Wedding Bills: Before the Wedding, Talk About Your Finances
Spring and summer — the wedding season is upon us. Before walking down the aisle, take a minute to consider a serious matter.
Couples often enter into marriage without ever having had a discussion about financial issues. As a result, they find themselves frequently arguing about money. If you are planning a wedding, here are some steps you can take to get your marriage off to a good financial start.
* Premarital financial discussions. You and your intended might enjoy the same movies and the same kinds of food, but are you financially compatible? Take some time to discuss your finances before you tie the knot. Talk about your assets, your debts, your credit ratings, and your financial attitudes, including your spending and saving habits. Do you share the same goals, such as having children, buying a home, or continuing your education? How will you finance your dreams?
* How will you handle your finances as a married couple? For example, who will pay the bills? Will you maintain joint or separate checking accounts? If you maintain separate accounts, how will you split your expenses?
* Premarital financial counseling. Every couple needs to work out their own style for handling money. Call upon your accountant to assist you in setting up a budget, controlling your taxes, and mapping out a financial plan for your future.
* Premarital legal counseling. If you have substantial assets, discuss the merits of a premarital agreement with your attorney. If your partner has substantial debt, ask your attorney how you can protect yourself from his or her creditors.
Perhaps you plan on buying a house together or combining financial accounts. Your attorney can advise you on the best way to hold title to your assets.
Discussing your finances before you say “I do” may increase your chances for living happily ever after. Give us a call if you would like assistance in this area.
Business Alert: Bartering Has Tax Consequences
Did you know there’s a way to get goods and services you need for your business without using up your company’s cash?
A growing number of businesses are using the barter system to supplement their normal purchasing activity. Bartering is a payment method in which goods and services are exchanged between parties in lieu of cash.
In a simple bartering arrangement, two parties trade items of similar value. For example, let’s say your business owns a building located next to a telephone company. An Internet service provider might be interested in putting its servers in an unused portion of your basement and, instead of paying you rent, offers to provide you with a high-speed Internet connection and a website.
Before you consider jumping on the bartering bandwagon, though, it is important to be aware of the tax consequences of these transactions. While your first thought might be that bartering is a simple exchange of goods or services with no tax implications, the tax authorities have other ideas.
The IRS requires that the fair market value of goods or services received in a bartering transaction be recognized as taxable income. However, the business can deduct the fair market value of the business goods or services that were tendered in exchange. A bartering arrangement doesn’t always result in a deduction immediately equal to the income you recognized. For example, you might provide a service and recognize income immediately in exchange for some equipment you’ll end up depreciating over several years.
Records of bartering transactions should be maintained just like ordinary transactions to maintain compliance with sales tax laws.
The growth of bartering has also led to a number of companies that bring parties together and facilitate bartered transactions. Such companies operate much like a bank, whereby clients register with them and earn “trade” credits in an account that can be used against future transactions. The normal fee structure is a one-time registration fee with a fee per transaction based on its dollar value.
If you have any questions about bartering, please give us a call.
If You Need a “Fresh Start”, Read This
Taxpayers who are struggling to pay their taxes may get some relief from the IRS’s expansion of its “Fresh Start” initiative, a program started back in 2008. The new Fresh Start provisions provide penalty relief to the unemployed and make installment agreements on taxes owed available to more people.
Normally, a failure-to-pay penalty of one-half of one percent per month, up to a 25% maximum, is charged for overdue taxes. The “Fresh Start Penalty Relief” initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes — that is, until October 15, 2012, before the penalty begins to apply. Interest of 3% will still be assessed starting from April 17, 2012.
The penalty relief is available to workers who have been unemployed at least 30 consecutive days during 2011 or 2012 and to self-employed individuals who experienced a 25% or larger reduction in business income in 2011 due to the economy. Income limits apply: the relief is not available to singles with adjusted gross income over $100,000 or to couples with income over $200,000. Also, taxes due cannot exceed $50,000.
The Fresh Start program also changes the eligibility threshold for streamlined installment agreements from $25,000 to $50,000 and increases the maximum term from five to six years.
For details or assistance, contact our office.
There’s Still Time To Cut Your 2011 Tax Bill
Are you still dealing with your 2011 tax return? Do you owe a bigger tax bill than you expected? Are you missing a tax break because your adjusted gross income is too high? Would you like a bigger refund? Don’t despair. You might still have time to make some changes. For example:
* You have until April 17 to make a tax-deductible IRA contribution for 2011. If you qualify, you could contribute up to $5,000 and have it count as a deduction against last year’s taxes. If you were 50 years old or older last year, your maximum contribution is $6,000.
* Even if you’ve already made your 2011 contribution to a Roth IRA, it may not be too late to make a change. You may be able to recharacterize your contribution as a traditional IRA contribution and take the deduction. You’ll need to set up a traditional IRA, make a trustee-to-trustee transfer, and report it on your 2011 tax return. Get details before you try this to make sure you avoid any tax traps.
*If you’re self-employed, there’s still time to set up a SEP-IRA for your business. You have until the due date of your return, including extensions, to set up the plan and make a contribution from 2011 earnings. SEP-IRAs are relatively easy to establish and flexible to manage.
Contact our office if you’re interested in any of these ideas. We can help determine whether you qualify and guide you through the process.
Be Diligent About Saving Your Tax Records
You’re probably getting ready to sort out last year’s financial records and prepare for this year’s record keeping. But what should you keep and what can you throw away? Here are some suggestions.
* Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.
For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of expenses for child care, medical insurance if you’re self-employed, and any other expenses that appear on your return.
The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years
Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. And finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.
Please call our office if you have questions about specific items.
Tax Time is the Right Time for a Financial Review
Now is an ideal time to review your financial affairs. You have to gather information to prepare your tax return at this time. Why not take one more step and do something positive for your financial well-being?
The following suggestions will get you started on your financial review:
* Hold a discussion with your family. Spouses and children need to share and prioritize their financial aspirations.
* Write down your financial goals. How much money will you need to meet each goal? When will you need the money, and how will you get it?
* Do a net worth statement (a list of your assets and debts), and compare it to last year’s statement. Are you gaining or losing ground?
* With your goals (and the effects of inflation) in mind, review the performance of your investments.
* Take steps to protect what you already have. Goals may become instantly unobtainable if you lose your present assets or your income potential.
* Do you have adequate disability insurance coverage to replace take-home pay if you become incapacitated?
* Do you have the proper amount of life insurance if you or your spouse should die?
* Do you have replacement value property insurance on your home?
* Do you have adequate insurance for calamities such as automobile accidents or lawsuits?
* Make sure that you need all of the insurance that you have. Do not duplicate employer-provided coverage. Review your coverage annually; do not just automatically renew policies.
* Review your will and your estate plan. Did your situation change during 2011 (marriage, divorce, births, deaths, move to another state, for example)? This year, the top estate tax rate is 35% with a $5,120,000 exemption. Make appropriate changes to your will and estate plan.
* Review your credit use. Keep your credit card bills current. If you’re finding that hard to do, it’s probably time to cut up some of those credit cards and get your debt under control.
* Organize your records. If you had trouble assembling data for your financial review, you need a better system. Set one up.
For help with any aspect of your review, call us. We’re here to assist you in any way we can.
Redefining a Common New Year’s Resolution
One of the most common New Year’s resolutions is to save more money. Many of us gleefully make this resolution only to fall into the same bad spending habits by the end of February! Instead of resolving to save more money, why not resolve to change a behavior that will result in saving more money? Whether your goal is to increase your personal savings account or boost your balance sheet, these three resolutions will help.
Resolve to go on a spending fast
Yes, fast. Just as you can fast with food, you can fast with spending. How long can you go without spending any money? If you plan ahead, you will be amazed.
Resolve to think before you buy
This simple behavior save you lots of money. Before making a purchase, ask yourself: “Do I really need this?” or “Is this something that can wait until later?” You might find that the purchase is not justified.
Resolve to look for deals
Habitually, we purchase a specific brand or do business with a certain company just because that’s what we’ve always done. When was the last time you tried a new product or negotiated pricing with a supplier? It might be wise to do so as it could save you a lot of money.
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