Money Tip – Investing 101

Posted on August 17, 2011 by taxblogger

Tax and Money Tip of the Week
Money Tip – Investing 101
August 17, 2011 | No. 56

This week we will start a series on investing concepts. 

This series is not intended as investment advice, but only a general discussion of investing in the new millennium and in the age of the Internet, High Frequency Trading, and Machines.

Considering all the volatility over the last few weeks, here are some thoughts to consider for investing today, that our parents may not have taught us:

1)  It’s OK not to play. 
     Point:  You do NOT have to be invested all the time.

2)  Have a goal and an exit plan in mind.

3)  Never fall in love with any stock.

More on investing next week.
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®
mark@markvitekcpa.com

…until next week.

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Estimated Tax Payments – Individuals

Posted on August 10, 2011 by taxblogger

Tax and Money Tip of the Week
Estimated Tax Payments – Individuals
August 10, 2011 | No. 55

Estimated tax payments need to be made by individuals to provide for current payment of income taxes not collected through withholding on a W-2 or Form 1099.

The tax law requires individuals to pay these taxes currently. The first general rule is that at least 90% of a person’s current year income tax is to be paid through withholding and/or estimated tax payments to avoid penalties and interest. Form 1040 ES is used for Federal Estimated Tax Payments to the Internal Revenue Service; Form NC-40 is used for NC Estimated tax payments to the NC Department of Revenue. The due dates for these payments are as follows: April 15th; June 15th; September 15th; and January 17th, 2012.    If 90% of the tax is not paid, you will be penalized and charged interest.

Exception to the general rule:
Individuals may make what is called a “safety” set of estimates for federal purposes:

  1. If a joint return taxpayer makes less than $150,000 in adjusted gross income, they pay 100% of the prior year’s tax return tax liability, they will be “safe”. Even if they make a lot more income in the current year, they may pay the balance due of taxes with their individual income tax return due the following April 15th without penalties or interest and hold on to their money until April 15th.
  2. If a joint return taxpayer makes $150,000 or more in adjusted gross income, they must pay 110% or more of their LAST YEAR tax liability, and they will be “safe”.

I have used this exception over the last 30 years in my CPA practice and allowed folks to hold onto their money and make interest and profits and pay thousands and millions on April 15th  with their tax returns penalty and interest free under these legal exceptions. This exception works the best when a client has a BIG income year and needs guidance.

The most important thing is to professionally and properly do tax planning with your CPA throughout the year, not just at tax time.

It can save many times their fee.  And, clients will pay current year taxes with current year income and not be surprised!

Call us if you need help.
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®
mark@markvitekcpa.com

…until next week.

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Individual Estimated Taxes and Tax Planning Checkups

Posted on August 3, 2011 by taxblogger

Tax and Money Tip of the Week
September 15, 2011 Tax Deadlines:
Individual Estimated Taxes and Tax Planning Checkups | August 3, 2011 | No. 54

This is the time of year in our CPA practice that I work with small business owners and individuals to perform tax checkups to help them project their tax liabilities for 2011 and make tax saving recommendations of moves they can make between now and December 31, 2011. Frequently, just defining the amount of taxes they owe via these planning services helps manage their cash flow so the businesses and individuals don’t have a big amount and/or surprise each Spring when they prepare their tax returns.

Coming up September 15, 2011 is the date in which the 3rd installment for individuals that have income that is not taxed and withheld (like W-2 income) is due.

Self employed businesses, e.g. Proprietor Schedule C filers, folks that own S Corporations, Partnerships, LLCs, or other flow-through entities must estimate their unpaid income and/or self-employment taxes for the period January 1-August 31, 2011 and pay ½ of this amount to IRS and/or NC Dept of Revenue on September 15, 2011 and the other ½ of this amount on or before January 15, 2012.  (April 15th and June 15th of each year are also Quarterly Estimated Tax Payment dates that have also passed by if you weren’t aware)

The rules for estimated tax payments depend on your modified adjusted gross income for 2011. “Safety” estimates can be designed to avoid penalties and interest, optimize cash flow, and save taxes. Call us for help.

There are existing tax laws that apply to estimated tax payments; next week we will cover these rules and how to optimize these rules and applicability to different income situations.
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®
mark@markvitekcpa.com

…until next week.

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What Records should I keep?

Posted on July 27, 2011 by taxblogger

Tax and Money Tip of the Week:
What Records should I keep?
July 27, 2011 | No. 53

This week we will discuss a question that I get in my CPA practice a lot:
How long should I keep certain records?
Here are some recommendations:

Keep Forever:

  1. Copies of Tax Returns only
  2. W-2s and 1099 income forms
  3. Roth IRA statements(to prove that you have already paid taxes when you withdraw at retirement)
  4. Life insurance policies
  5. Birth and death certificates

Keep for 3 years:

  1. All Backup records of the latest 3 years of Federal and NC income tax returns
  2. Bank Statements, brokerage statements,  1099s, deductions, etc.

Why 3 years?

Because the statute of limitation is 3 years under which the IRS or NC Department of Revenue may change your return or you can amend your return. However, if these agencies believe that a taxpayer has underestimated their income by 25% or more, this period becomes six years.  If the IRS believes you filed a fraudulent return or did not file a return at all, there is NO statute of limitations.

Therefore, never throw away your tax return copies that we always provide you.  It is possible, but very difficult and time consuming to try to get copies from the governmental agencies of your past tax returns, especially old ones.

Also, when deciding what to store in a safety deposit box,  keep in mind when someone dies, the safe deposit box may be sealed by taxing authorities. This action may cause problems in probating and executing the will; therefore, store original copies of the will in a fireproof safe at home as well as with your attorney.

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®
mark@markvitekcpa.com

…until next week.

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Insurance Tip: Accident Forgiveness Rider

Posted on July 20, 2011 by taxblogger

Tax and Money Tip of the Week:
Insurance Tip:  Accident Forgiveness Rider on Your Auto Insurance Policy
July 20, 2011 | No. 52

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®
mark@markvitekcpa.com

…until next week.

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NC Small Business Tax Break – New Law

Posted on July 13, 2011 by taxblogger

NC Small Business Tax Break –
New Law

With the passing of the state’s new $19.7 billion budget, the North Carolina General Assembly passed a new law that will allow North Carolina companies to deduct the first $50,000 in net business income from their taxable income on the state return. 

Beginning with their 2012 tax return, North Carolina partnerships, S-corps and proprietorships will be able to write off the first $50,000 of net business income.  Legislators are hoping that this tax break will generate job growth for North Carolina’s economy through these employers.

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®
mark@markvitekcpa.com

…until next week.

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Winners

Posted on July 6, 2011 by taxblogger

Tax and Money Tip of the Week:
Winners | July 6, 2011 | No. 50

Winners

Thank you for being associated with our firm.

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®
mark@markvitekcpa.com

…until next week.

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Throwing Out the Old rules of Money #5

Posted on June 29, 2011 by taxblogger

Tax and Money Tip of the Week:
Throwing Out The Old Rules of Money
June 29, 2011 | No. 49

Leasing vs. Buying a Car……
When Leasing is Better than Buying a Car

Leasing can make sense for certain people in certain situations.

Leasing isn’t for everyone, so here are some cases in my CPA practice where it makes sense:

  1. If you drive less than 15,000 miles per year, and if you buy a car every few years.
  2. If you have a steady income stream, and/or
  3. If you are self-employed and use the car for business.

When negotiating the vehicle, watch out and make sure you don’t let the sales person talk you into these mistakes:

Mistake #1: Not haggling over the cost of the car
The capitalized cost of the car is one of the critical starting points; negotiate the cost of the car before saying whether you want to buy or lease.

Mistake #2: Not paying attention to the residual value used in the lease calculations
The residual value (or buyout value) is the estimated fair market value at which the lessee may buy the vehicle at the end of the lease.  It pays to choose a car that retains its value since depreciation is the largest component of the cost of owning a vehicle.  So watch that residual value when negotiating car leases.

Mistake #3: Just give me the lowest monthly payment for a lease
Frequently car dealerships get lessees to think only about the monthly payment so that there are bad terms in other parts of the lease like overage charges for driving over the contracted number of miles per year.

Mistake #4: Not noticing the interest rate used in the lease calculations
This interest rate is called the implicit interest rate of the lease and is important to get the best rate, just like if you are going to buy the car.

Mistake #5: Not negotiating the lease acquisition fee
The lease acquisition fee for a lease can run from several hundred to more than a $1,000 depending upon the automaker. Frequently, a lessee is told that there is no way to avoid this fee. This is sometimes true, but the dealer may say it could be reduced.

In these times of low interest rate financing, it pays to see if a properly structured lease with a low implicit interest rate is the best way to go.

Let us know if we can help.

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®
mark@markvitekcpa.com

…until next week.

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Throwing Out The Old Rules of Money

Posted on June 21, 2011 by taxblogger

Tax and Money Tip of the Week:
Throwing Out The Old Rules of Money
June 22, 2011 | No. 48

Old School Rule #4
Conventional college-savings advice:  The best way for grandparents to contribute to a grandchild’s education is a 529 college savings plan.  These state-operated plans are designed to help families set aside funds for future college costs by offering tax breaks. 

My unconventional wisdom:  Most grandparents should skip 529 plans.

Why it’s smarter:  There’s no assurance that your grandkids will need the money.  They might win scholarships or not go to college at all.  What’s more, their parents might incur problems of their own, such as divorce or job loss, causing them to raid the account that you helped fund.  Another drawback is that 529 plans limit options for investing money.  Most important, you may need that money yourself for healthcare or other expenses.  Better:  Talk to your estate-planning attorney about setting up a tax-free trust for your young grandchild, and stipulate that it remain untouched until the child reaches retirement age.  Over the long run, that will serve the child much better than your contributions to a college fund.

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®
mark@markvitekcpa.com

…until next week.

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Throwing Out The Old Rules of Money

Posted on June 20, 2011 by taxblogger

Tax and Money Tip of the Week:
Throwing Out The Old Rules of Money
June 16, 2011 | No. 47

Today we are returning to our series, “Throwing Out the Old Rules of Money” with Tip #3 Regarding Long Term Care Insurance (LTC).

Conventional long term care insurance advice:  Buy long term care insurance with lifetime benefits, which pays for at home health care or nursing home or assisted living care as long as you live. This way of purchase is very expensive, but you won’t need to rely on family members or spending down your assets. Your children then inherit more.

My unconventional wisdom: Consider choosing 5 years of LTC benefits instead of lifetime benefits.

Why?  The average nursing home stay is less than three years; fewer than 12% of people who enter a nursing home stay more than five years. Premiums on a five year benefit basis, often (but not always) are sufficient and can be 50% less!

Instead consider adding on a shared-care rider. This lets you use the benefits offered by your spouse’s policy if you exhaust your benefits.

This piece is not intended to be considered specific insurance advice, and one should consult his or her own situation with a qualified insurance agent or financial professional.

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®
mark@markvitekcpa.com

…until next week.

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