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.
Monday, November 30, 2009
Sunday, November 29, 2009
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.
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.
Friday, November 27, 2009
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
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
Thursday, November 26, 2009
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.
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.
Tuesday, November 24, 2009
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.
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
Monday, November 23, 2009
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.
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.
Saturday, November 21, 2009
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.
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.
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