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Income Tax Help

19 March 2010

There are many websites on the Internet today that gives much needed income tax help for those who have no idea of what’s going on during tax time. Income tax is a tax paid on income, unfortunately no matter how little it is. It’s paid by employees and people who are self-employed and may also be payable if you are not working but you have an income, such as a retirement pension or an occupational pension. Not all types of income are taxable and it will seldom be the case that all of your income is taxed. There is no minimum age at which a person becomes liable to pay income tax. What matters is your income. If this is below a certain level, no tax is payable. There is actually no single definition in tax law of income. Income tax law divides various types of income into schedules. If an item comes within a schedule it counts as income and income tax must be paid on it. The way the tax must be paid will depend on which schedule it falls into. The most common schedules are Schedule E for employees and Schedule D for the self-employed.

There are five main steps in calculating income tax:-

Step 1: Add together all your yearly income, including social security benefits, income from renting out accommodation, wages, occupational pension, interest from bank and building society accounts.

Step 2: Take off any income which is exempt from tax. Calculate whether you can claim tax relief on any of the money you have spent over the year (tax relief usually applies to people who are self-employed and have to buy items for the business). Deduct this tax relief. This leaves income on which tax may be payable (taxable income).

Step 3: Work out which tax allowances you are entitled to. You will be entitled to a personal allowance (plus age related additions if appropriate). These allowances are deducted at this stage in the calculation.

Step 4: Multiply the taxable income by the correct tax rate. This gives the tax due to be paid that year, unless you are entitled to married couple’s allowance for over 65 year olds.

Step 5: If applicable, deduct the appropriate percentage rate of married couple’s allowance for over 65 year olds.

Some income is exempt from income tax, which means that tax is never paid on this income. This income should therefore be put to one side before any tax calculation can be done. Examples of income which is exempt from tax include premium bond prizes, housing benefit, child benefit and profit-related pay. It is therefore necessary to check whether any income is exempt from tax before doing a tax calculation. For more income tax help, all the help you need in on the internet. The IRS itself can give you income tax help and answer any tax questions you may have.

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Im Too Young, Im Too Old, Im Almost Old Enough,

09 March 2010

Im Too Young, Im Too Old, Im Almost Old Enough, Should I Have A Retirement Plan?

Yes retirement planning is important for all of us. This is not an easy subject for any of us to talk about, but, we must discuss it sooner rather later!

We want to be able to enjoy our golden years comfortably without having to worry about our finances. Planning your retirement is a crucial key to making this happen.

So, what do I need to do to plan for my retirement? You can start by asking and answering some or all of these questions: How long will it be before I retire? Do I have money already saved for retirement and if so, will it be enough for me to retire on? How much money should I put away for my retirement? How should I invest my money in order to achieve the amount of money I want to retire on? How much money will I need to live on to maintain my present and future lifestyle?

All of these retirement planning questions are important for you to think about in order to have solid retirement planning. Once you have answers to these questions, then proceed to start your retirement savings now!

What are some of the areas I can invest my money in for retirement? Stocks, bonds, certificate of deposits, mutual funds, 401K, IRA, Roth IRA, annuities and many other miscellaneous investment vehicles.

Where can I expect to withdraw money for my retirement? Social Security, savings, pension plans, and your investments from 401K plans, certificate of deposits and other investments.

How much money will I need for retirement? It is estimated that you will need approximately 60-80% of your current income at the time of your retirement. This will allow you to live the lifestyle you are accustomed to having by the time you retire.

When should I start saving for retirement? Now! It’s never too early or late to start saving for your retirement. The sooner you start the more money you will have for your golden years to live on.

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How To Determine If Your Social Security Retirement Benefits Are

18 February 2010

How To Determine If Your Social Security Retirement Benefits Are Taxed

Up to 85% of your Social Security retirement benefits may be taxable. Heres how to find out how much is taxable and what you can do to reduce or eliminate any tax.

Of all the financial issues surrounding being a senior, the one that tops the list in terms of anger is the fact that, depending on the situation, Social Security retirement benefits are taxable. My experience indicates that some seniors are completely unaware of this fact. I have also had to sit and listen to the ranting of those who are aware. It goes something like this: I already paid tax on the earnings during my working years. The Social Security withdrawn from my income each pay check was a tax. This sounds like a tax on a tax. And on and on

After letting the person blow off some steam, my response typically was, Hey, dont shoot the messenger! Im here to see if any of your Social Security benefits are taxed, if so, how much and what we can do to reduce or eliminate that tax. So let me take you through the first part of our conversation.

Whether or not you are taxed depends on:

1. The amount of your income.
2. Whether or not you have income from sources other than Social Security.

The amount of your tax depends on:

1. Your marital filing status: single or married.
2. The amount of your income.

The tax on Social Security retirement benefits was put into effect in 1983. Tax was applied on up to 50% of benefits. In 1993 this was increased to 85%. Heres how the calculation goes

The first step is to calculate your provisional income. So grab last years tax return.

1. Subtract your taxable S.S. benefits (line 20b) from your Adjust Gross Income (line 37).
2. Add one half of your total S.S. benefits (line 20a).
3. Add any tax exempt interest (line 8b).
4. The result is your provisional income.

Once you know this number, you can apply the rules to determine how much of your S.S. is taxed. Again, this depends on whether you are married or single and the amount of your income.

Lets look first at a married couple filing jointly. Here is the math

1. If your provisional income is below $32,000, you dont have a problem.
2. For provisional income over $32,000:
a. Take the provisional income between $32,000 and $44,000 and divide it by two.
b. If your provisional income is above $44,000, take the total provisional income, subtract $44,000 and multiply by 0.85.
c. Add 2a and 2b.
d. Multiply your total S.S. benefits (line 20a) by 0.85.
e. The lesser of your result on 2c and 2e above is the amount of your S.S. benefit taxed.

Now lets look at the calculation for a single person

1. If your provisional income is below $25,000, none of your S.S. benefits are taxable.
2. For provisional incomes over $25,000:
a. Take the provisional income between $34,000 and $25,000 and divide it by two.
b. If your provisional income is above $34,000, subtract $34,000 from your total provisional income and multiply by 0.85.
c. Add 2a and 2b.
d. Multiply your total S.S. benefit (line 20) by 0.85.
e. The lesser of your result on 2c and 2d above is the amount of your S.S. benefit taxed.

Now that you know whether or not any of your Social Security benefits are taxable, and if so, how much, the next step is to take a look at the ways you can reduce or eliminate this tax. In general, there are three solution categories:

1. Reduce your interest income. The most common is interest on CDs.
2. Reduce your dividend income.
3. Reduce your tax exempt interest income.

Note: The calculations above use a very simplified approach. Your situation may have other factors that would affect the math. It is strongly advised that you consult with a qualified tax professional.

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How Should You Prepare For Retirement?

11 February 2010

The three major elements of your retirement portfolio are benefits from pensions, savings and investments, and Social Security benefits.

To help you plan for retirement, each year we send you your personal Social Security Statement, which gives you an estimate of the monthly benefit amounts you and your family may qualify for now and in the future. If you’ve received your Social Security Statement and have questions about it, visit http://www.socialsecurity.gov/mystatement/.

Once you’ve reviewed your Statement, you may want to explore a variety of retirement scenarios using a range of assumptions about your future earnings or when you stop working. You can do that with our Retirement Planner. The Planner not only tells you how to qualify for Social Security benefits, but it also includes Benefit Calculators that help you calculate your own benefit estimates.

When should you retire?

Generally, you should apply for retirement benefits three months before you want your benefits to begin.

* If you were born before 1938 and you meet all other requirements, you can receive benefits beginning with the first full month you are age 62. However, if you choose to begin receiving benefits before age 65, your benefits will be reduced to account for the longer period over which you’ll be paid.
* If you were born after 1937, you also can start your Social Security benefits as early as age 62, but your full retirement age is more than 65.

Even if you don’t plan to receive benefits right away, or decide to wait until after you reach full retirement age, you still should sign-up for Medicare three months before your 65th birthday.

Choosing the month you start to get benefits is an important decision. If you are not quite ready to retire, but are thinking about doing so in the near future, the Social Security Retirement Planner will help you prepare. If you plan to continue working after you reach age 62, it may be to your advantage to start your retirement benefits before you stop working.

How do you apply for retirement benefits?

You can apply for retirement benefits online, but not for Medicare. To apply for retirement benefits, just connect to the Internet Retirement Insurance Benefits application and follow the instructions. To apply for Medicare, call or visit your local Social Security office.

Or you can make an appointment for your application to be taken over the telephone or in person at a convenient Social Security office.

If you’re deaf or hard of hearing, call our toll-free TTY number, 1-800-325-0778, between 7 AM and 7 PM Monday through Friday.

When you apply for benefits, you’ll need the following:

* Your Social Security number
* Your birth certificate (if you don’t have a birth certificate, you can get one from the State where you were born. See Where to Write for Vital Records for details on where to write)
* Your W-2 forms or self-employment tax return for last year
* Your military discharge papers if you had military service
* Your spouse’s birth certificate and Social Security number if he or she is applying for benefits
* Children’s birth certificates and Social Security numbers, if they’re applying for children’s benefits
* Proof of U.S. citizenship or lawful alien status if you (or a spouse or child applying for benefits) were not born in the U.S.
* The name of your bank and your account number so your benefits can be directly deposited into your account.

Social Security will need original documents or copies certified by the issuing office. You can mail or bring them to a Social Security office. They’ll photocopy and return your documents.

Don’t delay your retirement just because you don’t have all the documents we need–the people in your local Social Security office will help you. Don’t wait until you are 65 to plan for your golden years.

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For Those Approaching Retirement Or In Retirement, Additional Income If

11 January 2010

For Those Approaching Retirement Or In Retirement, Additional Income If Needed. Can No Longer Count On Social Security

As many workers approach retirement age they begin to look through their retirement account and are dismayed that what they have managed to save over the years will not come close to what they need to live on in their so-called golden years. The funds they established when they were in their 20s or 30s may not have considered the rising costs of housing, food and transportation and may not be sufficient to cover medical expenses, which have gone through the roof in the past few years.

As the initial anxiety subsides, they may realize there is a need for additional funding and with the dire condition of the Social Security fund, it probably cannot be counted on to make up the difference. Finding a higher paying job may be desirable, but probably unlikely, revealing the available option of finding additional sources of income. Many may believe they have worked too hard for too long to have to find a part-time job to help augment their retirement account, but many more are realizing there can be gold in the hills of home business opportunities.

While their retirement account may be lacking, the one thing they have built up over the years is experience, something many companies are eager to have, but lack the resources for full-time consultants. They are in the market for someone who can provide the expertise they may require and starting a part-time home based business offering the experience may help fund the pension plan as well as a new business train their new workers.

Lousy investments and falling real estate prices can strip value from a retirement fund but the experience is never lost. It may take some time to consider what a person is exceptional at doing and adjustments may be needed, depending on the industry seeking the advice, but management and executive experience can typically be translated into any industry with a little research and thought.

One area of concern in many businesses as well as among many young workers is personal development. Learning the proper techniques in areas such as decision making and project planning can be boon to their careers as well as to their business if they own it. Offering expertise in these areas can provide additional income that can be used to supplement the existing retirement account, bringing it closer to what will be needed if retirement becomes necessary.

Home based business experience is not necessary, but being able to work independently and being well organized is. Having the commitment and structure to be successful working a home business may take some personal development as having the commitment to succeed is different than having the needed dedication to meet any obligations made to others.

For those fortunate enough to find a position in which telecommuting is available on a part-time basis will allow additional funding for retirement without losing time away from home. While there will be time spent on your computer, you can still be at home, mostly establishing your own work schedule and hours, without the need to travel and be committed to someone elses schedule.

Network marketing is a growing field of internet business as a web-based business that cannot be found on the internet is a failure waiting for its time to die. Many avenues of network marketing are just beginning to be realized and finding new ways of getting attention for a site will continue to grow as more sites are vying for the attention of the same potential customers.

High income careers can be built from a part time endeavor that was begun perhaps as a need to help fund a retirement account, but once it is found that high income opportunities do exist in a home based business, it may be possible to transfer the efforts to home.

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Financial Planning For Retirement: For Worry-Free Retirement

06 January 2010

Planning can be a tedious activity especially if you are planning for retirement. Many people realize how advantageous financial planning for retirement can be while others find it mysterious.

In fact, most experts say that for people who are only making enough money to make due payments in each month, then it means that they should start contemplating on how they can still make money even if they are already retired.

Surveys show that almost 75% of the American population is earning enough money to pay their monthly bills. This means that they do not have any extra money to put in a bank or in any financial institution that could provide them enough profit after their retirement.

What’s more Social Security is not enough guaranteed income for retired people to live on. Actually, it is still a big question if ones Social Security will still exist when the retirement day comes.

Hence, it is extremely important to generate some methods that will provide an individual a reasonable amount of money in the future. This should be done regardless of how much an individual earns, the important thing is to start saving today.

1. Visualize and calculate

It is important for a person to visualize his or her own situation after retirement. Then, you can calculate how much money is needed to live on after retirement. Furthermore, people need earnings that compensate 75% of the present amount that he or she is expected to take home.

2. It is important to seek the help of a financial planner or any person competent in financial planning.

By asking for advice from the experts, you will be able to gain more knowledge know how to proceed for you situation. These people are proficient and knowledgeable in all kinds of financial planning and they can provide the most feasible and workable approach for your individual needs.

3. Get rid of loans, debts, and other financial obligations in as little time as possible.

By simply paying off all debts, loans, and other financial obligations in a shorter period of time, you can realize a substantial amount to invest for that retirement. A good financial planner will know exactly how to direct you so you can meet your retirement goals.

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Early Retirement: What You Should Know

29 December 2009

For many reasons, more and more people are opting to retire at an early age. The growing trend for the retirement is based on the fact that people are enticed to retire early than continue working and wait until they reach their retirement age of 65.

In fact, most of the surveys conducted in the United States asserted that 60% of the respondents would love to retire at an early age.

In reality, there are many benefits that people can derive when they retire early. However, there are also many consequences that result from early retirement. What they do not know is that early retirement has the potential of bringing more problems than reaping in benefits and advantages.

Here is a list of some of the reasons why retiring early can be a pretty risky activity.

1. Not in accordance with the regulations of Social Security

When people will retire at an early age, there is a great possibility that they cannot immediately obtain their Social Security benefits. This is because according to the rules and regulations of Social Security, anyone who is born after 1938 will have to wait longer than their retirement age of 65 before they can get their benefits.

Hence, early retirement may only contribute to a negative upshot if the older peoples finances where not managed properly and the only thing they expect to help them are the Social Security benefits they can get.

2. If people who took early retirement get sick, they cannot acquire some Medicare benefits.

This is because the age when people can get their Medicare benefits is when they already turn 65. Hence, if they are hospitalized and they have already filed for their early retirement, they have to obtain the necessary amount of money in order to cover the expenses in the hospital without Medicare.

3. Penalty charges apply to those who retired early and had withdrawn their IRAs early.

For people who would like to retire at an early age and wish to obtain their IRAs, they have to face a hefty 10% penalty charge.

Moreover, experts contend that the nest egg of people who wish to retire early is only 80% of what they should be getting when they retire at the age of 65.

The bottom line is that early retirement is, indeed, a personal choice and preference of an individual but one must consider the factors that may affect their life in the end.

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A Fresh Mindset On Retirement Income

22 November 2009

If you are like most people in the over 50 or Baby Boomer crowd, you are rightfully concerned about having saved enough to provide enough income in your retirement years. That income will be needed to allow you and your spouse to relax and enjoy your well earned retirement years. Like me, you have probably dreamed of the time when you would have more control over your lifestyle and not have to put up with jobs or people you do not care for just to make ends meet.

No, we want better than that! I decided long ago that, sooner or later, I would enjoy being the master of my own life and not having to do the things that I have had to do my entire career. I will probably never quit working entirely; I wanted to just quit having to work. I will do this on my terms!

But, I have been worried! Worried about my lack of a traditional pension, the eventual insolvency of the Social Security system, the housing market, oil dependency, the falling dollar, etc, These worries combine to have me concerned whether or not I have saved enough over the years.

Maybe you have heard the analogy that defines the word commitment It say that this morning I had eggs and ham for breakfast. The egg that produced my eggs was involved in my breakfast, but the pig was committed to it!

Well, since I have already pulled the plug and begun to draw my Social Security at age 63, I am now committed. These concerns and worries had me considering going back to work at a traditional job, but I really like the freedom of a retirement lifestyle.

Shortly after I retired last year and the immediate excitement of retirement passed, I began to feel depressed. You see, most of my daily human interaction, other than my wife, used to come from my job, and now that was gone. My feelings of self worth seemed to be diminishing. I knew that I really had to find something to do.

I began about to explore the possibilities of earning some income through various internet activities. My objective was not to Get Rich (although that would be nice!), but to dramatically reduce the amount of cash that I need to take from my investments to live on. If I can just leave my savings grow, essentially untouched, for a few years, then my confidence in the future will be greatly improved.

On the Internet, I have done several things to earn some income. I have written a book (an e book) that I sell on the internet. I have setup websites on many topics of my interest, such as power boating. Those sites host some Google ads which pay me a real small fee every time someone clicks on them. I have bought and sold items on eBay and produced videos and CDs for sale. There are just so very many ways to earn some extra cash.

The wonderful thing about this is that these things earn money in my absence, even when Im playing golf or sleeping, so my time is still my own. I am not tied down and we are free to travel at will and the cash just seems to keep coming in!

These Internet-oriented projects have not produced much more than $2,000 a month so far, but I am not disappointed. I am continuously challenged to always improve on this, and I am confident that, with some effort on my part, I will. While everybody seems to want more money, I am now worried that if I am too successful, these projects will consume too much of my time to enjoy life! That would be a tragedy.

Many of my retiree friends (as well as retiree wannabees) want to know how I am doing this. For that reason, I have created a website for people to come and to learn some of the techniques and skills that it takes to accomplish this cash flow goal. Some of my pupils have far surpassed my income level so far. Due to budgetary constraints, I have refrained from buying many of the Get Rich Quick offers that seem to flood the Internet. I think that is a good thing. One of the valuable things that we do is host a Retirement Income Forum where like minded people discuss their project, successes and impediments and get the real advice and input of others in the same boat.

There are many, many ways to earn extra retirement income on the internet and there is plenty for everybody! The World Wide Web is growing every day and maturing rapidly. I would recommend to anyone that could use some extra retirement income to get online right now and get your share!

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Are Taxes Going Up? Will You Be In A Lower

20 November 2009

Are Taxes Going Up? Will You Be In A Lower Or Higher Tax Bracket In Retirement?

For the past decade I have talked with clients every day about a system to distribute wealth for retirement tax-free. This system outlines exactly how to apply the Internal Revenue Code rules to your individual situation and find tax savings for you, which, in many cases, other advisors dont know exist. Look at it this way. While saving for retirement in an IRA account or 401(k) plan may have provided you with tax savings when you made those contributions, there comes a day when the IRS wants you to pay the tax bill. When that time comes, you dont want to be subject to tax-rate risk. Tax-rate risk is the ability that congress has to change the amount of taxes you pay on those distributions. We hear people on TV always promoting a 401(k) or IRA. They say something like, You are in a higher tax bracket now and you will be in a lower tax bracket in retirement. This just may not be the case, as we will talk about today. For some reason, these same so-called financial experts dont seem to know where taxes have been, what is happening in congress, or what really determines ones tax bracket in retirement.

So the topic of this months newsletter is to address the question of could taxes go up in the future and could you be in a higher tax bracket in retirement?

Lets start with what the highest marginal tax bracket has been? According to the IRS, in the mid 40s the highest marginal tax bracket was an astounding 94%. As recently as the 70s it was as high as 70%. Currently we are at historic lows. So the question is, what could cause taxes to go up?

Well you probably guessed it, the need for more revenue. Government expenses were 300 billion more then their revenues according to the 2006 reports from 2005. The number one cost to the government is Social Security and Medicare, taking up 37% of the federal expenditures. National Defense, Veterans, and Foreign Affairs come in second at 24.5%. Of course, other things like wars, hurricanes, and terrorism dont help either. Guess what they report as the number one income source for the government? Yup you guessed it, individual income tax, making up 38% of their revenue. Coming in second is social insurance tax, making up 32%. This is where it gets scary. David Walker and Ben Bernanki both agree 100% on this topic. David Walker is the person who audits the government’s books and serves as the investigative arm of the U.S. Congress. He is also the governments chief accountant. He said in his testimony before the budget committee of the U.S. Senate, this year:

Because this baby boomer generation is retiring and drawing on social security, Medicare, and Medicaid, that the government will either have to cut federal spending by 60% or raise federal taxes to 2 times todays level.

In the 2003 Tax Act they have already set in motion for all of the tax brackets to go up starting in 2011. What that means is you will be paying higher taxes.

We already know where taxes have been in the past, which tells us where they could go in the future. So when these so-called financial experts say you will be in a lower tax bracket, they must not be looking at the fact that tax rates are going up. The only other area they could be looking at would be your income in retirement. Your income is what determines what tax bracket you are in. So, for arguments sake, lets say taxes stay the same. You still may be in a higher tax bracket in retirement, even if you have less income. The reason why is that most people lose tax deduction in retirement. The biggest deductions, such as your mortgage interest, children, and retirement contributions are no longer there to deduct. This can cause your taxes to go up.

If your income in retirement is lower than it is now, and you saved money for say 20, 30, 40 years, what kind of job did you do saving for retirement? Or think about it this way, how many people want to retire to a significantly reduced standard of living? When you retire dont you want to retire to at least the same standard of living you are used to? Some even want a better standard of living. They dont want to sit around the house. They want to travel or go see grandchildren. Is all that stuff free? In addition you may have other expenses such as health insurance, or medical expenses. So, you see, you lose some expenses like mortgage payments but other expenses take their place. Some may say Hey, I have great health coverage through my employer. Its part of my retirement plan. If that is you, you should go talk to some GM and FORD employees and see what is happening to their health coverage. Its being changed on them whether they like it or not. Dont plan on things that are not guaranteed.

It gets worse. Did you know that with 401(k)s, IRAs, and other qualified plans, the IRS will tell you how much money you have to take out at age 70 ? They call this minimum distribution requirements. If you dont take out the amount they told you to, they will penalize you 50%. If you withdraw too much money in retirement, your social security will get taxed. Yes, the IRS wants to tax your social security, as noted earlier. This is a big part of their revenue. Dont worry though, you dont have to pay tax on your social security if youve done everything right.

Fortunately, there are congressionally approved methods for receiving retirement income tax-free. This is known as asset shifting or distribution planning. This is where I spend most of my time. It is not just how you invest that is important but where you invest. When we get together I will show you some creative ideas to take what you are currently doing and show you how you can either reduce the taxes you will pay in retirement or show you how you could possibly get your entire retirement tax-free, including your social security. In summary, this means you will take advantage of todays low taxes, eliminate what is called tax-rate risk, eliminate the minimum distribution problem, and receive your social security 100% tax-free.

If you or someone you know needs some help managing retirement assets, setting up a retirment savings plan, or have life insurance needs, just give me a call at 801-545-0696.

Respectfully,
Mark K. Lund, CRFA
Wealth Manager
Stonecreek Wealth Advisors, Inc.
10421 So. Jordan Gateway, Suite 600
So. Jordan, UT 84095
801-545-0696
http://www.stonecreekwealthadvisors.com
Securities offered through Sammons Securities Company, LLC
Member NASD and SIPC

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A Fresh Mindset On Retirement Income

13 November 2009