Year-End Tax Planning

Author: Robert D. Flach

Source: articleage.com



While the average taxpayer will avoid thinking about income taxes until the approach of the April deadline forces him to do so, once the ball drops on One Times Square at midnight on December 31st and the New Year is rung in there is very little that can be done to cut your tax bill.
However, during the last two months of the year you can do a great deal to reduce your tax liability.
Sit down with paper and pencil and list your anticipated income for 2005 and all your allowable deductions to date. What you want to do is, using your 2004 return as a guide, prepare a projected 2005 return. Once this is done you can decide what steps to take to make sure you pay the absolute least amount of federal and state income tax possible for 2005 and 2006. Tax information for 2005 (i.e. standard deduction and personal exemption amounts, tax rates, etc.) is available on the WHAT'S NEW FOR 2005 Page at www.robertdflach.net.
Here are some year-end tips:
1) Traditional year-end planning calls for postponing the receipt of taxable income until 2006 and accelerating allowable deductions to be claimed in 2005, the idea being to reduce your 2005 taxable income to a minimum. This strategy will generally apply if you expect to be in the same tax bracket for both 2005 and 2006, or if you will be in a lower bracket in 2006.
If, however, you anticipate a substantial increase in taxable income in 2006, which will push you into a higher bracket, you should do the reverse and accelerate the receipt of taxable income to 2005 and postpone deductible expenses until 2006. Income received in 2005 will be taxed at a lower rate, and deductions claimed in 2006 will yield a greater tax savings.
Not sure what your 2006 income will be. Follow the rule of "when in doubt - defer" - go the traditional route and postpone income and accelerate expenses.
2) It does not pay to itemize unless the total of your allowable deductions exceeds the standard deduction that applies to your filing status, plus any additions for age or blindness. If you decide to accelerate allowable deductions to claim them in 2005, you can accelerate all you want, but it will be wasted unless your total "itemizable" deductions exceed your applicable standard deduction.
Let us say you usually do not have enough deductions to itemize. However, after preparing your projected 2005 return you discover that, because of some special circumstance, you will be able to itemize this year. During the last two months of the year you should incur, and pay for, as many deductible expenses as possible.
If, on the other hand, your projected return indicates that you do not have anywhere near enough deductions to be able to itemize, postpone making any deductible payments until 2006. Making these payments in 2005 would not produce any tax savings, while it is possible that by deferring them until next year you may be able to itemize in 2006.
3) The timing of deductions is especially important when it comes to medical expenses and miscellaneous job-related and investment expenses. You are allowed to deduct medical expenses only to the extent that they exceed 7 1/2% of your Adjusted Gross Income (AGI), and most miscellaneous deductions are only deductible to the extent that the total exceeds 2% of AGI.
If you anticipate a 2005 AGI of $70,000.00 you must exclude the first $5,250.00 of medical expenses - the first $5,250.00 is not deductible. If your medical expenses to date are close to or more than %5,250.00, and you will be able to itemize, pay any outstanding medical bills and schedule, and pay for, check-ups, doctor visits and needed dental work in November and December. If medical payments to date are substantially less than $5,250.00, put off paying any more medical bills until 2006. The same concept applies for miscellaneous deductions.
If you expect to be able to itemize, and you are making quarterly state estimated tax payments, make the 4th quarter payment in December, instead of waiting until the January 16, 2006 due date, so you will be able to deduct the payment on your 2005 Schedule A.
4) If you do not have the cash available to pay for the deductible items you have scheduled as part of your year-end plan, you can use a credit card to pay for the item and still get a 2005 deduction. Allowable expenses charged to a credit card (VISA, Master Card, American Express, Discover) are deductible in the year charged, and not in the year that you actually pay for the charge.
5) The option to deduct state and local sales tax paid instead of state and local income tax paid will expire on December 31, 2005. This option will not be available for 2006. If you are planning to buy a new car (other than a qualifying energy-saving hybrid - see tip #6), SUV, motorcycle, or other "big ticket" item in the near future you may want to do so before the end of the year to be able to deduct the sales tax.
6) The Energy Tax Incentives Act of 2005 creates new tax credits for certain energy-saving autos, consumer products and home improvements beginning in 2006. You may want to postpone any purchase of qualifying, income tax bracket, energy-saving items until next year to be able to claim the credit.
7) While postponing income and accelerating deductions may reduce your "regular" income tax for 2005, these actions may backfire and end up costing you if you fall victim to the dreaded Alternative Minimum Tax (AMT). Why? Because taxes and miscellaneous expenses are not deductible in calculating AMT, and medical expenses are only deductible to the extent they exceed 10% of AGI. When preparing your projected 2005 return be sure to determine if you will be subject to AMT and plan your strategies accordingly.
8) When preparing your projected return you should review the performance of your investment portfolio for the year. Add up all your realized gains and losses from actual sales of stock, bonds and mutual fund shares for the first 10 months of the year, with separate net totals for short-term (held one year of less) and long-term (held more than one year) activity. Gains and losses from inherited property are always considered long-term. Include in the long-term calculation any "capital gain distributions" from mutual funds.
Now do a similar calculation for unrealized "paper" gains and losses on the investments you still hold. You may want to sell some of your investments before the end of the year at a loss to wipe out year-to-date gains, or at a profit to take advantage of year-to-date losses in excess of $3,000.00.
There are no written in stone year-end tax planning rules that apply to all taxpayers in all cases. As with any other transaction, year-end strategies must be evaluated in the context of the special facts and circumstances of your individual situation. You may want to review your year-end situation with your tax professional.
And remember - your first criteria for evaluating any financial transaction you are considering should always be economic. Taxes are second.
Robert D Flach is a tax professional with 34 tax seasons of experience preparing 1040s for individuals in all walks of life. He writes THE WANDERING TAX PRO weblog (http://rdftaxpro.tripod.com/weblog), the NJ TAX PRACTICE BLOG (http://rdftaxpro.tripod.com/newjerseytaxpractitionernetwork), and the website http://www.robertdflach.net, which has a wealth of tax planning and preparation advice and information. He also writes and publishes THE FLACH REPORT, a quarterly tax newsletter. For more info on THE FLACH REPORT go to http://rdftaxpro.tripod.com/avoidtaxeslegally. The above article is taken from postings to THE WANDERING TAX PRO.

Life insurance as an investment

Author: Tony Reed

Source: articleage.com



Term insurance provides coverage for a pre-specified period. For example, term insurance is designed to protect a mortgage or provide income for your family in case of your death. You pay the term insurance premium each month and as long as you pay the premium your policy will stay in force. Once the contract reaches maturity (usually in 10 years) you need to renew your policy at a higher price. If you die while you're paying the premium your estate gets a large sum of money.



In contrast, permanent or whole life insurance remains in force until you die. You pay the premium on a monthly basis for a pre-specified term, which can range between 10 to 20 years. A portion of your monthly payment pays the insurance and the life insurance company that provided the insurance invests the remainder. Eventually you don't pay any premiums but your estate still receives a large payment upon death.



Whole life polices have been criticized because their investment returns are low. Thus you were often advised to buy life insurance protection with a term policy and invest the difference between term and whole life payments in a separate investment vehicle, such as mutual funds, stocks, or bonds. Once you have built up a large pool of assets you don't need the insurance because the assets will provide security and stability in the event of an unexpected death.



However, there is a new, more flexible product called universal life insurance. While the life insurance company controls the savings in a whole life policy, the savings in a universal life plan are owned and controlled by the policyholder. Insurance companies offer a large variety of investment options for this savings component, including mutual funds. Thus, you have the ability to meet your life insurance needs and increase your return on investment.



The major advantage of a universal life policy is tax-advantaged growth. When you pay the policy premium, a portion of the premium pays for the insurance and a portion is invested. However, when you are ready to withdraw the money from your investment, your cost basis ( the portion not subject to tax) is higher with a universal life policy. The cost base for a universal policy is equal to the sum, income tax bracket, of all your premiums - the amount of money you have invested plus the money you have used to buy life insurance. This is very useful because increasing your cost base will ensure you pay less tax once you sell your investments within the universal life policy.



Universal life insurance provides a powerful combination of life insurance and tax-advantaged investment opportunities. Investors should realize that universal life insurance premiums work twice as hard as other premiums. They should also know that choosing the right product is an important element in the overall success of this strategy. Finally, the benefits of this strategy are magnified if you are in a higher tax bracket.

Is Consumer Spending Trapping You in the Rat Race?

Author: Bill Young

Source: articleage.com



Buying consumer goods can trap you in the Rat Race!
This article will show you how and what to do to escape.
Consumerism is very seductive and insidious. It relies on scientific marketing to prey on your emotional needs and weaknesses.
The proposition is the satisfaction of your emotional needs by purchasing the "right" products. Shopping Therapy, so called.
Example: "Want to have younger looking skin? Buy Vorsage, Extra Moisture Cr่me!"
They are playing on your fear of looking older, promising younger looking skin by the purchase of their product. Of course, that will be followed a year later by the "New and Improved, Extra Moisture Cr่me," which, of course, you would run out and buy.
Another example is your emotional desire to be part of the In Crowd; peer pressure.
Products are featured in luxurious, expensive settings or in use by glamorous celebrities; inferring that you can be just like Mike if you buy his shoes.
Wouldn't you kill to be seen in a $400 pair of famous designer slacks at your friend's wedding next week? What about a $350 denim Sean Jean jacket at the concert? Retailers can actually charge you an extra 5 to 100 times more for their brands than for comparable generic items, and you pay it!
Next year, you would not be caught dead in last year's hot brands. The merchandisers have programmed you to demand the latest, which will cost you the most. They are playing you like a fiddle, laughing all the way to the bank; while you scramble to find money to pay your bills.
Do you see what is happening? Each dollar you spend on this crap tightens the grip of the Rat Race Trap.
The objective of Consumerism is to separate you from your money, period.
Each product is a bait. Products are continually dangled before you without regard to need or safety. Think Pet Rock, the motorized air freshener, lawn darts or the Chevrolet Corvair, that 1960's icon which Ralph Nader proclaimed, "Unsafe at any speed!"
The ultimate objective is to have you charge your purchases so that you will be able to buy more products, even if you do not have the money.
These purchases are far more expensive than they appear.
That $400 pair of designer pants actually costs you $600, if you are in the 33% income tax bracket!
In order to net $400, you must earn $600 in salary, since 1/3 or $200, is deducted as taxes.
Therefore, every consumer item you buy costs you 50% more than the price tag!
If you finance the purchase, and pay only the minimum each month, you will pay another 50-200% of the price in finance charges, (after tax!) requiring decades to pay it off!
Let's look at the purchase of a car, probably the single biggest waste of money there is!
Take the Chevy Tahoe, a popular, mid-market SUV. Purchase price, $36,000. You put $6,000 down, borrow $30,000 for 5 years @ $607/Mo. Total financing cost, $36,420.
Add the down payment of $6,000, totaling $42,420. After taxes. You have to earn $63,630 in order to net $42,420.
That $36,000 Chevy Tahoe will cost you $63,630!
It gets worse!
If instead of purchasing the car, you invested the money in your IRA or 401(k), a pre-tax investment.
Same scenario, you have $9,000 plus $910 dollars, income tax bracket, per month deducted from your salary, pre-tax, the first year. You continue the $910 per month for the next 5 years. Remember, only $607, not $910 per month is deducted from your net pay.
If you just stick the money in a run-of-the-mill index mutual fund, you should receive a return of about 10% annually. You'll have about $85,000 at the end of 5 years.
After 10 years, during which time you would have had to buy another car, your IRA would now have over $250,000 in it. This analysis only reflects the purchase of a car. How much more would you have spent on other consumer goods during that period?
In reality, had you spent that same money on assets, things that go up in value; like stocks or real estate, you could probably have been able to escape the Rat Race at the end of that 10 year period! You are the one who decides how to spend your money.
Copyright 2005 Bill Young. Bill is a former bank mortgage officer and licensed financial planner. He is a real estate investor, lecturer, author and a personal wealth consultant. If you would like to know how to stuff your IRA with enough tax-free real estate click here: http://ARealEstateIRA.com If you are facing foreclosure and want to keep your home: http://SaveYourHomeLLC.com If you must get rid of it: http://WeTakeOverYourPayments.com

Tax Concerns For Ecommerce And Small Business

Author: Mark Walters

Source: isnare.com



One of the most complex and confusing aspects of running a small business, especially an ecommerce business, is the bookkeeping. Each state and country has different tax requirements, different expenses that can be written off, and different percentages.

One of the biggest mistakes small business owners make is by putting their receipts in a shoe box and then taking it to a bookkeeper once a year. This type of financial management costs small businesses thousands of dollars a year. 'A penny saved is a penny earned.' This adage applies to small business.

The ability to save $500 - $5000 in a year is the same as earning that money. However, to do this, a business needs to keep solid records. They need to know what they can write off. For example, small businesses are allowed to write off a percentage of their home. This not only includes the floor space used by the business, it includes everything from the cleaning supplies, yard care products, hydro, taxes, insurance, and mortgage interest.

Very few business owners keep receipts for things such as light bulbs, vacuum bags, window cleaner. Most business owners do not even keep all the receipts for their office supplies. They run to the store and buy a package of printer paper, or while they are shopping for Christmas they will treat themselves to a new keyboard. They have good intentions, and plan to save these receipts, but they never do.

A business person that must do sales calls can claim their clothing, grooming products, and dry-cleaning costs. However, they may only claim a certain percentage of their food, entertainment, and auto expenses.
Auto expenses includes everything from car washes, insurance, car repairs, tires, interior detailing, and even air fresheners and oil jobs.

Take a look at these figures for food. Assume that a small business owner drinks two coffees a day, at $1.20 each. That is $48 a month, or about $625 a year, income tax bracket, . Add to this the cost of an occasional lunch, fast food, and the bill can grow to $1000. Writing off 50%, $500, at a 25% income tax bracket, saves the business owner $125.

Do this with cleaning products, office supplies, oil jobs, and the small business owner can easily recoup thousands of dollars. Now, here it the key.

Some states and countries will repay the small business owner income tax money, even if they haven't paid any. For example, in Canada, a company that takes a $5000 loss in a sole proprietorship, and the business owner did not pay income tax, they may still see a $400 - $1000 refund.

The second concern is that small business owners are not concerned with $1000 - $5000 in random or inconsequential receipts. However, three years down the road when the business is earning a profit, those 'write offs' will come in handy.

It is also possible to earn a tax break by volunteering services. The small business owner gives their services, and bills the service. Then, they take a tax receipt for the 'donation.' The business owner has built their credibility and exposure, and received a receipt to lower their taxes.

This is one area where it becomes tricky. Many businesses barter. There are even B2B bartering organizations. This is 'real' cash from the Tax man's perspective. The business must charge the other business at 'real value' and in return, accept a bill for 'real value.' This money is taxed as if it was cash. Many businesses never consider this when accepting 'free' help, or services in exchange for help they must pay federal, state, and income tax, on the service.

Retail tax is another area that business owners overlook. This is a legitimate tax deduction. In fact, a business may be able to claim 'tax exempt' status, so they do not need to pay tax to their vendors and suppliers.

Taking advantage of the legitimate tax breaks offered by the government is one way to help launch a business and increase cash flow.

Understanding Pensions and Tax Relief

Author: Rochelle Martinez

Source: articlesbase.com



Understanding tax relief, with regards to pensions, may seem like a daunting task, but it is actually fairly simple to grasp. The first thing to understand is that, depending on the type of pension you have opted for (e.g. personal or occupational), the process of tax relief will be different. ÂWhen you are paying pension contributions towards a company pension then your employer will deduct the contributions from your Net Relevant Earnings, before any income tax has been deducted, although the Health Levy is not affected. This means that once the contributions have been invested into the pension fund, no tax has been pre-deducted, so whatever tax bracket you happen to fall into with your particular salary, you will still benefit from the full amount of tax relief. If you are paying pension contributions towards a personal pension plan then your contributions will already have been subject to tax, income tax bracket, as you are not paying out from your Net Relevant Earnings, but from your Gross Pay. In this case you are entitled to claim tax back for your contributions from the revenue services. For Irish pensions, the amount of tax relief that you are entitled to claim back is dependent on your age and the amount of the contributions; tax relief is expressed as a percentage of your Net Relevant Earnings. For younger contributors, up to the age of 30, the maximum percentage of tax relief is 15%, rising to a total 40% tax relief for individuals aged over 60 (you can find a tax relief table elsewhere on the website to establish what percentage you will be paying, based on your age). The government has set limits on the amount of tax relief an individual is entitled to, in relation to their Net Relevant Income, and for 2009 that figure is set at €150,000. Income beyond that threshold will not benefit from tax relief.  Once your pension policy is running, any growth in fund will not be subjected to any further taxation. And, once your pension begins to pay out, there will be no tax deductions taken, and you will be eligible to receive a tax-free lump-sum if 25% of the total worth of your pension.

Rochelle Martinez, Freelance Web Content Article Writer for three years. Some of her articles are about http://www.quinn-life.com

Unemployed? Top 5 Tax Traps!

Author: Cindy Morus

Source: ezinearticles.com



If you're unemployed, you've got a lot of company out there. AND, there are some tax traps that could make your financial situation a lot worse. Avoid these common tax problems now!

Tax Trap #1: Unemployment Income isn't taxable. Sorry, the tax man does wants a cut of the action even when you're unemployed. The easiest way to handle the taxes is to have them withheld just like a paycheck.
Tax Trap #2: Killing Your Golden Goose When You Raid Retirement Accounts. The last accounts you want to tap are your retirement accounts for several reasons. Since the amount you take out is taxable, the IRS requires that 20% be withheld to cover the taxes.So, if you request $10,000, you're only going to get $8,000. Since the $10,000 would be added to any other income you have for the year, you may be pushed into the next tax bracket and the $2,000 may not even be enough. PLUS, there will be 10% penalty that can't be reduced by any other credits.Your state will tax the income and may also charge penalties for withdrawing early.
Tax Trap #3: IRAs can cover certain expenses such as re-training expenses paid directly to a qualified educational institution, health insurance premiums or even early retirement, BUT, you have to handle the withdrawals exactly right or you'll be socked with taxes. Check with your tax preparer and/or financial advisor.
Tax Trap #4: Debt Settlements are taxable unless you fall into certain categories. So, if you have a $10,000 balance and the creditor takes $5,000 and call it paid off, you'll receive a 1099-C for the amount of debt that was canceled. Be sure to take this document to your tax preparer. There are some special rules for debt that is canceled through foreclosure. Debt discharged through bankruptcy are not taxable.
Tax Trap #5: 401(k), income tax bracket, Loans are taxable if you leave your job (for any reason). If you borrow from your 401(k) and are laid off or leave for any reason including disability, your loan becomes due immediately. If you are unable to pay it back, it will be considered a distribution and you will be taxed on it and pay the 10% penalty. However, you would have received the entire amount requested with no taxes withheld like the above example. Therefore, you will have to come up with all the taxes and the penalty on your own. It may take a couple of years for them to actually catch up to you and the IRS will add taxes and penalties in the meantime.

Before you start taking money out of accounts, meet with your tax preparer and do some tax planning to make sure you don't cost yourself money in taxes, fees or penalties.

Money Mender, Cindy Morus, is a leading authority on showing you how to achieve and enjoy financial well-being and peace of mind. Cindy is also a licensed tax preparer. Get a copy of her latest report at http://www.MendYourMoney.com

"Working with Cindy changed my life. I experienced financial and emotional healing. I cannot thank her enough." Janet D. (Widowed, Single Mom, Age 50, Teacher, Hood River, Oregon).

Cindy also provides one-on-one coaching by telephone and email to clients throughout the United States and Canada. She's helped thousands of people and she can help you, too.

Cindy doesn't sell any investments or insurance or offer legal advice. The education she provides is targeted to your situation.

The Mystery of Alternative Minimum Tax (AMT)

Author: Elizabeth Potts Weinstein

Source: download



Do you think that Alternative Minimum Tax (AMT) is only for Incentive Stock Options (ISO) and the wealthy?


You may be subject to the Alternative Minimum Tax (AMT) in 2006, even if you have the same income and deductions as 2005. The current AMT tax rules sunset and return to pre-reform levels, meaning that millions of people will suddenly be subject to AMT next year.


The Alternative Minimum Tax (AMT) is a separate tax system, with its own rates and deduction rules, that sits side-by-side with the main income tax system. Taxpayers must figure their taxes both ways, and pay under whichever system results in the most taxes. AMT has a lower tax rate ( 26-28%), but allows less deductions. AMT was originally passed to keep the rich from avoiding taxes through creative (but legal) accounting however, because AMT rules were not indexed for inflation, every year more and more ordinary taxpayers are becoming subject to AMT.


Will This Affect Me? The Congressional Budget Office estimates that 16.7% of taxpayers with Adjusted Gross Incomes of $100,000 to $200,000 will pay AMT in tax year 2005. For the 2006 tax year, this percentages jumps to 81.1%. In other words, if you earn over $100,000 per year, you most likely will be subject to AMT in 2006, unless Congress changes the law.


What Can I Do to Avoid AMT in 2006? You may not be able to avoid AMT, but you can minimize its affects by taking any deductions in 2005 that would be wasted under the AMT system, in tax year 2006.


The most common deductions affected by AMT:

no standard deduction no exemptions (e.g., children) no state, local, or property tax deduction no miscellaneous itemized deductions (e.g., tax preparer fees) no mortgage interest deduction if funds are not used to purchase, build, or improve home (e.g., to pay off credit cards, or purchase a car) medical expense deduction floor raised to 10% AGI (instead of 7.5%) Incentive Stock Option (ISO) taxed if exercised, even if not sold

Tips for end-of-year 2005, to avoid wasting deductions in 2006:

prepay real estate taxes prepay miscellaneous itemize deduction items prepay state/local taxes (see tax preparer) by paying 4th quarter estimates in 2005, or using prepay voucher (if W-2 employee) prepay medical expenses use HELOC for home improvements, instead of other purchases defer income away from 2006 by fully funding retirement plans, IRAs, deferred compensation plans, and health savings accounts


* * please contact your tax preparer before making any tax planning decisions

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this newsletter was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.


Here are some other year-end tips you may find useful:

Review, archive and purge financial files Consider selling stock in December, to spread gains over two years (if planning to sell, income tax bracket, in 2006) Consider harvesting losses on investments, to offset gains (up to $3000/year against regular income) Max out retirement plan contributions (perhaps with supplemental contributions) Contribute to 529 Plan (may pre-pay 5 years of contributions) Contribute to IRA (up until tax deadline) Use funds from Flexible Spending Accounts for medical or child care expenses (may have to March 15th, if employer adopted new rules) Give gifts to others, up to $11,000 per year, per person (no gift tax return required) Give gifts to charities & maintain receipts or logs, such as through Intuit's Its Deductible program Create charity giving plan and/or mission statement for 2006 Review expenditures for 2005 and plan spending for 2006, including funding for infrequent expenditures (car repair, vacation, gifts) Review savings and investment contributions in 2005 and plan for 2006 contributions
Elizabeth Potts Weinstein, JD, a licensed attorney and Registered Investment Advisor, is the founder of Potts Weinstein Financial Consulting, a financial and estate planning firm, headquartered in San Jose, California. The firm specializes in providing fee-only, hourly financial planning, estate planning, and investment advice for people from all walks of life and income brackets. For more information about Potts Weinstein Financial Consulting, or to subscribe to our monthly eZine 'Prosper!', please visit http://www.pottsweinstein.com.

It's Never too Early to Start Investing!

Author: Scott Pearson

Source: articleage.com



Remember the old saying, "never too late to start"? Well, try this on for size: when it comes to investing, it's never too early to start. Time really is of the essence here. Those of us who find ourselves between the ages of twenty and forty should make investing for retirement a key priority on our list of things to do.
Your average, middle-aged, two-income American family lives paycheck-to-paycheck. And, life expectancies are increasing. So how do you expect to be prepared for a retirement that could potentially span twenty, maybe thirty years? How do you keep your welfare in mind as well as the welfare of your family, especially that of your children, when choosing your investment(s)?
Ladies and Gentlemen, may we present the Roth IRA account.
Sure, it's easy to think: that's nice, but the economy is in the pits. I have a hard time dealing with the present as it is. And now you want me to think of investing for retirement or for my kids?
Fair enough. But let's get out of Personal Budget-Crisis mode for a moment and consider: just $2000 invested in a Roth IRA for a child when s/he is born is worth about 2 to 3 million dollars when that child reaches the age of 65! And you don't have to add another cent to the principal amount! Astounding, you say, how is that possible? That, my dear Watson, is the beauty of compound interest at work. Roth IRA's are a perfect investment tool for this situation.
Imagine the results if funds are added over the same number of years. Depending on your income, age, and tax bracket, the Roth IRA now allows an initial investment of $4000, and additional investments of up to $4000 annually. And, profits can be taken absolutely tax-free when you're 59 ฝ years young! The potential for returns blows away the idea of simply holding money in a savings account or a traditional bank Certificate of Deposit (CD).
At the risk of sounding like a bad infomercial, DON'T WAIT…INVEST NOW! But before you tune us out, we understand that you may have concerns like I don't have time or I don't know how.
In fact, all is takes is one 15-minute phone call. Talk to someone at a brokerage firm, or to your financial advisor, to set up a Roth IRA account for yourself and your kids. A good financial advisor will explain your options without the need of a "Investments-to-English" dictionary. Take advantage of this basic service. Surely you can spare 15 minutes, especially if it's to turn $2000 into 2 or 3 million dollars!
Still in college, or recently graduated and fighting off student loans? Believe it or not, it is possible to save a little money and invest for the future. A college professor heard the true story of a janitor who earned about $15,000 a year working at a school for underprivileged children. In the 1970's, income tax bracket, that janitor, who had never graduated high school, donated $1 million to the school. Deeply inspired, the professor followed the janitor's investment example and donated $8 million to a university…on a professor's salary.
Moral of the story: Don't determine what you have by what you earn, but by what you save. Both men understood the power of investing just a small portion of his earnings. The results were remarkable donations on seriously unremarkable incomes.
Everyday, young investors are taking advantage of this great system, and planning for their futures. Think of one good reason why you shouldn't do the same for yourself, and for your family. Go ahead, we dare you.
Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.
For further information about starting a Roth IRA account or another investment for the future, Scott Pearson can be reached directly at Scott@valueview.net or by visiting http://www.valueview.net

The Nickels And Dimes Of Working At Home

Author: bosko40

Source: articledashboard.com



Many people struggle with the decision of whether or not to take the plunge and work from home. They rationalize and agree to give up this, that, or something else when that may or may not be necessary in order to make ends meet. The truth of the matter is that you can afford to make a lot less money working from home than you would need to make in order to maintain a certain lifestyle working outside the home.

There are many expenses that could be drastically reduced if not completely eliminated in order for one parent to work from home but there are other expenses that are involved in working outside the home that are often not even considered when mapping out strategies and listing pros and cons.

The following is a list of expenses that you will either find greatly reduced or non-existent when working from home rather than working outside the home.

1) Child care. For many families, especially families with more than one pre-school child, these expenses can be prohibitive to say the least. Even with only one child in daycare the average fee for one year is somewhere between $7,000 and $9,000 if you multiply this for multiple children you can see that this is a significant monthly expense.

2) Taxes. Here's the kicker and where working from home really pays off. Not only will you (more than likely) find yourself in a lower tax bracket by working at home, but you will also find some nice new deductions for your accountant to play with come tax time. Lowering your tax bracket means that not only will you personally pay less in taxes, but your family as a whole will pay less taxes for the year.

3) Professional Wardrobe. Those professional clothes can pack a pretty big punch on the household budget. While working from home may not completely negate the need for professional clothes it can seriously limit the need.

4) Lunches out. This happens to be a big expense for most workers over the course of a year. While it is always great to bring your own, we will all admit that there are times when we find the effort too much to comprehend first thing in the morning and opt for dining out. The other problem is that we often find ourselves working late and grabbing take-out on the way home. While there will still be times when we need to get out and about or simply do not feel like cooking, there will be less of these moments when you work from home than when you work, income tax bracket, outside the home.

5) Coffee breaks. These add up over time, particularly if your coffee break involves strolling over to Starbucks. Even if it's just the office snack room where you're spending your quarters you will find that it is much cheaper to keep your own supply of coffee (even flavored coffee) and snacks on hand for your home office.

6) Commuting expenses. This one is a little more difficult to define as it isn't simply related to gas. Insurance costs less if you put less miles on your car, you will need routine maintenance less often if you are putting fewer miles on your car, and you will go through things such as tires and oil changes less often. These little things can have a huge impact on your yearly budget.

7) Dry cleaning. Many of those items required for a professional wardrobe also require dry cleaning. Eliminating this expense can be a real eye opener.

8) Parking. If you work in many cities, you either have to pay parking or your company includes that as a 'perk'. Regardless of whether it's coming out of your check before you see it or after, you can bet you are paying (somewhere along the line) for parking. Over the course of a year this can really add up.

While this list is by no means comprehensive and the actual fees will be different for everyone involved, when you compare your current income and subtract these expenses, you might be surprised to find out exactly where you stand. There are some expenses that will increase as you work from home but overall you will see some dramatic financial improvements on an even smaller salary working from home than you may realize. Carefully plan and consider whether or not this is right for you. Put pen and paper to it, crunch the numbers and let them lead your decision of whether or not working from home is something you can envision in your future.

Five Ways to Minimize Your Exposure to the IRS

Author: Chintamani Abhyankar

Source: ezinearticles.com



So-called 'tax shelters'

Actually the tax consultants suggest and create tax shelters for the rich so that most of their income is sheltered.And the results are obvious.The latest statistics shows that there are 5610 returns declaring an income of $200,000 but not being a single cent in taxes!

This looks good as the end result, but how is it achieved? Some 'plans' can invite trouble for you. I am providing you five suggestions which can minimize your exposure to IRS.

1. Go for some obvious distribution alternatives

If you're making an income of $100,000 or more in a year, your risk of getting an audit has already increased.So you'll need to check your deductions.Also it is time to consider the benefits of allocation of income.You can allocate income from a family member who is presently in a higher bracket tax to a member who is in a lower bracket.So making investments in the name of a child will transfer the income from those investments to the child.Of course you need to keep in mind the provisions of Kiddie tax rules and the connecting initials so that the tax is kept at the minimum.

If the situation demands, it is better to find your return separately.This can keep you away from the threshold of $100,000.

2. Try to keep money within the country

IRS always looks suspiciously at offshore users.So if you open an account in a tax haven country to, income tax bracket, hide some unreported income and attach to it with a foreign bank, then obviously you are inviting IRS for a tax audit.IRS is trying hard to identify these people who are using those offshore cards to evade their taxes.So get your house in order.

3. Be cautious about secret vehicles to insulate your taxes

If some consultant suggests you a secret structure which will reduce your income, then please keep away from him.Such plans are rejected in the courts very often.In addition you may be slapped with a penalty of $25,000!The courts cannot allow you to waste their limited and valuable time.

4. Keep away from family trust schemes

They are based on a presumption like if you put your assets in a business trust then they are business assets and you can make business deductions on investment deductions are out of them!All these claims are just half truths and full of lies.

5. Don't play with business expenses

Try to be away from schemes which advise you to convert your personal expenses into business expenses for deductions from your income just by calling them business expenses!If you are in business, then you'll need to have a profit motive which can legally allow you to legally do so.So you have to be in business in real terms.

The logic of IRS is very clear - if it identifies $100 from a person who is in 35 per cent tax bracket range, it produces $35.00.However identifying the same amount from a taxpayer in 10 per cent bracket will produce only $10.So if your income is above $100,000 then run away from so-called 'loopholes'

Chintamani Abhyankar is internet marketer, tax professional and freelance writer. He has done a lot of research on tax systems and is advising people internationally on various aspects of tax planning over last 25 years.

His masterpiece, Stop donating your money to IRS is an e-book on the tax secrets which only lucky people knew in the past. His easy to implement strategies can put thousands of dollars in your pocket. Grab a copy now!

Guide to Life Insurance

Author: John Mussi

Source: articleage.com



Here is a useful guide to life insurance. Simply put, a life insurance policy provides a lump sum payment upon death of the policy holder.
In exchange for regular premiums, a life insurance company will insure your life so that when you die, the policy should pay out to protect your dependants from the extra pain of financial hardship.
This is particularly important when buying a house, or when you or your family takes on a large, long-term financial commitment. In the event of death, for example, the payment from a life insurance policy can be used to pay off a mortgage.
Policies can be arranged on either a single or joint life basis. Depending on the type of policy you choose, your insurer will pay either a lump sum or a regular income which you could use towards meeting any outstanding debts and trying to ensure your family is able to maintain its standard of living.
How much they receive depends upon the 'guaranteed sum assured', the amount for which your life is insured.
Many people first come across life insurance when they take out a mortgage, as lenders often insist on it to make sure the loan is repaid if you should die still owing them money.
However in some circumstances, only having enough life insurance to repay the mortgage is insufficient to fully protect dependants. If you have a partner who would suffer financially if you were to die or if you have young children who depend on you, then life insurance is very important.
Life insurance can be used in many ways, not just to protect a young family or repay a mortgage. It can be used to pay Inheritance Tax or protect business against the loss of a key individual.
You can increase or decrease your cover at any time, add another life onto the policy and add other elements to the plan such as critical illness cover, income protection or mortgage protection.
If your circumstances change you can increase your cover to make sure your family is protected.
Life insurance creates an estate for your heirs. After your debts and expenses are paid, there may not be much left over for your family but life insurance can automatically provide assets for them after your death.
There are several kinds of policies that may be available to you, if you are healthy, income tax bracket, enough.
Smoking is detrimental to health and is a leading cause of life threatening illnesses. As a result smokers pay higher premiums than non-smokers as the risk of them dying early is greater. I f you smoke and do not declare the fact, you run the risk of invalidating your policy if you have to make a claim.
It is a known fact that women tend to live longer than men. A female who insures herself using a 'level-term' policy is likely to have lower premiums than a male. This is based on the fact that females live longer and are less likely to claim during the period insured.
Age is a factor in the successful application for a life policy. Most insurers have an age bracket of seventy-five for the provision of insurance. If you are over the age of seventy-five it is unlikely you will be able to find cover.
Finally, the older you are the greater the risk to the insurance provider so the higher your premium will be.
You may freely reprint this article provided the author's biography remains intact:

Retirement Calculator

Author: Milos Pesic

Source: download



How financially secured are you for your retirement? To help you find out what it takes to work towards a secure retirement or create your retirement plan, you can make use of retirement calculators. The retirement calculators, which are available as added feature to the many websites covering up retirement issues, are free of charge.
Planning carefully your retirement finances the earliest possible time, could mean better days ahead. Although many of our younger workers of today don't give so much thought about retirement planning, sooner or later they will come to realize the importance of a secure retirement. And for those who already knew and wanted to prepare for it, retirement calculators can be an additional help to planning investing strategy in order that you will have enough to see you through retirement years. This is why retirement calculators are sometimes called retirement planner.
After you have made your calculations that show you're on the right track does not mean that's it! - You're secure. No, not yet. It is advisable to update your calculations every three to five years since the results from your previous assumptions are likely to change every few years. Just remember that you shouldn't rely your retirement planning on retirement calculators alone. Everything computed isn't fixed. Are you ready to secure your golden days? Do your computation now. It's very easy to find these retirement calculators and it's just a mouse-click away. Just look it up on the internet and voila, you're ready to go.
Using these retirement calculators is not very difficult. Most of the websites with this feature often have instructions how to work on them. Note that not all calculators have the same input requirements, so follow the instructions carefully. These are the basic information required to make your calculation:
Current Savings - The total savings you have set aside for your retirement.
Annual Retirement Income - The amount you need to live on once you retire (after taxes). This amount should cover all living expenses for a year and should not be less than 70 % of your current income if you want to maintain your current standard of living.
Annual Yield - It is your expected rate of return. For stocks or mutual funds, consult a prospectus.
Other Income - The amount you'll enter here can include Social Security, employer-funded pension plans, or other external source of income.
Inflation Rate - This is the average expected annual inflation rate over the period encompassing your remaining working years and retirement years.
Current Age
Current Tax Rate - Enter your current federal tax bracket.
Retirement Age -Know the official retirement age. For those who were born in 1960 or later, 67is the official retirement age.
Retirement Tax Rate - The tax bracket you expect to be in, once you retire.
Withdraw Until Age - The number of years you need your retirement income.
Inflate Contributions - Do you like to increase your investment amounts to account for inflation over the length of the investment period? Clicking on Yes will increment the investment each year by the exact amount of inflation. Selecting No will make each investment an equal amount.
Are Annual Contributions Tax Sheltered - Yes, if your investments are in a tax deferred account such as a 401(k) plan, income tax bracket, or a retirement IRA. No, if your investments are subject to federal income tax each year.
Milos Pesic is a successful webmaster and owner of popular and comprehensive Retirement information site. For more articles and resources on Retirement related topics, Retirement Plans, Retirement Communities, Individual Retirement Accounts and more visit his site at:
=>http://retirement.need-to-know.com

Retirement Planning & 401 K Investing: Secrets to Keeping the IRS Out of Your 401K

Author: Paul Hooper

Source: download



At some point in the future, you will no longer be working where you are. Whether it's because you retire, get laid off or change employers, it's your responsibility to be prepared. It's a necessity -- your retirement depends on it.
That's because when it comes to your pension funds, you have several options open to you when you leave your job. And if you don't know what those options are, and choose the wrong one, you will have the IRS smack dab in the middle of your IRA. This means your chances of having the opportunity for long-term tax deferred wealth building become very slim.
Option 1: Taking a lump-sum distribution (cash out)
Off the top, you will lose 20% of your accumulated money because your employer is required to withhold this amount for federal taxes. Cashing out your retirement plan is counted as receiving ordinary income, and depending on your tax bracket (ordinary rates now reach 35%) you may end up owing even more than that 20%, and that doesn't include the state taxes that may apply as well.
Furthermore, if you are younger than 59ฝ (age 55 in some limited cases) you will be penalized for an additional 10% off the top. So, our old pal Uncle Sam just slashed your retirement savings you have accumulated for your Golden Years by a third or more!
Avoid this entirely. (In fact, it's difficult to even think of it as an "option.")
For example, Dan, age 50, left his job. He had $100,000 in his employer's 401(k) plan. Dan decided to take the money from the plan and open a self-directed IRA account. As a result Dan's former employer sent him a distribution check for $80,000 -- Dan's $100,000 account balance, less 20% withholding. To avoid all income taxes and penalties, Dan must not only deposit the $80,000 check within 60 days of the distribution, he also must deposit $20,000 (the amount withheld by his employer) by that same date. The $20,000 must come from sources outside of the distribution. If Dan does not have $20,000 from other sources, that amount will be treated as a distribution and will be subject to income taxes and penalties.
Sure, Dan will get this $20,000 back in the form of taxes withheld when he files his tax return, but that could take a number of months. Why go through this hassle when using the correct transfer method will avoid the 20% withholding and will not make you scramble to find funds to cover the withholding amount?
Build Your Wealth and Retire Financially Secure With Your 3 Other Options
Your other options include (1) leaving your money with your former employer's plan; (2) rolling it over to your new employer; or (3) rolling it over to an IRA.
Each of these options will help keep the IRS out of your IRA, if you choose wisely and follow all the rules, which can be complex. However, there's more to consider than merely the tax implications. What about growth? Safety? The next Enron?
Retire Financially Sound or Retire With Debt - It's Your Responsibility To Make The Right Choice
So, in conclusion, taking a lump-sum distribution (cash out) from your 401K means that all the money you withdraw will be subject to income tax at ordinary income rates that now reach 35%. And don't forget that additional penalty of 10 percent on top of the ordinary income tax if you leave your job before age 55. This will leave you with no tax deferred wealth building for you and your family, which means there is a good chance you will not retire financially secure. Is that what you want for you and your family?
Avoiding all the pitfalls and dangers can be accomplished by choosing the right kind of rollover for your IRA, based on your specific, individual and unique situation.
Remember, this is your retirement nest egg. The better you can protect it and invest it, the farther along the road to a glorious retirement you will find yourself.
Paul Hooper, President of Marketracker Capital Management, Inc. can help you keep the IRS out of your IRA. Learn how to make smarter choices with your money by emailing paul@marketrackeronline.com to receive a FREE SPECIAL REPORT full of ideas and tips on how to keep the IRS out of your IRA and roll it over, income tax bracket, in a way that will lead you to a life of prosperity. Be sure to include SPECIAL REPORT in the subject line to ensure a safe delivery.

Uncle Sam's Snake Oild

Author: James Burns

Source: download



Uncle Sam and his band of merry-men, better known as Congress, have been pushing snake oil on the unsuspecting public in the form of retirement plans. But wait, isn't a pension plan one of the perks we look to when shopping for an employer? Well, not all pension planning is created equal and in most cases, quite disastrous.
Distributions from all qualified plans must begin no later than April 1st of the calendar year following the year that the participant attains age 70 1/2, or the calendar year in which the employee retires. Special rules apply if the distribution is made to a 5 percent owner of the business. The purpose of minimum distribution rules for retirement plans is to force the owner or participant of the pension plan to withdraw money from the plans, thus triggering an income tax on these monies. On April 16, 2002, the Internal Revenue Service issued final regulations as to these distributions.
Generally, the idea pursuant to the regulations is to have the owner or participant of the pension plan begin taking the money out of the pension plan beginning at the later of when he finishes working or age 70.5. One purpose of this is to insure that these monies will be subject to income tax prior to the death of the owner.
Based on the current system the government has created with pension plans, the average retired couple will pay eight to twelve times more in taxes on their IRAs and 401(k)s during their retirement years than they saved during their contribution and accumulation years. Generally, it is understood that you put money into your pension plan and tax is deferred and this is a great thing. Unfortunately, you may well be in a higher tax bracket if your pension accumulation is done right.
In addition to a higher tax bracket upon reaching retirement, many people find themselves with a free and clear home; they no longer have mortgage interest deductions to offset income tax. Many Americans find they are now paying back everything they saved in taxes during their accumulation and contributions years within the first two years of distributions. Therefore, there is an insidious income tax awaiting most people and if they didn't plan their estates, double taxation in the form of both income and estate tax.
Many postpone the transfer of their qualified funds until age 59 ฝ in order to avoid the 10% tax penalty. Sometimes by delaying the payment of taxes, retirees will find themselves in a higher tax bracket after age 59 ฝ because Congress could raise tax rates because of a political change. Inevitably, one must pay the piper now or later.
What is the answer? Simple, investment grade life insurance. This type of life insurance is not the same as the one you get countless letters about in the mail. This is life insurance that is focused on building up a triple compound because it is tax deferred. The difference between the deferral that life insurance experiences and pension plans is that when it comes time for payout, life insurance is received as a loan. This is a powerful concept because the proceeds will not be taxed; loans are not a form of taxable income. However, as a loan you will have interest on the payments. Most people mistakenly think they are going to pay interest on their own money with life insurance. While in theory that is true, the best insurance carriers provide for zero wash loans where the interest, income tax bracket, basically is forgiven or taken out of the death benefit when a person passes on. We are talking about real life insurance not the typical death insurance that most people have because you use it while you're alive.
The best candidates for creating amazing wealth with investment grade life insurance are those in the age rages of thirty to fifty. Once committed and in the proper product it is foreseeable they will retire wealthy and without the annoying taxation that surrounds a pension plan. There are even strategies to start a contribution plan to your investment that only requires repositioning your current finances. To see a presentation on ways to finance your retirement go to www.abundantmoney.com.
If you are over fifty, I'm sorry we missed you. If you have children don't let another day go by without them starting a plan because 79 million people are heading for the social security hand out in the next few years. Despite Social Security getting a 2.7 percent boost next year (2005), Medicare will eat up much of the increase and when the 79 million qualifying Americans sign-up - look out below.
James Burns, Esq.
Law Office of James Burns
18662 MacArthur Blvd., 2nd Floor
Irvine, CA. 92656
Jambur64@cox.net
(949) 440-3243
James Burns is an attorney with 2 law degrees one in tax and has trademarked financial concepts to assist individuals in creating wealth, protecting it and eventually transferring it to loved ones.

Mortgage Options For Self-employed Buyers

Author: Bob Benson

Source: articledashboard.com



Self-employed homebuyers generally have more difficulty getting a mortgage, because of the way their income is reported and because they are often perceived as not having the job security of others - if they get sick, for example, their whole operation may be down for the duration. Even self-employed real estate agents and mortgage loan officers encounter this roadblock en route to mortgages. But there are a number of options available to those who are self employed and trying to secure financing to buy a home.

If you have good credit and enough money to pay a significant down payment, you can use so-called low-document and no-document loans, two of the most popular options for self employed borrowers.

"Low-doc" loans require a larger than normal down payment,, income tax bracket, but in exchange; you don't have to verify your income by showing tax returns and other financial paperwork. Usually a credit check and one or two bank statements is sufficient documentation. The process is streamlined, simple, and advantageous for those whose income may look smaller on paper than it actually is.

The closely related "no doc" loans require no documentation of income at all. These are one of the easiest loans of all to process, so if you qualify for one of these, your mortgage application will not take very long at all.

The downside is that both of these loans require larger down payments - usually 20 percent or more - and they carry slightly higher interest rates. But for those who don't mind paying a little extra for the convenience of qualifying, both mortgages represent excellent choices.

Many do-it-yourself home sellers will also offer to arrange their own owner financing for those who are self-employed. They know that this gives them an edge in a competitive market, and they often understand that self-employed people constitute one of the highest income brackets, and are usually dependable borrowers. Even if you aren't dealing with "for sale by owners" directly, you can request your Realtor to show you houses that offer seller financing, in order to discover more mortgage options as you house hunt.

In addition to owner financed purchases, self-employed people can look for funds from professional private lenders. Many private investors sell mortgages for a living, and they offer competitive and unique kinds of loans, in order to gain their share of a niche market that is not normally served by the traditional banking community. If you are self-employed, chances are you can borrow money to buy a house by going to a private lender in your area. You will probably pay a higher interest rate, but that is going to be the case with almost any special loan made to assist those who are their own bosses. Once you own a home and have equity in your property, you will probably qualify to refinance into a conventional type of mortgage, so that is a good plan for the future for those whose choices may be limited in the beginning because of self-employment status.

More Blessed - And Profitable - To Give...

Author: Marc J. Lane

Source: free-articles



take advantage of all the gift-tax break that are available, accumulate acreage taxes as low as they can be, and absorb as abundant abundance in the ancestors as possible

It's able-bodied accepted that, if an earlier ancestors affiliate gives his or her assets to a adolescent ancestors member, the ancestors can save alteration taxes. After all, the aforementioned tax bulk agenda applies to lifetime ability and transfers at death. So, why not yield advantage of all the gift-tax break that are available, accumulate acreage taxes as low as they can be, and absorb as abundant abundance in the ancestors as possible?


There are abounding means to save allowance taxes, and, income tax bracket, they are all admirable of your attention. Anybody can accord his or her apron any bulk of acreage during one's lifetime or at death, after incurring a allowance or acreage tax. One can aswell accord up to $10,000 anniversary year to any amount of recipients and pay their medical and educational expenses, too - altogether chargeless of any allowance tax. And the unified acclaim shelters up to $675,000 in allowance or acreage transfers this year, as abundant as $1 actor by 2006.


Then there are the adherent strategies. These cover tax-free, generation-skipping transfers of up to $1,030,000, and tax-favored accommodating gifts, attention easements, able claimed abode trusts and retained-interest trusts.


Donors and their families may account from all these techniques but, to accomplish the a lot of of them, the appropriate assets charge to be gifted, and this is area planning generally break down. So, with our compliments, here's a abbreviate laundry account of some assets which should be advised for tax-efficient lifetime gifting:


(1) Assets that are growing in amount such as absolute acreage and stock. The abstraction is to "leverage" the allowance by finer appointment its approaching appreciation, too - and extracting both from the donor's closing taxable estate.


(2) Assets that are traveling to be transferred, anyway. Back the donor intends the almsman to accept them at some point, appointment them eventually (before they abound in value) rather than after may activate beneath allowance tax or eat up beneath tax credit. And, back such assets aren't accepted to be captivated by the donor if he dies, they wonรญt be acceptable for a "step-up" in assets tax base - so annihilation will be absent by accelerating the alms timetable.


(3) Assets the ancestors will apparently never wish to advertise such as heirlooms or possibly business absolute estate. We don't anguish about addition here, either - or any income-tax planning, for that amount - so these assets become acceptable candidates for gifting.


(4) Assets whose income-tax attributes beg for gifting. Suppose, for example, that an asset generates cogent taxable assets the donor artlessly doesn't need, and that his advised almsman is in a almost low tax bracket. Appointment the asset will about-face and apartment taxable assets and compress the donorรญs ultimate taxable estate.


Of course, any alms accommodation needs to be fabricated in the all-embracing ambience of the taxpayer's banking plan. And never should tax motives abandoned drive a accommodation to accord abundance away.

How To Avoid Those Mind-Boggling Depreciation Rules

Author: Wayne Davies

Source: articleage.com



Tired of dealing with those complex depreciation rules? Thanks to recent tax law changes, here's how to avoid them completely while benefiting from a lucrative small business tax break that not only puts money in your pocket, but also makes the filing of your income tax return much simpler.
What am I talking about? It's called the Section 179 deduction, and if there's one tax law you need to understand, this is it. Here's why:
The Section 179 deduction enables the Small Business Owner to "expense" (i.e. deduct in the current year) up to $105,000 of the cost of most business equipment, rather than use those stingy depreciation, income tax bracket, rules that require you to write-off the cost over five or more years.
What's so great about that?
Think about it like this: I've got a dollar and I'd like to give it to you. You have two choices -- I give it to you now, or I give it to you 5 years from now.
Which do you prefer?
Obviously, you'd rather have it now, right?
And why is that?
Because of what you learned way back in Finance 101: something your banker calls "the time value of money."
I'll spare you a boring textbook definition. Instead, let's just assume we agree on this simple point: Is a dollar worth more today or 5 years from today?
It's worth more today.
And that's why the Section 179 deduction is so valuable.
Huh?
Let's use an example to bring all this financial theory into reality.
You buy $5,000 worth of office equipment in 2005. Under normal depreciation rules, you wouldn't get to take a deduction for $5,000 in 2005. Instead, you'd write off the $5,000 over 6 years -- part in 2005, part in 2006, etc.
If you're in the 35% tax bracket, you get your $1,750 in tax savings over 6 years. Yawn. That's a long time!
You'd get your deduction, and the resulting tax savings, but you'd have to wait 6 years to realize all the benefits.
Section 179 says that if you meet certain requirements, you can deduct the full $5,000 in 2005. You reduce your taxes by $1,750 in Year 2005.
So let me repeat my rhetorical question: Uncle Sam has $1,750 he'd like to give you. When do you want it? All at once, or spread out over 6 years?
That's the beauty of Section 179.
But you have to meet certain requirements to benefit from Section 179. One requirement concerns the total amount of equipment you can deduct rather than depreciate. In 2002, the amount was $24,000. And for 2003, the amount was originally set at $25,000.
Then Congress and the President passed a new tax bill in late May 2003 that raised that amount to a whopping $100,000. And since that $100,000 is adjusted for inflation each year, the maximum Section 179 deduction amounts have been increasing:
Year 2004 -- $102,000
Year 2005 -- $105,000
Year 2006 -- $108,000
Never liked depreciation? Well, you can pretty much kiss it good-bye now.
One final note: A few other requirements must be met to claim the Section 179 deduction. Here's a brief, but not comprehensive, overview:
1. Most personal property used in a trade or business can be deducted via Section 179. Real property cannot. Typical examples of personal property include: office equipment such as computers, monitors, printers and scanners; office furniture; machinery and tools. Real property means buildings and their improvements.
2. The $100,000 amount (adjusted for inflation) can be used through 2007. In 2008, unless new legislation is passed, the amount goes back down to $25,000.
3. There are special rules regarding the application of Section 179 to the purchase of business vehicles. For example, the special "SUV rule" that allowed 6,000 LB vehicles to be fully deducted (up to the $100,000 amount) was recently changed to $25,000, effective October 22, 2004.
4. Your total Section 179 deduction is limited to the business' annual profit. In other words, you cannot use the Section 179 to create or increase a loss.
This is known as the "taxable income limitation." For "C" Corporations, this limitation is very cut and dried. But if your business is an "S" Corporation, Partnership, LLC, or Sole Proprietorship, it may not be as limiting as it seems. For these non-"C" Corp businesses, the Section 179 deduction can be used to offset both business and non-business income.
And if you're married filing jointly, the Section 179 deduction can offset your spouse's income, including W-2 income.
Example: You start a new business in 2005 that ends up with a loss for the year of $5,000 (before taking the Section 179 deduction). Your spouse has W-2 income of $60,000. Even though your business is unprofitable, you can still take the full Section 179 deduction of $5,000 (again, assuming your business is an entity other than a "C" Corporation).
Be sure to consult with your tax professional to get the scoop on all the Section 179 rules.
Wayne M. Davies is author of 3 tax-slashing eBooks for small business owners and the self-employed. For a free copy of Wayne's 25-page report, "How To Instantly Double Your Deductions" visit http://www.YouSaveOnTaxes.com

When Common Sense Fails - How Will You React If 100% of Your Retirement Plan Distributions Go to Tax

Author: Roger Kruse

Source: ezinearticles.com



It was in 1974 that the IRA was born and we were assured by the government that by putting our money into a retirement plan today, we could reduce our current taxes and pay a lower rate in retirement.Life was simpler then.It was easy to project a lower tax rate because the top tax rates were in excess of 70% and Social Security benefits were not subject to income taxes. Basic common sense told us to put our hard-earned money into tax deferred retirement plans assuming the future tax rate would belower.

This message of tax deferral has never changed.Yet after the Tax Simplification Act of 1986 the top tax brackets were less than one half of the 1974 rate.With the lower tax brackets, 85% of taxpayers fall in the 15% tax bracket or lower. This means that taxpayers contributed significant portions of funds now in retirement plans while they were in or below the 15% tax bracket.What are the odds that their tax rate will be less than 15% in retirement?

Much has changed in the tax code since 1974.A "provisional income test" now determines the portion of what once was tax-free social security benefits that are now subject to income taxes.Because of this test, income sources such as an IRA distribution could increase the taxable portion of social security in addition to the tax due to the IRA distribution by up to 85%.In other words, with no other change to income or deductions, a $10,000 IRA distribution could increase taxable income by $18,500.A retired taxpayer could pay federal taxes on IRA distributions in excess of 27% even when remaining in the 15% bracket; the rate could be even more for taxpayers in the 25% tax bracket.State income taxes only exacerbate the tax rate.To say the least, the provisional income test makes estimating income taxes on IRA distributions quite complicated.

Even though property taxes have skyrocketed along with property values, fewer and fewer taxpayers itemize their deductions.This means that for many taxpayers, income taxes are the same with or without deductions. Taxpayers with IRA distributions have to calculate the taxes due on IRA distributions dedicated to the payment of property taxes.

Consider several middle class couples age 65 living in Minnesota.Each is retired from a job that has provided a pension.Assume each has nearly identical circumstances with combined Social Security benefits and pensions of $30,000 each for total cash flow income of $60,000 and file taxes as married filing jointly.The only difference in their circumstances is the property taxes of the mortgage free homes in which they live of $1,900, $3,800, $5,600 and $7,400.All other itemized deductions are the same and are not enough to exceed the standard deduction for their age and filing status.Without an IRA distribution and after the standard deduction and exemptions, each would pay federal taxes of $1,595 and Minnesota taxes of $827.Each couple is squarely in the middle of the 15% tax bracket.

These couples live comfortably on the pension and Social Security retirement benefit, therefore each has decided to use IRA distributions for the sole purpose of paying property taxes.The income tax consequence of the distribution needs to be determined and paid.Since each of the taxpayers is in the 15% tax bracket, a simple calculation of the distribution divided by 0.85 should be all it takes to yield thegross distribution required.Yet because of the provisional income test and the lack of itemized deductions,this calculation is anything but simple.

Wehave determined the percentage of federal tax on the distribution is 21.5%, 24.6%, 25.7%, and 26.2% respectively even though none exceeded the 15% bracket even after the distribution.Minnesota has a top tax bracket of 7.85% yet the rate on the distribution is 8.1%, 9%, 9.3% and 9.9% without the proposed increase to state taxes.

Because of the state and federal income taxes, a distribution of $3,000, $6,000, $9,000, and $12,000 respectively are required to net the $1,900, $3,800, $5,600 and $7,400 of property taxes for these couples.The complicated nature of the tax code is itself a crisis, yet a greater problem is that that 100% of these IRA distributions go to the payment of taxes in some form or fashion without any tax relief. Is this the reason for which you saved your money?

Making us pay taxes on income use to pay property tax is ruthless.Taxing social security benefits because of an IRA distribution is coldblooded.The solution to this dilemma will have to come in the form of a congressional act changing the tax code.I can think of $Trillions of reasons that Congress will not act to reduce taxes for retirees.Until the tax code changes, financial planning could provide some answers.

The rules of thumb and strategies we learned while accumulating are not effective or can even be harmful when retirement plan distributions begin.The scenario described above is just one of many potential scenarios regarding IRA distributions.Paying for a mortgage with IRA distributions may increase your taxes.Your charitable gifts may fatten the US Treasury rather than reduce your taxes.Expect to see your medical insurance and expenses and long-term care insurance deductions diminish once distributions are a part of retirement income.

Today's retirees need to find a way to get funds out of an IRA without paying excessive taxes.There is not a one size fits all solution for all taxpayers.A qualified fee-only advisor should review the cash flow, income taxes, assets, liabilities, and other personal circumstances of prospective clients.This is not as easy as it might seem. Most advisors use packaged financial planning products primarily designed to sell products.It took the author an enormous effort to develop a program that will determine both the tax on distributions and to compare the current and future cost or benefit of various strategies.At the risk of sounding self-serving, our clients as well as other advisors tell us they have not found a program that quantifies the value of financial advice in such a clear and concise way.

In my opinion, a qualified financial advisor cannot represent both the client and the insurance or investment companies of whose products they sell with out a conflict of interest.In this respect, an independent broker has a conflict of interest in the same way as a captive broker.The companies they represent pay both captive and independent brokers.A fee only advisor does not sell products or receive commissions or referral fees.If they receive compensation from any source other than the client, they are not a fee only advisor!

Roth IRAs are all the rage today.Many brokers and so-called advisors earn fat commissions by recommending a Roth IRA or Roth IRA conversions as a potential strategy to reduce future taxes.The concept is that government has promised us future tax-free distributions with a Roth IRA, if only we agree to pay our taxes now.It is true that the current tax code offers tax-free growth, income tax bracket, with absolutely no tax consequence for future distributions.Common sense tells us to switch from an IRA to a Roth IRA.After all, a promise is a promise.If you can't trust the federal government, whom can you trust?As for me, I plan to continue to monitor the tax system and to put some of my money in ordinary investment accounts that are not subject to the slippery distribution rules of the IRS.

About the author- Roger C. Kruse, ChFC, CFP(R) is a NAPFA registered FEE ONLY(R) financial advisor and a co-founder of Foundation Financial Planning dba FFP Wealth Management, a registered investment advisory firm with clients in many states. Roger is in his 20th year of investment management and comprehensive financial planning with a focus on the needs of retiring or retired clients. FFP Wealth Management 11375 Robinson Drive Suite 210 Coon Rapids, MN 55433 763-231-2760. Learn more at http://www.ffpwealthmanagement.com (c) 2008-2009 FFP Wealth Management

Universal Life Insurance Rates - Getting Them Low With the Coverage You Need

Author: Elizabeth Newberry

Source: articleage.com



Without a doubt, Universal Activity Allowance is one of the a lot of adjustable and advantageous allowance options available, alms affordability and versatility. This blazon of allowance was decidedly accepted in the aboriginal 1980s if the plan was aboriginal devised based on tax changes, and offered participants the appearance of both a accepted allowance action as able-bodied as a accession plan. Artlessly put, from the payments you make, some of your money is traveling into a accession plan and some into an allowance plan.
One of the aboriginal appearance of the plan was that it accustomed the actor to calmly acclimatize the bulk of money they were putting into both the accession and the allowance allotment of the policy. Another advantage is that the bulk of the premiums can be calmly adapted - or skipped altogether - clashing the added acceptable accomplished activity allowance that usually has anchored transaction amounts. Universal Activity Allowance tends to action a college absorption bulk and the amounts of the premiums are usually lower than added types of allowance plans.
Universal Activity Allowance aswell has assertive tax advantages. The banknote bulk in your, income tax bracket, allowance action can accumulate absorption after the user accepting to pay taxes on it. And if the allowance premiums are paid with after-tax money, the action is paid out assets tax chargeless in the accident of your death. The tax advantages are a huge advantage for those in the college tax bracket of 25% or more.
There are some disadvantages to Universal Activity Insurance. The annual bulk will abatement over time if the accuse to administrate the annual are added than the accumulated absolute of your premiums additional profits. You may accept to lower your allowances or access your premiums artlessly to accumulate the action active. Your banknote accession is burdened heavily if you abjure from the action afore your death. And ultimately, the bulk of banknote bulk accrued will depend abundantly on the achievement of your investments - which is of course, never guaranteed.
View our Recommended Activity Allowance Company, a simple website that has an simple to ample out application. It aswell has a lot of abundant advice about Home Allowance and Affordable Health Insurance

Tax Tips For 2006 & 2007

Author: Hbeitel

Source: articledashboard.com



While 90% of the U.S. population is bemoaning the quickly approaching April 15th tax deadline, I am waiting for my gift from the IRS. I big fat refund. How you ask? I take advantage of the one last tax shelter available to the average person. Before I tell you my best tax tips for 2006, I'd like you to be aware of a couple of things.

First, do you realize that what you pay in taxes each year is your number one expense?! In fact, the average employee works the first five months of the year for Uncle Sam for free. How does that make you feel about going to work January through May?

Second, most people think the way to have more income is to get another job. Adding a second "job" to increase your family's income is in most cases a bad idea. Especially, if it pushes you up into a higher tax, income tax bracket, bracket! You basically sign up for even more taxes, increased car expenses, childcare costs, food and clothing costs. This doesn't take into consideration the physical and emotional stress added to families by having both parents working outside the home. You can't even put a price tag on that expense.

Here is an absolute fact. You will never make true steps toward financial independence until you learn how to get your taxes down to the legal minimum.

So, now I'm back to my top-secret strategy. Drumroll please…Own a home-based business. I am a CPA, and I am here to tell you that if you do not have a home-based business you absolutely need to start one today! I can not overemphasize the importance. The tax system for the "employee" will keep or make you poor. The tax advantages for small business owners are designed to spur economic growth. It can be your ticket to begin creating wealth.

Conservative estimates say that you can save a minimum of $2,000-$10,000 a year by having even a part-time home-based business. Let's say that having a small business puts $4,000 a year back into your pocket (on tax savings alone) for 30 years and you invest it each year and earn 8%. You will generate over $500,000 just from owning a home-based business. That doesn't include any income you generate from the business itself. Invest your $4,000 in tax savings for 35 years, earn 10%, and ladies and gentleman you are a millionaire!

The question is how do I take advantage of this wonderful opportunity the IRS has handed us on a golden platter? My first suggestion is to look for a business that incorporates something you are passionate about. My second suggestion is do your homework. Determine how much money you can invest, how much time you can spend and what kind of skills will be necessary.

This may shock you, but Donald Trump and Robert Kiyosaki in their new book, "Why We Want You To Be Rich," actually recommend network marketing. For the average person the network marketing industry offers benefits that far outweigh the risks. There is usually a very low start-up cost and ongoing overhead expense. You begin to learn how to leverage time and money. This lesson, along with minimizing your tax expense, is arguably the most important to learn if you want to achieve financial independence.
That subject is a whole other article. A good way to explain it, though, is to work smarter not harder.

Finally, a good network marketing company already has all the systems, marketing materials, accounting and training in place. This is invaluable to the first-time business owner who does not want to take on a lot of risk.

Once you are up and running, you now have a whole new world of tax deductions available to you. It is like Christmas every April 15th. With the proper planning and documentation, you can deduct your home office, computer, phone, car, vacations, some meals and entertainment, even your child's college education cost all completely within the legal parameters of the IRS regulations.

What is required of you is some education, documentation and a home-based business of your choice! So, when you sign this year's return and mail in that check that feels like squeezing blood from a turnip, compare your return on that to the $500,000 to $1 million you could grow from home-based business tax advantages.

If you would like a FREE 30-minute consultation with Holly about how you can begin to take advantage of these tax benefits, please visit her website and submit a request. She can also be reached at 918-698-6674.

Home Equity Loan : Loansmagician

Author: Jill Matt

Source: articledashboard.com



Real acreage prices beyond the country accept skyrocketed in the endure 5 or six years. Low absorption rates, accumulated with a abridgement of assurance in the banal bazaar has led to a amazing arrival of basic into absolute estate. To put that in perspective, yield into annual the average domiciliary income, which is a little over 44,000,dollar and analyze that with the civic average home bulk of 216,000 dollar, a actual top multiple. Of course, in abounding city areas ( http://www.ixs.net ) area a ample atom of the nation's citizenry lives, the acceleration has been even added spectacular. San Francisco has apparent the average home bulk acceleration from 395,000 dollar in 2000 to 713,000 dollar in aboriginal 2005

For those who did not get in at the appropriate time, the bearings is lamentable, abounding others, on the added hand, acquisition themselves sitting on abeyant gold mines - in abounding cases they accept witnessed the doubling, trebling or even quadrupling of their investments in a bulk of a few years. Walking and sleeping on acreage that has accepted beneath your eyes is a acceptable experience, and some humans are absolutely blessed to calculation their chickens after absent to cash-in on their gains. Others, for whatever affidavit wish to adore their newfound wealth. Home disinterestedness loans action an befalling to do just that.

The actuality that acreage prices accept risen agency that added Americans than anytime afore are acceptable for home disinterestedness loans. Let me allegorize that by an archetype - say you bought a home for 300,000 dollar 5 years ago, putting down 20% (60,000 dollar) at that time. If you accept a archetypal thirty-year anchored mortgage again you accept not fabricated a cogent cavity in the arch (in this case the accommodation arch is 240,000 dollar) in the aboriginal 5 years. Now suppose, absolutely realistically in abounding cases, that the abode bulk has accepted from 300,000 dollar 5 years ago to 500,000 dollar today. In this case your disinterestedness in the abode would accept jumped from 60,000 dollar (your down payment) to 260,000 dollar (down transaction added abeyant basic gains). You would be acceptable to yield a accommodation adjoin that added equity. Most institutions are accommodating to extend home disinterestedness acclaim for upwards of 50% of absolute disinterestedness in the home.

Now that we accept accustomed that a ascent absolute acreage bazaar has produced abounding added abeyant candidates for home disinterestedness curve of credit, let us appearance why this is a financially adeptness way of accumulation loans or of accepting financing. Whether the affidavit are personal, such as Ferrari you accept been drooling over, or for your home business, home disinterestedness loans are usually the best aboriginal advantage for accepting liquidity. First, home disinterestedness loans yield advantage of tax break that the federal and accompaniment governments accord all homeowners - all absorption payments fabricated to account the accommodation are tax exempt.

This advantage abandoned warrants austere application - a ancestors in the 30% federal assets tax bracket will angle to save a abundant bulk on a archetypal home disinterestedness loan. The implications of the tax advantage are such that abounding humans with no charge for added acclaim yield out home disinterestedness loans and advance abroad just so they can yield advantage of Uncle Sam's acceptable handout. Second, home mortgages are handled a little abnormally from added customer loans because of two reasons. First, the accommodation is "secured" by a actual asset (i.e. the house, absolute of the bulk of the acreage and the actual with which the abode is constructed) and second, there, income tax bracket, is a huge industry that deals alone with home mortgages and home loans, consistent in a angrily aggressive environment. To the consumer, this after-effects in decidedly lower absorption ante on home loans.

So, let us epitomize the win-win bearings for a home disinterestedness band of credit. Ascent absolute acreage prices accept fabricated added humans acceptable for bigger loans, in abounding cases decidedly bigger loans than anytime before. Relatively low absorption rates, acknowledgment to the Fed and a aggressive home mortgage industry has kept the amount of borrowing low. And assuredly federal and accompaniment tax break on home loans added abate the amount of borrowing.
If you are cerebration of borrowing money and you are a homeowner, be abiding to accede a home disinterestedness band of acclaim afore advancing another methods of financing.
For added advice about Home Disinterestedness Accommodation appointment http://www.loansmagician.com/home-loan.php

Flat Tax, It Could Work!

Author: Carl Hampton -

Source: articledashboard.com



With great expectations for the coming year, I have begun thinking about that great annual past time, the dreaded Tax Return!

Like so many other good citizens from this great country of ours, I will leave it to the very last moment to mail off this year's tax return. Last year I promised myself that this year would be different. I would make a conscious effort to get them off before that last minute rush.

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 licence 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).

Our original tax laws were introduced in 1913; they were simple and very easy to understand. We had 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! It's no wonder there's so much confusion. Is there anyone out there who really understands this monster?

Let's put this into some form of perspective:

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 The Holy Bible makes do with less than 800,000 words.

The Office of Management & Budget estimated in 2004, that as a nation we spent over $200 billion on 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, at the state level.

From the moment we wake up in the morning we are being hit by taxes. Everyone wants some of our hard-earned money. Turn on the lights (electricity taxes); run the shower (utility taxes); and my personal favorite, the telephone taxes, all 6 million of them, (that's, income tax bracket, what it seems to me every time I receive a telephone bill). We are so programmed to paying them that we really don't take any notice any more.

Has the time come for a simple Flat Rate Tax, something we (the people) 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 would it 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 applying to all, regardless of the size of income. All of us paying the same rate. Most of the successful countries have levied Flat Rate Taxes of less than 17%, with a starting level that protects the lower income groups.

Could life ever be that simple again? The real question here is, would our leaders really want us to understand what they were up to? And then, there are the lobbyists'. Oh well, the daydream was nice while it lasted.

Benjamin Franklin once said "In this world nothing can be said to be certain, except death and taxes."

Have an opinion or a question you would like me to answer, then write to me!

"Your" Money Matters by Carl Hampton
From the Author of "From Credit Despair To Credit Millionaire."

International Tax Lawyers

Author: Eric Morris

Source: download



Income tax is tax paid by individuals on the amount of salary or profit earned and is applicable if the salary of the individual is above a minimum specified limit prescribed by the income tax department. The income calculated for this purpose is normally the money earned within the limits and borders of the United States. However, income tax does not cover the income generated outside, income tax bracket, the borders of the country. A different kind of tax law is applicable for this kind of income.
The international tax law is applicable for citizens of USA who earn income outside the country. Mostly people working in multinational organizations and those living and having property, assets and businesses abroad qualify in this bracket. International tax lawyers specialize in the field of international tax law and guide their clients regarding the various legal exemptions and credits that they are applicable for. Many citizens risk committing tax frauds inadvertently by being unaware of these intricacies of the tax law. These lawyers can help in such situations and secure their clients from all kinds of financial insecurities related to international tax.
International tax lawyers not only help individuals but also many foreign-based American business firms on issues regarding joint ventures, mergers, leases, expansions and contracts of their companies. They help in the careful structuring of various businesses from a tax saving point of view and often negotiate on tax agreements between the US and other countries. They also deal with a lot of other issues such as foreign estate laws, custom duty, income tax laws and transfer pricing on tax.
Non-resident US citizens are eligible for certain tax exemptions under the rather complicated tax laws in this country. They can avoid paying double tax in the form of income tax and property tax to the authorities in the country of residence as well as to the IRS. International attorneys represent their clients, who have been wrongly charged with tax fraud in the country courts as well as abroad.
It?s essential for people living and earning abroad to engage the services of a qualified international tax lawyer, as this will save them from many legal hassles.
Tax Lawyers provides detailed information on Tax Lawyers, Business Tax Lawy, Income Tax Lawyers, International Tax Lawyers and more. Tax Lawyers is affiliated with Income Tax Attorneys.