Archive for Financial Planning

Mar
10

Is A Large Refund a Good Thing?

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thebudgetprofessional.com_tax refund_irs_moneyDo you usually receive a tax refund? Is it normally a big one?

Depending on their financial situation, people often use income tax refunds as a savings account of sorts, and plan large purchases around a big refund. Often, a large refund is used to pay off credit card debt or catch up on bills.

Your Paycheck is a Little Short

Are you in a situation where there isn’t enough money left at the end of the month?

During the year, do you run up credit cards balances by charging normal living expenses? Do you only pay the minimum on your medical bills, and hope that will keep you out of collections? Are you only paying the minimum on your credit cards, and the balance is going up instead of down?

Do you often think, “if I just had a couple of hundred extra this month, I could stay ahead and not get behind?”

If this is the case, it may be time to rethink the large refund.

Does Your Bank Loan Money Interest Free?

Change your tax withholding and give yourself that couple of hundred dollars each month, instead of giving it to the federal government to use as they wish for a year or more. Put your money into your pocket instead. Don’t let the government use your money as a tax free loan!

A W-4 is Easy to Change

At this link you’ll find Form W-4, “Employee’s Withholding Allowance Certificate”. This is a fillable form you can fill out and print right from the IRS website, or you can print out the blank form and fill it out in ink.

Take the completed form to your company payroll department and instruct them to change your withholding allowances. Keep a copy for your records!

Follow the steps in the Personal Allowance Worksheet to determine the total number of allowances you should claim. Compare that number to what you are claiming now – if you should claim more, your refund will be smaller but you’ll take home more money on each paycheck going forward.

If you don’t know what your current withholding allowances are, look on your pay stub. Sometimes that information is printed on the payroll check stub. If the info isn’t there, call or visit the payroll department where you work and ask them to tell you the number you’re claiming as withholding allowances.

What happens if the number of allowances you come up with on the worksheet are exactly what you’re claiming now, your refund is historically a pretty good one, but you’d rather take that money home in your paycheck during the year?

You can always add an allowance or two to what you’re claiming now. You are not required to claim only the allowance total entered on the worksheet. You can claim 3 instead of 2, or 5 instead of 3. It will depend on what your situation is. Be careful here!

Personally, I like to see a refund less than $100, or even a slight tax bill of a hundred or two. I feel much better about giving the government $100 of my money interest free instead of $2000, $3000, or $5000.

 

Do you usually receive a large refund? 

Do you already have your refund spent?

Did you pay bills or go on vacation using your tax refund?

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Unlike this same time last year, when a group of idiot politicians shut the government down, ultimately costing the American taxpayer $24 billion dollars, and delaying tax filing season for weeks – the government will remain open.

Tax Season Opens As Planned

Since tax season will open as planned, that means you can file your personal income tax return as early as January 20th! Both paper and electronic returns will begin being accepted on that date. (It’s a Tuesday!)

Keep in mind, mailing in a paper tax return before January 20th isn’t going to do you any good. Your return will not be processed faster. It will go in a box and won’t be looked at until Tuesday, January 20, 2015.

According to the IRS, the most accurate way to file a tax return and the fastest way to receive a refund is to file electronically.TheBudgetProfessional.com_Picture_of_Uncle_Sam

I’ve seen a couple of the Big tax preparation outfits saturating television with ads, drawing people in right now. I don’t recommend the Big Guys when it comes to tax prep – hire a local company to do your taxes. Ask around, get references, and check the preparer out before you trust them with all of your most important financial secrets and information.

 

Choose your preparer wisely. Your financial health depends on it.

 

Do you usually get a refund or do you end up paying in?

Do you already have your refund spent?
Are you using your refund to catch up on bills or go on vacation?

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The businessGreen Earth & Gas Pump Save Gas Budget Professional  mileage rate is going up to 57.5 cents a mile!

The Internal Revenue Service today issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

 

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil.

The rate for medical and moving purposes is based on the variable costs, such as gas and oil.

The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously).

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Mr. BudgetPro celebrated his 55th birthday last week. I’m a younger 50-something myself (which is why all you young 20 & 30 year old whippersnappers should listen to me. I’ve been there, done it, done it wrong, know how to do it right)

Retirement saving is front and center in my plans these days, and it’s time we got really serious about evaluating what we have and what we will need. If it turns out we’re short – how do we fix it?

I’ve been self-employed more in the last 30 years than I’ve been an employee. I made a choice many years ago to leave a very good job to work for myself, and I’m wondering if I did the right thing.

I find myself asking questions

• Has being self-employed hurt me when it comes to retirement?
• Would I have been better off to be an employee, banking a 401K with matching contributions and automatic payroll deductions that went straight to savings?
• Would I own more “stuff” if I had relied on a regular paycheck? (stuff = assets)
• Due to my age, has the timing of this recession hurt me more?

It turns out I’m not the only one asking questions

In Dec 2012 an SBA government study was done that examined the retirement savings decisions of small business owners over age 50. Particular attention was paid to how badly the recession might have hurt those retirement savings.

Overall, the study found that small business owners over the age of 50 are significantly less likely than employees to have pension or 401K retirement plans. At the same time, small business owners tend to have significantly greater IRA & Keogh plan savings than employees.

  • Makes sense. People are using the savings vehicles available to them, depending on circumstance.

The study also found that being an employee or being self-employed didn’t really make a difference when it came to how much was saved and how the money was invested.

People, being people, act basically the same when it comes to their retirement money. There was very little difference between the retirement savings habits of a self-employed small business owner and an employee.

  • Think about that one for a minute. We exhibit herd mentality when it comes to our retirement and our money. Wonder if anyone will ever use that knowledge against us?

The report had a few more interesting findings:

The over-50 small business owner had greater financial knowledge than an employee.

  • It’s all those monthly P&L’s, bookkeeping ledgers, and tax returns we self-employed have to immerse ourselves in!

Older small business owners thought about retirement LESS frequently than employees

  •  Could that be because there are no savings to think about? What do your retirement accounts look like? Do you save regularly by paying yourself first?

And, the kicker and take away from the study is, the small business owner has a significantly later expected retirement age than an employee. The small business owner may be LESS likely to retire at all. Small business owners in 2010 reported they would retire, on average, at age 72.6. The expected retirement age of an employee? 68.4.

  • In the end, it’s all about the money. How much thought do you give your retirement savings? Do you make regular contributions to an established account? When you retire, will you be able to continue living in the manner to which you have become accustomed?

 

Small Business Research Summary
"Retirement, Recessions, Older Small Business Owners" 
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Jun
06

Save Money: Gas Mileage Tips That Work

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Full gas gauge

 

Gas Mileage Tips That Will Save You Money

Summer is here, the kids are out of school, and the beach beckons. Whether you’re piloting the minivan around town or heading out on a road trip vacation, the price of gas is going to be an issue. In my village the price of gas has been swinging 20 cents overnight – and usually up. I never know what it’s going to cost me when the car or truck needs a fill up.

Do you know that only about 14-26% of the energy from the gas you put in the gas tank is actually used to move your car down the road? The rest of the energy is used to run the accessories, and is also lost to engine and drive-train inefficiency.

The potential to improve your car’s gas mileage is huge. Follow our proven gas mileage tips, and make the most of your gas dollar.

Drive More Efficiently

Aggressive driving wastes gas. When you’re in traffic, maintain a constant pace. Rapid accelerating and braking lowers your gas mileage by 33% at highway speeds, and by 5% in town. Be safe when you drive – you may save more than gas money.  (Potential Savings Benefit:  5%-33%  Gas Money Savings: $0.18-$1.19 gallon)

Let the Cruise Take Control

Maintaining a steady speed while driving on the highway will save gas. Set your cruise control to take control.  If your car has Overdrive, use it. While in Overdrive the car engine slows down, saving gas and reducing engine wear.

Get Rid of the Weight

Clean out your trunk, removing anything that isn’t absolutely necessary. Carrying around an extra 100 pounds in the trunk can reduce your gas mileage up to 2%. Smaller cars will lose more gas mileage than a large car.

A loaded roof rack can reduce your gas mileage by 5%. Save money by packing items in your trunk when traveling.

 Don’t Speed

Observe the speed limit. Every 5 miles above 50 mph uses an additional $0.25 per gallon.  (Potential Savings Benefit: 7%-14%  Gas Money Savings:  $0.25-$0.51 gallon)

Avoid Excessive Idling

Sitting at idle with the A/C on will use one-quarter to one-half a gallon of gas every hour. If you’re parked, turn off the engine. It’s cheaper to turn the engine off and back on than let it sit at idle.  (Potential Savings Benefit:   $0.01-$0.03 minute with the AC Off.  $0.02-$0.04 a minute with the AC On)

Trip Planning is a Must

Trip Planning, or combining many errands into one trip, saves time and money. Starting your car cold and making a short trip, and doing this several times a week, can use twice as much gas as one longer trip. Your car engine will run more efficiently when warmed up. Planning your trips around town will also reduce the distance you drive, saving you time.

Do You Commute?

If you must commute, drive your most fuel-efficient car. Does your employer allow telecommuting? Working at home even one day a week will result in substantial gas savings. Stagger your work hours, if permitted, to avoid peak rush hour periods.

Take the bus. Substantial savings can be seen when using public transportation.

Become a member of a carpool or ride share program. When you take turns driving in a carpool, you can often save half of your normal gas costs, and save wear and tear on your car.

Find the Cheapest Gas in Your Area

If you’re headed out locally for a fill-up, or driving across the state for a short trip, you’ll want to check gas prices at Gas Buddy.  Plug in a zip code, or city and state, and get a list of gas stations and current gas prices.  Gas Buddy has a phone app, too!  Check Gas Buddy Now

Take Care of Your Car, and Your Car Will Take Care of You

Tune up the car engine. Have the car emissions tested. If your car fails an emissions test, or if you know your car is out of tune, scheduling a tune-up can improve gas mileage by 4%. Have your car checked regularly by a good mechanic. A bad oxygen sensor, for example, can reduce your gas mileage by 40%. Spending a few dollars to replace the part can almost double your gas mileage.  (Potential Savings Benefit:  4%  Gas Money Savings: $0.14 gallon)

Use the Right Motor Oil

Get out your owner’s manual and check and see what the recommended grade of oil is for your car. Using 10W-30 motor oil in an engine designed to use 5W-30 can lower gas mileage 2%. Check the can before you buy – it should say “Energy Conserving” on the APO performance symbol. Energy Conserving motor oil contains friction-reducing additives. It’s a good thing.  (Potential Savings Benefit:  1-2%  Gas Money Savings: $0.04-$0.07 gallon)

Check Your Tire Pressure

Keeping the tires inflated to the proper pressure can increase gas mileage up to 3.3%. Properly inflated tires last longer, and they are safer to drive and ride on.

Note: Do not use the maximum tire pressure printed on the tire sidewall. The proper tire pressure for your car will be found on the sticker in the driver’s side door jamb, or the glove box, and also in the car owner’s manual.  (Potential Savings Benefit: up to 3% Gas Money Savings: up to $0.11 gallon)

Replace the Engine Air Filter

On fuel-injected cars made from the early 1980’s to now, changing the air filter won’t increase gas mileage, but it will give the car more acceleration power. If the car has a carburetor, replacing the air filter will improve both gas mileage and acceleration.

Thinking about buying a new car?

When buying a car, remember this: what kind of car you buy will be the most important gasoline/fuel budget decision you make.

Stop and think about how far you drive to work, and what trips will be mandatory, no matter what the price of gas. The miles per gallon your car gets is a big deal when it comes to your money.

Based on a gas price of 3.61 gallon, and driving 15,000 miles per year, a car that gets 20 MPG will use $903.00 MORE in gas in one year than a car that gets 30 MPG. In 5 years, this amounts to $4,515.00 in extra gas cost! That’s quite a bit of money! How are you funding your retirement accounts? Are you pouring money into your gas tank instead of your IRA?  Do you want to book an expensive family vacation in 3 or 5 years? Your car buying decision can make or break your budget dreams.Gas Gauge showing empty

Think, too, about your carbon foot print (because it matters!) Driving that 20 MPG car instead of the 30 MPG car will also add 20 tons of CO2 emissions to the atmosphere over the vehicle’s lifetime.

Every gallon of gas your car burns puts about 20 pounds of CO2 into the atmosphere. The average car emits about 5-8 tons of CO2 each year. CO2 emissions cannot be reduced by pollution control technologies. CO2 emissions can only be reduced by burning less gas or by burning fuel that contains less carbon.

 

If you’re in the market for a new car, or just thinking about it, take a look at this handy tool. You’ll be able to find the most fuel efficient car that will also meet your driving needs: Find and Compare Cars

 

Note: gas savings noted throughout the article are based on a price of 3.61 gallon

Data Sources

Estimates for the effect of speed on MPG are based on results of a current ORNL study (forthcoming).

Information on the impact of air filter condition on fuel economy is based on studies at Oak Ridge National Laboratory (ORNL):

Thomas, J., West, B., Huff, S. 2013. Effect of Air Filter Condition on Diesel Vehicle Fuel Economy. SAE Technical Paper 2013-01-0311.

Thomas, J., West, B., Huff, S., and Norman, K. 2012. Effect of Intake Air Filter Condition on Light-Duty Gasoline Vehicles. SAE Technical Paper 2012-01-1717.

Norman, K., Huff, S., and West, B. 2009. Effect of Intake Air Filter Condition on Vehicle Fuel Economy. ORNL/TM-2009/021. Oak Ridge National Laboratory.

Estimates for fuel savings from vehicle maintenance, keeping tires properly inflated, and using the recommended grade of motor oil based on Energy and Environmental Analysis, Inc., Owner Related Fuel Economy Improvements, Arlington, Virginia, 2001.

Estimates for fuel savings from sensible driving are based on Energy and Environmental Analysis, Inc., Owner Related Fuel Economy Improvements, Arlington, Virginia, 2001.

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Jan
19

Big Changes to Office in Home Deduction

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Woman working in home office

IRS Changes Office In Home Deduction

Do you own a home based business? Do you own a small business and use a room in your home as an office away from the office? Do you work for a company that requires you to keep an office in your home, too?

If you use part of your home as an office for your business, it just got easier to claim the Home Office Deduction!

Beginning January 1, 2013, instead of keeping track of the percentages of square feet and stacks of a dozen different expenses in order to calculate the Home Office Deduction, you can now claim a flat rate. Read on – this may save you some time and record keeping this year.

The IRS will now allow you to claim an “optional” deduction instead of the usual “regular” percentage based deduction for business use of your home. This simplified, “optional” deduction is calculated at a flat $5.00 per square foot, up to 300 feet, with a $1500.00 cap for the year.

Example:

  • If your home office is 100 square feet, your Home Office Deduction would be $500 (100 x 5 = 500)
  • If your home office is 250 square feet, he or deduction would be $1250 (250 x 5 = 1250)
  • Simply take the square footage of your home office, multiply it by $5 per square foot and you have your deduction amount.
  • If your home office is 400 square feet and you elect to take the optional method, your deduction will be capped at 300 feet and $1500.

According to the IRS, tax payers spend 1.6 million hours a year on record keeping and paperwork for the Office in Home Deduction. By using a flat rate based on space used, people will save a lot of time and effort.

Claim Mortgage Interest & Real Estate Taxes on Schedule A

You can still claim home real estate taxes, allowable home mortgage interest, and casualty losses for the filing year as itemized deductions on Schedule A. No longer will these expenses be allocated between personal and business use if using the optional method. Depreciation on your home cannot be taken when using the optional method.

Business expenses not related to your home are still deducted as regular business expenses, no change there. These include employee wages, office supplies, stamps, advertising, office equipment, etc. You will continue to claim regular business expenses on Schedule C or the appropriate business form.

Qualified Business Use Is Still the Rule

The old requirement that the home office space must be used regularly and exclusively for only business still applies when using the optional method. Qualified business use is still the rule!

The rule that limits the office in home deduction to income earned by the business is also still in effect.

Year By Year Determination

The good news is, the IRS will allow you a year–by–year determination with this deduction. If you decide to use the optional method for filing year 2013, you can still change and go back to claiming actual expenses for 2014. If you want to flip back to the optional method in 2015, you can do that. Be aware that once you file that original tax return for the year that you claim either the optional or regular method you cannot go back and change that election. An election for any taxable year, once made, is irrevocable.

Need More Info?

You can find out more about the new optional method HERE

Do you qualify to claim the Home Office Deduction? Find out HERE

Contact the IRS

The IRS welcomes comments about the new law. You can contact the IRS if you’d like to tell them what you think:

E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.

Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

 

 

 

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Nov
13

Give Your Money Away – Tax Free!

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The end of the year is coming fast, which makes tax season right around the next corner.  Quite a lot of people receive income tax refunds, so they are in a hurry to file and get that money back! There are bills to pay and things to do!  The kids need shoes! 

There are things you can do now that will make filing your income taxes easier when the time comes.  In the coming months I’ll be writing about different tax topics you should be aware of, and tax saving tips you can use to get back the maximum refund you’re owed! 

White Gift Box with Red Ribbon BowJanie is a friend of mine, and every year her parents gift Janie and her husband Steve a 5 figure check – each.  This year, each of them received $13,000 from her parents – for a total of $26,000 – and that is completely tax free income.  Janie and Steve don’t owe any taxes on the money, and Janie’s parents don’t have to pay any gift taxes for giving their money away.

If your estate is sizable, and you’re trying to minimize estate taxes, you can use the Annual Gift Tax Exclusion to reduce your estate tax liability.  You can give away up to $13,000 tax free this year to any individual, and to as many individuals as you want – and, if you are married filing joint, your spouse can also give $13,000 to the same people.  Tax free!

According to the tax code, any gift is a taxable gift.  Gifts can be property, money, the use of property, or the right to receive income from a property.  According to the tax code, there are exceptions to this “any gift is a taxable gift” rule.  (Of course there are, Congress wouldn’t have it any other way!)

The following gifts are usually not considered taxable:

  • Gifts that are not more than the annual calendar year exclusion (from 2009 through 2012 this has been $13,000 annually for each gift)
  • Tuition or medical bills paid for someone else (you must pay the institution directly, not the person)
  • Gifts to your spouse
  • Gifts to a political organization
  • Gifts to charities

If someone receives a gift that is valued at more than $13,000, taxes are owed on the amount that is above the $13,000 exclusion.

Any gift you receive is not treated as income.  The person giving the gift is responsible for paying the gift tax.

For example:

1.  Mary gave Joe a cash gift of $9,000 during the calendar year.  This gift is not taxable because it is under the $13,000 exclusion.

2.  Jack gave Susan a cash gift of $16,000 during the calendar year to pay for college tuition.  IF Jack had paid this gift directly to the state university Susan attended, the entire $16,000 would be non-taxable due to the education exclusion.  BUT, Jack gave Susan the money personally – so the first $13,000 is not taxable due to the annual exclusion, but the remaining $3,000 is considered a taxable gift.  Jack, as the donor or gift giver, is responsible for paying any gift tax due.

3.  Aunt Joan gave Lisa $20,000 cash to purchase a used car.  The first $13,000 of this gift falls under the yearly exclusion and is not considered taxable, but the remaining $7,000 is considered a taxable gift.  Aunt Joan is responsible for paying any gift tax due.

4.  Pete and Sally are married.  Sally gave a cash gift of $25,000 to her daughter during the calendar year.  Pete gave his son a gift of $15,000.  Neither of the gifts are taxable, both are completely excluded from the the gift tax.

This example messed up your thinking, didn’t it?  If Sally gave her daughter $25,000, then the amount over $13,000, which is $12,000, should be taxable, right?  What about the gift Pete gave his son – that was $15,000, or $2000 over the exclusion limit.  That $2000 is taxable, isn’t it?

Not so fast.

When you are married, and both spouses agree to the gift, Gift Splitting becomes a factor.  When Pete and Sally agreed to split the gifts they made during the year, each gift was split equally between the two of them.  That $25,000 Sally gifted her daughter?  When split, Sally gave $12,500 and Pete gave $12,500 – this is under the exclusion amount of $13,000, and therefore this gift is not taxable.  The same math works with Pete’s son:  his gift was $15,000, but when equally split between Sally and Pete, the gift becomes $7500 from each – well under the $13,000 exclusion and not taxable.

Take a minute and realize how powerful a tool this can be – you can get creative and give gifts that will benefit you as well as the gift receiver.  You can gift your children yearly to the max, and not only build a nest egg for their future, you can do it relatively tax free.

Let’s try one more example:

5.  This year, Sonny decided to give 10 of his grandchildren checks for $13,000 each.  Sonny also paid the college tuition for a nephew, writing a check to the local college for $15,000.  Sonny paid a local hospital $14,000 for medical care his son, Carl, received.  The $14,000 bill was the balance due after Carl’s health insurance paid in full.  Carl was off work for 3 months, recuperating from his injuries.  During this time, Sonny also paid $2500 in health insurance premiums for his son.  Carl’s wife, Connie, took an unpaid leave of absence from her job to care for Carl.  Sonny gave Connie a gift of $25,000 to replace her lost income.  Sonny gave $20,000 to Shari, a good friend of his.  Shari promptly sailed to Hawaii.  Sonny also gave $25,000 to his sister, Ellen.

  • None of the $130,000 gifted to the grandchildren is considered a taxable gift.  The $13,000 exclusion applies in each case.
  • The $15,000 paid for college tuition falls under the education exclusion.  This gift is non-taxable.
  • The $16,500 Sonny paid for Carl’s medical bills and health insurance premiums is non-taxable due to the medical exclusion.  (Sonny paid the hospital and the insurance company directly, which classifies this as medical exclusion.  If Carl would have been paid directly, only $13,000 would have been excluded from tax)
  • The first $13,000 of Connie’s gift is not taxable.  $12,000 remains after applying the exclusion and is considered taxable.
  • $7000 of the gift Sonny gave Shari is taxable.  ($20,000 – $13,000 = $7000)
  • Sonny owes gift tax on $12,000 of the gift he gave Ellen.  ($25,000 – $13,000 = $12,000)
  • Sonny gave away $231,500 in cash gifts this year.  $31,000 of that is subject to gift tax.

Sonny will be required to file a Form 709, US Gift Tax Return, and $6,220.00 in taxes will be assessed on the $31,000 we’ve determined is the taxable amount of all the gifts Sonny gave this year.  But guess what?  Sonny won’t pay a dime in gift tax.

I’ve really confused you now, haven’t I?  (Please don’t bang your head on your desk, and stop pulling your hair – this will eventually make sense) Let me explain about the Unified Credit to Gift Tax.

You see, because Congress writes the tax code, and because Congress is made up of of millionaires and billionaires, they write the tax code to benefit themselves and their friends.  Become familiar with what is in the tax code as it applies to your situation, and use the law to your benefit.

In addition to an Annual Gift Tax Exclusion amount, and in addition to a list of gifts that are not considered taxable, there is a Unified Credit available.  This credit is used to eliminate and/or reduce any gift tax due.  As an added bonus, any Unified Credit not used to eliminate gift tax can be used to eliminate or reduce estate tax.

Back in 1979, the Unified Credit available was capped at $38,000.  In the year 2012, the Unified Credit is $1,772,800.  (The Unified Credit to may increase – it was steady at $330,800 from 2002 through 2010, but then jumped to $1,730,800 in 2011 and increased another $42,000 in 2012)

Remember:  this is a tax credit – as you can see by the example above, $31,000 in gifts generated $6220 in tax – the Unified Credit available is $1,772,800 – and Sonny will use this credit to offset his gift tax due.  Tax credits are applied to tax due, reducing or eliminating tax.  A tax credit “pays” for the tax instead of you – and everyone gets the credit.

Do you understand how powerful gift giving can be when it comes to reducing your estate tax burden?  You can give away your money, not pay any taxes on it when giving it away, reduce your estate, and in the end save major dollars when it comes to any estate tax assessed!  Set up accounts for your children, gift them to the max, and they don’t have to report the gift as income.  It sounds unbelievable, doesn’t it?  See how nice Congress is when it comes to making the law concerning gifts and taxes – and take note that one of those examples above of non-taxable gifts is money given to “political organizations”!

I hope I’ve given you food for thought when it comes to your income, giving cash gifts throughout the year if you can afford it, building wealth for family members, and possible tax strategies when it comes to the tax on those gifts and your estate.

 

There is a spirit in the world of generosity that brings good things to all of us, whoever we may be … A Christmas Carol

Note:  Please consult a qualified tax professional when mapping out your gift giving.  This is a brief overview, and there are more rules when it comes to the definition of a non-taxable gift.  If a husband and wife are gift-splitting, certain tax forms must be filed.  The gifts you give may or may not have have to be reported to the IRS.  When gifting to grandchildren, Generation-skipping Transfer Tax may apply.  Giving away real property may come with tax disadvantages, and may be better left in an estate until death.  Usually, the gift giver is responsible for paying the gift tax, but if he doesn’t, the gift recipient may have to pay the gift tax.  Nest eggs built for children could impact them in a negative way when it comes to qualifying for college financial aid.  Exclusion and credit amounts are subject to change based on changes to the current law.

 

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Nov
12

A Death In The Family

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White Dove in FlightTwo weeks ago, my mother-in-law passed away very unexpectedly.  She left a surviving spouse, four children, seven grandchildren, and two great-grandchildren.  She did not leave any life insurance.  She did not have any sort of pre-paid burial plan in place, nor were any funeral arrangements made in advance.

When a death occurs in a family, the living are busy grieving.  On top of the emotional hit that happens, there are many things to do when it comes to a funeral.  We had people coming in from out of town and out of state to stay here for most of the week, others stopping by as they were coming and going.  In addition to shopping for extra groceries, we were also shopping for new clothes to wear to the service.  For almost a week, daily trips were made “home” and back, driving more than an hour each way.  A lot of stress was added to the grief.

Take a minute, right now, to stop and think about your own situation.  What is in store for your loved ones when faced with your demise?  It could happen tomorrow, you know – or six months from now.  Or six years.  Or 60 years.  There is only one thing absolute in life, and that is death.  You never know when it is going to happen – and that’s the rub.  You just don’t know.

When death happens, when your family is grieving, do you want your loved ones to suddenly have to deal with a lot of decisions concerning your death and funeral?  There are medical decisions to be made, legal decisions, financial decisions, plus many more.  Do you want family members arguing about what casket to choose, what music to play, or what pictures should be selected for the video memorial?  Do you want your loved ones to make your funeral arrangements based on what may or may not be in their bank account, or yours?  Do you want to leave your loved ones struggling emotionally and financially over what kind of service they want to give you vs. what they can really afford?

Death is a necessary part of financial planning.  You should treat life insurance as a mandatory expense, as mandatory as your car insurance, or your homeowners policy.  There are situations where life insurance may not be a viable or affordable choice, and there are alternatives.  Pre-paid funeral plans are available through just about every mortician or funeral home.  Buy a plan now and have it in place for the future – it doesn’t matter if you are 26 or 76.  Do it now.

A funeral home here in my village has a pre-paid program that allows you to make all of your funeral arrangements in advance.  You decide what kind of ceremony to have, whether there will be a casket and what color, what kind of vault, and does that vault need a name plate, what kind of flowers, the type of music, what kind of printed funeral programs, how many pall bearers, whether there should be a family car – there is a long list of decisions when it comes to a funeral. Prices are locked in at the time you make the arrangements.  The funeral home will present you with a price quote and a contract.  You can pay in full or set up a payment plan.  Payment plans are normally set up through a third party (usually a bank), who collects the money in trust and forwards it to the funeral home.  Everything is arranged and paid for in advance.  When the time comes, your family will be dealing with the only thing they should have to deal with at your passing – their grief.

Most funeral homes will also work with you if life insurance is pending when death occurs.  When my grandmother passed away twenty years ago, she had all of her funeral arrangements in place, down to her dress.  She had made a partial payment when she set up the arrangements years before, and she had life insurance.  The funeral took place, and a month later when the life insurance paid out, the balance due was paid.  If you do have life insurance that will be used for your funeral, you still need make your own funeral arrangements.  Don’t leave that kind of stress to your family.  It’s going to be all they can do to handle the loss of you.

Can your survivors survive the sudden financial burden of a funeral?  A few years ago, a grandfather died in our family.  We soon found out that his life insurance policy had been cashed in a few years before, and there was no pre-paid funeral plan or funeral arrangements made in advance.  It fell to a few of the grandkids to pay for his funeral.  At the time, we were able to write a check for our portion – but can your family do the same?  Can your family afford to be saddled with a bank or finance company loan and a monthly payment that will be due 30 days after your death and continue for 2 to 5 years?

None of us want to leave our loved ones with these type of circumstances.  Pick up the phone, get quotes on a term life insurance policy, and set that up to automatically pay through your bank account or a credit card.  Check into pre-paid funeral plans, check the history and reputation of the company, make those plans, and pay that bill while you are living.  Do it today, and do it for your family.

You must prepare for the only absolute in life you can count on:  your death.

 

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How to Plan Your Budget When You are in Financial CrisisAlicia is a financial tech writer from the UK, and is guest posting today with interesting budget ideas that you may use in dealing with a financial crisis.

 

An unexpected and unavoidable financial crisis can be difficult for anyone to overcome, especially when income levels are low and debt levels are very high. If you are facing such a situation in your life then it is time to plan and evaluate the situation, and create a budget plan to handle your financial crisis. Here are a few steps that help you to create an effective budget plan when you are in financial crisis:

Step 1: Determine your expenses; this will enable you to know how much you are spending every month and where your income is going. Writing down all your expenses and analysing your spending habits is a good to start in creating an efficient budget plan. Start with your monthly income and check for any opportunity to save your money by trimming unwanted expenses; this could help you save lot of your money.

Step 2: Analyse your spending and trim expenses especially whilst in the midst of financial crisis, this means eliminating all the unnecessary expenses. If you have any monthly financial obligations such as paying off your mortgage, auto loan and so on then allocate your income to fund those expenses, don’t delay any monthly bills as they could increase due to late fees.

Step 3: Another important step you can take when you are in financial crisis is to reduce your utility or monthly bills.  Make a list of fixed and variable costs in your budget plan; this is how you can save some money wherever possible.

Step 4: Your savings account is very useful to resolve your emergency situation; it is very difficult to save money from your income while in financial crisis. Consider payday loans which are the short-term loans that are secured against the borrower’s next pay cheque, they don’t require any collateral and even a person with bad credit can avail urgent cash to resolve their financial emergency.

Step 5: If you could develop an efficient budget plan that suits your lifestyle then it is just a good idea to save some money. Adjust your plan if your income is not balanced with your regular expenses, review your budget frequently and find the easiest way to stick to your budget plan. Find an extra source of income if you cannot fund your basic needs through just a single income. There are plenty ways you can earn some money with a part time job.

Author Bio

My name is Alicia. I am a tech writer from UK. I am into Finance. Catch me @financeport

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Oct
11

Emergency! Emergency!

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No Job SignSix months ago, April 6th, on Good Friday (oh, the irony!) – my husband lost the job he had for 13 years. This came completely out of the blue, with no warning. I now know what the bug hitting the zapper in the back yard feels like.

Once the initial shock wore off, we took stock. We had an Emergency Fund, and my husband was owed vacation pay. When I added the two together, we had approx. $25,000 cash. I knew we’d be alright for a few months with the emergency fund, but I also knew we’d have to cut spending to the bone. We didn’t have any credit card debt, nor any car payments, which was a big plus. Those are expenses that can drain finances quickly. We did have a mortgage, insurance, utilities, food, gas – basic and necessary expenses that kept the roof over our heads, the Internet lights on, and food on the table.

I wasn’t overly worried. MrBP is good at his job. I knew the phone would be ringing fairly soon with a job offer, or he’d be able to network a bit and find an opening. This layoff was going to be just a little bump in the road in the overall scheme of things, and we would be fine.

The first thing MrBP did was file for unemployment. Unemployment in this country is not fair to the unemployed, as I’m sure anyone out of work will tell you. MrBP did qualify for the maximum amount of weekly unemployment: $320.00. Wow. I know $320 is better than nothing, but a month of unemployment checks still wouldn’t cover the mortgage. MrBP could also draw unemployment for the maximum number of weeks: 20. Another Wow. Twenty weeks of unemployment equals thirteen years of work history. If he had worked the for company for 30 years, 20 weeks was still the maximum number of weeks he could draw. There is something wrong with that government math!

When a person files for unemployment it takes some time to get that first check. Remember that vacation pay I mentioned? That had to be claimed as income for 3 weeks.  (If what you claim is more than the amount you’re eligible for – you don’t get paid unemployment that week)  At the end of the 3 “vacation” weeks, a waiting week had to be “put in”. This happens to everyone – the first week you are unemployed basically doesn’t count – for anything. Unemployment benefits don’t become available until the second week a person is out of work. Checks don’t come the second week either – the process of being approved for unemployment can take 2-3 weeks, or much longer. Considering the majority of the working population lives paycheck to paycheck, losing a job can be a big deal. All of this waiting for money is going on when people need that money the most!

MrBP was out of work for a month. He never did draw an unemployment check, because the 3 vacation weeks and the 1 waiting week took up that month. We had enough money in the bank that life went on as normal – we just didn’t spend any extra, we didn’t go out to eat, we didn’t go to the movies. Cutting out all unnecessary spending opened my eyes to the kind of money we did spend in some areas. Because there was enough coming in, neither of us had paid much attention to some of the conveniences that were going out. (After all, life shouldn’t be all work and no play, right?)

If we hadn’t had our Emergency Fund, life would have been a completely different story. We would have been in financial trouble fast, as fast as the bills came due. We spend $3000 monthly on house, utilities, insurance, and cell phone payments, but that doesn’t count food, gas for the cars, incidentals, etc.

Emergency Funds are as necessary as homeowners insurance is if you own your home, as necessary as car insurance is if you drive a car. Everyone should have an Emergency Fund. If you don’t have one, you need to start one. Don’t tell me you can’t afford one – you can’t afford NOT to have one!

An Emergency Fund is intended to replace income if you can’t work, but it’s also nice to have when the car needs major repair or the AC unit quits on a 100 degree day in July.

Most financial planners recommend having 3-6 months worth of living expenses saved. But, due to the state of the economy, the average length of time a person is unemployed these days is 9 months (Bureau of Labor Statistics). If you’ve only got a 3 month cushion, what are you going to do the other 6 months when the rent is due, and you’re still looking for work? I know what you’re thinking – you’ve got those credit cards in your billfold, and you’ll fall back on those if you really need to. Let me ask you this: when the credit line is used up, how are you going to repay that debt?

Starting and regularly adding to your Emergency Fund may feel daunting, and may seem like an insurmountable task.   The good news is, you may not need as much as you think. Sit down and make a list of every single bill you pay every month. Go through your bank statement and write down all debit card transactions and what they were for. Check the bank statement for ATM cash withdrawals, and write down what those were for. Get out your credit card statements and add those transactions to the list of money going out for the month. Add all the numbers up.

Now, cut out what isn’t absolutely necessary. The mortgage payment is necessary. $5 at Starbucks twice a week is not. Look closely at bills such as cell phone, cable, gym memberships, newspaper delivery, lawn care – if it came down to it, are these as necessary as food and electricity? No?  Cut those out. Once you figure out the basic living expenses you need to survive, multiple that by 12. Write that number down. Your savings goal is 12 months of basic living expenses in an Emergency Fund.

Work out a savings plan, even if all you can do is save $1 a week, or $25 a month, or the change from your pocket at the end of the day. Put that money in savings and forget it. Cut out one or both of those lattes every week and put that money in savings instead. Treat your Emergency Fund like it’s your water or gas bill, figure out how much you can save regularly, and pay the savings account just like it’s the mortgage company.  Start today.

I was glad we had savings to fall back on. We spent a lot of it, and it went faster than planned because the AC unit did break down on the hottest day of the year, along with a few other things.

During the 5th week of unemployment, the phone rang and MrBP was offered a job – at the opposite end of the state. A 3 hour drive, one way, from the home we’ve lived in for the last 24 years. Whoa.

The new job – and where it was at – brought up a lot of questions: were we going to relocate? Sell our home here? Rent it out? Rent in the new location, or buy? Where would MrBP live for the near future – with family in that area, and if so, for how long? How much was all of this going to cost? There were so many variables and many unknowns six months ago!  A few things didn’t work out, while great truths were learned … stay tuned to find out what happened!

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