// BLOG
How families making $75,000 can get hit with AMT
March 26, 2007
There was a very good article on the AMT tax this morning on CNN Money’s website.
It basically talks about how the AMT is supposed to keep the rich from paying too little tax, but since the AMT rules have never been adjusted, it’s middle income Americans who are facing the AMT.
I agree that the AMT needs to be fixed, as more and more of my clients become subject to the AMT every year.
Click here to read more.
Tags: AMT, alternative minimum tax
Don’t forget the Energy Tax Credits
March 21, 2007
Just a quick reminder…
If you made improvements to your home in 2006, you may be eligible for one of the Energy Tax Credits.
Improvements such as adding insulation, replacement windows and energy efficient furnaces and air conditioning units all qualify.
The credit ranges from $50 to $500 depending on which improvements you made and how energy efficient the improvements are.
To qualify for the credit, you will need to keep your receipt and you should also have a manufacturer’s certification statement that shows the specifications of the product.
For more details about the credits available and the requirements please visit: http://www.energystar.gov/index.cfm?c=products.pr_tax_credits#s1
Tags: income tax credit, tax deduction, energy tax credit
Coping with market fluctuations
March 6, 2007
You’re probably aware that the stock market fell 400 points last week. How did you handle the drop? Did you panic and sell, or did you hold tight?
Market cycles are normal and should be expected. You shouldn’t allow your emotions to influence your investing decisions. Remember these important points when making investment decisions:
Diversify to reduce risk. Spread your investments among various asset classes (stocks, bonds, cash) based on your goals, time frame and risk tolerance. If your portfolio is properly diversified, a decline in one asset type will be balanced out by a gain in another asset type.
Focus on long term goals and your overall portfolio. Short term blips are insignificant if you are investing for 10, 20 or 40 years. In addition, it’s more important how your overall portfolio performs than how each individual investment performs. Remember, 90% of your investment return is determined by how your portfolio is allocated, rather than the individual investments you choose.
Make market fluctuations work for you. If you are in the accumulation phase, take adantage of a market drop to buy investments. Remember the old adage "buy low, sell high"? The best time to buy low is right after a market drop. If you are close to retirement, use market fluctuations to evaluate your portfolio for appropriate risk tolerance and diversification. If the drop in your portfolio was more than you can tolerate, consider rebalancing to an asset mix that is more appropriate for you – however, don’t make any rash decisions; wait a few days and use dollar cost averaging so that you don’t sell low and buy high.
Here are some great articles addressing the market drop last week, and how to handle financial anxiety:
How to cope with financial anxiety
Market misbehavior calls for wary eye, not grounding
Several tax law changes not included on 2006 forms
February 14, 2007
Be careful if you are preparing your own tax return this year; there are several tax deductions, credits and other provisions that are NOT listed on the tax forms.
The Tax Relief and Health Care Act of 2006 was passed in December 2006, after the IRS completed and printed the tax forms for 2006. Fortunately, several tax provisions that were scheduled to expire were extended, and several new tax provisions were created by this tax act. Unfortunately, since the IRS had already printed the tax forms for 2006, these new and extended tax provisions are not included on the forms.
The provisions that will affect most taxpayers are the tuition and fees deduction, teacher-related expenses, and the deduction for sales taxes paid.
Most tax software will have updated information on these tax provisions, so you should use tax software or see a tax professional to have your taxes prepared this year. You should not attempt to prepare your return by hand this year, or you could miss a deduction/credit that was passed after the forms were printed.
For more details, see IRS Notice IR-2006-195, or visit the IRS website at www.irs.gov
Tags: income taxes, tax act, tax preparation
172 investing classes at Morningstar
January 21, 2007
I am frequently asked for good resources to learn more about investing. Morningstar.com is one of my favorite resources to learn more about investing.
The Morningstar Classroom offers over 172 courses on investing. Topics cover stocks, bonds, mutual funds and portfolio management.
The classes are free and start from a basic learning level and progress up to an advanced level, so investors of all levels can improve their investing knowledge. Visit the Morningstar Classroom to review the course catalog and to sign up.
In addition to these free courses, Morningstar also offers investing workshops for a nominal fee. The workshops are more in depth than the free courses, and include exercises to help sharpen your investing skills.
Finally, Morningstar has some great articles on their website. My favorite columnist is Sue Stevens. Click on the Personal Finance tab to read Sue’s articles.
Tags: investing
Can you deduct your home office?
January 10, 2007
Do you have a home office? Do you know if it qualifies for the home office deduction?
The IRS has actually relaxed it’s position on home office in the last few years, so you may qualify, even if you didn’t previously.
To qualify for the home office deduction, your home office must:
- Be your principal place of business, or
- Be used to meet clients, customers or patients, or
- Be a separate structure not attached to your home.
Most solo professionals have their home office in their home, so we’ll focus on the first two requirements:
Meeting clients, customers and patients is pretty self explanatory. If you use your home office to meet with clients, you qualify.
Place of business is a little harder to define. Basically, you have to use your home office regularly and exclusively for management and administrative duties of your business, and you must not have another location where these activities can be conducted.
Still not sure if your home office qualifies? Check out IRS Publication 587 – Business Use of Your Home, or the article The Home Office Tax Deduction.
Tags: taxes, home office deduction, self employed
Where to keep your emergency fund
January 9, 2007
In the last few weeks, I’ve talked about why you should have an emergency fund, and how much you should have.
Today I want to talk about where to keep your emergency fund.
If you’ve followed the guidelines (3 to 6 months of living expenses, or $1,000 if you’re working on a ‘baby’ emergency fund), then you may have a substantial amount of cash lying around.
You don’t want this money sitting in a checking account earning no interest, or a savings account that earns less than 1% interest.
On the other hand, you don’t want to put your emergency fund at risk. So where to put that cash? Here are some suggestions:
1. Look for a money market account at a bank or credit union in your area. A great place to start your research is Bankrate.com, where you can search by your location. Your local paper might also list money market accounts in the money or finance section.
2. If you’re comfortable with online banking, check out internet banks such as ING, HSBC, or Emigrant. Online banks may offer a higher interest rate than local banks because they have lower overhead.
3. CDs – although a good portion of your emergency fund should be in liquid accounts that are easy to access, you might want to keep part of your emergency fund in CDs to earn a higher interest rate. Shop Bankrate.com or your local banks for the best rates.
4. Money market mutual funds – if you already have investments with a mutual fund company or brokerage company, you might consider using a money market mutual fund for your emergency fund. Rates are competitive and this option may be more convenient for you if you already have a brokerage account.
5. Short-term and ultra short-term bond funds – these are bond funds which fluctuate based on what the bond market is doing, so the value of your bond fund can go down. However, there is potential for a greater return than a money market or CD, if you don’t mind the additional risk.
Tags: saving money, budgeting, emergency fund
The AMT to be repealed?
January 6, 2007
A bill has been introduced into the Senate to repeal the AMT tax this week.
If you’re not familiar with AMT, it is the Alternative Minimum Tax, created to keep higher income taxpayers from paying too little income tax. Unfortunately, the AMT has never been adjusted, so many middle income taxpayers have fallen victim to the AMT in recent years.
The Tax Increase Prevention and Reconciliation Act of 2005 provided some AMT relief by increasing the AMT exemption amount, but this is just a one-year fix.
Without permanent changes to the AMT tax, more and more middle income taxpayers will be subject to this tax each year.
The legislation that was introduced into the Senate calls for the death of the AMT tax. Click here to read more.
Tags: income tax, AMT, alternative minimum tax
50 Ways to Cut Health Care Costs
December 20, 2006
Just ran across the article 50 Ways to Cut Health Care Costs on CNNMoney’s website.
As fast as health care costs are rising, I think it’s a good idea to educate yourself about your health care costs and how to cut them.
#3 Pay up front, in cash – I have done this several times, and have gotten a 15% discount as a result. If it’s a cost that won’t be covered by insurance (because you have a high deductible), then it benefits you to pay up front to get the discount.
#10 Visit a retail health clinic (such as CVS and Walmart) – I haven’t had any reason to do so yet, but it’s nice to know that I have somewhere else to go for poison ivy, the flu, or other small ailments that’s less costly than a visit to the doctor.
#18 Consider an HSA – although these aren’t right for everyone, I have an HSA and love the savings (lower premiums and a tax break).
Click here to read the full article: http://money.cnn.com/popups/2006/moneymag/healthcare/index.html
Beware the High Cost of Payday Loans
December 16, 2006
I noticed that a payday loan store moved into my neighborhood recently, then I looked around and realized there are several in my area.
This made me wonder… how profitable are these payday loan places, that they are popping up on every street corner? I’ve heard that payday loans charge high interest rates, but I had never really researched this info before now.
Here’s what I found out…
First, if you’re not familiar with payday loans, basically, they are short-term loans, usually in small amounts. Typically, you write a check for the amount of the loan plus fees, and the lender cashes the check on a specified date, usually one to four weeks later.
Here’s an example: you need $100 to pay your bills so you borrow $100 from a payday loan company. You write a check for $115 and leave it with the lender, to be cashed in two weeks. Your fee for that loan is $15 – that is an annual percentage rate (APR) of 391%.
Although the Truth in Lending Act requires lenders to disclose the finance charge, including the APR, many consumers do not understand the true cost of a payday loan. To continue the example above, let’s assume that you can’t pay the $115 when it comes due. The lender allows you to roll the loan over for another two weeks, but you pay another fee each time you do this. If you rollover the loan in the example above three times, your total finance charges would be $60, for a $100 loan. That equates to an APR of more than 1000%!
As you can see from the example this a very costly way to borrow, even when compared to high interest credit cards. If you find yourself in a cash bind, here are some alternatives to payday loans to consider: a personal loan from a bank or credit union, a personal loan from family or friends, a cash advance against your credit card, a cash advance from your employer, etc.