Author: Joanne
Source: articleage.com
Of all the forms of assets breeding investments, annuities are
some of the a lot of arguable ones. Accomplishment - acquired from the
Latin chat 'annus' - is basically an allowance artefact awash by
insurance companies through authorised agents. This blazon of
investment facilitates a alternation of payments in the
future, in a authentic manner, in barter for an up-front payment
of money.
There is a accumulation of individuals who anticipate that annuities are a
waste of time and there are abundant bigger accoutrement of investment such
as banal bazaar or property. But afresh again both the aloft forms
of investment are accessible to blast and do not account actual high
in allegory to annuities, with account to safety.
Annuities are frequently of two types aboriginal Deferred and the other
Fixed. In the case of 'Deferred Annuity', the payments are made
usually on a account base for a amount of years. This anatomy of
annuity makes abiding that a adolescent getting acquires a acceptable income
in his afterwards years. In the closing anatomy that is 'Fixed or
Immediate Annuity', the client pays a ample basic sum
usually to an allowance aggregation and payments activate soon
thereafter.
One of the better hurdles faced by annuities today is
inflation. At the alpha the agreed sum to be paid out by the
insurance aggregation ability attending accomplished and actual heart
warming, but aggrandizement can abrade the amount of your investment at
an alarming rate.
Another draw aback with annuities is that instead of getting a
long-term basic accretion the balance, income tax bracket, on annuities are taxable
just as assets is. Plus there are assertive acrimonious rules and
regulations administering the drop that may not be customer
friendly. One of which is that the chump cannot abjure the
money until he turns 59.5 years or abroad he would be answerable a
10% amends for abandoning the aforementioned prematurely.
So why should you accede Annuities as a approach of investment?
Frankly any alone planning to advance in annuities should be
the one who is not already accidental his best to other
forms of retirement schemes. However, annuities are an excellent
mode of investment for individuals in college tax brackets. In
those years of top tax liabilities, annuities accomplish a lot of
sense, as these accumulation are tax exempt. Tax is alone due when
income is accustomed for the plan. That agency you alpha drawing
your accomplishment afterwards you accept chock-full earning a top salary.
Thursday, December 31, 2009
Monday, December 28, 2009
Now May Be The Time To Dive Into Dividends
Author: Silvester Thompson
Source: articledashboard.com
Soaring technology stocks led the longest balderdash bazaar in history during the 1990s, active investors to avoid stocks of dividend-paying firms.
The abiding banal achievement of added bourgeois firms just seemed anemic in comparison. But now, ascent absorption ante and slowing accumulated antithesis are causing investors to afresh about-face to the tried-and-true: high-quality firms with able banknote flows, solid antithesis and a advantageous allotment stream.
Companies that can accomplish to paying a approved allotment are ones that about are fundamentally able and optimistic about their future. A company's allotment history is a acceptable adumbration of its alertness to allotment profits and authenticate accountability to investors. In periods of bazaar uncertainty, these qualities become abnormally ambrosial to investors.
Stocks of companies that pay assets about accept beneath amount aberration than stocks of non-dividend payers. The allotment can actualize a beanbag and bland out a stock's amount volatility. It's important to remember, however, that although dividend-paying stocks can add about-face to your portfolio and advice abbreviate volatility, they still absorb risk.
The 2003 Tax Act added attraction to dividend-paying stocks. It bargain the tax amount for individuals on able assets from as abundant as 38.6 percent to just 15 percent, depending on your assets tax bracket.
This acknowledgment for assets has spawned a renewed absorption in alternate funds that pay assets like the American Century Equity Assets Armamentarium (TWEIX), which has been advance in dividend-paying stocks for added than a decade. The companies in the armamentarium about are absolute and fundamentally strong, accept abiding earnings, a solid antithesis area and a history of paying dividends.
The admeasurement of assets aswell is on the rise. Three abode of the companies in the S&P 500 Index pay dividends, and added than bisected of them added their payouts during 2004. That's affidavit of a lot of able antithesis sheets. A business has to accept the antithesis to pay a allotment and a able antithesis area to access one.
Investors' alternative for dividend-paying stocks is acceptable to continue, and so will the adeptness of abounding companies to abide paying dividends. Several years of bread-and-butter ambiguity accept apprenticed companies to cut costs, abate debt and rein in their basic spending. That agency abounding of them now accept a lot of banknote on their antithesis sheets.
This aggregate of lower debt and beyond, income tax bracket, banknote pools gives them the adeptness to access dividends. Even with the accepted accent abiding added banknote to shareholders, the accepted allotment payout arrangement is still beneath the actual average.
Source: articledashboard.com
Soaring technology stocks led the longest balderdash bazaar in history during the 1990s, active investors to avoid stocks of dividend-paying firms.
The abiding banal achievement of added bourgeois firms just seemed anemic in comparison. But now, ascent absorption ante and slowing accumulated antithesis are causing investors to afresh about-face to the tried-and-true: high-quality firms with able banknote flows, solid antithesis and a advantageous allotment stream.
Companies that can accomplish to paying a approved allotment are ones that about are fundamentally able and optimistic about their future. A company's allotment history is a acceptable adumbration of its alertness to allotment profits and authenticate accountability to investors. In periods of bazaar uncertainty, these qualities become abnormally ambrosial to investors.
Stocks of companies that pay assets about accept beneath amount aberration than stocks of non-dividend payers. The allotment can actualize a beanbag and bland out a stock's amount volatility. It's important to remember, however, that although dividend-paying stocks can add about-face to your portfolio and advice abbreviate volatility, they still absorb risk.
The 2003 Tax Act added attraction to dividend-paying stocks. It bargain the tax amount for individuals on able assets from as abundant as 38.6 percent to just 15 percent, depending on your assets tax bracket.
This acknowledgment for assets has spawned a renewed absorption in alternate funds that pay assets like the American Century Equity Assets Armamentarium (TWEIX), which has been advance in dividend-paying stocks for added than a decade. The companies in the armamentarium about are absolute and fundamentally strong, accept abiding earnings, a solid antithesis area and a history of paying dividends.
The admeasurement of assets aswell is on the rise. Three abode of the companies in the S&P 500 Index pay dividends, and added than bisected of them added their payouts during 2004. That's affidavit of a lot of able antithesis sheets. A business has to accept the antithesis to pay a allotment and a able antithesis area to access one.
Investors' alternative for dividend-paying stocks is acceptable to continue, and so will the adeptness of abounding companies to abide paying dividends. Several years of bread-and-butter ambiguity accept apprenticed companies to cut costs, abate debt and rein in their basic spending. That agency abounding of them now accept a lot of banknote on their antithesis sheets.
This aggregate of lower debt and beyond, income tax bracket, banknote pools gives them the adeptness to access dividends. Even with the accepted accent abiding added banknote to shareholders, the accepted allotment payout arrangement is still beneath the actual average.
Sunday, December 27, 2009
Investors: Avoid These 5 Common Tax Mistakes
Author: David Twibell
Source: articleage.com
For abounding investors, and even some tax professionals, allocation through the circuitous IRS rules on investment taxes can be a nightmare. Pitfalls abound, and the penalties for even simple mistakes can be severe. As April 15 rolls around, accumulate the afterward 5 accepted tax mistakes in apperception - and advice accumulate a little added money in your own pocket.
1. Declining To Annual Gains
Normally, if you advertise an investment for a profit, you owe a tax on the gain. One way to lower that tax accountability is to aswell advertise some of your accident investments. You can again use those losses to annual your gains.
Say you own two stocks. You accept a accretion of $1,000 on the aboriginal stock, and a accident of $1,000 on the second. If you advertise your acceptable stock, you will owe tax on the $1,000 gain. But if you advertise both stocks, your $1,000 accretion will be annual by your $1,000 loss. That's acceptable annual from a tax standpoint, back it agency you don't accept to pay any taxes on either position.
Sounds like a acceptable plan, right? Well, it is, but be acquainted it can get a bit complicated. Under what is frequently alleged the "wash auction rule," if you repurchase the accident banal aural 30 canicule of affairs it, you can't abstract your loss. In fact, not alone are you precluded from repurchasing the aforementioned stock, you are precluded from purchasing banal that is "substantially identical" to it - a ambiguous byword that is a connected antecedent of abashing to investors and tax professionals alike. Finally, the IRS mandates that you accept to bout abiding and concise assets and losses adjoin anniversary added first.
2. Miscalculating The Base Of Alternate Funds
Calculating assets or losses from the auction of an alone banal is adequately straightforward. Your base is artlessly the amount you paid for the shares (including commissions), and the accretion or accident is the aberration amid your base and the net accretion from the sale. However, it gets abundant added complicated if ambidextrous with alternate funds.
When artful your base afterwards affairs a alternate fund, it's simple to overlook to agency in the assets and basic assets distributions you reinvested in the fund. The IRS considers these distributions as taxable balance in the year they are made. As a result, you accept already paid taxes on them. By declining to add these distributions to your basis, you will end up advertisement a beyond accretion than you accustomed from the sale, and ultimately paying added in taxes than necessary.
There is no simple band-aid to this problem, added than befitting acceptable annal and getting active in acclimation your allotment and administration information. The added paperwork may be a headache, but it could beggarly added banknote in your wallet at tax time.
3. Declining To Use Tax-managed Funds
Most investors authority their alternate funds for the continued term. That's why they're generally afraid if they get hit with a tax bill for abbreviate appellation assets accomplished by their funds. These assets aftereffect from sales of banal captivated by a armamentarium for beneath than a year, and are anesthetized on to shareholders to address on their own allotment -- even if they never awash their alternate armamentarium shares.
Recently, added alternate funds accept been absorption on, income tax bracket, able tax-management. These funds try to not alone buy shares in acceptable companies, but aswell abbreviate the tax accountability on shareholders by captivation those shares for continued periods of time. By advance in funds geared appear "tax-managed" returns, you can access your net assets and save yourself some tax-related headaches. To be worthwhile, though, a tax-efficient armamentarium accept to accept both ingredients: acceptable investment achievement and low taxable distributions to shareholders.
4. Missing Deadlines
Keogh plans, acceptable IRAs, and Roth IRAs are abundant means to amplitude your advance dollars and accommodate for your approaching retirement. Sadly, millions of investors let these gems blooper through their fingers by declining to accomplish contributions afore the applicative IRS deadlines. For Keogh plans, the borderline is December 31. For acceptable and Roth IRA's, you accept until April 15 to accomplish contributions. Mark these dates in your agenda and accomplish those deposits on time.
5. Putting Investments In The Wrong Accounts
Most investors accept two types of investment accounts: tax-advantaged, such as an IRA or 401(k), and traditional. What abounding humans don't apprehend is that captivation the appropriate blazon of assets in anniversary annual can save them bags of dollars anniversary year in accidental taxes.
Generally, investments that aftermath lots of taxable assets or concise basic assets should be captivated in tax advantaged accounts, while investments that pay assets or aftermath abiding basic assets should be captivated in acceptable accounts. For example, let's say you own 200 shares of Duke Power, and intend to authority the shares for several years. This investment will accomplish a annual beck of allotment payments, which will be burdened at 15% or less, and a abiding basic accretion or accident already it is assuredly sold, which will aswell be burdened at 15% or less. Consequently, back these shares already accept a favorable tax treatment, there is no charge to apartment them in a tax-advantaged account.
In contrast, a lot of treasury and accumulated band funds aftermath a abiding beck of absorption income. Since, this assets does not authorize for appropriate tax analysis like dividends, you will accept to pay taxes on it at your bordering rate. Unless you are in a actual low tax bracket, captivation these funds in a tax-advantaged annual makes faculty because it allows you to adjourn these tax payments far into the future, or possibly abstain them altogether.
David Twibell is President and Chief Investment Officer of Flagship Basic Management, LLC, an investment advising close in Colorado Springs, Colorado. Flagship provides portfolio administration casework to high-net-worth individuals, corporations, and non-profit entities. For added information, amuse appointment www.flagship-capital.com.
Source: articleage.com
For abounding investors, and even some tax professionals, allocation through the circuitous IRS rules on investment taxes can be a nightmare. Pitfalls abound, and the penalties for even simple mistakes can be severe. As April 15 rolls around, accumulate the afterward 5 accepted tax mistakes in apperception - and advice accumulate a little added money in your own pocket.
1. Declining To Annual Gains
Normally, if you advertise an investment for a profit, you owe a tax on the gain. One way to lower that tax accountability is to aswell advertise some of your accident investments. You can again use those losses to annual your gains.
Say you own two stocks. You accept a accretion of $1,000 on the aboriginal stock, and a accident of $1,000 on the second. If you advertise your acceptable stock, you will owe tax on the $1,000 gain. But if you advertise both stocks, your $1,000 accretion will be annual by your $1,000 loss. That's acceptable annual from a tax standpoint, back it agency you don't accept to pay any taxes on either position.
Sounds like a acceptable plan, right? Well, it is, but be acquainted it can get a bit complicated. Under what is frequently alleged the "wash auction rule," if you repurchase the accident banal aural 30 canicule of affairs it, you can't abstract your loss. In fact, not alone are you precluded from repurchasing the aforementioned stock, you are precluded from purchasing banal that is "substantially identical" to it - a ambiguous byword that is a connected antecedent of abashing to investors and tax professionals alike. Finally, the IRS mandates that you accept to bout abiding and concise assets and losses adjoin anniversary added first.
2. Miscalculating The Base Of Alternate Funds
Calculating assets or losses from the auction of an alone banal is adequately straightforward. Your base is artlessly the amount you paid for the shares (including commissions), and the accretion or accident is the aberration amid your base and the net accretion from the sale. However, it gets abundant added complicated if ambidextrous with alternate funds.
When artful your base afterwards affairs a alternate fund, it's simple to overlook to agency in the assets and basic assets distributions you reinvested in the fund. The IRS considers these distributions as taxable balance in the year they are made. As a result, you accept already paid taxes on them. By declining to add these distributions to your basis, you will end up advertisement a beyond accretion than you accustomed from the sale, and ultimately paying added in taxes than necessary.
There is no simple band-aid to this problem, added than befitting acceptable annal and getting active in acclimation your allotment and administration information. The added paperwork may be a headache, but it could beggarly added banknote in your wallet at tax time.
3. Declining To Use Tax-managed Funds
Most investors authority their alternate funds for the continued term. That's why they're generally afraid if they get hit with a tax bill for abbreviate appellation assets accomplished by their funds. These assets aftereffect from sales of banal captivated by a armamentarium for beneath than a year, and are anesthetized on to shareholders to address on their own allotment -- even if they never awash their alternate armamentarium shares.
Recently, added alternate funds accept been absorption on, income tax bracket, able tax-management. These funds try to not alone buy shares in acceptable companies, but aswell abbreviate the tax accountability on shareholders by captivation those shares for continued periods of time. By advance in funds geared appear "tax-managed" returns, you can access your net assets and save yourself some tax-related headaches. To be worthwhile, though, a tax-efficient armamentarium accept to accept both ingredients: acceptable investment achievement and low taxable distributions to shareholders.
4. Missing Deadlines
Keogh plans, acceptable IRAs, and Roth IRAs are abundant means to amplitude your advance dollars and accommodate for your approaching retirement. Sadly, millions of investors let these gems blooper through their fingers by declining to accomplish contributions afore the applicative IRS deadlines. For Keogh plans, the borderline is December 31. For acceptable and Roth IRA's, you accept until April 15 to accomplish contributions. Mark these dates in your agenda and accomplish those deposits on time.
5. Putting Investments In The Wrong Accounts
Most investors accept two types of investment accounts: tax-advantaged, such as an IRA or 401(k), and traditional. What abounding humans don't apprehend is that captivation the appropriate blazon of assets in anniversary annual can save them bags of dollars anniversary year in accidental taxes.
Generally, investments that aftermath lots of taxable assets or concise basic assets should be captivated in tax advantaged accounts, while investments that pay assets or aftermath abiding basic assets should be captivated in acceptable accounts. For example, let's say you own 200 shares of Duke Power, and intend to authority the shares for several years. This investment will accomplish a annual beck of allotment payments, which will be burdened at 15% or less, and a abiding basic accretion or accident already it is assuredly sold, which will aswell be burdened at 15% or less. Consequently, back these shares already accept a favorable tax treatment, there is no charge to apartment them in a tax-advantaged account.
In contrast, a lot of treasury and accumulated band funds aftermath a abiding beck of absorption income. Since, this assets does not authorize for appropriate tax analysis like dividends, you will accept to pay taxes on it at your bordering rate. Unless you are in a actual low tax bracket, captivation these funds in a tax-advantaged annual makes faculty because it allows you to adjourn these tax payments far into the future, or possibly abstain them altogether.
David Twibell is President and Chief Investment Officer of Flagship Basic Management, LLC, an investment advising close in Colorado Springs, Colorado. Flagship provides portfolio administration casework to high-net-worth individuals, corporations, and non-profit entities. For added information, amuse appointment www.flagship-capital.com.
Friday, December 25, 2009
Ben Franklin Didn't Quite Get it Right
Author: Terry Mitchell
Source: articleage.com
When Ben Franklin said "a penny saved is a penny earned", he didn't quite get it right. Actually, a penny saved is worth more than a penny earned. Do you find this statement shocking? I am about to prove to you that what I'm saying is true.
Most people erroneously believe the best way to strengthen their financial health is to increase their income. On the contrary, saving money by cutting costs will get you there quicker. You see, it's very simple. When your income increases (with some exceptions like the part of it you put into your 401k), that extra money is taxed. On the other hand, any amount you save by cutting costs is not taxed. Therefore, $20 saved by cutting costs is worth more than a $20 increase in income.
The following (although over-simplified) example will illustrate this principle. Let's suppose that Jack and Cindy have identical jobs and incomes. Let's also suppose they shop at the same grocery store and pay about the same amount for groceries each week. Now, Jack gets a $20 per week pay increase and Cindy does not. However, at about that same time, Cindy finds a new grocery store where she is able to save $20 per week on her grocery bill. Assuming nothing else has changed, Cindy is now better off financially than Jack, even though she did not get a raise and he did.
How can this be? It's because Jack has to pay taxes on his $20 raise but Cindy does not have to pay taxes on her $20 grocery discount. Assuming Jack is in the 25% federal tax bracket (and disregarding any possible increase in his state or local taxes), he will be able to put only $15 into his piggy bank each week whereas Cindy will be able to put the whole $20 a week into hers!
Bottom Line: It is more blessed to receive a discount than to receive an equal amount in a pay increase!
Terry Mitchell is a software engineer, freelance writer, and trivia buff from Hopewell,, income tax bracket, VA. He also serves as a political columnist for American Daily and operates his own website - http://www.commenterry.com - on which he posts commentaries on various subjects such as politics, technology, religion, health and well-being, personal finance, and sports. His commentaries offer a unique point of view that is not often found in mainstream media.
Source: articleage.com
When Ben Franklin said "a penny saved is a penny earned", he didn't quite get it right. Actually, a penny saved is worth more than a penny earned. Do you find this statement shocking? I am about to prove to you that what I'm saying is true.
Most people erroneously believe the best way to strengthen their financial health is to increase their income. On the contrary, saving money by cutting costs will get you there quicker. You see, it's very simple. When your income increases (with some exceptions like the part of it you put into your 401k), that extra money is taxed. On the other hand, any amount you save by cutting costs is not taxed. Therefore, $20 saved by cutting costs is worth more than a $20 increase in income.
The following (although over-simplified) example will illustrate this principle. Let's suppose that Jack and Cindy have identical jobs and incomes. Let's also suppose they shop at the same grocery store and pay about the same amount for groceries each week. Now, Jack gets a $20 per week pay increase and Cindy does not. However, at about that same time, Cindy finds a new grocery store where she is able to save $20 per week on her grocery bill. Assuming nothing else has changed, Cindy is now better off financially than Jack, even though she did not get a raise and he did.
How can this be? It's because Jack has to pay taxes on his $20 raise but Cindy does not have to pay taxes on her $20 grocery discount. Assuming Jack is in the 25% federal tax bracket (and disregarding any possible increase in his state or local taxes), he will be able to put only $15 into his piggy bank each week whereas Cindy will be able to put the whole $20 a week into hers!
Bottom Line: It is more blessed to receive a discount than to receive an equal amount in a pay increase!
Terry Mitchell is a software engineer, freelance writer, and trivia buff from Hopewell,, income tax bracket, VA. He also serves as a political columnist for American Daily and operates his own website - http://www.commenterry.com - on which he posts commentaries on various subjects such as politics, technology, religion, health and well-being, personal finance, and sports. His commentaries offer a unique point of view that is not often found in mainstream media.
Wednesday, December 23, 2009
Benefits Of Cashout Refinance
Author: Get Loans Cheap
Source: articledashboard.com
No matter how good our intentions are, with the "Gotta Have It!" society we live in, even the most diligent of us sometimes over-do on debt, especially on credit cards or other non- appreciable debt in the form of installment loans. One popular, income tax bracket, and beneficial way to wipe the slate clean, or at least get a handle on high debt, is through a "Cash-out Refinance".
If you have Equity in your house (that is if the appraised value is larger than the amount currently owed on your Mortgage Loan), you can access that money and put it to work for you. Instead of continuing to pay on those high interest credit cards and never seeming to make a dent in the balance, the cash out can help you "start fresh", and, depending on your area, your home appreciation could grow faster than your cash out!
Some of the benefits of replacing credit card and revolving debt with mortgage debt are:
ท Paying off high interest loans (credit cards) with a much lower interest loan, showing less outstanding loans on your credit and a less number of payments at bill time.
ท Lowering your monthly net out-go, freeing up cash for everyday expenses or to ad more to the Principle portion of your Mortgage loan. I've had examples of homeowners restructuring their current home loans to pay off debt, saving $500 or more per month, which was applied back to Principle, carving 5 or more years off the length of the home loan...which leads to the next benefit...
ท Term Reduction with a totally new loan, you have the opportunity of re-structuring with a shorter term directly OR indirectly, as shown above, by taking monthly savings of money not now needed on credit cards and applying the money to your loan, shortening your term.
ท Payment Deferral when refinancing, you usually end up skipping a payment, sometimes two, in the lender switch. That can add up to a substantial amount that could be reapplied to your home loan or more pressing necessities.
ท Raising Credit Scores, Mortgage loans are looked at more favorably than credit cards, especially when your balances on those credit cards exceed 35-50% of the maximum balance allowed. By paying off these loans, credit scores go up naturally when the companies report their information (usually in 3 month intervals).
ท Increasing Tax Advantages. Currently you receive no tax benefit for that payment you're paying on those credit cards; but when that same debt is transferred to a mortgage loan, you receive a tax advantage on interest paid on that loan. For example, let's say you're in a 30 % tax bracket. For every $10,000 spent on interest on your home loan in that year, you could receive a $3000 deduction!
These are only few of the benefits to refinancing for debt consolidation.
There are some precautions, though, that MUST be recognized or you'll find yourself even deeper in debt. When strategies of this nature are utilized to "pull out of debt", one must go into such a strategy with just that mindset. If a cash out refinance is handled to clear off credit cards, only to max those cards again, the process can catch up to you. Most lenders view credit reports for just such patterns before approving a loan. Discipline is key. Be careful to follow through on your long-term plan to control your debt so it doesn't control you, and your decision to refinance with cash out can be a smart move.
Two Interesting notes:
ท If you pay only the minimum payment stated on your revolving credit card, in the average case, it can take up to 30 years or more to pay off the balance of $5000. Most mortgages are refinanced every 5 years or less on average, due to increased home value, or moving.
ท When lowering your monthly out-go, it's interesting to see what % of an increase that affords you with your current income. As little as $400 savings per month that you get to keep can mean a substantial "raise" you can give yourself...and you pay no more taxes on it!
ABOUT THE AUTHOR:
Tamara Schmitt is currently a Loan Officer with 1st United Mortgage. Tamara is also an Business Partner of Get Loans Cheap, an internet business geared solely to educate and aid the consumer in assessing and obtaining the right loan for their specific needs. View the site for more articles on mortgages and refinancing, or other home loan needs.
Source: articledashboard.com
No matter how good our intentions are, with the "Gotta Have It!" society we live in, even the most diligent of us sometimes over-do on debt, especially on credit cards or other non- appreciable debt in the form of installment loans. One popular, income tax bracket, and beneficial way to wipe the slate clean, or at least get a handle on high debt, is through a "Cash-out Refinance".
If you have Equity in your house (that is if the appraised value is larger than the amount currently owed on your Mortgage Loan), you can access that money and put it to work for you. Instead of continuing to pay on those high interest credit cards and never seeming to make a dent in the balance, the cash out can help you "start fresh", and, depending on your area, your home appreciation could grow faster than your cash out!
Some of the benefits of replacing credit card and revolving debt with mortgage debt are:
ท Paying off high interest loans (credit cards) with a much lower interest loan, showing less outstanding loans on your credit and a less number of payments at bill time.
ท Lowering your monthly net out-go, freeing up cash for everyday expenses or to ad more to the Principle portion of your Mortgage loan. I've had examples of homeowners restructuring their current home loans to pay off debt, saving $500 or more per month, which was applied back to Principle, carving 5 or more years off the length of the home loan...which leads to the next benefit...
ท Term Reduction with a totally new loan, you have the opportunity of re-structuring with a shorter term directly OR indirectly, as shown above, by taking monthly savings of money not now needed on credit cards and applying the money to your loan, shortening your term.
ท Payment Deferral when refinancing, you usually end up skipping a payment, sometimes two, in the lender switch. That can add up to a substantial amount that could be reapplied to your home loan or more pressing necessities.
ท Raising Credit Scores, Mortgage loans are looked at more favorably than credit cards, especially when your balances on those credit cards exceed 35-50% of the maximum balance allowed. By paying off these loans, credit scores go up naturally when the companies report their information (usually in 3 month intervals).
ท Increasing Tax Advantages. Currently you receive no tax benefit for that payment you're paying on those credit cards; but when that same debt is transferred to a mortgage loan, you receive a tax advantage on interest paid on that loan. For example, let's say you're in a 30 % tax bracket. For every $10,000 spent on interest on your home loan in that year, you could receive a $3000 deduction!
These are only few of the benefits to refinancing for debt consolidation.
There are some precautions, though, that MUST be recognized or you'll find yourself even deeper in debt. When strategies of this nature are utilized to "pull out of debt", one must go into such a strategy with just that mindset. If a cash out refinance is handled to clear off credit cards, only to max those cards again, the process can catch up to you. Most lenders view credit reports for just such patterns before approving a loan. Discipline is key. Be careful to follow through on your long-term plan to control your debt so it doesn't control you, and your decision to refinance with cash out can be a smart move.
Two Interesting notes:
ท If you pay only the minimum payment stated on your revolving credit card, in the average case, it can take up to 30 years or more to pay off the balance of $5000. Most mortgages are refinanced every 5 years or less on average, due to increased home value, or moving.
ท When lowering your monthly out-go, it's interesting to see what % of an increase that affords you with your current income. As little as $400 savings per month that you get to keep can mean a substantial "raise" you can give yourself...and you pay no more taxes on it!
ABOUT THE AUTHOR:
Tamara Schmitt is currently a Loan Officer with 1st United Mortgage. Tamara is also an Business Partner of Get Loans Cheap, an internet business geared solely to educate and aid the consumer in assessing and obtaining the right loan for their specific needs. View the site for more articles on mortgages and refinancing, or other home loan needs.
Five Tips to Minimize Your Family's Tax Burden
Author: Kristine McKinley
Source: ezinearticles.com
Parents: Did you know that you can hire your kids in your small business and reduce your taxes?
Hiring your children if you own your own business is a great tax planning strategy, but it's more than just a tax deduction. Here are a few ways, income tax bracket, you can save taxes by hiring your children in your small business:
1. You get a tax deduction for the wages you pay your kids, which reduces your taxable income
2. By paying your children, you are effectively transferring income from your higher tax bracket to your childrens' lower tax bracket
3. You reduce your self employment income, thus you also reduce your self employment tax
4. Your kids may not owe any tax on the amount you pay them, depending on how much they earn and whether you claim them as a dependent or not (in 2009, dependent children can earn up to $5,700 before they will owe any income tax)
5. Paying your children a wage allows them to open an IRA or Roth IRA, which gives them a jump start on saving for retirement, college and other goals
If you have entrepreneurial kids, consider starting the business in your name and hiring your children instead of having the kids own the business. This will reduce your family's overall tax burden.
Why would it matter who owns the business? Well, if you are self employed, you have to pay self employment tax on your net earnings over $400. This rule applies to both adults and children, so there is no advantage to being a kid when you're self employed. However, kids have a huge advantage if they earn wages paid from an employer. Why? Well, kids don't have to pay taxes on the first $5,700 of earned income, even if they are claimed as a dependent on their parents' tax return.
Here's an example:
Let's assume Teddy, who is 14 years old, has a web design business. In 2009, he expects to earn $5,000 from this business after all of his expenses.
If Teddy is the owner, he is considered self employed and will have to pay 15.3% in self employment tax on this income. Assuming this is his only income, he won't owe any federal income tax because his total earnings are less than the standard deduction amount ($5,700 in 2009), but he will still have to pay self employment tax on the net profit. Teddy's total tax in this example will be $765.
Now let's assume that Teddy's dad is the owner of the business and he hires Teddy to do the work. Teddy still makes $5,000 from this business, but because he is an employee instead of the owner of the business, he doesn't have to pay self employment tax. Teddy's dad will report the $5,000 in income on his tax return, but he gets to deduct the $5,000 he pays Teddy to work in the business, so dad won't owe any tax on this income. In addition, because Teddy is under 18, Teddy's dad doesn't have to pay payroll taxes on him. Finally, because Teddy earned less than the standard deduction, his total tax liability will be zero.
In this example, the family's total tax savings by having the business in the father's name and having the child as an employee instead of the owner is $765.
Source: ezinearticles.com
Parents: Did you know that you can hire your kids in your small business and reduce your taxes?
Hiring your children if you own your own business is a great tax planning strategy, but it's more than just a tax deduction. Here are a few ways, income tax bracket, you can save taxes by hiring your children in your small business:
1. You get a tax deduction for the wages you pay your kids, which reduces your taxable income
2. By paying your children, you are effectively transferring income from your higher tax bracket to your childrens' lower tax bracket
3. You reduce your self employment income, thus you also reduce your self employment tax
4. Your kids may not owe any tax on the amount you pay them, depending on how much they earn and whether you claim them as a dependent or not (in 2009, dependent children can earn up to $5,700 before they will owe any income tax)
5. Paying your children a wage allows them to open an IRA or Roth IRA, which gives them a jump start on saving for retirement, college and other goals
If you have entrepreneurial kids, consider starting the business in your name and hiring your children instead of having the kids own the business. This will reduce your family's overall tax burden.
Why would it matter who owns the business? Well, if you are self employed, you have to pay self employment tax on your net earnings over $400. This rule applies to both adults and children, so there is no advantage to being a kid when you're self employed. However, kids have a huge advantage if they earn wages paid from an employer. Why? Well, kids don't have to pay taxes on the first $5,700 of earned income, even if they are claimed as a dependent on their parents' tax return.
Here's an example:
Let's assume Teddy, who is 14 years old, has a web design business. In 2009, he expects to earn $5,000 from this business after all of his expenses.
If Teddy is the owner, he is considered self employed and will have to pay 15.3% in self employment tax on this income. Assuming this is his only income, he won't owe any federal income tax because his total earnings are less than the standard deduction amount ($5,700 in 2009), but he will still have to pay self employment tax on the net profit. Teddy's total tax in this example will be $765.
Now let's assume that Teddy's dad is the owner of the business and he hires Teddy to do the work. Teddy still makes $5,000 from this business, but because he is an employee instead of the owner of the business, he doesn't have to pay self employment tax. Teddy's dad will report the $5,000 in income on his tax return, but he gets to deduct the $5,000 he pays Teddy to work in the business, so dad won't owe any tax on this income. In addition, because Teddy is under 18, Teddy's dad doesn't have to pay payroll taxes on him. Finally, because Teddy earned less than the standard deduction, his total tax liability will be zero.
In this example, the family's total tax savings by having the business in the father's name and having the child as an employee instead of the owner is $765.
Parents: want to learn how to minimize your family's taxes? If you have a small business, or if your child has their own business, you'll want to learn how to hire your children to help minimize your family's tax burden.
Kristine A. McKinley, CPA, and CFP®, offers financial and tax planning on an hourly, fee-only basis. She specializes in helping home based and online business owners understand and minimize their income taxes so they can keep more of their profits.
Pension or ISA: Which Investment Route Should You Take?
Author: Ray Prince
Source: download
Let's look at a recent client we worked with, James, a 45 year old dentist who had ฃ500 per month to invest.
James was confident that he could invest this money until his retirement at age 60, in 15 years time. He has a mixture of PEPs and ISAs, with an NHS Pension and a buy to let property.
Looking at this as one investment against another, we need to look at a like on like projection. So we will use a growth figure of 6% net of charges for both investments.
Because of the tax relief available for James at his highest rate (40%), the amount he can invest into a pension fund is ฃ835 pm compared to the ฃ500 pm to an ISA. Using projections of the future fund values over 15 years we get figures of:
Pension - ฃ238,810
ISA - ฃ143,000
It appears there is no contest, however, let's look at the figures a little closer.
The ISA fund is all available as tax free cash, whereas the Pension fund rules say a maximum of 25% of the fund can be taken as tax free cash which is ฃ59,702.
So if we calculate ฃ143,000 minus ฃ59,702 = ฃ83,297, this is the amount of tax free cash we have over and above the Pension route. The remaining ฃ179,107 in the Pension fund has to be used to buy a pension called an annuity. So the question now is what pension amounts could be available for James?
Taking an average example and using today's rates, a level pension of ฃ9,117 per annum would be achievable. However, will James be a higher or lower rate tax payer in retirement? This changes the picture somewhat, as the following after tax pensions would be applicable:
Higher rate tax payer - ฃ5,470 per annum
Lower rate tax payer - ฃ7,111 per annum
So to compare this to the ISA, we need to see how many years the pension needs to pay out to reach the ฃ83,297 value of the ISA fund, allowing for growth on the ISA fund at the same 6%, net of charges.
The answer is 17 years for the basic rate payer and 30 years for the higher rate payer! Not only is this is a massive difference between the two, but it also helps towards the decision whether to invest into a pension tax wrapper or an ISA.
Other considerations
-We have ignored any "pension drawdown" option
-The amounts you can contribute to pensions is currently far more generous than that available to ISAs
-Annuity rates, income tax bracket, on pensions may improve or reduce in the future
-The government may change the rules on either pensions or ISAs or even abolish the tax favourability on one or both
-Financial Advisers/Salespeople are often paid higher initial commission on pensions than ISAs so make sure your adviser is taking these factors into account, and not just selling you a policy that pays him/her the highest commission.
So what did we advise James to do?
In his case it all came down to the picture painted by his cash flow model. This enabled us to see how James's wealth would look in the future.
What was clear was that his NHS Pension would in itself take James into the higher rate tax bracket, and that a tax free cash fund was more attractive to him than more income that would be taxed at 40%. It would also aid James to gift money to his 2 children, to both help them financially and reduce his likely Inheritance Tax liability.
Therefore, James invested monthly sums into an investment Maxi ISA.
The Financial Tips Bottom Line:
In effect, there is no clear cut right or wrong. It always comes back to balancing the pros and cons of all the options available and making your decision based on thorough research.
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps doctors and dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives.
Get your free retirement planning guide, exclusively for UK Resident Doctors and Dentists. Just visit http://www.financialtipsonline.com/ea3. You'll also receive the twice-monthly email newsletter 'Financial Tips' that will enable you to keep posted of all financial issues affecting doctors and dentists. He can be contacted on 01670 505522.
Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.
Source: download
Let's look at a recent client we worked with, James, a 45 year old dentist who had ฃ500 per month to invest.
James was confident that he could invest this money until his retirement at age 60, in 15 years time. He has a mixture of PEPs and ISAs, with an NHS Pension and a buy to let property.
Looking at this as one investment against another, we need to look at a like on like projection. So we will use a growth figure of 6% net of charges for both investments.
Because of the tax relief available for James at his highest rate (40%), the amount he can invest into a pension fund is ฃ835 pm compared to the ฃ500 pm to an ISA. Using projections of the future fund values over 15 years we get figures of:
Pension - ฃ238,810
ISA - ฃ143,000
It appears there is no contest, however, let's look at the figures a little closer.
The ISA fund is all available as tax free cash, whereas the Pension fund rules say a maximum of 25% of the fund can be taken as tax free cash which is ฃ59,702.
So if we calculate ฃ143,000 minus ฃ59,702 = ฃ83,297, this is the amount of tax free cash we have over and above the Pension route. The remaining ฃ179,107 in the Pension fund has to be used to buy a pension called an annuity. So the question now is what pension amounts could be available for James?
Taking an average example and using today's rates, a level pension of ฃ9,117 per annum would be achievable. However, will James be a higher or lower rate tax payer in retirement? This changes the picture somewhat, as the following after tax pensions would be applicable:
Higher rate tax payer - ฃ5,470 per annum
Lower rate tax payer - ฃ7,111 per annum
So to compare this to the ISA, we need to see how many years the pension needs to pay out to reach the ฃ83,297 value of the ISA fund, allowing for growth on the ISA fund at the same 6%, net of charges.
The answer is 17 years for the basic rate payer and 30 years for the higher rate payer! Not only is this is a massive difference between the two, but it also helps towards the decision whether to invest into a pension tax wrapper or an ISA.
Other considerations
-We have ignored any "pension drawdown" option
-The amounts you can contribute to pensions is currently far more generous than that available to ISAs
-Annuity rates, income tax bracket, on pensions may improve or reduce in the future
-The government may change the rules on either pensions or ISAs or even abolish the tax favourability on one or both
-Financial Advisers/Salespeople are often paid higher initial commission on pensions than ISAs so make sure your adviser is taking these factors into account, and not just selling you a policy that pays him/her the highest commission.
So what did we advise James to do?
In his case it all came down to the picture painted by his cash flow model. This enabled us to see how James's wealth would look in the future.
What was clear was that his NHS Pension would in itself take James into the higher rate tax bracket, and that a tax free cash fund was more attractive to him than more income that would be taxed at 40%. It would also aid James to gift money to his 2 children, to both help them financially and reduce his likely Inheritance Tax liability.
Therefore, James invested monthly sums into an investment Maxi ISA.
The Financial Tips Bottom Line:
In effect, there is no clear cut right or wrong. It always comes back to balancing the pros and cons of all the options available and making your decision based on thorough research.
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps doctors and dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives.
Get your free retirement planning guide, exclusively for UK Resident Doctors and Dentists. Just visit http://www.financialtipsonline.com/ea3. You'll also receive the twice-monthly email newsletter 'Financial Tips' that will enable you to keep posted of all financial issues affecting doctors and dentists. He can be contacted on 01670 505522.
Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.
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