Archive for Loans

 Man with umbrellas, questions raining down_The BudgetProfessional.com

Do you have a tax question? Send me an email and ask!
I’ll try to include your question and my answer in an upcoming Q&A article

What Is Your Question?

I Have a Small Business. What Can I Deduct on my taxes?

Q: I have a small, weekend photography business. Engagement and prom pictures are my specialty, and I’m spending a lot of money. What expenses can I deduct on my taxes?

A: A business expense must be both “ordinary and necessary” in order to be deductible. The IRS defines an “ordinary expense” as one that is common and accepted in your trade or business. A “necessary expense” is one that is helpful and appropriate for your trade or business.

You’re a photographer. Film, photo paper, darkroom chemicals, and memory cards are examples of ordinary expenses.

If you use anything in your business that you also use personally, (cell phone, car) keep good records and track what percentage of that expense is actual business use.

Is Loan Interest Tax Deductible?

Q: I took out a small loan last year and bought equipment for my lawn care business. Is the interest I pay on that loan tax deductible?

A: Yes, it is. The equipment you bought became an asset to the business, and the loan became a liability to be repaid. Usually, interest paid on a loan like this is a deduction.

Soup is a Charitable Contribution?

Q: I do a lot of charity work. Someone told me I could take a deduction for the ingredients I buy and use when I volunteer in the soup kitchen. I also recently bought a roll of 100 stamps and used those to mail fund-raising literature for my kid’s school. Is any of that really deductible?

A: Yes, it is, but keep your receipts. Ingredients bought for soup your prepare for a non-profit organization is a charitable contribution, as is the roll of stamps you bought and used for fund-raising. It’s very important that you keep the receipts to back up your claims.

Also, the law says that if a donation is more than $250, you need documentation from the charity receiving the donation. If your grocery receipts for soup, for example, total more than $250 for the year, the charitable organization will have to give you a written receipt showing dates and dollar amounts given.

You can also deduct a mileage expense if you drive your car for charity. The 2014 mileage rate is 14 cents a mile.

Keep written mileage records to back up your deduction. In an audit, mileage is one of the first things they try to take away, and they get that done because people don’t keep good mileage records.

Can I Deduct Living Expenses Working Away From Home?

Q: I’m a computer programmer, and last year I worked a temporary, 8 month job assignment in another state. I came home a couple of weekends a month. Can I deduct the living expenses for my temporary job?

A: It’s all about time. If you take a temporary job, away from what is considered your normal tax home, you may be able to deduct those living expenses IF the job lasts LESS than 12 months. If the job lasts for more than 12 months – surprise! – you have a new tax home. The IRS considers the temporary area to be your new tax home once you’re there more than a year.

 

You can file an amended tax return up to 3 years after the original filing in order to capture missing deductions or credits. Use Form 1040X to file an amended tax return.

Do you have a tax question? Send me an email and ask!
I’ll try to include your question and my answer in an upcoming Q&A article

What Is Your Question?

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May
22

Roy: 74, Bankrupt, & It Isn’t His Debt

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Gavel in CourtRoy’s birthday is next week, and instead of spending the day with a fishing pole and a camp chair on the creek bank, he’ll be in federal bankruptcy court. The day of his hearing, Roy will drive two hours from his home into the city, alone.

Roy really doesn’t understand all the fine print on the paperwork, or the lawyer-speak. Roy really doesn’t have a clue how he hit financial rock bottom so quickly after the death of his wife.

What Roy does understand is that in order to keep his home, he must declare bankruptcy and stop any action that could be taken against him on a recent court judgment.

Roy and June were married 55 years. Roy did not handle the finances in the marriage. June did. June passed away after a very short illness, and suddenly Roy was on his own when it came to his money and the bills. If you ask him, Roy can’t tell you the name of his insurance agent.

Gene, Roy’s son, had been helping his mother balance her checking account at times during the previous year. Gene had on-line access to the account, and after having his name added, it was easy for Gene to step in and start paying the bills for his father.  Roy lucked out there.

What Gene wasn’t prepared for was the large stack of paper he found in the old desk in his parent’s living room. Past due credit card bills, collection notices, letters from lawyers, past-due medical bills – there was a lot to sort through,and it took Gene days.

The final picture that emerged was not pretty. Roy owed approximately $20,000 in non-secured debt, in addition to his home mortgage. Of the $20,000 in non-secured debt, $1500 were medical bills in Roy’s name. The remaining debt did not belong to Roy, but it was in his name – and he was getting sued for most of it.

June had taken out credit cards in Roy’s name and given them to her son, Tom, with a promise from Tom that he’d pay the bills. Tom quickly maxed out the cards – and left his mother holding the bag. Tom’s wife bought a bunch of new appliances, and bought Roy a chair, all on credit. When she didn’t pay, they came after Roy for the $5000 balance because his name was on the contract.  That turned out to be an expensive chair.

It was the judgment, recently entered against Roy for the furniture bill, that landed Roy in federal bankruptcy court.

At 74, Roy’s credit is ruined for the rest of his life. The bankruptcy could also affect his insurance rates, and the mortgage loan that is due to balloon in 3 years. Roy is paying an interest only mortgage payment now. He can’t afford for his mortgage interest rate to go up.

Roy filed Chapter 7 bankruptcy, which means all of the non-secured debt will be wiped out. He won’t have to pay the debt back, and none of the creditors can take any judgment enforcement action against him, such as levying his checking account or putting a lien on his house.  In the overall scheme of things, $20,000 is not enough to declare bankruptcy over.  In Roy’s case, however, he’s elderly and on a fixed income.  If his checking account is garnisheed, he’ll starve.

Roy really doesn’t understand any of this, because he never played an active role in his finances. Gene, of course, blames himself. He should have made it his business to know, he thinks. Maybe he could have stopped things from getting to this point, he thinks – if he only knew.

 

  • Are you actively involved in your parent’s finances, or the finances of a elderly relative?
  • Do you know if your parents have loaned money to anyone or given anyone their credit cards? What kind of financial hit would they take if they lost that money?
  • Do you owe your parents money? What would happen to them if you couldn’t pay them back?
  • If you’re married or in a significant relationship, who pays the bills?
  • How involved are you in your finances?
  • Do you know the name of your insurance agent?

 

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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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Oct
04

Free One-on-One Financial Planning Help

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Financial Planning Day What is Financial Planning?

What financial goals would you like to obtain?  What’s on your “Wish List” when it comes to money?

Do you want to buy a home?  Do you own your home, but dream about a vacation home in the mountains or a weekend home at the lake?

Do the kids want to go to Disney World next summer, but you’re not sure you can afford a local pool pass for the season?

Are you able to save today for college for the kids, or have you put that off until tomorrow? Tomorrow is already here, you know.

What about your retirement – how many retirement accounts do you have, and do you regularly fund those to the max?  Is your retirement diversified, or do you have all of your eggs in one basket?  Can you retire without Social Security and live in the manner to which you are now accustomed?  Have you thought about retirement very much, or is that something you’re going to do “tomorrow”?

Financial planning is a must, no matter who you are or what your circumstances are.  What is your financial plan right now?  What strategy do you have in place – right now – that will allow you to retire financially independent?  Do you know where to start to make your financial dreams your reality?  Do you know how to make your dreams your reality?  Are you lost when it comes to implementing changes to your money situation?

We all have money dreams, but most of us aren’t smart enough to know how to make our dreams come true.  We don’t have the time to do the research we need in order to know where to invest, or how, or how much.  We don’t know what goal to tackle first.  We aren’t sure of the quickest way to the goal line.  We’re lost when it comes to the math.  We need help.  During the month of October 2012, personal, one-on-one help is available in many cities across the country.

Financial Planning Days Initiative

During the month of October 2012, “Financial Planning Days Initiative” is taking place.  Four different non-profit organizations**  are bringing together highly qualified, professional, Certified Financial Planners to provide one-on-one counseling sessions to the public.  There will also be classroom style learning sessions held, and free packets of financial literature given away.  All of the work being done by the professionals is on a volunteer basis, and no payment is expected.  Services are free.  You can sit down with a financial planner and ask for personal advice – with no strings attached.  The volunteers will not try to sell you anything, they won’t even give you their business card.  No business will be promoted at all – the professionals are there to answer your questions and help – that’s it.  (If you are a professional, certified financial planner and would like to volunteer, you can find out how here)

Gather your questions about retirement planning, debt, credit issues, budget questions, taxes, college, mortgage loans, investments, estate planning, small business finance, and insurance together, and find out if the Initiative is available where you live:

Click here to find a Financial Planning Day in your area

A list of 2012 events can be found by clicking here

A list of participating states:

  • Arizona
  • California
  • Colorado
  • District of Columbia
  • Florida
  • Illinois
  • Indiana
  • Maryland
  • Minnesota
  • Nebraska
  • New Jersey
  • Ohio
  • Oregon
  • Pennsylvania
  • Texas
  • Virgina
  • Washington

Can’t go?  You Can Still Get the Same Information Packet Being Handed Out

If there is no Financial Planning Initiative in your state, the free information packet information is still available to you and can be found at the links below.  Take a look at the information available, and give yourself a quick education in the basics of financial planning.  Pick up tips and advice on everything from a college savings plan to long term care insurance.

You Can Organize & Simplify Your Financial Life:  A How To Guide

Saving and Investing:  A Roadmap to Your Financial Security Through Saving and Investing

Savings Fitness:  A Guide to Your Money & Your Financial Future

Smart Saving for College – 529 Plans & Other College Savings Options

Guide to Disability Income Insurance

Guide to Long Term Care Insurance

Consumer Guide to Financial Self-Defense

 

** Certified Financial Planner Board of Standards, Inc.®, Financial Planning Association®, the Foundation for Financial Planning, and the U.S. Conference of Mayors

 

 

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The Bank May Own Your Home, But Don't Let Them InsureA representative from the Sheriff’s office knocked on the front door, clipboard in hand. She was there as a courtesy, to inform the homeowner that first thing the next morning the sheriff would arrive to move everything in the house to the curb. Barb was being evicted, courtesy of “The Bank”. The homeowner knew the eviction was coming, she just didn’t know when. Filing Chapter 13 Bankruptcy six years previous and jumping through the required hoops, court appearances, and red tape paperwork had not saved her home in the end.

Fifteen years ago, starry-eyed Barb was living the American Dream of Home Ownership the day she signed loan papers and bought her first house. She had a good job as an employee of the state where she lived, earning a decent wage, had a retirement account, some money in the bank, and a savings account. Buying a house seemed like the next logical step, and she took it. The payment was certainly cheap enough, just slightly over $550 a month – monthly rent was more than a house payment! It made sense to buy instead of rent!

Things were good for quite a few years, but due to budget cut-backs, Barb lost her job with the state. The economy was starting to slow down and unemployment was rising. There were suddenly a lot of 30 and 40-something women out there, looking for work. When her savings ran out, she cashed in her retirement account to pay the bills. By picking up work here and there, Barb was able to stretch what money she had saved for retirement and pay bills for two years. Before she did hit that area slightly beyond broke, Barb was able to get a new job with a non-profit agency. She was back to work full time.   Things began to look up.

One day Barb got sick. High health insurance deductibles, co-pays, percentages the insurance wouldn’t pay, lost wages from missed work once the sick pay ran out. Everything began to gather into a perfect financial storm that would culminate in losing her home. Barb had no clue what was coming down the track.

During the time Barb was sick, she missed paying the premium on her homeowners policy. She remembered getting a letter from “The Bank” – it was in a stack of mail that was waiting for her when she returned home from a hospital stay. The letter told her that because “The Bank” had a financial interest in her home, and because the insurance policy protecting the dwelling had lapsed, “The Bank” had purchased a policy to cover their interest in the house. Barb had so many things to worry about that day, she breathed a sigh of relief that catching up on past-due insurance premiums wasn’t such a pressing issue anymore. There was still insurance on the house in case it caught fire tomorrow. “The Bank” was also going to be nice, and add the insurance premium to her house payment. Barb put all worry about homeowners insurance out of her mind at that moment.

Barb got sicker. She was in the hospital again, and again. Bills were piling up, and for some reason her monthly mortgage payment had gone from a tad over $550 a month to almost $900. She didn’t understand what the $400 listed each month in the “Miscellaneous” column was for, and repeated calls to “The Bank” didn’t get any answers.

Things were getting bad financially. The utilities were turned off, but Barb was able to get help from a non-profit agency to turn them back on.  She started selling off her belongings in garage sales, but before long there were too many bills, and there was never going to be enough money.

Barb consulted an attorney, who took one look at her financial situation and advised her to file bankruptcy to stop the collection agencies and save her house.  She filed Chapter 13 Bankruptcy, and was set up with a five year repayment plan.  Barb’s plan was to use this breathing room the bankruptcy would give her to catch up on her past-due mortgage and try to get a handle on her health.

Barb needed help with her with income tax filings. She had been so sick she hadn’t filed anything for a few years, and the Bankruptcy Court and the IRS were demanding tax returns. While looking through her paperwork, I realized what that $400 a month tacked onto her mortgage payment was for: it was the premium for the homeowners policy “The Bank” had bought when her policy lapsed. She had been charged this “premium” for at least two years, perhaps three, which had thrown her into a very deep hole. I immediately called my insurance agent and put him in contact with Barb. He was able to write a policy on her home that cost approx. $100 a month. We were able to get “The Bank” to stop charging her for “The Bank” policy – but the damage had been done. That “past-due balance” hole was pretty deep at this point.

Barb got sicker. Barb had major surgery that required a lengthy hospital stay. She was only home from the hospital a few days when she had a heart attack in the middle of the night. The doctors told her it was a miracle she was able to wake up and get help for herself. Back to the hospital she went, and when she came out a few weeks later, she was permanently glued to a portable oxygen canister. Barb lost her job.

It took about six months, but Barb was qualified for and started receiving Social Security Disability. It didn’t make much difference by that time – her Social Security check is $1100 a month, the mortgage was in such arrears due to the added “miscellaneous” expense and simply not being paid, there was no catching up. Barb could maintain, but she could not catch up.

In May of this year, Barb received a letter from “The Bank”, telling her that her home was due to be sold at a foreclosure sale. “The Bank” bought it at that sale and changed the county real estate records to show they were the owner of record.

Barb started looking around for income based housing, and found out there was a three year waiting list for anything
she could afford. She knew she couldn’t stay in the house indefinitely, but what does a person do in a situation like this? They stay where there is a roof over their head. Last week, the Sheriff’s office representative showed up at the front door, clipboard in hand. When she saw Barb was on oxygen, and was able to see that she was under the care of a doctor, she told Barb to show that documentation to the Sheriff when he did arrive with a crew – it might make a difference, it might not.

Barb was able to work with the sheriff to avoid having her entire household moved to the curb. Friends came with a trailer, and within a few days everything she owned was packed and moved into a friends garage and basement. Within the week, Barb was out of her home of 15 years and living with a friend. She is looking for a rental home she can afford. With only $1100 in disability income a month, it isn’t going to be easy.

This is not an isolated case. “The Bank” that Barb paid her mortgage to is a large, national bank. Last fall, my in-laws stopped by my house one day and asked me to take a look at mortgage papers they had received from their bank – which is a small bank in my hometown. This “hometown” bank has a few branches in neighboring villages, but it is not a large, national bank, nor a large bank chain. My in-laws were attempting to refinance their existing mortgage in order to take advantage of a cheaper interest rate. I knew my in-laws paid their own home-owners insurance, and I knew the local agent they did business with. I was surprised to see a line item in the refinance papers for “home owners insurance”, and the cost: $2000 per year. The current insurance policy with the local agent is around $700 per year.

If your finances deteriorate to the point that you cannot pay the insurance premiums on your home, don’t automatically let the bank buy a replacement policy for you.  Talk to your insurance agent and see what can be done to keep the policy you have now.  If you are signing loan papers, pay attention to every line item in the loan disclosure paperwork and the loan papers themselves. If you see something you don’t understand or do have questions about, ASK. The law requires that your lender give you an answer. Ask questions until everything is explained to your satisfaction. It is your money, make sure you understand the cost.

For those of you that are asking the question, “Does the bank make money on those premiums, is that why they are so high?” The answer is, “Yes, you bet they do.”  Writing that policy to cover that loan through an insurance company (working with the bank for that very purpose) nets the bank a tidy commission.

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