TMTW #120 – The Risks of Bonds – Part I

Posted on December 5, 2012 by taxblogger

Tax and Money Tip of the Week:
The Risks of Bonds – Part I
| December 5, 2012 | No. 120

With recent volatility of the stock market, along with the uncertainty of the real estate market since the “crisis”, some investors have been considering a shift to the bond market.
 
However, while bonds (and bond funds) do pay regular interest, bond yields are currently very low. Additionally, bonds come with a risk that is often forgotten about today – inflation risk.
 
Nobody has worried too much about inflation lately. But, between the massive amount of the national debt and the impending “fiscal cliff”, higher inflation is possible.
 
Inflation is bad for bondholders for 2 reasons –
 
–  Low yielding bond payments won’t allow you to keep up with the rate of inflation, meaning the interest earned on your bonds will buy less

–  Inflation causes interest rates to rise, so new bonds would pay better yields; therefore if you sold your older bonds, you would lose money as buyers could obtain newer bonds with higher yields
 
So while bonds may appear to be that “safe” investment, remember that even bonds have risks that should be considered.
 
Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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TMTW #119 – Young Seniors Be Wary of Reverse Mortgages

Posted on November 28, 2012 by taxblogger

Tax and Money Tip of the Week: Young Seniors – Be Wary of Reverse Mortgages | November 28, 2012 | No. 119

Reverse mortgages can be tempting to people whose retirement savings and home values have dropped significantly in the last couple of years. However, if you are in your 60s, you may want to carefully consider the pros and cons.

While reverse mortgages are available to homeowners who are at least 62 years of age, they are questionable for anyone younger than 70.

–  Up front closing costs (including mortgage insurance of approximately 2% of appraised value) on reverse mortgages are generally higher than conventional mortgages.

–  Since no payments are required to be made on loan, interest is treated as an additional advance on the loan and can balloon quickly.

–  Mortgage insurance is required annually, normally 1.25% of loan balance

–  Taxes and insurance must be kept current, or else loan could be considered in default

Even if you are in your 70s, consider a reverse mortgage as a “last resort”.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP® …until next week.

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Happy Thanksgiving!

Posted on November 21, 2012 by taxblogger

Tax and Money Tip of the Week Happy Thanksgiving! November 21st, 2012 |

Happy Thanksgiving everyone!

There will not be a Tax and Money Tip of the Week this week.  We would just like to take the time to wish everyone a safe and happy Thanksgiving holiday!
Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.
Mark Vitek, CPA/PFS, CFP® …until next week.

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TMTW #117 – What Can You Tell Me About ETFs?

Posted on November 7, 2012 by taxblogger

Tax and Money Tip of the Week:
What Can You Tell Me About ETFs?
November 7, 2012 | No. 117

Exchange traded funds (ETFs) have become a very popular investment in the last few years. Here are a few things that you should know about them if you are considering investing in ETFs –
 
      §  An ETF is a type of investment (like a mutual fund) that bases its investment mix on an index.
      §  Unlike a mutual fund, ETFs are traded on an exchange, so they can be bought and sold throughout the day (like a stock). Mutual funds can only be bought or sold once a day, generally at the market close.
      §  Many ETFs have lower expense ratios than mutual funds since ETFs are based on index investing.
      §  The variety of ETFs available allows you to focus an investment into a particular industry, commodity or country.
      §  ETFs are generally more tax-efficient (i.e., less taxable capital gains) than mutual funds.
      §  Check the track records of any ETFs you are considering.
             o  If total assets are less than $20 million, the sponsor may decide to close it.
            o  If trading is less than $500,000 per day, the bid/ask spread is likely to be wider. Generally, the more narrow this spread, the better.
 
Is an ETF the proper investment for you? Give us a call to discuss.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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TMTW # 116 – Hire Your Spouse

Posted on October 31, 2012 by taxblogger

Tax and Money Tip of the Week:
Want 4 Quick Tax Saving Tips – Hire
Your Spouse | October 31, 2012 | No. 116

Looking for a reliable and trustworthy employee? These days, who isn’t?
 
That person may be closer than you think. Why not hire your spouse? He or she probably already performs a number of company functions for no pay. Here are 4 tax benefits you may receive by employing your spouse.
 
Increase the amount of retirement savings
           
With your spouse as an employee, the company can deduct contributions to a qualified retirement plan on his/her behalf, which increases the amount of tax-deferred savings your family will have. Depending on the type of retirement plan the company maintains, this can result in a significant tax deduction for the company.
 
Shift taxable income to a lower tax rate
 
If your company is a C-corporation, any salary paid to your spouse is a deduction for the company. Assuming your personal tax rate is lower than the company’s tax rate, you will pay less tax on your spouse’s salary based on your lower tax rate.
 
Additional tax deductible travel expenses

Normally, travel expenses attributable to your spouse are not deductible if he/she accompanies you on a business trip. But, if your spouse accompanies you for a valid business reason as an employee of the company, the costs of his/her airfare, taxi, hotel, etc., would be deductible to the company.
 
Group-term life insurance

As an employee, your spouse would be entitled to life insurance coverage under the company’s Group Term Life Insurance plan.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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TMTW #115 Deduct Interest on a Home Never Built

Posted on October 24, 2012 by taxblogger

Tax and Money Tip of the Week:
Deduct Interest on Home Never Built
October 24, 2012 | No. 115

In a recent court case (TC Summ OP.2001-17) the Tax Court allowed an interest deduction for a house that was never built. A married couple took out a loan and bought a beachfront home, tore it down and planned to build a new house on the site. However, they could not do so until a state environmental agency granted them a permit. That process dragged on for two years. By that time, the local real estate market had crashed and the couple couldn’t get a loan to cover the construction costs, so they sold the land at a loss.

Tax rules state that mortgage interest is deductible on a loan for 24 months after construction begins or for 24 months after the teardown date. The court ruled that deducting interest on a loan for a home under construction doesn’t condition deductibility on the house’s completion. And in this case, the home was never built because of unforeseen circumstances that were well beyond the couple’s control. Therefore, a mortgage interest deduction was allowed on the original acquistion loan.

The rule that disallows a mortgage interest deduction after the 24-month period ends remains as nondeductible personal interest.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

 

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TMTW #114 – Good Communications is Key to Lowering Taxes

Posted on October 17, 2012 by taxblogger

 

Tax and Money Tip of the Week:
Good Communication is Key to Lowering Your Taxes
October 17, 2012 | No. 1134

After over 30 years in the tax business, we continue to find that solid accounting and good communication with your CPA is the key to lowering taxes.
 
Solid bookkeeping for your business enables you to take the most deductions possible while minimizing taxes.
 
Year-end tax planning also helps you know what to expect on April 15th, prevents unwanted surprises, and saves a lot of taxes for our clients each year through this valuable service we offer this time of year.  We frequently save our fees through solid recommendations.
 
Business owners are always looking for ways to maximize your profits and minimize your expenses. Occasionally, you may be approached by folks other than us regarding estate or investment planning.
 
A quick (even 15 minute or less) phone call with your trusted advisor CPA about topics such as these can help you be sure you have considered all the financial and tax impacts on you, your company and your family.
 
When you are considering any significant financial decisions, we are available.

Give us a call.  Sometimes it can mean saving thousands of dollars.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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TMTW #113 – Insurance Tip – Accident Forgiveness Rider

Posted on October 10, 2012 by taxblogger

 

Tax and Money Tip of the Week:
Insurance Tip:  Accident Forgiveness Rider on Your Auto Insurance Policy
October 10, 2012 | No. 113

I’d like to share a relatively new addition to some insurance companies auto policies:  The Accident Forgiveness and/or Violation/Ticket Forgiveness Rider.  If you have this on your auto policy, it could save you hundreds or thousands of dollars! (it costs me very little)

Here’s how it works:
If you have this rider on your policy and you or someone in your family has an accident or ticket, your insurance company will “forgive” you one time and not increase your rates.  Some insurance companies have an accident forgiveness rider only and not ticket forgiveness, so be sure to ask questions and understand the details of what you are buying.

Call and ask your auto insurance agent or insurance company if they offer this relatively new insurance rider that could save you thousands.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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TMTW #112 – Is an Irrevocable Life Insurance Trust Right for You?

Posted on October 3, 2012 by taxblogger

Tax and Money Tip of the Week
Is an Irrecovable Life Insurance Trust
Right for You? | October 3rd, 2012 | No. 112


Most of us have some sort of life insurance, so that when we die, our loved ones will be able to use the proceeds to pay off our debts and provide for some of their future living expenses. One thing that is often overlooked is that life insurance proceeds can be subject to Federal estate taxes when we die. For 2012, the Federal estate tax rate is as high as 35%. For 2013, if there are no changes, that rate can be 55%.

You only pay estate tax on property that you own at your death. One way to avoid paying estate tax on life insurance proceeds is to have the policy owned by an Irrevocable Life Insurance Trust, or ILIT (say, “eye-lit”).

What is an ILIT & how does it work?  

An ILIT is a type of trust that can be set up to hold life insurance policies. Instead of you owning a policy on your life, the ILIT owns it. Then, you name the ILIT as the beneficiary of your policy. Your family would be the beneficiaries of the ILIT and would receive the proceeds of your policy via the ILIT. During your lifetime, the policy premiums would be paid by the ILIT, after you had transferred the cash to a bank account owned by the ILIT.

An ILIT is irrevocable, which means that once it is set up, you cannot change it. But that also means that any life insurance policies owned by the ILIT are not owned by you; therefore, you will not owe any estate tax on the proceeds.

A properly drafted ILIT will allow your life insurance proceeds to flow to the beneficiaries you want, without being decreased by estate tax. Make sure that you have it set up by an experienced attorney.

Maintaining an ILIT can be involved, as there are gift tax consequences as well as accounting and tax returns that will need to be addressed. You would name a Trustee (consider a professional), who would administer the trust and deal with these issues.

While there will be costs involved with setting up and maintaining an ILIT, the potential estate tax savings should more that outweigh these administrative costs.

If you think that an ILIT could be an option for you in your estate plan, give me a call to discuss in more detail.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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TMTW #111 – Don’t Mist the October 15th Deadline

Posted on September 26, 2012 by taxblogger

Tax and Money Tip of the Week
Don’t Miss the October 15th Deadline
 | September 26th, 2012 | No. 111


If you need to file a Form 1040 (individual return), the deadline to file is October 15, 2012.  This assumes you had filed for an extension prior to April 16, 2012.  You also have until October 15, 2012 to fund a SEP-IRA for tax year 2011.

As a reminder, putting your tax returns on extension can be a good thing – but penalties to miss the extension deadline can be steep, up to 25% penalty of taxes owed, so make sure that you make the October 15th deadline.

Give us a call if you need help meeting your deadline.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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