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Tax Tips for Individuals

  • The tax code provides a variety of tax incentives for families who are paying higher education costs or are repaying student loans. You may be able to claim an American Opportunity Credit (formerly called the Hope Credit) or Lifetime Learning Credit for the qualified tuition and related expenses of the students in your family (i.e. you, your spouse, or dependent) who are enrolled in eligible educational institutions. Different rules apply to each credit and the ability to claim the credit phases out at higher income levels.

    You may be able to deduct the interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not have to itemize your deductions on Schedule A Form 1040. However, this deduction is also phased out at higher income levels.

    If your student loan was canceled, you may not have to include any amount in your income.

  • Whether or not you owed taxes or received a refund last year, check your tax withholding to avoid not having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year. This is even more important due to the recent changes to the tax law for 2018 and beyond. On the other end, if you had a large refund you lost out on having the money in your pocket throughout the year. Changing jobs, getting married or divorced, buying a home, or having children can all result in changes in your tax calculations.

    The IRS withholding calculator on IRS.gov can help compute the proper tax withholding. The worksheets in Publication 505, Tax Withholding, and Estimated Tax can also be used to do the calculation. If the result suggests an adjustment is necessary, you can submit a new W-4, Withholding Allowance Certificate, to your employer.

  • Earlier is better when it comes to working on your taxes. The IRS encourages everyone to get a head start on tax preparation. Not only do you avoid the last-minute rush, early filers also get a faster refund.

    There are five easy ways to get a good jump on your taxes long before the April 15 deadline rolls around:

    Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don't forget to save a copy for your files.

    Get the right forms. They're available around the clock on IRS.gov in the Forms and Publications section.

    Take your time. Don't forget to leave room for a coffee break when filling out your tax return. Rushing can mean making a mistake — and that can be expensive!

    Double-check your math and Social Security number. These are among the most common errors on tax returns. Taking care of these reduces your chances of hearing from the IRS.

    Get the fastest refund. When you file early, you get your refund faster. Using e-filing with direct deposit gets you a refund in half the time as paper filing.

  • Oops! You've discovered an error after your tax return has been filed. What should you do? You may need to amend your return.

    The IRS usually corrects math errors or requests missing forms (such as W-2s) or schedules. In these instances, do not amend your return. However, do file an amended return if any of the following were reported incorrectly:

    Your filing status

    Your total income

    Your deductions or credits

    Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed paper or electronically-filed Form 1040 return. Be sure to enter the year of the return you are amending at the top of Form 1040X. If you are amending more than one tax return, use a separate 1040X for each year and mail each in a separate envelope to the IRS processing center for your state. The 1040X instructions list the addresses for the centers.

    Form 1040X has three columns. Column A is used to show original or adjusted figures from the original return. Column C is used to show the corrected figures. The difference between the figures in Columns A and C is shown in Column B. You should explain the items you are changing and the reason for each change on the back of the form.

    If the changes involve another schedule or form, attach it to the 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Tax Credit, you must complete and attach a Schedule EIC to the amended return.

    If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for the prior year, Form 1040X must be filed and the tax paid by April 15 of this year, to avoid any penalty and interest.

    You generally must file Form 1040X to claim a refund within three years from the date you filed your original return, or within two years from the date you paid the tax, whichever is later. Please contact us for more!

  • If you need federal tax information, the IRS provides free Spanish language products and services. Pages on IRS.gov, tax topics, refund information, tax publications, and toll-free telephone assistance are all available in the Spanish language. The Spanish-language page has links to tax information such as forms and publications, warnings about tax scams that victimize taxpayers, information on the Earned Income, child and various other tax credits, and more. Look for a new interactive tool called EITC Assistant to help you learn if you are eligible to receive the Earned Income Tax Credit.

    The IRS issues most refunds in less than 21 days, although some require additional time. Visit the IRS website to get the status of your refund. Where’s My Refund? will give you the status of your refund within 24 hours after the IRS has received your e-filed return or 4 weeks after you’ve mailed a paper return. It has the most up-to-date information about your refund. You should only call the IRS if it has been:

    21 days or more since you e-filed

    6 weeks or more since you mailed your return, or when

    "Where’s My Refund" tells you to contact the IRS

    For IRS telephone assistance contact numbers, please visit IRS.gov and type in “Telephone Assistance” in the search box

  • If you can't meet the April 15 deadline to file your tax return, you can get an automatic six-month extension of time to file from the IRS. The extension will give you extra time to get the paperwork into the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.

    You must make an accurate estimate of any tax due when you request an extension. You may also send a payment for the expected balance due, but this is not required to obtain the extension.

    To get the automatic extension, file Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April 15 deadline, or make an extension-related electronic payment. You can file your extension request by computer or mail the paper Form 4868 to the IRS.

    The system will give you a confirmation number to verify that the extension request has been accepted. Put this confirmation number on your copy of Form 4868 and keep it for your records. Do not send the form to the IRS. As this is the area of our expertise, please contact us for more detailed information on how to file an extension properly!

  • The IRS reminds taxpayers that specific rules apply for taking a tax deduction for donating cars to charities. If the claimed value of the donated motor vehicle, boat, or plane exceeds $500, you can deduct the smaller of the vehicle's FMV on the date of the contribution or the gross proceeds received from the sale of the vehicle.

    People who want to take a deduction for the donation of their vehicle on their tax return should take quite a few steps, but here is the most obvious:

    Check that the Organization is Qualified.

    Taxpayers must make certain that they contribute their car to an eligible organization; otherwise, their donation will not be tax-deductible. Taxpayers can search Tax Exempt Organization Search to check that an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization's correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques, and governments are not required to apply for this exemption in order to be qualified. Please contact us if you're considering a car donation for your tax return!

  • When preparing to file your federal tax return, don't forget your contributions to charitable organizations. Your donations can add up to a nice tax deduction for your corporation (if you are a member of a flow-through business entity) or your personal taxes if you itemize deductions on IRS Form 1040, Schedule A.

    Here are a few tips to help make sure your contributions pay off on your tax return:

    You cannot deduct contributions made to specific individuals, political organizations, and candidates, the value of your time or services, and the cost of raffles, bingo, or other games of chance.

    To be deductible, contributions must be made to qualified organizations.

    Organizations can tell you if they are qualified and if donations to them are deductible. Taxpayers can also search the Tax Exempt Organization Search (TEOS) online tool, to check that an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization's correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques, and governments are not required to apply for this exemption in order to be qualified. Alternatively, contact us for more!

  • For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle that draws propulsion energy from a battery with at least 5-kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt-hour of battery capacity in excess of 5 kilowatt-hours. The total amount of the credit allowed for a vehicle is limited to $7,500.

    The credit is available only to the original purchaser of a new qualifying vehicle, and the vehicle must be placed in service in the same year the credit is being claimed on the return. If the qualifying vehicle is leased the credit is available only to the leasing company. Also, the vehicle must be used primarily in the United States.

    Additional conditions regarding qualified manufacturers and phase-out rules may also apply in determining credit eligibility. To find out whether your car qualifies for the Qualified Plug-in Electric Drive Motor Vehicle tax credit, you can go to the IRS.gov website and search for "plug-in vehicles" or contact us for more information.

  • Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

    The IRS estimates that 25 percent of people who qualify don't claim the credit and at the same time, there are millions of Americans who have claimed the credit in error, many of whom simply don't understand the criteria.

    EITC is based on the amount of your earned income and the number of qualifying children in your household. If you have children, they must meet the relationship, age, and residency requirements. And, you must file a tax return to claim the credit.

    Its easier than ever to find out if you qualify for EITC using the online tool, EITC Assistant. Please contact us for more information!

    Are you eligible for any of these tax credits?

    Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns, advises the IRS. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:

    Earned Income Tax Credit This is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the EITC. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. For more information, see IRS Publication 596, Earned Income Credit (EIC).

    Child Tax Credit This credit is for people who have a qualifying child under age 17. The maximum amount of the credit is $1,400 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see Pub. 972, Child Tax Credit.

    Child and Dependent Care Credit This is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. There is a limit to the amount of qualifying expenses. The credit is a percentage of those qualifying expenses. For more information, see Pub. 503, Child and Dependent Care Expenses.

    Adoption Credit Adoptive parents can take a tax credit of up to $13,570 for 2017 and $13,810 for 2018 for qualifying expenses paid to adopt an eligible child. For more information, see Form 8839, Qualified Adoption Expenses.

    Credit for the Elderly and Disabled This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see Pub.524, Credit for the Elderly or the Disabled.

    Education Credits There are two credits available, the American Opportunity Credit (formerly called the Hope Credit) and the Lifetime Learning Credit, for people who pay higher education costs. The American Opportunity Credit is for the payment of the first four years of tuition and related expenses for an eligible student for whom the taxpayer claims as a dependent on the tax return. The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year. For more information, see Publication 970, Tax Benefits for Education.

    Retirement Savings Contribution Credit Eligible individuals may be able to claim a credit for a percentage of their qualified retirement savings contributions, such as contributions SIMPLE plan. To be eligible, you must be at least age 18 at the end of the year and not a full-time student or an individual for whom someone else claims a personal exemption. Also, your adjusted gross income (AGI) must be below a certain amount. For more information, see chapter three in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

    There are other credits available to eligible taxpayers. Please contact us so we may analyze your specific situation, and offer advice.

  • Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans.

    Generally, for taxpayers who itemize, the “points” paid to obtain a home mortgage may be deductible as mortgage interest. Points paid to obtain an original home mortgage can be, depending on circumstances, fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.

    For a refinanced mortgage, the interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. This information is usually available from lenders. Taxpayers may deduct points only for those payments made in the tax year. For example, a homeowner who paid $2,000 in points and who would make 360 payments on a 30-year mortgage could deduct $5.56 per monthly payment, or a total of $66.72 if he or she made 12 payments in one year.

    However, if part of the refinanced mortgage money was used to finance improvements to the home and if the taxpayer meets certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Also, if a homeowner is refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at payoff.

    Other closing costs — such as appraisal fees and other non-interest fees — generally are not deductible. Additionally, the amount of Adjusted Gross Income can affect the amount of deductions that can be taken. Please contact us if you've recently refinanced, and we can be a big help!

  • You may be able to take the Credit for the Elderly or the Disabled if you were age 65 or older at the end of last year, or if you are retired on permanent and total disability, according to the IRS. Like any other tax credit, it's a dollar-for-dollar reduction of your tax bill. The maximum amount of this credit is constantly changing.

    You can take the credit for the elderly or the disabled if:

    You are a qualified individual,

    Your nontaxable income from Social Security or other nontaxable pension is less than $3,750 to $7,500 (also depending on your filing status).

    Generally, you are a qualified individual for this credit if you are a U.S. citizen or resident at the end of the tax year and you are age 65 or older, or you are under 65, retired on permanent and total disability, received taxable disability income, and did not reach mandatory retirement age before the beginning of the tax year.

    If you are under age 65, you can qualify for the credit only if you are retired on permanent and total disability. This means that:

    You were permanently and totally disabled when you retired, and

    You retired on disability before the end of the tax year.

    Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability. If you feel you might be eligible for this credit, please contact us for assistance.

  • If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.

    To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.

    If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualifies for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

    To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use. Longer breaks, such as a one-year sabbatical, do not.

    If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home. Send us a message for more!

  • With more and more United States citizens earning money from foreign sources, the IRS reminds people that they must report all such income on their tax return unless it is exempt under federal law. U.S. citizens are taxed on their worldwide income.

    This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether or not the person receives a Form W-2, Wage, and Tax Statement, or a Form 1099 (information return).

    Foreign source income includes earned income, such as wages and tips, and unearned income, such as interest, dividends, capital gains, pensions, rents, and royalties.

    An important point to remember is that citizens living outside the U.S. may be able to exclude up to $102,100 for 2017 and $103,900 for 2018, of their foreign source income if they meet certain requirements. However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S. Please contact us if you feel you may have earned foreign income to learn more!

  • Did you know that you may be able to deduct certain taxes on your federal income tax return? The IRS says you can if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:

    1. State and local income taxes, or general sales taxes;

    2. Real estate taxes; and

    3. Personal property taxes

    The Tax Cuts and Jobs Act (TCJA) limit the cumulative amount of the above taxes an individual can deduct in a calendar year to $10,000.

    You can deduct estimated taxes paid to state or local governments and prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for income or sales tax.

    Deductible real estate taxes are usually any state, local, or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

    To claim a deduction for personal property tax you paid, the tax must be based on value alone and imposed on a yearly basis. For example, the annual fee for the registration of your car would be a deductible tax, but only the portion of the fee that was based on the car's value.

    Call us or contact us today to find out how we can save you money!

  • If you gave any one person gifts valued at more than $15,000, it is necessary to report the total gift to the Internal Revenue Service. You may even have to pay tax on the gift.

    The person who received your gift does not have to report the gift to the IRS or pay either gift or income tax on its value.

    You make a gift when you give property, including money, or the use of or income from property, without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift.

    There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit:

    Tuition or medical expenses that you pay directly to an educational or medical institution for someone's benefit

    Gifts to your spouse

    Gifts to a political organization for its use

    Gifts to charities

    If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift. Please contact us for more!

  • Newlyweds and the recently divorced should make sure that names on their tax returns match those registered with the Social Security Administration (SSA). A mismatch between a name on the tax return and a Social Security number (SSN) could cause your tax return to be rejected by the IRS.

    For newlyweds, the tax scenario can begin when the bride says "I do" and takes her husband's surname, but doesn't tell the SSA about the name change. If the couple files a joint tax return with her new name, the IRS computers will not be able to match the new name with the SSN.

    Similarly, after a divorce, a woman who had taken her husband's name and had made that change known to the SSA should contact the SSA if she reassumes a previous name.

    It's easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency's Web site, www.ssa.gov, by calling toll-free 1-800-772-1213 and at local offices. The SSA Web site provides the addresses of local offices. Alternatively, please contact us as we can be of even greater assistance with your spousal situation.

  • The individual shared responsibility provision requires that you and each member of your family have qualifying health insurance, a health coverage exemption, or make a payment when you file. If you, your spouse and your dependents had health insurance coverage all year, you will indicate this by simply checking a box on your tax return.

    Starting in 2014 the individual shared responsibility provision calls for each individual to have qualifying health care coverage, known as minimum essential coverage, for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

    The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

    If you have to make an individual shared responsibility payment, you will use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure out the shared responsibility payment amount due. The amount due is reported on line 61 of Form 1040, Schedule 4. You only make a payment for the months you did not have coverage or qualify for a coverage exemption.

  • If you're trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies from the IRS Forms page under Tax Tools on our website. If you find you need more time to finish your return, you can get a six month extension of time to file using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. And if you have trouble paying your tax bill, the IRS has several payment options available.

    The extension will give you extra time to get the paperwork to the IRS, but it does not extend the time you have to pay any tax due. You have to make an accurate estimate of any tax due when you request an extension. You can also send a payment for the expected balance due, but this is not required to get the extension. However, you will owe interest on any amounts not paid by the April 15 deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.

  • Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date IRS receives your return. If you file your return electronically, your refund should be issued in about half the time it would take if you filed a paper return — even faster when you choose direct deposit.

    You can have a refund check mailed to you, buy up to $5,000 in U.S. Series I Savings Bonds with your refund, or you may be able to have your refund electronically deposited directly into your bank account (either in one account or in multiple accounts). Direct deposit into a bank account is more secure because there is no check to get lost. And it takes the U.S. Treasury less time than issuing a paper check. If you prepare a paper return, fill in the direct deposit information in the “Refund” section of the tax form, making sure that the routing and account numbers are accurate. Incorrect numbers can cause your refund to be misdirected or delayed. Direct deposit is also available if you electronically file your return.

    A few words of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.

    You may not receive your refund as quickly as you expected. A refund can be delayed for a variety of reasons. For example, a name and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage, and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

    To check the status of an expected refund, use "Check your Federal Refund" an interactive tool available on our Links page. Simple online instructions guide you through a process that checks the status of your refund after you provide identifying information from your tax return. Once the information is processed, results could be one of several responses.

  • Looking for ways to avoid the last-minute rush for doing your taxes? The IRS offers these tips:

    Don't Procrastinate. Resist the temptation to put off your taxes until the last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

    Organize Your Tax Records. Tax preparation time can be significantly reduced if you develop a system for organizing your records and receipts. Start with the income, deduction or tax credit items that were on last year's return.

    Visit the IRS Online. Millions of taxpayers visited the IRS Web site last year, downloading nearly 600 million forms, publications and a variety of topic-oriented tax information. Anyone with Internet access can find tax law information and answers to frequently asked tax questions.

    Take Advantage of Free Assistance. The IRS offers about 150 tax topics through its website at www.irs.gov/taxtopics. It also offers federal tax forms and publications at 1-800-TAX-FORM (1-800-829-3676). Some libraries, post offices, and banks carry the most widely requested forms and instructions. Libraries may also have reference sets of IRS publications. The IRS also staffs a tax Help Line for Individuals at 1-800-829-1040. Help for small businesses, corporations, partnerships, and trusts which need information or assistance preparing business returns are available at 1-800-829-4933. Both lines are staffed on weekdays from 7 a.m. to 7 p.m. your local time (Alaska & Hawaii follow Pacific Time). Hearing-impaired individuals with access to TTY/TDD equipment may call 1-800-829-4059 to ask questions or to order forms and publications.

    Use IRS Taxpayer Assistance Centers and Vounteer Programs. Free tax help is available at IRS offices nationwide. Also, check your newspaper or local IRS office to find locations for Volunteer Income Tax Assistance or Tax Counseling for the Elderly sites. To obtain the location, dates, and hours of the VITA or TCE volunteer site closest to you, call the IRS toll-free Tax Help Line for Individuals at 1-800-829-1040 or on the IRS website.

    Have your accountant Double-Check Your Math and Data Entries. Review your return for possible math errors and make sure you have provided the names and correct (and legibly written) Social Security or other identification numbers for yourself, your spouse, and your dependents.

    Have Your Refund Deposited Directly to Your Bank Account. Another way to speed up your refund and reduce the chance of theft is to have the amount deposited directly into your bank account. Check the tax instructions for details on entering the routing and account numbers on your tax return. Make sure the numbers you enter are correct. Wrong numbers can cause your refund to be misdirected or delayed.

    Don't Panic if You Can't Pay. If you can't immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card, either as part of an electronic return or directly through a processing agent, either by phone or online. Electronic filers with a balance due can file early and authorize the government's financial agent to take the money directly from their checking or savings account on the April 15 due date, with no fee. Note that if you file your tax return or a request for a filing extension on time, even if you can't pay, you avoid potential late filing penalties.

    Have Your Accountant Request an Extension of Time to File — But Pay on Time. If the clock runs out, you can get an automatic six-month extension of time to file, to October 15. An extension of time to file does not give you an extension of time to pay, however. You can e-file a Form 4868, Application for Automatic Extension of Time to File, which is included in most tax preparation software, or send a paper Form 4868 to the IRS to request the extension. You will need the adjusted gross income and total tax amounts from last year's return if you request the extension by electronic filing. You may also get an extension by charging your expected balance on a credit card at Official Payments Corporation or Link2Gov Corporation. There is no IRS fee for credit card payments, but the processors charge a convenience fee.

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  • Have you tried everything to resolve a tax problem with the IRS but are still experiencing delays? Are you facing what you consider to be an economic burden or hardship due to IRS collection or other actions? If so, you can seek the assistance of the Taxpayer Advocate Service.

    You may request the assistance of the Taxpayer Advocate if you find that you can no longer provide for basic necessities such as housing, transportation or food because of IRS actions. You can also seek help from the Taxpayer Advocate Service if you own a business and are unable to meet basic expenses such as payroll because of IRS actions. A delay of more than 30 days to resolve a tax related problem or no response by the date promised may also qualify you for assistance.

    Qualified taxpayers will receive personalized service from a knowledgeable Taxpayer Advocate. The Advocate will listen to your situation, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved to the fullest extent permitted by law.

    The Taxpayer Advocate Service is an independent organization within the IRS and can help clear up problems that resulted from previous contacts with the IRS. Taxpayer Advocates will ensure that your case is given a complete and impartial review. What's more, if your problem affects other taxpayers, the Taxpayer Advocate Service can work to change the system.

    You can gain quick access to the Taxpayer Advocate Service by contacting us, or the IRS directly toll-free 1-877-777-4778.

  • Do you work at a hair salon, barbershop, casino, golf course, hotel, or restaurant or drive a taxicab? The tip income you receive as an employee from those services is taxable income, advises the IRS.

    As taxable income, these tips are subject to federal income, Social Security, and Medicare taxes, and may be subject to state income tax as well.

    You must keep a running daily log of all your tip income and tips paid out. This includes cash that you receive directly from customers, tips from credit card charges from customers that your employer pays you, the value of any non-cash tips such as tickets or passes that you receive, and the amount of tips you paid out to other employees through tip pools or tip splitting and the names of those employees.

    You can use IRS Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll-free at 1-800-TAX-FORM (1-800-829-3676).

    If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire or if you become disabled, or your family's benefits if you die). Contact us so your wages are properly reported!

Tax Tips for Businesses

  • Have you just started a new business? Did you know expenses incurred before a business begins operations are not allowed as current deductions? Generally, these start up costs must be amortized over a period of 180 months beginning in the month in which the business begins. However, based on the current tax provisions, you may elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred. The $5,000 deduction is reduced by any start-up or organizational costs which exceed $50,000. If you want to deduct a larger portion of your start up cost in the first year, a new business will want to begin operations as early as possible and hold off incurring some of those expenses until after business begins. Contact us to help determine how you can maximize your deduction for start-up and/or organizational expenses. For additional information on what costs constitute start-up or organizational expenses, refer to IRS publication 535, Business Expenses.

  • It is generally accepted that people prefer to make a living doing something they like. A hobby is an activity for which you do not expect to make a profit. If you do not carry on your business or investment activity to make a profit, there is a limit on the deductions you can take. You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. You cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under this limit. So does an investment activity intended only to produce tax losses for the investors.

    The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. For additional information on these entities, refer to business structures. It does not apply to corporations other than S corporations. In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

    You carry on the activity in a business-like manner,

    The time and effort you put into the activity indicate you intend to make it profitable,

    You depend on income from the activity for your livelihood,

    Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),

    You change your methods of operation in an attempt to improve profitability,

    You, or your advisors, have the knowledge needed to carry on the activity as a successful business,

    You were successful in making a profit in similar activities in the past,

    The activity makes a profit in some years, and

    You can expect to make a future profit from the appreciation of the assets used in the activity.

  • Your business may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting a business profit on your federal income tax return, according to the IRS. That's because the deductible business expense threshold for filing Schedule C-EZ of Form 1040 is $5,000. This change allows an additional 500,000 small businesses to file the C-EZ rather than Schedule C.

    Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship). It's important to note that your business is not eligible to use the Schedule C-EZ to report a net loss from business.

    Schedule C-EZ consists of an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle. The instruction page includes a worksheet for figuring the amount of deductible expenses. If you do not have a net business loss and the amount of deductible business expenses do not exceed $5,000, you should be able to use the C-EZ instead of Schedule C. Contact us to learn more!

  • Whether you are self-employed or an employee, if you use a portion of your home exclusively and regularly for business purposes, you may be able to take a home office deduction.

    You can deduct certain expenses if your home office is the principal place where your trade or business is conducted or where you meet and deal with clients or patients in the course of your business. If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

    Your home office will qualify as your principal place of business if you use it exclusively and regularly for the administrative or management activities associated with your trade or business. There must be no other fixed place where you conduct substantial administrative or management activities. If you use both your home and other locations regularly in your business, you must determine which location is your principal place of business, based on the relative importance of the activities performed at each location. If the relative importance factor doesn't determine your principal place of business, you can also consider the time spent at each location.

    If you are an employee, you have additional requirements to meet. You cannot take the home office deduction unless the business use of your home is for the convenience of your employer. Also, you cannot take deductions for the space you are renting to your employer.

    Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses. Please contact us for more!

  • If you're trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies from the IRS Forms page under Tax Tools on our website. If you find you need more time to finish your return, you can get a five or six-month extension of time to file using Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, Other Returns. And if you have trouble paying your tax bill, the IRS has several payment options available.

    The extension will give you extra time to get the paperwork to the IRS, but it does not extend the time you have to pay any tax due. You have to make an accurate estimate of any tax due when you request an extension. You can also send a payment for the expected balance due, but this is not required to get the extension. However, you will owe interest on any amounts not paid by the March 15 deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.

  • Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date IRS receives your return. If you file your return electronically, your refund should be issued in about half the time it would take if you filed a paper return — even faster when you choose direct deposit.

    You can have a refund check mailed to you, or you may be able to have your refund electronically deposited directly into your bank account. Direct deposit into a bank account is more secure because there is no check to get lost. And it takes the U.S. Treasury less time than issuing a paper check. If you prepare a paper return, complete Form 8050, making sure that the routing and account numbers are accurate, and attach it to the corporation's tax return. Note that Form 8050 may only be filed with the original Form 1120 or 1120S, and the corporation is not eligible to receive direct deposit if the receiving financial institution is a foreign bank or foreign branch of a U.S. bank. Incorrect numbers can cause your refund to be misdirected or delayed. Direct deposit is also available if you electronically file your return.

    You may not receive your refund as quickly as you expected. A refund can be delayed for a variety of reasons. For example, a name or identification number and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage, and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

  • Are you in the middle of a disagreement with the IRS? One of the guaranteed rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

    IRS Publication 1, Your Rights as a Taxpayer, explains some of your most important taxpayer rights. During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal.

    The IRS appeals system is for people who do not agree with the results of an examination of their tax returns or other adjustments to their tax liability. In addition to examinations, you can appeal many other things, including:

    Collection actions such as liens, levies, seizures, installment agreement terminations, and rejected offers-in-compromise

    Penalties and interest

    Employment tax adjustments and the trust fund recovery penalty

    Appeals conferences are informal meetings. The local Appeals Office, which is independent of the IRS office that proposed the disputed action, can sometimes resolve an appeal by telephone or through correspondence.

    The IRS also offers an option called Fast Track Mediation, during which an appeals or settlement officer attempts to help you and the IRS reach a mutually satisfactory solution. Most cases not docketed in court qualify for Fast Track Mediation. You may request Fast Track Mediation at the conclusion of an audit or collection determination, but prior to your request for a normal appeals hearing. Fast Track Mediation is meant to promote the early resolution of a dispute. It doesn't eliminate or replace existing dispute resolution options, including your opportunity to request a conference with a manager or a hearing before Appeals. You may withdraw from the mediation process at any time.

    When attending an informal meeting or pursuing mediation, you may represent yourself or you can be represented by an attorney, certified public accountant or individual enrolled to practice before the IRS.

    If you and the IRS appeals officer cannot reach an agreement, or if you prefer not to appeal within the IRS, in most cases you may take your disagreement to federal court. But taxpayers can settle most differences without expensive and time-consuming court trials.

    For more information on the appeals process, please contact us!

  • It's a moment any taxpayer dreads. An envelope arrives from the IRS — and it's not a refund check. But don't panic. Many IRS letters can be dealt with simply and painlessly.

    Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice provides specific instructions explaining what you should do if action is necessary to satisfy the inquiry. Most notices also give a phone number to call if you need further information.

    Most correspondence can be handled without calling or visiting an IRS office if you follow the instructions in the letter or notice. However, if you have questions, call the telephone number in the upper right-hand corner of the notice, or call the IRS at 1-800-829-1040. Have a copy of your tax return and the correspondence available when you call so your account can be readily accessed.

    Before contacting the IRS, review the correspondence and compare it with the information on your return. If you agree with the correction to your account, no reply is necessary unless a payment is due. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write an explanation why you disagree and include any documents and information you wish the IRS to consider. Mail your information along with the bottom tear-off portion of the notice to the address shown in the upper left-hand corner of the IRS correspondence. Allow at least 30 days for a response.

    Sometimes, the IRS sends a second letter or notice requesting additional information or providing additional information to you. Be sure to keep copies of any correspondence with your records. If you've received a notice and are confused about what to do next, please contact us and we can help!

  • When preparing to file your federal tax return, don't forget your contributions to charitable organizations. Your donations (up to 10% of taxable income) can add up to a nice tax deduction for your corporation.

    Here are a few tips to help make sure your contributions pay off on your tax return:

    You cannot deduct contributions made to specific individuals, political organizations, and candidates, the value of your time or services, and the cost of raffles, bingo, or other games of chance. To be deductible, contributions must be made to qualified organizations. Cash contributions must be substantiated by a bank record, or a receipt, letter, or other written communication from the donee organization indicating the name of the organization, the date of the contribution, and the amount of the contribution. In addition, if the contribution is $250 or more, a written acknowledgment showing the amount of cash contributed, any property contributed, and a description and a good faith estimate of the value of any goods or services provided in return for the contribution or statement that no goods or services were provided in return for the contribution, is required. Non-cash contributions over $500 must be supported by an attachment to the return which states the kind of property contributed, along with the method used to determine its fair market value. Form 8283, Non-cash Charitable Contributions is required for contributions with a claimed value of more than $5,000. Contributions that exceed the 10% limitation can be carried over for five years.

    Organizations can tell you if they are qualified and if donations to them are deductible. IRS.gov has a Tax Exempt Organization Search online tool to help you see if an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization's correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques, and governments are not required to apply for this exemption in order to be qualified. Alternatively, contact us for more information!

Tax Tips for Finance

  • Following are some generally recognized financial planning tools that may help you reduce your tax bill.

    Charitable Giving - Instead of selling your appreciated long-term securities, donate the stock instead and avoid paying tax on the unrealized gain while still getting a charitable tax deduction for the full fair market value.

    Health Savings Accounts (HSAs) - If you have a high deductible medical plan you can open an HSA and make tax-deductible contributions to your account to pay for medical expenses. Unlike flexible spending arrangements (FSAs), the contributions can carry over for medical expenses in future years.

    ROTH IRAs - Contributions to a ROTH IRA are not tax deductible but the qualified distributions, including earnings, are tax-free.

    Municipal Bonds - Interest earned on these types of investments is tax-exempt.

    Own a home - most of the cost of this type of investment is financed and the interest (on mortgages up to $750,000) is tax-deductible. When the property is sold, individuals may exclude up to $250,000 ($500,000 if married jointly) of the gain.

    Retirement Plans - Participate in your employer-sponsored retirement plan, especially if there is a matching component. You will receive a current tax deduction and the tax-deferred compounding can add up to large retirement savings.

  • If you own a home, and you itemize your deductions on Schedule A, you can claim a deduction for the interest paid. To be deductible, the interest you pay must be on a loan secured by your main home or a second home (including a second home that is also rented out for part of the year, so long as the personal use requirement is met). The loan can be a first or second mortgage, or a home improvement loan. To be deductible, the loan must be secured by your home and the proceeds must be used to buy, build, or substantially improve your home.

    The interest deduction for home acquisition debt (that is, a loan taken out after December 15, 2017, to buy, build, or substantially improve a qualified home) is limited to debt of $750,000 ($375,000 if married filing separately). For home acquisition indebtedness incurred prior to December 16, 2017, the deduction is limited to $1 million ($500,000 if married filing separately)

    In addition to the deduction for mortgage interest, points paid on the original purchase of your residence are also generally deductible. For more information about the mortgage interest deduction, see IRS Publication 936.

  • Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. The IRS says when you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property.

    While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property. A “paper loss” — a drop in an investment's value below its purchase price — does not qualify for the deduction. The loss must be realized through the capital asset's sale or exchange.

    Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it for more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For more information on the tax rates, refer to IRS Publication 544, Sales and Other Dispositions of Assets. If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately). Unused capital losses can be carried over indefinitely to future years to net against capital gains, however, the annual limit still applies.

    Capital gains and losses are reported on Form 8949, Sales and Other Dispositions of Capital Assets, summarized on Schedule D, Capital Gains, and Losses, and then transferred to line 13 of Form 1040, Schedule 1. Accounting and planning for the sale and purchase of capital assets is usually a very complicated matter, so please contact us so that you may receive the professional advice you deserve.

  • A Coverdell Education Savings Account (ESA) is a savings account created as an incentive to help parents and students save for education expenses.

    The total contributions for the beneficiary (who is under age 18 or is a special needs beneficiary) of this account in any year cannot be more than $2,000, no matter how many accounts have been established. The beneficiary will not owe tax on the distributions if, for a year, the distributions from an account are not more than a beneficiary's qualified education expenses at an eligible education institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

    Generally, any individual (including the beneficiary) can contribute to a Coverdell ESA if the individual's modified adjusted gross (MAGI) income is less than an annual, constantly changing maximum. Usually, MAGI for the purpose of determining your maximum contribution limit is the adjusted gross income (AGI) shown on your tax return increased by the following exclusion from your income: foreign earned income of U.S. citizens or residents living abroad, housing costs of U.S. citizens or residents living abroad, and income from sources within Puerto Rico or American Samoa. Contributions to a Coverdell ESA may be made until the due date of the contributor's return, without extensions.

  • One popular tax savings outlet available to taxpayers today is the Individual Retirement Account, more commonly referred to as an IRA. There are several options you have when deciding which type of IRA account to enter into. You may be able to take a tax deduction for the contributions to a traditional IRA, depending on whether you or your spouse, if filing jointly, are covered by an employer's pension plan and how much total income you have. Conversely, you cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

    Generally, you can contribute a percentage of your earnings for the current year or a larger, catch-up contribution if you are age 50 or older. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these annual amounts (currently $6,000, or $7,000 if you are age 50 or older).

    You can file your tax return claiming a traditional IRA deduction before the contribution is actually made. However, the contribution must be made by the due date of your return, not including extensions. If you haven't contributed funds to an Individual Retirement Account (IRA) for last tax year, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for last year, not including extensions.

    Be sure to tell the IRA trustee that the contribution is for last year. Otherwise, the trustee may report the contribution as being for this year, when they get your funds.

    If you report a contribution to a traditional IRA on your return, but fail to contribute by the deadline, you must file an amended tax return by using Form 1040X, Amended U.S. Individual Income Tax Return. You must add the amount you deducted to your income on the amended return and pay the additional tax accordingly.

  • Confused about whether you can contribute to a Roth IRA? The IRS suggests checking these simple rules:

    Income To contribute to a Roth IRA, you must have compensation (e.g., wages, salary, tips, professional fees, bonuses). Your modified adjusted gross income must be less than:

    Age There is no age limitation for Roth IRA contributions. Unlike traditional IRAs, you can be of any age and still qualify to contribute to a Roth IRA.

    Contribution Limits In general, if your only IRA is a Roth IRA, the maximum current year contribution limit is the lesser of your taxable compensation or $6,000 ($7,000 for those ages 50 or over). The maximum contribution limit phases out if your modified adjusted gross income is within these limits:

    Contributions to Spousal Roth IRA You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.

    * Note - threshold amounts listed above are for the tax year 2019.

Due Dates

March 1

Businesses must file Form 1098, Form 1099 (other than those with a February 1 or February 16 deadline) and Form W-2G, and transmittal Form 1096 for interest, dividends, and miscellaneous payments made during 2020. (Electronic filers can defer filing to March 31.)

March 10

Individuals need to report a February tip income of $20 or more to employers (Form 4070).

March 15

Calendar-year S corporations must file a 2020 income tax return (Form the 1120S) or file for an automatic six-month extension (Form 7004), and pay any tax due.

Calendar-year partnerships need to file a 2020 income tax return (Form 1065 or Form 1065-B) or request an automatic six-month extension (Form 7004).

March 31

Employers must electronically file 2020 Form 1097, Form 1098, Form 1099 (other than those with an earlier deadline), and Form W-2G.

April 12

Individuals need to report March tip income of $20 or more to employers (Form 4070).

April 15

Self-employed individuals need to pay the first installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

Individuals must file a 2020 gift tax return (Form 709) or file for an automatic six-month extension (Form 8892) and pay any gift tax due.

Calendar-year corporations must file a 2020 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004), and pay any tax due.

Calendar-year corporations need to pay the first installment of 2021 estimated income taxes.

April 30

Employers must report income tax withholding and FICA taxes for the first quarter of 2021 (Form 941) and pay any tax due.

May 10

Individuals need to report April tip income of $20 or more to employers (Form 4070).

Employers must report income tax withholding and FICA taxes for the first quarter of 2021 (Form 941) if you deposited on time and in full all of the associated taxes due.

May 17

Individuals must file their 2020 income tax return (Form 1040 or Form 1040-SR) or file for an automatic extension (Form 4868) to Oct. 15, 2021, and pay any tax due. (See June 15 for an exception for certain taxpayers.)

Exempt organizations need to file a 2020 calendar-year information return (Form 990, Form 990-EZ, or Form 990-PF) or file for an automatic six-month extension (Form 8868) and pay any tax due.

Small exempt organizations with gross receipts normally of $50,000 or less must file a 2020 e-Postcard (Form 990-N), if not filing Form 990 or Form 990-EZ.

June 10

Individuals need to report May tip income of $20 or more to employers (Form 4070).

June 15

Individuals must file a 2020 individual income tax return (Form 1040 or Form 1040-SR) or file for a four-month extension (Form 4868), and pay any tax and interest due if you live outside the United States.

Individuals need to pay the second installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

Calendar-year corporations must pay the second installment of 2021 estimated income taxes.

July 12

Individuals need to report June tip income of $20 or more to employers (Form 4070).

August 2

Employers must report income tax withholding and FICA taxes for the second quarter of 2021 (Form 941) and pay any tax due.

Employers need to file a 2020 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

Individuals need to report July tip income of $20 or more to employers (Form 4070).

Employers must report income tax withholding and FICA taxes for the second quarter of 2021 (Form 941) if you deposited on time and in full all of the associated taxes due.

September 10

Individuals need to report August tip income of $20 or more to employers (Form 4070).

September 15

Individuals must pay the third installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

Calendar-year corporations need to pay the third installment of 2021 estimated income taxes.

Calendar-year S corporations must file a 2020 income tax return (Form the 1120S) and pay any tax, interest, and penalties due if an automatic six-month extension was filed.

Calendar-year S corporations need to make 2020 contributions for certain employer-sponsored retirement plans if an automatic six-month extension was filed.

Calendar-year partnerships must file a 2020 income tax return (Form 1065 or Form 1065-B) if an automatic six-month extension was filed.

October 1

Trusts and estates need to file an income tax return for the 2020 calendar year (Form 1041) and pay any tax, interest, and penalties due, if an automatic five-and-a-half month extension was filed.

Employers must establish a SIMPLE or a Safe-Harbor 401(k) plan for 2020 by this date, except in certain circumstances.

October 12

Individuals need to report a September tip income of $20 or more to employers (Form 4070).

October 15

Individuals must file a 2020 income tax return (Form 1040 or Form 1040-SR) and pay any tax, interest, and penalties due if an automatic extension was filed.

Individuals must file a 2020 gift tax return (Form 709) and pay any tax, interest, and penalties due if an automatic six-month extension was filed.

Calendar-year C corporations need to file a 2020 income tax return (Form 1120) and pay any tax, interest, and penalties due if an automatic six-month extension was filed.

Calendar-year C corporations must make 2020 contributions for certain employer-sponsored retirement plans if an automatic six-month extension was filed.

November 1

Employers need to report income tax withholding and FICA taxes for the third quarter of 2021 (Form 941) and pay any tax due.

November 10

Individuals must report October tip income of $20 or more to employers (Form 4070).

Employers need to report income tax withholding and FICA taxes for the third quarter of 2021 (Form 941) if you deposited on time and in full all of the associated taxes due.

November 15

Exempt organizations must file a 2020 calendar-year information return (Form 990, Form 990-EZ, or Form 990-PF) and pay any tax, interest, and penalties due if a six-month extension was previously filed.

December 10

Individuals need to report November tip income of $20 or more to employers (Form 4070).

December 15

Calendar-year corporations must pay the fourth installment of 2021 estimated income taxes.

December 31

Employers need to establish a retirement plan for 2021 - generally other than a SIMPLE, a Safe-Harbor 401(k), or a SEP.

Retention Guide

Storing tax records: How long is long enough?

April 15 has come and gone and another year of tax forms and shoeboxes full of receipts is behind us. But what should be done with those documents after your check or refund request is in the mail?

Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the "three-year law" and leads many people to believe they're safe provided they retain their documents for this period of time.

However, if the IRS believes you have significantly underreported your income (by 25 percent or more), it may go back six years in an audit. If there is any indication of fraud, or you do not file a return, no period of limitation exists. To be safe, use the following guidelines.

Business Documents To Keep For One Year

  • Correspondence with Customers and Vendors

  • Duplicate Deposit Slips

  • Purchase Orders (other than Purchasing Department copy)

  • Receiving Sheets

  • Requisitions

  • Stenographer's Notebooks

  • Stockroom Withdrawal Forms

Business Documents To Keep For Three Years

  • Employee Personnel Records (after termination)

  • Employment Applications

  • Expired Insurance Policies

  • General Correspondence

  • Internal Audit Reports

  • Internal Reports

  • Petty Cash Vouchers

  • Physical Inventory Tags

  • Savings Bond Registration Records of Employees

  • Time Cards For Hourly Employees

Business Documents To Keep For Six Years

  • Accident Reports, Claims

  • Accounts Payable Ledgers and Schedules

  • Accounts Receivable Ledgers and Schedules

  • Bank Statements and Reconciliations

  • Canceled Checks

  • Canceled Stock and Bond Certificates

  • Employment Tax Records

  • Expense Analysis and Expense Distribution Schedules

  • Expired Contracts, Leases

  • Expired Option Records

  • Inventories of Products, Materials, Supplies

  • Invoices to Customers

  • Notes Receivable Ledgers, Schedules

  • Payroll Records and Summaries, including payment to pensioners

  • Plant Cost Ledgers

  • Purchasing Department Copies of Purchase Orders

  • Records related to net operating losses (NOL's)

  • Sales Records

  • Subsidiary Ledgers

  • Time Books

  • Travel and Entertainment Records

  • Vouchers for Payments to Vendors, Employees, etc.

  • Voucher Register, Schedules

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records "forever," in many cases there will be other reasons you'll want to retain these documents indefinitely.

  • Audit Reports from CPAs/Accountants

  • Canceled Checks for Important Payments (especially tax payments)

  • Cash Books, Charts of Accounts

  • Contracts, Leases Currently in Effect

  • Corporate Documents (incorporation, charter, by-laws, etc.)

  • Documents substantiating fixed asset additions

  • Deeds

  • Depreciation Schedules

  • Financial Statements (Year End)

  • General and Private Ledgers, Year-End Trial Balances

  • Insurance Records, Current Accident Reports, Claims, Policies

  • Investment Trade Confirmations

  • IRS Revenue Agent Reports

  • Journals

  • Legal Records, Correspondence, and Other Important Matters

  • Minutes Books of Directors and Stockholders

  • Mortgages, Bills of Sale

  • Property Appraisals by Outside Appraisers

  • Property Records

  • Retirement and Pension Records

  • Tax Returns and Worksheets

  • Trademark and Patent Registrations

Personal Documents To Keep For One Year

While it's important to keep year-end mutual fund and IRA contribution statements forever, you don't have to save monthly and quarterly statements once the year-end statement has arrived.

Personal Documents To Keep For Three Years

  • Credit Card Statements

  • Medical Bills (in case of insurance disputes)

  • Utility Records

  • Expired Insurance Policies

Personal Documents To Keep For Six Years

  • Supporting Documents For Tax Returns

  • Accident Reports and Claims

  • Medical Bills (if tax-related)

  • Sales Receipts

  • Wage Garnishments

  • Other Tax-Related Bills

Personal Records To Keep Forever

  • CPA Audit Reports

  • Legal Records

  • Important Correspondence

  • Income Tax Returns

  • Income Tax Payment Checks

  • Property Records / Improvement Receipts (or six years after property sold)

  • Investment Trade Confirmations

  • Retirement and Pension Records (Forms 5448, 1099-R, and 8606 until all distributions are made from your IRA or another qualified plan)

Special Circumstances

  • Car Records (keep until the car is sold)

  • Credit Card Receipts (keep until verified on your statement)

  • Insurance Policies (keep for the life of the policy)

  • Mortgages / Deeds / Leases (keep 6 years beyond the agreement)

  • Pay Stubs (keep until reconciled with your W-2)

  • Sales Receipts (keep for the life of the warranty)

  • Stock and Bond Records (keep for 6 years beyond selling)

  • Warranties and Instructions (keep for the life of the product)

  • Other Bills (keep until payment is verified on the next bill)

  • Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)

Financial Guide: Banking

Financing

What can I do to raise money for my small business?

Although the process is complex and frustrating, raising capital is the most basic of all business activities. When looking for financing, there are various sources to consider. For most new businesses, the main source of capital comes from savings and other forms of personal resources. There are better options available than credit cards that are often used for financing, even a small business loan.

When beginning, entrepreneurs usually look to private sources like friends and family. Generally, the money is loaned at a low-interest rate or interest-free, which is very beneficial at the beginning.

The most common source of funding, not including personal resources, are credit unions and banks that will provide a loan if it is possible to show that your offer is worthwhile. Other sources are venture capital firms that aid businesses in exchange for partial or equity ownership.

For business financing, what kinds of loans exist?

You must know the exact amount of money that you need, what your purpose is and how you will repay it in order to be successful in getting a loan. You must convince the lender in a written proposal that you are a good credit risk.

There are two basic kinds of loans, although terms vary by lender:

Short-term and long-term, maturity periods of up to one year are generally short-term, which include accounts receivable loans, working capital loans, and lines of credit.

Maturities greater than a year and less than seven years is typical long-term loan. Equipment and real estate loans can have a maturity of up to 25 years. Major business expenses such as purchasing real estate and facilities, durable equipment, construction, vehicles, furniture, fixtures, etc. are a few purposes for long-term loans.

When considering a loan request, what do banks look for?

The bank official who reviews the loan request is focused on repayment. Most loan officers request a copy of your business credit report to determine your ability to repay.

The lending officer will consider the following issues while using the information you provided and the credit report:

  • Have you invested at least 25% or 50% of savings or personal equity into the business for the loan you are requesting? (Keep in mind that 100% of your business will not be financed by an investor.)

  • Do your work history, your credit report and letters of recommendation show a healthy record of credit worthiness? This is a key factor.

  • Do you have the training and experience necessary to operate a successful business?

  • Do your loan proposal and business plan document your knowledge of and dedication to the success of the business?

  • Is the cash flow of the business sufficient to make the monthly payments on the requested loan?

What do I need to include in a good loan proposal?

The following main points should be contained in a good loan proposal:

General Information

  • Reason for the loan: the exact purpose of the loan and why it is necessary.

  • Amount needed: the specific amount needed to reach your goal.

  • Business name and address, names of officers, and their social security numbers.

Description of Business

  • Describe the type of business you have, its age, current business assets, and the number of employees.

  • Structure of ownership: describe the legal structure of the company.

Management Profile

  • Prepare a short statement that is focused on each principal in your business; give details about education, background, accomplishments, and skills.

Market Information

  • State clearly the products of your company as well as its markets. Name the competition and explain how you plan to compete in the market. Describe what the business will do to satisfy the needs of its customers.

Financial Information

  • Submit your own personal financial statements as well as those of the principal business owners.

  • Financial statements: the income statements and balance sheets for the past three years. If you have a new business, provide the projected balance sheet and income statement.

  • Specify the collateral that you are able and willing to give as security for the loan.

Getting a Loan

What are the advantages of prepaying a mortgage, and should I if I can?

It is highly recommended that you prepay as much of your mortgage as possible every month, which will drastically reduce the total amount that you pay.

However, there are times when this could be disadvantageous.

If you are in a situation where you don't have funds to cover three to six months of expenses, it is recommended that you save that amount before you pay additional amounts on your mortgage.

If you have a large amount of credit card debt, over the long run, you will save more money by knocking down those high-interest loans first.

There also may be times when that money would be more wisely invested in the market, depending on the expected rate of return versus how much you would save in early payments.

Should I refinance?

In order to refinance your home, the current market rate should be at least 2 percentage points lower than what you are paying on your mortgage. Speak with a lender to see what rate you may be able to get. Remember to factor in costs like appraisals, points from the lender, and others, which may not be apparent in your initial price assessment.

After assessing that cost, get a quote of what your total payment would be after refinancing. The simplest way to find out how long it will take to recover the refinancing costs will be to divide your closing costs by the monthly savings with your new monthly payment.

Also, take into consideration how long you plan on holding your home. It may not make sense to refinance the home if you plan on selling in the near future.

Does borrowing against my securities make sense?

This could be a low-cost option for borrowing but there is some risk involved. Deductions are not allowed for the interest unless that loan is used to invest in a business.

Can a Home Equity Line of Credit be beneficial?

A home equity line of credit is a form of credit that allows you to borrow and use your home as collateral. Since for many, a home is their greatest asset, they tend to use these sorts of credit lines for large things like a college education for their children, medical expenses, or for large unexpected bills as opposed to luxuries or day-to-day expenses.

After receiving a home equity line, one is approved for an amount of credit or a maximum that may be borrowed at any given time for the duration of the plan.

On many occasions a lender will set a credit limit on a home equity loan by setting a percentage, after considering the amount of the appraised value of the home and the amount owed on the home.

After the line of credit is approved, you will be able to borrow up to the set limit, usually in the form of checks. In some instances, a borrower may be given credit cards to utilize, sometimes with minimum spending requirements.

What costs are associated?

The costs associated with getting a home equity loan are basically the same as a refinance.

  • Appraisal

  • A non-refundable application fee

  • Up front points, which equal one percent of the entire credit limit

  • Closing costs, which are the same as the closing costs you would pay upon purchasing a home

  • Yearly fees and the possibility of a transaction fee per draw

How can you lock in an interest rate?

After choosing a lender, you may be quoted a rate, which may "float" until the actual closing, meaning that it is not guaranteed. With a lock-in, you are guaranteed that the interest rate will not change before your closing. You may want to ask for an agreement that ensures that your rate is capped, but allows you to take advantage of a lower rate if the rate lowers before your close.

There is usually a time limit that a lender will put on this guarantee, and if you don't close before that time, they no longer have to honor that lock-in. It is recommended that you stay in close contact with your loan officer during the process to ensure that you are able to close in a timely manner and get the locked-in rate.

What disclosures should I get from my lender?

The lender is obligated by the Truth in Lending Act to provide you with a written statement with a list of all of the costs associated with the loan and the terms of financing. This statement must be delivered to you before the settlement.

If you want to rescind the loan, you may do so within 3 business days of the receipt of the Truth in Lending paperwork, receipt of cancellation notice, or your settlement, whichever was the most recent.

You will want to carefully review the disclosure that you are given before you sign. This disclosure will have all of the pertinent information about your loan, the finance charge, the amount financed, the payment schedule, and the APR.

How does a reverse mortgage work?

A reverse mortgage is a way for you to take advantage of some of the equity that is currently tied up in your home. A reverse mortgage works in the same manner as a normal one reversed, and the homeowner is paid monthly versus having to pay. The major difference between this and a home equity loan is that you aren't required to pay anything back to the lender as long as you retain ownership of the home.

The major benefit of a reverse mortgage is that it allows homeowners to take advantage of some of the equity that they have built up in their homes without the burden of having to pay it back in monthly payments. This could be used to supplement income, defray the cost of medical aid, pay for college education, stop a foreclosure, or make it possible to retire.

When the homeowner sells the home or dies, the home must be paid off and, if sold, the remainder of equity is given to its rightful heirs.

Is any loan interest tax deductible?

These interests are deductible, some fully, some partially:

  • Education-related interest

  • Business interest

  • Investment interest

  • Mortgage interest

Can you stop paying Private Mortgage Insurance (PMI)?

Usually, people that make a down payment of less than 20% are required to pay private mortgage insurance by their lender. Once you reach 20% equity, PMI is canceled, and any money accrued in your escrow account towards it will be credited to you.

Loan FAQ

What are the possible implications if I co-sign for a loan?

The co-signer enters an agreement to be responsible for the repayment of the loan if the borrower defaults. A lender will usually not go after the co-signer until the borrower defaults, but they can lawfully go after the co-signer at any time.

It has been stated by finance companies that in the case of a default most co-signers actually pay off the loans that they have co-signed for including the legal and late fees that end up being tacked on. Clearly, this can be a large financial burden, and it can also reflect negatively on the co-signer's credit.

If you do agree to co-sign on a loan for someone, you can request that the financial institution agrees that it will refrain from collecting from you unless the primary borrower defaults. Also, make sure that your liability is limited to the unpaid principal and not any late or legal fees.

Upon co-signing you may have to brandish financial documents to the lender just as the primary borrower would have to.

Co-signing for a loan gives you the same legal responsibility for the repayment of the debt as the borrower. If there are late payments, this will affect your credit as well.

If you are asked to co-sign for someone, you may want to provide another option and suggest that they get a secured credit card. This way, they can build up their own credit history and not open themselves up to the possibility of taking on a debt too large, placing themselves, and you, in financial danger.

How can I ensure that I get the best possible rates on my loans?

Be careful when signing up for a home equity loan or line of credit - the disclosed APR does not reflect the total fees that are associated with the loan, such as closing costs and others. Do not forget to compare this cost, as well as the APR, across multiple lenders.

The vast majority of home equity plans will utilize variable interest rates instead of fixed. A variable rate reflects the current prices of a publically available index, like the prime rate, or the U.S. Treasury Bill rate, and the rate of your loan will oscillate accordingly.

Generally, a lender will offer a discounted introductory rate, often referred to as a "teaser rate". Take caution - these rates can sometimes fluctuate unless it is stated that there is a fixed rate. Sometimes the lender will give you a great introductory rate that is variable and can change with time to a rate much higher than you originally agreed to.

Since the rate is linked to an index rate, find out which one it is and how much their margin is. Some companies will have a cap on how much your rate can vary within a particular period of time.

Is it better to get a home equity line of credit or a traditional second mortgage?

With a second mortgage, you will have a fixed amount of money that is repayable over a fixed period of time or is due in full at a given time. A home equity line of credit, on the other hand, is much more open-ended. You have a line of credit that can be borrowed from as you wish, and generally has a variable rate as opposed to a fixed rate.

Pay attention to the fact then when the APR is calculated it takes into account the interest rate charged plus points, finance charges, and other fees, whereas with a home equity line the APR is calculated with solely the periodic interest rate.

What will the loan cost?

Before you are charged any fees, the Truth in Lending Act requires that the lenders disclose to you all pertinent terms of the agreement: the APR, payment terms, other charges, and any information about variable interest.

Generally, you will receive these disclosures at the same time that you receive an application form and any additional disclosures promptly after. If any of the terms change prior to the loan closing, the lender must return all fees that have been applied, should you choose to back out of the deal.

The finance charge is the total amount paid in exchange for the use of credit, which includes the interest rate, service charges and insurance premiums. The Annual Percentage Rate (APR) is the percentage paid on a yearly basis.

Bank Accounts FAQ

Which banking fees should I watch for with a new bank account?

Keep in mind that banks are always required to notify you of the fees for their accounts. The best account to choose is usually the one with the lowest fees, regardless of the interest rate.

Keep an eye out for potential extra charges when shopping for checking accounts. Ask about monthly fees, check processing fees, and ATM fees. Also be wary of cost-free checking accounts, as the bank may charge you if your balance drops below a certain amount. Also, the charges for printing new checks can often be much higher at your bank than through an outside printing provider.

In this day and age, it doesn't really benefit you to put money into an old-fashioned "passbook" savings account. Often monthly account fees overshadow the small amount of interest you will earn. Instead, put your money into a checking account. If it is a larger sum, look into a money market account. In this type of account you will earn more interest than in a savings account, but watch out for additional charges if your balance drops too low.

What are the different types of bank accounts I can choose from?

Checking Accounts

Checking accounts provide you with quick, convenient access to your funds. You are able to make deposits as often as you wish, and most banks provide you with an ATM card to access your funds, or to charge debits at stores. Of course, you can also use the conventional method of writing checks.

Some checking accounts pay interest. These are called negotiable orders of withdrawal (NOW) accounts. The more commonly used type, a demand deposit account, does not pay interest.

There are several fees that are associated with checking accounts, other than the check printing fees. These will vary depending on the bank you choose. Some will charge a monthly maintenance fee regardless of your balance, others will charge a monthly fee if your balance drops below a certain point. Further, some institutions charge you based on the transactions you make, such as each ATM withdrawal, or each check you write.

Money Market Deposit Accounts (MMDA)

An MMDA is basically an account that accumulates interest. You can also write checks from it. The rate of interest is usually higher than that of checking or savings accounts. However, they require a higher minimum balance in order to earn that interest. The higher your balance becomes, the higher your interest rate may rise.

However, it is less convenient to withdraw money from an MMDA than it is from a checking account. You are limited to six transfers from the account a month, and only three of these can be through writing a check. Also, there are usually transaction fees associated with these accounts.

Savings accounts

You may make withdrawals from savings accounts, but there is less flexibility than with a checking account. Like an MMDA, the number of withdrawals or transfers may be limited.

There are a few different types of savings accounts. The two most common are passbooks and statements. Passbook accounts involve a record book that tracks all deposits and withdrawals and must be presented upon making these transactions. With a statement savings account, you are mailed a statement showing all withdrawals and deposits.

Minimum balance fees may also be charged on savings accounts.

Credit Union Accounts

These accounts are similar to those of banks, but with a different title. In a credit union, you would have a share draft account (a checking account), a share account (savings account), or a share certificate account (certificate of deposit account).

The great thing about credit unions is that they usually charge less for banking services than banks do. If you have access to one, use it!

Certificates of Deposit (CD)

CDs are time deposits. They offer a guaranteed rate of interest for a specified term which can be as short as a few days or as long as several years.

When you pick the term you generally can't withdraw your money until the term expires. In some cases the bank will let you withdraw the interest you have earned on the CD. Because CDs are for a set amount of time, the rate of return is usually higher - and the longer the term, the higher the annual percentage yield.

A penalty can be issued if you withdraw your funds before the maturity of your term. Sometimes the penalty can be quite high, eating into your interest earned as well as your principal investment.

Your bank will notify you before your CD matures, but often CDs renew automatically. You should keep track of your maturity date if you would like to take out your funds before the CD rolls over into a new term.

What type of account should I go with?

This depends on how you plan to use the account. If you want to grow your money and do not need to access it readily, put it in a CD.

If you need ready access to your money, a savings account could be a good option.

If your primary concern is paying bills, a checking account would be easiest.

Remember, if you only write 2-3 checks a month, an MMDA could suit your needs very well. They have a higher rate of return, but also have a higher minimum balance requirement.

Checking accounts can be very efficient. They simplify your recordkeeping - if you cancel a check, you have a receipt at tax time, and the check register is an easy way of tracking monthly expenses.

Bank institutions have varying fees and features with each of their accounts, so it is important to find out what these are before making a final decision on which bank and which type of account to choose.

A good way to get the most out of a checking account is to inquire into what the minimum balance is and make sure you maintain that amount. Another way to maximize efficiency is to get a checking account that pays interest, or go with a bank that lets you distribute funds into both checking and savings accounts that, combined, reach the minimum balance.

How should I "shop around" for an account?

There are several features of accounts you should investigate at various banks.

Interest Rates

  • Find out what the interest rate is and whether the bank can change it after the account has been established.

  • Also, find out if the bank pays different interest rates based on how much you have in the account, and if so, how it is calculated.

  • Ask when the interest starts being compounded (when they pay you interest based on your principal plus your earned interest).

  • Ask what the annual percentage yield is. This is a rate that will tell you how much interest you will earn on a deposit.

  • Ask the minimum balance required before you start earning interest.

  • Ask if you start earning interest when you deposit a check, or when the check is actually credited to the institution.

Fees

  • Ask if you will pay a flat per-month fee.

  • Find out if there is a penalty fee for dropping below a minimum balance.

  • Ask if there is a charge for each deposit or withdrawal and how much.

  • Inquire about ATM fees: making deposits, withdrawals, and how these fees vary if you use an ATM owned by the bank.

  • See if there is a charge for bill payment by phone or online.

Additional questions:

  • Will I be charged per check I write?

  • Will my fees be reduced if I have multiple accounts with the bank?

  • Will fees be waived if I use direct deposit?

  • Is there a fee for canceling a check?

  • Is there a fee per balance inquiry?

  • Will there be a fee if I close my account soon after it is opened?

  • Am I charged a fee if I write a check that bounces?

Limitations

  • Find out if there is a limit to the dollar amount of withdrawals or frequency of withdrawals.

  • If you close the account before your interest is credited, ask if you will still receive that interest.

  • Find out how long it takes a check to clear, and how long you must wait to withdraw funds you have credited to your account.

CDs

  • Establish the term of your account.

  • See if the account will roll over automatically, and see if there is a grace period in which you can withdraw your funds after your term comes to maturity.

How much protection do I get from federal deposit insurance?

Only deposit accounts at federally insured depository institutions are protected by the FDIC. Check to see if your bank falls into this category. In general, the government will protect accounts up to $250,000. If you have an account with special ownership, such as a trust, or an account with co-owners, this may change the amount of coverage you receive.

If you invest in an annuity or mutual fund with the institution these are usually not protected by the FDIC.

Can I negotiate my checking account fees with my current bank?

Yes. Here are some tips on how to approach this:

  • See what your fees and charges have been over the past 3 years.

  • Write down your checking needs, i.e. how many checks you write a month, how many ATM visits, how many deposits, how many times you have overdrawn, how often you go below the minimum balance.

  • Take this info and do some research into other banks in the area. Compare their rates and fees to your bank.

  • Go to your bank and ask to speak to a manager. Tell them you want to reduce your banking costs. If they don't negotiate, bring up their competition. If they don't want to lose your business they will negotiate. Also ask them other ways to cut costs.

  • Keep in mind that many banks offer free checking to seniors, students, and the disabled.

  • Don't rule out smaller banks as they may be more willing to cut your costs just to get your business.

What is overdraft protection and should I have it?

This protects you from the possibility of bouncing checks. If you write a check and do not have sufficient funds, it will draw money from your line of credit to make sure the check goes through.

This is a good service for people who are self-employed because if the business is seasonal and there are times of the year that have low cash flow, overdraft protection can help you pay less interest than other forms of borrowing.

What is the Truth in Savings Act?

This is a federal law that requires depository institutions to inform you of the following:

  • Annual percentage yield and interest rate

  • Costs, fees, extra charges

  • Other info including minimum balance requirements

Because of this act, you will get a disclosure of all this info from the bank you are opening an account with. This act also requires that banks provide you with this info upon request.

The Act also requires that interest and fee information be provided to you in periodic updates, and that if you have a rollover CD, you will be notified before the maturity date.

ATM Transactions

How do ATM transactions work?

There are a variety of electronic transactions one can execute:

  • ATMs allow you to bank electronically, get cash, make deposits, pay bills, or transfer funds between accounts. These machines are used with a debit or ATM card and a personal identification number.

  • Point of Sale Transactions. Some ATM cards and debit cards can be used in stores to charge merchandise. Money is electronically drawn from your account and paid to the store.

  • Pre-authorized transfers. This is allowing for the automatic deposit of fund or withdrawal of funds to or from your account. For example, one can authorize the direct deposit of wages, social security, or dividends directly to their account. You can also pre-authorize your bank to make automatic transfers for bill paying.

  • Telephone transfers. You can transfer funds from one of your accounts to the other, or order bill payments over the phone.

  • Most ATMs provide you with a receipt for the transaction, as do point of sale purchases. These receipts are the records of your electronic transactions and should be kept. Additionally, your periodic bank statement will show all the electronic transfers performed. This monthly statement is your proof of payment to another party and is your record for tax and other purposes. Any inconsistencies can be taken up with your bank.

What should I do if I find an error on an EFT or ATM transaction?

Call your bank as soon as possible or within 60 days of the error. They may ask you to submit your account information and the alleged error in writing. Generally, they have 10 business days to investigate the error, and if they fail to come up with an answer your funds should be reimbursed. If the funds in question were withdrawn from a point-of-service debit or a foreign electronic transfer, the bank may be allowed more time to investigate the error. In the meantime, however, you should have full access to the funds in question.

Your bank should notify you immediately of their findings. If you were correct about the error, they must immediately finalize the re-credit to your account. If there was no error, they must present in writing the findings of their investigation and notify you of any funds they have deducted after you had been re-credited.

What if my ATM card is lost or stolen?

It's important to note the difference in how you will be reimbursed for credit cards vs. ATM or debit cards. For a credit card, your loss is limited to $50.

However, for an ATM or debit card, the loss is limited to $50 if you notify your institution within 2 business days after the card is lost or stolen.

Keep in mind that the loss could be up to $500 if you do not tell your bank within two business days of the loss or theft.

If you do not report unauthorized transfers within 60 days of your statement being mailed to you, you run the risk of having unlimited loss on transfers made after the 60 days.

Can I use my ATM card abroad?

Yes, there are plenty of ATMs all around the world, but it is wise to check beforehand. With Visa and MasterCard, you can pinpoint ATM locations worldwide on their website.

Often it is a good idea to travel with an ATM card because you can withdraw foreign currencies at a better exchange rate, and also if you lose your card and report it promptly you will not experience the type of losses you would with cash. Be wary of fees your bank will charge you for each withdrawal - it may be wise to withdraw larger sums to minimize the frequency of transactions.

How do I know when a pre-authorized credit has been deposited into my account?

Your institution may notify your employer, or you. Many times your bank may only notify the recipient if a scheduled credit does not come through. Often, you can check your statement online or call your bank to check on your credits.

How do I cancel a pre-authorized payment?

You can call or write your bank, or often stop the payment by going to your bank's website. Do this at least 3 days before the scheduled payment. It is a good idea to request a written confirmation of giving a telephone notice to stop the transfer.

Hello, World!

Financial Guide: Business

Small Business

What can I do to prepare my small business for the generation to come?

The process of passing a family business onto the second generation is so difficult that not even a third of them survive. Beyond that, roughly half make it to a third generation. On a normal day in the U.S., 40 percent of businesses are confronted with a change of owners. Those who have founded the companies are struggling to find remedies, but there aren't many options.

Here are a few possible remedies to this problem:

  • Sell off the company.

  • End the business.

  • Remain as the owner, but contract others to manage.

  • Keep ownership and management within the family.

The most common causes for failure of the transition of the small business are as follows:

  • There is no strategy.

  • The business is missing energy.

  • The owner lacks the motivation to change the business.

  • The coming generations are not interested in working with the business.

The main reason for closure is not having a strategy. If planned properly, the business has no reason to worry.

How do I create a successful strategy for passing on my family business?

The family must do the following to attempt to have a worthwhile transition:

  • Formulate a strategy focused on the family.

  • Formulate a strategy focused on the business.

  • Make a Succession Plan, which includes setting dates for retirement and the training for who will follow.

  • Make an Estate Plan.

These are the four key points to a successful business transfer. They basically guarantee a transition for years to come within your family when implemented correctly.

What is a strategy focused on the family?

The purpose of the family strategy is to keep a well-functioning business. The policies for the role of the family in relation to the company are set in this strategy. There may be policies for entering and exiting the workforce of the business. It should incorporate the basic guidelines as well as a mission statement that explains what is important to the family. The strategy needs to take into consideration who in the family would like to have significant roles in the business and who would like less responsibility.

What is a strategy focused on the business?

A strategy focused on the business permits each new member of the family to establish their own future for the company. To make sure that everyone has the same idea as to where the business is headed, there is a need to formulate goals. The strategy should concentrate on the future of the company at a particular date.

What is involved in a Succession Plan?

The purpose of the succession plan is to aid those who founded or are in control of the company through the transition. It should explain the details of how to know when the next generation is ready to take over and the process for that transition.

What is contained in an Estate Plan?

The plan for the estate is vital for the company and family. In the end, without a strategy, there will be higher estate taxes than needed, which in turn gives less to the successors. This plan should be in accordance with the succession plan to ensure the transition of the business is done in the most tax-effective way.

▼ Do I have what it takes to own and manage my own business?

First, think about why you want to start your own business and make a list. The thrill of being self-employed, the need for independence both financially and professionally, and the desire to use the most of your intelligence and talents are a few of the most frequent motivations.

You also need to make sure you have the desire to put in the time to make a successful business. To decide what type of business fits you the best, you should think about what you find enjoyment in doing and what talents you have. Ask others for their thoughts, and see if any of your everyday activities can be made profitable.

At this point, you will need to investigate what will be the exact niche for your company. Determine what it is you want to put on the market, what the competition is like, and how to get ahead of the competition. The most important consideration is the demand for your product or service.

What should the business strategy contain?

A business strategy, when applied to your company, should include an introduction, details about marketing, financial management, operations of the company, and a closing statement.

In the introduction of the business strategy, what should I incorporate?

This segment of the business strategy should contain information about the company and its objectives. Detail the experience within your company and the structure of management and legal status. State what your business has to get ahead of the competition.

In the marketing portion of the business strategy, what should I incorporate?

This is where you should state the products or services being offered and their demand in the market. It should also detail the market and its particular location and size.

In the financial management segment of the business strategy, what should I incorporate?

You should outline the source and amount of the initial equity capital. You also should create a monthly operating budget for the beginning years, as well as expected return on investment (or ROI) and monthly cash flow for these years. After that, present the balance sheets and income statements for the first 2 years and state the break-even point. Discuss your own balance sheet and ways of compensation. Explain who will be in charge of accounting affairs and how they will be maintained. Lastly, think through the possible problems that may arise and develop solutions.

In the operations segment of the business strategy, what should I incorporate?

This is where the explanation of the management of the daily activities will be. It should include insurance coverage, lease or rent agreements and the processes related to the staff and employment. It should also detail what is necessary to produce the products/services and the processes of production and delivery.

In the closing statement of the business strategy, what should I incorporate?

You should restate the company's objectives and purposes and explain the dedication you have to make your company succeed. Be sure to include the methods you plan to use to reach your objectives.

How do I know if a business based at home is good for me?

You have to base your decision to start your own business on something other than the desire to be your own boss, such as: knowing beforehand what it is going to take, a thorough evaluation of your personality, and willingness to go the extra mile.

You must be able to make plans and continually make the necessary changes and developments as you go. You will want to set up an environment that is devoted to the professional aspects of your life and even consider a separate office within your home.

Are there certain legal standards that will affect my home-based business?

A home-based business is affected by many of the same laws that apply to normal companies. You need to speak with a lawyer and the state department of labor to learn which of these laws and regulations will come into play. You will need to know your city's zoning regulations as well as know which products may not be produced from home.

Explosives, fireworks, toys, drugs, sanitary or medical products, and poisons are normally outlawed for production based at home. Other states will not allow the production of drink, food, or clothing from home.

You may be required to obtain a business bank account, a separate business telephone, a work certificate or license from the state, and a sales tax number for registration and accounting standards.

If you have employees, you will be held responsible for social security taxes and withholding their income as well as observing the employee health and safety laws and minimum wage.

How can I prevent cash flow problems from hindering my small business?

One of the main reasons small businesses collapse is they have a poor cash flow strategy. The most common reason for this is that many small business owners do not have a grasp of basic accounting principles. You should learn the basics to maximize your cash flow.

You can either keep cash on hand or in a business bank account in order to take care of the expenses. This will be enough to allow the company to pay bills, supply investment capital, and have sufficient funds in case of emergencies.

An operating cycle begins with the buying of inventory and ends with receiving the payment for the inventory. It keeps track of the transition of assets to cash. Normally, you purchase an excess inventory so as not to exhaust your stock as soon as sales are made. Accounts receivable and cash sales will make up your sales. The normal payment date for accounts receivable is 30 days from the purchase date, which is applicable to both your inventory and products sold. Cash and accounts payable are lessened with an inventory payment is made. The collection of receivables will raise your cash. At this point, the operating cycle and the cash have made a full circle and will start again.

An analysis of the cash flow will demonstrate if the everyday operations produce sufficient cash to reach the obligation and the relation between large expenditures to pay for obligations and large inflows of cash from sales. With this information, it will be apparent if the inflows and outflows of your business have a positive cash flow or a net loss. Over time, important changes will be seen.

A projection of the monthly cash flow will uncover and eliminate any deficiencies or surpluses in the cash flow and show the relations between previous projections and actual figures. A business financial strategy should be changed to allow for more cash when cash deficiencies are discovered. If a surplus of cash is found, it may be due to excessive borrowing or money that should be invested. The purpose is to construct a strategy to allow a well-balanced cash flow.

What can I do to develop a better business cash flow?

There are several options for increasing cash reserves:

  • Accounts receivables: Properly control your accounts receivables and retrieve overdue accounts as quickly as possible. If you are not aggressive with collection, profits are lost.

  • Having stricter credit standards: With the tightening of credit and terms, more clients are paying for their purchases in cash, which leads to more cash on hand and lowering the bad-debt expense. Although this is beneficial in the short term, it may not be as appealing in the long term. Less strict credit policies permit more clients to purchase the products or services.

  • Take advantage of the market: A common problem is many small businesses price their products lower than the market and do not make a profit. You should research the product's market, distribution costs and the competition before deciding on prices. Constantly keep an eye on the aspects that play a role on pricing and make adjustments when necessary.

  • Make use of short-term loans: Taking a loan from a financial institution can solve short-term cash flow problems. The common forms of credit used in these circumstances are revolving credit lines and equity loans.

  • Boost sales: One way to increase the cash flow is to boost sales. Take into account, when a large amount of your sales are credit sales, sales are boosted (as well as accounts receivable), but not cash on hand. This causes your inventory to diminish. Due to receivables not being collected until 30 days after the sale, a significant increase in credit sales will diminish the company's cash reserves fast.

Is a cash reserve necessary in my small business?

It is important to have sufficient cash on hand to pay for expenses and emergencies. Cash beyond this should be put in a manageable, low-risk, interest-bearing account, like a savings account, Treasury bill or short-term certificate of deposit.

Choosing a Professional

Should I hire an attorney?

It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire one for a significant business transaction. If there is a problem where the court is concerned, it is advisable to hire an attorney.

The following should be considered when determining if an attorney is necessary:

  • Is this a difficult legal dispute or will I end up in court? What is involved in terms of money, property, or time? Positive answers demonstrate the need for an attorney.

  • Does a book exist that will be able to help me so I don't have to hire an attorney? Some problems can be resolved with little help.

  • Have you looked for non-Lawyer legal resources to help?

Certain disputes can be solved without needing an attorney. For example, a living will can be prepared by a non-legal organization such as the American Association of Retired Persons. There are several organizations that can aid in the process of obtaining a living will form from the state along with information for filling it out.

What process do I follow to handle the dispute by myself?

The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid in resolving disputes.

Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.

Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.

Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hotline or consulting resource.

Mediation or arbitration: You can find dispute resolution centers in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.

Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.

These are the low-cost options in comparison to going to court or hiring a lawyer for representation.

Small claims court: Each state defines the limits for the amount of damages, which can be filed in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.

What method should I use to find a good attorney?

Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are compiled by the Bar Association.

Pay close attention to the specialty area in the Bar Association lists, as many attorneys work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.

More sources are the Who's Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups (for example, people with disabilities, elders or victims of domestic violence).

If using the referral service, ask for details on how the lawyers were selected. Many referral services use lawyers who are members of a certain organization.

The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.

What should I ask my possible lawyers?

Before beginning a consultation, the following questions should be asked:

  • Is the first consultation free?

  • How long have you been an attorney?

  • Do you have a lot of cases that are like mine? (Try to find an attorney that has experience in your problem area.)

  • Are there references, such as trust officers in banks or other attorneys that I can contact?

  • Are there any clients or special-interest groups that you work for that may cause a conflict of interest?

  • Can we make a fee agreement? May we discuss the fees?

  • Is there anything in particular that I should bring to the first consultation?

Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation is complete.

It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you, and 2) to see if you are comfortable with the attorney and the fee agreement.

Is a certain fee agreement better for me?

The basic rate for legal services depends on location. Based on your knowledge of the fees, a "fair" fee should be selected. Here are a few factors that play a role in the decision:

  • What can you afford?

  • Is this a routine case or do I need someone with special experience?

  • What is the going rate for the attorneys in my area?

  • What can I take care of without the attorney?

The following are basic fee agreements in use by attorneys:

Flat fee: There is a specific total that will be charged for work on your case.

  • Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate.

  • This is normally offered only if the case is simple or routine.

  • Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand.

Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney's fee is $50 per hour and puts in five hours of work, then the cost will be $250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.

  • Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experienced will need more hours to complete the work, even though the hourly rate is lower.

  • The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most.

  • Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?

Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenario, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.

  • Idea: Find out if the fee will be calculated before or after expenses are taken into account. This can make a significant difference in the amount of the fee.

What can I do to save money on legal fees?

Bear in mind that attorney fees are usually negotiable even though you will not be asked to bargain over the fees. The following are a few tips to make sure you save the most money possible:

  • Shop around for flat fees on routine cases.

  • Discuss the method of billing for hourly rates. To avoid problems, have a written agreement stating the fee agreement as well as what is involved.

  • Find an attorney with the qualifications necessary for your case. The majority of legal work is fairly routine. Knowing what form needs to be completed and then who to file that with plays a large role.

  • Propose to help with the workload.

  • Use the lawyer as the middleman. If you only need a letter written to the opposing party, some attorneys will negotiate a lower fee.

  • Work the lawyer as your coach. Hire a lawyer to guide you and review documents and letters that you prepared and signed if you would like to represent yourself in court (pro se).

  • Select an attorney that specializes in your particular case.

  • Always arrive prepared to lawyer meetings. The more information you have at hand means less time that the lawyer needs to spend looking for that information.

  • Be forthcoming with your attorney. To save time and money, make sure the attorney knows all the pertinent facts as soon as possible to reduce the need for more investigation.

  • If factors change, inform your lawyer immediately. This can possibly save the lawyer's time or keep the lawyer from working on the case in the wrong direction.

  • Be prepared when having contact with your lawyer. Ask all questions in one call. When you receive a letter or information in writing, pass it on to other staff members instead of contacting the attorney, unless you have a specific need.

  • Pay close attention to invoices. Ask that you receive an invoice regularly. This applies to all types of fee agreements including a contingency fee. If you have a question regarding any of the items, you should immediately speak with your attorney.

Employee Benefits

Do I need to know anything specific about employee benefits as a small employer?

The employer must pay for certain legal benefits and insurance coverage such as Social Security, unemployment insurance and worker's compensation. The money for the Social Security program comes from payments made by employers, employees and self-employed persons to an insurance fund that will provide income after retirement. At the age of 65, full retirement benefits usually become available. There are other aspects of Social Security that deal with survivor, dependent, and disability benefits, Medicaid, Supplemental Security Income and Medicare.

Benefits for unemployment insurance are to be paid under the laws of individual states from the Federal-State Unemployment Compensation Program. Contributions to the program include payments made by the employer, based on the total payroll. The purpose of worker's compensation is to provide benefits to workers who are disabled due to an illness or injury while at work. The coverage and benefits vary by state. In the majority of states, private insurance or employer self-insurance will provide the coverage necessary. Short-term disability benefits are governed by the state also.

Health insurance, disability insurance, life insurance, a retirement plan, flexible compensation, and leave are often included in a comprehensive benefit plan. An employer may choose to offer such benefits as bonuses, reimbursement of employee educational expenses, service awards, and perquisites appropriate to employee responsibility.

You need to determine what you are willing to pay for this coverage before implementing a benefit plan. It might be a good idea to consult employees as to what benefits they are seeking. For example, is a retirement plan more important than a medical plan? Another decision is whether you will protect your employees from current economic hardships or in the future. The last step is deciding who will manage the plan, you or an insurance broker.

Are there different types of medical plans for employees?

There are two options: a fee-for-service plan, or a pre-paid plan (commonly referred to as a Health Maintenance Organization, or HMO).

An indemnity plan or insurance permits each employee to decide their own doctor. The employee will pay for the medical care and then file a claim with the insurance company for reimbursement. There are deductibles and coinsurance as well. Deductibles vary from $100 to $1000 a year.

With coinsurance, a percentage of the medical expenses are paid by the employee and the remaining are covered by the plan. 20 percent is the normal coinsurance amount to be paid by the employee - the remaining 80 percent is paid by the plan.

There are three common indemnity plans that give health care to groups of employees: 1) a basic health insurance plan that will cover hospitalization and surgery as well as physician's care in the hospital; 2) an insurance plan that will supplement the basic plan by reimbursing the charges not paid by that plan; and 3) a comprehensive plan that (with one common deductible and coinsurance features) will cover both hospital and medical care.

What is a preferred provider organization (PPO)?

A network of doctors and/or hospitals that has contracts with a particular health insurer or employer that will give health care to employees at lower than the market rate. This offers a broad range of health care providers.

PPOs can be more expensive than HMOs due to the broader range of providers. There are no obligations to use the PPO providers, but there are strong financial incentives. PPOs often have less comprehensive benefits when compared to HMOs. The PPO providers normally receive payment from the insurers directly.

What is a health maintenance organization (HMO)?

Health care that is provided through a network of hospitals and doctors is a health maintenance organization (HMO). The benefits usually include preventative care, such as physical examinations, weight control and stop-smoking programs, baby care and immunizations. The most common characteristic of HMOs is that the primary care provider is limited to only one doctor within a network, although there is usually a variety to choose from.

Outside of the network of hospitals and doctors of the HMO, there is no coverage. Due to the limited choices, the costs are lower. The payment for the HMO premiums are fixed and per employee. A small co-pay is due for the medical services, and no reimbursement is necessary.

What are the typical disability benefits provided to employees?

If an employee cannot work due to illness or accident, the disability plan gives him/her income replacement. These defer from worker's compensation as they pay benefits for non-work related illness and injury, and can be either short-term or long-term.

Short-term disability (STD) is used if the employee is unable to perform the normal duties of his/her occupation. The benefits are typically paid for a maximum of 26 weeks and begin on either the first or the eighth day of disability. The benefit level is dependent upon the employee's salary and will range from 60 to 80 percent.

Long-term disability (LTD) commences after the conclusion of the short-term benefits. LTD benefits then continue for the entire length of the disability or until the date of normal retirement. This is also a percentage of the employee's salary, typically between 60 and 80 percent. Social Security disability normally offsets these benefits - if an employee qualifies for the Social Security disability benefits, they will be subtracted from what the employer has paid.

Employees have what kinds of life insurance plans available to them?

The beneficiaries of an employee may collect death benefits from life insurance if the employee dies during their working years. The two main kinds of life insurance are:

  1. Survivor income plans that provide regular payments to survivors

  2. Group life insurance plans that will provide lump-sum payments to beneficiaries

The most popular plan has group term life insurance, protection provided by one-year, renewable, with no cash surrender value or paid-up insurance benefits.

What do I need to know about self-insurance?

Self-insurance means the business will pre-determine and pay a portion or all of the expenses of employees in ways similar to traditional health care providers. The funding comes from a trust or reserve account.

A portion of the cost may be paid through premiums, as is common in health care plans. A kind of coinsurance purchased by the company is called catastrophic coverage given through a "stop loss" policy. The company can manage this directly or it can be done through a contractor.

Do I need a "cafeteria plan"?

With a "cafeteria plan", money which would normally be used as taxable salary is used, normally tax-free, for services that are necessary like health or child care. This saves the employee income and Social Security taxes. In addition, the salary used in the cafeteria plan isn't subject to Social Security tax on the employer. The employee has the choice from several levels of supplemental coverage or different benefits packages. Each employee may select what he/she wants based on their own personal goals or to satisfy differing needs, such as health coverage, legal services (legal services amounts are taxable), retirement income (401(k) plans) or specialized services (dependent care, adoption assistance).

Record Keeping

For my business, what types of records are important to keep?

A crucial aspect of your business success depends on thorough and accurate financial record keeping. Accurate records help to provide information to operate efficiently as well as allow you to identify all your business assets, liabilities, income and expenses. This data will help you locate both strong and weak cycles of your business.

It is necessary to keep good records to prepare current financial statements like income statements and cash flow projections. They will also help you maintain a good relationship with your banker. The records will even ensure you don't overpay or underpay your taxes. During an Internal Revenue Service audit, it is crucial to have good records in order to properly answer the questions and satisfy the IRS.

Financial records should demonstrate how much income you are currently making as well as what you expect to generate in the future. They will indicate the number of accounts and their balances in accounts receivable. They will also inform you of what you owe in terms of utilities, rent, merchandise, and equipment, and even expenses such as advertising, payroll, payroll taxes, equipment and facilities maintenance, and benefit plans for yourself and employees. Good records will show how much cash is being used for inventory and how much is on hand. They should also indicate which of your products are making a profit as well as your gross and net profit.

The Basic Record Keeping System

This should include a basic journal to record transactions, payroll records, accounts payable records, accounts receivable records, inventory records and petty cash records.

With the help of an accountant, you can develop an entire system that fits your business needs. They can teach you how to update these records regularly. The records will become the base for your financial statements and tax returns.

What should I know about automating a portion or all of my business?

First, you need to have a clear understanding of your company's short and long-term goals. Consider the disadvantages and advantages to a computer, as well as what you want to achieve with a computer. Look at the best non-computerized system that you can develop in comparison to the computer system you are considering. It is possible to achieve your goals by improving your existing manual system. Just remember, no one can automate a business without first creating and optimizing the manual systems.

Computer Performed Business Applications

Maintaining transaction records and preparing statements and reports to keeping customer and lead lists, creating brochures, and paying your staff are a few of the capabilities that can be done by a computer. A thorough computer system can organize and store many similarly structured pieces of information, print information quickly and accurately, perform complicated mathematical computations quickly and accurately, facilitate communications among individuals, departments and branches, and connect the office to many sources of data available through larger networks. It can also restructure such manual business operations as payroll, accounts receivable, inventory, advertising, and planning. A computer can improve efficiency, decrease errors, and lower costs.

Computer Business Applications

Computers also have the ability to do more complicated operations, such as spreadsheet and accounting programs that compile statistics, plot trends and markets and complete a market analysis, modeling, graphs and forms and financial modeling programs that organize and analyze financial statements. Several word processing programs produce typed documents and provide text-editing functions, while desktop publishing programs allow you to create good quality print materials on your computer. To divide large projects into smaller, more easily managed segments or steps you can use the critical path analysis programs.

How can I guarantee that the computer system I'm using is right for me?

Selecting the right programs, choosing the right equipment and implementing the diverse applications are factors to consider when you computerize your business. There are three common types of software. Compilers and interpreters translate programs that are written in human-readable programming language to the computer language that the CPU understands. The operating system software controls the individual components of the computer. The computer generally comes with system software which must be loaded into memory before the application can start.

Software for specialized functions such as accounts receivable, payroll check writing, posting or inventory reporting are usually purchased separately from the computer hardware.

In order to determine your needs, make a list of all the functions of your company where speed and accuracy are important for mass amounts of data. These are referred to as applications.

Prepare a list of all the reports that you are currently producing for each of these applications. Make sure to include any preprinted forms such as vouchers, checks or billing statements. If these forms don't already exist, come up with a good idea of what you want. List the frequency with which each report is to be generated, who will make it and the number of copies necessary.

Prepare a hand-drawn version that also lists the circumstances in which you would like the data shown. Write a list of all the materials that are used as input into your manual system for each application. These may include, but are not limited to, work orders, receipts, time cards, etc. Detail who will create them, how they will get into the system and the time in which the items take to be created. For the appropriate time period, make a maximum and average expected number of these items produced.

What can I do to successfully implement the new computer system?

You will come across problems when implementing computer applications, but correct planning can make the process smoother. Sit down with each employee and explain how the computer will have an effect on his or her position. Set dates to have the main phases of the implementation complete as well as the last day for format changes. Find a location for your computer that meets the system's requirements for temperature, electrical power and humidity. Make a list of the priorities for the applications that will be converted from manual to computer systems and convert each one individually instead of in a group. Ensure that everyone using the system will be trained.

Each application that has been converted should be entered and run alongside the pre-existing manual system to ensure that the new system works.

System Security

If you plan on having confidential information in the system, you will need to set up the proper precautions to keep unauthorized users from modifying, stealing or destroying data. The options are locking the equipment or installing a user identification and password software program.

Data Safety

The most moderately priced and best insurance to prevent the loss of data is the back-up of information on a diskette on a regular basis. These copies should be put in a safe location away from the business site. It is also helpful to own and test a disaster recovery plan and to identify all programs, documents and data necessary for essential tasks during disaster recovery.

Lastly, make sure that you have more than a single person capable of operating the system and be sure that someone monitors all systems continuously.

Travel and Entertainment

May I deduct meal expenses when visiting clients out of the office?

That is not common. Normally, you can only deduct the cost of a meal when away on a business-related trip or gone overnight.

Do I need to report employer reimbursements for travel and meals?

If you are required to give back any excess reimbursement, provide your employer with a detailed expense report and meet other requirements. There is no need to report the reimbursement or to deduct the expenses on your return.

Deduction limits are obligatory for your boss, not you, and the floor of 2% of AGI on miscellaneous itemized deductions will not have an effect on your travel and meal costs.

If you are not required to give back any excess reimbursement, the expense arrangement is not an accountable plan and your employer will have already included the reimbursement in your Form W-2. There is no additional reporting requirement.

If your employer reimbursement is less than your actual costs and you wish to deduct your excess expenses, you will need to report the employer reimbursement on Form 2106 as an offset to your expenses.

Caution: Please note that for 2018-2025, only Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses may deduct their unreimbursed employee business expenses, including travel and meal expenses.

Are there limits on deductible travel and meal costs?

Although there is no specific dollar limit, expenses should be ordinary and necessary and not over-generous.

May I deduct living expenses while away from home on temporary assignment?

Because temporary work site living expenses are separate from home travel expenses, they may be deducted.

An assignment that is not expected to last more than a year is considered temporary. If the assignment is for more than one year than the new area becomes your tax home and you can't deduct expenses as away-from-home travel.

Which expenses are deductible when I am traveling away from home?

There is a broad range of expenses that you can deduct while traveling. The most common are as follows:

  • Transportation fees or actual costs at a per-mile rate for using your own vehicle. The transportation costs also include getting around in the work area, commuting to and from hotels, restaurants, offices, terminals, etc.

  • Phone, fax, laundry, baggage handling

  • Any tips related to the above

Are there travel expenses that cannot be deducted?

The travel expenses below cannot be deducted:

  • Travel as education

  • Looking for a new job in a different field or for a new business site

  • The cost of transportation between your home and the work site unless your home is your business headquarters.

Business entertainment - what can I deduct?

The 2017 Tax Cuts & Jobs Act (TCJA) eliminated deductions for any expenses related to activities generally considered entertainment, amusement or recreation. See https://www.irs.gov/newsroom/irs-issues-guidance-on-tax-cuts-and-jobs-act-changes-on-business-expense-deductions-for-meals-entertainment for more information.

How do I document my travel expenses?

If your employer is reimbursing you for your expenses, you only need to prove them to him/her. To do this, submit a written accounting to the employer and return any excess amounts.

"Accountable plans" or per diem arrangements and mileage allowances are used instead of detailed accounting for the employer, if place, time, and business purpose are verified.

Detailed documentation is required by the IRS when expenses aren't fully reimbursed by the employer or you fail or are not required to return excess reimbursements. If you are the employee, a 2% of AGI floor on miscellaneous itemized deductions is applied to your deductions. However, these deductions are not allowed to an employee from 2018-2025 unless you are an Armed Forces reservist, qualified performing artist, fee-basis state or local government officials, or employee with impairment-related work expenses. If you meet one of these categories, your expenses are deductible on Schedule 1 of Form 1040 and are not subject to the 2% of AGI floor on miscellaneous itemized deductions.

You should record the expenses as close to the time of expenditure as possible.

Marketing and Pricing

How can I be certain that my small business product or service will be marketable?

To determine where and how you can successfully sell your product or service (and at what price), you will need to use one of the most critical elements of business planning - market research. This includes interviewing potential suppliers and investigating your competition and consumer base.

Market research has many different benefits. It can help you categorize marketing activities, generate primary and alternative sales approaches to a given market, make profit projections from a more precise base, establish the market's profit boundaries, and develop critical short/mid-term sales goals. You will need to identify your objectives and organize the collection/analysis process first.

What questions are appropriate to ask in market research?

You will want to learn about the consumers' location, needs and resources, and what they can afford. Significant questions should be addressed, for example, Can you compete effectively in price, delivery and quality? Where can the demand be created?

Can the product or service be priced to guarantee a profit? Also, discover how many competitors provide the identical product or service. You will want to have a basic understanding of the economy of the area in which you will sell your product or service and the areas where that market is growing or lessening.

When setting prices for my products or services, what should I consider?

There are different individual costs for each component of your service or product. Be sure to analyze every component of the product or service's total cost. Upon completion of the analysis, prices can be established to maximize profits and eliminate deficit services. Material, labor and overhead costs are included in the cost components.

Material costs are the total of the costs of all materials of the finished product.

Labor costs are calculated based on the total work put into preparing the product. To determine the direct labor costs, you multiply the cost of labor per hour by the number of personnel hours necessary to finish the job. Be sure to include the dollar value of fringe benefits as well as the hourly wage, which include workers' compensation, retirement benefits, social security, insurance, unemployment compensation, etc.

Overhead costs cannot be easily identified with a product. They consist of indirect materials, such as depreciation, supplies, advertising, heat and light, taxes, rent, insurance, and transportation. Indirect labor costs, such as legal, clerical, and janitorial services are also included in overhead costs. Don't forget to include shipping, handling and/or storage and any other cost components.

Business Forms of Organization

Will some types of business organization or entity limit my liability to business creditors?

Yes. Limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs) and corporations are the most common forms. General partnerships and sole proprietorships don't restrict owners' liability, whereas limited partnerships limit liability of some partners (such as limited partners) and not others (like general partners).

How can I avoid the "corporate double tax" and what exactly is it?

A "corporate double tax" happens when a business corporation (or an entity that is treated as a business corporation for tax purposes) pays a federal tax on its income, and then its owners pay another tax as they collect corporate profits. The "entity level tax" is the tax on the corporation and so an entity taxed in this way is called a "C corporation" or C corp.

Here are ways to avoid the double tax:

  • Become an S corporation, which doesn't change the nature of the business under state business law but rather eliminates federal tax at the corporate level.

  • The second tax, which is on the owners, can be deferred by suspending profit distributions to corporate owners.

For tax purposes, what type of business entity is best?

Each business is different, although to save on overall taxes a "pass-through" entity is generally best, as it eliminates tax at the entity level. Owners of pass-through entities are taxed on the profits of the entity that they own. Owners are able to make tax deductions for startup and operating losses, against the income from other businesses or investments.

What entities are considered to be "pass-through"?

The leading "pass-through" forms are limited partnerships, LLCs, LLPs, S corps, sole proprietorships and general partnerships. You have a lot of power over whether or not your entity is treated as a pass-through for federal tax purposes.

If you have a partnership of any type or a limited liability company, it is possible to choose if your business functions as a corporation or partnership for tax purposes. This is called the "check-the-box" system by tax and business advisors. You can qualify to have it treated as a pass-through by choosing S corp. status if your entity is incorporated or if you elect to be treated as a corporation.

This decision is binding. This means if you select one entity one year and a different one the next, you will have to pay the taxes as though last year's entity was sold and use those profits towards this year.

To avoid double tax and limit my liability, which entity should I choose?

Assuming you don't select to have them function as corporations, the following types will avoid double tax and limit liability: LLPs, LLCs, and limited partnerships (only for the limited partners). An S Corporation is usually another option. If you are a sole owner, the only option is an S Corp (or in certain states, LLCs).

Why are limited liability companies (LLCs) so great?

Limited liability and pass-through tax treatment are both combined in LLCs. This provides benefits that are unavailable from S Corps. The main benefits are:

  • The possibility of greater loss deductions.

  • Tax benefits can be disproportionately distributed among owners.

  • When a new owner becomes a member of the business, or when allocations are given to owners in business liquidation, taxes are avoided or reduced.

LLCs are sometimes permitted to have a single owner - laws vary by state. If permitted, the owner has the opportunity to elect to be under the check-the-box rules.

A good alternative where sole ownership LLCs aren't permitted is an S Corp. This structure will also defer tax, in comparison to LLCs, when a corporate giant is buying out the business.

If my business is a professional practice, what are the special conditions?

A major concern is the limitation of liability, especially malpractice liability. Against the liability of your own malpractice, there is no entity that will protect you. For protection against liability for malpractice of co-owner professionals in the firm and possibly for other debts, Professional Limited Liability Companies (PLLCs), LLCs, and LLPs, when accessible for professional practices, should be used. Depending on the state law, Professionals Corporations (PCs) might not offer protection from liability for a co-owner's malpractice.

LLPs, PLLCs, and LLCs all have about the same tax rules that govern them while those for PCs are a little more liberal.

If I change my form of business organization, what are the federal tax consequences?

A change of entity is an event that may need to be carefully planned and implemented to avoid a taxable event. It also may have significant future tax implications. You should consult with a professional before making any changes or decisions to your business organization.

Is it necessary for state business entity rules to follow federal tax rules?

Bear in mind the differences between state tax law and state business law. Whatever tax status you select for your entity beneath the federal check-the-box system, keep in mind that you may be considered a different type of entity for state business law purposes. This means that if you choose corporate tax treatment for a partnership, it will not necessarily bring corporate limited liability.

A state normally treats the entity selected under federal check-the-box as the entity acknowledged for state tax purposes, but this is not always the case.

The law of a state may agree to pass-through status for an entity like an S Corp or an LLC, but still enforce some sort of tax on the entity.

Incorporating

What is the definition of a corporation?

A legal entity that exists independently of its owners is a corporation. When correctly filled out articles of incorporation are filed with the proper state authority and all fees are paid, a corporation is created.

There is a difference between an "S" corporation and a "C" corporation, what is it?

Every corporation begins as a "C" corporation and must pay income tax on the taxable income made by the corporation. After filing federal form 2553 with the IRS, a "C" corporation becomes an S corporation. The net income or loss of an "S" corporation is included in their personal tax returns and are "passed-through" to the shareholders. There is no double taxation as with "C" corporations because income tax is not taxed at the corporate level. Also known as Subchapter "S" corporations, they are limited to 100 shareholders.

▼ Is an attorney necessary to incorporate?

Obtaining a lawyer is not a necessity to incorporate (except in South Carolina, where an attorney's signature is required). You can fill out and file the articles of incorporation by yourself in every other state. However, you should be completely briefed on all aspects of the law beforehand.

A good corporate attorney can be an irreplaceable resource to a small business despite the expensive hourly rates. A one-hour consultation can be very beneficial if you are unsure of the process, or if there isn't time for research. Prepare a list of questions before the consultation.

Is there a process for naming my corporation?

Take time to think about a name for your corporation. The most common rule for naming your corporation is that it cannot be misleadingly similar to a company that is already formed, but each state has their own rules. A suffix must be included in the corporation name such as "Incorporated", "Inc.", "Company", and "Corp." Each state has suffix standards of their own.

Are there benefits to incorporating?

Limiting your liability to the assets of the corporation is the primary advantage of incorporating. It is common that shareholders are not responsible for the debts or obligations of the corporation. Unless you didn't personally sign for the loan and your corporation defaults on it, your personal assets are safe. With a sole proprietorship or partnership, this is not the case. There are many tax advantages that are available to corporations and not sole proprietors.

A few of the advantages are:

  • A corporation allows for easier setup of retirement funds and qualified retirement plans (such as a 401k).

  • The life of a corporation is not limited and is not dependent upon its members. The corporation will continue to prosper and do business even if an owner dies or wants to sell their interest.

  • A corporation has a centralized management.

  • It is easy to transfer ownership of a corporation.

  • With the sale of stock, capital can be raised more easily.

What exactly is a Registered Agent?

In the majority of states, a corporation is required to name a "registered agent." The agent must be located in the formation state. The registered agent must be accessible during regular business hours to receive official state documents or service of process.

Do I need a specific number of Directors or Shareholders?

Most states permit one person to function as director, shareholder, and all officer roles.

Are there a number of shares of stock I should choose and at what par value?

You may select any quantity that you wish. The par value is either "No Par Value" or any dollar amount per share as you choose. In some states you must issue the stock for no less than the par value. Some states establish their fees from the amount of shares approved, multiplied by the par value.

What does EIN stand for and what is a Federal Tax Identification Number?

A Federal Tax Identification Number, which is also known as an Employer Identification Number (EIN) is required for each corporation so the IRS may track payroll and income taxes paid by the corporation. Just as a Social Security number, an EIN is used for almost every function of the business.

After I incorporate, what do I do next?

If your director(s) have yet to be designated in the articles, you will need to hold your first shareholder meeting to select your director(s). After that, you will need to hold the first organizational meeting of directors. During this meeting, you will hold elections for officers, approve the company's bylaws and issue your stock, as well as other actions.

Limited Liability Companies

Who should establish an LLC?

If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC (Limited Liability Company). For instance, you might be concerned that your commercial liability insurance will not completely protect your personal assets from possible slip-and-fall lawsuits or claims by your suppliers for unpaid invoices if you open a storefront business that works directly with the public. An LLC gives you personal protection from these and other possible claims against your business.

However, not every business can function as an LLC. Businesses typically prohibited from establishing LLCs are those in the banking, trust and insurance industries.

Is an LLC or an S corporation better?

Even though the special tax status of the S corporation does away with double taxation, it doesn't have the elasticity of an LLC in distributing income to the owners.

Various classes of membership interests are offered with an LLC, whereas you can only have one type of stock with an S corporation.

In an LLC, a variety of individuals or entities may have interests, although the number of shareholders who can have ownership interest is restricted to no more than 100. C corporations, many trusts, LLCs, nonresident aliens, partnerships, or other S corporations may not have ownership of S corporations. It is also important to note that LLCs are permitted to have subsidiaries without limitations.

What does an LLC Operating Agreement signify?

It allows you to structure your financial and working relations with your co-owners in a way that best fits your company. Your co-owners and you determine each owner's percentage of ownership in the LLC, his/her rights and responsibilities, his/her share of gains or losses, and what will become of the business in case one owner leaves.

Is it necessary to have an Operating Agreement?

It is possible to have a written operating agreement in most states, but you are not advised to begin a business without one. The following are a few reasons why an operating agreement is necessary:

  • By showing that you have been meticulous about organizing your LLC, it aids in guaranteeing that courts will be respectful of your personal liability protection.

  • Rules that regulate how profits will be separated, the process for making major business decisions, and the measures for handling the departure and addition of members are established.

  • It aids in avoiding misunderstandings between the owners and management over finances.

  • It prevents your LLC from being regulated by the default rules in the LLC laws of your state, which may not be to your advantage.

Is it necessary to have LLC meetings?

Failure to have shareholder or director meetings can cause the corporation to be subject to alter ego liability, although this is not typical of LLCs in most states. For example, in California the failure of an LLC to have meetings with members or managers is normally not regarded as grounds for enforcing the alter ego doctrine if the LLCs Articles of Organization or Operating Agreement do not state the requirement of said meetings.

Are there exceptions to Limited Liability?

Even though LLC owners enjoy the benefits of limited personal liability for many transactions of their business, it is important to note that this protection is not absolute. The owner of the LLC may be held personally responsible if he/she:

  • purposefully does something illegal, fraudulent, or clearly wrong that causes injury to the company or someone else

  • is unsuccessful in depositing taxes withheld from employees' wages, or personally certifies a business debt or a bank loan that the LLC defaults on

  • personally and directly hurts someone, or

  • acts as the LLC in the broadening of his or her personal affairs instead of an individual legal entity.

The most important is the final exception. There are times when a court may declare that an LLC isn't real and find that its owners are actually conducting business as individuals who are in fact responsible for their actions. To prevent this, be sure that your co-owners and you:

  • Act legally and rationally. Do not hide or misrepresent material facts or the position of your finance to creditors, vendors or other third parties.

  • Sufficiently fund your LLC. In order to meet foreseeable expenses and liabilities, make sure to invest adequate funds into the business.

  • Maintain the LLC and personal business separate. Maintain your personal finances away from your LLC accounting books. Create a business-only checking account and obtain a federal employer identification number.

  • Prepare an operating agreement. To create liability for your LLC's separate existence, a formal operating agreement in writing is helpful.

When your limited liability protection doesn't shield your personal assets, a good liability insurance policy will help. For example, if you are a massage therapist and you hurt a customer's back by accident, you will be covered by your liability insurance policy. This insurance also comes into play to protect your personal assets in the event that the court ignores your limited liability status.

This insurance can also protect your corporate assets from claims and lawsuits, as well as protect your personal assets in certain situations. However, it is important to realize that commercial insurance typically doesn't protect corporate or personal assets from unpaid debts of the business, whether they're personally insured or not.

Financial Guide: Insurance

Car Insurance

How can I keep my car insurance costs low?

The first thing to do is bargain shop to make sure that the rates you are getting are reasonable in comparison to other companies. Within the policy that you have, these are a few tips that could save you a few bucks.

  • Buy a cheaper or a lower profile car

  • Take out a higher deductible

  • Look into different insurance costs in different communities

  • Pay annually

  • Drop collision damage coverage

What coverage is essential for my auto policy?

You will need to have liability coverage, property damage, and bodily injury. This way you will be protected if you are at fault and cause damage to a person or their property. It is recommended to have $300,000 per accident to pay medical costs and other costs that may be affiliated. You should also have at least $50,000 in property damage.

You should have uninsured motorist coverage, which will protect you against financial damages caused by an uninsured motorist or a hit and run, should one occur.

How do I file an auto insurance claim?

A few tips to ensure that you claim correctly and receive your money as quickly as possible:

  • File the claim immediately; take note of hospital bills, police accident reports, and copies of claims that have been submitted.

  • Take notes of exactly what was said every time you speak with a company representative, make a note of the date and keep the information together in a file.

  • If you get the feeling that the company isn't being forthcoming with the results that you need, complain to the state insurance regulator.

  • If you still feel that your claim isn't getting the attention it deserves, call a lawyer.

How much is it possible to save by comparison shopping?

It is possible to save up to 50% by changing your companies.

There are many factors that are taken into account by the issuing company, such as:

  • Gender

  • Age

  • Driving Record

  • State

  • Vehicle

  • Average Mileage Driven

Do not choose your insurer strictly on price, however. Quality and level of service should be a factor in your choice as well, and their ratings should be checked.

What deductible should I have on my car insurance?

Usually, it is most cost-efficient to get a large deductible which will drastically reduce the amount you pay for the service. For instance, raising your deductible from $100 to $500 will save you around 10 to 15 percent. A change from $100 to $1000 will generally save you anywhere from 25 to 30 percent.

If you are in an accident and the damage isn't substantial, it is more economical to pay to fix the car yourself rather than involve the insurance company and have them raise your premium.

Should I keep collision coverage on my old car?

Collision coverage ensures the repair of your car whether you were at fault or not, even if your car is damaged by fire, flood, wind or hail. Depending on the value of your car, this coverage may not be cost-effective.

Does my car affect my insurance rate?

It is a good idea to check the insurance rates that are given to certain cars before you buy them. Usually as the cost of the car rises, so does the insurance premium. The insurance rates on used cars are generally substantially lower than those of new cars.

How significantly does my address affect my insurance?

There is a big difference in the premiums that people pay in the suburbs where there is much less traffic congestion as opposed to people that live in big cities with many accidents per capita. Usually, this is judged by the zip code of which you register as your home.

Should I pay monthly or semi-annually?

Monthly payments are convenient and you don't have to pay as much at once. However, monthly payments end up costing you more in the long run.

How else can I save on insurance?

There are a variety of discounts available from the insurance company for all sorts of reasons: living close to work, getting good grades, and so on. Be sure to ask for a list of these discounts to see if you qualify for any of them. Agents may not ask you about these so make sure that you bring it up.

Life Insurance FAQ

How are people classified for rate purposes?

To ensure that you receive the best rate possible it is useful to understand how these premiums are calculated by insurers. Firstly insurers will place people into four main categories:

  • Preferred

  • Standard

  • Substandard

  • Uninsurable

Someone who has a semi-serious illness such as diabetes or heart disease can be insured but will pay a higher premium. People with a chronic illness will be placed in the substandard category. Someone with a terminal illness will be rendered uninsurable.

People with high-risk jobs or hobbies will be considered substandard as well.

The premiums that you are charged will correlate with the category that you are placed in. Since the categorizing is not an exact science, one company may place you in a different category than another, thus drastically changing the prices of your premiums.

Once you are approved for coverage from a company, they cannot deny you coverage for any reason unless you cease payment.

What should I be on the lookout for when I am purchasing life insurance?

First of all, beware that many insurance salespeople work on a commission basis, and may want to persuade you to purchase the policy that brings them the largest commission, rather than getting you the policy that makes the most sense for you.

Most of all, be sure that the company you are buying from will be in existence when you need them. Make sure that you check the insurer's rating before you consider doing business with them.

Always review the costs of any recommended policy. The commissions will be stated, and you can see exactly where the money that you contribute will go.

Ask the insurance agent to explain the different policies and why the one you agree on is the best for you considering your circumstances.

How can I easily compare prices between insurance companies?

In most states, there will be a set of rules laid down by a group of insurance regulators. Agents may be required to calculate two different types of indexes to aid in price shopping.

  • Net payment index

  • Surrender cost index

The net payment index calculates the cost of carrying the policy for ten to twenty years. This can be judged easily by remembering that the lower this number is, the more inexpensive the policy is. This is most helpful if you are more concerned with the death payout than the investment.

On the other hand, the surrender cost index is more useful to those who are concerned with the cash value of the investment. The lower this number is, the better.

The cash surrender value is what you will receive in return if you were to surrender the policy, which is different than the cash accumulation value. If you are checking the prices of universal life policies, if the policies have different premiums and death benefits, the policy with the higher cash surrender value would be the better investment.

Why should I have life insurance? Do I really need it?

The main reason that people purchase life insurance is to know that in the event of their passing, their children and loved ones will be taken care of. Life insurance can also help with the distribution of your estate. Your payout could go to family, charity, or wherever you choose to distribute it.

The main reason to buy life insurance would be because you have dependents that would be put in a tough position without you providing for them. For example, if you have a spouse, a child, or a parent who is dependent on your income, you should have life insurance.

If you have a spouse and young children, you will need more insurance than someone with older children, because they will be dependents for a longer amount of time than older children. If you are in a position where you and your spouse both earn for the family, then you should both be insured in proportion to the incomes that you garner.

If you have a spouse and older children or no children, you will still want to have life insurance, but you won't need the same level of insurance as in the first example, just enough to ensure that your spouse will be provided for, to cover your burial expenses, and to settle the debts that you have accumulated.

If you don't have children or a spouse, you will only need enough insurance to make sure that your burial expenses are covered, unless you would like to have an insurance policy in order to help in the distribution of your estate.

What amount of life insurance should I have?

In order to figure out how much insurance you need, you will need to explore your current household expenses, debts, assets, and streams of income. If you need assistance in this, consult either your accountant or financial advisor.

The amount of money that you want to leave behind for your dependents should allow them to use some of the money to maintain their current standard of living, then reinvest another lump sum to ensure that they will be well off in the future.

When attempting to calculate the amount of money that you need to leave behind, be extremely meticulous. If you err low, your family may not receive the help that they need from the insurance company, and if you err the other way, you will be spending more than necessary in insurance premiums.

Which type of life insurance fits me best?

There are 7 major types of life insurance:

  • Term

  • Renewable

  • Re-entry

  • Level

  • Decreasing

  • Cash Value

  • Whole Life

  • Universal Life

  • Variable Universal

  • Variable Whole Life

Term

Term insurance is best described as a policy for which you pay over a specific amount of time. In the event that you die within that period of time, your beneficiaries will receive a payoff.

People that are under the age of 40 will find this package less costly than a whole life policy. These policies generally do not build in cash value. However, they can convert over to a whole life policy without a mandatory physical.

Renewable

The policy which is bought most frequently is the Renewable Term Policy. This policy renews every year without you having to do anything, and there is no need to input any new information or take physicals. This can continue every year until you are in your 70s. The policy will increase incrementally every year, along with your age.

Re-entry

With this life insurance policy, you will have to periodically take physicals for the company to judge your rate of risk. If you don't, you will be subject to paying an extra premium.

Level

In the Level Term policies, you will be locked into a given rate of premium and you will stay there during a certain period (although not necessarily during the entire period of coverage).

Decreasing

A Decreasing policy is one that decreases in face value with time while the premium remains the same.

Whole Life

Whole Life is the most traditional policy given; this has a cash-value build up, sometimes offers dividends, and provides death benefits. This is not a policy that needs to be renewed constantly, as long as the payments are made, the policy will continue until death.

Universal Life

This policy is similar to the whole life policy. However, it offers more flexibility in many ways; you will have different options in cash value growth and the payment of premiums.

Variable Universal

Variable Universal policies will give you the option to choose the investments for your cash value. This is more risky, but simultaneously gives you more control over where this money is invested.

Variable Whole Life

This is the same as the previous in regards to control over the investments that are made. The difference between these two is the same as the difference between Whole Life and Variable.

Home Owners Insurance FAQ

What can I do to get a good price on my homeowner's insurance?

Clearly, you should always perform a good amount of due diligence when searching for any policy. Be sure to compare the differences in services offered and the prices quoted. There are many discounts available for different things, don't forget to ask if you qualify for any of them.

Remember that the deductible will largely affect the price of the premium. It is a good idea to keep the deductible as high as you feel comfortable with to keep the premium down.

You can generally get a better deal when you purchase your auto and house policies from the same company and you can also get a better rate by not insuring the land.

What level of home insurance should I buy?

Make sure that you are insured against whatever natural disasters are common in your area, because insurance against these differs. If you don't specifically ask, you may not be covered.

Be sure to insure for 100% of rebuilding costs. The price of rebuilding your home could differ greatly from the amount that your home is valued at today.

What can I do to ensure that I am insured adequately?

Make a list of your possessions in your household. The better documented this is the more likely you will be to be able to replace them.

Make sure that you inform your agents of any changes that you make to the home so that if anything happens to the structure, the recent changes will be reflected in the payout.

Check to see if there are any specific limits to what is insured by your company. Sometimes a person may think they are covered for certain things, but the limits negate that.

What deductible should I have?

It is always a good idea to keep the deductible as high as you are comfortable with. A high deductible will substantially decrease your premium.

Do not insure the land, because the land isn't at risk of being demolished in a flood, fire or other natural disaster and you will save on your premium.

What other ways can I decrease my home insurance costs?

If a home has a sophisticated alarm system and/or a sprinkler system to prevent against fires, the insurance company may drop the price of a policy. Be sure to ask your provider and do the calculations to see if it will be cost efficient.

When should I review my policy?

At least once a year, you may want to look over your policy to ensure that it will cover all of the possessions in your home and any additions that you have made over the last 12 months.

Long-Term Care Insurance FAQ

What exactly is long-term care insurance and how does it work?

With long-term care insurance (LTCI), you are guaranteed to be paid a certain amount of money towards care for a specified length of time.

As the age of the covered individual increases, so does the premium, so in order to get a better rate, this is something that you may want to purchase earlier in life while the premiums are still low.

Indemnity-type insurance actually distributes the money to the caregivers, and pays the daily benefit directly to the insured party; this type can be easier because there is much less paperwork and more flexibility about how the money can be spent.

What should I consider when choosing a long-term insurance provider?

It is important to look at the stability of the company that you are looking into, because they need to be there when you are in your time of need. Companies that sell long-term insurance may not be as closely regulated as other insurance companies. You can find the ratings of these companies from Standard & Poor's.

Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person's situation will differ.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don't have sufficient funds to support yourself and your personal help.

What features should I look for in a Long-Term Care Insurance Policy?

The four main factors that you will want to take into consideration when looking for a LTCI policy are: flexibility, eligibility, inflation, and duration.

Check to make sure that the flexibility of your policy allows for personal help so you can stay in your home for as long as possible before assisted living is absolutely necessary. Some of the policies will allow you to be paid cash for you to distribute as you please.

Make sure that your policy will pay for more than just what is medically necessary. These policies may not cover all of your needs.

Make sure that you are protected against inflation; you can place a clause into the policy that your payout adjusts 5% annually to cover you against raising prices.

Remember that a policy which lasts 5 years is probably more than you would need. A policy of two to three years will generally be enough.

Do I really need Long-Term Care Insurance?

Over 40% of the American population will eventually need to be in a nursing home or an assisted living facility. Your chances of needing this depend on a number of health factors.

What is the elimination period?

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

How are Long Term Insurance Companies rated?

These companies are rated in the same manner in which stocks and bonds are rated, through Standard and Poor's.

How can I ensure that I have adequate coverage?

  • Make sure that your policy can be renewed every year

  • Know that if you are disabled, yet able to work part time, you will still receive coverage

  • Choose a waiting period (elimination period) of three to six months, to keep the premium down, and then set aside a nest egg for that time.

  • Make sure you will be eligible to receive coverage until the age of 65, when your retirements will kick in.

  • Make sure that the policy will pay if you cannot perform the work in your field.

What will worker's compensation cover if I ever need it?

Worker's compensation will only cover you for injuries that occur on the job site. The compensation varies from state to state, but most states will pay throughout the lifetime of the worker, in the case of a permanent disability.

You can get all of the information that you need regarding individual state's worker's compensation benefits by contacting your state's Department of Labor.

Financial Guide: Life Events

Buying or Leasing Your Next Car

Which is better, buying or leasing my next car?

It depends on factors such as 1) what kind of deal you can make with the dealership, 2) the typical mileage you put on your car, 3) how much you wear down a car, and 4) the primary use for the car.

To determine whether leasing or buying is best, compare the costs and other issues involved in a lease or purchase. The following factors should be considered:

  • Beginning costs

  • Continual costs

  • Total costs

  • Is there a possibility of deduction of any of the costs due to the car being used for business

  • How important is it to have ownership of the car

When buying a car, how can I get the "best buy"?

You first need to decide on the type, size and options of the car you would like (such as manual, automatic windows, airbags).

You then need to decide what the car dealer has to pay for the car of your choice - the "invoice cost". The difference between the sticker price and the invoice price can be negotiated.

You can obtain this information two different ways. The best way is to look at an auto pricing service supplied by a consumer group or an auto magazine. For instance, Consumer Reports New Car Price Service (http://www.consumerreports.org/cro/car-prices-build-buy-service/index.htm), will give you details of the invoice price and the sticker price that can be adjusted for options or rebates as well as tell you how to use the data for negotiating. This is the best way because it gives you the most recent information.

Another way is to use pricing guides that can be found on the Internet. Two popular sites are Intellichoice (www.intellichoice.com) or Edmund's New Car Prices (www.edmunds.com). You may also be able to obtain these books at the library and they will give you an idea about the information that you need instead of exact data.

If you have a trade-in, you will want to find the value of that car too. You can use the N.A.D.A. Official Used Car Guide (check your local library or www.nada.org) to look up your used car.

Now it's time to begin negotiating with dealers. Because you know the invoice price, you can use that information to bargain for the lowest mark-up from the dealer's cost.

An amount like $300 to $500 above the dealer's cost is a sensible mark-up, unless the car you want to buy is either difficult to get or very popular.

Any attempts by the dealership to sell you rustproofing, undercoating, or other extras should be refused. You may want to invest in an extended warranty, depending on the model's repair history.

How can I negotiate for a new car?

Keep in mind that you are not just looking for a car. You also have to select a dealer with whom you will continue a long-term relationship with, as you usually have to service your car at the dealership. If you aren't comfortable with the dealership, go somewhere else.

A good time to try for a good bargain on a car is the last Saturday of September, October, or December.

Before you start looking for a car, learn about the financing options. You can be prepared when the dealer starts to discuss financing if you are aware of what the banks are charging.

Some points you will want to highlight during the negotiations are:

  • You are aware of the exact model and options you want

  • You are shopping around and will get quotes from other dealerships

  • You will not be talking about financing or trade-ins until the dealer has given an offer and make sure not to mention a trade-in until the price has been negotiated

  • You are fully aware of the invoice cost of the car

Lastly, go to other dealerships even if you think you have a great price.

Do I negotiate on a car lease the same as I could on a car purchase?

Like a loan, the monthly lease payment is reliant on the term of the lease, the implied interest rate and the initial "purchase price" of the car. The "lease-end" or "residual" value varies from a loan, but is still important. This is the value that is expected at the end of the lease term.

You are paying the difference between the initial purchase price and the residual value in a lease. The lowest purchase price should be negotiated, which will lower the cost of leasing. If you don't intend to buy the car at the end of the lease term and it is closed-end, you might want to negotiate a higher residual value. Make sure that your expected mileage during the lease aligns with the allowed mileage in the agreement. If it doesn't, you may pay significant penalties when you turn the vehicle back in to the dealer.

How does an auto lease function?

Lease arrangements come in two different types: open-end or "finance" and closed-end or "walk-away." This is how they work:

Open-End: The Risk of Depreciated Value Falls on You

At the end of the lease, the customer accepts the risk that the car will have a particular value or "estimate residual value" at the end of the lease. Due to this, the monthly payment is lower.

At the end of the lease and your return of the car, it will be appraised. If the appraised value of the car is equal to at least the estimated residual value stated in the agreement, it will not be necessary to pay anything. With certain contracts, it is possible to receive a refund if the appraised value is lower than the residual value, although, you might have to pay part or all of the difference.

Closed-End: The Risk of Depreciated Value Falls onto the Dealer

At the end of the closed-end lease, the car is returned to the dealership and you simply walk away. It must be returned with only normal wear and tear, and with less than the mileage limit that is stated in the lease. The monthly payment is higher than an open-end lease because the dealer bears the risk that the car's value will decrease by the end of the lease.

What is included in the initial costs of leasing a car?

Learn what the total initial costs will be when determining if you want to lease or buy. You will use this total amount to compare to the cost of buying.

Initial costs are the amount you will need to come up with for the down payment when you lease a car. The security deposit, the first and last lease payments, the "capitalized cost reductions," the sales taxes, title fees, license fees, and insurance are included. Usually the initial costs amount to less than the down payment that is necessary to purchase a car. During the bargaining with the dealer, all initial costs are open for negotiation.

The Lessor must disclose all up-front, continuing, and ending costs in a standard, understandable format according to the Federal Consumer Leasing Act.

What should I ask about the car lease?

Here are a few questions that should be answered before you sign a car lease:

  • What types of leases are obtainable and what are their differences? (Two were explained previously, but dealers may have variations.)

  • What will the initial costs of leasing be?

  • What will the continuing costs of leasing be?

  • Will my initial cost or continuing costs decrease due to a trade-in?

  • Can I exceed the specific mileage in my lease?

  • If I take an early termination or a purchase option, how will my mileage allowance be enforced?

  • If I fall behind in my payments or want to stop leasing, can I sublease?

  • If I want to terminate my lease before the agreement is up, what happens?

  • Do I have options at the end of my lease?

  • What can I expect to pay at the end of the lease?

When I lease a car, why is a security deposit required?

If you owe money at the end of the lease or if you miss a monthly payment, the Lessor is permitted to keep the security deposit. It may also be used to cover the car's damage or excess mileage from the limit stated in the lease by the dealer. Your security deposit is given back to you if you do not owe anything at the end of the lease's term.

How much will I be charged at the end of an auto lease?

At the end of the lease period, the federal Consumer Leasing Act (CLA) puts a limit on how much the dealer can collect. The dealer cannot collect more than three times the average monthly payment.

For the following reasons, a dealer may collect a higher amount:

  • The miles are higher than stated in the lease or the vehicle has unreasonable wear and tear.

  • There was an agreement to pay an amount greater than what is stated in the original contract.

  • The Lessor wins a lawsuit for a higher amount.

At the end of the term of the lease, the dealer may opt to sell the car. If the car is sold for less than the residual value specified in the leasing contract, you may be obligated to pay as much as three monthly payments to make up the difference.

You may want to negotiate to have the right to approve the final sales price as part of the lease agreement, so the dealer does not sell the leased car for less than the residual value just to get the car off the lot.

A few other things to keep in mind:

  • You do not get a refund if you stay under the mileage limit.

  • You probably won't have to pay for excess mileage if you purchase the car at the end of a closed-end lease and you exceed the mileage allowance.

What must the dealer disclose about ongoing lease items?

Dealers must disclose the total number of payments, total amount of those payments, a schedule of payments, and the amount of each payment in accordance with the Consumer Leasing Act. The Lessor must inform you if there is a penalty for late payment.

What type of lease is a "maintenance lease"?

The dealer bears the maintenance expenses in a maintenance lease. The opposite is true in a non-maintenance lease. If the dealer provides repair and maintenance, you will need to bring the car to the dealership in line with the suggested schedule by the manufacturer to maintain the warranty coverage. (You will typically have to obey the manufacturer's scheduled maintenance in order to guarantee warranty coverage, even if you have to pay for the repairs.)

You pay the dealer a set amount for maintenance each month in what is called a budget maintenance provision. The dealer subtracts maintenance expenses that are incurred from your maintenance account. When the lease ends, you will make up the difference or receive a refund if more was deposited than used.

Are there final costs and if so, what are they?

The final costs include:

  • Charges for excess mileage

  • Typically, closed-end leases have mileage limitations. It is necessary to pay a fee if you go over the allowable mileage at the completion of your lease.

  • There is no penalty with an open-end lease if you go over the mileage limit, although the appraisal value will likely be lower.

  • Default fees

  • Any payments or security deposits that the dealer doesn't collect from you, or the costs and legal fees the dealer incurs to recuperate costs are covered here.

  • Charges for excessive wear and tear

  • When you return the car at the completion of the lease, you will need to pay for any charges due to excessive wear and tear. You must be informed in writing by the dealer of the specific definition of excessive wear and tear. Typically, it signifies anything past the regular usage, both physical and mechanical.

  • Charges of disposition

  • Costs of cleaning the car, doing final maintenance and tune-ups are included. The dealer may defer these costs to you if the agreement does not specify otherwise.

What is an option for a lease-purchase?

At the end of your lease term, you may have the option to purchase the car. This is more commonly found in open-end rather than closed-end leases. The dealer must inform you of the estimated residual value of the car and formula to be used to figure out the purchase price at this time.

What are my options for early termination of the lease?

You will need to pay an extra charge if you end the lease before the completion date based on the difference between the estimated residual value at the end of the lease and the actual residual value at the given time. This may be a large difference. Most agreements state that you must have the car for a minimum of 12 months.

Before you sign the contract, the dealer must tell you whether you may terminate early, and the cost of early termination.

What is implied by a capitalized cost reduction?

It is very similar to a down payment. You may be asked by the dealer to put a certain amount of money down before the lease begins. The capitalized cost reduction varies with the geographic area and the customer's credit rating. The smaller the monthly payment, the greater the down payment will be. Those that want to lease instead of buy normally don't want to pay a large down payment - not having a down payment is one of the major benefits of a lease.

Getting Married

How does legal treatment differ between married and unmarried couples?

Unmarried couples don't:

  • Inherit each other's property automatically. Married couples have the state intestacy laws to support them if they do not have a will. Under the law, the surviving spouse will inherit (at the minimum) a fraction of the deceased spouse's property.

  • Have the privilege to speak for one another in a medical crisis. In the case that your life partner loses capacity or consciousness, someone will have to make the go-ahead decision for a medical purpose. It should be you, but if you haven't filed certain paperwork, you may not have the ability to do so.

  • Have the privilege to handle one another's finances in a crisis. A married couple that jointly own assets is less affected by this problem than an unmarried couple.

How should unmarried couples protect their estate and financial holdings?

Here are some important steps to take for couples that are unmarried:

  • Draft wills. The chances of the intentions being followed through with after a death are greater if both partners make wills. Without wills, the probability of the unmarried surviving partner having no rights is more likely.

  • Think about owning property together. This is a way to guarantee that property will pass to the other joint owner at the time of the other's death due to the right of survivorship.

  • Make a durable power of attorney. This will permit the partner to sign papers and checks and take care of other financial issues on his/her behalf should one become incapacitated.

  • Make a health care proxy. Also known as a medical power of attorney, this permits the partner to talk on your behalf to make medical decisions, should you become injured.

  • Have a living will. This lets your wishes regarding artificial feeding and other measures to prolong your life be known.

Is more insurance necessary for married couples?

In the case of death, life insurance will provide a form of income for your dependents, children or whoever is your beneficiary. Because of this, married couples usually require more life insurance than singles.

Having someone dependent on your income will determine if you need to have life insurance. If someone such as a child, parent, spouse or other individual is dependent on your income, you should have life insurance. The following are situations where life insurance is necessary:

  • Single parents or families with young children or other dependents. The younger your children, the more insurance is necessary. Insurance should be in proportion to the amount earned. If both spouses are working, they should both be insured. If both earners cannot afford to be insured, the primary wage earner should be the first to be insured and the secondary will follow. To fill the insurance gap, a less expensive term policy may be used. Insurance should be bought to cover the absence of services such as childcare, bookkeeping, housekeeping, which are provided by the spouse that works within the home. The insurance that covers the non-wage earner is secondary to the insurance that covers the wage earner's life, if funds are scarce.

  • Adults that have no children or other dependents. You will need less insurance than people in the previous situation if your spouse can live comfortably without income. However, some form of life insurance is still necessary. You will want at least enough to cover burial expenses, to pay off any debts you may have acquired, and to provide an easy transition for the surviving spouse. You may want to buy more insurance if you think your spouse would go through financial hardship without your income or if your savings aren't adequate. This depends on your salary level as well as the amount of your spouse's, the amount of savings you have and the amount of debt incurred.

  • Single adults without dependents. Unless you would like to use insurance for the purposes of estate planning, you will only need insurance to cover expenses for burial and debts.

  • Children. Typically, children only need life insurance to cover burial expenses and medical debts. An insurance policy could also be used as a long-term savings instrument, in some instances.

Who needs to be notified if a spouse changes their name after marriage?

All organizations that you had correspondence with while using your unmarried name should be notified. You can begin with the following list:

  • The Social Security Administration

  • Department of Motor Vehicles

  • Post Office

  • Investment and bank accounts

  • Employer

  • Voter's registration office

  • School alumni offices

  • Credit cards and loans

  • Club memberships

  • Retirement accounts

  • Subscriptions

  • Passport office

  • Insurance agents

Should I update my will when I get married?

Definitely. When an important life event occurs such as marriage, it should be updated. If not, your spouse and other beneficiaries will not get what is meant for them at the time of your death.

After marriage, what are the tax implications?

You are entitled to file a joint income tax return upon marriage. Although this simplifies the filing process, you will more than likely discover that your tax bill is either higher or lower than when you were single. It's higher when you file together, as more of your income is taxed in the higher tax brackets. This is commonly known as the marriage tax penalty. In 2003, a tax law that intended to reduce the marriage penalty went into effect, but this law didn't get rid of the penalty for higher bracket taxpayers.

Once married, you may not file separately in an attempt to avoid the marriage penalty. Actually, filing as married filing separately can raise your taxes. For the optimal filing status for your situation you should speak with your tax advisor.

Can married couples hold property?

Yes. After marriage, there are many ways of owning property. They differ from state to state.

  • Sole tenancy, which is when one individual has ownership. The property is passed on in accordance with the will at death.

  • Joint tenancy, with the privilege of survivorship. Two or more people have equal ownership. The property is passed to the joint owner upon death. This should be used to effectively avoid probate.

  • Tenancy in common, property has joint ownership with the privilege of survivorship. The property is passed on according to your will upon death.

  • Tenancy by the entirety, like joint tenancy, with privilege of survivorship. This doesn't allow a spouse to get rid of the property without the other's consent and is only possible for spouses.

  • Community property, property that is gained through marriage that has equal ownership. States such as AZ, CA, ID, LA, NV, NM, TX, WA, and WI allow community property.

Getting Divorced

Is it possible to financially prepare for divorce?

A plan for the termination of the financial partnership of the marriage is crucial if you are thinking of divorce. All financial assets and liabilities that have been acquired during the years of marriage will need to be divided. If children play a role, the support that will be paid to the custodial parent in the future should be taken into account.

The time put into organizing this will be worth it in the long run. The following are a few steps to consider:

  • Prepare an inventory of your financial situation that will help you in two ways:

    1. It will aid in determining how debts accumulated during the marriage will be paid off. (It is best to try and get all the joint debt (credit card debt) paid off before the divorce. To come to an agreement as to the method for paying them off, it is smart to make a list of the debts. )

    2. It will give you an introductory look at the information needed to divide the property.

  • Prepare a list of all assets, whether joint or separate, that includes:

    • Your residence(s)

    • The value of any brokerage accounts

    • Your valuable antiques, jewelry, luxury items, collections, and furnishings

    • The current balance in all bank accounts

    • Your autos

    • The value of investments, including any IRAs

  • Locate copies of the last two or three years' tax returns. These will be beneficial later.

  • Know the exact quantity of salary and miscellaneous income brought home by your spouse and you.

  • Obtain all papers regarding insurance, life, health, pension, and other retirement benefits.

  • Make a list of debts that are owed both separately and jointly, including mortgage, credit card debt, auto loans and other liabilities.

How should credit card accounts be dealt with during a divorce?

As soon as you know you are going to be getting a divorce, immediately cancel all joint accounts.

Regardless of who accumulated the bill, creditors can legally try to collect payment from either party on the joint credit card or other credit account. You will be responsible for payment as long as your name appears on the joint accounts.

The agreement that is reached during the divorce may state who must pay the bills. From the creditor's point of view, both your spouse and you are responsible as long as the joint account stays open. The creditor will attempt to receive payment from who they think are most likely to pay while reporting late payments to the credit bureaus in both names. Due to the irresponsibility of the co-signer, your credit history could be harmed.

You may be required to pay the remaining balance in full upon closure of the account. If this is the case, ask the creditor to distribute the outstanding balance to separate accounts.

What can I do when my current or former spouse's bad credit affects me?

It is possible to separate yourself from your spouse on your credit report, if the spouse's credit is hurting yours. If you can prove that he/she opened the shared accounts prior to marriage and that he/she pays the bills, you might succeed in convincing the creditor that the damaging information is relevant to your spouse and not you.

It may take persistence to demonstrate that the credit history in question doesn't reflect your own.

After a divorce, what happens to my credit history?

If the name on your account changes, lenders may appraise the application and credit line to decide if your qualifications meet the credit standards. You may be asked to reapply.

To avoid inconvenience, maintain credit in your own name. Preserving your own, separate, credit history makes things easier in the future. In an emergency, if you need credit, it will be available.

Avoid using your spouse's name - i.e. Mrs. Peter Johnson - for purpose of credit.

Get an update on your credit report. Be sure that your name, as well as your spouse's, is being reported correctly. If you would like to use your spouse's credit history to your benefit, simply write a letter to the credit agency and request that both names be put on the account.

Find out if there is any incomplete or inaccurate data in your account. Send the credit bureau a letter asking them to correct this information. They need to confirm receipt within a normal time period and inform you when the mistake is fixed.

Improving your own credit history in your name should be simple if you have been sharing accounts with your spouse. Make a call to a major credit bureau and ask for copies of your account information. Get in touch with the issuers of the cards with whom you share accounts with your spouse and request to have your name on the account as well.

During a divorce, what are the legal issues that must be handled?

Make an agreement with your spouse to plan for the legal issues that will be dealt with in the future, such as division of property, alimony or support payments and child custody. The amount of time and money that will be spent trying to reach a legal solution will be lessened dramatically if this can be done, either with the help of lawyers or court.

The following are general tips to face the legal aspects of divorce:

  • If there are important issues with regards to child custody, alimony or assets, find your own attorney.

  • Use referrals from other professionals, trusted friends or the American Academy of Matrimonial Lawyers (www.aaml.org) to find a good matrimonial lawyer.

  • Verify that the agreement of divorce approaches all topics such as insurance coverage, life health and auto.

  • On IRA accounts, life insurance policies, pension plans, 401(k) plans, and other retirement accounts make sure to modify the beneficiaries.

  • Update your will.

How does the division of property in a divorce work?

Each state has their own laws regarding the division of property between ex-spouses. When it comes to applying those laws, matrimonial judges have a great amount of flexibility.

Whether or not an attorney represents you, you should make sure to have done the following:

  • Learn how the laws of your state function with respect to property division.

  • Make sure to have the papers to confirm that property owned separately during the marriage has been kept separate.

  • Be prepared to report any non-financial contributions to the marriage that you have made - such as any non-financial contributions to his/her financial success or spousal support while he/she went to school.

  • Be willing to report any need for alimony or child support.

Consider having the divorce agreement supply you with funds if you have not worked outside of the home during the marriage.

With a divorce, what are the tax implications?

Upon completion of a divorce, individual tax returns will be filed. There are a few areas that may result in tax consequences. The following are the most common:

  • Child Support
    It is not taxable to the recipient and is not deductible by the payer. If it is specially designated as child support in a divorce agreement or lessened by the occurrence of a contingency relative to the child, meaning a child reaches a specified age, it is considered as a payment.

  • Alimony
    It is taxable to the recipient and deductible by the payers. It is known as a payment in accordance with a divorce agreement other than child support or when allocated in the decree as something other than alimony. In a separation agreement, similar treatment is in accordance with separate maintenance payments. Payments may not end upon death of the recipient and may not be front-loaded.

  • Property Settlements
    When in accordance with the divorce or separation, they are not taxable. In the event of transfers of assets amongst spouses, they do not become taxable income, gains, loses, or deductions. The recipient spouse gets the cost basis of the property. Your spouse may provide you with an equal share of the property based on a fair market value, but be careful with the lower basis. In the end, it can produce a taxable gain at the asset's sale.

When retirement plans or IRAs are divided in a divorce, what happens?

If in accordance with the qualified domestic relations order or other order of the court in the case of an IRA, these plans are separated as non-taxable. However, this is the case only if the assets stay in the retirement account or IRA. Once the funds are allocated, they will be taxed to the recipient. The payer does not get the benefit of a deduction and the recipient does not have taxable income when divided.

Is the cost of getting a divorce a deduction?

Typically no, although specific fees paid for income or estate tax advice due to the divorce may be deductible. The fees used to decide the alimony amount or to collect the alimony may be deducted. These would be subject to the 2% limitation under the miscellaneous item deductions.

Am I entitled to deduct the dependency exemption of a child after divorce?

Typically, the custodial parent has the right to the deduction. This is normally discussed in divorce agreement negotiations. If agreed to in writing, the non-custodial parent may have the deduction.

Death of a Loved One

What will I need if a member of the family dies?

The following is a list of papers that will be necessary:

  • Copies of all insurance policies.

  • Marriage Certificate (if the deceased's spouse will be requesting benefits). You may obtain copies at the Office of the County Clerk where the marriage license was issued.

  • Certified copies of the death certificate (a minimum of 10). These can be bought from the funeral director or from the Health Department in your county.

  • Birth Certificates of dependent children. These may be obtained at either the County or State Public Health offices where the child was born.

  • Social Security numbers of the spouse, deceased and any dependent children.

  • Military discharge, if the deceased was a veteran. Write to The Department of Defense if you are unable to find copies.

  • A complete list of all property, including stocks, savings accounts, real estate, and personal property of the deceased.

  • Will, which will more than likely be with the lawyer of the deceased.

Should I take any particular steps with regard to the assets of the deceased?

To learn how to handle the following assets of the deceased, speak with your financial advisor.

General rules are as follows:

  • Automobiles. Find out if the title of the car of the deceased needs to be modified by checking with the State DMV.

  • Insurance Policies. The beneficiaries of policies held by the deceased's spouse may need to be modified. It might be smart to lessen the amount of life insurance coverage if the spouse doesn't have any dependents. Revision of home and auto insurance may also need to be done.

  • Bank Accounts. The title of a joint bank account will automatically pass to the surviving spouse. Advise the bank to change the ownership records. If the name of the deceased was the only name on the bank account, the asset will go through probate unless it is a trust account.

  • Safe Deposit Box. A court order is necessary, in most states, to open a safe deposit box that is only in the deceased's name.

  • Stocks and Bonds. Verify with the broker of the deceased to change title of stocks and bonds.

  • Credit Cards. If the credit cards are only in the deceased's name, they should be cancelled and the estate should pay outstanding payments. If the cards are in both names, the surviving spouse should inform the credit card companies of the death and ask for cards only in the survivor's name to be reissued.

What can I do to avoid overpaying for a funeral of a member of my family?

Planning ahead is the best way to avoid overpaying for a family member's funeral. You should know about the Federal Rule or the regulation of the Federal Trade Commission (FTC) dealing with practices of the funeral industry. It provides that:

  • You must be given, over the phone, price and other relevant information by the funeral provider to answer your questions.

  • You must be given 1) a disclosure of important legal rights, 2) a general price list, and 3) information about caskets for cremation, embalming and required purchases by the funeral provider.

  • You must be given, in writing, any service fees for the payment of goods or services such as flowers, obituary notices, and pallbearers, on your behalf by the funeral provider. Some funeral providers add a service fee to the cost, while other charge you only the cost of the item. You must also be given any information from the funeral provider about refunds, discounts or rebates from the supplier.

  • You must be given by the funeral provider, in writing, information regarding your right to purchase and what is available to you - an unfinished wood box, a type of casket, or an alternative for direct cremation.

  • In getting the products and services that you do want, you are not obligated to buy unwanted goods or services or pay any additional fees. You only need to pay for the goods and services you selected or that the state law requires in addition to the fee for the services of the funeral director and staff.

  • You must be given an itemized list of the total cost of the funeral goods and services selected by you. It must inform you of any cemetery, legal, or crematory requirements that you must meet to buy any funeral goods or services.

  • You are not allowed to be told that a certain funeral item or service can preserve the deceased's body for an indefinite time in the grave or claim that funeral goods (caskets or vaults) will not allow dirt, water, or other gravesite substances to enter.

Contact your federal, state or local consumer protection agencies, the Conference of Funeral Examining Boards (www.theconferenceonline.org), or the Funeral Service Consumer Assistance Program (FSCAP) (www.funeralservicefoundation.org) if you are having a funeral problem that cannot be resolved with the funeral director.

Are surviving family members entitled to Social Security benefits?

If the deceased has paid Social Security for a minimum of ten years, he/she is covered. Contact your local Social Security office or call 800-772-1213 to find out if the deceased was eligible. There are two types of available benefits, if eligible:

One-time death benefit - A death benefit is paid by Social Security towards burial expenses. To apply the payment to your funeral bill, simply complete the form necessary at your local Social Security office or ask the funeral director to complete the application. This is only available to eligible spouses or a child that is entitled to the benefits of the survivor.

Benefits of a survivor for a spouse or children - The spouse will be eligible for benefits if he/she is 60 years old or older. The benefit amount collected before the age of 65 will be less than that due at the age of 65 or older. Widows who are disabled are eligible for benefits at age 50. If the deceased's spouse cares for dependent children under the age of 16 or for disabled children, they may qualify for benefits before age 60. The deceased's children who are disabled or younger than 18 may also qualify for the benefits.

What is probate?

It is the legal process of allocating the estate to the lawful heirs as well as paying the debts of the deceased. The process typically includes:

  • An individual being appointed by the court to function as the personal representative or executor of the estate. The person is usually mentioned in the will. The court will appoint a personal representative, typically the spouse, if there is no will.

  • Validating the will.

  • Letting all heirs, beneficiaries and creditors know that the will has been probated.

  • In accordance with the will or state law, organizing the estate by the personal representative.

A petition must be filed by the spouse or the selected personal representative with the court following the death. A fee for the process of probate will be charged.

Probation of a will might require legal assistance, depending on the size and complexity of the assets to probate.

If the deceased and someone else jointly owned assets, they are not subject to probate. The proceeds of a life insurance policy or Individual Retirement Account (IRA) will be paid to the beneficiary and are not subject to probate.

Upon a family member's death, what taxes are due?

The following sums up the different taxes that may need to be paid upon death of a family member:

  • Federal Estate Tax. Amounts that are given to the surviving spouse or to a charity are typically exempt from estate tax. Normally, the estate tax is only owed on estates (which, after decreasing the amount by what is given to the spouse and charity, surpasses the unified credit exemption equivalent).

  • If you need to file an estate tax return, get in touch with the IRS to get a Form 706. Within nine months of the death, absent extension date, a federal estate tax return must be filed.

  • State Estate Taxes. These differ by state. States may enforce estate taxes that may be applied on top of the federal estate taxes while others may be utilized when federal estate taxes don't. There are inheritance taxes that some states impose, which are on the individuals that receive the inheritance, rather than on the estate itself.

  • Income Taxes. The deceased's state and federal income taxes are due for the year of death. Unless an extension is solicited, the taxes are due on the regular filing date of the coming year. For the year of the death, the deceased's spouse may file a joint federal income tax return. If the spouse has a dependent child, he/she may file for an additional two years. It might be helpful to look at the IRS's Publication 559, "Information for Survivors, Executors and Administrators".

May I refuse inherited property in order to reduce taxes?

To refuse all or part of the property that is being passed on to you by a will, intestacy laws or the operation of law, you should make use of the disclaimer. The property is passed to the next beneficiary in line with an effective disclaimer.

By the property passing directly from the decedent to the next beneficiary, it could possible save thousands of dollars in estate taxes. The wise use of the a disclaimer and the condition for a disclaimer in a will permits the shifting of assets and income to maximize the estate tax marital deduction, unified credit and the lower income tax brackets.

To provide for financial contingencies, disclaimers may also come in handy. For instance, if someone needs funds, you can disclaim an interest to them.

My spouse died this year; may I file a joint return for this year?

Of course. If the surviving spouse didn't remarry before the end of the tax year, he/she may choose to file a joint return.

Do I owe taxes on life insurance profits payable to me?

Typically not. Unless the recipient paid for the privilege to collect the life insurance policies, they are non-taxable income. For instance, if a policy was purchased as an investment.

Are distributions of a retirement plan or IRA of the deceased taxable?

Typically, yes because it is considered income with regards to the decedent. The tax is due by the recipient because the deceased had not paid the distribution's income tax. You may be entitled to a deduction for a segment of the estate taxes paid, if the account's value was incorporated in the estate tax return of the decedent.

If my spouse died without a will, how will his/her assets be distributed?

The law will pass on the jointly held assets with right of survivorship on to the joint holder. The designated beneficiary of the insurance policies and retirement accounts will be awarded to said individuals. The assets owned only by the decedent will be dealt with according to state law, known as intestacy. Generally, the preference is given to the spouse or children, but the laws differ from state to state.

Other Situations

What can I do to resolve a consumer complaint?

You should first approach the seller of the item. Then, get in touch with the relevant consumer agency. If neither of the previous provides adequate results, a lawsuit can be filed or you may use arbitration.

Approach the Seller

  1. Compile all necessary evidence such as canceled checks, receipt, photographs showing the issue, a warranty, bill of sale or contract.

  2. Determine your goal. Would you like the product replaced? Would you like a refund? Are you just looking for an apology?

  3. Schedule a meeting with the manager, customer service representative or other appropriate person by calling the store or service provider. In this meeting with the individual, describe as clearly as possible the nature of the issue and what your goal is. If you can only speak by phone, write a letter as follow-up and keep detailed notes of the dates and with whom you spoke with. It is important to note that if there is a valid warranty for the product, it is best to follow-up with the manufacturer and not the merchant.

  4. Take the issue to a higher level, if this doesn't find a solution. This could be the corporate president or supervisor. At this point, you should put your complaint in writing if you have yet to do so. This letter should detail your name, phone numbers, address, and account number (if applicable). Include the date and place of purchase as well as the model and serial number if a product is involved. Concisely describe the issue at hand and the process you have gone through so far to reach a solution. Lastly, you should include what outcome you want and state a deadline for this outcome. Keep a copy of the letter for yourself and include relevant copies of documents. Make sure you keep the originals and retain copies of any correspondence you receive from the company.

Get in touch with an agency

If your desired goal has yet to be reached, you will want to look in the phone book or online for a consumer complaint agency, such as the county, city or state consumer protection office or the Better Business Bureau.

Another option is to go with the trade association method. There are industry trade associations that will offer to aid in mediating issues with regards to their members.

You may want to get in touch with the appropriate state-banking regulator if your issue deals with a bank. If an insurer is involved, you will want to get in touch with the state insurance regulator, for a securities problem contact the securities regulator or for utilities problems contact the public utilities commission.

Call the state-licensing department if you the issue deals with a state-licensed trade, such as a plumber.

Research the lemon laws of your state, unless you reside in Arkansas or South Dakota, by getting in touch with your state consumer protections agency in the event that you purchased a bad used car.

Get in contact with your area postal inspector, whose information can be located in the U.S. government section of the telephone book, for issues that pertain to mail order or mail fraud.

Look into finding a local television news program hotline for resolving consumer complaints.

Filing a lawsuit

When there are no more options, you will want to file a court case in either small claims court, if the amount is small (usually less than $5000) or if not, a regular lawsuit.

More than likely speaking with an attorney and having them draft a letter to the merchant or service provider giving the details about the lawsuit will resolve the issue.

You probably won't need to hire a lawyer if a small claims case is involved. If the case is bigger than small claims, you will want to hire a lawyer.

What can I do to reduce my bank fees?

The following are a few ways to lessen your bank fees:

  • Look into what is necessary to get free checking and free ATM usage and do it. This is typically done by having a minimum balance and only using your bank's ATMs. Another thought is joining a credit union instead of a bank as they generally charge less for banking services.

  • Investigate how to invest in higher interest accounts. Determine how much money you would need in case of an emergency and roughly six months' worth of expenses and keep that amount in your savings. Take the rest of your money and make it work for you.

  • Don't order checks through your bank. Generally speaking, check printers charge less than the printers employed by the bank.

What can I do to save money on my insurance costs?

These tips will help you save on all types of insurance:

  • Shop around for your life insurance policy. Take the time it takes to periodically check the prices on different policies, as it will pay off in the end. If you have recently quit smoking, you will probably be able to get better rates in a few years.

  • Evaluate your needs in terms of life insurance to see whether you are being charged too much for coverage.

  • Use the same insurer for home and auto insurance, as you will more than likely get a break.

  • Look around for auto insurance to find the best possible rate.

  • Save on your homeowner's insurance by installing burglar alarms, smoke detectors and sprinkler systems. Consult an insurance agent to learn more.

  • Do away with private mortgage insurance. Ask your lender to cancel this as soon as you have enough equity in the home (this is required by law).

What can I do to cut my utility costs?

These are a few tips to remember to help save money with utility costs:

  • See if your utility has a subsidizing program to make your home more energy-efficient. If that turns up nothing, you can still caulk your windows and check the insulation to make sure it has a high enough "R" factor.

  • Use fluorescent lights instead of incandescent bulbs for lights that are constantly on.

  • Maintain the thermostat at the highest and lowest temperature for comfort in the summer and winter, respectively.

What can I do to reduce the cost of my phone bill?

There are many opportunities due to today's cost-cutting competition among phone service providers, such as:

  • Verify that your long-distance charges are competitively priced. Research which long-distance carrier will give you the best rate and switch if you are not with that carrier.

  • Use the phone book instead of dialing "Information."

  • If you have children at home, block all "900" numbers.

  • Stay in touch with relatives and friends through e-mail.

What can I do to reduce the cost of my mortgage?

The options that follow will help in reducing the cost of your mortgage:

  • Think about paying down your mortgage. This is an effective way for saving and raising net worth for many people. Make a decision to pay a specific amount more than the mortgage principal and faithfully stick to it.

  • Think about refinancing your mortgage. Determine if refinancing your mortgage will save you money. Calculate to see if the costs for refinancing are worth a reduction in your monthly payments. If you intend to remain in the house for at least five years, the common guideline is that at least two points reduction will make it worthwhile to refinance.

Financial Guide: Taxes

Taxes

Being self-employed, what sort of deductions can I take?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is 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. An expense does not have to be indispensable to be considered necessary.

If I have a large capital gain this year, what can I do?

If you have a large capital gain this year from an investment, it may be advisable to hold onto the investment until next year to put the gain into next year's taxes. You may also want to sell off any investments that you have that are losing value at the moment to claim your losses.

What investments can I make to help defer taxes?

The interest gained from state and local bonds is usually exempt from federal income taxes. These investments generally pay back at a lower interest rate than commercial bonds of similar quality.

Since Treasury Bonds are similarly exempt from state and local income tax, they can be a particularly good investment for those who are in high tax brackets and live in high-income-tax states.

What retirement plans are available to aid in the deferral of taxes?

You have the ability to invest some of the money that you would have paid in taxes to add to your retirement fund. Many employers will offer the opportunity to defer a portion of your earnings and contribute them directly to your retirement account. Some of them may even match a portion of your savings. If this is the case, it is always advisable to save at least the amount that your employer will match. This will give you an automatic 100% gain on your money.

If you are self-employed, look into getting a Keogh, SIMPLE or a SEP IRA.

What other ways can I defer this year's income?

If you own your business you may want to postpone sending certain invoices to ensure that you will receive payment in the following tax year. This can help greatly if some of this income would push you into a higher tax bracket. You may want to accelerate paying for expenses to cover your taxes in the current year.

Record Keeping for Taxes

What do I need to keep for tax reasons?

It is a good idea to keep all of your receipts and any other records that you may have of your income and expenses. These will come in very handy if you are audited.

How should I separate and organize these?

It is advantageous to categorize your expenses:

  • Income

  • Exemptions

  • Medical Expenses

  • Taxes

  • Business Expenses

  • Education

  • Travel

  • Auto

How long should I hold onto these documents?

It is recommended that you keep these documents for three to seven years, depending on the document. Check the Retention Guide on this site for additional details.

How long should I keep old tax returns?

If you are audited, it is very likely that the auditor will ask to see the last few tax returns. It is recommended to keep these tax returns forever.

An added benefit of keeping your tax returns is that you can see what you claimed last year, allowing you to adjust for the current year.

What other records should I keep?

If you purchased goods that you plan to sell later, you should keep the receipts to calculate your gain or loss on it correctly.

  • Anything regarding the property you own and any fixes and repairs that you perform.

  • Receipts for any jewelry or other valuable collector's items

  • Records for capital assets, stocks, bonds and such

What recordkeeping system should I have?

If you are an employee of a company, your system needn't be complex - you can keep your records separated in folders.

If you are a business owner, you may want to consider hiring a bookkeeper or accountant. Check the Financial Guide for Business on this website.

Education Expenses

▼ Are there available tax breaks for my children's education?

There are many different ways to use tax breaks for the higher education of your children. Be aware that you can only receive one type of relief for one item. It is best to consult with a professional to determine which would be the most advantageous.

What is the education tax credit?

You must make a choice between two types of tax education credit.

  • The American Opportunity Tax Credit will work for the first 4 years of college for at least full-time study.

  • The Lifetime Learning Credit applies for as long as the student studies, but the percentage of savings per year decreases drastically.

What is a Coverdell (Section 530)?

An education IRA is different than a standard IRA in these ways:

  • Withdrawals aren't taxed if used for qualified education expenses.

  • Contributions can be made only up until the point that the client reaches 18, and all funds must be distributed by the time that they are 30.

  • Contributions are not tax deductible

How can I best use the Coverdell (section 530)?

It is possible to have various 530 accounts for the same student, each opened by different family members or friends. There is no limit to the number of people that can open an account like this for a child.

The account can be transferred to another family member at any time. If the original child decides against going to college or is granted a scholarship, another family member can still utilize the money that has been saved.

What is a qualified tuition program?

The Section 529 is a college savings program available in most states. Money is invested to cover the costs of future education. These investments grow tax free and the distributions may also be tax-free.

What differentiates the Coverdell Section 530 and the Section 529?

  • The Section 529 allows for much larger yearly investments, whereas the Section 530 currently only allows for $2000 annually.

  • The choice of investments in the Section 529 is extremely conservative and limited while the Section 530 allows for many different options.

  • The Section 530 is a nationwide program while the 529 varies from state to state.

  • The Section 530 will let you use its funds for primary and secondary education, while the Section 529 can only be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiaries choosing.

Can I take money from my traditional or Roth IRA to fund my child's education?

Yes, you can take distributions from your IRAs for qualifying education expenses without having to pay the 10% additional tax penalty. You may owe income tax on at least part of the amount distributed, but not the additional penalty. The amount of the distribution that is more than the education expense does not qualify for the 10% tax exception.

What tax deductions can be used for college education?

There is a limited deduction allowed for higher education and related expenses. In addition, business expense deductions are allowed, without a dollar limit, for education related to the taxpayer's business, employment included.

Is student loan interest tax deductible?

In certain instances, yes, although deductions need to adhere to a few guidelines. The deduction is also subject to income phaseouts.

  • The deduction ceiling is $2,500.

  • If you are a dependent, you may not claim the interest deduction.

  • You need to be the person liable for the debt and the loan must be purely for education.

Can I deduct for education that helps at the workplace?

If you are receiving this education to maintain or improve skills at your current job, yes, but not if it is to meet the minimum requirements.