackets).
During the 1990s the top rate rose again, standing at 39.6% by the end of the decade.
In 2001 the top rate was cut to 35% and the bottom rate was cut to 10% by the EGTRRA, or Economic Growth and Tax Relief Reconciliation Act.
In 2003 the JGTRRA, or Jobs and Growth Tax Relief Reconciliation Act, was passed, expanding the 10% tax bracket and accelerating some of the changes passed in the 2001 EGTRRA.
For more free legal information on Tax Law, please visit Free Legal Information.
Source: articleage.com
The powers of Congress, and the limitations set upon those powers, are set forth in Article I of the United States Constitution. Section 8 specifies both the power to collect, "Taxes, Duties, Imposts and Excises," and the requirement that, "Duties, Imposts and Excises shall be uniform throughout the United States."
One of the major concerns of the Constitutional Convention was to limit the powers of the Federal Government. Among the powers to be limited was the power of taxation. It was thought that head taxes and property taxes (slaves could be taxed as either or both) were likely to be abused, and that they bore no relation to the activities in which the Federal Government had a legitimate interest. The fourth clause of section 9 therefore specifies that, "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken."
The courts have generally held that direct taxes are limited to taxes on people (variously called capitation, poll tax or head tax) and property. (Penn Mutual Indemnity Co. v. C.I.R., 227 F.2d 16, 19-20 (3rd Cir. 1960).) All other taxes, income tax bracket, are commonly referred to as "indirect taxes," because they tax an event, rather than a person or property per se. (Steward Machine Co. v. Davis, 301 U.S. 548, 581-582 (1937).) What seemed to be a straightforward limitation on the power of the legislature based on the subject of the tax proved inexact and unclear when applied to an income tax, which can be arguably viewed either as a direct or an indirect tax.
In order to help pay for its war effort in the American Civil War, the United States government issued its first personal income tax, on August 5, 1861 as part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872). Other income taxes followed, although a 1895 Supreme Court ruling, Pollock v. Farmers' Loan & Trust Co., held that taxes on capital gains, dividends, interest, rents and the like were unapportioned direct taxes on property, and therefore unconstitutional.
The Sixteenth Amendment to the United States Constitution removed the limitations on Congress, paving the way for the income tax to become the government's main source of revenue; it states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
A growing number of citizens seeks to challenge the power of the state to collect taxes by finding a way to discount the sixteenth amendment. The italicized paragraphs below are represenative of these attempts:
Lower federal courts sometimes refer to "unapportioned direct taxes" and similar catch phrases to describe the power of Congress to tax income. (See U.S. v. Turano, 802 F.2d 10, 12 (1st Cir. 1986). ("The 16th Amendment eliminated the indirect/direct distinction as applied to taxes on income.")) This, however, does not seem to be the stated position of the Supreme Court.
Yet, despite popular opinion, the 16th Amendment did not give Congress any new taxing powers. In Treasury Decision 2303, the Secretary of the Treasury directly quoted the Supreme Court (Stanton v. Baltic Mining Co. (240 U.S. 103)) in saying that "The provisions of the 16th amendment conferred no new power of taxation," but instead simply prohibited Congress original power to tax incomes "from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment."
The closest the Supreme Court has come to saying that "from whatever source derived" in the amendment expanded the taxing power of Congress was in Justice Holmes' dissent in Evans v Gore (253 U.S. 245, 267 (1920). (Holmes dissent) (Partially overruled by U.S. v Hatter. 532 U.S. 557 (2001), with respect to the prior reasoning about the compensation clause.)). In that case, the Court was considering the effect the 16th Amendment had on the compensation clause, and specifically whether the compensation of judges was unlawfully reduced by the imposition of the income tax. Justice Holmes opined that under the 16th Amendment, "Congress is given power to collect taxes on incomes from whatever source derived …[so] it seems to me that the Amendment was intended to put an end to the cause and not merely obviate" the result in Pollock. (Id.) Even in this case, though, the majority affirmed the more restrictive interpretation of the Amendment. (Id. at 262-263. (Majority opinion))
The federal income tax statutes echos the language of the 16th amendment in stating that it reaches "all income from whatever source derived," (26 USC s. 61) including criminal enterprises; criminals who fail to report their income accurately have been successfully prosecuted for tax evasion. Since the language of the amendment is clearly meant to restrict the jurisdiction of the courts, it is not immediately clear why the courts emphasize the words "all income" and ignore the derivation of the entire phrase to interpret this section - except to reach a desired political result.
Arguments about the meaning of the current income tax has continued for nearly 100 years. Courts are reluctant to support a literal reading of the tax laws in favor of potential taxpayers, since it can lead to tax avoidance. Professor Soled points out why judicial doctrines are used against tax avoidance strategies in general,
"The use of judicial doctrines to curtail tax avoidance is pervasive in the area of income taxation. There are several reasons for this phenomenon: central among them is that courts believe that if the Internal Revenue Code ("Code") were read literally, impermissible tax avoidance would become the norm rather than the exception. No matter how perceptive the legislature, it cannot anticipate all events and circumstances that may unfold, and, due to linguistic limitations, statutes do not always capture the essence of what is intended. Judicial doctrines fill the void left either by the legislature or by the words of the Code. Another reason for the popularity of these doctrines is that courts do not want to appear duped by taxpayers..." (Jay A. Soled, Use of Judicial Doctrines in Resolving Transfer Tax Controversies, 42 B.C. L. Rev 587, 588-589 (2001).)
Of course, if the intent of Congress was to actually reach all income then the simplest way to state s. 61 would be "all income ***however realized.***" Instead, s. 61 mentions sources and other sections of the federal tax code actually lists about 20 sources of income that are specifically taxed. (26 USC ss. 861-864.) A common rule of statutory interpretation is the doctrine inclusio unius est exclusio alterius. This doctrine means "[t]he inclusion of one is the exclusion of another…This doctrine decrees that where law expressly describes [a] particular situation to which it shall apply, an irrefutable inference must be drawn that what is omitted or excluded was intended to be omitted or excluded." (Black's Law Dictionary 763 (6th Ed. 1990).) Since particular sources are listed as taxable in the tax law, then it is reasonable to infer that other sources of income are excluded from taxation. This argument is called the "861 source argument" and the courts refuse to analyze the argument despite consistently holding against it, even going so far as to issue restraining orders against people who publish websites about it. (U.S. v. Bell, 238 F.Supp.2d 696, 698 (M.D. Pa. 2003).''
In 1913 the tax rate was 1 percent on taxable net income above $3,000 ($4,000 for married couples), less deductions and exemptions. It rose to a rate of 7 percent on incomes above $500,000.
During World War I the top rate rose to 77 percent; following the war, the top rate was scaled down (to a low of 25 percent).
During the Great Depression and World War II, the top income tax rate rose again, reaching 91% during the war; this top rate remained in effect until 1964.
In 1964 the top rate was decreased to 70% (1964 Revenue Act), and then to 50% in 1981 (Economic Recovery Tax Act or ERTA).
The Tax Reform Act of 1986 reduced the top rate to 28%, at the same time raising the bottom rate from 11% to 15% (in fact 15% and 28% became the only two tax brackets).
During the 1990s the top rate rose again, standing at 39.6% by the end of the decade.
In 2001 the top rate was cut to 35% and the bottom rate was cut to 10% by the EGTRRA, or Economic Growth and Tax Relief Reconciliation Act.
In 2003 the JGTRRA, or Jobs and Growth Tax Relief Reconciliation Act, was passed, expanding the 10% tax bracket and accelerating some of the changes passed in the 2001 EGTRRA.
For more free legal information on Tax Law, please visit Free Legal Information.
Sunday, October 25, 2009
An Annuity Based Pension Might Just be the Answer
Author: Derek Miller
Source: articleage.com
Of all types of income generating investments,, income tax bracket, annuities are some of the most controversial. There is a body of opinion that says they are a complete waste of time and you would do much better if you were to place the capital sum on the stockmarket or invest in property. But then again the stock market has been known to crash and property has frequently been known to decrease in real value, so if security is high on your list of priorities maybe annuities are worth a thought after all.
Annuities are popular as vehicles for pensions, perhaps mainly because they can be very tax efficient. If money is wrapped up in this investment it takes a tax holiday until such time as the premiums become due and payments are made. As this is likely to happen after retirement the tax liability falls dramatically.
There are two types of annuity. The former is deferred, which means payments are made, usually on a monthly basis for a number of years. This is a good way for the younger person to acquire an income later in life. The other variety is the fixed version. In this package, the purchaser pays a large capital sum usually to an insurance company and payments begin soon afterwards.
The big enemy of annuities is inflation. At the outset the agreed sum to be paid out might seem generous, but inflation can erode the value of the venture in a very alarming fashion.
On the other hand a fixed payment annuity based pension provides an excellent budgeting tool. You will know each month how much money you will receive and thus in much the same way as a salary, be able to cut your cloth accordingly. This allows for more efficient financial planning.
When it come to tax, there can be penalties if the annuity is cashed in before the "owner" reaches sixty years of age and this could be a disincentive for those folks who plan early retirement or find themselves made redundant before reaching the official age of retirement. However, as I said before there are some distinct tax advantages, particularly for those individuals in the higher tax brackets. Deferred Annuities are in effect a compulsory savings plan. In those years of high tax liability it would make a lot of sense to save as much as possible because these savings are then tax exempt. Tax is only due when income is received from the plan. That means you start drawing your annuity after you have stopped earning a high salary. It's very neat because as you have decreased earning your tax liability will drop to a lower level than previously. This all means you have allowed the IRS to partly finance those golden days of retirement. Now that begins to appeal does it not?
Interested in this subject? Try this link for more of the same.
Source: articleage.com
Of all types of income generating investments,, income tax bracket, annuities are some of the most controversial. There is a body of opinion that says they are a complete waste of time and you would do much better if you were to place the capital sum on the stockmarket or invest in property. But then again the stock market has been known to crash and property has frequently been known to decrease in real value, so if security is high on your list of priorities maybe annuities are worth a thought after all.
Annuities are popular as vehicles for pensions, perhaps mainly because they can be very tax efficient. If money is wrapped up in this investment it takes a tax holiday until such time as the premiums become due and payments are made. As this is likely to happen after retirement the tax liability falls dramatically.
There are two types of annuity. The former is deferred, which means payments are made, usually on a monthly basis for a number of years. This is a good way for the younger person to acquire an income later in life. The other variety is the fixed version. In this package, the purchaser pays a large capital sum usually to an insurance company and payments begin soon afterwards.
The big enemy of annuities is inflation. At the outset the agreed sum to be paid out might seem generous, but inflation can erode the value of the venture in a very alarming fashion.
On the other hand a fixed payment annuity based pension provides an excellent budgeting tool. You will know each month how much money you will receive and thus in much the same way as a salary, be able to cut your cloth accordingly. This allows for more efficient financial planning.
When it come to tax, there can be penalties if the annuity is cashed in before the "owner" reaches sixty years of age and this could be a disincentive for those folks who plan early retirement or find themselves made redundant before reaching the official age of retirement. However, as I said before there are some distinct tax advantages, particularly for those individuals in the higher tax brackets. Deferred Annuities are in effect a compulsory savings plan. In those years of high tax liability it would make a lot of sense to save as much as possible because these savings are then tax exempt. Tax is only due when income is received from the plan. That means you start drawing your annuity after you have stopped earning a high salary. It's very neat because as you have decreased earning your tax liability will drop to a lower level than previously. This all means you have allowed the IRS to partly finance those golden days of retirement. Now that begins to appeal does it not?
Interested in this subject? Try this link for more of the same.
2008 Federal Tax Table
Author: David Vanbergen
Source: ezinearticles.com
If you are looking for a simple way to figure out how much taxes you have to pay on your income, you have come to the right place. With a glance at the 2008 Federal Tax Tables, you can see how much taxes are owed on your taxable income depending on your filing status. This quick look can also help you figure out what the right filing status is for you. Check the links at the bottom to learn how to maximize your refund and file your taxes for free.
When you are calculating your taxes, you first have to determine your taxable income. You start with your, income tax bracket, total income which shows on your W2. From that, you subtract things like your mortgage interest and charitable contributions. You also get to take a deduction for each person living in your house.
When you are looking at the 2008 Federal Tax Tables, you have to apply your income to each range. That means part of your income will be taxed at one range and other parts will be taxed at a higher rate. For example, if you were a single filer and had taxable income of $30,000 you would have to pay 10% on the first $8,025 then 15% on the amount from $8,025 up to your total income of $30,000.
2008 Federal Tax Table for Single Filers
Income < 8,025 - 10% 8,025 < Income < 32,550 - 15% 32,550 < Income
Source: ezinearticles.com
If you are looking for a simple way to figure out how much taxes you have to pay on your income, you have come to the right place. With a glance at the 2008 Federal Tax Tables, you can see how much taxes are owed on your taxable income depending on your filing status. This quick look can also help you figure out what the right filing status is for you. Check the links at the bottom to learn how to maximize your refund and file your taxes for free.
When you are calculating your taxes, you first have to determine your taxable income. You start with your, income tax bracket, total income which shows on your W2. From that, you subtract things like your mortgage interest and charitable contributions. You also get to take a deduction for each person living in your house.
When you are looking at the 2008 Federal Tax Tables, you have to apply your income to each range. That means part of your income will be taxed at one range and other parts will be taxed at a higher rate. For example, if you were a single filer and had taxable income of $30,000 you would have to pay 10% on the first $8,025 then 15% on the amount from $8,025 up to your total income of $30,000.
2008 Federal Tax Table for Single Filers
Income < 8,025 - 10% 8,025 < Income < 32,550 - 15% 32,550 < Income
If you want to make sure you get the largest refund possible or file your taxes for free, check out my online income tax software site. You can also find more information including a more detailed example of how to calculate income tax at my 2008 Tax Tables article.
Friday, October 23, 2009
Should You Get an IRA Or 401k?
Author: Matthew Kepnes
Source: ezinearticles.com
Many humans admiration what banking apparatus they should get- a 401(k) or an IRA? The acknowledgment absolutely depends on your income. If you are loaded with cash, you can accord to both. The catechism you accept to ask yourself is this: Are you in a position to pay tax today and acquire tax chargeless assets during your retirement canicule or you would rather adjourn your tax liabilities. In a Roth IRA scheme, you accept to pay your taxes pre-investment but adore retirement after tax liability. With a 401 (K), your investments are tax chargeless on the way in but taxable on the way out.
Sometimes one doesn't accept a best and you accept to get a 401(K). A 401(k) is a alimony arrangement bureaucracy by employers. If you accept your own business you acutely cannot achievement to accomplish use of a 401(k) scheme. This aswell agency an alone has to accept by the rules of the arrangement provided by his accepted employer and the banal and investment options they have. Many companies do not accept a 401(k) scheme. Moreover, what happens if you change jobs? In a lot of cases, you accept to about-face your 401(k) plan to the new employer's program. The best allotment about a 401(k) is that your employer aswell contributes to the accumulation so you can get added money. In a 401(K), you can advance up to 14,000 dollars per year and that includes both your addition and that of your employer. Employee and employer accumulated contributions accept to be bottom of 100% of employee's bacon or $46k. 401(K)'s are acceptable investment so continued as your employer's matches your contributions. But the affair to anticipate about is this: do you plan to be in a college tax bracket if you are older? If the acknowledgment is yes, again you wish to advance added of your money into an IRA.
An IRA is a alimony arrangement meant for individuals. You can adjudge on if to invest, how to advance and, income tax bracket, the bulk which you plan to advance in a accurate year. The investment absolute is $5000 a year for age 49 or below; $6000 a year for age 50 or aloft in 2009. These banned are absolute for acceptable IRA and Roth IRA contributions combined. Withdrawals are tax chargeless up to the absolute the you accept paid in. This is because you already paid taxes on them afore you invested. Unlike a 401(K), this is fabricated by you and not angry to your job. You can authority cash, bonds, or stocks. IRAs are accountable to a lot of rules but are added adjustable in agreement of investments than a 401(K).
You should advance in both if you can but consistently advance in the 401k if your employer matches your contributions. You wish to anticipate about what your tax bracket will be if you are earlier too. If it will be higher, you would wish to accede putting added money into an IRA. Both options are acceptable and should be acclimated but the antithesis of area you put the a lot of money depends on the blazon of plan your employer offers and the bulk of adaptability you want.
Source: ezinearticles.com
Many humans admiration what banking apparatus they should get- a 401(k) or an IRA? The acknowledgment absolutely depends on your income. If you are loaded with cash, you can accord to both. The catechism you accept to ask yourself is this: Are you in a position to pay tax today and acquire tax chargeless assets during your retirement canicule or you would rather adjourn your tax liabilities. In a Roth IRA scheme, you accept to pay your taxes pre-investment but adore retirement after tax liability. With a 401 (K), your investments are tax chargeless on the way in but taxable on the way out.
Sometimes one doesn't accept a best and you accept to get a 401(K). A 401(k) is a alimony arrangement bureaucracy by employers. If you accept your own business you acutely cannot achievement to accomplish use of a 401(k) scheme. This aswell agency an alone has to accept by the rules of the arrangement provided by his accepted employer and the banal and investment options they have. Many companies do not accept a 401(k) scheme. Moreover, what happens if you change jobs? In a lot of cases, you accept to about-face your 401(k) plan to the new employer's program. The best allotment about a 401(k) is that your employer aswell contributes to the accumulation so you can get added money. In a 401(K), you can advance up to 14,000 dollars per year and that includes both your addition and that of your employer. Employee and employer accumulated contributions accept to be bottom of 100% of employee's bacon or $46k. 401(K)'s are acceptable investment so continued as your employer's matches your contributions. But the affair to anticipate about is this: do you plan to be in a college tax bracket if you are older? If the acknowledgment is yes, again you wish to advance added of your money into an IRA.
An IRA is a alimony arrangement meant for individuals. You can adjudge on if to invest, how to advance and, income tax bracket, the bulk which you plan to advance in a accurate year. The investment absolute is $5000 a year for age 49 or below; $6000 a year for age 50 or aloft in 2009. These banned are absolute for acceptable IRA and Roth IRA contributions combined. Withdrawals are tax chargeless up to the absolute the you accept paid in. This is because you already paid taxes on them afore you invested. Unlike a 401(K), this is fabricated by you and not angry to your job. You can authority cash, bonds, or stocks. IRAs are accountable to a lot of rules but are added adjustable in agreement of investments than a 401(K).
You should advance in both if you can but consistently advance in the 401k if your employer matches your contributions. You wish to anticipate about what your tax bracket will be if you are earlier too. If it will be higher, you would wish to accede putting added money into an IRA. Both options are acceptable and should be acclimated but the antithesis of area you put the a lot of money depends on the blazon of plan your employer offers and the bulk of adaptability you want.
Matt has been investing the stock market since his grandmother turned him onto it when he was in high school. He has had both a 401(k) and an IRA. He currently owns no stocks as he cashed out before the bubble burst. You can read about his financial tips on his two websites about finance whee he tells his personal money story and helps you figure out finance
Thursday, October 22, 2009
Your Dreams Capitalized - IRA Power
Author: Simone Nathan
Source: download
What are your dreams? What is your focus? You can not travel where you can not "see" the road.
Do you long for a beach condo? The chance to travel? A private cabin in the mountains?
Please allow yourself to keep dreaming and keep building - building your life around dreams you can see clearly and almost taste.
IRA building blocks can help fund your retirement dreams.
The Roth IRA: With this block you will pay taxes now and never pay again.
You contribute up to $5,000, or 100% of your earned income (whichever is less) annually, after taxes, and your investment earnings accumulate tax-free.*
Then you can:
Take contributions out, tax-free and penalty-free at any time. *
Take your earnings out, federal income tax-free* and penalty-free after five years and age 59ฝ.
There's no mandatory withdrawal, so your IRA can continue to compound after age 70ฝ.
After only five years in the account, up to $10,000 in earnings can be withdrawn penalty-free and tax-free for a qualified first home purchase.
Individuals over 70ฝ with earned income may continue to contribute annually.
You never have to "spend this account down", but if you do take it all you never pay any federal tax on the distributions.
*While many states have changed their income tax laws to conform to federal tax treatment of ROTH IRAs, some have not. Check with your tax advisor to ascertain whether the earnings on ROTH IRAs are subject to state income tax in your particular situation.
Consider the Roth IRA building block for your dreams if: You or your spouse work, whatever your age (even if you have a retirement plan at work) and you are:
• A single tax filer with adjusted gross income (AGI) of less than $110,000 or
• Joint tax filers with AGI of less than $160,000 or
• An unemployed spouse with joint AGI of less than $160,000 or
• You have a Traditional IRA you may want to convert- Please be aware that this is a taxable event.
The Traditional Deductible IRA: With this block you get a deduction now and you defer taxes until you withdraw from this IRA.
You contribute up to $5,000, or 100% of your earned income (whichever is less), annually and gain two tax benefits:
A deduction on your federal income taxes, if you qualify
Investment earnings accumulate tax-deferred until you withdraw.
Withdrawals prior to age 59ฝ may be subject to a 10% penalty tax.
You can withdraw contributions and earnings penalty-free for a first home purchase and higher education costs (subject to certain limits).
Consider the Traditional Deductible IRA building block for your dreams if:
You don't qualify for a Roth IRA and/or You or your spouse work and are under age 70ฝ, (even if you have a retirement plan at work, a partial deduction may be available to you.) or You have a short time horizon before you expect to be in a lower tax bracket when you retire and you are:
A single tax filer with AGI of less than $40,000 or
Joint tax filers with AGI of less than $60,000 or
An unemployed spouse or one who isn't in a retirement plan at work with joint AGI or less than $160,000
Not covered by a retirement plan at work.
The Traditional Nondeductible IRA can pay for your dreams with tax-deferred IRA dollars.
You can currently invest up to $5,000 annually and enjoy one of the few remaining opportunities to have your contribution grow tax-deferred.
You pay no taxes on your earnings until you withdraw your money.
You can withdraw earnings penalty-free for a first home purchase and higher education costs (subject to certain limits). Withdrawals prior to age 59ฝ may be subject to a 10% penalty tax.
Consider the Traditional Nondeductible IRA building block for your dreams if:
Your household income is higher than that allowed for the Roth, income tax bracket, or Traditional Deductible IRAs.
Participation in retirement plans at work and your household income keeps you from getting a deduction on an IRA
Today's Individual Retirement Account (IRA) choices give you the flexibility to build a program to help you meet your retirement dreams. This information is general in nature and should not be construed as tax or legal advice
Author of "Going for Gold after 50: An Illustrated Guide to High Probability Investing for The Plus Years". Discover how to put the investing odds greatly in your favor at http://www.goldafter50.com Personal, spiritual, financial, healthful life planning — http://www.dreamcatcherprogram.com.
Source: download
What are your dreams? What is your focus? You can not travel where you can not "see" the road.
Do you long for a beach condo? The chance to travel? A private cabin in the mountains?
Please allow yourself to keep dreaming and keep building - building your life around dreams you can see clearly and almost taste.
IRA building blocks can help fund your retirement dreams.
The Roth IRA: With this block you will pay taxes now and never pay again.
You contribute up to $5,000, or 100% of your earned income (whichever is less) annually, after taxes, and your investment earnings accumulate tax-free.*
Then you can:
Take contributions out, tax-free and penalty-free at any time. *
Take your earnings out, federal income tax-free* and penalty-free after five years and age 59ฝ.
There's no mandatory withdrawal, so your IRA can continue to compound after age 70ฝ.
After only five years in the account, up to $10,000 in earnings can be withdrawn penalty-free and tax-free for a qualified first home purchase.
Individuals over 70ฝ with earned income may continue to contribute annually.
You never have to "spend this account down", but if you do take it all you never pay any federal tax on the distributions.
*While many states have changed their income tax laws to conform to federal tax treatment of ROTH IRAs, some have not. Check with your tax advisor to ascertain whether the earnings on ROTH IRAs are subject to state income tax in your particular situation.
Consider the Roth IRA building block for your dreams if: You or your spouse work, whatever your age (even if you have a retirement plan at work) and you are:
• A single tax filer with adjusted gross income (AGI) of less than $110,000 or
• Joint tax filers with AGI of less than $160,000 or
• An unemployed spouse with joint AGI of less than $160,000 or
• You have a Traditional IRA you may want to convert- Please be aware that this is a taxable event.
The Traditional Deductible IRA: With this block you get a deduction now and you defer taxes until you withdraw from this IRA.
You contribute up to $5,000, or 100% of your earned income (whichever is less), annually and gain two tax benefits:
A deduction on your federal income taxes, if you qualify
Investment earnings accumulate tax-deferred until you withdraw.
Withdrawals prior to age 59ฝ may be subject to a 10% penalty tax.
You can withdraw contributions and earnings penalty-free for a first home purchase and higher education costs (subject to certain limits).
Consider the Traditional Deductible IRA building block for your dreams if:
You don't qualify for a Roth IRA and/or You or your spouse work and are under age 70ฝ, (even if you have a retirement plan at work, a partial deduction may be available to you.) or You have a short time horizon before you expect to be in a lower tax bracket when you retire and you are:
A single tax filer with AGI of less than $40,000 or
Joint tax filers with AGI of less than $60,000 or
An unemployed spouse or one who isn't in a retirement plan at work with joint AGI or less than $160,000
Not covered by a retirement plan at work.
The Traditional Nondeductible IRA can pay for your dreams with tax-deferred IRA dollars.
You can currently invest up to $5,000 annually and enjoy one of the few remaining opportunities to have your contribution grow tax-deferred.
You pay no taxes on your earnings until you withdraw your money.
You can withdraw earnings penalty-free for a first home purchase and higher education costs (subject to certain limits). Withdrawals prior to age 59ฝ may be subject to a 10% penalty tax.
Consider the Traditional Nondeductible IRA building block for your dreams if:
Your household income is higher than that allowed for the Roth, income tax bracket, or Traditional Deductible IRAs.
Participation in retirement plans at work and your household income keeps you from getting a deduction on an IRA
Today's Individual Retirement Account (IRA) choices give you the flexibility to build a program to help you meet your retirement dreams. This information is general in nature and should not be construed as tax or legal advice
Author of "Going for Gold after 50: An Illustrated Guide to High Probability Investing for The Plus Years". Discover how to put the investing odds greatly in your favor at http://www.goldafter50.com Personal, spiritual, financial, healthful life planning — http://www.dreamcatcherprogram.com.
Tuesday, October 20, 2009
What Do You Do If Interest Rate Increases
Author: Dino Livanidis
Source: articledashboard.com
Interest rate increase what are the positives to it and how can you benefit from it?
Just think about the property cycle and you will start to see the positives and if you set it up right, you can ride the wave when interest rates increase.
As an Investor, if Interest Rates increase, you don't pay for the total increase.
When you're paying off your home and the interest rates increase, who is responsible for the increase? You are...but as an investor you are not, why?.... because we can claim the increase against out taxable income.
Lets say, for example - you are on a $60,000 income and your tax bracket is 42%. If the Interest rates have increased by 1%, you will be claiming the 42% against your tax right, so in reality, the interest rate has only gone up for you 0.58%.
Plus, if you're concerned about interest rate increasing, talk to your lender and ask about having the Interest rate fixed for 3-5 years, then you know what your repayments will be for that term.
Not only that, another positive aspect you will discover is- Rentals will also increase.
Because we have new home buyers always coming into the market, when interest rates increase this puts a hold on their decision to purchase a home and instead they choose to rent, which means we get an increase in rental demand, which means..... Rents Increase.
So when you think about it we are, income tax bracket, just playing the property cycle game, we must have these interest rate increases happen so the property cycle can stick to its cycle. But it's up to us (property investors) to protect ourselves with safe measures just in-case something like this does arise.
Sign Up & Get Your FREE 20 Page Report and Weekly Property Tips.
http://www.npis.com.au/investment-property-signup.html
Wishing you all the success,
Dino F. Livanidis,
0418-872280,
www.npis.com.au
Source: articledashboard.com
Interest rate increase what are the positives to it and how can you benefit from it?
Just think about the property cycle and you will start to see the positives and if you set it up right, you can ride the wave when interest rates increase.
As an Investor, if Interest Rates increase, you don't pay for the total increase.
When you're paying off your home and the interest rates increase, who is responsible for the increase? You are...but as an investor you are not, why?.... because we can claim the increase against out taxable income.
Lets say, for example - you are on a $60,000 income and your tax bracket is 42%. If the Interest rates have increased by 1%, you will be claiming the 42% against your tax right, so in reality, the interest rate has only gone up for you 0.58%.
Plus, if you're concerned about interest rate increasing, talk to your lender and ask about having the Interest rate fixed for 3-5 years, then you know what your repayments will be for that term.
Not only that, another positive aspect you will discover is- Rentals will also increase.
Because we have new home buyers always coming into the market, when interest rates increase this puts a hold on their decision to purchase a home and instead they choose to rent, which means we get an increase in rental demand, which means..... Rents Increase.
So when you think about it we are, income tax bracket, just playing the property cycle game, we must have these interest rate increases happen so the property cycle can stick to its cycle. But it's up to us (property investors) to protect ourselves with safe measures just in-case something like this does arise.
Sign Up & Get Your FREE 20 Page Report and Weekly Property Tips.
http://www.npis.com.au/investment-property-signup.html
Wishing you all the success,
Dino F. Livanidis,
0418-872280,
www.npis.com.au
Monday, October 19, 2009
Taxed by Taxes? Relax
Author: Richard Streitfeld
Source: ezinearticles.com
With a little bit of planning some gay and lesbian couples can take advantage of their unmarried status and save more money with two separate tax returns than a married couple saves with one. In my last column I explored ways in which a few couples can make the medical deductions work for them. Today I will address common questions that same sex couples have about allocating the biggest prize of the itemized deductions - mortgage interest. There are many considerations and complications that legally married "joint return" filers do not have to face.
How do we decide who takes the mortgage interest deduction?
You should plan to file your two returns in whatever way benefits the two of you the most as a unit. For instance, if there is a large disparity in income the partnership generally benefits the most if the higher income/higher tax bracket taxpayer takes the deduction.
O.K. But we have only one checking account, which is joint. The IRS would not expect us to "split" the deduction?
No. Would the bank only go after 1/2 of the house if you were in default? You are essentially one "unit" to the bank; it's just for tax purposes you are two. There are no clear written IRS rules on how to allocate the deduction in this case, so common sense and accepted practice take precedence. As long as the evidence supports your deduction- you made the payments together on a joint liability and have no individual checking accounts - you should be able to allocate the mortgage interest deduction in any matter that you choose.
That's a lot of ifs. We each have individual checking accounts as well. We do pay the mortgage interest out of the joint checking account, but it is funded by our contributions from the individual accounts.
In this case you need a little more planning. The IRS might take the position (in the case of an audit or examination) that the deduction should be split in the same ratio as the contributions from the individual accounts. To avoid this problem, consider having the partner taking the deduction pay the interest out of his or her personal account, and have the other partner "offset" it with payments for other expenses. The details of the arrangement -whether you want an equal offset, whether you want the agreement in writing, etc. are of course up to you.
We have a joint checking account - our paychecks are deposited there and all our routine expenses are paid out of it. In addition I have an investment account that I write checks out of occasionally, but it is not used to fund the joint account? Problem?
I don't see why that would be a problem, unless you started transferring funds from your account into the joint account.
We have arranged that I will take the deduction on my tax return. But the "1098" form the lending institution issued at the end of the year was in the name of my partner not me. Can I still take the deduction?
Yes. Your name is still on the loan, although it is not on the tax form. You should list your mortgage interest on line 11 of Schedule A, "mortgage interest not reported on 1098" with your partner's name and social security number on it. But if you are going to be the person taking the full deduction for the near future I recommend you contact your lender and ask them to make your social security number the primary one for reporting purposes. The IRS keys on the social security number on the 1098. In the case of an examination you would ultimately prevail because your name is also on the loan, but you do not want to give the IRS a reason to investigate your full return, do you?
Must we be consistent in determining who takes the deduction? Can we alternate?
While some tax preparers advise against alternating, to my knowledge there is nothing in the tax code or tax case law that prevents it. Just remember to pay out of the appropriate account and make sure to have your lender change the 1098 forms accordingly. This means planning before the year begins, income tax bracket, .
Her income is higher but not by much. How should we allocate the deduction?
In this case it's not as straightforward. You may want to actually split the deduction, but it really depends on your entire tax situation. Again, try to plan.
My name is not on the deed but both our names are on the mortgage. I pay the entire mortgage. Can I legitimately take the deduction?
You certainly can, and should. You and your partner can each be held liable for the entire mortgage. And since you made the payments yourself, the deduction is yours alone. The bank (apparently) doesn't care that your name is not on the deed - if the joint loan goes into default they can still go after the underlying asset.
Now, whether this is a fair partnership situation is another question. In the case of dissolution of the relationship the "deedless" party may be at a disadvantage - liable on the loan but the other partner holds the "cards" (the house).
Phew! Do they have these problems in Canada? Legally recognized marriage simplifies tax matters. Maybe when the practice heads south CPA's will become obsolete.
Source: ezinearticles.com
With a little bit of planning some gay and lesbian couples can take advantage of their unmarried status and save more money with two separate tax returns than a married couple saves with one. In my last column I explored ways in which a few couples can make the medical deductions work for them. Today I will address common questions that same sex couples have about allocating the biggest prize of the itemized deductions - mortgage interest. There are many considerations and complications that legally married "joint return" filers do not have to face.
How do we decide who takes the mortgage interest deduction?
You should plan to file your two returns in whatever way benefits the two of you the most as a unit. For instance, if there is a large disparity in income the partnership generally benefits the most if the higher income/higher tax bracket taxpayer takes the deduction.
O.K. But we have only one checking account, which is joint. The IRS would not expect us to "split" the deduction?
No. Would the bank only go after 1/2 of the house if you were in default? You are essentially one "unit" to the bank; it's just for tax purposes you are two. There are no clear written IRS rules on how to allocate the deduction in this case, so common sense and accepted practice take precedence. As long as the evidence supports your deduction- you made the payments together on a joint liability and have no individual checking accounts - you should be able to allocate the mortgage interest deduction in any matter that you choose.
That's a lot of ifs. We each have individual checking accounts as well. We do pay the mortgage interest out of the joint checking account, but it is funded by our contributions from the individual accounts.
In this case you need a little more planning. The IRS might take the position (in the case of an audit or examination) that the deduction should be split in the same ratio as the contributions from the individual accounts. To avoid this problem, consider having the partner taking the deduction pay the interest out of his or her personal account, and have the other partner "offset" it with payments for other expenses. The details of the arrangement -whether you want an equal offset, whether you want the agreement in writing, etc. are of course up to you.
We have a joint checking account - our paychecks are deposited there and all our routine expenses are paid out of it. In addition I have an investment account that I write checks out of occasionally, but it is not used to fund the joint account? Problem?
I don't see why that would be a problem, unless you started transferring funds from your account into the joint account.
We have arranged that I will take the deduction on my tax return. But the "1098" form the lending institution issued at the end of the year was in the name of my partner not me. Can I still take the deduction?
Yes. Your name is still on the loan, although it is not on the tax form. You should list your mortgage interest on line 11 of Schedule A, "mortgage interest not reported on 1098" with your partner's name and social security number on it. But if you are going to be the person taking the full deduction for the near future I recommend you contact your lender and ask them to make your social security number the primary one for reporting purposes. The IRS keys on the social security number on the 1098. In the case of an examination you would ultimately prevail because your name is also on the loan, but you do not want to give the IRS a reason to investigate your full return, do you?
Must we be consistent in determining who takes the deduction? Can we alternate?
While some tax preparers advise against alternating, to my knowledge there is nothing in the tax code or tax case law that prevents it. Just remember to pay out of the appropriate account and make sure to have your lender change the 1098 forms accordingly. This means planning before the year begins, income tax bracket, .
Her income is higher but not by much. How should we allocate the deduction?
In this case it's not as straightforward. You may want to actually split the deduction, but it really depends on your entire tax situation. Again, try to plan.
My name is not on the deed but both our names are on the mortgage. I pay the entire mortgage. Can I legitimately take the deduction?
You certainly can, and should. You and your partner can each be held liable for the entire mortgage. And since you made the payments yourself, the deduction is yours alone. The bank (apparently) doesn't care that your name is not on the deed - if the joint loan goes into default they can still go after the underlying asset.
Now, whether this is a fair partnership situation is another question. In the case of dissolution of the relationship the "deedless" party may be at a disadvantage - liable on the loan but the other partner holds the "cards" (the house).
Phew! Do they have these problems in Canada? Legally recognized marriage simplifies tax matters. Maybe when the practice heads south CPA's will become obsolete.
Note: Everyone's tax situation is a little bit different. Contact your tax adviser about your specific situation.
Richard Streitfeld is a CPA practicing in Cranston.
Saturday, October 17, 2009
Debt Consolidation With Home Equity Loan Give You The Most Flexibility
Author: Cornie Herring
Source: articledashboard.com
Have you ever wondered how can you consolidation your debts and help you to save money which is used to pay for those high interest rate debts? You can reduce your interest rate charges by using your home equity loan to consolidate all of your outstanding debts. Your home equity loan can be used to consolidate debt and pay off the following accounts:
Home equity loans allow a homeowner to borrow money by pledging the house as collateral. Normally this loan is easier to be approved by the lender even if you have bad credit because the lender view home equity loan as relatively safe. And you can borrow a relatively large amount of money to pay off all or most of your other high interest rate debts.
Home equity loans generally have a much lower interest rate than most credit cards and other unsecured loans. You can also set the repayment terms at a fixed rate so that you can plan exactly how much to budget each month. Also save time and hassle by writing just one monthly check.
Most home equity loans have the following repayment terms:
Thus, you have the flexibility of tailor a debt consolidation plan that fit your budget. If your debt consolidation balance is high, you may go plan with a long repayment period. With the longer repayment period, you will pay lower monthly repayment and budget for other living, income tax bracket, expenses needs.
What are the things save in debt consolidation?
By consolidation your debt with a home equity loan let you have the flexibility to plan ahead for your other living expenses needs. Home equity loan carries a much lower interest rate than most credit cards and other loans. And any interest you pay may be tax deductible. Hence, using home equity loan to write off your high interest rate debts such as credit card (more than 12% of interest rate) will leave you a high income balance (after deduce the month repayment for home equity loan) to budget for other needs such as send your kids to college, finance a new car & etc.
How much can you save?
That depends on your income bracket and annual percentage rate. But after deducting all the qualifying interest payments from your taxes, your effective APR will be significantly lowered. By comparing this lower interest rate to your car loan, credit cards and other installment loan's interest rates which do not qualify for tax deductible, you can see why is a smart way of doing debt consolidation with a home equity loan.
Summary
Home equity loan is the best method to consolidate your high interest debts; it carries low interest rate, tax deductible and love by the lenders as the secured loan to their borrowers. Debt consolidation with home equity loan gives you the maximum flexibility to plan ahead.
Source: articledashboard.com
Have you ever wondered how can you consolidation your debts and help you to save money which is used to pay for those high interest rate debts? You can reduce your interest rate charges by using your home equity loan to consolidate all of your outstanding debts. Your home equity loan can be used to consolidate debt and pay off the following accounts:
- Credit card balances
- Gas card balances
- Department store balances
- Installment loans
- Auto loans
- Any account balance that is outstanding.
Home equity loans allow a homeowner to borrow money by pledging the house as collateral. Normally this loan is easier to be approved by the lender even if you have bad credit because the lender view home equity loan as relatively safe. And you can borrow a relatively large amount of money to pay off all or most of your other high interest rate debts.
Home equity loans generally have a much lower interest rate than most credit cards and other unsecured loans. You can also set the repayment terms at a fixed rate so that you can plan exactly how much to budget each month. Also save time and hassle by writing just one monthly check.
Most home equity loans have the following repayment terms:
- up to 5 years
- up to 10 years
- up to 15 years
- up to 20 years
Thus, you have the flexibility of tailor a debt consolidation plan that fit your budget. If your debt consolidation balance is high, you may go plan with a long repayment period. With the longer repayment period, you will pay lower monthly repayment and budget for other living, income tax bracket, expenses needs.
What are the things save in debt consolidation?
By consolidation your debt with a home equity loan let you have the flexibility to plan ahead for your other living expenses needs. Home equity loan carries a much lower interest rate than most credit cards and other loans. And any interest you pay may be tax deductible. Hence, using home equity loan to write off your high interest rate debts such as credit card (more than 12% of interest rate) will leave you a high income balance (after deduce the month repayment for home equity loan) to budget for other needs such as send your kids to college, finance a new car & etc.
How much can you save?
That depends on your income bracket and annual percentage rate. But after deducting all the qualifying interest payments from your taxes, your effective APR will be significantly lowered. By comparing this lower interest rate to your car loan, credit cards and other installment loan's interest rates which do not qualify for tax deductible, you can see why is a smart way of doing debt consolidation with a home equity loan.
Summary
Home equity loan is the best method to consolidate your high interest debts; it carries low interest rate, tax deductible and love by the lenders as the secured loan to their borrowers. Debt consolidation with home equity loan gives you the maximum flexibility to plan ahead.
Thursday, October 15, 2009
The Pros and Cons of an Interest-Only Mortgage
Author: Cheryl Kanekar
Source: articleage.com
So you've heard of the latest magic pill in the home financing world - the interest-only mortgage. And you love the idea of making a lower monthly payment, getting a bigger tax deduction and having all that extra cash now. Not to mention actually being able to buy your dream home.
Interest-only mortgages accounted for less than 2 % of all U.S. home loans as recently as 2001, but by 2005 had shot up to 23% nationwide and as much as 47% in the major cities. (Coy 2005, Downey 2005) And if aggressive marketing is any indicator, the trend is not going away anytime soon.
But remember all those television commercials of happy people running through meadows in spring, thanks to the latest wonder drug for acid reflux or arthritis? There's always the rapid voiceover at the end, "Possible, but rare side effects include death, blindness, permanent brain damage, limbs falling off…"
You don't want to be those rare statistics. So let's take a look at the good and bad side effects of this particular magic pill and who really needs to take it.
Firstly, like the cure for the common cold, the interest-only mortgage does not exist. What does exist is the interest-only-for-some-years mortgage.
"The mechanics of an interest-only mortgage loan are simple. For a set period (generally in the early years of a mortgage when most of the payment goes toward interest anyway), you pay only the interest portion of your monthly payment, freeing up for other purposes the amount that would normally go toward paying off the principal. At the end of the interest-only period, your loan reverts back to its original terms, with the monthly payments adjusted upward to reflect full amortization over the remaining years of the loan…" (MacDonald 2004)
So with an "interest-only" loan, you would be making lower monthly payments than those for a standard fully amortized loan of the same amount and duration, during the initial interest-only period. When the interest-only period ends, your monthly payments will rise to be higher than those for the standard loan. This is because you have the same balance you started out with, but now have only, say, 25 years to pay it off, as against 30 years for the fully amortized loan.
This is not a new idea. The heyday for interest-only mortgages was the 1920s flapper era.
"…Back in the Roaring Twenties, interest-only mortgages were commonplace. At the end of the term, homeowners typically refinanced. The system worked great unless your home lost value or you lost your job." (MacDonald 2004)
So what are the pros to this approach?
1. You have more immediate money at hand, which can be invested for higher returns or used to re-model the home and increase its value. "For this to succeed, their return on investment must exceed the mortgage interest rate, since that rate is what they earn when they repay their mortgage." (Guttentag 2006)
2. You can reduce your cash outflow temporarily, if a financial crisis strikes. For example, a person who's been laid off might find this useful.
3. Interest-only loans often have more flexible payment options than standard loans. Every month, you could opt to pay interest only, or pay towards the principal, or even pay off the principal quicker than the typical 30 years. If you have fluctuating income and are disciplined enough to voluntarily make higher payments when you can, these options might help you pay off your loan quicker and with less pain.
4. You can borrow more money at the same initial monthly payment as that for a smaller standard loan, allowing you to buy a more expensive home than you would have been able to with the standard loan.
And the cons?
1. You can borrow more money at the same initial monthly payment as that for a smaller standard loan, allowing you to buy a more expensive home than you would have been able to with the standard loan.
You are more in debt and might own a home you can't afford. This is the grasshopper philosophy of not saving up for a rainy day, on the assumption that your home price and/or income will rise. And summer will never end.
History, that harsh teacher, has a different lesson. Remember what ended the glory days of the1920s? The Great Depression with its stockmarket crash and massive job losses. No prizes for guessing what happened to all those interest-only homes. Foreclosure.
In more normal times, while nationwide average home prices have been rising, home prices in any given market go up and down. If your plan were to re-finance or sell your house after the interest-only period, your home price would have to rise enough to cover the sales costs, since not paying off the principal gives you little equity. Even in the most desirable home markets, that does not always happen.
2. You pay more in interest as compared to a standard loan. For a $120,000 loan, an interest-only payer would pay about $8000 more than a fully amortized payer over 30 years, because the interest-only balance tends to remain higher. (Hsh.com 2005)
3. Lenders also usually charge higher rates for interest-only loans, since these loans, with their larger balances, are considered riskier.
"…fixed-rate interest-only mortgages typically carry a rate that is one-eighth to three-eighths of a percentage point higher than the rate on a traditional 30-year fixed-rate mortgage." (Simon 2006)
4. While interest-only payments are 100% tax deductible, the money saved will still be taxed, whether it's put in the bank or invested. "Suppose you are in the 39.1% tax bracket. Then your 6.25% mortgage costs only 3.81% after taxes, but a 4% CD yields only 2.44% after taxes." (Guttentag 2002)
To sum up, interest-only loans save you money temporarily, but are more expensive and more risky long-term. If you desperately need those temporary savings, or are wealthy enough to bear the risks, or are financially disciplined enough to pay off the balance when you can, then these loans might be for you. But if losing the gamble might mean losing all your savings, then it's probably a game you don't want to play.
Cheryl Kanekar is an experienced free-lance writer who focuses on mortgage refinance and equity credit lines. You can read more refinance related loan articles at http://www.mortgageloanoutlet.com/ and get more information about, income tax bracket, home equity loans and mortgage refinancing.
Guttentag, Jack Interest-Only Mortgage Tutorial. Mortgage Professor's Web Site from http://www.mtgprofessor.com/Tutorials2/Interest_Only.htm
HSHฎ Associates The Principal Facts of Interest-Only Mortgages from http://library.hsh.com/?row_id=58
Max, Sarah Mortgages: Beating Higher Rates from money.cnn.com Moyer, Liz. Beware The Interest-Only Mortgage from forbes.com Downey, Kirstin Many Buyers Opt for Risky Mortgages. Washington Post
2006 Copyright MortgageLoanOutlet.com
Source: articleage.com
So you've heard of the latest magic pill in the home financing world - the interest-only mortgage. And you love the idea of making a lower monthly payment, getting a bigger tax deduction and having all that extra cash now. Not to mention actually being able to buy your dream home.
Interest-only mortgages accounted for less than 2 % of all U.S. home loans as recently as 2001, but by 2005 had shot up to 23% nationwide and as much as 47% in the major cities. (Coy 2005, Downey 2005) And if aggressive marketing is any indicator, the trend is not going away anytime soon.
But remember all those television commercials of happy people running through meadows in spring, thanks to the latest wonder drug for acid reflux or arthritis? There's always the rapid voiceover at the end, "Possible, but rare side effects include death, blindness, permanent brain damage, limbs falling off…"
You don't want to be those rare statistics. So let's take a look at the good and bad side effects of this particular magic pill and who really needs to take it.
Firstly, like the cure for the common cold, the interest-only mortgage does not exist. What does exist is the interest-only-for-some-years mortgage.
"The mechanics of an interest-only mortgage loan are simple. For a set period (generally in the early years of a mortgage when most of the payment goes toward interest anyway), you pay only the interest portion of your monthly payment, freeing up for other purposes the amount that would normally go toward paying off the principal. At the end of the interest-only period, your loan reverts back to its original terms, with the monthly payments adjusted upward to reflect full amortization over the remaining years of the loan…" (MacDonald 2004)
So with an "interest-only" loan, you would be making lower monthly payments than those for a standard fully amortized loan of the same amount and duration, during the initial interest-only period. When the interest-only period ends, your monthly payments will rise to be higher than those for the standard loan. This is because you have the same balance you started out with, but now have only, say, 25 years to pay it off, as against 30 years for the fully amortized loan.
This is not a new idea. The heyday for interest-only mortgages was the 1920s flapper era.
"…Back in the Roaring Twenties, interest-only mortgages were commonplace. At the end of the term, homeowners typically refinanced. The system worked great unless your home lost value or you lost your job." (MacDonald 2004)
So what are the pros to this approach?
1. You have more immediate money at hand, which can be invested for higher returns or used to re-model the home and increase its value. "For this to succeed, their return on investment must exceed the mortgage interest rate, since that rate is what they earn when they repay their mortgage." (Guttentag 2006)
2. You can reduce your cash outflow temporarily, if a financial crisis strikes. For example, a person who's been laid off might find this useful.
3. Interest-only loans often have more flexible payment options than standard loans. Every month, you could opt to pay interest only, or pay towards the principal, or even pay off the principal quicker than the typical 30 years. If you have fluctuating income and are disciplined enough to voluntarily make higher payments when you can, these options might help you pay off your loan quicker and with less pain.
4. You can borrow more money at the same initial monthly payment as that for a smaller standard loan, allowing you to buy a more expensive home than you would have been able to with the standard loan.
And the cons?
1. You can borrow more money at the same initial monthly payment as that for a smaller standard loan, allowing you to buy a more expensive home than you would have been able to with the standard loan.
You are more in debt and might own a home you can't afford. This is the grasshopper philosophy of not saving up for a rainy day, on the assumption that your home price and/or income will rise. And summer will never end.
History, that harsh teacher, has a different lesson. Remember what ended the glory days of the1920s? The Great Depression with its stockmarket crash and massive job losses. No prizes for guessing what happened to all those interest-only homes. Foreclosure.
In more normal times, while nationwide average home prices have been rising, home prices in any given market go up and down. If your plan were to re-finance or sell your house after the interest-only period, your home price would have to rise enough to cover the sales costs, since not paying off the principal gives you little equity. Even in the most desirable home markets, that does not always happen.
2. You pay more in interest as compared to a standard loan. For a $120,000 loan, an interest-only payer would pay about $8000 more than a fully amortized payer over 30 years, because the interest-only balance tends to remain higher. (Hsh.com 2005)
3. Lenders also usually charge higher rates for interest-only loans, since these loans, with their larger balances, are considered riskier.
"…fixed-rate interest-only mortgages typically carry a rate that is one-eighth to three-eighths of a percentage point higher than the rate on a traditional 30-year fixed-rate mortgage." (Simon 2006)
4. While interest-only payments are 100% tax deductible, the money saved will still be taxed, whether it's put in the bank or invested. "Suppose you are in the 39.1% tax bracket. Then your 6.25% mortgage costs only 3.81% after taxes, but a 4% CD yields only 2.44% after taxes." (Guttentag 2002)
To sum up, interest-only loans save you money temporarily, but are more expensive and more risky long-term. If you desperately need those temporary savings, or are wealthy enough to bear the risks, or are financially disciplined enough to pay off the balance when you can, then these loans might be for you. But if losing the gamble might mean losing all your savings, then it's probably a game you don't want to play.
Cheryl Kanekar is an experienced free-lance writer who focuses on mortgage refinance and equity credit lines. You can read more refinance related loan articles at http://www.mortgageloanoutlet.com/ and get more information about, income tax bracket, home equity loans and mortgage refinancing.
Guttentag, Jack Interest-Only Mortgage Tutorial. Mortgage Professor's Web Site from http://www.mtgprofessor.com/Tutorials2/Interest_Only.htm
HSHฎ Associates The Principal Facts of Interest-Only Mortgages from http://library.hsh.com/?row_id=58
Max, Sarah Mortgages: Beating Higher Rates from money.cnn.com Moyer, Liz. Beware The Interest-Only Mortgage from forbes.com Downey, Kirstin Many Buyers Opt for Risky Mortgages. Washington Post
2006 Copyright MortgageLoanOutlet.com
Wednesday, October 14, 2009
Understanding The Dreaded Income Tax
Author: Grant Segall
Source: download
Every year in April, American citizens are faced with an imposing deadline - tax day. Throughout the year, income is earned and then taxed. Depending on the way in which dependants are claimed and deductibles used, a person would then be entitled to money back come income tax time or they would have to pay taxes. In either case, dealing with income tax forms and laws can be a disturbing prospect.
Keep in mind that the United States lives on a budget just as regular families do. Their money is what pays for highways, national parks, the military, schools, and other important things associated with this country. However, for the government to have a budget in the first place, they have to collect money from individuals and companies in the form of taxes. For this reason, a certain percentage is deducted from your paycheck, which goes to various entities of the government for their needs.
Understanding the tax laws associated with income tax can be confusing but overall, you could break them down into five groups. First, remember that every person is responsible for paying income tax. The amount paid depends again on a number of factors, as well as income earned. The more salary earned the more taxes are paid by you, because you are placed in a higher-income bracket. The good news is that by using a number of tax benefits, you can pay less.
Income tax laws require that you pay money out throughout the year, which is known as a "pay as you go" rule. Typically, income taxes would be taken out of your paycheck and then sent on to the government. Then, at income tax time, the amount paid versus what was owed is balanced, which is when you pay to or receive money from the government. In other words, if more taxes were taken out of your paycheck than what you owed, you would receive a refund at tax time whereas if you did not pay enough, you would owe the government money.
You also need to remember that the tax system and tax laws are considered, income tax bracket, progressive, which means the more you make the more you pay while the less you earn the less you pay. Therefore, your income tax is going to fluctuate any time your income changes. Interesting, many people on Capital Hill argue about this progressive system, feeling that it is unfair. However, for the time being, the tax laws stand although we can be sure there will be changes in the future.
Grant Segall writes about taxes and consumer law for his website http://www.lawgister.com . For free advice on how to deal with back taxes, wage garnishment, or tax liens visit http://www.lawgister.com/best-tax-attorney for a no cost tax analysis of your situation.
Source: download
Every year in April, American citizens are faced with an imposing deadline - tax day. Throughout the year, income is earned and then taxed. Depending on the way in which dependants are claimed and deductibles used, a person would then be entitled to money back come income tax time or they would have to pay taxes. In either case, dealing with income tax forms and laws can be a disturbing prospect.
Keep in mind that the United States lives on a budget just as regular families do. Their money is what pays for highways, national parks, the military, schools, and other important things associated with this country. However, for the government to have a budget in the first place, they have to collect money from individuals and companies in the form of taxes. For this reason, a certain percentage is deducted from your paycheck, which goes to various entities of the government for their needs.
Understanding the tax laws associated with income tax can be confusing but overall, you could break them down into five groups. First, remember that every person is responsible for paying income tax. The amount paid depends again on a number of factors, as well as income earned. The more salary earned the more taxes are paid by you, because you are placed in a higher-income bracket. The good news is that by using a number of tax benefits, you can pay less.
Income tax laws require that you pay money out throughout the year, which is known as a "pay as you go" rule. Typically, income taxes would be taken out of your paycheck and then sent on to the government. Then, at income tax time, the amount paid versus what was owed is balanced, which is when you pay to or receive money from the government. In other words, if more taxes were taken out of your paycheck than what you owed, you would receive a refund at tax time whereas if you did not pay enough, you would owe the government money.
You also need to remember that the tax system and tax laws are considered, income tax bracket, progressive, which means the more you make the more you pay while the less you earn the less you pay. Therefore, your income tax is going to fluctuate any time your income changes. Interesting, many people on Capital Hill argue about this progressive system, feeling that it is unfair. However, for the time being, the tax laws stand although we can be sure there will be changes in the future.
Grant Segall writes about taxes and consumer law for his website http://www.lawgister.com . For free advice on how to deal with back taxes, wage garnishment, or tax liens visit http://www.lawgister.com/best-tax-attorney for a no cost tax analysis of your situation.
Can You Afford To Stay At Home?
Author: Sharon Davis
Source: articleage.com
A few years ago, after the birth of our second child, my
husband and I were trying to decide whether or not it would be
possible for me to stay home.
At first we thought that since we were just about breaking
even, there was no way we could ever make it happen. But when
we decided to actually put pen to paper and calculate our bottom
line with and without my salary, we were quite surprised.
What we found was that it was actually costing us to have
both of us working.
While that may not be the case for everyone, you may find
that the second salary brings in much, much less than you think
it does.
According to Jan MacGregor, a financial consultant, income tax bracket, and former
analyst, "There are people out there who are expecting to be
able to meet their bills better(after they re-enter the work
force) and never realize they are either working for a loss or
for something like $4,000 a year (after expenses)."
That may seem hard to believe, but if you consider the many
"hidden" expenses of a two-income household it is often the
case.
There are, of course, the obvious expenses such as child care
and commuting costs. Some of the hidden expenses are the money
spent on lunches, more take-out and convenience food for dinner,
dry cleaning bills professional clothing. There can be higher
medical costs due to increased exposure to illnesses for
children who are in daycare.
Many families hire a housekeeper or gardener to keep up on
the household work that they don't have the time to do.
A significant factor is your taxable income. A second salary
can push your taxable income into a higher tax bracket.
While the tax issue in and of itself does not eat up the
entire second salary, when you add in all the other expenses of
a two income family, you might find that it's not worth it to
have both parents working.
Here is a link to MacGregor's cost of living chart that uses
a second salary of $40,000 as an example: http://cnnfn.com/1999/02/22/life/q_income/chart.jpg"Cost Of Living Chart
If you are considering having one parent stay at home, the
best thing to do is to actually calculate your income and
expenses, taking into consideration the difference in taxation.
You may find that you can in fact afford to stay home with your
kids.
--------------------------
Sharon Davis is the Mother of two girls, the owner of
www.2Work-At-Home.Com and the Editor of the site's monthly
ezine, America's Home. In her spare time she reminisces about
what it was like to have spare time.
Subscribe to her free ezine here:
http://www.2work-at-home.com/subscribe.shtml
Source: articleage.com
A few years ago, after the birth of our second child, my
husband and I were trying to decide whether or not it would be
possible for me to stay home.
At first we thought that since we were just about breaking
even, there was no way we could ever make it happen. But when
we decided to actually put pen to paper and calculate our bottom
line with and without my salary, we were quite surprised.
What we found was that it was actually costing us to have
both of us working.
While that may not be the case for everyone, you may find
that the second salary brings in much, much less than you think
it does.
According to Jan MacGregor, a financial consultant, income tax bracket, and former
analyst, "There are people out there who are expecting to be
able to meet their bills better(after they re-enter the work
force) and never realize they are either working for a loss or
for something like $4,000 a year (after expenses)."
That may seem hard to believe, but if you consider the many
"hidden" expenses of a two-income household it is often the
case.
There are, of course, the obvious expenses such as child care
and commuting costs. Some of the hidden expenses are the money
spent on lunches, more take-out and convenience food for dinner,
dry cleaning bills professional clothing. There can be higher
medical costs due to increased exposure to illnesses for
children who are in daycare.
Many families hire a housekeeper or gardener to keep up on
the household work that they don't have the time to do.
A significant factor is your taxable income. A second salary
can push your taxable income into a higher tax bracket.
While the tax issue in and of itself does not eat up the
entire second salary, when you add in all the other expenses of
a two income family, you might find that it's not worth it to
have both parents working.
Here is a link to MacGregor's cost of living chart that uses
a second salary of $40,000 as an example: http://cnnfn.com/1999/02/22/life/q_income/chart.jpg"Cost Of Living Chart
If you are considering having one parent stay at home, the
best thing to do is to actually calculate your income and
expenses, taking into consideration the difference in taxation.
You may find that you can in fact afford to stay home with your
kids.
--------------------------
Sharon Davis is the Mother of two girls, the owner of
www.2Work-At-Home.Com and the Editor of the site's monthly
ezine, America's Home. In her spare time she reminisces about
what it was like to have spare time.
Subscribe to her free ezine here:
http://www.2work-at-home.com/subscribe.shtml
Tuesday, October 13, 2009
Donate a Car to Benefit Charities and Yourself
Author: Jeff Lakie
Source: download
The Internal Revenue Service allows for abounding altered types of accommodating deductions including cash, clothes, goods, and some services. One of the "goods" accustomed by the IRS that taxpayers may accord is their car. Although the IRS has anchored things up over the accomplished few years, altruistic a car can account a advantaged alms and advice yourself appear tax day. Let's yield a attending at how your car donation can advice you and a accustomed charity.
Your six year old Buick LeSabre Custom has stood the analysis of time, but you accept absitively to buy a 2007 Buick La Crosse Limited to accord yourself a car that is new, up to date, and thoroughly reliable. Your LeSabre saw you through continued commutes to work, vacations at the shore, and it was the aforementioned car your babe acclimated to apprentice how to drive. With 140,000 afar on the odometer you apperceive that the barter in bulk isn't traveling to be that great, so you accede altruistic the Buick to a alms such as the branch foundation or to the affiliation of the blind.
The IRS will accolade your generosity if you chase assertive arena rules:
--The alms accept to be accustomed by the IRS and accept 501(c) 3 status.
--You can alone abstract the auction bulk of the car, not what you anticipate anyone ability pay for it. Indeed, even admitting the Buick could possibly back added than $5000 if awash privately, you accept to account the "gross proceeds" of the resale of the car by the charity. So, if the alms sells your LeSabre for $3700, which is the bulk you are accustomed to abstract on your assets taxes. Your alms of best will accommodate accounting affidavit of the auction bulk to you for your annal already the auction has been made.
Just bethink if you get to abstract $3700 that doesn't beggarly your taxes will bead by that amount. Depending on your tax bracket and what you owe the Internal Revenue Service and added deductions, you apparently will save yourself a few hundred dollars per year. Of course, your motive for giving should be based in allotment on allowance a alms, income tax bracket, not just accepting a appropriate deduction.
So, although the IRS has anchored up the rules apropos altruistic a car it can still be an important armamentarium adopting apparatus for charities while acceptance you to accept a tax answer and the joy of allowance anyone out in their time of need.
Jeff is the buyer of Uk Lenders one of the Uk's arch anchored accommodation adduce providers. If you are analytic for that low amount on a anchored accommodation again appointment our website today for a chargeless no obligation quote.
Source: download
The Internal Revenue Service allows for abounding altered types of accommodating deductions including cash, clothes, goods, and some services. One of the "goods" accustomed by the IRS that taxpayers may accord is their car. Although the IRS has anchored things up over the accomplished few years, altruistic a car can account a advantaged alms and advice yourself appear tax day. Let's yield a attending at how your car donation can advice you and a accustomed charity.
Your six year old Buick LeSabre Custom has stood the analysis of time, but you accept absitively to buy a 2007 Buick La Crosse Limited to accord yourself a car that is new, up to date, and thoroughly reliable. Your LeSabre saw you through continued commutes to work, vacations at the shore, and it was the aforementioned car your babe acclimated to apprentice how to drive. With 140,000 afar on the odometer you apperceive that the barter in bulk isn't traveling to be that great, so you accede altruistic the Buick to a alms such as the branch foundation or to the affiliation of the blind.
The IRS will accolade your generosity if you chase assertive arena rules:
--The alms accept to be accustomed by the IRS and accept 501(c) 3 status.
--You can alone abstract the auction bulk of the car, not what you anticipate anyone ability pay for it. Indeed, even admitting the Buick could possibly back added than $5000 if awash privately, you accept to account the "gross proceeds" of the resale of the car by the charity. So, if the alms sells your LeSabre for $3700, which is the bulk you are accustomed to abstract on your assets taxes. Your alms of best will accommodate accounting affidavit of the auction bulk to you for your annal already the auction has been made.
Just bethink if you get to abstract $3700 that doesn't beggarly your taxes will bead by that amount. Depending on your tax bracket and what you owe the Internal Revenue Service and added deductions, you apparently will save yourself a few hundred dollars per year. Of course, your motive for giving should be based in allotment on allowance a alms, income tax bracket, not just accepting a appropriate deduction.
So, although the IRS has anchored up the rules apropos altruistic a car it can still be an important armamentarium adopting apparatus for charities while acceptance you to accept a tax answer and the joy of allowance anyone out in their time of need.
Jeff is the buyer of Uk Lenders one of the Uk's arch anchored accommodation adduce providers. If you are analytic for that low amount on a anchored accommodation again appointment our website today for a chargeless no obligation quote.
Sunday, October 11, 2009
Some Of The Things You Need To Consider When Looking For Debt Solutions
Author: Gregg Hall
Source: download
Most humans who borrow money do so absolutely intending to accord the accommodation according to the agreed aloft terms. Perhaps, at the time they adopted the money, things in their lives were traveling able-bodied financially and accepting the assets to accord the debt was not a concern.
Unfortunately, things can appear in a person's activity that can acutely change their adeptness to amuse their debts, such as a afterlife in the ancestors or accident their job. For these people, not alone do they acquire to accord with whatever tragedy has befallen them, they aswell acquire to accord with affronted creditors who acquire no accord for their plight.
People who acquisition themselves in these situations feel balked because there absolutely doesn't assume like there is a acceptable solution. The companies that they owe money to consistently alarm them, or forward their debts to a acclaim bureau that may annoy them even added in an accomplishment to aggregate the debt. To get out of this abhorrent situation, some humans may accede filing a affiliate 7 defalcation with the hopes of wiping out their debt and starting over afresh with a apple-pie slate.
However, the new defalcation laws can accomplish this, income tax bracket, difficult, back now there are assets levels that accept to be met afore this is accustomed to happen. The humans filing for them accept to aswell yield acclaim counseling classes above-mentioned to the debts getting discharged. Other humans may accede filing a affiliate 11 defalcation and pay the debts off over a aeon of time. The money is paid to a trustee of the court, but even admitting an accomplishment is getting fabricated to accord the debt, it could still yield a continued time and in the concurrently the person's acclaim is absolutely broke for up to a decade.
A third advantage is to try to achieve the debt for an bulk that is beneath than the one owed. It may assume like a acceptable idea, but there are abounding things that the humans who attack this are not acquainted of. It's not simple to get a aggregation to accede to acquire beneath than the abounding bulk due. Even if you do get them to agree, you are still not that abundant bigger off. As an example, if you owe a creditor $10,000 and get them to accede to acquire $5,000, the added $5000 larboard over is accountable to taxation, back it is looked at as absolute assets that you received. Now you may be placed in a tax bracket that is college than the one you are usually in and may acquire to pay added taxes to the government, additional your acclaim is still abnormally affected.
It is far bigger to acquaintance the creditor and see if they will plan with you, conceivably blurred the absorption amount or accepting lower payments to advice you pay off your debt. This way you can accord what you owe and hopefully not accomplish your acclaim continuing worse than it already is.
Gregg Hall is an columnist active in Navarre Florida. Acquisition added about this as able-bodied as debt adjustment at http://www.debtsettlementservicesplus.com
Source: download
Most humans who borrow money do so absolutely intending to accord the accommodation according to the agreed aloft terms. Perhaps, at the time they adopted the money, things in their lives were traveling able-bodied financially and accepting the assets to accord the debt was not a concern.
Unfortunately, things can appear in a person's activity that can acutely change their adeptness to amuse their debts, such as a afterlife in the ancestors or accident their job. For these people, not alone do they acquire to accord with whatever tragedy has befallen them, they aswell acquire to accord with affronted creditors who acquire no accord for their plight.
People who acquisition themselves in these situations feel balked because there absolutely doesn't assume like there is a acceptable solution. The companies that they owe money to consistently alarm them, or forward their debts to a acclaim bureau that may annoy them even added in an accomplishment to aggregate the debt. To get out of this abhorrent situation, some humans may accede filing a affiliate 7 defalcation with the hopes of wiping out their debt and starting over afresh with a apple-pie slate.
However, the new defalcation laws can accomplish this, income tax bracket, difficult, back now there are assets levels that accept to be met afore this is accustomed to happen. The humans filing for them accept to aswell yield acclaim counseling classes above-mentioned to the debts getting discharged. Other humans may accede filing a affiliate 11 defalcation and pay the debts off over a aeon of time. The money is paid to a trustee of the court, but even admitting an accomplishment is getting fabricated to accord the debt, it could still yield a continued time and in the concurrently the person's acclaim is absolutely broke for up to a decade.
A third advantage is to try to achieve the debt for an bulk that is beneath than the one owed. It may assume like a acceptable idea, but there are abounding things that the humans who attack this are not acquainted of. It's not simple to get a aggregation to accede to acquire beneath than the abounding bulk due. Even if you do get them to agree, you are still not that abundant bigger off. As an example, if you owe a creditor $10,000 and get them to accede to acquire $5,000, the added $5000 larboard over is accountable to taxation, back it is looked at as absolute assets that you received. Now you may be placed in a tax bracket that is college than the one you are usually in and may acquire to pay added taxes to the government, additional your acclaim is still abnormally affected.
It is far bigger to acquaintance the creditor and see if they will plan with you, conceivably blurred the absorption amount or accepting lower payments to advice you pay off your debt. This way you can accord what you owe and hopefully not accomplish your acclaim continuing worse than it already is.
Gregg Hall is an columnist active in Navarre Florida. Acquisition added about this as able-bodied as debt adjustment at http://www.debtsettlementservicesplus.com
Wednesday, October 7, 2009
Roth 401(k) Gets An Extension
Author: Andrew Marx
Source: download
The Pension Protection Act of 2006 was passed last month and it means the Roth as a 401(k) will exist as a permanent account option, in addition to a traditional 401(k) or 403(b) offered by your employer. That affects how you might put money into retirement accounts going forward.
Did I just lose your attention?
I know for many people, a lot of this information blows right over them like a light breeze. While I don't expect you to jump for joy at hearing about retirement options, you still should have a basic understanding of how the Pension Protection Act can affect your future.
Let me see if I can make it palatable.
As soon as you enter the full time work force, you should begin to contribute towards your retirement. You have options. One is to contribute through your employer's 401(k) or 403(b) plan. The whole point of your employer offering this benefit is that the amount can be withdrawn from your paycheck pre-tax, and in many cases, your employer will contribute their own money to add to your investment funds. That is a spectacularly good deal. My employer's contribution to my 403(b) is around $4,000 annually. That money supplements my paycheck, not now, but when I am ready to retire. That money is not taxable until I retire and make withdrawals from the account.
However, you do not have to go through your employer to contribute towards your retirement. Enter the IRA (Individual Retirement Accounts) and the Roth IRA. Most people can contribute to both the IRA and the 401(k). Traditional IRA accounts are dollars you invest, then get a tax break on those funds at the end of the year and it is the equivalent of a pre-tax investment, like the 401(k).
Roth was created to give you an alternative to traditional IRAs. The principle difference is that Roth contributions are taxed income. Since you pay taxes on it before you invest the funds, you do not have to pay taxes on it when you withdraw the funds at retirement age. The basic concept is that simple. Pay taxes on the contribution now, while your tax bracket is probably lower than it will be, and as long as you follow the rules for the account, do not pay taxes on that same money again.
Roth also exists as a 401(k) account that you can contribute through your employer, an alternative to the traditional 401(k) described earlier. The difference is that the Roth 401(k) uses already taxed dollars to contribute to the plan. The same concept as the Roth IRA, you do not then pay taxes on that contribution when you retire as long as you follow certain rules. The Roth 401(k) was originally designed to phase out after 2010, but the Act makes it a permanent option. That makes it more attractive for employers to offer it, and more employers will do so.
What you should do right now if you are interested in more information is go to your employer's benefit office and find out what kind of retirement plans they offer, most likely a 401(k) or 403(b). Ask them about eligibility criteria for the plans. You can separately contact any number of personal investment companies like Scottrade and Vanguard to open up an IRA or Roth IRA.
---
Andrew Marx is a prolific author and his expertise includes the practical and legal aspects of personal finance and higher education. His body of work is published at http://www.smartremarx.com/
Source: download
The Pension Protection Act of 2006 was passed last month and it means the Roth as a 401(k) will exist as a permanent account option, in addition to a traditional 401(k) or 403(b) offered by your employer. That affects how you might put money into retirement accounts going forward.
Did I just lose your attention?
I know for many people, a lot of this information blows right over them like a light breeze. While I don't expect you to jump for joy at hearing about retirement options, you still should have a basic understanding of how the Pension Protection Act can affect your future.
Let me see if I can make it palatable.
As soon as you enter the full time work force, you should begin to contribute towards your retirement. You have options. One is to contribute through your employer's 401(k) or 403(b) plan. The whole point of your employer offering this benefit is that the amount can be withdrawn from your paycheck pre-tax, and in many cases, your employer will contribute their own money to add to your investment funds. That is a spectacularly good deal. My employer's contribution to my 403(b) is around $4,000 annually. That money supplements my paycheck, not now, but when I am ready to retire. That money is not taxable until I retire and make withdrawals from the account.
However, you do not have to go through your employer to contribute towards your retirement. Enter the IRA (Individual Retirement Accounts) and the Roth IRA. Most people can contribute to both the IRA and the 401(k). Traditional IRA accounts are dollars you invest, then get a tax break on those funds at the end of the year and it is the equivalent of a pre-tax investment, like the 401(k).
Roth was created to give you an alternative to traditional IRAs. The principle difference is that Roth contributions are taxed income. Since you pay taxes on it before you invest the funds, you do not have to pay taxes on it when you withdraw the funds at retirement age. The basic concept is that simple. Pay taxes on the contribution now, while your tax bracket is probably lower than it will be, and as long as you follow the rules for the account, do not pay taxes on that same money again.
Roth also exists as a 401(k) account that you can contribute through your employer, an alternative to the traditional 401(k) described earlier. The difference is that the Roth 401(k) uses already taxed dollars to contribute to the plan. The same concept as the Roth IRA, you do not then pay taxes on that contribution when you retire as long as you follow certain rules. The Roth 401(k) was originally designed to phase out after 2010, but the Act makes it a permanent option. That makes it more attractive for employers to offer it, and more employers will do so.
What you should do right now if you are interested in more information is go to your employer's benefit office and find out what kind of retirement plans they offer, most likely a 401(k) or 403(b). Ask them about eligibility criteria for the plans. You can separately contact any number of personal investment companies like Scottrade and Vanguard to open up an IRA or Roth IRA.
---
Andrew Marx is a prolific author and his expertise includes the practical and legal aspects of personal finance and higher education. His body of work is published at http://www.smartremarx.com/
Monday, October 5, 2009
Shorten Your Journey to Business and Personal Success
Author: Judy Cullins
Source: articleage.com
According to a new survey carried out by Alliance & where ID_NUM=9270;Leicester, one in five small business owners view tax astheir greatest concern. The Chancellor has announced in hislast budget that companies with profits below œ10,000 willnot have to pay any corporation tax with effect from 1 April2002. The question to be asked is: does that announcementmake incorporation a more attractive option compared tobeing a sole trader?The answer is that from a tax point of view, it isadvantageous to trade through a limited company as longas the income is drawn from the company by the owners asdividends from their shares and the amount of dividendsdrawn is restricted below the 40% band rate (i.e. œ31,063for tax year 2002/03). That way, the owners have no furtherpersonal tax ("income tax") to pay. Moreover, dividends arenot subject to national insurance contributions. This isexcellent news of course. But, if dividend income fallswithin the higher rate bracket of income tax (i.e. aboveœ34,515), they will be taxed at 22.5% on the excess, whichof course will increase the tax burden. The company profitsare subject to corporation tax rates. Those are lower thanincome tax rates.The most catastrophic scenario is when the director takeshis reward from the company as salary. Then his/her salaryis taxed at income tax rates (like a sole trader's income).That is because, unlike sole traders, the tax system treatscompanies as separate from their owners because a company isa separate legal entity. The problem is that the incometaxes are higher than corporation tax rates. On top ofthat, they will be subject to employee and employer nationalinsurance contributions, which of course increase the taxburden and render his position worse than even anunincorporated business ("sole trader"), because NIC Class 1on payroll are higher than NIC Class 2 paid by selfemployed.In contrast, a self employed person ("sole trader") is taxedat income tax rates on the profits from his business, whichare added to his other sources of income. As it has alreadybeen mentioned, income tax rates are overall higher thancorporation tax rates. On top of income tax, nationalinsurance contributions class 4 are payable on the businessprofits within a specified band (7% on profits betweenœ4,615and œ30,420). National insurance contributions Class 2are also paid by self-employed people, although those arelower than those payable by company directors on theirsalaries.To illustrate the above, let's take a simple example. Wehave a limited company and a sole trader. They both makeœ60,000 profits each in the tax year 2002/03. We assume thatthe company director takes a salary equal to the amount ofhis personal allowances (untaxed income) of œ4,615 and thebalance as dividends. The company will pay corporation taxat 19% equal to œ10,523 and nothing else. The sole traderwill pay income tax œ16,542, National insurance Class 2 œ104and National insurance Class 4 œ1,806. Total œ18,452. Thebottom line is that the person that has incorporated hisbusiness into a limited company will make a tax saving ofœ7,929 compared to a sole trader! Isn't that fantastic?Somebody might be wondering: why is this entire happening?The official explanation is that, this government, to helpthe economy grow, encourages people to leave as much profitswithin their businesses to be reinvested, instead of beingtaken out and spent.The "unofficial line" is that, as a matter of fact, foryears the Inland Revenue has tried to reclassify theself-employed. The 1% in NIC hike on staff salaries abovethe NIC threshold from next April adds to both theemployees' and employers' tax burden and may more thanoffset the saving from the corporation tax zero rate on thefirst œ10,000 of profits.Aren't there any other matters to consider in decidingwhether to incorporate or not?Higher administration costs to comply with company law,payroll and bookkeeping is one factor. Another issue ispension planning. Extracting profits out of the company asdividends rather than salary means that there will be no"net relevant earnings" and therefore pension contributionscan't be made. But the advent of stakeholder pension planshas meant that contributions up to œ3,600 per year can bemade without the need for any earnings. If a person does notwish to transfer funds in existing plans into stakeholderbecause of high charges, there is a way out: the best netrelevant earnings (i.e. salary) in five consecutive yearscan be used for making contributions for the next fiveyears, even if there were no salaries in the remainder fouryears. It is comforting to know that entitlement to basicstate pension is not affected by taking a salary from thecompany at the level of a person's personal allowances i.e.œ4,615.Furthermore, an individual may decide not to bother withpension plans and instead invest in ISA. Often, these can bemore efficient than pensions but that's beside the scope ofthis article. If that option is taken, no salary isnecessary.Another factor is business motoring. It might be taxadvantageous for an unincorporated business that owns manycars not to incorporate because if these cars have someprivate use there will be benefits in kind taxed on theusers. These are generally higher than the straightapportionment between private and business for all carrunning costs in the case of sole traders.The conclusion is that there can be considerable tax savingswaiting the sole trader who decides to go down theroad to incorporation. But, one needs to proceed withcaution and careful planning. And don't forget the biggestadvantage of incorporation, which is Protectionfrom Personal Liability. Incorporating is one of the bestways to protect a business owner from personal liability.Shareholders of a company are generally not liable for theobligations of the company. Creditors of a company may seekpayment from its assets, but not the assets of theshareholders. This means that business owners may engage inbusiness without risking their homes or other personalproperty.Thank you for taking the time to read this Article. I hopeyou've found it useful. If you have, please drop me an emailand let me know what you think.You can email me at...constantinesavva@accamail.comAlternatively, you can visit our website athttp://www.tax-accounting-london.info and read a series ofother full length articles that present the complete pictureon a variety of interesting topics.If you would like to know how to save tax and make sure thatmore of your hard earned cash stays with you to expand yourbusiness and increase your profits, we have a Free SpecialReport addressed to small businesses either starting up oralready in business. This Exclusive Free Special Report isavailable automatically when you subscribe to our regularseries of Free Newsletters on finance advice and taxplanning by visiting our subscription area on our websitewww.tax-accounting- london.info. It is complied from reallife situations dealing with small business tax affairs forover 10 years and it is loaded with down-to-earth advice andpractical, understandable examples.LEGAL NOTICEWhilst every care has been taken in the preparation of thisarticle, the author cannot accept responsibility for anyerrors or omissions. Proper professional advice should betaken at all times.We retain copyright for the contents of this article. Anyunauthorized copying or onward distributions are prohibitedwithout our consent.
Source: articleage.com
According to a new survey carried out by Alliance & where ID_NUM=9270;Leicester, one in five small business owners view tax astheir greatest concern. The Chancellor has announced in hislast budget that companies with profits below œ10,000 willnot have to pay any corporation tax with effect from 1 April2002. The question to be asked is: does that announcementmake incorporation a more attractive option compared tobeing a sole trader?The answer is that from a tax point of view, it isadvantageous to trade through a limited company as longas the income is drawn from the company by the owners asdividends from their shares and the amount of dividendsdrawn is restricted below the 40% band rate (i.e. œ31,063for tax year 2002/03). That way, the owners have no furtherpersonal tax ("income tax") to pay. Moreover, dividends arenot subject to national insurance contributions. This isexcellent news of course. But, if dividend income fallswithin the higher rate bracket of income tax (i.e. aboveœ34,515), they will be taxed at 22.5% on the excess, whichof course will increase the tax burden. The company profitsare subject to corporation tax rates. Those are lower thanincome tax rates.The most catastrophic scenario is when the director takeshis reward from the company as salary. Then his/her salaryis taxed at income tax rates (like a sole trader's income).That is because, unlike sole traders, the tax system treatscompanies as separate from their owners because a company isa separate legal entity. The problem is that the incometaxes are higher than corporation tax rates. On top ofthat, they will be subject to employee and employer nationalinsurance contributions, which of course increase the taxburden and render his position worse than even anunincorporated business ("sole trader"), because NIC Class 1on payroll are higher than NIC Class 2 paid by selfemployed.In contrast, a self employed person ("sole trader") is taxedat income tax rates on the profits from his business, whichare added to his other sources of income. As it has alreadybeen mentioned, income tax rates are overall higher thancorporation tax rates. On top of income tax, nationalinsurance contributions class 4 are payable on the businessprofits within a specified band (7% on profits betweenœ4,615and œ30,420). National insurance contributions Class 2are also paid by self-employed people, although those arelower than those payable by company directors on theirsalaries.To illustrate the above, let's take a simple example. Wehave a limited company and a sole trader. They both makeœ60,000 profits each in the tax year 2002/03. We assume thatthe company director takes a salary equal to the amount ofhis personal allowances (untaxed income) of œ4,615 and thebalance as dividends. The company will pay corporation taxat 19% equal to œ10,523 and nothing else. The sole traderwill pay income tax œ16,542, National insurance Class 2 œ104and National insurance Class 4 œ1,806. Total œ18,452. Thebottom line is that the person that has incorporated hisbusiness into a limited company will make a tax saving ofœ7,929 compared to a sole trader! Isn't that fantastic?Somebody might be wondering: why is this entire happening?The official explanation is that, this government, to helpthe economy grow, encourages people to leave as much profitswithin their businesses to be reinvested, instead of beingtaken out and spent.The "unofficial line" is that, as a matter of fact, foryears the Inland Revenue has tried to reclassify theself-employed. The 1% in NIC hike on staff salaries abovethe NIC threshold from next April adds to both theemployees' and employers' tax burden and may more thanoffset the saving from the corporation tax zero rate on thefirst œ10,000 of profits.Aren't there any other matters to consider in decidingwhether to incorporate or not?Higher administration costs to comply with company law,payroll and bookkeeping is one factor. Another issue ispension planning. Extracting profits out of the company asdividends rather than salary means that there will be no"net relevant earnings" and therefore pension contributionscan't be made. But the advent of stakeholder pension planshas meant that contributions up to œ3,600 per year can bemade without the need for any earnings. If a person does notwish to transfer funds in existing plans into stakeholderbecause of high charges, there is a way out: the best netrelevant earnings (i.e. salary) in five consecutive yearscan be used for making contributions for the next fiveyears, even if there were no salaries in the remainder fouryears. It is comforting to know that entitlement to basicstate pension is not affected by taking a salary from thecompany at the level of a person's personal allowances i.e.œ4,615.Furthermore, an individual may decide not to bother withpension plans and instead invest in ISA. Often, these can bemore efficient than pensions but that's beside the scope ofthis article. If that option is taken, no salary isnecessary.Another factor is business motoring. It might be taxadvantageous for an unincorporated business that owns manycars not to incorporate because if these cars have someprivate use there will be benefits in kind taxed on theusers. These are generally higher than the straightapportionment between private and business for all carrunning costs in the case of sole traders.The conclusion is that there can be considerable tax savingswaiting the sole trader who decides to go down theroad to incorporation. But, one needs to proceed withcaution and careful planning. And don't forget the biggestadvantage of incorporation, which is Protectionfrom Personal Liability. Incorporating is one of the bestways to protect a business owner from personal liability.Shareholders of a company are generally not liable for theobligations of the company. Creditors of a company may seekpayment from its assets, but not the assets of theshareholders. This means that business owners may engage inbusiness without risking their homes or other personalproperty.Thank you for taking the time to read this Article. I hopeyou've found it useful. If you have, please drop me an emailand let me know what you think.You can email me at...constantinesavva@accamail.comAlternatively, you can visit our website athttp://www.tax-accounting-london.info and read a series ofother full length articles that present the complete pictureon a variety of interesting topics.If you would like to know how to save tax and make sure thatmore of your hard earned cash stays with you to expand yourbusiness and increase your profits, we have a Free SpecialReport addressed to small businesses either starting up oralready in business. This Exclusive Free Special Report isavailable automatically when you subscribe to our regularseries of Free Newsletters on finance advice and taxplanning by visiting our subscription area on our websitewww.tax-accounting- london.info. It is complied from reallife situations dealing with small business tax affairs forover 10 years and it is loaded with down-to-earth advice andpractical, understandable examples.LEGAL NOTICEWhilst every care has been taken in the preparation of thisarticle, the author cannot accept responsibility for anyerrors or omissions. Proper professional advice should betaken at all times.We retain copyright for the contents of this article. Anyunauthorized copying or onward distributions are prohibitedwithout our consent.
Sunday, October 4, 2009
Life Insurance Available With Tax Relief
Author: Michael Challiner
Source: articleage.com
At last you can buy life insurance and get tax relief. The breakthrough results from changes in the Gordon Browns' latest Budget speech but the tax relief is only available on a new special sort of life insurance policy. You can't get tax relief on your existing life insurance policies.These new policies exploit a loophole in the new Finance Bill and should result in savings of between 5% and 15% for standard taxpayers and around 30% for higher taxpayers.But there are strings attached! You can't add extras on to your life policy such as critical illness cover and the insured sum must be a fixed sum. Neither can you have a joint policy. Basically, it has to be a bog standard, level term, single beneficiary, life insurance policy.Then there are more restrictions, but quite honestly, these are unlikely to pose a problem to anyone unless they're very wealthy! You can't have one of these special life policies if the annual contributions you pay into your pension plus the life insurance premiums, exceed 215,000 per year. Furthermore, if the value of your pension fund plus the payout on your life policy exceeds 1,500,000, the current limit set by the Chancellor, then the excess will be taxed at 55%. Conventional life insurance policies are excluded from this calculation.Tax relief on the premiums is automatically collected by the life insurance company so you pay a premium which is already reduced by standard rate tax relief. If you're a higher rate taxpayer, you'll have to claim the extra tax through your self-assessment tax return. However, once you've told your taxman about your premiums, they should automatically continue to give you the tax relief through your tax code.So why are the savings less than the value of the tax relief? Well, the reason is that the life companies have to administer the tax relief and there are certain operational restrictions imposed by the Inland Revenue on the insurance company. This means that the basic cost of these policies is a little more than conventional life insurance - but after the tax relief you should save.As with all these loopholes, you must be aware that the Chancellor could remove the tax relief. Having said that, it is rare for a future tax change to be applied retrospectively so you are likely to be safe. Your income could also change and move you into a lower tax bracket. This would reduce your savings.This new type of life policy is now available from most of the big UK insurers and specialist life insurance brokers. However, you won't be able to get an online quotation - you'll have to speak on the phone to a Life Insurance Adviser.And just to confuse matters these policies are known under a range of names: Pension Term Insurance, Life Insurance with Tax Relief, Life Protection with Tax Relief - but they all mean the same thing.Oh yes, let me confirm one miss-understanding. No, you don't have to buy a pension at the same time!Scrouge Online specialise in Life Insurance Quotes , Mortgage Rates and Loans online
Source: articleage.com
At last you can buy life insurance and get tax relief. The breakthrough results from changes in the Gordon Browns' latest Budget speech but the tax relief is only available on a new special sort of life insurance policy. You can't get tax relief on your existing life insurance policies.These new policies exploit a loophole in the new Finance Bill and should result in savings of between 5% and 15% for standard taxpayers and around 30% for higher taxpayers.But there are strings attached! You can't add extras on to your life policy such as critical illness cover and the insured sum must be a fixed sum. Neither can you have a joint policy. Basically, it has to be a bog standard, level term, single beneficiary, life insurance policy.Then there are more restrictions, but quite honestly, these are unlikely to pose a problem to anyone unless they're very wealthy! You can't have one of these special life policies if the annual contributions you pay into your pension plus the life insurance premiums, exceed 215,000 per year. Furthermore, if the value of your pension fund plus the payout on your life policy exceeds 1,500,000, the current limit set by the Chancellor, then the excess will be taxed at 55%. Conventional life insurance policies are excluded from this calculation.Tax relief on the premiums is automatically collected by the life insurance company so you pay a premium which is already reduced by standard rate tax relief. If you're a higher rate taxpayer, you'll have to claim the extra tax through your self-assessment tax return. However, once you've told your taxman about your premiums, they should automatically continue to give you the tax relief through your tax code.So why are the savings less than the value of the tax relief? Well, the reason is that the life companies have to administer the tax relief and there are certain operational restrictions imposed by the Inland Revenue on the insurance company. This means that the basic cost of these policies is a little more than conventional life insurance - but after the tax relief you should save.As with all these loopholes, you must be aware that the Chancellor could remove the tax relief. Having said that, it is rare for a future tax change to be applied retrospectively so you are likely to be safe. Your income could also change and move you into a lower tax bracket. This would reduce your savings.This new type of life policy is now available from most of the big UK insurers and specialist life insurance brokers. However, you won't be able to get an online quotation - you'll have to speak on the phone to a Life Insurance Adviser.And just to confuse matters these policies are known under a range of names: Pension Term Insurance, Life Insurance with Tax Relief, Life Protection with Tax Relief - but they all mean the same thing.Oh yes, let me confirm one miss-understanding. No, you don't have to buy a pension at the same time!Scrouge Online specialise in Life Insurance Quotes , Mortgage Rates and Loans online
Ben Franklin Didn't Quite Get it Right
Author: Terry Mitchell
Source: download
When Ben Franklin said "a penny saved is a penny earned", he didn't quite get it right. Actually, a penny saved is worth more than a penny earned. Do you find this statement shocking? I am about to prove to you that what I'm saying is true.Most people erroneously believe the best way to strengthen their financial health is to increase their income. On the contrary, saving money by cutting costs will get you there quicker. You see, it's very simple. When your income increases (with some exceptions like the part of it you put into your 401k), that extra money is taxed. On the other hand, any amount you save by cutting costs is not taxed. Therefore, $20 saved by cutting costs is worth more than a $20 increase in income.The following (although over-simplified) example will illustrate this principle. Let's suppose that Jack and Cindy have identical jobs and incomes. Let's also suppose they shop at the same grocery store and pay about the same amount for groceries each week. Now, Jack gets a $20 per week pay increase and Cindy does not. However, at about that same time, Cindy finds a new grocery store where she is able to save $20 per week on her grocery bill. Assuming nothing else has changed, Cindy is now better off financially than Jack, even though she did not get a raise and he did.How can this be? It's because Jack has to pay taxes on his $20 raise but Cindy does not have to pay taxes on her $20 grocery discount. Assuming Jack is in the 25% federal tax bracket (and disregarding any possible increase in his state or local taxes), he will be able to put only $15 into his piggy bank each week whereas Cindy will be able to put the whole $20 a week into hers!Bottom Line: It is more blessed to receive a discount than to receive an equal amount in a pay increase!Terry Mitchell is a software engineer, freelance writer, and trivia buff from Hopewell, VA. He also serves as a political columnist for American Daily and operates his own website - http://www.commenterry.com - on which he posts commentaries on various subjects such as politics, technology, religion, health and well-being, personal finance, and sports. His commentaries offer a unique point of view that is not often found in mainstream media.
Source: download
When Ben Franklin said "a penny saved is a penny earned", he didn't quite get it right. Actually, a penny saved is worth more than a penny earned. Do you find this statement shocking? I am about to prove to you that what I'm saying is true.Most people erroneously believe the best way to strengthen their financial health is to increase their income. On the contrary, saving money by cutting costs will get you there quicker. You see, it's very simple. When your income increases (with some exceptions like the part of it you put into your 401k), that extra money is taxed. On the other hand, any amount you save by cutting costs is not taxed. Therefore, $20 saved by cutting costs is worth more than a $20 increase in income.The following (although over-simplified) example will illustrate this principle. Let's suppose that Jack and Cindy have identical jobs and incomes. Let's also suppose they shop at the same grocery store and pay about the same amount for groceries each week. Now, Jack gets a $20 per week pay increase and Cindy does not. However, at about that same time, Cindy finds a new grocery store where she is able to save $20 per week on her grocery bill. Assuming nothing else has changed, Cindy is now better off financially than Jack, even though she did not get a raise and he did.How can this be? It's because Jack has to pay taxes on his $20 raise but Cindy does not have to pay taxes on her $20 grocery discount. Assuming Jack is in the 25% federal tax bracket (and disregarding any possible increase in his state or local taxes), he will be able to put only $15 into his piggy bank each week whereas Cindy will be able to put the whole $20 a week into hers!Bottom Line: It is more blessed to receive a discount than to receive an equal amount in a pay increase!Terry Mitchell is a software engineer, freelance writer, and trivia buff from Hopewell, VA. He also serves as a political columnist for American Daily and operates his own website - http://www.commenterry.com - on which he posts commentaries on various subjects such as politics, technology, religion, health and well-being, personal finance, and sports. His commentaries offer a unique point of view that is not often found in mainstream media.
Saturday, October 3, 2009
Donate A Car To Benefit Charities And Yourself
Author: Bob Benson
Source: articledashboard.com
The Internal Revenue Service allows for abounding altered types of accommodating deductions including cash, clothes, goods, and some services. One of the "goods" accustomed by the IRS that taxpayers may accord is their car. Although the IRS has anchored things up over the accomplished few years, altruistic a car can account a advantaged alms and advice yourself appear tax day. Let's yield a attending at how your car donation can advice you and a accustomed charity. Your six year old Buick LeSabre Custom has stood the analysis of time, but you accept absitively to buy a 2007 Buick La Crosse Limited to accord yourself a car that is new, up to date, and thoroughly reliable. Your LeSabre saw you through continued commutes to work, vacations at the shore, and it was the aforementioned car your babe acclimated to apprentice how to drive. With 140,000 afar on the odometer you apperceive that the barter in bulk isn't traveling to be that great, so you accede altruistic the Buick to a alms such as the branch foundation or to the affiliation of the blind.The IRS will accolade your generosity if you chase assertive arena rules:--The alms accept to be accustomed by the IRS and accept 501(c) 3 status.--You can alone abstract the auction bulk of the car, not what you anticipate anyone ability pay for it. Indeed, even admitting the Buick could possibly back added than $5000 if awash privately, you accept to account the "gross proceeds" of the resale of the car by the charity. So, if the alms sells your LeSabre for $3700, which is the bulk you are accustomed to abstract on your assets taxes. Your alms of best will accommodate accounting affidavit of the auction bulk to you for your annal already the auction has been made.Just bethink if you get to abstract $3700 that doesn't beggarly your taxes will bead by that amount. Depending on your tax bracket and what you owe the Internal Revenue Service and added deductions, you apparently will save yourself a few hundred dollars per year. Of course, your motive for giving should be based in allotment on allowance a alms not just accepting a appropriate deduction. So, although the IRS has anchored up the rules apropos altruistic a car it can still be an important armamentarium adopting apparatus for charities while acceptance you to accept a tax answer and the joy of allowance anyone out in their time of need.
Source: articledashboard.com
The Internal Revenue Service allows for abounding altered types of accommodating deductions including cash, clothes, goods, and some services. One of the "goods" accustomed by the IRS that taxpayers may accord is their car. Although the IRS has anchored things up over the accomplished few years, altruistic a car can account a advantaged alms and advice yourself appear tax day. Let's yield a attending at how your car donation can advice you and a accustomed charity. Your six year old Buick LeSabre Custom has stood the analysis of time, but you accept absitively to buy a 2007 Buick La Crosse Limited to accord yourself a car that is new, up to date, and thoroughly reliable. Your LeSabre saw you through continued commutes to work, vacations at the shore, and it was the aforementioned car your babe acclimated to apprentice how to drive. With 140,000 afar on the odometer you apperceive that the barter in bulk isn't traveling to be that great, so you accede altruistic the Buick to a alms such as the branch foundation or to the affiliation of the blind.The IRS will accolade your generosity if you chase assertive arena rules:--The alms accept to be accustomed by the IRS and accept 501(c) 3 status.--You can alone abstract the auction bulk of the car, not what you anticipate anyone ability pay for it. Indeed, even admitting the Buick could possibly back added than $5000 if awash privately, you accept to account the "gross proceeds" of the resale of the car by the charity. So, if the alms sells your LeSabre for $3700, which is the bulk you are accustomed to abstract on your assets taxes. Your alms of best will accommodate accounting affidavit of the auction bulk to you for your annal already the auction has been made.Just bethink if you get to abstract $3700 that doesn't beggarly your taxes will bead by that amount. Depending on your tax bracket and what you owe the Internal Revenue Service and added deductions, you apparently will save yourself a few hundred dollars per year. Of course, your motive for giving should be based in allotment on allowance a alms not just accepting a appropriate deduction. So, although the IRS has anchored up the rules apropos altruistic a car it can still be an important armamentarium adopting apparatus for charities while acceptance you to accept a tax answer and the joy of allowance anyone out in their time of need.
Thursday, October 1, 2009
<B>College Families Overpaid The IRS - Again!</B>
Author: Reecy Aresty
Source: articleage.com
College families who made their best guess as to which of the Education Tax Incentives would save them the most on their income taxes have put their 2004 tax returns to bed. However, for many, a sigh of relief may be a bit premature and inappropriate. Countless families, even some assisted by professional tax preparers, chose incorrectly and have significantly overpaid the IRS - AGAIN! Mark Twain once said, "No man's life, liberty, or property are safe while the legislature is in session," and never have truer words been spoken!On June 6, 2001, President Bush signed HR 2014 into law. This created The Tuition and Fees Deduction, based on Senator Charles E. Schumer's (D-NY) Make College Affordable Act. However, Congress presented and the President signed a watered down version of the Senator's proposal and consequently, it doesn't work for the families who need it the most!Senator Schumer had been tirelessly championing legislation that would allow families, including independent students, to deduct a portion of their college expenses on their taxes. The Senator's Make College Affordable Act, as originally proposed, would have given millions of American families the opportunity to deduct up to $12,000 per year from their total incomes to help reduce the rising costs of college tuition and related expenses. Unfortunately, and to the detriment of untold numbers of taxpayers with students in college, the Tuition and Fees Deduction allows a mere deduction of $3,000 for tax years 2002-2003, and $4,000 for tax years 2004-2005. The Deduction sunsets after 2005.To many families, an annual eight or nine thousand dollars could mean the difference of being forced to settle for a local community college as opposed to sending their student to a state school. Arguably, America's future rests with its educated youth, and this is no way to treat those who will hold the fate of our country in their hands.The drastic slashing by Congress of Senator Schumer's proposed bill and President Bush's failure to send it back to them is the case in point substantiating that the government of the United States doesn't give a hoot in hell about the financial struggle the average American parent endures in their endless pursuit of the American dream for their children! Effective legislation to make college expenses tax deductible is long overdue and began with the Tax Payer Relief Act of 1997, which Senator Schumer also supported and voted for. The Act created two education tax credits, the HOPE Scholarship Credit (maximum $1,500 a year for 2 years), and the Lifetime Learning Credit (maximum $1,000 increasing to $2,000 in 2003).Note: A tax deduction lowers taxable income, and the savings depends on the filer's tax bracket. A tax credit directly lowers taxes by the amount of the credit, dollar for dollar, regardless of the filer's tax bracket.Although it certainly was a step in the right direction, the Tax Payer Relief Act of 1997 fell far too short in providing major tax relief for America's college families, especially in view of soaring tuition costs and other related expenses that families endure year after year to send their kids to college. Nonetheless, the real tragedy for America is the Tuition and Fees Deduction, which, when taken by taxpayers who qualify for The HOPE Scholarship Credit or The Lifetime Learning Credit, will actually cause them to overpay their taxes by hundreds of dollars each year!Affluent single and head of household taxpayers whose incomes exceed $51,000, and joint filers whose incomes exceed $102,000, will not qualify for the HOPE Scholarship or Lifetime Learning Credit, and are therefore, the only ones who actually benefit from taking the Tuition and Fees Deduction. Thus, camouflaged as tax relief to offset college costs for all of America's college families, all Congress actually did was Robin-Hoodwink most lower and middle income families by taking from them and giving to the rich! The wisdom of Mark Twain's words cannot be denied.This is one of a series of articles by college admissions and financial aid expert, Reecy Aresty, based on his book, "Getting Into College And Paying For It!" For further information including how to obtain the complete SPECIAL REPORT on the Tuition And Fees Deduction with refund eligibility, please visit www.thecollegebook.com.
Source: articleage.com
College families who made their best guess as to which of the Education Tax Incentives would save them the most on their income taxes have put their 2004 tax returns to bed. However, for many, a sigh of relief may be a bit premature and inappropriate. Countless families, even some assisted by professional tax preparers, chose incorrectly and have significantly overpaid the IRS - AGAIN! Mark Twain once said, "No man's life, liberty, or property are safe while the legislature is in session," and never have truer words been spoken!On June 6, 2001, President Bush signed HR 2014 into law. This created The Tuition and Fees Deduction, based on Senator Charles E. Schumer's (D-NY) Make College Affordable Act. However, Congress presented and the President signed a watered down version of the Senator's proposal and consequently, it doesn't work for the families who need it the most!Senator Schumer had been tirelessly championing legislation that would allow families, including independent students, to deduct a portion of their college expenses on their taxes. The Senator's Make College Affordable Act, as originally proposed, would have given millions of American families the opportunity to deduct up to $12,000 per year from their total incomes to help reduce the rising costs of college tuition and related expenses. Unfortunately, and to the detriment of untold numbers of taxpayers with students in college, the Tuition and Fees Deduction allows a mere deduction of $3,000 for tax years 2002-2003, and $4,000 for tax years 2004-2005. The Deduction sunsets after 2005.To many families, an annual eight or nine thousand dollars could mean the difference of being forced to settle for a local community college as opposed to sending their student to a state school. Arguably, America's future rests with its educated youth, and this is no way to treat those who will hold the fate of our country in their hands.The drastic slashing by Congress of Senator Schumer's proposed bill and President Bush's failure to send it back to them is the case in point substantiating that the government of the United States doesn't give a hoot in hell about the financial struggle the average American parent endures in their endless pursuit of the American dream for their children! Effective legislation to make college expenses tax deductible is long overdue and began with the Tax Payer Relief Act of 1997, which Senator Schumer also supported and voted for. The Act created two education tax credits, the HOPE Scholarship Credit (maximum $1,500 a year for 2 years), and the Lifetime Learning Credit (maximum $1,000 increasing to $2,000 in 2003).Note: A tax deduction lowers taxable income, and the savings depends on the filer's tax bracket. A tax credit directly lowers taxes by the amount of the credit, dollar for dollar, regardless of the filer's tax bracket.Although it certainly was a step in the right direction, the Tax Payer Relief Act of 1997 fell far too short in providing major tax relief for America's college families, especially in view of soaring tuition costs and other related expenses that families endure year after year to send their kids to college. Nonetheless, the real tragedy for America is the Tuition and Fees Deduction, which, when taken by taxpayers who qualify for The HOPE Scholarship Credit or The Lifetime Learning Credit, will actually cause them to overpay their taxes by hundreds of dollars each year!Affluent single and head of household taxpayers whose incomes exceed $51,000, and joint filers whose incomes exceed $102,000, will not qualify for the HOPE Scholarship or Lifetime Learning Credit, and are therefore, the only ones who actually benefit from taking the Tuition and Fees Deduction. Thus, camouflaged as tax relief to offset college costs for all of America's college families, all Congress actually did was Robin-Hoodwink most lower and middle income families by taking from them and giving to the rich! The wisdom of Mark Twain's words cannot be denied.This is one of a series of articles by college admissions and financial aid expert, Reecy Aresty, based on his book, "Getting Into College And Paying For It!" For further information including how to obtain the complete SPECIAL REPORT on the Tuition And Fees Deduction with refund eligibility, please visit www.thecollegebook.com.
How Much Should You Borrow?
Author: P Miller
Source: articledashboard.com
There's little doubt that we're borrowing more and there's also little doubt that credit is one of the great conveniences of modern life. That said, like Goldilocks you want to borrow the amount that's just right -- and no more. So what's the right level of debt? The loan qualification standards used by mortgage lenders are an important guideline. You can typically get that old standby -- the fixed-rate, 30 year mortgage -- if no more than 28 percent of your gross monthly income goes for mortgage principal and interest, property taxes and property insurance (PITI). In addition, as much as 36 percent of your gross monthly income can go to regular monthly costs -- PITI plus car payments, credit card debt, school costs, etc. In addition, because they have more liberal qualification standards, you can often borrow more with other loan programs such as FHA, VA and adjustable-rate financing. But no matter what type of mortgage financing you consider, the real question should be not how much can you borrow, but rather how much can you borrow comfortably. In other words, financial sanity counts. Unfortunately the term "financial sanity" is an expression without a definition. The economics that work for the Webbers plainly may not work for the Johnsons. We each have different incomes as well as different interests, expenses and preferences. Given this background one might ask: What makes financial sense for me? The answer looks like this: If you're living from paycheck to paycheck, if monthly costs are a burden, if savings are small or non-existent, if you do not have health insurance then it's time to re-think debt burdens. The richest person I ever met, someone who started with nothing and created jobs for more than 50,000 people, once offered this advice: "The key to financial success is saving, and nothing is harder than saving that first $10,000. After that, it's easy." In other words, it's entirely possible to have a substantial salary and to fail the financial sanity test. The waiting rooms in every bankruptcy court are filled with people who once had big incomes and bigger debts. One day the numbers didn't work and away went the trophy houses and the big cars. So how do you begin the savings process? The first step, literally, is to open a savings account. The very nice people who provide checking accounts and credit cards will also be happy to hold your savings. The second step is to go after every nickel and dime you can find. The economics of savings resemble gravity: Little pieces brought together in one place produce big results. Here's an example: Imagine that you usually spend $2.50 per day on little things -- coffee, candy or whatever. Instead, you set the money aside in an account that pays 6 percent interest. The result? After 30 years there's almost $77,000 in your account. There are any number of strategies to save money, but let me suggest a practical approach. Look at your debts. Pick the one with the lowest balance, say a small credit card that requires monthly payments of $25. Save and pay it off. Then identify the next remaining debt with the smallest balance. You now have $25 a month extra that can be applied to the second obligation. Save and pay off the second debt. Maybe with the second obligation you can save $50 a month. After the second debt is repaid, you have an additional $75 a month to attack the third debt. During this process there are other steps to take. Bring lunch to work. Have one car (hard in some areas, but not impossible). Collect change at the end of the day and deposit rolls of coins every month or so. Eat out -- but not often. Stay away from credit cards. Avoid late fees and maintain good credit by paying bills in full and on time. As this process continues you'll notice several interesting results. First, borrowing for real estate becomes easy as debts decline and qualification scores rise. Second, better credit results in reduced interest rates that can save you big money. Save a half percent as a result of good credit on a $300,000 mortgage and you'll cut costs in the first year of the loan by nearly $1,500. Third, there's no tax on "savings." If you have $1,000 in credit card debt and auto costs each month, that money is available only after taxes are paid. To get that $1,000 in cash you may have to earn $1,300 or $1,400, depending on your tax bracket and location. If you pay off your bills and don't have to pay that $1,000 a month, Uncle Sam does not raise your taxes and you gain the equivalent of a huge raise. When you speak with lenders about your ability to borrow, consider that with good credit you likely can borrow as much as you need if not more. But also consider that as a matter of financial sanity you have a personal obligation to save. If you can buy a home, pay general expenses and still save 5 or 10 percent of your gross monthly income, the odds are overwhelming that borrowing will not be an undue burden now or in the future.
Source: articledashboard.com
There's little doubt that we're borrowing more and there's also little doubt that credit is one of the great conveniences of modern life. That said, like Goldilocks you want to borrow the amount that's just right -- and no more. So what's the right level of debt? The loan qualification standards used by mortgage lenders are an important guideline. You can typically get that old standby -- the fixed-rate, 30 year mortgage -- if no more than 28 percent of your gross monthly income goes for mortgage principal and interest, property taxes and property insurance (PITI). In addition, as much as 36 percent of your gross monthly income can go to regular monthly costs -- PITI plus car payments, credit card debt, school costs, etc. In addition, because they have more liberal qualification standards, you can often borrow more with other loan programs such as FHA, VA and adjustable-rate financing. But no matter what type of mortgage financing you consider, the real question should be not how much can you borrow, but rather how much can you borrow comfortably. In other words, financial sanity counts. Unfortunately the term "financial sanity" is an expression without a definition. The economics that work for the Webbers plainly may not work for the Johnsons. We each have different incomes as well as different interests, expenses and preferences. Given this background one might ask: What makes financial sense for me? The answer looks like this: If you're living from paycheck to paycheck, if monthly costs are a burden, if savings are small or non-existent, if you do not have health insurance then it's time to re-think debt burdens. The richest person I ever met, someone who started with nothing and created jobs for more than 50,000 people, once offered this advice: "The key to financial success is saving, and nothing is harder than saving that first $10,000. After that, it's easy." In other words, it's entirely possible to have a substantial salary and to fail the financial sanity test. The waiting rooms in every bankruptcy court are filled with people who once had big incomes and bigger debts. One day the numbers didn't work and away went the trophy houses and the big cars. So how do you begin the savings process? The first step, literally, is to open a savings account. The very nice people who provide checking accounts and credit cards will also be happy to hold your savings. The second step is to go after every nickel and dime you can find. The economics of savings resemble gravity: Little pieces brought together in one place produce big results. Here's an example: Imagine that you usually spend $2.50 per day on little things -- coffee, candy or whatever. Instead, you set the money aside in an account that pays 6 percent interest. The result? After 30 years there's almost $77,000 in your account. There are any number of strategies to save money, but let me suggest a practical approach. Look at your debts. Pick the one with the lowest balance, say a small credit card that requires monthly payments of $25. Save and pay it off. Then identify the next remaining debt with the smallest balance. You now have $25 a month extra that can be applied to the second obligation. Save and pay off the second debt. Maybe with the second obligation you can save $50 a month. After the second debt is repaid, you have an additional $75 a month to attack the third debt. During this process there are other steps to take. Bring lunch to work. Have one car (hard in some areas, but not impossible). Collect change at the end of the day and deposit rolls of coins every month or so. Eat out -- but not often. Stay away from credit cards. Avoid late fees and maintain good credit by paying bills in full and on time. As this process continues you'll notice several interesting results. First, borrowing for real estate becomes easy as debts decline and qualification scores rise. Second, better credit results in reduced interest rates that can save you big money. Save a half percent as a result of good credit on a $300,000 mortgage and you'll cut costs in the first year of the loan by nearly $1,500. Third, there's no tax on "savings." If you have $1,000 in credit card debt and auto costs each month, that money is available only after taxes are paid. To get that $1,000 in cash you may have to earn $1,300 or $1,400, depending on your tax bracket and location. If you pay off your bills and don't have to pay that $1,000 a month, Uncle Sam does not raise your taxes and you gain the equivalent of a huge raise. When you speak with lenders about your ability to borrow, consider that with good credit you likely can borrow as much as you need if not more. But also consider that as a matter of financial sanity you have a personal obligation to save. If you can buy a home, pay general expenses and still save 5 or 10 percent of your gross monthly income, the odds are overwhelming that borrowing will not be an undue burden now or in the future.
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