Homeowners: Don’t make these common insurance mistakes

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Catastrophes, thefts, natural disasters, accidents, fires – they happen. If such misfortunes strike, a well-researched and up-to-date homeowner’s insurance policy can keep your family’s finances afloat during trying times. Proceeds from a homeowner’s policy can provide necessary funds to replace your house and belongings. A good policy can also protect against unexpected liabilities.

If you’re considering a new homeowner’s policy (or already have one), watch out for some common pitfalls, including the following:

Inadequate policy limits. Some homeowners try to lower their premiums by purchasing a policy that doesn’t fund their home’s replacement value. That’s often a big mistake. If the cost to replace your home has risen over the years and policy limits haven’t kept pace, you could end up footing the bill for much of the replacement cost (or selling your property at fire sale prices).

Personal property not documented. If you need to file a claim, an insurance carrier will want solid evidence that you owned the items being claimed. It’s a good idea to take pictures or videos of all your household goods, and keep receipts of all expensive purchases. Place copies of the pictures and receipts in a safe deposit box and at home in a fireproof safe. You might even send copies to an out-of-town friend or relative. Being able to provide clear evidence of your personal belongings will simplify the claims process and help ensure that you get paid.

Valuables not covered. Check your policy to ensure that expensive jewelry, antiques, and other valuables are included. If not, consider adding a rider to the policy that specifically lists such items.

Deductible too low. Generally, the higher the deductible, the lower the premium. True, in the event a claim needs to be filed, you’ll pay a bigger chunk of the repair or replacement cost with a high deductible. On the other hand, with a high deductible you’ll generally pay lower premiums each year.

By doing careful research and avoiding some common mistakes, your homeowner’s insurance policy will be affordable and still provide solid protection should disaster strike.

4 Tax-Smart Decisions for 2015

Were you less than satisfied with your financial situation at the end of 2014? If so, making tax-smart decisions in 2015 could provide a helpful course correction. Here are some suggestions to get you started on the right path.ball-275711__180

1. Get structured. That out-of-control feeling from last year might be due to a lack of organization. Set up a simple filing system to arrange your tax papers and records. Once you’re organized, review your monthly expenses and establish a budget you can live with. Online tools can help make that job much easier, or you can give us a call. We’ll be happy to help.

Next, take your planning a step further and create an emergency fund. Consider setting aside six months of living expenses in an account you can tap easily.

2. Be strategic. Examine your investment portfolio for potential tax savings, such as selling stocks that are worth less than you paid to offset your capital gains. You might also donate appreciated stock that you have held for more than one year to charity and avoid capital gains altogether. With the new tax on unearned income to watch out for, consider buying investments that pay tax-free income, such as municipal bonds.

3. Look again. Some everyday tax moves deserve a second look. Review your employer’s list of benefits to make sure you are making the most of them, including the lesser-known perks, if available, such as flexible spending accounts, commuting reimbursements, and employer-paid college expenses. If you have a qualified high-deductible health insurance plan, consider the benefits of a health savings account.

This is also a good time to analyze your tax withholdings and estimates for 2015. Changes to your job, marital status or dependents, a new home, or a serious health issue – all of these life events can affect your tax situation. Adjustments now can put extra money in your pocket when you need it most.

4. Go long. In addition to strategies that yield immediate benefits, think about your long-term finances. Take full advantage of your employer’s retirement matching program. Consider contributing the maximum allowed by law, especially if you are nearing retirement age. In 2015, you can contribute up to $18,000 to your 401(k) plan, plus a $6,000 catch-up contribution if you’re age 50 or over.

Are you ready to think really long term? Review your will and estate plan. Even though the current high-dollar exclusions may shield you from the estate tax, there are still good reasons for you to have a solid plan in place.

If looking back at 2014 leaves you thinking you should have managed things better, take steps now to get your tax and financial plan back on track.

5 Major Tax Deadlines For March

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  • March 2 – Payers must file 2014 information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)

  • March 2 – Employers must send 2014 W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)

  • March 2 – Farmers and fishermen who did not make 2014 estimated tax payments are required to file 2014 tax returns and pay taxes in full.

  • March 16 – 2014 calendar-year corporation income tax returns are due.

  • March 16 – Deadline for calendar-year corporations to elect S corporation status for 2015.

Warning: Watch out for agressive phone scams this tax season

untitledThe Treasury Inspector General for Taxpayer Administration (TIGTA) is warning taxpayers about one particular category of tax scams that has proven to be very widespread, very aggressive, and very relentless. Callers claim to be IRS employees, and they tell their intended victims that they owe taxes that must be paid immediately using a prepaid debit card or wire transfer. The fake IRS agents threaten those who refuse to pay with arrest, deportation, or loss of a business or driver’s license. The scammers have been operating in every state in the country. 

Here are some practices used by the scammers that taxpayers should watch out for:

* Use of automated robocall machine.

* Caller gives fake IRS badge numbers.

* Caller knows last four digits of victim’s social security number.

* Caller ID is changed to appear as if the IRS is the caller.

* A fake IRS e-mail is sent supporting the scammer’s claims.

* Follow-up calls are made claiming to be from the police department or motor vehicle licensing office, with caller ID again supporting the claim.

If you receive one of these fake calls, complete the “IRS Impersonation Scam Form” on TIGTA’s website, or call TIGTA at 800-366-4484.

Every new business needs a record system

Many small start-up businesses are off and running before any record system has been set up. There is money deposited into the new business checking account, some from invested funds and some from sales. Money has been paid out for equipment and supplies, some by check and some by cash out of pocket or from sales receipts.

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This informal method of cash receipts and disbursements needs to be formalized. The bookkeeping system does not need to be complicated. In most cases, you can continue to operate much as you have. You just need to do it in a way that leaves a few more tracks.

For example, make all purchases by check. The small miscellaneous cash paid-outs from your pocket (or the petty cash box) are reimbursed by a check with a listing of the expense codes. All your cash receipts are deposited into the bank. No more taking cash from the till for lunches, supplies, etc.

If all the money received by the business is deposited into the bank and all expenses are paid by a company check, the proper journal entries are easy to create from the bank statement.

If you are starting a new business, don’t wait until the end of the year and surprise your accountant with a box of miscellaneous receipts. That is the most expensive and least effective use of your accounting information. In addition to setting up the proper record system, your accountant will provide you with guidance on other business, tax, and financial matters.

10 most frequent questions and answers about reverse mortgages

untitledA reverse mortgage is a loan against your property. But, instead of you making payments to the lender as you do on a regular mortgage, the lender is paying you. The repayment of this mortgage takes place after you no longer live in your home. Here are some answers to common questions about reverse mortgages.

  1. How can a reverse mortgage benefit me? The proceeds from this type of loan can be used for any purpose you want. You can use it to pay monthly bills, travel, improve your home or anything else you care to. And since it is a loan, it is not subject to income tax.
  2. Do I qualify for a reverse mortgage? To qualify, you must be 62 years of age or older. You must own your home and use it as your primary residence. If you owe money on a current mortgage, back taxes, or insurance, you must clear these off the property by closing time of your new mortgage.
  3. What is the process for getting a reverse mortgage? First, you will meet with a free reverse mortgage consultant. Second, you will be counseled by a HUD-approved counselor to make sure you understand how this loan works. Third, submit your application to the lender. Fourth, have your home appraised. Fifth, once all the documents are in order, the lender will issue final approval. Sixth, funds will be available to you after all documents are signed and the closing is complete.
  4. How much money will I receive? The amount of your loan proceeds will depend on you and your spouse’s ages and the value of the equity in your home.
  5. How much cash do I need to come up with? The only expense you need to pay for is the property appraisal. All other fees can be paid for out of the loan proceeds. You should never pay anyone a fee to apply for a reverse mortgage, not beforehand and not at closing.
  6. What payments do I need to make during the life of this loan? You are not required to make loan payments. However, as per your agreement, you must keep the real estate taxes and home insurance current. You must also pay for home repairs.
  7. How is this loan different from a regular mortgage? On this loan, there are no monthly principal and interest payments. There are no credit scores or income requirements to secure this loan. And at the end of the loan, you are not liable for any loan amount over the value of the home.
  8. How long does it take before my funds will be available? There is no fixed time table. In part, it will depend on the appraisal, the title report, and on other paperwork considerations. A typical loan should be done in less than two months.
  9. When do I need to pay this loan back? As long as you meet the contract terms, nothing is due until you no longer live in the home. The home can then be sold and any money in excess of what the lender has coming is refunded to you or your estate. If the sales proceeds do not pay the lender in full, you are not required to pay the difference.
  10. How do I know if a reverse mortgage is a good idea? Reverse mortgages are not for everyone. Your counselor will inform you of all the pluses and minuses. You should have enough information at that time to make a knowledgeable decision. You should compare all aspects of the reverse mortgage against a conventional home equity loan.

Reverse mortgages are not for everyone. Your counselor will inform you of all the pluses and minuses. You should have enough information at that time to make a knowledgeable decision. You should compare all aspects of the reverse mortgage against a conventional home equity loan.

 

Should you have a business buy-sell agreement?

imagesHQDSX8QEWhat will happen to your business if you die, retire, or become disabled? If you are the owner of a small business, you need a means for the transfer of that business in the event something happens to you. With a “buy-sell” agreement, you are able to plan for many contingencies over which you would otherwise have little control. A buy-sell agreement should establish a price for the business and the method of succession.

The traditional buy-sell agreement is a contract between the business entity and all the entity’s co-owners. The agreement typically covers valuing the business, laying down triggering events that would bring the terms of the contract into effect, and defining the transfer of ownership.

There are many advantages in drafting a buy-sell agreement, including the following: 

  • Provides a framework for dealing with owner disputes – ensures a smooth transition of control and power to the owner’s successor.
  • Facilitates estate planning objectives – can help minimize certain estate taxes and can be structured to take advantage of favorable redemption rules upon death.
  • Fixes value for estate tax purposes – includes a method for valuing ownership interests and establishing a fixed value for purposes of taxing the estate upon its owner’s death.
  • Forces shareholders to deal with liquidity issues – addresses how a possible buyout would be funded.
  • Helps prevent loss of tax benefits – especially for S corporations in which transferred stock could lead to termination of the S election. It can disallow the transfer of shares without the consent of owners.Something as valuable as the ownership and management of a small business should not be left to chance. The agreement needs to satisfy all parties involved, including the IRS requirements for tax purposes.

If you need assistance in drafting a buy-sell agreement or in updating your current buy-sell agreement, please contact us and your attorney.

Sticking to Budgets and Diets

Budgets, like diets, are short lived for most of us. You do a proper job of planning by looking over the past and determining where you need to make changes to meet your goals. And, you live by your plan for a few days, maybe even a few weeks. But, then all the detail of keeping track of what comes and goes gets to be more than you are willing to put up with. 

If you can plan a budget and live with it, more power to you. This should put you with the 5% of people who can retire without financial assistance from family or the government. untitled

For those of us who can’t live with the detail of tracking budget numbers, here is a simple way to make sure you don’t retire totally broke. Take a fixed percentage of every dollar that comes into the household and set it aside for retirement investing. Say, for example, that you decide to save 10% of your $100,000 income. Here are some rough numbers for those aged 35 who would like to retire in 30 years. $10,000 invested each year will accumulate to $697,000 in 30 years at a 5% annual return. The earlier you start, the greater the retirement benefits. If you started at age 25, the accumulated value at age 65 would be over $1,268,000. 

You may think it is impossible to save 10% of your current income. Let’s assume that you lose your current job. The next job you find pays 10% less than your current job. The chances are that you will figure out where to cut the spending to make it work. So, why not discipline yourself and your family in order to make your current income provide both a current living and an investment in your retirement.

Elect S corporation by March 16

untitledIf you own a small business, you have until March 16, 2015, to choose S corporation status for this year. In order to become an S corporation, you’ll need the unanimous approval of all shareholders. 

The principal advantage of an S corporation is that you avoid paying double taxes. In a traditional C corporation, profits are taxed at the corporate level, and they’re taxed again when paid to individual shareholders as dividends. In an S corporation, there are no taxes on earnings at the corporate level. Instead, profits or losses flow directly through to the shareholders. They pay taxes only once, when they report their share of earnings on their individual tax returns. 

Another advantage: Doing business as an S corporation can be attractive in the early, unprofitable years of a start-up business. That’s because operating losses flow through your personal tax return, perhaps offsetting other taxable income. Losses are available to the extent of your basis in your stock plus loans directly from you to your corporation. 

There are some trade-offs for these tax benefits, though. If you’re an owner-employee and own more than two percent of the company, you’ll receive less favorable tax treatment of some fringe benefits. There are also ownership limitations. The company can have only one class of stock, there can’t be more than 100 shareholders, and all of the shareholders must be U.S. citizens or residents. 

Despite these drawbacks, doing business as an S corporation can still offer some tax planning advantages. If you can meet the ownership requirements, it might be well worth considering an S corporation election.

Contact our office for an in-depth analysis of the pros and cons for your company.

Not all “income” is taxable

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There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

  • Borrowed money such as from banks or personal loans.
  • Money received as a gift or inheritance from family or friends.
  • Money paid on your behalf directly to a school or medical facility.
  • Most life insurance proceeds.
  •  Cash rebates from businesses when you buy an item.
  • Child support payments.
  • Money you receive for sustaining an injury.
  •  Scholarships for tuition and books.
  • Disability insurance proceeds from a policy purchased with after-tax dollars.
  • Up to $500,000 of profit for a couple selling their personal residence.
  • Interest received on municipal bonds.If you have included any of these on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.