Don’t Be Afraid to Refinance: 6 Options to Meet Your Financial Needs

Paying Down Your Mortgage Free Financial AdvisorThe 2008 recession did a number on the housing market. So many people were behind on their mortgage payments while others lost their homes entirely, and to top it all off, the unemployment rate was sky high.

But amid the rubble, there’s a silver lining: Interest rates are lower than ever.

Because of the circumstances surrounding the crash, the Federal Reserve System started buying mortgage-backed securities in 2008, which drove down the interest rates homeowners were paying. While those purchases have since ceased, the Federal Open Market Committee plans to keep low interest rates for at least the rest of 2015.

That means that now could be the perfect time to refinance your home and bring those payments down.

The Abundant Refinancing Options

Refinancing can seem confusing, but with a little information, it’s pretty straightforward. For our purposes, think of your options in two buckets: You can either refinance simply to get your interest rate down, or you can refinance to raise some cash for unexpected large expenses.

The first option will capitalize on lower interest rates as well as decrease your monthly payment (and possibly your total payment over time). There are a few different options within this loan type, and each option targets a different customer base:

  • Federal Housing Administration streamline refinance: If you have an FHA loan, this streamline is a good option to lower your rate or change the terms of your loan. This option is also good for homeowners with less equity in their homes or less-than-stellar credit scores.
  • Veterans Affairs Interest Rate Reduction Refinance Loan: This loan is specifically for veterans with a VA loan. It will help you lower your interest rate, convert an adjustable rate to a fixed rate, and alter the term of the loan. Like the broader streamline loan, it often requires less documentation and has a lower funding fee.
  • Conventional refinance: Like the above two options, this loan will help you lower your interest rate or change terms. With a conventional refinance, though, you typically need more equity in the home and a higher credit rating.


Life happens, and sometimes you have a large unexpected expense, such as medical bills. On the other hand, things might be going well, and it’s time to make some home upgrades. Either way, there are a few options with cash-out refinances, too:


  • FHA cash-out refinance: This loan allows you to access up to 85 percent of your home’s value. Customers using this option are subject to both up-front and monthly mortgage insurance premiums. However, make sure you’re up-to-date on the rules, as the FHA has changed them since the housing market’s decline.
  • VA cash-out refinance: Veterans can access up to 100 percent of a home’s value with this option. There’s typically no mortgage insurance, but there’s a funding fee based on several factors, including disability rating, type of veteran, down payment, and how many times a person has used his or her VA loan benefits.
  • Conventional cash-out refinance: The conventional option allows you to access up to 80 percent of your home’s value. Like its streamline counterpart, it usually requires good credit and a decent amount of equity. However, this loan doesn’t require any kind of mortgage insurance.


Find the Right Refinancing Plan for You

If this still seems like a lot, simply ask yourself whether you want some cash or simply want to lower your interest rate. Remember: If you’re a veteran, you have access to different types of loans, so always take this into account. Evaluating your situation will help you zero in on what loan suits you.

For example, let’s say you purchased your first home in 2010 through an FHA loan with a 30-year term and a 6 percent rate. You’ve been successful in your job, and you’re not a veteran. While you love your current home, you can’t afford a higher mortgage payment, and you want to pay off your loan as quickly as possible. However, due to a couple mistakes in college, your credit history isn’t the best.

Taking all of these factors into account, your best option would be another FHA loan — possibly a streamline refinance if you don’t need to cash out. This would allow you to lower your rate and term while still taking your poor credit history into account.

Or perhaps you currently have an FHA loan, but you want to look into obtaining a lower rate and term. You have more than 20 percent equity in your home and an exemplary credit history.

In this case, you’d be better off refinancing your FHA loan into a conventional cash-out refinance. Because you have more than 20 percent equity, there would be no private mortgage insurance, which would decrease your current monthly payment. If you decreased your term and rate, payments might go up overall, but they’d be significantly less than what you were paying before.

Refinancing can be daunting, but with interest rates this low, it’s worth your time to do some research and see whether it’s right for you. Still, the process shouldn’t be taken lightly. Make sure you nail down the goals of your refinance, shop around for the right lender, and always weigh the costs against the benefits. If you follow these steps, you can’t lose.

headshotAnnie Doisy is a reverse mortgage expert who helps seniors enhance their lives by taking advantage of the equity in their homes. Annie writes about reverse mortgage information to inform homeowners on how to access the equity in their homes. She believes that staying well versed in all types of mortgages is necessary, regardless of your or your company’s specialty.


Tax Deductions: Yea or Nay?

Tax season is here and filers, both individual and business, are digging through last year’s documents searching for ways to lower their tax liability or beef up refunds. While some of their findings may be completely legit, others could raise eyebrows at Uncle Sam’s headquarters.

Here are some commonly claimed deductions, and the consensus regarding their legality. You might be surprised.

Filing Taxes and Tax FormsFurry Friends

Rover and Bruno may be your most prized possessions, but the IRS doesn’t necessarily share the same perspective. Simply put, four-legged friends do not earn you any tax privileges. Even if you wait on them around the clock and spend tons of your hard-earned cash to cover exorbitant vet bills, obedience training, winter apparel or dog treats, just to name a few, they still can’t be claimed as dependents and the expenses cannot be deducted. If you’re a self-employed business owner, placing them on the payroll won’t work either, even if they really are guard dogs. The IRS answers questions about specifics here.

Physical Enhancements

If you’re in an industry that encourages excessive body décor, such as piercing and tattoos, go for it. But don’t expect the IRS to show you any mercy when it’s time to file your return. That’s unless you can convince them that it’s essential to your duty and unique to the business, as those in the adult entertainment industry who’ve enhanced their breast size with implants have been able to do.

Voluntary Business Destruction

Fed up with steering your own ship? Shut the doors, put the business on the market or transfer ownership to a relative. Regardless of what you decide, leave arson off the list. Seems like common sense, but apparently a disgruntled furniture store didn’t get the memo and decided to hire someone to burn the place down. Instead of collecting $500,000 in insurance proceeds, recording it on his tax return and going about his merry way in an attempt to fly under the radar, he decided to include a consulting fee of $10,000, the amount paid to the arsonist. The end result: jail time and a $6,000 fine. Perhaps he forgot to issue the arsonist a 1099? Either way, the return seemed a bit fishy and the fraudster was stopped dead in his tracks.

Marine Business Meetings

Planning to host your next business meeting at sea? Believe it or not, a portion or all of the expenses incurred while aboard, excluding the boat rental, can be deducted from your return as long as they meet certain requirements, as outlined in IRS Publication 463. Just don’t forget to retrieve a boating license before you head out. If you don’t, you’ll have more than just proper expense accounting to worry about.

Health and Wellness

Out of shape? Getting fit can be costly, depending on which route you take, but expenses may be deductible if your physician gives you the green light. But you’ll want to get it in writing so the IRS will know it’s legitimate. TurboTax shares how to determine legitimate medical deductions on this forum.

Bottom line: if the deduction seems too good to be true or a bit unreasonable in your eyes, the IRS will probably agree. And when in doubt, it’s best to ask a tax professional before making assumptions and being hit with a penalty later on down the line.

Four Ways To Optimize Your Personal Finances In 2015

As 2015 picks up steam, more and more people are hunting for strategies to optimize their personal finance picture. Is that you? If so, let’s tackle several techniques you can employ to make it happen.

1. Visit Your Insurance Agent.

Start StartingIf you’re serious about optimizing your personal finances in 2015, be sure to visit your local insurance agent. I’m always surprised by the number of people who don’t think to find out what special deals and offers are available.

One insurance agent friend of mine said that you should check every year, because every time you have a birthday, insurance companies may have different solutions that you now qualify to receive. While one company specializes in people in their 20’s, for example, another may not offer great rates until you turn 30. To make your search for a local insurance agent simple, you can use an insurance agent search website that will allow you to be geo-specific.

2. Create A Detailed Budget.

While this advice might seem obvious and not worth mentioning, we’re always amazed on our podcast about the number of new studies every year that show how many people DON’T have a simple spending plan. Don’t have one? 2015 is a great year to start.

A budget will help you optimize your personal finances for 2015 in numerous ways… but how about the biggie: it gives you a roadmap to a very clear understanding of where you’re spending your money and how much disposable income you have after paying all of your bills….which leads us to #3.

3. Find Money-Saving Apps.

There’s an app for almost everything, isn’t there? I was just reading yesterday about an app that would monitor my toothbrushing activity. While the huge number of apps in the Google and iOS stores can be overwhelming, the growing popularity of apps can work in your favor as far as personal finance goes. From Mint to Finovera and Acorns, there’s a app for just about every part of your financial life. Finding the perfect app can be as simple as conducting a simple internet search.

4. Talk To Your Kids About Money.

Kids need to be taught about everything, including how to spend and save money. To put this process in motion, it’s a good idea for you to set aside time each week to provide them with clear, practical examples of smart money decisions they can make to start building wealth. Not only will this process benefit your children, but it could help you maintain financial stability in your elderly years in the event that you need assistance from one of your kids. Don’t have your financial house in order? Helping your kids learn could be the kick in the butt you need to get your act together, too!


If you’re serious about getting your personal finances in order in 2015, what are you waiting for? Any of the strategies listed above can help you accomplish your objective. By systematically implementing these tips and tricks, you will likely find that 2015 is one of your most lucrative financial years yet. Good luck!

Photo: Steven Depolo

Resisting Temptation: 5 Smart Ways to Use Your Tax Refund

By trusting instinct and intuition, the right decision can become obvious from the wrong one. But desires are hard to resist. Now that your tax refund is sitting in your account, don’t let temptation overrule a smart monetary choice, and follow what your financially responsible gut tells you to do. Use five percent of your refund for a fun purchase, and feel good about investing the remaining 95 percent in any of the following:

Build Your Savings

The broken record singing “build your savings” is as tiresome as the one saying “eat a healthy breakfast.” But really, build a savings. Ideally, an emergency fund should support three to six months worth of necessary living expenses. Last year about 49 percent of employees lacked a personal safety net, according to Forbes. Use your refund to establish a savings account, and then use an app such as Saving Made Simple to help make saving a financial habit.

Get Reliable Transportation

“Car maintenance avoidance” is a real syndrome. It stems from the fear of taking your car into an auto repair shop for a brake check and coming back with 10 other costly repairs. Cushioned with your refund, a brake check shouldn’t be so daunting.

Proper maintenance helps improve the reliability, safety and longevity of your vehicle. Brake pads, rotors and tire replacements are worth the cost. After an inspection, you may even decide that buying or leasing a new car is a better investment than a repair spree. For example, use a $2,000 refund for a down payment to reduce monthly payments. A higher refund used as an initial down payment while signing can also leverage a better lease deal.

Improve Your Credit Score

Your credit score is a measurement that indicates whether you’re a good candidate for a mortgage, a loan or a credit card. The score also helps lenders determine the interest rate to charge you. A higher score provides you with better rates and more favorable terms.

Consider using your tax refund to pay off a credit card and substantially reduce your debt; it can boost your credit score, explains The Nest on Budgeting. Improve your credit by keeping the account open and lowering your credit card utilization rate, which is how much you charge/owe (outstanding balances) vs. your total available credit limit. The lower your utilization rate and balances, the higher your credit score. A utilization rate of below 20 percent is good and an average of 7 percent is best, according to FICO.

Pay off Debt

A tax refund can serve as a negotiation tool to achieve a settlement with a debt collector. Improve your financial management by offering the creditor an upfront lump sum in exchange for a smaller amount owed. Negotiate a lump-sum payment, and you could cut your debt significantly. While bargaining, exert power and hold firm. Know your rights and be aware of fictional scare tactics. Nolo, an online small business and legal website, offers a collection of articles on how to negotiate with creditors, handle tax consequences and strategize negotiations.

Make a Career Investment

Invest in your education and complete online courses to increase your future earning power and employee marketability. Expanding your skill set and advancing your education can also help you land a promotion or change careers.

Make sure that you choose a career that has a positive outlook in the future. For example, those who earn a Master of Administration degree will have multiple career paths available for them with each of them expected to experience significant growth in the coming years. These careers also pay very well, making it more likely that your investment will pay off in the end. Once you have your MBA, you can pursue jobs as a marketing manager, financial analyst, operations manager, or an IT expert, giving you a number of different options within an organization.

Last year, U.S. News & World Report broke down the cost of an online class. Writer Devon Haynie found three-credit courses that ranged between $935 and $1,320 for out-of-state students, and one community college class cost about $515. Also, university online courses cost between $300 and $400 per credit hour. While researching your options, also look for in-state colleges and apply to scholarships to keep costs even lower.

Use Tax Write-Offs to Start Your Business Off Right

Small businesses provide 55 percent of all jobs in the United States, notes the SBA, proving the American dream is certainly alive and well. You might feel like competing with big business is not worth the hassle, but since 1990, big business has cut 4 million jobs, while small business has accounted for 23 million net new jobs since the 1970s.

But you know success does not come easy. There is always more to do and more to learn. Follow these stress-free measures to make a smashing debut as the most effectively managed small enterprise in America.

Startup Costs and Documentation

You do not need millions of dollars to start up your business. Once you have a concept in mind, create a plan for minimizing startup costs. The IRS recognizes the time and energy spent on creating a business and offers up to $5,000 in deductions for every $55,000 spent on organizing, planning and starting your business.

Be sure to keep accurate records so your deductions can be granted. Many people cringe at the prospect of documenting expenses for a business, in addition to personal expenses. Balancing your own budget is hard enough, and separating yourself from your enterprise can be daunting.

Separate Business Versus Personal Expenses

A simple solution to this common problem is creating a business expense account to track your expenditures. Certain credit card companies make this task easier by offering deals specific to small business owners. Every time you make a purchase for your business, use your business card and save yourself the hassle of juggling several bank accounts. Don’t make the mistake of combining personal expenses with your business endeavors and your purchasing history will speak for itself.

The Ticket Is Record-Keeping

Along with startup costs, there are other ways you can deduct expenses from your taxes. According to the IRS, you can write-off the business use of your home and vehicle. Some expenses, such as rent for an office, employee pay and even interest charged on money borrowed toward your business, are eligible for deductions. This is why it is profitable to keep accurate records of your transactions. Services like Intuit calculate federal and state payroll tax for you, so you’ll have a better idea of what to expect. When tax time comes, you can provide the proof needed to reap the benefits of being a small business owner.

The Public Has Spoken

Our economy depends on small business to survive. Pew Research group found 71 percent of the public held a positive view of small business, while only 25 percent thought of large corporations in the same light. Perhaps the American public is supportive of small business owners because they are like everyone else — working hard to make a living. There has never been a better time to be the owner of your own business. Go ahead, quit your day job and begin the journey of a lifetime— but don’t forget to keep your record books straight, as it will pay off in the end.

Taxes Suck! 7 Ways to Stick It To Uncle Sam

Let’s admit it: everyone wants a lower tax bill.

Well, everyone wants the combo of mo’ money AND a lower tax bill.

Doesn’t that sound like a “have your cake and eat it, too” scenario?

Maybe. But then again….maybe not.

Too many people pay WAY too much money on their tax bill. Sometimes they pay more because of poor decisions, but often it’s just because they don’t understand how taxes work and where to look for awesome opportunities.

Here are seven of our favorites:

Do you work for the man? Try these:

Open a retirement plan and use it. The #1 way to grow your net worth and help your tax return is to stuff money into your retirement plan at work. If you’re eligible for a 401k, 403b or 457 plan, jump on that opportunity.

I’ve heard many “reasons” people don’t invest in their workplace plan. Here are a few:

I can’t afford it. Ask yourself this: how will I afford to retire when I have no money later. If you’re too poor to save now, what will you do if you can’t work later?

I don’t like my work, so I don’t want to put money in the 401k plan. Your work farms out the administration of the 401k plan to professionals. Use your workplace plan.

They don’t match. Matching contributions by your employer are gravy on top of an awesome tax shelter. Don’t worry about the match….get invested.

Take advantage of workplace pretax plans: Besides the retirement plan, there are other opportunities, such as HSA accounts. Some companies allow you to pay for everything from childcare to optical with a health spending account. Use as much of this as possible to score huge savings on these services. (If you’re in the 25% tax bracket and have a 5% state tax, you’ll save 30% on your childcare!)

Use bonuses and incentives wisely:

It’s a great day if you’re getting a stock award or bonus, but make sure you understand what you’re getting into tax-wise carefully:

Stock options or stock purchase plan: You’ll pay taxes on these plans when you sell. Having a tough year tax-wise? Don’t sell today. There’s also a HUGE difference between short term and long term capital gains rates. Wait until you’re paying the (significantly lower) long term rate before selling.

Bonus money: If you’re eligible for a big bonus but this isn’t a good year to sell, ask your boss if you can defer your bonus until the new year. Or, if you feel that your income will stay consistent, ask if you can break up a big bonus into two even halves to lower the tax impact. This strategy is best used if you’re getting a bonus at year-end (I hate deferring money in my pocket for several months….).

Have a budget? Try these:

Give to charities. Not only are you helping your community, but you’re putting money back in your pocket if you itemize. Cash gifts will obviously lower the amount of money you have overall, but gifts in kind, such as clothing, old automobiles, and items to 501c thrift stores can both lower your tax bill and remove clutter.

An increasing number of people are now donating larger items and receiving sizeable tax deductions as a result. For example, if you have an old boat that you no longer use, making a sponsored boat donation could help you to save a significant amount on your taxes.

Donating a boat is a great thing to do on a number of levels, since the boat is then sold at auction with the proceeds going to charity. Then, for your donation, you receive a tax deduction that is equal to the value of the boat or the boat’s true value.

Claim ALL of your refinance costs. If you’re FINALLY taking advantage of low interest rates to refinance, remember that any points or closing costs you pay might be deductible also. Ask your tax preparer or read this IRS notice to see if you qualify.

Investments? Here are some:

Think about your dividends. I love dividends as much as the next guy, but a portfolio full of dividend-paying stocks in a non-qualified account can be a huge tax speed bump on your investment returns. If you aren’t spending the dividends today, purchase dividend-heavy investments inside of your IRA and use your non-IRA account to house more tax efficient investments.

Buy/sell creatively. If you’re finally selling your big winning stock, look for that stock in your closet that’s been horrible and has no prospects of coming back. You can cover up all of your capital gains with losses from losing stocks…and $3,000 more.

Photo: DonkeyHotey


I Forgot To File My Taxes

Every year I meet a couple people who tell me “I forgot to file my taxes.” How do you forget to file???? Here’s the steps to make it all right with the government.

Did you file your taxes this year? Did you know that nearly 10 million U.S. citizens fail to file by April 15th each year? Some avoid filing on purpose, but many just plain forget. So don’t worry. If it slipped your mind, you’re not alone.

If you still have yet to calculate your refund/payment, do this immediately. Even though you’re late, the process is still the same. Get the appropriate forms and gather all of your tax information and either head to your accountant or calculate your taxes yourself (whatever it is that you typically do). Once you know whether you owe money into the government or if you’re getting a refund, you can take the next steps to file.


What Is The Penalty?


For most of us, we plan on receiving a refund each year. Some of us even plan on getting as much back at $4,000 or more. This shouldn’t really be your goal since you’re basically allowing the government to use your extra money interest free, but that rant is for another article I suppose. If you have always received some money back each year, then you have absolutely nothing to worry about for filing late. There is no penalty. I was actually surprised to learn this, but it makes complete sense. Why should the government charge you if they just get to keep your money a little longer. In fact, they would probably rather that you never filed your taxes!

If, however, you typically owe money into the government each year, then you will most likely have to pay in a little extra for your late payment. There are three types of penalties that you’ll have to pay: Failure to File Penalty, Failure to Pay Penalty, and Interest.

Failure to File Penalty

This penalty occurs because you did not file your taxes by the deadline and you owe money to the government. The amount of money you owe depends on how late you are to file. If you’re a month late, then you owe and additional 5% on top of what you already owe. For each month that it’s late, you have to add an additional 5%, up to a maximum penalty of 25% (if you’re 5 months late or more).

Failure to Pay Penalty

This penalty occurs when you file, but you just don’t pay the amount you owe. The penalty is 0.5% for each month that you have still not paid in full. There is not maximum penalty, so it’s definitely best to pay the full amount as quickly as you can.


In addition to the traditional penalties, the government also want’s the money back with interest. While this amount changes all the time, it is currently set at 3% interest per year, but it is calculated based on every day that your return/payment is late. Again, it’s best to pay this sooner rather than later.

Basically, to sum it up, if the government owes you money, you have nothing to worry about. Just file your taxes and you’ll receive your check shortly, with no penalty. If you owe money in, then you’ll have to pay quite a few penalties. So, rather than play the “wait and see” game, you should calculate your taxes and file them as soon as possible.

Photo: 401(k) 2013

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How to Cut Your 2012 Tax Bill Today

Did you know there are still ways to save on your 2012 taxes?  Many people (mistakenly) believe that once the clock strikes midnight on January 1, all tax strategies need to be in place–hardly!  Here are two ideas you can take to the bank today (assuming you meet some requirements) to keep your Uncle Sam from digging deeper into your pocket.



Good Old Fashioned IRA


Sit down, kid, and Grandpa OG will tell you a story….

Long before all the Roth IRA hoopla, there was just an”IRA.”  Now, to distinguish them, we called one a ‘traditional’ IRA. That’s where your opportunity lies. In 2012, the maximum contribution to an IRA was $5,000 ($6,000 if over age 50).  However, you have until whenever you file your taxes, or April 15, whichever is earlier, to contribute to an IRA and count it for your 2012 tax bill. Contributions are tax deductible, which means it lowers your overall income that is taxed (page one of the 1040), thereby reducing your tax. If you were in the 25% bracket, a $5,000 contribution would reduce your income taxes by $1,250. Not exactly dollar-for-dollar, but it’s better than a sharp stick in the eye!


Traditional IRA Deduction Limits


Here’s where the funky requirements come into play: first, as long as you’re under age 70 1/2 and have earned income, you’re eligible to contribute to an IRA. Whether or not it’s deductible will depend on a couple of things:

If you’re covered by a company sponsored plan (401k, etc) then your contribution’s deductibility is phased out as follows:

-Single: $58,000-$68,000 AGI

-Married Joint Filer: $92,000-$112,000

-Married Separate Filer: $0-$10,000

If you not covered by a company plan, then there is no phase out.

Your spouse is covered by a company plan? then your phase out is $173,000-$183,000.


Small Business Owner Plans


If you’re fortunate enough to own your own business, there’s another way for you to cut into your tax bill. It’s called a SEP IRA, which stands for Self-Employed Pension, and its available to most business owners. They work very much like traditional IRA’s, but the limits are much different.

Small business owners would first calculate their profit. The maximum SEP contribution is 25% of that profit number (up to a maximum of $50,000).  The tricky part of small business plans? You must offer all your employees the same thing you offer yourself. For example, let’s say your profit is $50,000 and you decide to contribute the maximum, 25%, into your SEP. That’s $12,500–nice job!  But, if you have employees, you must contribute 25% of their salaries into a retirement plan for them, too!  That can add up quickly–so be careful!


Bonus Tax Savings


In 2012, eligible lower-income taxpayers can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10% depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions as outlined in the Saver’s Credit chart.


So there you have it-a couple of last-last minute tax strategies to lower even last year’s tax bill!

Photo: Philip Taylor

Year End Business Tax Planning – Stop Uncle Sam From Eating Your Lunch

Two weeks ago I received a call from an agitated client: “O.G.!  I need your help. My taxes are going to be out of control!  We made too much money this year!”

My first thought: “Oh, poor baby.  You’ve made too much money.”

Then I ran to the nearest phone booth, twirled around in it a bit, and walked out the looking the same as I had 30 seconds earlier, although I was much dizzier.

Time to be the last-minute tax superhero!

If you own a business and you’re doing a little accounting at the end of the year piling up your nickels, you may notice you have a little extra scratch laying around.  The bad news is that if you’re like most business owners, whatever is left as of December 31 is rolled up to your personal tax forms and you’re going to pay taxes on it, no matter what your plans are.

For example: You paid yourself $50,000 in 2012 and your business now shows a $50,000 profit.  If that extra $50k isn’t spent or expensed by December 31, you’ll be taxed on the entire $100,000.  Lovely, isn’t it?

Here are a couple things you can do in the 11th hour to minimize your bill:

1)    Pre-pay as many expenses as you can.  If your sudden profit is because a client paid earlier than expected, this is probably the best bet.  Take a look at January and February expenses and start writing checks.  Now you won’t have to worry about expenses next year and can rebuild your excess cash pile.

2)    Contribute to your company’s retirement plan.  If you don’t have one established already, you’re pretty limited with options, but you can contribute up to 25% of your profit if you’re a sole proprietor to your SEP IRA plan.  You have until your tax filing deadline to make that contribution, though, so no hurry.  It would make sense to reach out to a tax professional or retirement plans specialist to create a plan for the future.

3)    Give some money away – to your employees.  If you bonus employees now, there will be two benefits: first, they’ll pay a lower FICA tax before January 1, 2013 and second, you can expense the cost.

4)    Buy capital expenditures for your business.  Section 179 expenses, as they’re called, are expenses that usually are amortized but can be ‘pulled forward’ to the year of purchase.  If you’re considering a technology upgrade, or a company car, today may be the right time.

5)    Take a couple bucks and hire a good CPA, EA, or business financial planner.  The best time to prepare for unexpected profit is in August, not December.  A good advisor on your team will have mapped out all these (and other) strategies long ago and now they’ll be ready to be executed, without having to scramble through year end business tax planning.

Moving into 2013, here are a couple ‘sneaky’ tax ideas that help offset income taxes for some people:

1)    Rent your home to your corporation.  According to the IRS, “If you use the dwelling unit as a home and you rent it fewer than 15 days during the year, that period is not treated as rental activity. Do not include any of the rent in your income and do not deduct any of the rental expenses.”  Fewer than 15 days means 14 days, by the way.  Your company has to have monthly board meetings, right?  Ever consider renting a hotel banquet hall?  No?  Why not?  Oh…because it’s $1,000 a day!  Do the same thing, but from your home!  There are a lot of pitfalls here, so you have to do it the right way.  But if you had 14 corporate meetings a year…and the lease rate was $1,000 per day…you do the math.  Tax free money.  Boo-yah.

2)    Hire your kids.  If your kids are over 7 years old, they can be hired in the family business to do menial tasks.  Don’t hire your kids as Senior VP of Sales, but he or she can lick envelopes, take out the trash, etc.  Then pay them commensurate with their age and activities.  Anything up to the standard deduction (this year is $5,950) is tax free.  Pay them $10,950 and contribute $5,000 to their IRA.  Again, pitfalls abound, but it may work for you.  By the way, a $5,000 annual contribution from age 7-14 growing at 8% until age 60 is worth about $1.8 million.  Just sayin’.

3)    Establish a real retirement plan and set up a sweet company match system.  Remember, you can only do for you what you do for all your employees, so this only works if you’re by yourself.  But, you can set up a pretty sweet 401(k) plan and a stellar matching program for yourself if you want.  You just need to do it before December 20.

Hopefully this gave you some year end business tax planning ideas to mull over while you enjoy your Williams Sonoma peppermint bark next week.  Enjoy Christmas and be sure to take some days off away from work to recharge the batteries.  Smart business owners know they’re most productive when they’re fully charged up!  Merry Christmas and Happy New Year!

Five Money-Saving Tasks That’ll Help You Cha-Ching! in the 4th Quarter

I love the sound of the cash register ringing, don’t you?

If you’re going to be successful in your financial life, treat it as if it’s a business and you’re trying to hear that awesome cash register sound. If you don’t, you’ll always prioritize yourself behind more “important” activities like your job (nevermind that the job is there to help your net worth…that’s probably the subject of another post).

Every business has a mandatory list of activities that can’t be ignored. So does your financial life.

Here are five items that MUST be on that list this quarter:

1) Mutual fund capital gains. Even if you don’t have mutual funds outside of an IRA now, you should learn how these rules work. When the manager (or system, for an index fund) trades stocks or bonds inside of the fund a capital gain is generated. Someone has to pay it, and there’s no real fair method, so the mutual fund company declares a date and divides the gain among shareholders of record. Even if you didn’t sell the fund, you’re responsible for your portion of the manager’s buying and selling.

With results so far in 2012 looking up, there’s a good chance you might get hit with a tax bill this year. Avoiding this tax is legal and easy. Find the dates the fund declares capital gains and transfer your money to a different fund in the same family. This avoids fees for switching and the manager’s capital gains tax.

Grab a calculator before you move any money. You’ll still be on the hook for capital gains taxes you generate by selling as well. The cost of switching might outweigh the savings you’ll realize from avoiding any taxes created by the fund manager.

2) The lemon drop. Hoping to skim off some of that skyrocketing Apple stock? Cover a portion of your capital gain by also selling your brother in law’s “can’t lose” loser. There’s no time like now to weed your portfolio of positions that aren’t going anywhere. Although you’re only allowed to show $3k in net capital losses each year, leftovers can be carried over to deduct in future years.

3) Charitable giving. Hopefully you’ve given to your favorite community non-profits throughout the year, but if not (and especially if you itemize), you’ll want to make cash and in-kind donations in before December 31. Keep receipts for your gifts. The IRS has tightened charitable giving laws in recent years.

4) Estimate your taxes and decide when to pay property taxes. If you own a home winter taxes are deductible either in December or January, your choice. Did you receive a big bonus this year? Take the extra deduction now to help lower your tax due. If you make too much, it might be a better idea to wait until next year. High income earners aren’t allowed to claim all of their itemized deductions (ask your accountant about whether you’re subject to phaseouts).

5) Goal evaluation and setting. The 4th quarter is the perfect time to begin thinking about your short and long term goals. Did you hit your benchmark in 2012? If not, what are you going to change in 2013?

While people generally talk a good game about benchmarking, most of my clients were surprised when I pulled the actual number out of their plan to see if they’d hit the mark during a year. By sticking with actual data and avoiding the “Yeah, it feels like I had a good year” you’ll be able to make the necessary course corrections to save the right amount of money in the upcoming year.

I’ll be addressing each of these areas in more detail during the course of the quarter, but do yourself a favor and schedule these tasks now. These are five activities that you don’t want to miss!

What other events are on your 4th quarter financial calendar?

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