Log on to your mortgage servicer's website and print a copy of your payment records for the past year, this will enable you to verify that all your payments were posted accurately as you move forward to the new year. Check to make sure that the dates and amounts actually match.
Also print a copy of your amortization schedule this will also help you ensure that the numbers that show up on your monthly statement are what they should be - it will also gives you an idea of how much or how little your interest payment is each month, relative to your total payment.
12.31.2010
12.19.2010
Tax Tip: Medical Expense Deductions
I know you have been told, “forget about keeping track of medical expenses, you have to have too many expenses for it to matter”. If you ask the question is that always true, the answer is no. Yes, they are right if you do not itemize your deductions. They are also probably right if you really have very minimal medical expenses. If you do however itemize your deductions, keeping track of your medical expenses could give your itemized deduction total a boost.
In all things numbers, folks often underestimate amounts that are not written down.
The reason that we are often told to forget about tracking medical expenses, is that, the only medical expenses that come into play for your itemized deduction calculation, are those expenses that exceed your adjusted gross income by 7 ½ %, so let’s say that your income totals $102,400 (for ease of calculation) and that income was adjusted down by a $2000 tuition deduction, and $400 in student loan interest so your adjusted gross income is now $100,000, you would have to have qualified medical expenses of over $7,500 for them to matter in the itemized deduction calculation and then only the amounts over $7,500 (7 ½%) will qualify.
$102,400 – ($2,400) = $100,000 x .075 = $7,500
Income – adjustments = adjusted gross income times 7 ½% = your 7 ½% number (limit)
So if you had $10,000 in qualified expenses then only $2,500 would apply towards the medical expense component of your itemized deductions amount.
$10,000 - $7,500 = $2500
Total qualified medical expenses - your 7 ½% number = qualified deductible medical expenses
Now, you say, well, I don’t have over $7,500 in expenses – remember that you really can only determine what your 7 ½% number is based on your income and your adjustments to income which is why keeping track of your expenses is important.
If the above example had an income of $52,400, with the same adjustments, your adjusted gross income would be $50,000 – then your 7 ½% number would be $3,750.
$52,400 – ($2,400) = $50,000 x .075 = $3,750
Income – adjustments = adjusted gross income times 7 ½% = your 7 ½% number (limit)
If you do not have many medical expenses, that’s a good thing. No one wants to be sick in order to take a tax deduction; however, if you do have those expenses, you want to be sure that you have used them all to decrease your tax liability.
If you have young children, you may have larger than average co-pay amounts, prescription amounts, and possibly surgery or procedure amounts.
If you are more mature, you may have more diagnostic procedures, surgical expenses, or medication expenses.
If you have a chronic illness, you may have high prescription amounts.
Qualified dental and optical expenses also qualify for medical expenses and folks often forget that.
If you are having a year where your medical expenses are already somewhat high but you probably haven’t exceeded your 7 ½% number, and you are scheduled for surgery or other procedure at the beginning of the next year, you may want to try to bring your surgery into the end of the current year so that your expenses are accumulated in one year pushing you over that 7 ½% limit, allowing you to take advantage of the tax benefits. Similarly, if you have an expensive or procedure surgery scheduled for the end of the year, and you know that you or your family may have some significant health expenses in the following year, you may want to delay the procedure or surgery to the beginning of the next year.
Caveat: You must have a discussion with your physician to make sure that pulling in or pushing out the date of your surgery or procedure doesn’t compromise your health.
A lot of people are not aware that medical mileage qualify as a medical expense (these are the miles you drive to medical facilities, including pharmacies).
Keeping track of all your medical expenses, will enable you to have the data to determine whether you qualify to include your medical expenses in your itemized deductions and of course is evidence in case of an audit.
You should also check with your human resources department, whether or not your health insurance premiums are deducted from your paycheck before or after taxes. If they are paid after taxes, then they also qualify as a part of your medical expense deduction. Make sure to let your tax advisor know that. Having some documentation from your HR department, or information from your company manual, will protect you in case of an audit. Many companies use income before taxes for employee’s premiums (which means that in that case you already got your tax break).
Important Note: The expenses that qualify are out of pocket expenses, so any portion of your medical costs that's paid for by your insurance company, does not qualify to be included on your tax return.
Stay well.
In all things numbers, folks often underestimate amounts that are not written down.
The reason that we are often told to forget about tracking medical expenses, is that, the only medical expenses that come into play for your itemized deduction calculation, are those expenses that exceed your adjusted gross income by 7 ½ %, so let’s say that your income totals $102,400 (for ease of calculation) and that income was adjusted down by a $2000 tuition deduction, and $400 in student loan interest so your adjusted gross income is now $100,000, you would have to have qualified medical expenses of over $7,500 for them to matter in the itemized deduction calculation and then only the amounts over $7,500 (7 ½%) will qualify.
$102,400 – ($2,400) = $100,000 x .075 = $7,500
Income – adjustments = adjusted gross income times 7 ½% = your 7 ½% number (limit)
So if you had $10,000 in qualified expenses then only $2,500 would apply towards the medical expense component of your itemized deductions amount.
$10,000 - $7,500 = $2500
Total qualified medical expenses - your 7 ½% number = qualified deductible medical expenses
Now, you say, well, I don’t have over $7,500 in expenses – remember that you really can only determine what your 7 ½% number is based on your income and your adjustments to income which is why keeping track of your expenses is important.
If the above example had an income of $52,400, with the same adjustments, your adjusted gross income would be $50,000 – then your 7 ½% number would be $3,750.
$52,400 – ($2,400) = $50,000 x .075 = $3,750
Income – adjustments = adjusted gross income times 7 ½% = your 7 ½% number (limit)
If you do not have many medical expenses, that’s a good thing. No one wants to be sick in order to take a tax deduction; however, if you do have those expenses, you want to be sure that you have used them all to decrease your tax liability.
If you have young children, you may have larger than average co-pay amounts, prescription amounts, and possibly surgery or procedure amounts.
If you are more mature, you may have more diagnostic procedures, surgical expenses, or medication expenses.
If you have a chronic illness, you may have high prescription amounts.
Qualified dental and optical expenses also qualify for medical expenses and folks often forget that.
If you are having a year where your medical expenses are already somewhat high but you probably haven’t exceeded your 7 ½% number, and you are scheduled for surgery or other procedure at the beginning of the next year, you may want to try to bring your surgery into the end of the current year so that your expenses are accumulated in one year pushing you over that 7 ½% limit, allowing you to take advantage of the tax benefits. Similarly, if you have an expensive or procedure surgery scheduled for the end of the year, and you know that you or your family may have some significant health expenses in the following year, you may want to delay the procedure or surgery to the beginning of the next year.
Caveat: You must have a discussion with your physician to make sure that pulling in or pushing out the date of your surgery or procedure doesn’t compromise your health.
A lot of people are not aware that medical mileage qualify as a medical expense (these are the miles you drive to medical facilities, including pharmacies).
Keeping track of all your medical expenses, will enable you to have the data to determine whether you qualify to include your medical expenses in your itemized deductions and of course is evidence in case of an audit.
You should also check with your human resources department, whether or not your health insurance premiums are deducted from your paycheck before or after taxes. If they are paid after taxes, then they also qualify as a part of your medical expense deduction. Make sure to let your tax advisor know that. Having some documentation from your HR department, or information from your company manual, will protect you in case of an audit. Many companies use income before taxes for employee’s premiums (which means that in that case you already got your tax break).
Important Note: The expenses that qualify are out of pocket expenses, so any portion of your medical costs that's paid for by your insurance company, does not qualify to be included on your tax return.
Stay well.
12.17.2010
Preparing for Tax Season
Just a few more weeks before the end of the tax year. Here Bob Meighan alerts you to some of the tips to help reduce your tax liability. Watch.
12.13.2010
Repaying your Student Loans
If you graduated from college or vocation/trade school this spring (2010), (considered your separation date from college), with student loans and a 6 month grace period, your loans are probably due this December 2010 or January 2011. Its important that you make your payments on time.
Student loans are almost impossible to discharge, they have very few consumer protections, so you are at the mercy of your lender or servicer, so avoid late payments which will increase your interest rates or cause you to lose your incentives or discounts. Paying late will cause the unnecessary compounding of interest and will add penalties and fees to your loans.
Not paying at all, will cause your loan to go into default. Defaulting on student loans can have dire consequences which could impact your entire life negatively. Have I scared you? You'll thank me later.
Even if you haven't received payment requests from your student loan lender or servicer, it is your obligation to make your payment on time. So call your lender, or visit their website, create an account and get the information.
Send this post link to a friend who graduated along with you and ask them to pass it on.
Student loans are almost impossible to discharge, they have very few consumer protections, so you are at the mercy of your lender or servicer, so avoid late payments which will increase your interest rates or cause you to lose your incentives or discounts. Paying late will cause the unnecessary compounding of interest and will add penalties and fees to your loans.
Not paying at all, will cause your loan to go into default. Defaulting on student loans can have dire consequences which could impact your entire life negatively. Have I scared you? You'll thank me later.
Even if you haven't received payment requests from your student loan lender or servicer, it is your obligation to make your payment on time. So call your lender, or visit their website, create an account and get the information.
Send this post link to a friend who graduated along with you and ask them to pass it on.
Consequences of Student Loan Default
Defaulting on your student loan has some expected consequences such as being reported to the Credit Bureaus, which will definitely impact your credit score negatively.
You may also find yourself impacted by any or all of these other situations:
• Your federal or state income tax refunds or other federal or state benefits will be used to reduce your loan balance.
• Collection fees and costs, court costs and attorney fees will be added to your loan.
• If you have a state professional license you may lose that license, or be denied one. How ironic is that? You incurred all those student loans to gain a profession and now you will be at risk of losing your license and with it your ability to earn an income from that profession.
• You can lose your eligibility for any other federal student aid and most other federal benefit programs, which may leave you with private loans as your only option. These loans do not generally have as favorable an interest rate as federal loans.
• You can lose your eligibility for loan deferments or forbearance. If you cannot get a deferment or forbearance you will lose the ability to postpone your loan payments in periods of economic hardship or personal emergencies. You want to maintain this option.
• You may be required to repay your entire loan balance at once. Hope you won the lottery.
• You could be sued by your lender. Who wants a long drawn out legal battle which will probably not end in your favor.
• Your wages could be garnished, which means that payments will be forcibly taken from your paycheck.
• You may be unable to consolidate your loans, which means if you have multiple loans, you will have to make at least the minimum payments on each loan, which cumulatively may be an unwieldly amount, and which will increase the length of time to pay off your loans, and the amount of interest on your loan.
Play it safe and make your payments on time.
You may also find yourself impacted by any or all of these other situations:
• Your federal or state income tax refunds or other federal or state benefits will be used to reduce your loan balance.
• Collection fees and costs, court costs and attorney fees will be added to your loan.
• If you have a state professional license you may lose that license, or be denied one. How ironic is that? You incurred all those student loans to gain a profession and now you will be at risk of losing your license and with it your ability to earn an income from that profession.
• You can lose your eligibility for any other federal student aid and most other federal benefit programs, which may leave you with private loans as your only option. These loans do not generally have as favorable an interest rate as federal loans.
• You can lose your eligibility for loan deferments or forbearance. If you cannot get a deferment or forbearance you will lose the ability to postpone your loan payments in periods of economic hardship or personal emergencies. You want to maintain this option.
• You may be required to repay your entire loan balance at once. Hope you won the lottery.
• You could be sued by your lender. Who wants a long drawn out legal battle which will probably not end in your favor.
• Your wages could be garnished, which means that payments will be forcibly taken from your paycheck.
• You may be unable to consolidate your loans, which means if you have multiple loans, you will have to make at least the minimum payments on each loan, which cumulatively may be an unwieldly amount, and which will increase the length of time to pay off your loans, and the amount of interest on your loan.
Play it safe and make your payments on time.
12.11.2010
Today's Saving Idea (TSI): Health Care
So you no longer have health care insurance or maybe your policy doesn't cover certain procedures. Inform your provider of your change in status and ask for a discount. Remember, your provider isn't a mind reader, and doesn't know what your insurance status is. Ask if recommended procedures are absolutely necessary. If they are, ask if there is a less expensive alternative that will produce similar results. For medication, ask your provider if they have samples. If you can get samples for one of every three months, that's a 33% savings right there. Always check to make sure that the medication has not expired however.
Also check with pharmacies like Walmart and Tom Thumb among others for their low-cost generic medicines. They carry a list of those prescriptions, which cost generally $4 for a month's supply and $10 for a 3-month supply. Sam's and Costco's are also known for being less expensive options for regular prescriptions. You can access Costco's pharmacy without being a member, simply inform them at the entrance that you are going to the pharmacy.
Don't keep these savings tips to yourself - tell a friend.
Save a Little Today, Save a Lot all Year.
Also check with pharmacies like Walmart and Tom Thumb among others for their low-cost generic medicines. They carry a list of those prescriptions, which cost generally $4 for a month's supply and $10 for a 3-month supply. Sam's and Costco's are also known for being less expensive options for regular prescriptions. You can access Costco's pharmacy without being a member, simply inform them at the entrance that you are going to the pharmacy.
Don't keep these savings tips to yourself - tell a friend.
Save a Little Today, Save a Lot all Year.
12.09.2010
Contemplation
"Wealth consists not in having great possessions but in having few wants." Epictetus - Greek Philosopher.
12.04.2010
Want a bigger refund this year?
Trying to figure a way to increase your refund or at least break even on your taxes this year? Consider increasing your itemized deductions by making some charitable contributions. You know, there is no point in keeping all that stuff around if it really is no longer of any use to you. In one fell swoop you could kill three birds with one stone (animal lovers, this is figurative). You would be:
- providing goods for those who are in need in this recessionary period
- reducing your clutter and
- increasing the deductions on your tax return if you itemize, which could decrease your tax liability.
Now remember that just about anything that has to do with your taxes has some conditions attached, check them out below to see if some additional moolah/dinero/benjamins are in your future.
- providing goods for those who are in need in this recessionary period
- reducing your clutter and
- increasing the deductions on your tax return if you itemize, which could decrease your tax liability.
Now remember that just about anything that has to do with your taxes has some conditions attached, check them out below to see if some additional moolah/dinero/benjamins are in your future.
- The organization that you contribute to, must be a qualified organization, for it to be deductible. They should be able to tell you if they are qualified, but for verification you can check or Search the IRS Publication 78 which lists most qualified organizations. If the organization can show you current 501(c)3 documentation, they should fall in the qualified category - and these include most churches, and public schools. An organization may have had its qualification revoked however, check here to verify.
- You have to be able to use the Form 1040, Schedule A which means that your total itemized deductions must exceed your standard deduction amount.
- Cash contributions are generally deductible, and for property, the fair market value is what is used. Donations after August 17, 2006 of household goods or clothing requires that they be in good condition or better. No more slipping those socks with holes, or blouses with permanent stains, into the contribution box. If you donate either a clothing or household item that has a fair market value of $500 or more - you may be required to prove that you had the item appraised for that value.
- If you contribute to an event and your price of admission is included, or you receive goods and services in return, then your deduction is limited to the difference between your contribution and the fair market value of the benefit you received. For example, if you make a contribution to Public Radio or Public TV and you accept the "thank you" gift, your contribution will be reduced by the fair market value of the "thank you" gift.
- You have to be able to prove your contribution, so KEEP good records. If you give "cash" - keep your bank records, credit card records, payroll records, and the dated receipts from the organization showing the amount contributed. Actual cash contributions, e.g. dollar bills and coins placed in the Salvation Army's bell ringer's bucket cannot be verified, so they would not qualify for a deduction. You could however slip in a check and that would be a part of your record once its cancelled.
- Pledged amounts do not qualify for a deduction until they are paid, and only in the amount paid during the current tax year. So, if you pledged $300 in July but only paid the charity $150 by Dec. 31, your deduction would only be $150.
- Now if you made a contribution by a credit card in October of the tax year, and you do not complete paying that credit card bill until the following year - you can definitely claim the full contribution amount made on the date you used your credit card. That also applies with a debit card - say you contribute an amount on December 29th of the tax year and your bank doesn't debit your account until January 2nd of the following year - you can still claim the full amount that you contributed on Dec. 29th.
- Any contribution in the amount of $250 or more, requires written documentation from the receiving organization to substantiate your donation. Here's what you need to have in that documentation - the amount of cash you contributed or, a description of the goods and a good faith estimate of their value. The organization should also indicate whether you were provided any goods or services in return for your contribution. The document should be dated and should show the date your contribution was received by the charity.
- If your items are valued at $500 or more you must complete and attach Form 8283 to your return.
- If your item is valued at $5000 or more - an appraisal is generally required, and you do have to complete and submit Section B of Form 8283.
The IRS is on Your Side!
Yes, I know, you never think the IRS is on your side, but it is. Maybe you noticed that a number of fraudulent tax preparers were apprehended over the last several years. Tax preparers were creating fraudulent returns - often to their own benefit, while taking advantage of the taxpayer's lack of knowledge about their own tax situation, but at other times, it appeared that the taxpayer was in on the deal, accepting large refunds that they were not qualified for. Like these guys..., this guy, and this guy...
Before, pretty much anyone could set up shop and prepare your taxes...resulting in the scenarios noted above. Although the majority of paid tax preparers are honest and ethical, unfortunately there were fraudulent tax preparers in the ranks, who targeted among others, groups that may not have been savvy about their taxes, or may have wanted their money in a hurry, at any cost. To make matters worse, these preparers were generally not accessible after tax season when the taxpayer had to respond to an IRS letter investigating the irregularities.
The IRS is now implementing new regulations that require tax preparers that are paid for their services to have a Preparer Tax Identification Number (PTIN) before they can prepare your 2010 taxes, including your CPA, your attorney, or enrolled agents. Even if they had a PTIN previously, they must re-apply. There is also a fee for obtaining the ID number, which should hopefully reduce the ranks of those who just shouldn't be preparing your taxes.
Now that you know that your tax preparer / tax advisor should have a registered ID number, it is in your interest to ask if they do.
Coming soon, tax preparers will be required to be certified.
Before, pretty much anyone could set up shop and prepare your taxes...resulting in the scenarios noted above. Although the majority of paid tax preparers are honest and ethical, unfortunately there were fraudulent tax preparers in the ranks, who targeted among others, groups that may not have been savvy about their taxes, or may have wanted their money in a hurry, at any cost. To make matters worse, these preparers were generally not accessible after tax season when the taxpayer had to respond to an IRS letter investigating the irregularities.
The IRS is now implementing new regulations that require tax preparers that are paid for their services to have a Preparer Tax Identification Number (PTIN) before they can prepare your 2010 taxes, including your CPA, your attorney, or enrolled agents. Even if they had a PTIN previously, they must re-apply. There is also a fee for obtaining the ID number, which should hopefully reduce the ranks of those who just shouldn't be preparing your taxes.
Now that you know that your tax preparer / tax advisor should have a registered ID number, it is in your interest to ask if they do.
Coming soon, tax preparers will be required to be certified.
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