Frequently Asked Questions ( FAQs ):
The following are some specific questions we have been asked.
Can you help me with Financial Planning?
A: YES! Indeed, this is one of our best services. Unlike a Financial Planner - who's focus is to primarily SELL you a set of "products" (selected securities) - we have the ability to look at your OVERALL picture. We are able to consider the consequences of adding on Corporations, Trusts, Partnerships, etc. to your Financial Picture and provide you better integration with everyone under your Financial Umbrella.
Can you help me with RETIREMENT Planning?
A: YES! This is a sub-set of the service above. There is NO question that we ALL need to do more retirement planning. The statistics report that we spend less the 20 minutes "planning" our retirement. This should actually give you COMFORT that if you put 21 minutes into planning your retirement...you are already ahead of the pack. Retirement Planning is a complex picture for anyone. There are many options and directions one can chose - which usually means NO option or direction is chosen. The choices are many. We can help by working with you - one decision at a time. Take a look at our Retirement Planning Section
Can you help me with ESTATE Planning?
A: Again, YES! Subject to your age and earnings future, we will be watchful that all the "current" planning does not have to be UN-done to have you in an advantageous ESTATE Planning position. When you are ready, take a look at our Estate Planning Section
Can you help me with ELDERCARE Planning?
A: Sure! We have advised many on the subject...and it is always changing. One of our most comprehensive documents was recently updated . It covers many of the points you should consider. When you are ready, take a look at our ElderCare Planning Section
I am going through a divorce - can you help me?
A: YES! Divorces are painful - no matter whether they involve Employers, Spouses, Corporations or Siblings. We have assisted many through this process. We will help you think of things you may not be aware of .
Independent Contractor vs. Employee - Can you help me do this right?
A: YES! This is a confusing part of the Tax Law. Call us and we can discuss your options. To read the full cycle of this matter click here
What if I want to do-it-myself?
A: WELL !!!?! Consider this... doing-it-yourself.
How can I save money in taxes?
A: Saving money "in Taxes" means "How can I keep from paying so much in taxes? ". In short - the answer lies in your particular strategies. We work with you to help you better understand the tax consequences of a particular decision; however that requires that you discuss the matter with us - and preferably AHEAD of time!
What can I deduct on my return?
A: In GENERAL anything you "spend" with the INTENT to make a profit - should be some form of a deduction for you. The IRS Code is written FOR BUSINESSes - NOT for individuals. As such - deductions for Individuals are basically limited to Taxes (State and Real Estate); Mortgage interest and Charity. Medical and Miscellaneous deductions are usually so severely limited that little - if any - amounts are available for deductions.
I am an INDIVIDUAL - How can I MAXIMIZE my deductions?
A: As an individual you should focus on "bunching" your deductions. That is to say that you should look at paying your Real Estate Taxes in January and then in December of the same year (the next year you will not have a Real Estate Tax Deduction). Mortgage interest - NOT ESCROWED - to "bunch" your mortgage interest as much as possible you should attempt to pay your December Mortgage payment in the next month (January) and at the end of that year (December) you should pay the next January's payment during December - in this manner you have effectively paid 14 months worth of interest in a 12 month span. The next year you will only have 10 months worth of payments. NOTE: Advise your mortgage company what you are doing.
Why should I do ANY financial planning?
A: Financial Planning offers several benefits - Evaluating your Current Situation - Setting your Goals - Putting your Plan together and Monitoring your plan.
Simply put - if you fail to plan - you are planning to fail!
What is Social Security's web address?
A: Simple... click on this link.
What is a 529 plan and does it make sense for me?
A: When it comes to saving for college, some financial planners think 529 savings plans could be as hot as 401(k) plans are for retirement. From a CNNFN web site... "As a planner and a dad, I think it's wonderful," Brian Orol said of using the plans. The Raleigh, N.C.-based certified financial planner not only recommends the plans for clients, he uses them himself. "I'm doing this for both my boys." But the plans aren't widely understood. Their proponents often recommend them over other college-savings vehicles. They can also be a handy estate-planning tool .
Offered in almost all states What are they? States have had guaranteed-tuition plans since the mid-'80s. They are also sometimes called prepaid-tuition plans. Kentucky led the way. "They were really the model for the savings plans we see today," explains Joseph Hurley, a CPA who writes a 529 newsletter. He also runs a well-regarded Web site devoted to the plans at SavingForCollege.com . Now 44 states have at least one 529 plan in place, and many have more than one. Of those, 27 are open to residents of other states.
As a planner and a dad, I think it's wonderful. Brian Orol Certified financial planner The other plans require the account holder or the beneficiary to have a connection to the state. Residency certainly qualifies you, but owning property in the state may well be enough. Four states – Hawaii, Idaho, Minnesota and North Dakota – have plans under development. Only two states, Georgia and South Dakota, have no 529 legislation. But residents of those states can participate in other states' plans. Investment options vary by plan. But they are typically more aggressive the younger the child, switching to fixed-income instruments as a child gets nearer college. Some planners fault the lack of control – once you pick a track, you're locked in. But having professional management is an advantage for many not-so-savvy investors, Hurley noted.
Advantages over prepaid plans Guaranteed-tuition plans are technically 529 plans, too. But they are very different from the newer qualified-tuition plans – typically called 529 savings plans. Those started rolling out in 1997, after the Internal Revenue Service clarified the rules on them. In guaranteed-tuition plans, state residents pay a regular fee over years as their child grows up. The state vows to cover college in return. So tuition is paid for, whatever happens with the stock market. But the plans aren't particularly flexible. Planners like the flexibility of 529 savings plans -- the idea being to produce better returns than a prepaid plans. They limit you to in-state colleges, unlike savings plans. They also have low investment returns – between 2 and 4 percent a year, according to Orol . While college costs aren't guaranteed with a savings plan, planners like Orol like the investment aspect – the idea being to produce better returns. Savings plans can be used for any recognized college, too.
A higher limit than an Education IRA In an Education IRA, the donor can contribute only up to $500, maximum, each year. With a 529 plan, you can contribute up to $10,000 a year, when gift tax kicks in. There is also no income cap for 529 plans. Like other forms of IRA, there is an income maximum for an Education IRA. Make more than $110,000 as a single person or $160,000 as a couple, and you're cut off. The main advantage of an Education IRA is that the money is tax-free when withdrawn. In a 529 plan, investments grow tax-deferred. But the money is taxed when withdrawn. So Uncle Sam gets a cut. But it's not as bad as it sounds. Withdrawals count as income for the beneficiary – normally a college kid with little earnings. That's a savings over tax at the rate of the account holder – normally a parent -- in a higher tax bracket. People can also open 529 accounts for themselves, or make themselves the beneficiary. Perhaps you are saving for grad school, say, or even for as-yet-unborn kids. If you withdraw the money for your own use, the tax is obviously at your own rate. But since you are likely to stop working or have reduced income in school, your tax bracket will probably be lower than when you were working full-time. Investors can open both an Education IRA and a 529 plan, but they can't contribute to both in the same year.
More control than a gift to a minor Another good side of 529 plans, financial planners say, is that money not yet withdrawn counts as an asset of the donor or account holder. That helps if a child is trying to qualify for financial aid, where a child's assets are counted at a higher rate. But the account holder keeps control of the 529 plan assets. That's an advantage over money in a Uniform Gift to Minors account, for instance. UGM assets transfer to the minor when he or she comes of age. If an account holder withdraws 529 plan money for anything other than "qualified educational expenses" – tuition at an accredited institution, books, room and board – there's a 10 percent penalty.
SHOPPING LIST TIAA- CREF's Timothy Lane encourages you to comparer the following four points when shopping for a plan: 1. Is there a tax credit ?. 2. What are the investment options? 3. What are the fees? 4. What are the contribution limits? But the account holder controls whether that happens. So a parent can stop a wayward kid from taking the money and going surfing. Planners also like the way that people who open 529 plans can change the beneficiary easily. If plans change – a child gets a full scholarship, say, or decides not to go to college – the account holder can designate any other relative of the original beneficiary as the new beneficiary. There's no limit on how many times you change the beneficiary. So using a two-step process, planners say an account holder can normally make the beneficiary whomever they want.
Factors to consider when shopping for 529s A donor can also contribute $50,000 in one year, if they then make no gifts the following four years. The IRS treats the money as if it's paid in on a pro-rated scale. If the contributor were to die after one year, $40,000 would revert to the estate, for instance. Timothy Lane is vice president of tuition financing for TIAA-CREF, which runs nine state 529 plans, including the plans in California, New York, Connecticut and Michigan. He encourages people shopping for a plan to consider the following four points:
1. Tax credit: Does your state plan offer a tax credit? Some states let you deduct 529 contributions against state tax. If so, what is the limit? It may be worth staying "in-state" for the credit, a guaranteed "return" of state tax, even if another plan has more investment options.
2. Investment options: Does the administrator offer you the investment flexibility you want? Some states have all-stock plans, or all-fixed-income plans, or blended plans that change over time. Plans are offering more and more choices. What you pick depends on the beneficiary's age and your risk tolerance. Once you've picked a 529 investment option, you have to stick with it for the life of the account.
3. Fees: What is the expense ratio for managing the account? Expenses range from 0.5 percent a year on the low end up to 2 percent or more on the high end. One percent is around average, Hurley said. A fraction of a point might not seem a big deal, but it adds up over time – particularly if returns are lower, in today's slowing economy, or if you build a big balance. Some accounts also have flat annual management fees as well.
4. Minimums and maximums: Contribution limits vary by state and administrator. Companies like TIAA-CREF, for instance, let you open an account with as little as $25. But if you do contribute just a little, make sure annual fees don't eat it up. Rhode Island has the highest cap – each beneficiary can have 529 accounts worth up to $246,000. It's the beneficiary who has the limit, even if Mom, Dad and Grandpa opened accounts. One investor can contribute more than $246,000 by opening multiple accounts with different beneficiaries.
Click here to see the updated information
I have heard of a "COVERDELL" Plan...but am not sure what it is?
COVERDELL EDUCATION SAVINGS ACCOUNTS - Code Section 530 provides for Coverdell education savings accounts (enacted as education individual retirement accounts (education IRAs) and later renamed) for tax years beginning after December 31, 1997. A Coverdell education savings account is a trust created or established in the United States for the exclusive purpose of paying the qualified education expenses of an individual designated beneficiary. Please refer to this link to get a more in-depth explanation of this provision.
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How do I determine whether a TAX-FREE yield is better than a TAXABLE yield?
A: How do you determine if a 5% (tax free) account is better than a 7% (taxable) account. This will be simple to compute once you consider all the variables. FIRST you need to know your "top tax rate" (for most is will be about 39.6%). To this you will need to add the "top tax rate" for any STATE income taxes (but only if it will be taxable in your state). To keep this simple - lets say that you are only subject to FEDERAL income taxes and your last taxable dollars have been taxed at 31%. Now you are ready.
Since you get to KEEP the FULL 5% (because it is tax-free)...what do you get to KEEP of the 7% that is taxable. That would be found by multiplying 7% by 69% (100% - 31%). Thus you get to keep 69 % of the 7% - or 4.83%. THEREFORE the tax-free (in this case) would be the better deal. IF your "top tax rate" did not exceed say 15%...then you would keep 85% of the 7% - or 5.95% making the Taxable return a better investment. SO...how do you know - year to year - what you should do. We recommend that you make an assumption that your FEDERAL tax rate will be 28%. Thus you would keep 72% of any taxable investment. Multiply the investment yield by .72 to figure out what you will get to keep...then compare that to any tax-free yield.
BUT...what if you only have the tax-free yield information. How you "convert" this to the comparable TAXABLE yield is to divide the tax-free yield by your "keep" percentage. EXAMPLE: lets say that you have a 3% tax-free investment - how much is that in "taxable yield" terms. Lets say that you keep 72% (your top tax dollar is taxed at 28%)...you take the 3% and divide it by .72 to get 4.16667%.
Too confusing...give us a call. We can help.
What is the Alternative Minimum Tax (AMT) - and how does it affect me?
A: The AMT is a "special" tax. The tax laws give special treatment to some types of income, allow special deductions for some types of expenses, and allow credits for certain taxpayers. These laws enable some taxpayers with substantial economic income to significantly reduce their regular tax. The AMT ensures that these taxpayers pay at least a minimum amount of tax on their economic income. Form 6251 is used to figure the amount, if any, of your AMT and to figure any credit limitations. As you continue to do "better" (financially speaking) the AMT will become an issue for you. Lets us help, by reviewing the last 10 years worth of AMT "Choices" you have made.
I understand that I can call IRS and get FREE help - What is the number?
A: The number for TeleTax is 1-800-829-4477. There is information for 150+ topics. You may also check the status of a refund. Recorded tax information is available 24 hours a day, 7 days a week. You will make a selection from the recorded menu. It is advised that you have paper and pencil ready to take notes. The alternative is to call 1-800-829-1040 and speak with a person. This service is usually available from 7am until 11pm (local time); however from January 2 through April 15th the service is available 24-7.
Please explain your "billings"?
A: Our billings are comprised of INVOICES and STATEMENTS.
INVOICES - Daily activity - We prepare INVOICES for the specific activity we are performing for you. Thus you will see an INVOICE with numerous lines - showing the dates of work; a description of the work (We try to keep this succinct); and the dollar amount associated with the work.
STATEMENTS - Summary of activities - We prepare STATEMENTS as a "summary" of the overall billings. That is to say - the STATEMENT will show a "balance forward" and the various invoices that have accumulated since that time and any payments and finance charges. Finally ending with a balance due.
NOTE: We generally will not send out Statements until the invoices exceed a $50 balance. Thus you may receive a Statement with a BALANCE FORWARD (for less than $50). The reason such balances will occur are many (You may have a question about a prior year, you might refinance, at your request we will deal directly with an entity (Mortgage company, IRS, etc), work related to organizing your file, etc.). When these charges are small (less than $50) we will not prepare a Statement for them. In some cases this will show up as an OVERDUE charge. We are aware that these charges have accumulated because we have not sent out a Statement and we will not apply a finance charge to such – until such a time as a Statement is issued and the due date has passed for payment.
Why do you charge a RETAINER?
A: We charge a RETAINER for work we will be performing. This allows for a smoother progression of work from us. The retainer amount is based on our estimation of the work to be performed. Our rates vary from $35 per hour up to $575 per hour. This is dependent upon the work performed and who is performing the work. The "best" way to determine what our services will cost is to ask for an estimate.
