As you read this, more and more of the state governments are running deficits. I have seen various threats around the internet to withhold the tax refunds from taxpayers.
As you are in the process of getting your tax return completed or at least shortly thereafter, you may want to consider doing some type of tax projection. This will give you the information you need to plan your withholding properly.
Ideally, you should break even or owe just a little. Many people do like the idea of getting a large tax refund. They treat this withholding and subsequent tax refund as a forced savings. Some people have told me this is the only way they can save for vacation or pay that big car insurance payment.
If this is the only way you can save, then no matter what anyone says, you will continue to operate this way. However, what happens when the government is weeks late refunding your money? What happens if you have a dire or unexpected emergency? Once the money is withheld, you have absolutely NO control over it.
An alternative might be to have an automatic deduction from your paycheck which is deposited directly into a bank account or brokerage account. This would allow you to save, but you would have access to the money in the event of an emergency whether it is your personal emergency or at the state level.
It is really a good idea to sit down with you accountant and take a good hard look at your withholding situation. The bottom line is that at some point, we will all need to handle and understand the details of our own finances. By withholding too much from your paycheck and waiting for a large refund, you are essentially letting the government handle your finances. If you let the government run your savings, who knows what could happen? Please make 2010 the year you step forward and resolve to get your finances under control.
Tuesday, February 2, 2010
Thursday, March 5, 2009
Save Your Money - Skip the Franchise
When times get tough and people get laid off from their life long jobs, one of the first options many of them explore is purchasing a franchise. I was watching a program on MSNBC over the last weekend, and the commentator interviewed a woman whose web site ranked the 300 most profitable franchises.
We all hear about the profitable McDonald's chains over the years, and how various people made a killing by owning franchises. What you typically do not hear is how many people lose their life savings investing in these deals. If you stop and think about it, you are basically just buying yourself a job.
So before you dump your entire life savings into a franchise, stop and think long and hard. In this day and age, most people do not even want their kids to work for a fast food chain. If that is the case, why would YOU want to make your living from one? After spending years in college, graduate school and working like a maniac to get a professional license, do you really think you are going to pay the mortgage on your over priced house by selling french fries or ice cream cones? Do you really want to be spending all of your free time trying to schedule people to fill shifts only to have them cancel because their grandmother died for the fifth time in the last two months?
Many of these franchises sell for hundreds of thousands of dollars. Then once you purchase the rights to the franchise, there are ongoing fees. Many of them require you to purchase all of your supplies from the franchisor at inflated prices. In addition, a monthly franchise fee is not uncommon. This fees can be several percentage points of your gross sales. From what I have seen, the advertising and marketing support is minimal at best on these deals. This is the place where most new businesses need SUBSTANTIAL support, and it is severely lacking. Without proper marketing and advertising, your business will go under in a heartbeat. The training and support you receive is crucial, because in most cases the new franchisees have typically never owned a business before. They have typically been employees all of their life and are not used to wearing all of the hats in a business.
Just think about how many sandwiches you are going to have to sell to even cover the rent which could easily be a couple of thousand dollars a month. That does not even cover the food costs, not to mention the payroll. And speaking of payroll, the owner is normally the LAST person to get paid. When you actually sit down and take a good hard look at the numbers at the end of the month, many owners are making LESS than the minimum wage. On top of that, many new franchise owners have raided their 401(k) plans to obtain the funds for the franchise. To add insult to injury here, they are not only paying income taxes on the money they have withdrawn, they are also paying penalties for early withdrawals from the plan. Is this price really worth it especially if the franchise does not succeed?
So what the heck do you do when your job is in danger of disappearing? This is a great time to come in and see me. We can discuss your specific situation and assess your skills. When the large companies go under, many opportunities are created for start-up companies to pick up the pieces. Many of the companies that we all daytraded in the late 1990's during the dot com boom started off in someone's garage during that recession in the early 1990's. Many of those companies started on a shoestring and became very profitable down the road. And the best time to start thinking about a new business is BEFORE you lose that job. So start thinking and let's talk.
We all hear about the profitable McDonald's chains over the years, and how various people made a killing by owning franchises. What you typically do not hear is how many people lose their life savings investing in these deals. If you stop and think about it, you are basically just buying yourself a job.
So before you dump your entire life savings into a franchise, stop and think long and hard. In this day and age, most people do not even want their kids to work for a fast food chain. If that is the case, why would YOU want to make your living from one? After spending years in college, graduate school and working like a maniac to get a professional license, do you really think you are going to pay the mortgage on your over priced house by selling french fries or ice cream cones? Do you really want to be spending all of your free time trying to schedule people to fill shifts only to have them cancel because their grandmother died for the fifth time in the last two months?
Many of these franchises sell for hundreds of thousands of dollars. Then once you purchase the rights to the franchise, there are ongoing fees. Many of them require you to purchase all of your supplies from the franchisor at inflated prices. In addition, a monthly franchise fee is not uncommon. This fees can be several percentage points of your gross sales. From what I have seen, the advertising and marketing support is minimal at best on these deals. This is the place where most new businesses need SUBSTANTIAL support, and it is severely lacking. Without proper marketing and advertising, your business will go under in a heartbeat. The training and support you receive is crucial, because in most cases the new franchisees have typically never owned a business before. They have typically been employees all of their life and are not used to wearing all of the hats in a business.
Just think about how many sandwiches you are going to have to sell to even cover the rent which could easily be a couple of thousand dollars a month. That does not even cover the food costs, not to mention the payroll. And speaking of payroll, the owner is normally the LAST person to get paid. When you actually sit down and take a good hard look at the numbers at the end of the month, many owners are making LESS than the minimum wage. On top of that, many new franchise owners have raided their 401(k) plans to obtain the funds for the franchise. To add insult to injury here, they are not only paying income taxes on the money they have withdrawn, they are also paying penalties for early withdrawals from the plan. Is this price really worth it especially if the franchise does not succeed?
So what the heck do you do when your job is in danger of disappearing? This is a great time to come in and see me. We can discuss your specific situation and assess your skills. When the large companies go under, many opportunities are created for start-up companies to pick up the pieces. Many of the companies that we all daytraded in the late 1990's during the dot com boom started off in someone's garage during that recession in the early 1990's. Many of those companies started on a shoestring and became very profitable down the road. And the best time to start thinking about a new business is BEFORE you lose that job. So start thinking and let's talk.
Friday, September 26, 2008
Credit Crunch and Home Equity Lines of Credit (HELOCs)
Yesterday, I spent a considerable amount of time talking to clients who were concerned about the critical economic situation on Wall Street which is being debated on Capitol Hill and in the press. From practical experience and listening to the news coverage, the only thing that appears to be a safe statement is that NO ONE truly knows what is going on or the real extent of this crisis. Clearly there is plenty of blame to go around. However, it appears that a few changes here, a few changes there in addition to either the failure of or lack of regulation got us to where we are right now. And, of course, we can't leave out the greed factor here.
Many people are clearly upset that quite a few Wall Street executives have pocketed multiple millions of dollars in the last few years, and they do not want to further enrich these people. This is VERY understandable. It appears that one of the biggest issues here is that the people on "Main Street" want to make sure that the Wall Street people get their heads handed to them on a platter. However, in trying to do so, the average American may end up being the ultimate loser. And that would be very sad indeed.
The complexities of this situation are well beyond the abilities of any one person to solve and, most likely, the abilities of our elected officials. Most of them just do not have the complex financial background that this situation requires. The news reports indicate that none of the individual Senators or Representatives have actually seen any proposed legislation.
I know that when new tax legislation is released, it is usually several inches thick and is almost unreadable. In many cases, the presence of a single "and" or "or" can make the difference in the entire slant of the law. It normally takes many months and sometimes years and "technical corrections acts" to figure out the real impact of certain provisions that passed. For example, the Roth IRA legislation was passed about 10 years ago. While I immediately saw the benefits of this provision, I sat through many tax continuing education programs where CPAs could find no benefit to doing a Roth IRA. It is only in recent years that most financial advisers agree on this concept.
We are getting the message that this legislation must be passed IMMEDIATELY so that the financial markets do not collapse. So, if and when some type of legislation passes, we can be assured of two things: that SOMETHING was done and that it will take a long time to sort out the real implications of the legislative action. In the meantime, there is the very real possibility that the markets can freeze up entirely if nothing is not done or the right legislation is not enacted.
So - what should you do? The thought of not being able to use your credit card is pretty scary to some people. Right now a number of banks have actually decreased the amount of available credit to a number of their card holders. How would you feel if you needed some gas to get to work and the ATM did not spit out the $50 to $100 you needed to fill up your tank. Just think about it for a minute. But, suddenly, that is a real possibility here.
Yesterday I talked to a client who was concerned about the home equity lines of credit he has on a couple of his houses. He regularly uses these lines of credit to finance his business. He wanted advice on whether or not to take the money out now or wait. He did not want to withdraw the money and pay the interest on the funds sitting in a bank account which may never be used. I asked him what would happen if the bank froze his line of credit. He said that he would be out of business as many of his assets are either tied up in inventory, real estate or collectibles.
We spent quite a while discussing his situation. Another piece of this puzzle that factors in here is that the bank froze his line of credit last fall when home prices started falling. The bank wanted to determine if there was still enough equity in his home to continue to lend him the money. The equity in your home is the difference between the fair market value of your house (what you can sell it for) and the amount of the mortgages outstanding on your house. In other words, this is the portion of the house that you actually own. In many cases, people no longer have any equity left in their homes, and the amount of the mortgages exceeds the value of the homes. When the equity shrinks, the bank will close down your line of credit.
I asked my client how much warning he had been given when the bank froze his line of credit. He said he had no notice whatsoever. In fact, he even had written a check on his line of credit that had not cleared when the bank froze the credit line. The check was held up for a number of days while the bank performed its analysis. Luckily for my client, the bank honored the check and left his line of credit intact. However, many people have had their lines of credit decreased or closed down without any warning. This practice has been going on for about a year.
Another client of mine has a situation where where he has a home equity line and his spouse needs the money to pay for her long term care. If the home equity line is not available, the spouse could potentially be turned out on the street.
So, take a good look at your own situation and try and determine your needs in the immediate future and maybe even for a couple of years. We do not know how long this crisis will take to straighten out. If you will need the money from your line of credit in order to function, you may need to withdraw it now and stash it in some type of savings. But everyone is different, and there is no "one size fits all" answer.
Many people are clearly upset that quite a few Wall Street executives have pocketed multiple millions of dollars in the last few years, and they do not want to further enrich these people. This is VERY understandable. It appears that one of the biggest issues here is that the people on "Main Street" want to make sure that the Wall Street people get their heads handed to them on a platter. However, in trying to do so, the average American may end up being the ultimate loser. And that would be very sad indeed.
The complexities of this situation are well beyond the abilities of any one person to solve and, most likely, the abilities of our elected officials. Most of them just do not have the complex financial background that this situation requires. The news reports indicate that none of the individual Senators or Representatives have actually seen any proposed legislation.
I know that when new tax legislation is released, it is usually several inches thick and is almost unreadable. In many cases, the presence of a single "and" or "or" can make the difference in the entire slant of the law. It normally takes many months and sometimes years and "technical corrections acts" to figure out the real impact of certain provisions that passed. For example, the Roth IRA legislation was passed about 10 years ago. While I immediately saw the benefits of this provision, I sat through many tax continuing education programs where CPAs could find no benefit to doing a Roth IRA. It is only in recent years that most financial advisers agree on this concept.
We are getting the message that this legislation must be passed IMMEDIATELY so that the financial markets do not collapse. So, if and when some type of legislation passes, we can be assured of two things: that SOMETHING was done and that it will take a long time to sort out the real implications of the legislative action. In the meantime, there is the very real possibility that the markets can freeze up entirely if nothing is not done or the right legislation is not enacted.
So - what should you do? The thought of not being able to use your credit card is pretty scary to some people. Right now a number of banks have actually decreased the amount of available credit to a number of their card holders. How would you feel if you needed some gas to get to work and the ATM did not spit out the $50 to $100 you needed to fill up your tank. Just think about it for a minute. But, suddenly, that is a real possibility here.
Yesterday I talked to a client who was concerned about the home equity lines of credit he has on a couple of his houses. He regularly uses these lines of credit to finance his business. He wanted advice on whether or not to take the money out now or wait. He did not want to withdraw the money and pay the interest on the funds sitting in a bank account which may never be used. I asked him what would happen if the bank froze his line of credit. He said that he would be out of business as many of his assets are either tied up in inventory, real estate or collectibles.
We spent quite a while discussing his situation. Another piece of this puzzle that factors in here is that the bank froze his line of credit last fall when home prices started falling. The bank wanted to determine if there was still enough equity in his home to continue to lend him the money. The equity in your home is the difference between the fair market value of your house (what you can sell it for) and the amount of the mortgages outstanding on your house. In other words, this is the portion of the house that you actually own. In many cases, people no longer have any equity left in their homes, and the amount of the mortgages exceeds the value of the homes. When the equity shrinks, the bank will close down your line of credit.
I asked my client how much warning he had been given when the bank froze his line of credit. He said he had no notice whatsoever. In fact, he even had written a check on his line of credit that had not cleared when the bank froze the credit line. The check was held up for a number of days while the bank performed its analysis. Luckily for my client, the bank honored the check and left his line of credit intact. However, many people have had their lines of credit decreased or closed down without any warning. This practice has been going on for about a year.
Another client of mine has a situation where where he has a home equity line and his spouse needs the money to pay for her long term care. If the home equity line is not available, the spouse could potentially be turned out on the street.
So, take a good look at your own situation and try and determine your needs in the immediate future and maybe even for a couple of years. We do not know how long this crisis will take to straighten out. If you will need the money from your line of credit in order to function, you may need to withdraw it now and stash it in some type of savings. But everyone is different, and there is no "one size fits all" answer.
Sunday, September 21, 2008
Real Estate Tax Payments
Between July 1 and December 31, real estate taxes are due for many jurisdictions. The great majority of homeowners with mortgages escrow their real estate taxes. Quite a few just automatically make that monthly payment which includes principal, interest, taxes and insurance. They do not really take the time to check and see if the bank or mortgage company actually made the tax payment to the local taxing authorities.
With all of the recent bank failures, it might be a good idea to check and see if your mortgage company actually paid the real estate tax bill. Mortgages are being transferred quite more frequently lately, and with all of the turmoil in the financial markets, you want to make sure that your real estate tax bill does not get overlooked. Last year a few companies went out of business without forwarding the monthly escrow payments on to the tax authorities. And this was before the real financial crisis hit!
Many counties have a web site where you can actually check to see if the bill has been paid. It might be worth your while to print out the bill showing that the taxes have actually been credited to your account. If the taxes have not been paid promptly, contact your mortgage company promptly. You are still responsible for the payment of the taxes even if the bank fails to pay them.
With all of the recent bank failures, it might be a good idea to check and see if your mortgage company actually paid the real estate tax bill. Mortgages are being transferred quite more frequently lately, and with all of the turmoil in the financial markets, you want to make sure that your real estate tax bill does not get overlooked. Last year a few companies went out of business without forwarding the monthly escrow payments on to the tax authorities. And this was before the real financial crisis hit!
Many counties have a web site where you can actually check to see if the bill has been paid. It might be worth your while to print out the bill showing that the taxes have actually been credited to your account. If the taxes have not been paid promptly, contact your mortgage company promptly. You are still responsible for the payment of the taxes even if the bank fails to pay them.
Saturday, July 12, 2008
This Is Scary - IndyMac Bank Failure
This morning I woke up to the news of the failure of IndyMac Bank. One news article said that the assets of the bank were "seized" by the FDIC. Bank depositors have very limited access to their funds over this weekend. They are limited to what they can get through an ATM card. Just think - this would not be the weekend to have the ATM "eat" your bank card.
This is the second largest bank failure in U.S. history. Some 10,000 depositors had funds in IndyMac in excess of the insured limit of $100,000 for a total of $1 BILLION. According to an FDIC statement, funds deposited in IRAs were separately insured up to $250,000.
The failure of IndyMac should serve as a sign for everyone to step back and take a good hard look at the safety of their assets. It has been a long time since the insured limit of $100,000 was set. Many years ago, the $100,000 limit seemed unattainable to many people. Right now, I have many clients who routinely keep a higher balance than that in their checking account. It is not at all unusual for someone to have more than $250,000 in an IRA in this day and age.
The days of the bank failures are pretty much in the distant past in the days of the "Great Depression" in most of our minds. However, with the recent news stories about the struggles of Fannie Mae and Freddie Mac, the collapse of the housing market and now the failure of IndyMac, I think this is a wake up call to all of us.
Please call me if you need some ideas on how to possibly safeguard your money. We can look at your specific individual situation to see what will work for you.
This is the second largest bank failure in U.S. history. Some 10,000 depositors had funds in IndyMac in excess of the insured limit of $100,000 for a total of $1 BILLION. According to an FDIC statement, funds deposited in IRAs were separately insured up to $250,000.
The failure of IndyMac should serve as a sign for everyone to step back and take a good hard look at the safety of their assets. It has been a long time since the insured limit of $100,000 was set. Many years ago, the $100,000 limit seemed unattainable to many people. Right now, I have many clients who routinely keep a higher balance than that in their checking account. It is not at all unusual for someone to have more than $250,000 in an IRA in this day and age.
The days of the bank failures are pretty much in the distant past in the days of the "Great Depression" in most of our minds. However, with the recent news stories about the struggles of Fannie Mae and Freddie Mac, the collapse of the housing market and now the failure of IndyMac, I think this is a wake up call to all of us.
Please call me if you need some ideas on how to possibly safeguard your money. We can look at your specific individual situation to see what will work for you.
E-mail Alert of the Day
Recently, I signed up for emergency alerts which are delivered by e-mail so that I could keep up with the extreme bad weather and traffic in the local area. In the Washington, DC area, the weather seems to have been changing in the last few years and producing numerous tornadoes which never used to be commonplace. It is also not unusual for an accident to tie up the beltway for many hours at a time. Lately, there have been emergency alerts relating to breaking water pipes and the necessity to boil water. Every day seems to bring another new disaster.
I was surprised though when I did receive the following e-mail alert yesterday morning:
“Severe traffic disruptions at Lee Hwy/Union Mill Rd at the Shell Gas Station due to a gas giveaway from 7 a.m until 9 a.m”
I was surprised though when I did receive the following e-mail alert yesterday morning:
“Severe traffic disruptions at Lee Hwy/Union Mill Rd at the Shell Gas Station due to a gas giveaway from 7 a.m until 9 a.m”
Monday, December 24, 2007
Silent Night, Holy Night
In 1999, I was traveling with a group on a trip to Salzburg, Austria. One day after a trip to the salt mines in Germany, we were on our way back "home" when the tour guide pointed to a small church on the top of a mountain.
We were passing through Oberndorf, a small village outside of Salzburg, Austria. She said the church was St. Nikolaus Kirche the birthplace of the world's most popular Christmas carol Silent Night. As she explained it, the story goes something like this:
It was days before Christmas, and Father Joseph Mohr the parish priest was preparing for his Christmas Eve Mass. He realized he had a dilemma on his hands. He was expecting a church full of people, and his organ was broken. He really wanted some beautiful music for his Christmas Mass. However, the organ repairman was not a local, and was unable to get to the church in time for Christmas.
Father Mohr thought and thought. As he pondered his circumstances, he wandered around until he came to a hill overlooking the village. He stood there in silence looking at the snow covered village with its lights glowing in the dark and the stars shining brightly in the night sky. The peaceful scene below reminded him of a simple poem he had written two years before about the birth of the Christ Child.
On the morning of December 24, 1818, Father Mohr contacted his friend Franz Gruber the church organist to see if he could set the words of his poem to music. Father Mohr was hoping to have a carol composed which could be accompanied by a guitar. Franz Gruber jumped at the challenge. Within an hour or two, he had a melody which we now know as Silent Night.
The new Christams carol was first performed in St. Nikolaus Kirche on the evening of December 24, 1818. The story does not end there however.
The organ was eventually fixed. However, the original words and music were somehow lost over time. It seemed as though Joseph Mohr and Franz Gruber had been forgotten over the years. At one point, years later, the original words and music were discovered behind the organ. At that time, the carol gained in popularity and eventually spread around the world.
At the end of the Mass on Christmas Eve, it is customary for most churches in Salzburg to turn down the lights and light candles. The organ is silent, and the Mass finishes with a candlelight version of Silent Night, Holy Night, sung in the original German version of "Stille Nacht, Heilige Night."
Silent Night is almost 200 years old. It is sung in more than 100 languages. Just think - this is almost a miracle that this famous Christmas carol survived to this day. It was written by an obscure young priest in a small mountain village and was set to music by an unknown composer. The original manuscript was lost for a number of years, and was rediscovered by accident. Silent Night somehow became the most popular Christmas carol in the world without the benefit of television, a celebrity recording or the Internet.
Have a peaceful Christmas!!!!!!!!!
We were passing through Oberndorf, a small village outside of Salzburg, Austria. She said the church was St. Nikolaus Kirche the birthplace of the world's most popular Christmas carol Silent Night. As she explained it, the story goes something like this:
It was days before Christmas, and Father Joseph Mohr the parish priest was preparing for his Christmas Eve Mass. He realized he had a dilemma on his hands. He was expecting a church full of people, and his organ was broken. He really wanted some beautiful music for his Christmas Mass. However, the organ repairman was not a local, and was unable to get to the church in time for Christmas.
Father Mohr thought and thought. As he pondered his circumstances, he wandered around until he came to a hill overlooking the village. He stood there in silence looking at the snow covered village with its lights glowing in the dark and the stars shining brightly in the night sky. The peaceful scene below reminded him of a simple poem he had written two years before about the birth of the Christ Child.
On the morning of December 24, 1818, Father Mohr contacted his friend Franz Gruber the church organist to see if he could set the words of his poem to music. Father Mohr was hoping to have a carol composed which could be accompanied by a guitar. Franz Gruber jumped at the challenge. Within an hour or two, he had a melody which we now know as Silent Night.
The new Christams carol was first performed in St. Nikolaus Kirche on the evening of December 24, 1818. The story does not end there however.
The organ was eventually fixed. However, the original words and music were somehow lost over time. It seemed as though Joseph Mohr and Franz Gruber had been forgotten over the years. At one point, years later, the original words and music were discovered behind the organ. At that time, the carol gained in popularity and eventually spread around the world.
At the end of the Mass on Christmas Eve, it is customary for most churches in Salzburg to turn down the lights and light candles. The organ is silent, and the Mass finishes with a candlelight version of Silent Night, Holy Night, sung in the original German version of "Stille Nacht, Heilige Night."
Silent Night is almost 200 years old. It is sung in more than 100 languages. Just think - this is almost a miracle that this famous Christmas carol survived to this day. It was written by an obscure young priest in a small mountain village and was set to music by an unknown composer. The original manuscript was lost for a number of years, and was rediscovered by accident. Silent Night somehow became the most popular Christmas carol in the world without the benefit of television, a celebrity recording or the Internet.
Have a peaceful Christmas!!!!!!!!!
Thursday, October 25, 2007
What Do Brussel Sprouts and Recordkeeping Have in Common????
If there are two things that I have realized that people really hate lately, they are brussel sprouts and recordkeeping. I originally thought that broccoli might be the most hated vegetable after all of the publicity that it received from George Bush years ago. However, I recently took an informal poll, and most people volunteered that they hated brussel sprouts before I could even finish the question.
In working with many clients over the years, it appears that one of the most DETESTED parts of the tax preparation process relates to the recordkeeping. Most people hate it with a passion - if they can even figure out what to keep and what to discard. Consequently, I will be doing an ongoing series of articles on recordkeeping in an effort to ease the pain a little.
Normally, I find that if people keep the proper records, they do not end up paying any more tax than they can afford. However, when there are few or even no records, there are no accurate ways to measure the transactions. In those cases, the taxpayer normally has to report more income than is otherwise required to satisfy the IRS.
I get many questions as to how long people should keep their records. If you look over the internet and listen to some of the financial gurus, there are many "standard" answers to these questions. However, in real life, these canned answers just do not work.
A few years ago, I had a client call me to indicate he was hoping to retire in a few years. He was in the process of determining how much retirement income he would receive from the school system where he had worked for approximately 30 years. That question sounded easy enough. He should just call the school system for this information, since he had been employed there his entire adult life. It turns out that the school system had no record of his early employment because they were either not computerized early on or they had changed computer systems, and the records had become lost in the process.
I suggested that the client just pull out his W-2s from his old tax returns. I generally tell people to save all of their old tax returns, so I thought we were done. He then proceeded to tell me that a financial advisor had suggested that he could discard any tax returns over 4 years old. Needless to say, this relatively simple question became a rather long involved and drawn out process.
I often work with other clients who keep NO records whatsoever. In some cases, I have had to wait through several pay cycles just to refinance a mortgage because the clients shred their pay stubs as soon as they receive them in the mail.
In this day and age, most people are assuming that the information is readily available online. However, that is just not the case. Even though most of the banks are encouraging online paperless banking, just see what happens if you are a renter trying to buy a house. The bank often requires 12 months of rent checks copied front and back to verify the timely payment of your rent. This information is not necessarily easily accessible online. I was working with a couple last year who was buying a new house. They did not have the copies of the bank statements and canceled checks. I had to physically go to the bank myself and help the banker dig through the records to find the checks to the landlord.
A number of years ago, one of my clients was going through a nasty divorce. His ex-wife hauled him back to court in an effort to get more child support. My client was required to document EVERY penny he had spent for the last 5 years. How do you do that if you shred as you go?
I have another client who was self employed for quite a number of years as a real estate agent. She was formerly married to another real estate agent. In an effort to save on the self employment taxes in back in the 1970s, the former accountant put all of her self employment income under her husband's name (a common short-sighted tax planning strategy at the time). When she was trying to determine how much Social Security she would receive at retirement, she was surprised to learn that she had no Social Security earnings for a number of years. In this case, she needed those old tax returns from 30 years before to prove her point
Then there are many cases where records are necessary on a more routine basis. In the coming months, we will explore recordkeeping related to your principal residence. There were tax law changes over 10 years ago that impacted this area that many people still do not understand today.
One of the most misunderstood areas of recordkeeping relates to the purchase and sale of stocks and mutual funds. Many people are SUBSTANTIALLY overpaying their taxes due to recordkeeping failures in this area. Believe it or not, it is sometimes easier to handle the numerous stock transactions of some of the day traders as opposed to the single stock sale of someone who has bought and held a single stock for a substantial number of years.
Employee stock purchase plans and stock option plans are another issue in this area. You can easily be double taxed if you don't keep adequate records. Your former employer just cannot be relied upon to handle your recordkeeping. It is often hard enough to obtain these records in the current tax year. What do you think happens when there are changes in personnel or a merger of the company?
Other places where records need to be kept in detail include business receipts and rental properties. In my own family, I had to go back over 40 years to obtain information a number of years ago.
I guess that brings us to the question of, "Well, how long should I hold on to my records?" At this point, my answer is a very definitive, "It depends." I will continue to explore all of these issues in detail in upcoming blog posts. Since everyone seems to hate recordkeeping so much, I figure I am well over the limit on this discussion today!!!!!
In working with many clients over the years, it appears that one of the most DETESTED parts of the tax preparation process relates to the recordkeeping. Most people hate it with a passion - if they can even figure out what to keep and what to discard. Consequently, I will be doing an ongoing series of articles on recordkeeping in an effort to ease the pain a little.
Normally, I find that if people keep the proper records, they do not end up paying any more tax than they can afford. However, when there are few or even no records, there are no accurate ways to measure the transactions. In those cases, the taxpayer normally has to report more income than is otherwise required to satisfy the IRS.
I get many questions as to how long people should keep their records. If you look over the internet and listen to some of the financial gurus, there are many "standard" answers to these questions. However, in real life, these canned answers just do not work.
A few years ago, I had a client call me to indicate he was hoping to retire in a few years. He was in the process of determining how much retirement income he would receive from the school system where he had worked for approximately 30 years. That question sounded easy enough. He should just call the school system for this information, since he had been employed there his entire adult life. It turns out that the school system had no record of his early employment because they were either not computerized early on or they had changed computer systems, and the records had become lost in the process.
I suggested that the client just pull out his W-2s from his old tax returns. I generally tell people to save all of their old tax returns, so I thought we were done. He then proceeded to tell me that a financial advisor had suggested that he could discard any tax returns over 4 years old. Needless to say, this relatively simple question became a rather long involved and drawn out process.
I often work with other clients who keep NO records whatsoever. In some cases, I have had to wait through several pay cycles just to refinance a mortgage because the clients shred their pay stubs as soon as they receive them in the mail.
In this day and age, most people are assuming that the information is readily available online. However, that is just not the case. Even though most of the banks are encouraging online paperless banking, just see what happens if you are a renter trying to buy a house. The bank often requires 12 months of rent checks copied front and back to verify the timely payment of your rent. This information is not necessarily easily accessible online. I was working with a couple last year who was buying a new house. They did not have the copies of the bank statements and canceled checks. I had to physically go to the bank myself and help the banker dig through the records to find the checks to the landlord.
A number of years ago, one of my clients was going through a nasty divorce. His ex-wife hauled him back to court in an effort to get more child support. My client was required to document EVERY penny he had spent for the last 5 years. How do you do that if you shred as you go?
I have another client who was self employed for quite a number of years as a real estate agent. She was formerly married to another real estate agent. In an effort to save on the self employment taxes in back in the 1970s, the former accountant put all of her self employment income under her husband's name (a common short-sighted tax planning strategy at the time). When she was trying to determine how much Social Security she would receive at retirement, she was surprised to learn that she had no Social Security earnings for a number of years. In this case, she needed those old tax returns from 30 years before to prove her point
Then there are many cases where records are necessary on a more routine basis. In the coming months, we will explore recordkeeping related to your principal residence. There were tax law changes over 10 years ago that impacted this area that many people still do not understand today.
One of the most misunderstood areas of recordkeeping relates to the purchase and sale of stocks and mutual funds. Many people are SUBSTANTIALLY overpaying their taxes due to recordkeeping failures in this area. Believe it or not, it is sometimes easier to handle the numerous stock transactions of some of the day traders as opposed to the single stock sale of someone who has bought and held a single stock for a substantial number of years.
Employee stock purchase plans and stock option plans are another issue in this area. You can easily be double taxed if you don't keep adequate records. Your former employer just cannot be relied upon to handle your recordkeeping. It is often hard enough to obtain these records in the current tax year. What do you think happens when there are changes in personnel or a merger of the company?
Other places where records need to be kept in detail include business receipts and rental properties. In my own family, I had to go back over 40 years to obtain information a number of years ago.
I guess that brings us to the question of, "Well, how long should I hold on to my records?" At this point, my answer is a very definitive, "It depends." I will continue to explore all of these issues in detail in upcoming blog posts. Since everyone seems to hate recordkeeping so much, I figure I am well over the limit on this discussion today!!!!!
Saturday, September 15, 2007
How the Millionaire Mind Works
Here is an interesting item I found on a blog by Robin Bal.
A man walked into a bank in New York City one day and asked for the loan officer. He told the loan officer that he was going to Philippines on business for two weeks and needed to borrow $5,000.
The bank officer told him that the bank would need some form of security for the loan. Then the man handed over the keys to a new Ferrari parked on the street in front of the bank. He produced the title, and everything checked out. The loan officer agreed to accept the car as collateral for the loan.The bank’s president and its officers all enjoyed a good laugh at the guy for using a $250,000 Ferrari as collateral against a $5,000 loan.
An employee of the bank then drove the Ferrari into the bank’s underground garage and parked it there.Two weeks later, the guy returned, repaid the $5,000 and the interest, which came to $15.41.
The loan officer said, “Sir, we are very happy to have had and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multi millionaire. What puzzles us is, why would you bother to borrow $5,000?″ The millionaire replied: “Where else in New York City can I park my car for $15.41 and expect it to be there when I return?”
A man walked into a bank in New York City one day and asked for the loan officer. He told the loan officer that he was going to Philippines on business for two weeks and needed to borrow $5,000.
The bank officer told him that the bank would need some form of security for the loan. Then the man handed over the keys to a new Ferrari parked on the street in front of the bank. He produced the title, and everything checked out. The loan officer agreed to accept the car as collateral for the loan.The bank’s president and its officers all enjoyed a good laugh at the guy for using a $250,000 Ferrari as collateral against a $5,000 loan.
An employee of the bank then drove the Ferrari into the bank’s underground garage and parked it there.Two weeks later, the guy returned, repaid the $5,000 and the interest, which came to $15.41.
The loan officer said, “Sir, we are very happy to have had and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multi millionaire. What puzzles us is, why would you bother to borrow $5,000?″ The millionaire replied: “Where else in New York City can I park my car for $15.41 and expect it to be there when I return?”
Wednesday, September 12, 2007
Health Insurance Alert - ACTION ITEM!!!!
Do you have a son or daughter who is off at college in another state? Imagine getting a call from your daughter's roommate indicating that she has just been rushed to the hospital. Your first thought is to grab the first available flight so you can get to the hospital to be at your child's bedside.
Even though your daughter is over the age of 18, she is still covered on your insurance, because she is a full time college student. So, you are not worried about the insurance coverage. You then rush into the hospital to inquire as to your child's status. The hospital clerk politely informs you that she cannot confirm your child's status unless you produce a "Health Care Surrogate" form. This is an authorization form that grants you access to the health care information relating to your child who is actually a legal adult.
You are totally confused. She is a dependent covered on YOUR insurance policy. You are her parents, and besides, she asked you to come to the hospital. After all, she is only a college student.
The health care worker is complying with the provisions of the federally mandated Health Insurance Portability and Accountability Act(HIPAA), instituted in 1996. While most people know this law makes health insurance available to many more people, it also contains a number of privacy provisions which are are unknown to the average person until an emergency such as this arises.
Normally, patients are asked a series of privacy related questions at the time they are admitted to the hospital. However, if there is an emergency or the patient is unconscious or otherwise unable to communicate, then the health care professionals on the scene make a judgment call as to whether any information may be released to third parties.
In this age of endless lawsuits, many institutions err on the side of caution and will not release ANY information without the proper signed authorization forms. While the law was enacted to ensure a greater degree of privacy at the federal level, many states have added their own laws on top of HIPAA thereby adding to the layers. Add in a few additional hospital regulations, and no one can say anything about anyone. Many of the laws are confusing at best.
In many cases, the hospitals are only trying to comply with the law and avoid steep fines and penalties. Suddenly, the law as it is being enforced looks nothing like the intent of the original law.
So, what can you do? Here are some practical steps:
1) Have your child complete a living will. This is a document that would indicate that a person does not want to go on artificial life support.
2) Obtain a durable power of attorney. This document gives another person the power to make financial decisions on behalf of the incapacitated person.
3) Obtain a health care proxy or health care surrogate form so that someone can make health care related decisions on behalf of the person.
4) Make sure all of the papers are signed and notarized. Then scan the information into a PDF file and e-mail it to yourself such that you can access it anywhere in the world.
Hopefully, these suggestions, if followed, will allow you to spend your energy focusing on any immediate emergency rather than filling out endless paperwork. This is probably one of those cases that if you actually take the time to do the paperwork, you will never need it.
Even though your daughter is over the age of 18, she is still covered on your insurance, because she is a full time college student. So, you are not worried about the insurance coverage. You then rush into the hospital to inquire as to your child's status. The hospital clerk politely informs you that she cannot confirm your child's status unless you produce a "Health Care Surrogate" form. This is an authorization form that grants you access to the health care information relating to your child who is actually a legal adult.
You are totally confused. She is a dependent covered on YOUR insurance policy. You are her parents, and besides, she asked you to come to the hospital. After all, she is only a college student.
The health care worker is complying with the provisions of the federally mandated Health Insurance Portability and Accountability Act(HIPAA), instituted in 1996. While most people know this law makes health insurance available to many more people, it also contains a number of privacy provisions which are are unknown to the average person until an emergency such as this arises.
Normally, patients are asked a series of privacy related questions at the time they are admitted to the hospital. However, if there is an emergency or the patient is unconscious or otherwise unable to communicate, then the health care professionals on the scene make a judgment call as to whether any information may be released to third parties.
In this age of endless lawsuits, many institutions err on the side of caution and will not release ANY information without the proper signed authorization forms. While the law was enacted to ensure a greater degree of privacy at the federal level, many states have added their own laws on top of HIPAA thereby adding to the layers. Add in a few additional hospital regulations, and no one can say anything about anyone. Many of the laws are confusing at best.
In many cases, the hospitals are only trying to comply with the law and avoid steep fines and penalties. Suddenly, the law as it is being enforced looks nothing like the intent of the original law.
So, what can you do? Here are some practical steps:
1) Have your child complete a living will. This is a document that would indicate that a person does not want to go on artificial life support.
2) Obtain a durable power of attorney. This document gives another person the power to make financial decisions on behalf of the incapacitated person.
3) Obtain a health care proxy or health care surrogate form so that someone can make health care related decisions on behalf of the person.
4) Make sure all of the papers are signed and notarized. Then scan the information into a PDF file and e-mail it to yourself such that you can access it anywhere in the world.
Hopefully, these suggestions, if followed, will allow you to spend your energy focusing on any immediate emergency rather than filling out endless paperwork. This is probably one of those cases that if you actually take the time to do the paperwork, you will never need it.
Tuesday, September 11, 2007
Who or What Is An American?
A friend passed on a version of this article to me recently, and it really made me think. With the sixth anniversity of September 11 upon us, I thought it was very appropriate.
WHAT IS AN AMERICAN?
by Peter Ferrara, an Associate Professor of Law
George Mason University School of Law.
September 25, 2001 9:20 a.m.
You probably missed it in the rush of news last week, but there was actually a report that someone in Pakistan had published in a newspaper there an offer of a reward to anyone who killed an American, any American. So I just thought I would write to let them know what an American is, so they would know when they found one.
An American is English…or French, or Italian, Irish, German, Spanish, Polish, Russian or Greek. An American may also be African, Indian, Chinese, Japanese, Australian, Iranian, Asian, or Arab, or Pakistani, or Afghan.
An American is Christian, or he could be Jewish, or Buddhist, or Muslim. In fact, there are more Muslims in America than in Afghanistan. The only difference is that in America they are free to worship as each of them choose.
An American is also free to believe in no religion. For that he will answer only to God, not to the government, or to armed thugs claiming to speak for the government and for God.
An American is from the most prosperous land in the history of the world. The root of that prosperity can be found in the Declaration of Independence, which recognizes the God-given right of each man and woman to the pursuit of happiness.
An American is generous. Americans have helped out just about every other nation in the world in their time of need. When Afghanistan was overrun by the Soviet army 20 years ago, Americans came with arms and supplies to enable the people to win back their country. As of the morning of September 11, Americans had given more than any other nation to the poor in Afghanistan.
An American does not have to obey the mad ravings of ignorant, ungodly cruel, old men. American men will not be fooled into giving up their lives to kill innocent people, so that these foolish old men may hold on to power. American women are free to show their beautiful faces to the world, as each of them choose.
An American is free to criticize his government's officials when they are wrong, in his or her own opinion. Then he is free to replace them, by majority vote.
Americans welcome people from all lands, all cultures, all religions, because they are not afraid. They are not afraid that their history, their religion, their beliefs, will be overrun, or forgotten. That is because they know they are free to hold to their religion, their beliefs, their history, as each of them choose.
And just as Americans welcome all, they enjoy the best that everyone has to bring, from all over the world. The best science, the best technology, the best products, the best books, the best music, the best food, the best athletes.
Americans welcome the best, but they also welcome the least. The nation symbol of America welcomes your tired and your poor, the wretched refuse of your teeming shores, the homeless, tempest tossed.
These in fact are the people who built America. Many of them were working in the twin towers on the morning of September 11, earning a better life for their families.
So you can try to kill an American if you must. Hitler did. So did General Tojo and Stalin and Mao Tse-Tung, and every bloodthirsty tyrant in the history of the world.
But in doing so you would just be killing yourself. Because Americans are not a particular people from a particular place. They are the embodiment of the human spirit of freedom. Everyone who holds to that spirit, everywhere, is an American.
So look around you. You may find more Americans in your land than you thought were there. One day they will rise up and overthrow the old, ignorant, tired tyrants that trouble too many lands. Then those lands too will join the community of free and prosperous nations.
And America will welcome them.
Thursday, April 12, 2007
Use Certified Mail to Mail Your Tax Returns
If you are among the millions making the annual trek to the Post Office over the next few days, I strongly suggest mailing either your tax returns or extensions by Certified Mail, Return Receipt Requested. Having that receipt in hand will protect your refund or eliminate or minimize any penalties which the taxing authorities try to levy on you for late filing. These receipts do, in fact, hold up under audit.
The returns are required to be postmarked by April 17, 2007 this year. As long as you have a valid post mark, you will be OK. However, since the return will arrive after the deadline, you can protect yourself by using certified mail.
Since I personally find the Post Office forms more confusing than IRS forms, I have provided an example of how to complete the forms in the picture above. If you step into the lobby of a post office late on the night of the filing deadline, you will notice that most people are lost when it comes to completing these forms.
Since I personally find the Post Office forms more confusing than IRS forms, I have provided an example of how to complete the forms in the picture above. If you step into the lobby of a post office late on the night of the filing deadline, you will notice that most people are lost when it comes to completing these forms.
If you double click on the picture above, you should be able to enlarge it enough to see the detail. The form on the left shows the front of the certified mail form. On there, you put the address of the recipient on the left hand side, and check the box as shown for certified mail. At the bottom, put the article number of the letter being mailed. The article number comes from the left hand side of the certified mail receipt shown below in the middle. Just peel off the article number and transfer it to the front of the green card. Then turn the card over and put your return address on the back of the green card. This allows the post office to notify you that the package has been delivered and acknowledged by the recipient.
Please note that the addresses shown above are examples only, and they are not to be used for your personal mailing. I have included the specific addresses in each return or extension which has gone out. In recent years, the IRS has set up about a zillion different addresses for various tax forms. Addresses vary by the state in which you live, whether you have a refund or whether you owe money, whether your return was prepared by a professional or whether you prepared it yourself, etc., etc., etc. The variations never end, so please do not use the addresses shown above for your personal mailings.
Sunday, April 8, 2007
Happy Easter???????
Given even a little bit of time, I would have expected to produce a really nice formal Easter post for this blog. However, since we are just a little over a week from the tax filing deadline, and I am working around the clock, you will not be seeing my ideal posts here. Since this blog clearly went to the birds with the last post, I thought I would just continue along the same lines.
Yesterday, I received a call from my 2 and a half year old niece letting me know that she and her 6 year old sister were putting together an Easter basket for me. Since, I could not join in any of the family Easter festivities, I received a call to let me know that they were dropping off my Easter basket on the way home this evening. My older niece walked up to the door and gave me a big smile as she handed me the bag. I could not wait to dive in!!!!! Right on the top, I spotted one of my favorites - Peeps!!!! The girls had previously separated the chicks so that they were in the basket individually. I grabbed one and went to take a bite off of the tail. I had to look twice. There was no tail!!! I just assumed that it got ripped off in the process of pulling apart the peeps. I reached for another one. The next chick was missing both the head and the tail. A third one was in the same condition.
Apparently, the bag was sitting next to the youngest in the car, and she had beaten me to the peeps. I could not stop laughing. The evidence is shown above. I will never forget this Easter basket. To really view the detailed evidence, double click on the picture to enlarge it.
Happy Easter!!!!!!!!!!
Tuesday, April 3, 2007
Time to get your ducks lined up!!!!!!!!
OK - It is now April 3, and the tax deadline for filing either your personal tax return or an extension for 2006 is on April 17, 2007. So it is time for all of you stragglers to get your ducks lined up and give me a call. Just remember, even if you are extending your return, I still need some time to determine whether or not you need to send in a payment with your extension. For easy reference, my phone number is 301-353-9680.
Monday, April 2, 2007
Last Chance for 2003 Refunds and Amendments
April 17, 2007 will be the last chance to claim a refund for a 2003 return that was not extended. Likewise, if you need to amend your 2003 return to claim a refund, the deadline will be April 17 if you did not extend the return. The statute allows you to claim a refund if you file the return within 3 years of the due date, including extensions. After that, you will no longer receive the refund.
This is true even if you owe taxes for another year subsequent to 2003. Unfortunately, many people wait too long to file those overdue returns and end up paying unnecessarily. So, if you are expecting a refund for 2003 and you have not filed 2004 and expect to owe, get that return in as soon as possible.
If you do end up filing a return for a refund for 2003 at the last minute, make sure you mail the return Certified Mail, Return Receipt Requested. If you do not, they will find a reason to show the return was not filed on a timely basis.
