Estate Planning/Wills & Wealth Building

Learn why you must look out into the future and plan for your loved ones and what will happen after you no longer inhabit planet earth…

 

It is important that you plan effectively for your future and planning for your heirs after you are no longer here on planet earth is at the top of the list when it comes to effective financial planning.

 

Although we all like to live as long as possible, the hard reality is that we will all transition at some point.  Therefore you want to address how your affairs will be handled at this time as best you can–so that YOU can determine what happens after your transition.

 

At the time of this discussion the creator of TheWealthIncreaser.com is battling COVID-19, and the topic of Estate Planning/Wills is a topic of real concern.   Regardless of where you are now at in your life stage, you want to take a serious look at your current estate and determine ways that you can transfer your assets more appropriately.

 

Furthermore, with this week being the one year mark since the transition of the mother of the creator of TheWealthIncreaser.com and one week since the creator of TheWealthIncreaser.com recovered (ok, partially recovered) from COVID-19, the topic of estate planning is more important than ever for not only the creator of TheWealthIncreaser.com, but also you and your family if you have not addressed what will happen with your finances and assets after you transition.

 

Know your financial standing at this time

A basic starting point for improving your finances is to determine where you are now at on a monthly and annual basis so that you can determine your net worth and determine the best type of asset transfer approach that is the best for you and your family.

 

At a minimum (regardless of your net worth) you want to create a will and if you have a high net worth a trust and more sophisticated planning may be necessary.

 

Determine the best products that will serve your and your family before and after your transition

There are a number of estate planning products and services that are available to help you as you go about your affairs in life.

 

Without getting into the practice of law, a number of concerns will be outlined below that could help you plan better and help you strategically manage your estate during your lifetime–and even after you transition.

 

1) beneficiary/deed designation

2) will

3)  power of attorney

4) health care directive

5) trust

6) insurance/annuities

7) other (products unique to your financial and life situation)

 

Review and update as necessary at the various stages of your life

Throughout your life changes will occur, whether it is the birth of a child, the transition of family members, job loss, various emergencies and adversity that was not planned for and other happenings, therefore you want to remain flexible and update your documents as necessary.

 

However, depending on your unique financial position and changes that occur during your lifetime, there may be much more to include in your estate planning to make certain all of your assets are transferred seamlessly to your heirs upon your death to help ensure that your intended wishes are carried out.

 

Conclusion

 

Planning for what will happen after you are no longer here on earth must be addressed with the utmost care and concern.  It is important that you contact an attorney and/or at a minimum create a will so that you can have peace of mind at this time and not have your loved ones quarrel after you transition and cause undue stress and hardship for your family.

 

By creating a will you can name a personal representative of your choice to represent your estate after your transition and that representative would file a final tax return on your behalf and the refund if any could be payable to the estate (legatee or beneficiary would receive).  Your personal representative that you designate would go to the courthouse after your transition and would get “letters of administration” giving the personal representative that you designate the legal authority to file your tax return and inquire about life insurance proceeds.

 

By taking the time now to address your finances in a comprehensive manner you are putting yourself and your family on a more successful track whether you have a low net worth or you are worth millions.  Your family will be in a better position for success after you transition and family disputes can be minimized–in large part due to your planning at this time–so that your intended wishes will materialize at a future time.

 

When it comes to estate planning/wills you want to look at all of your options on the front end–not after you transition–because it is impossible to do so at that time!

 

All the best to longevity and strategically planning your future in a way that will lead to your absolute success…

 

 

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Securing Your Education Funding as You Build Wealth

 

Learn how you can fund your children’s (or your own) education so that you can enjoy life in a more bountiful manner…

 

In the current economy, educational costs continue to rise, and for those who fail to plan appropriately it comes as a total surprise.   Therefore, when it comes to education planning, timing is critical, and it is very important that you put together a plan to meet or exceed your or your loved one’s educational costs as the rise in costs have continued to increase for several decades–and by all signals will continue to increase.

 

In this discussion TheWealthIncreaser.com will look at ways that you can ease your burden of funding educational costs that you may have in the coming years.  It is important to get out in front of your future educational costs as inflation and other economic occurrences in particular, can make affordability difficult if not impossible without proper planning.

 

In the paragraphs below you will learn three steps that you can take to help lighten your educational costs in your future if you are now at a point where you desire to address your or your loved one’s future educational costs in a manner that is more favorable to your–and your households successful outcome.

 

1) Know your cash flow position now

When it comes to effective education planning, it is imperative that you take inventory of your current financial condition so that you can reach a starting point to determine which way you can or need to go–so that you can invest wisely and make your money grow.

 

You must know if you have discretionary income available on a monthly basis and at what amount!

 

Therefore, you must put together a formal outline of what you take in on a monthly basis and what you send out on a monthly basis so that you know what you have left over for educational planning investments and other goals that you may have.

 

2) Plan for the educational costs in as accurate a manner as possible

When planning for educational costs you want to plan in a way that you can avoid borrowing or using your current income while attending your or your child’s school of choice.

 

There are many educational funding vehicles that are available–and it is your responsibility to know what is available and how to best use those vehicles to drive toward your and/or your loved one’s educational costs in a manner that is the most favorable based on your cash flow position and future goals.

 

Whether you choose to use a 529 savings plan, pre-paid tuition plans, Coverdell savings plan, IRA savings plan or any other savings vehicle-you want to ensure that when they are all totaled–the higher education costs that you have been saving for will be funded appropriately (100% funding is the goal) so that you can avoid borrowing altogether or borrow at a lower level.

 

3) Make improvements and adjustments as necessary

When the political, regulatory, economic social, technological and legal environment changes during the time that you are saving for your educational costs–you want to make the best adjustments that you can along the way.

 

You want to review your educational returns on an annual basis to see if you are still on target toward meeting your educational funding goals.  It is important that you start your educational saving at the earliest time possible in your life stage–whenever possible (no pun intended) so that you give yourself a longer time horizon for investing and therefore increasing the odds that you will reach the educational number that allows you to not borrow at all–or borrow a much lower amount.

 

By reviewing your educational investment returns on at least an annual basis you can determine if you need to make additional contributions to reach your goals or scale back on your investments and invest those funds toward your retirement and/or other goals that you may have.

 

Finally, you want to encourage yourself, your loved ones, and all whom you come into contact with–to excel at the highest level possible in all areas of their life!

 

By doing so scholarships (academic and/or athletic) may be awarded that could allow you to spend less on higher education costs and divert those funds to other areas so that you could continue to increase your net worth as you build your wealth.

 

Conclusion

Now is the time to avoid student loan debt

When it comes to effective educational planning, you want to know your educational costs upfront as best you can, avoid borrowing or using other sources while you or your child pursue higher education–and have an expectation of successfully reaching your “educational number” by having a written plan of action and a highly focused approach toward reaching that “educational number” so that you avoid burdensome debt.

 

By looking at your finances at this time (you may need to get more income/cut expenses or do a combination of the two), making improvements when necessary and investing at a level that allows you to attain the growth that would be needed to fund your or your child’s educational number–you make funding your (or your loved one’s) education and avoiding burdensome debt a real possibility.

 

When inflation and other variables are put into the equation, you can continue your educational endeavors from a position of strength and not be bogged down financially in the future due to poor planning!

 

If you are forced to borrow due to ineffective planning or facing emergencies or adversity that was unforeseen–you want to borrow from a position of strength, therefore you want to have your credit profile in the best position possible based on your income and credit knowledge base.

 

If you now at this time or in your future need to borrow and you have or will get a private loan you may be able to lower your rate by refinancing or utilizing your effective credit management to find a credit card(s) that you can use to lower your interest rate or pay off or pay down your student loan at zero percent if you plan effectively and your outstanding debt is at an acceptable level that makes doing so financially feasible.

 

If you now at this time or in your future need to borrow and you have or will get a public loan (U.S. Department of Education Loan), you may be able to lower your rate by refinancing or utilizing your effective credit management to find a credit card(s) that you can use to lower your interest rate or pay off or pay down your student loan at zero percent if you plan effectively and your outstanding debt is at an acceptable level that makes doing so financially feasible.

 

Also, keep in mind that debt forgiveness on your public loan in the United States may possibly be forgiven (at some level) or you may have other options available than those who have a private loan, therefore you want to be cautious in refinancing, transferring or paying off student loan debt that is publicly financed.  As of December 26, 2021, Student Loan payments for U.S. Department of Education Loans have been paused yet again for 90 days, (undoubtedly due in part to inflation and the COVID-19 crisis) and borrower’s are not required to make payments until May of 2022–barring a further extension.

 

Always remember that “education and wealth building” involves more than just a formal education–you must think outside the box and find new, more engaging ways of learning–when and where it serves your and your family’s best interest.

 

All the best to your educational success as you give it your absolute best…

 

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Reducing Your Taxes & Wealth Building

 

Learn what you need to know (and do) to reduce your taxes and make your net worth grow…

 

In the current economy many consumers and taxpayers are trying to find ways to reduce or eliminate various taxes–when and where possible.

 

It is important that you have an understanding of what taxes may apply to you and your family (a comprehensive overview) so that you can know all areas of your taxes that may possibly need to be addressed in a more effective way.

 

Although taxes can be a broad and overwhelming concern for many, it can also be presented in a manner and style that can be readily understood and applied by you in a practical manner–and in a manner that could be more beneficial to you and your family at the various stages in your life.  In this discussion TheWealthIncreaser.com will focus on a number of tax concerns that many (those who earn $400,000 or less) face and could possibly be addressed from a more beneficial angle.

 

If you make over $400,000, that is a good problem (ok, it’s not really a problem) to have, just keep in mind that there may be other tax options available that can help you reduce your taxes in ways that may not be covered in this discussion.

 

When it comes to effective tax management, you don’t have to be a tax expert, however it is important that you know what areas of taxes that you need to address as well as areas where you can make improvements so that you can take the right action that can benefit you and your family for this tax year and throughout your lifetime.

 

Keep in mind that this discussion on taxes will be longer than most that you will encounter on the web, however your understanding of the content on this page can get you off to a solid understanding or enhance your current understanding of your taxes and help position you and your family for a lifetime of wealth building success.

 

Let’s take a look at areas of taxation that you may need to address now (or in the near future) and further explore ways that you can reduce your taxes in the coming years so that you can live a more bountiful life–and one without financial strife.

 

After-Tax Income versus Before Tax-Income

We start this discussion on reducing your taxes by presenting why you MUST understand the difference and importance of distinguishing between after-tax income and before tax-income so that you can truly build wealth more efficiently.

 

Your after-tax income is often used for daily living and to fund IRA ROTH accounts and IRA traditional accounts and other investment accounts that are outside of your retirement accounts.   In the case of a ROTH IRA, you would receive tax free distributions in the future (based on certain conditions) and in the case of a traditional IRA you could possibly deduct the contributions (up to a limit and based on certain conditions) when you file your federal taxes.

 

Your other after-tax income could be used for daily living and if you had discretionary income after the payment of your monthly bills, you could use that income to build wealth more efficiently.

 

Your before-tax income is often used for funding retirement accounts such as 401k, 403b, Thrift Savings Plans, health care accounts, health savings accounts, flexible spending accounts and the like–and those contributions have the effect of lowering your taxable income that would be stated on your w-2–thus lowering your overall taxes at the federal level and possibly state level as well.

 

Business Income & Deductions

If there is a connection between any income that you receive and your business if you had one, the income is business income.  A connection exists if it is clear that the payment of income would not have been made if you did not have the business.

 

The business income and deductions that follow are discussed from the vantage point of a schedule C, sole proprietor, and would be filed on your personal income taxes.

 

Other forms of business formation also exist and could be more beneficial to you from a tax, liability and financial point of view.  However, they are beyond the scope of this discussion on tax reduction strategies, but it is important that you know that they are available and may suit your needs better if you are–or desire to become a business owner.

 

By utilizing the schedule C, you qualify for the QBI pass-through credit where you can reduce your taxable income from the business by 20 percent, and if you have losses in your early years, you can use those losses to offset your personal income–thus reducing your personal taxes whether you have income or a loss on a qualified business!

 

Income from work that you perform on the side (in addition to your regular job) could be business income.

 

It includes amounts that you would receive that were properly shown on Forms 1099-MISC, including amounts reported as non-employee compensation in box 7 of the form, amounts received from customers or clients in the course of doing business and other income that was created as a result of the business.

 

Regardless of the amount of time you spend in a self-employed activity, you must file a tax return if your gross income is at least as much as the filing threshold for your filing status and age.

 

In addition, you must also file Form 1040 Schedule SE, Self-Employment Tax, if:

 

  • Net earnings from self-employment, excluding church employee income, were $400 or more; or

 

  • The taxpayer had church employee income of $108.28 or more.

 

Business expenses are the costs of operating your business. These expenses are costs that you don’t have to capitalize or include in the cost of goods sold but can deduct in the current year.

 

If you are involved in a partnership, S-corporation, or C-corporation, your income may also be taxable, however that is beyond the scope of this discussion on taxes.

 

Business Deductions

Your unadjusted basis immediately after acquisition (UBIA) of qualified property held by your trade or business is taken into account in determining the § 199A deduction (Qualified Business Income deduction).

 

Income earned as an employee or through a C Corporation, however, is ineligible for the deduction.

 

Furthermore, eligibility for the pass-through deduction authorized by the Tax Cuts and Jobs Act does “not” require that you itemize tax deductions.

 

However, the pass-through deduction is not available for Specified Service Trade or Business (SSTB ) if the taxpayer’s taxable income is equal to or greater than the applicable threshold amount plus $100,000 in the case of a taxpayer filing a joint tax return or the applicable threshold amount plus $50,000 for all other taxpayers.

 

In laymen’s term, if you are a SSTB and exceed a certain income level you cannot take the 20% income exclusion.

.

Home Office Deduction (you have 2 ways to calculate)

  1. Simplified method

 

When calculating the home-office deduction using the simplified method, the deduction is equal to the area of your home used for a qualified business use (not exceeding 300 square feet) multiplied by the prescribed rate.

 

The current prescribed rate is $5, but the Internal Revenue Service and the Treasury Department may update the prescribed rate at any time.  Therefore, the maximum deduction as of 2021 tax year would be 300 * $5 = $1,500.

 

If you elected to use the simplified method of determining your home-office deduction, neither depreciation nor any actual expenses other than those not related to use of the home, may be deducted.  If you had business expenses not related to the use of your home such as office expenses, computer purchases etcetera, they would continue to be deductible!

 

2.  Actual expense method

When using the actual expense method for figuring the home-office deduction, you or your tax professional must determine:

  • The nature of the expense, i.e., whether the expense is – A direct expense–An indirect expense, or–An unrelated expense; and

 

  • The percentage of the home used for business purposes.

 

Expenses that are deductible by all homeowners, whether or not the home is used for business purposes, include the following:

  • Real estate taxes, within prescribed limits

 

  • Deductible mortgage interest; and

 

  • Casualty losses from a federally declared disaster

 

If you qualify for the home-office deduction, these amounts should be multiplied by the percentage of your home used for business purposes to figure your total deduction for business use of the home.

 

The home-office deduction is not unlimited!

 

If you use the actual expense method for claiming a home-office deduction, the deduction of otherwise nondeductible expenses—expenses such as insurance, utilities and depreciation allocable to the business—is limited to the taxpayer’s gross income from the business use of the home minus the sum of the following:

 

1. The business portion of expenses that you could deduct even if you did not use the home for business purposes.

 

Those expenses include eligible mortgage interest, real estate taxes (not exceeding prescribed limits), and net qualified disaster losses allowable as itemized deductions on Schedule A (Form 1040); and

 

2. The business expenses that relate to the business activity carried on in the home but not to the home itself.

 

Those expenses include the costs of business telephone, supplies, and equipment depreciation.   If you are a self-employed taxpayer, you should not include the deductible one-half of self-employment tax in the business expenses that must be subtracted from gross income.

 

If you used the actual expense method to figure your home-office deduction in a previous year and you had an expense carryover because the deduction was limited in that year, no portion of the carried-over amount may be deducted in any year in which you used the simplified method.

 

In such a case, you would continue to carry over the disallowed amount to the next year in which you used actual expenses to figure your home-office deduction.

 

If you have expenses such as mortgage interest, real estate taxes and casualty losses—such expenses must be treated as personal expenses when using the simplified method of determining the home-office deduction.

 

Business Meals

The Consolidated Appropriations Act, 2021 provides for temporarily increased deductions for business meals.

 

Pursuant to the Act, businesses are permitted a 100% tax deduction for business meals—up from the current 50%—if the food or beverages are provided by a restaurant.  The increased business meal deduction is available for 2021 and 2022.

 

179 Expense Deduction

The dollar limitation on the value of property that may be expensed (written off or deducted in the current tax year) in the year in which it is placed in service is $1,050,000 for the 2021 tax year.

 

  • The phaseout threshold for your ability to expense eligible property is $2,620,000 (2021).

 

The definition of Code Section 179 property is “expanded” to include – Depreciable tangible personal property used principally to furnish lodging, such as:

 

  • Furniture

 

  • Appliances

 

  • Other equipment for use in the living quarters

 

  • Certain improvements to nonresidential real property, including

 

  • Roofs

 

  • Heating, ventilation and air-conditioning property

 

  • Fire protection and alarm systems, and

 

  • Security systems

 

It is important to note that improvements will not qualify if they are attributable to other than the building’s interior. 

 

Therefore, improvements attributable to:

 

  • Enlarging the building,

 

  • The internal structural framework of the building; or

 

  • An escalator or elevator–do not qualify for immediate expensing

 

Depreciation:

The 100% expensing permitted under the TCJA declines by 20% each year for qualified property purchased and placed in service after December 31, 2022.  Accordingly, the bonus depreciation deduction is reduced.

 

The bonus depreciation under the TCJA ends after 2026!

 

The additional “bonus” first-year depreciation deduction does not apply to a passenger car placed in service by you if you:

 

• Did not use the passenger automobile during 2020 more than 50% for business purposes.;

 

Elected out of the additional first-year depreciation deduction for the class of property including passenger automobiles

 

• Acquired the passenger automobile used and the acquisition of it failed to meet the acquisition requirements of section 168(k)(2)(e)(ii); or

 

Acquired the passenger automobile before September 28, 2017, and placed it in service after 2019.

Luxury Passenger Car Depreciation Caps

 

The depreciation caps for a luxury passenger car placed in service in 2021 are:

 

  • $10,200 for the first year without bonus depreciation
  • $18,200 for the first year with bonus depreciation

 

  • $16,400 for the second year

 

  • $9,800 for the third year

 

  • $5,860 for the fourth through the sixth year

 

A “luxury vehicle” is a four-wheeled vehicle regardless the cost of the vehicle, used mostly on public roads, and which has an unloaded gross weight of no more than 6,000 pounds.  It includes vehicles not normally considered “luxury” vehicles on the basis of their price.

 

The term “listed property,” as used in the tax law, is personal property used in a business which can also be used for personal purposes but no longer includes computers, peripherals and cell phones.

 

Because listed property can have application for both personal and business uses, the IRS wants to ensure that you are using the property for business, therefore you must have sufficient evidence to prove the property’s use in the business and the amount/date of the expense.

 

Thus, property considered listed property is subject to increased documentation and scrutiny so keep good records to prove your deduction.

 

Under prior tax law, listed property included:

 

• Passenger automobiles

 

• Other property used as a means of transportation

 

• Any property generally used for purposes of entertainment, recreation or amusement and

 

• Computers and related peripheral equipment (taken off list)

 

Cancelled Debt

Cancelled debt is generally taxable and if you anticipate having your debt cancelled be sure you know the tax ramifications upfront.  Cancelled mortgage debt continues to receive favorable tax (excluded from taxation) treatment as of the 2021 tax year.  If, at this time cancelled mortgage debt applies to you, the stars in the sky are much brighter going into tax year 2022.

 

Capital Gains

If the transaction involves personal use property, in contrast to property held for investment, any gain realized by you upon the sale of the property is a capital gain; however, “any loss” that results from the sale of personal use property cannot be deducted!

 

Most assets owned by you for personal purposes, pleasure or investment are referred to as “capital assets,” and the sale or exchange of a capital asset may result in a capital gain or loss!

 

If the sale or trade of investment property results in a gain or loss, such gain or loss is generally a capital gain or loss!

 

Capital losses can be used to offset capital gains (up to $3,000 per year) and unused losses can be carried forward!

 

Capital gains and losses are reported on Schedule D, Capital Gains and Losses, attached to your IRS Form 1040 or Form 1040-NR.  However, before completing Schedule D, one or more IRS Forms 8949, Sales and Other Dispositions of Capital Assets, normally need to be completed and attached to the IRS Form 1040 or 1040-NR along with Schedule D.

 

If all Forms 1099-B received by you show that basis was reported to the IRS and no correction or adjustment is required, you may not need to file Form 8949; instead, the totals may be entered directly on Schedule D, lines 1a or 8a, as appropriate (discussed above).

 

You need to file as many Forms 8949 as required to report all transactions!

 

Schedule D provides a summary of the transactions reported on IRS Form 8949 in addition to certain other information. Thus, if an IRS Form 8949 is completed for you, each of the columns (d), (e) and (h) should be totaled and the totals for all Forms 8949 should be shown in Schedule D on the following lines:

 

  • 1a, 1b, 2 and 3 for short-term capital gains and losses; and

 

  • 8a, 8b, 9 and 10 for long-term capital gains and losses.

 

In addition, any distribution of net realized long-term capital gains from a mutual fund should be shown on line 13.  Distributions of net realized short-term capital gains are shown on Form 1099-DIV issued by the mutual fund as ordinary dividends.   Schedule D should then be completed. If the amount shown on Schedule D, line 16 is a loss, the smaller of the following should be entered on Form 1040 or Form 1040-NR,” Capital gain or (loss)”

 

Be aware of the 3.8% additional tax on capital gains if you are a high-income earner such as single filers who make more than $200,000 and married couples who make more than $250,000, as well as certain estates and trusts. 

 

The net investment income tax (NIIT) is a 3.8% tax on investment income such as capital gains, dividends, and rental property income. 

 

Child and Dependent Care Credit

You may be eligible for a dependent care credit if you pay to have care for your children or other qualifying dependent.

 

Deductions

Standard Deduction

Taxpayers who are ineligible to take the standard deduction are the following:

 

  • Taxpayers whose filing status is “married filing separately” and whose spouse itemizes deductions

 

  • Taxpayers who are filing a tax return for a short tax year due to a change in their annual accounting period; and

 

  • Taxpayers who were nonresident aliens or dual-status aliens during the year

 

Standard Deduction Amounts for 2021 are:

 

  • $25,100 for married couples whose filing status is “married filing jointly” and surviving spouses;

 

  • $12,550 for singles and married couples whose filing status is “married filing separately”; and

 

  • $18,800 for taxpayers whose filing status is “head of household.”

 

A taxpayer who can be claimed as a dependent is generally limited to a smaller deduction, regardless of whether the individual is actually claimed as a dependent.    For 2021 returns, the standard deduction for a dependent is:

 

  • $1,100; or

 

  • The dependent’s earned income from work for the year plus $350 (but not more than the standard deduction amount, generally $12,550).

 

A taxpayer who can be claimed as a dependent is generally limited to a smaller standard deduction, regardless of whether the individual is actually claimed as a dependent.

 

The additional standard deduction for a blind taxpayer—a taxpayer whose vision is 20/200 or poorer with glasses/contact lenses or whose field of vision is 20 degrees or less—and for a taxpayer who is age 65 or older at the end of the year is:

 

  • $1,350 for married individuals; and

 

  • $1,700 for singles and heads of household.

 

For example, a 65-year-old single blind taxpayer would add $3,400 to his or her usual standard deduction: $1,700 for being age 65 plus $1,700 for being blind.  (Therefore, his or her standard deduction would normally be $15,950 ($12,550 + $3,400 = $15,950).

 

Standard deductions and other deductions have the effect of lowering your taxable income and thus increasing your tax refund or decreasing the amount of taxes that you owe, and the reduction amount is dependent on your tax bracket.

 

A tax credit–on the other hand–if you are eligible is dollar for dollar and is generally more valuable than a deduction.

 

ITEMIZED DEDUCTIONS

7.5% AGI limit for medical expense deductions

 

The medical deduction limit is 7.5% for 2021 tax year.  Be sure to keep adequate records for your medical premiums, out of pocket medical costs including hearing, eye and dental services as well as your mileage to and from medical providers if you plan to itemize when you file your taxes.

 

You are limited in the deduction amount meaning if your AGI is $100,000 for the year–you deduct amounts over $7,500 that you paid toward medical expenses.

 

Charitable Deduction

Charitable contributions made by you with payroll deductions, checks, cash and donations of goods and clothing are all deductible.

 

It is not unusual to forget about or overlook your charitable contributions, therefore from this day forward you want to establish a reliable record keeping system–as your charitable contributions can often add up over the course of a year and provide additional deductions so that you can reduce your taxes.

 

You generally need to itemize to claim a deduction, and since the 2017 tax reform nearly doubled the standard deduction, many people who once itemized, now choose not to itemize.

 

However, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, allows taxpayers who don’t itemize to deduct cash donations of up to $300 ($600 if MFJ) made before Dec. 31, 2020.

 

The maximum amount of charitable contribution a taxpayer is permitted to deduct in any year may be limited by the taxpayer’s contribution base—in most cases the contribution base is an amount equal to the taxpayer’s adjusted gross income— and further limited depending on the type of property contributed.

 

However, any charitable contribution exceeding the applicable tax deduction limit may be carried over to the following five years.

 

The TCJA increased the limit on your deductible charitable cash contributions from 50% under prior tax law to 60% of the taxpayer’s contribution base for qualified organizations to which the 50% limit normally applies.

 

The increased limitation for cash contributions applies to contributions made in any taxable year beginning after December 31, 2017 and before January 1, 2026. The CARES Act temporarily suspends some of the limitations imposed by the Internal Revenue Code with respect to certain individual taxpayer cash contributions.

 

In general, qualified contributions are disregarded in applying IRC section 170 as it pertains to percentage limits  and carryovers of excess contributions.

 

The TCJA eliminates the exception to a contemporaneous written acknowledgment of a donor’s gift, effective for gifts made after December 31, 2016. (Note: The effective date of the elimination of the exception to a contemporaneous written acknowledgment is retroactive to gifts made on and after 2016).

 

Record Keeping and Documentation of Deductions

The IRS advises that the length of time that you should keep a document, including the documentation of deductions, depends on the action, expense, or event which the document records.

 

As a general rule, you must keep records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out–roughly 3 years from filing or three years from the tax year filing deadline excluding extensions.

 

The period of limitations is the period of time in which you can amend your tax return in order to claim a credit or refund, or the time that the IRS can assess additional tax.

 

As mentioned earlier, as a result of the CARES Act (and extended by The Taxpayerypayer Relief Act of 2021) provision, a non-itemizing taxpayer can now take an above the-line deduction of up to $300 ($600 for married couples) for charitable cash contributions made in taxable years beginning in 2020.

 

A deduction that is “above the line” reduces AGI and can help lower your taxes and can be taken even if you don’t itemize deductions.

 

State and Local Tax Deduction

State and local taxes paid by an itemizing taxpayer have generally been a deductible item on the taxpayer’s federal income tax return without limit. The TCJA limits the federal income tax deduction for state and local taxes to $10,000 ($5,000 for married taxpayers filing separately) beginning in 2018.

 

Property taxes and sales taxes cannot exceed $10,000 when itemizing on schedule A.

 

Home Mortgage Interest, Home Equity Loans and Indebtedness Refinancing

The tax treatment of refinanced existing mortgage debt is treated, for purposes of the applicable dollar limits, as incurred on the date the original indebtedness was incurred, but only to the extent the amount of the indebtedness resulting from the refinancing does not exceed the amount of the refinanced indebtedness.

 

Mortgage Interest deduction limit reduced from 1 million to $750,000 as a result of the Tax Cuts & Jobs Act of 2017.

 

Sales and real estate tax deduction capped at $10,000.

 

Itemized deduction for mortgage insurance premiums and exclusion from income” of qualified principal residence when debt cancellation, occurs continues for the 2021 tax year.

 

Mortgage Insurance Premiums Deduction when mortgage lenders require the additional security of having its loan secured not only by the home but also by an insurer–is still on the IRS books.

 

Qualified mortgage insurance premiums that are tax-deductible—include mortgage insurance provided by:

 

• The Department of Veterans Affairs (commonly known as a “funding fee” or “VA funding fee”)

 

• The Federal Housing Administration (commonly known as “Mortgage Insurance Premium or MIP“)

 

  • The Rural Housing Service (or successor organizations); and

 

  • Private Mortgage Insurance (commonly known as PMI)

 

Except in the case of mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service, qualified mortgage insurance premiums may be prepaid by the taxpayer.

 

In such a case, premiums allocable to periods after the close of the tax year must be allocated over the shorter of:

 

  • The stated term of the mortgage; or

 

  •  84 months beginning with the month the insurance was obtained. Premiums are treated as paid in the year to which they are allocated. If the mortgage is satisfied before its term, no deduction is allowed for the unamortized prepaid mortgage insurance premiums.

 

Mortgage Cancellation Debt

The Consolidated Appropriations Act, 2021 also extended the exclusion from income of certain qualified principal residence indebtedness. Under the five-year tax extender, a taxpayer may exclude income arising from discharge of qualified principal residence indebtedness provided one of the following applies:

 

  • The debt was discharged before 2026; or

 

  • The debt was discharged after 2020, and the discharge is subject to an arrangement entered into and evidenced in writing before January 1, 2026. Properly reporting qualified principal residence indebtedness discharge requires preparation of IRS Form 982 and its attachment to the taxpayer’s federal income tax return.

 

Points paid in association with a home mortgage may also be eligible for deduction or amortization over the life of the mortgage loan.

 

Unreimbursed Employee Expenses

Unreimbursed Employee Expenses are no longer deductible as part of reforms under the Tax Cuts & Jobs Act of 2017.

 

Dependent Credit

If you have dependent care expenses, you may be eligible for a credit.  The amount of your credit is based on the type and age of the dependent and is based on the expenses you pay and your earned income for the year.

 

Depreciation

Unless the taxpayer elects to use ADS or is required by law to use ADS, a taxpayer must use GDS.

 

The straight-line method of depreciation is used for a taxpayer electing to use ADS, and such a taxpayer must make the election in the first-year residential rental property and nonresidential real property is placed in service; once made, the taxpayer cannot revoke the election.

 

If you have business and/or rental property, it is important that you know that you can use depreciation to help lower or reduce your tax burden.  In many cases it is important that you bifurcate your depreciation in order to maximize your deduction and tax savings.

 

Earned Income Credit or EIC

You may be eligible for the Earned Income Credit of varying amounts based on your earned income and number of dependents.

 

Education Deductions/Credits

529

ABLE

Coverdell

The education savings bond program

IRA when used for educational purposes may avoid the early withdrawal penalty

 

Education Credits

American Opportunity Credit or AOC–first 4 years of higher education—max $2,500

Lifetime Learning Credit or LLC–max $2,000

Tuition & Fees–Tuition and Fees Deduction Eliminated

 

Educational credits for those who qualify can help lower the amount of taxes that are owed or increase the amount of your refund.

 

Student loan interest that you pay may also be deductible on your tax return!

 

Energy & Other Credits

The Credit for Nonbusiness Energy Property was Extended

If you replaced windows and doors in 2021 or had energy improvements to your HVAC, water heater and possibly other energy related purchases you may be eligible for a tax credit, therefore be sure to inform your tax professional at tax time and organize your receipts of purchase at this time if you did repairs or improvements to your home. 

 

Estimated Tax Payments

Estimated tax payments are generally due in four installments.

 

Although an installment may be due on the following business day if the normal due date falls on a weekend or legal holiday, the estimated tax payment due dates are April 15, June 15, September 15 and January 15.

 

You would generally be required to pay estimated taxes if you had a qualified business, you were an employee and you did not have adequate withholding, you are an employee and you have a sideline business and you file as self-employed, and you expect or have income after all of your deductions from your business.

 

Estimated income taxes may be paid using any of the following methods:

 

  • Crediting an over-payment of tax on the previous year’s tax return to the current year’s estimated tax

 

  • Payment of the estimated tax by direct transfer from the taxpayer’s bank account using the Electronic Federal Tax Payment System (EFTPS), making payment by use of a credit or debit card, by using a pay-by-phone system, or via the Internet; or

 

  • Remitting a payment using a check or money order along with a payment voucher Form 1040-ES

 

Individuals wishing to take advantage of the cash payment option should visit the IRS.gov payments page, select the cash option in the “Other Ways You Can Pay” section of the web page and follow the instructions:

 

  • Taxpayers will receive an email from ACI Payments, Inc. (acipayonline.com) confirming their information

 

  • Once the IRS has verified the information, the Cash Processing Company sends the taxpayer an email with a link to the payment code and instructions

 

  • Individuals may print the payment code provided or send it to their smart phone

 

  • The retail store listed in the Cash Processing Company’s email provides a receipt after accepting the cash. The receipt is confirmation of the taxpayer’s payment and should be kept for the taxpayer’s records. The payment usually posts to the taxpayer’s account within two business days

 

  • Payment frequency and amount limits and fees apply

 

Taxpayers who are due a tax refund also have several choices with respect to its receipt!

 

The options available to a taxpayer owed a refund include that the refund:

 

  • Be applied to the taxpayer’s estimated tax for the following year

 

  • Be deposited to a prepaid debit card

 

  • Be deposited into two or three accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union) in the United States; (See Limit on Direct Deposit Refunds below)

 

  • Be deposited directly to a traditional, Roth or SEP IRA; or

 

  • Be sent to him or her in a check. If the taxpayer is due an income tax refund but has not paid certain amounts owed, the refund may be used to pay any past-due amounts. Thus, a tax refund may be used to pay:

 

  • Past-due federal income taxes

 

  • Federal debts, such as student loans

 

  • State income taxes

 

  • Child and spousal support payments; and

 

  • State unemployment compensation debt

 

Taxpayer’s who are owed a refund can even have the refund credited to a TreasuryDirect® online account in order to buy U.S. Treasury marketable securities or savings bonds!

 

Recovery rebate payments will not be reduced to pay past-due taxes under a payment agreement with the IRS or to pay other state or federal debts.  In general, creditors cannot get access to the money for reduction or offset and direct payment to themselves.

 

The CARES Act only allows offsets to cover past due child support payment!

 

Tax return preparers are prohibited from negotiating client refund checks or accepting such payments in an account owned or controlled by the preparer.

 

No direct deposits of tax refunds should be requested to an account not in the taxpayer’s name.

 

For taxpayers who use the calendar year, the due date for filing the federal income tax return is generally April 15th of the year following the end of the calendar year for which the tax return is being filed, although 2021 tax return due date is delayed until Monday, April 18, 2022, because of Good Friday falling on April 15th.

 

The federal income tax returns for taxpayers who use a fiscal year, i.e., a year ending on the last day of any month except December, are due by the 15th day of the fourth month after the close of the taxpayer’s fiscal year.

 

For example, the federal income tax return of a taxpayer whose fiscal year ends on June 30th is due on the following October 15th.  A taxpayer’s failure to file a timely income tax return may subject the taxpayer to a failure-to-file penalty and interest.

 

The federal income tax return of a decedent, i.e., a taxpayer who died during the year, must be filed by the decedent’s representative.  The return is due by the 15th day of the fourth month after the end of the decedent’s normal tax year.

 

Even if you obtain an extension of the time to file, any tax due must generally be paid by the regular due date.

 

Failure to pay any tax due by the regular date will result in the imposition of interest and possible penalties on the unpaid amount from the date due until the date actually paid.

 

A taxpayer who is unable to file a federal income tax return by the normal due date may be able to get an automatic six-month extension of the time to file. The automatic extension may be obtained by:

 

• Using IRS e-file; or

 

• Filing a paper form.

 

The AMTI exemption amount is reduced (but not below zero) by 25 percent of the amount by which the taxpayer’s alternative minimum taxable income exceeds:

 

• $1,047,200 for taxpayers whose filing status is “married filing jointly” or “qualifying widow(er)”

• $523,600 for taxpayers whose filing status is “single,” “head of household,” “married filing separately” and

• $85,650 for trusts and estates.

 

Health Savings Account

Health FSA’s enable workers to contribute before-tax amounts to an account that may then be accessed tax-free to pay various out-of-pocket health-related expenses. Although annual caps on the amount that can be contributed to a health FSA are generally imposed by employers—usually as a way to limit their risk of pre-funding—no limit was previously imposed by the federal government.

 

That changed for years 2013 and later and the limit for 2021 is $2,750.

 

Although the tax penalty for a taxpayer’s failure to maintain health coverage has been reduced to zero, individuals who meet specified income, coverage, and other criteria are eligible to receive a refundable tax credit to enable them to purchase a qualified health plan.

 

Since the tax credit is a refundable tax credit, the taxpayer may receive the credit even though he or she has no income tax liability.

 

ARPA, § 9661, significantly expands the subsidies provided under the ACA in two ways:

 

1. By increasing the level of subsidy to those taxpayers who currently qualify for a subsidy; and

 

2. By including taxpayers who, solely because their income, would not qualify for a subsidy under the law prior to passage of ARPA.

 

Under ARPA, for tax years 2021 and 2022:

 

  • A taxpayer can claim a tax deduction for contributions made to the HSA even if he or she does not itemize deductions.

 

  • Contributions made to the HSA by the taxpayer’s employer, including contributions made through a cafeteria plan, may be excluded from the taxpayer’s gross income.

 

  • The earnings on amounts contributed to the HSA are tax deferred.

 

  • Distributions from an HSA to pay qualified medical expenses are entirely tax free.

 

  • A taxpayer’s contributions and earnings, if any, remain in the HSA from year to year until the taxpayer uses them.

 

  • An HSA is non-forfeitable and portable, so that it remains with the account holder if he or she changes employers or leaves the work force; and

 

  • Distributions from an HSA for other than qualified medical expenses—if taken after the account holder reaches age 65, becomes disabled, or dies—are taxable but not subject to tax penalties. 1.1.9.2 HSA Eligibility

 

An individual eligible to establish an HSA is one who meets the following requirements.

 

The individual:

 

  • Is covered under a high deductible health plan (HDHP) on the first day of the month

 

  • Has no other health coverage except for certain specified coverages

 

  • Is not enrolled in Medicare; and

 

  • Cannot be claimed as a dependent on another person’s tax return for the year.

 

If a taxpayer meets these eligibility requirements, he or she is an HSA-eligible individual even if the taxpayer’s spouse has non-HDHP coverage, provided the spouse’s coverage does not cover the taxpayer.

 

High Deductible Health Plan Requirement

For 2021, the IRS defines a high deductible health plan as any plan with a “deductible” of at least $1,400 for an individual or $2,800 for a family.

 

An HDHP’s total yearly out-of-pocket expenses (including deductibles, co-payments, and co-insurance) can’t be more than $7,000 for an individual or $14,000 for a family.

 

A taxpayer who is an HSA account holder must file Form 8889, Health Savings Accounts (HSAs), and attach it to Form 1040 or Form 1040-NR if: 26

 

  • The taxpayer or employer made contributions to the taxpayer’s HSA during the year

 

  • The taxpayer files a joint return and his or her spouse or spouse’s employer made contributions to the spouse’s HSA during the year; or

 

  • The taxpayer (or spouse, if filing jointly) acquired an interest in an HSA because of the death of the account holder

 

When HSA contributions not exceeding the maximum permitted are made by an individual account holder, they are deducted by the individual from his or her income for purposes of determining the account holder’s adjusted gross income.

 

Hobby Income

A hobby, for tax purposes, is an activity not engaged in for profit or income.  Any income from a hobby is reported on Form 1040 as “Other income.”  However, because of the loss of the miscellaneous itemized deductions as a result of passage of the Tax Cuts and Jobs Act, hobby expenses not exceeding hobby income—at least through 2025—are no longer deductible.

 

Long Term Care

Qualified long term care premiums and benefits;

 

Long Term Care premiums may be tax deductible and the tax-deductibility of qualified long-term care insurance premiums can be itemized and deducted on schedule A.  For individuals deemed to be chronically-ill, there are tax-exemption of long-term care insurance benefits within certain limits.

 

Those limits generally change yearly.

 

In order for long term care benefits to receive favorable tax treatment, the individual on whose behalf they are paid must meet the “chronically-ill” definition included in HIPAA.

 

A chronically-ill individual is defined as an insured individual who has been certified by a licensed health care practitioner within the previous 12 months as an individual who:

 

  • Is unable, for at least 90 days, to perform at least two activities of daily living (ADLs) without substantial assistance from another individual, due to loss of functional capacity; or

 

  • Requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

 

Tax-qualified long term care insurance policy premiums are included in the definition of “medical care” and are, therefore, eligible for income tax deduction within certain limits!

 

In short, tax-qualified long term care insurance policy premiums are 100% tax-deductible for self-employed taxpayers to the extent they don’t exceed the dollar limits or the self-employed individual’s net earnings.

 

The amount of any long-term care insurance premium that may be included in medical care expenses is limited by certain dollar maximums that are indexed for inflation and which change as the insured’s attained age changes.

 

There are dollar limitations applicable to tax-qualified long term care premiums in 2020 and 2021!

 

So, if the benefit does not exceed the per diem limitation, all benefits are tax-free even though the benefits exceed the actual costs incurred.

 

Similarly, if the benefit does not exceed the actual costs incurred, all benefits are tax free even though the benefits exceed the per diem limit.

 

Luxury Tax

In 1991, Congress enacted a 10% federal luxury tax on the first sales price of a number of items that sold for more than a specific amount:

  • Furs and jewelry that sold for $10,000 or more
  • Vehicles that sold for $30,000 or more
  • Boats that cost more than $100,000
  • Aircraft with price tags of more than $250,000

The Omnibus Budget Reconciliation Act repealed this tax in 1993, and it was phased out by 2003.

 

The federal government doesn’t collect a sales tax, only states do, and they would normally impose a luxury tax at this time (tax year 2021), therefore if you plan on making a major purchase of a luxury nature–check with your state taxing authority in advance if you have concerns about paying additional taxes.

 

A luxury tax is a sales or transfer tax imposed only on specific goods.  The products taxed are considered non-essential or are affordable only to the wealthiest consumers. The mansion tax and sin taxes both fall into the category of luxury taxes.

 

The luxury tax may be charged as a percentage of the purchase price, or as a percentage of the amount above a specified level. For example, a luxury tax might be imposed on real estate transactions above $1 million, or car purchases over $70,000.

 

Luxury taxes generally fall into two categories:

 

  • So-called “sin taxes” are imposed on products like cigarettes and liquor and are paid by every buyer, regardless of income. Anyone who objects can just stop buying it. In imposing the tax, the government is both discouraging the use of these products and raising revenue from those who keep buying them.

 

  • Taxes on items that can be purchased only by the wealthiest consumers, who presumably can afford to pay the premium.

 

Luxury taxes generally do not apply to the entire price of the vehicle, rather the tax typically only applies to the difference between the total cost of the car and the tax threshold amount.

 

RECOVERY REBATE CREDIT

If you are one who received the recovery rebate credit, you probably want to know the tax implications of receiving the recovery rebates and advance credit payments that began in July of 2021 to eligible recipients.

 

Recovery rebates, authorized by the CARES Act and Taxpayer Relief Act of 2020 (TRA 2020), were issued in 2020.   And, in 2021, recovery rebates were authorized under the American Rescue Plan Act (ARPA).

 

As a tax credit, the recovery rebate is nontaxable and is not counted as income with respect to determining a taxpayer’s eligibility for income-based programs such as Medicaid or Health insurance Marketplace subsidies.

 

Recovery Rebates – The American Rescue Plan Act (ARPA) provides tax-free, refundable, recovery rebate tax credits in 2021 of up to $1,400 for each eligible individual ($2,800 for married taxpayers filing jointly), plus $1,400 for each dependent, as defined in IRC § 152, including qualifying relatives and college students.

 

Retirement Account Contributions

Retirement account contributions are a top tax-reduction tool, as they serve two major purposes.

 

Your contributions to traditional 401(k), 403b, Thrift Savings Plan and IRA accounts (among others) can be deducted from your taxable income and, as a result, reduce the amount of federal tax you owe.

 

These funds also grow tax-free until retirement.  If you start early, saving money in these accounts can help secure your retirement!

 

Even if you haven’t executed your plan by the end of the year, you may still have time as you can set up and contribute to your IRA up until April 18, 2022 and still deduct on your 2021 taxes if you are eligible..

 

The retirement savings contribution tax credit—typically referred to as the saver’s credit—is a nonrefundable credit that is limited to the “applicable percentage” of your eligible retirement savings contributions.

 

The credit is determined by your adjusted gross income and tax filing status.

 

The saver’s credit cannot exceed $1,000 per taxpayer!

 

The retirement savings contribution tax credit, if any, for for those who are eligible does not affect the tax treatment to which the contribution would normally be subject.

 

For example, if your contribution to a traditional individual retirement account made you eligible for the credit, you would still normally be able to take a tax deduction for the IRA contribution.

 

In other words, retirement savings contributions made by you would not offset other tax advantages for which you are eligible!  Yes, if you qualify–you can DOUBLE-DIP–so to speak!

 

Despite the number of plans to which the taxpayer makes contributions and the amount of those contributions, the total saver’s credit will not exceed $1,000 per taxpayer for the year.

 

Standard Mileage Rate versus Actual Expense rate for Automobiles

The standard mileage rates enable a taxpayer using a vehicle for specified purposes to deduct vehicle expenses on a per-mile basis rather than deducting actual car expenses that are incurred during the year.

 

The rates vary, depending on the purpose of the transportation.

 

Accordingly, the standard mileage rates differ from one another depending on whether the vehicle is used for:

 

  • Business purposes

 

  • Charitable purposes; or

 

  • Obtaining medical care or moving

 

Rather than using the optional standard mileage rates, however, you may choose to take a deduction based on the actual costs of using the vehicle.

 

The 2021 alternative standard mileage rate applicable to eligible business use of a vehicle is 56¢ per mile, down from 57.5¢ in 2020.

 

In order for such expenses to be deductible, they must have been: 

 

  • Paid or incurred during the tax year

 

  • Use for the purpose of carrying on the taxpayer’s trade or business; and

 

  • Ordinary and necessary

 

  • Traveling between workplaces

 

  • To meet with a business customer

 

  • To attend a business meeting located away from the taxpayer’s regular workplace; or

 

  • From the taxpayer’s home to a temporary place of work

 

In addition to using the standard mileage rate, you may also deduct any business-related parking fees and tolls paid while engaging in deductible business travel.

 

However, parking fees paid by you to park your vehicle at the usual place of business are considered commuting expenses and are not deductible.

 

The standard mileage rate applicable to your use of a personal vehicle for charitable purposes is based on statute and is 14¢ per mile. You may also deduct parking fees and tolls regardless of whether the actual expenses or standard mileage rate is used.

 

In addition, you may also deduct medical and dental expenses to the extent they exceed the applicable percentage of your adjusted gross income (AGI).

 

The vehicle expenses may be included as medical and dental expenses are the amounts paid for transportation by you to obtain medical care for yourself, your spouse, or a dependent.  You may also include as medical and dental expenses those transportation costs incurred!

 

If you use a personal vehicle for such medical reasons you are permitted to include the out-of-pocket vehicle expenses incurred—the expenses for gas and oil, for example—or deduct medical travel expenses at the standard medical mileage rate.

 

For 2021, the standard medical mileage rate is 16¢ per mile, down 1¢ from 2020.

 

You may also deduct any parking fees or tolls, regardless of whether actual expense or the standard mileage rate is used!

 

Synopsis 2021 Mileage Rates:

 

Business–56¢ per mile

Charitable–14¢ per mile

Medical & Moving–16¢ per mile

 

Taxable Compensation

In addition to wages and salaries, there are other types of compensation received by a taxpayer that may or may not be taxable and they include the following:

 

  • Advance commissions and other earnings

 

  • Allowances and reimbursements

 

  • Back pay awards

 

  • Bonuses and awards

 

  • Differential wage payments

 

  • Government cost-of-living allowances

 

  • Non-qualified deferred compensation plans

 

  • Notes received for services

 

  • Severance pay

 

  • Sick pay

 

  • Social Security and Medicare taxes paid by the taxpayer’s employer; and

 

  • Stock appreciation rights

 

Retirement income includes income derived from a range of sources, both private and public.

 

Although some retirement income is excludable, in whole or part, from income, most retirement income is taxable as ordinary income in the year received.

 

It is important that you realize that distributions received from the following are often taxable in whole or part at the federal and state level, however there may be credits or exclusions that are available:

 

  • Social Security

 

  • Pensions

 

  • Annuities; and

 

  • 401(k) plans

 

The U.S. tax code provides for a substantial number of tax credits, generally designed to meet various societal objectives.

 

Tax Credits are categorized as:

 

  • Refundable tax credits that are treated as having been withheld from the taxpayer’s income and payable to the taxpayer regardless of income tax liability; and

 

  • Nonrefundable tax credits that are payable to the taxpayer only to the extent of any income tax liability.

 

Among the most frequently claimed tax credits are:

 

  • 1. Child tax credit
  • 2. Credit for other dependents
  • 3. Child and dependent care tax credit
  • 4. Education tax credit
  • 5. Earned income tax credit.

 

Lifetime Learning Credit–unlimited number of years—max $2,000

Virtual Currency–is now taxed

If you have financial interests abroad with financial accounts–those interests must be disclosed.  Virtual currency must  also be reported as it too is now fair game for taxation by the IRS.

 

AMT–The Alternative Minimum Tax is still in effect!

 

Keep in mind that a number of other Affordable Care Act provisions, including the refundable tax credits to assist taxpayers in purchasing qualified health plans, small business health insurance premium tax credit, and large employer shared responsibility requirement went into effect in 2021.

 

An in-depth discussion of these topics are beyond the scope of this discussion, however it is important that you realize that they exist.

 

W-4 Adjustment

Information previously provided by the taxpayer to his or her employer on Form W-4 may change during the year.

 

Although you can submit a new W-4 at any time, you are required to provide the employer with a new Form W-4 within 10 days following any change that would affect withholding.

 

If events during the current year will “decrease” the number of withholding allowances for the following year, you must provide the employer with a new Form W-4 by December 1 of the current year.  If the event affecting the number of allowances occurs in December of the current year, a new Form W-4 must be submitted within 10 days following the event.

 

W-2–Issued by your employer and used to file your federal and state and possibly local taxes in the U.S.

W-9–Form that requests taxpayer information for tax reporting purposes–normally social security number or Tax ID number

1099 series–number of uses but most common is for non-employee compensation and retirement income reporting

1096–For those who issue 1099-MISC non-employee compensation the total amount paid on 1099’s that are issued to all non-employees are grouped on this form

 

Mandatory withholding when you win the lottery, take early retirement withdrawals and penalties for early withdrawal must be a part of your consciousness.  Borrowing against your 401k could also have tax and financial consequences as well.

 

There may also be mandatory withdrawals on certain retirement accounts once you reach age 72.

As a taxpayer you can use the free estimator, found at www.irs.gov/W4App, if you:

 

  • Expect to work only part of the year

 

  • Have dividend or capital gain income, or are subject to additional taxes, such as Additional Medicare Tax

 

  • Have self-employment income; or

 

  • Prefer the most accurate withholding for multiple job situations

 

You may claim an “exemption from income tax withholding” if both the following situations apply:

 

1. You had a right to a refund of all federal income tax withheld because of having no tax liability in the current year; and

 

2. You expect a refund of all federal income tax withheld in the next year because of having no income tax liability.

 

The IRS can impose interest and penalties against you for being under withheld, and you could also be subject to a penalty of $500 if both the following apply:

 

  • You made statements or claimed withholding allowances on Form W-4 that reduced the amount of tax withheld; and

 

  • You had no reasonable basis for those statements or allowances at the time Form W-4 was prepared.

 

If you don’t pay enough tax, either through withholding or by paying estimated tax (or a combination of both), he or she may be subject to a penalty.

 

A criminal penalty may also apply for willfully supplying false or fraudulent information on the form or for willfully failing to supply information that would increase the amount withheld.

 

The penalty upon conviction can be a fine of up to $1,000 or imprisonment for up to one year, or both.

 

Conclusion

 

It is important that you use your best judgment and the use of professionals where appropriate to make the best possible moves as it relates to reducing or eliminating the various taxes that have been discussed above.

 

Successfully navigating the tax maize and building wealth is not as difficult as you think if you have the right view, and you are willing to do what you need to do–and you work alongside your tax professional in a helpful manner.

 

The time to learn about taxes and how they affect you and your family is at the earliest time possible in your “life stage” so that you can make the right or best decisions in a proactive manner!

 

Key Takeaways on Taxes

 

Below you will find a number of topics that you can run through your mind at this time to find areas of taxation that you can address at this time or in your future to help reduce or eliminate your tax liability.  They have all been presented above, however they are presented again so that you can have a quick reference point on what you can do to reduce your taxes.

 

By reviewing the following topics in a careful, critical and accurate manner, you may be able to improve your tax and wealth building position immediately–or at a later date!

 

Open a Health Savings Account

If you have an eligible high-deductible medical plan, contribute to a health savings account.

 

Contributions to these accounts offer an immediate tax deduction, grow tax-deferred and can be withdrawn tax-free for qualified medical expenses.  Any balance left at the end of the year can roll over indefinitely, similar to the assets in a retirement account.

 

Use Your Side Job to Claim Business Deductions

Self-employed individuals (full time or part time) are eligible for scores of tax deductions. That means your freelance projects or side gig as a ride-share driver, starving artist and other areas of interest to you–could land you considerable tax savings if you approach the activity from a business perspective.

 

A few of the business deductions available include business-related vehicle mileage, shipping, advertising, website fees, percentage of home internet charges used for business, professional publications, dues, memberships, business-related travel, office supplies, phone, computer and basically any reasonable expenses incurred to run your business.

 

If you pay for your own health, dental or long-term care insurance, those premiums may be deductible too.

Just be sure to maintain proper records, as many people lose their deductions due to their lack of preparedness by not keeping proper records.

 

Tax deductions are often disallowed because taxpayers don’t keep the right documentation, so it is important that you keep receipts, mileage logs or other records that you can produce in the event of an audit.

Claim a Home Office Deduction

If you work for yourself or have a side business, don’t be afraid to take the home office deduction.

 

To qualify for the deduction, the space must be used regularly and exclusively for business purposes.

 

For instance, if an extra bedroom is used exclusively as a home office and it constitutes one-fifth of your home or apartment’s living space, you can deduct one-fifth of mortgage/rent payment and utility fees.  Keep in mind there may be recapture provisions that could cause you to owe taxes at the time you sell your home in the future.

Write Off Business Travel Expenses, Even if You are on Vacation

Did you know that you can possibly combine a vacation with a business trip, and you could reduce vacation costs by deducting the percent of the expenses spent for business purposes?

 

This could include airfare and part of your hotel bill, proportionate to the time spent on business activities. Talk to your tax professional about how you can make this calculation according to IRS guidelines.

Don’t Forget to Deduct Half of Your Self-Employment Taxes

The IRS assesses a 15.3% Federal Insurance Contributions Act tax (FICA) on all earnings to pay for the Social Security and Medicare programs.

 

While employers split the cost with their workers, self-employed individuals are responsible for paying the entire amount themselves. To compensate for the extra expense, the government will let you deduct 50% of the amount paid from your income taxes.  This is an above the line deduction, therefore you don’t have to itemize to claim this tax deduction.

 

 

Get a Credit for Higher Education

The government offers valuable tax credits to offset the cost of higher education. The American Opportunity Tax Credit (AOTC) can be claimed for the first four years of college and provides a maximum credit of $2,500 per student per year.

 

Since it’s a credit, that amount is deducted from whatever tax you might owe the government.  If it exceeds the amount of taxes you owe, up to $1,000 may be refundable to you.

Meanwhile, the Lifetime Learning Credit is great for adults boosting their education and training and those pursuing post graduate study.  This credit is worth up to $2,000 per year and helps pay for college and educational expenses that improve your job skills.

 

Utilize Rental Property for Tax Benefit

You can use rental property to shelter your taxes and help to possibly reduce your taxes if done properly.  By properly deducting the various expenses related to the rental you can in many cases reduce your tax bill on an annual basis for years.

 

Keep in mind there may be recapture provisions that could cause you to owe taxes at the time you sell your rental property in the future.

 

See if You Qualify for an Earned Income Tax Credit or Saver’s Credit

Even if you aren’t required to pay federal income taxes, you could get a refund from the government.

 

The earned income tax credit (EITC) is a refundable tax credit of up to $6,660 for tax year 2020 and is usually adjusted annually.

 

The EITC is calculated with a formula that takes into consideration income and family size and the income limits for the credit range from $15,820 for single taxpayers with no children to $56,844 for married couples filing jointly who have three or more children.

 

If you contribute toward your retirement savings and meet income eligibility you may qualify for a “savers credit” that is based on your income threshold and the amount you contribute toward your retirement savings.

Itemize State Sales Tax

Taxpayers who itemize their deductions can include either their state income tax or state sales tax on their Schedule A form.

 

The state sales tax break is a great option if you live in a state without income taxes!

 

You can use a table provided by the IRS to easily claim the sales tax deduction, however if you had a major purchase during the year such as a car, boat or Recreational Vehicle–be sure to add that sales tax.

 

The federal tax deduction for state and local taxes is capped at $10,000 from all sources as a result of the Tax Cuts & Jobs Act of 2017.

 

Deduct Private Mortgage Insurance Premiums

If you have less than 20% equity in your home, chances are you pay private mortgage insurance  or MIP if you have an FHA loan. This coverage is required by lenders as a way to protect them in the event you stop making payments.

 

Until 2017, taxpayers could deduct the cost of private mortgage insurance on their itemized deductions.

 

While the Tax Cuts and Jobs Act eliminated the deduction, it was reinstated at the end of 2019 and is available for the 2020 and 2021 tax years.  It was made retroactive for 2018 as well. Therefore, you could amend your 2018 tax return to claim PMI–if it made good financial sense to do so.

 

Whenever you amend an older return, you generally put yourself at greater IRS scrutiny of the filed return–so use caution.

 

Make Charitable Donations

Charitable contributions made with payroll deductions, checks, cash and donations of goods and clothing are all deductible.

 

These deductions add up and are often overlooked by many taxpayers.

 

You generally need to itemize to claim a deduction, and since the 2017 tax reform nearly doubled the standard deduction, many people choose not to itemize.

 

However, if you do, it could be more beneficial to you and your family.

 

As a result of the CARES Act (the Coronavirus Aid, Relief, and Economic Security Act), those who don’t itemize can deduct cash donations of up to $300 ($600 if MFJ) made before Dec. 31, 2020–and 2021.

 

Adjust Your Basis for Capital Gains Tax

When calculating the cost basis after selling a financial asset, make sure to add in all of the reinvested dividends.

 

That increases the cost basis and reduces your capital gain when you sell the investment.

 

If you sell your house, you may end up paying capital gains tax as well, particularly if your property’s value has risen significantly–over $250,000 if single and $500,000 if married filing jointly and you meet the criteria for exclusion from taxation.

 

You can reduce or eliminate the amount you owe if you’ve made home renovations or improvements, therefore keep adequate records.

Avoid Capital Gains Tax by Donating Stock

Another way to avoid capital gains is by using stocks to make charitable gifts.  You can also offset your capital gains against your losses up to a limit.

 

Utilize the Social Security Taxable Earnings Limit to Your Advantage  

The Social Security taxable earnings limit;

Social Security taxes are comprised of two components:

 

1) OASDI (Old Age, Survivors and Disability Income) and

 

2) HI (Health Insurance) taxes. OASDI is a tax imposed on a worker’s wages up to the applicable Social Security taxable earnings limit

 

That limit is $142,800 in 2021 and generally increases annually. The employee tax rate for the OASDI part of Social Security is 6.2%. HI, the second component of Social Security taxes, is a tax of 1.45% imposed on all taxpayer wages— no earnings limit applies, in other words—to fund Medicare Part A.

 

The taxability of Social Security benefits received by a taxpayer depends on the recipient’s total income. Social Security benefits may be entirely tax-free or partially taxable depending upon whether the total of:

 

  • Half the net Social Security benefits received during the year by the taxpayer (total benefits received during the year less any Social Security benefits repaid during the year); plus

 

  • All other income received by the taxpayer (including tax-exempt interest)

 

Set Up an IRA or Contribute to Your Retirement Plan

Individual retirement arrangements (IRAs), qualified plans and annuity contracts enjoy certain tax benefits, including tax deferral, while funds are being accumulated within the plans.

 

Although there are some exceptions, distributions from these tax-favored plans are generally taxable as ordinary income.

 

An individual retirement account (IRA) is a personal retirement savings plan, funded by an annuity or a trust, provides for tax-deferral of earnings and may permit either tax-deductible contributions or tax-free qualified distributions!

 

Individual Retirement Accounts are fundamentally of two types:

 

  • Traditional IRAs that may permit tax-deductible contributions and generally taxable distributions, and

 

  • Roth IRAs whose contributions are not deductible but whose qualified distributions are entirely tax-free.

 

Yearly contribution limits for 2021 are $6,000 plus $1,000 catch up provision if you are age 50 or more.

 

A taxpayer who is “not an active participant” in an employer-sponsored qualified plan may deduct a traditional IRA contribution he or she is eligible to make–regardless of income.

 

Traditional IRA distributions of after-tax contributions are received tax-free as a return of basis on a pro-rata basis, and the remainder of the distribution is taxable.

 

Although, tax penalties generally apply to IRA distributions before age 59½, there are certain premature distributions to which the 10 percent penalty tax doesn’t apply.

 

Those distributions include distributions:

 

  • Made at the taxpayer’s death

 

  • Attributable to the taxpayer’s disability

 

  • Made for medical care to the extent allowable as a medical expense deduction

 

  • Made for the payment of health insurance premiums by unemployed taxpayers

 

  • Made to pay qualified higher education expenses for the taxpayer, his or her spouse, child or grandchild

 

  • Considered “first-time home buyer distributions” up to a lifetime maximum of $10,000

 

  • That are part of a series of substantially equal periodic payments made for the life of the taxpayer or the joint lives of the taxpayer and his or her beneficiary; or

 

  • That are qualified birth or adoption distributions not exceeding $5,000.

 

The Internal Revenue Code requires that minimum distributions from a traditional IRA begin no later than the owner’s age 72. The law permits the individual to delay taking these first required minimum distributions (RMD) until April 1st of the year following the year in which he or she turns age 72.

 

The date on which RMDs must commence is known as the “required beginning date.”

 

Lifetime distributions never need to be taken from a Roth IRA.

 

A “qualified” distribution from a Roth IRA is one that is made no earlier than the fifth year following the year for which the owner made his or her first Roth IRA contribution and:

 

  • The taxpayer is age 59½ or older

 

The distribution is a qualified first-time home buyer distribution

 

  • The taxpayer is disabled; or

 

  • The distribution is made to a beneficiary on or after the taxpayer’s death

 

There is an additional tax advantage on distributions that Roth IRA owners enjoy, even when the distribution isn’t a qualified distribution: a non-qualified distribution—one that fails to meet the requirements to be a qualified distribution—from a Roth IRA receives FIFO tax treatment under which all contributions are deemed to be distributed tax free before any earnings are distributed.

 

It was noted earlier that a premature distribution—one made prior to the owner’s age 59½—from a traditional IRA would result in a 10 percent tax penalty. The 10 percent premature distribution tax penalty is based on the amount that must be reported as a taxable distribution.

 

The same is true of a Roth IRA and just as in the case of a Traditional IRA, the penalty for a distribution of earnings before age 59½ from a Roth IRA is waived if the distribution is:

 

  • Attributable to the IRA owner’s death or disability

 

  • Made for medical care to the extent allowable as a medical expense deduction

 

  • Made by unemployed taxpayers for the payment of health insurance premiums

 

  • Used to pay qualified educational expenses

 

  • A qualified first-time home buyer distribution

 

ROTH required minimum distributions must be made following the owner’s death!

 

Trustee-to-trustee transfers from one IRA to another IRA are not subject to the one per-year limit and, thus, may be made at any time, however you may have termination and other fees–depending on the trustee.

 

Know the Standard Mileage rates for the 2021 Tax Year

Business 56 cents per mile

Charitable 14 cents per mile

Medical 16 cents per mile

 

Use Stepped-Up Basis when Applicable

Upon death many assets may receive favorable stepped-up basis in valuation–thus lowering your or your heir’s taxes.

 

Understand your state, local, sales and other taxes, state Income taxes, state business taxes etcetera

If you live in the United States, you will normally have a variety of taxes (or a variation of taxes that go by other names) at the state and local level.

 

State ad valorem taxes, state transfer taxes and stamps, property taxes at the local and state level, hotel and special use tax, rental car taxes and the like are not uncommon as states try to ensure a steady flow of income to provide and pay for various state and local functions.

 

Whether state income taxes, sales tax, property taxes, transfer taxes and other fees that are in effect taxation, it is important that you are aware of those taxes, and you do your best to avoid or reduce them.

 

There could be “income exclusions” on your state taxes if you qualify, homestead and other exemptions may be available to help you reduce your property taxes, you may be able to avoid sales tax by making your major purchases during “tax holidays” if your state offers them.

 

Use your imagination and the tax codes to find ways to reduce taxes wherever they may exist at the state, local and federal level.

 

Below you will find a number of taxes in the state of Georgia.

 

They are provided so that you can get a feel of state and possibly local taxes–however always keep in mind each state and country will have their own unique set of taxing authorities and collection practices.

 

GA TAVT https://eservices.drives.ga.gov/_/

https://dor.georgia.gov/title-ad-valorem-tax-tavt-faq

 

How is fair market value determined for a USED motor vehicle?

 

A used motor vehicle is any motor vehicle, which has been the subject of a sale at retail to the general public.

 

For a used motor vehicle, the fair market value is the value identified in the state motor vehicle assessment manual. This value is calculated by averaging the current wholesale and retail values of the motor vehicle pursuant to O.C.G.A. § 48-5-442. Accordingly, the fair market value for a used motor vehicle for purposes of TAVT will generally be the same as the value that was used in the old annual ad valorem tax system.

 

A reduction is made for the trade-in when the sale was made by a dealer, but not when the sale was made by a private individual.

 

Where do I apply for my title and pay TAVT?

 

  • The application for title and TAVT payment must be submitted to the county in which the buyer resides. The TAVT must be paid at the time of initial title application.

 

  • If you purchase your vehicle at a dealership, the dealer must accept the application for title and TAVT payment on your behalf and deliver the title application and TAVT payment to the County Tag Office where the buyer resides.

 

What sales are subject to sales tax in Georgia?

 

In general, Georgia imposes tax on the retail sales price of tangible personal property and certain services. While most services are exempt from tax, Georgia does tax the sale of accommodations, in-state transportation of individuals (e.g., taxis, limos), sales of admissions, and charges for participation in games and amusement activities. O.C.G.A. §§ 48-8-2(31), 48-8-30(f)(1).

 

In addition, Georgia imposes tax on charges by the seller that are necessary to complete the sale of taxable property.  O.C.G.A. § 48-8-2(34)(A). For example, if a seller charges $20 for a shirt and $5 to deliver the shirt, sales tax is imposed on $25 ($20 for the shirt plus $5 for delivery).

 

If a provider of a nontaxable service makes sales of tangible personal property, the service provider must collect and remit sales tax as appropriate. Service providers are, in most instances, end users and liable for sales or use tax on all tangible personal property used by them to provide their service. O.C.G.A. § 48-8-63.

 

What is use tax?

 

Use tax is tax imposed on non-exempt items brought into Georgia. “Use tax” is also a term commonly used to refer to the tax imposed on taxable goods and services that were not taxed at the point of sale.

 

Tax imposed on non-exempt items brought into Georgia

 

Use tax is imposed upon the first instance of use, consumption, distribution, or storage in Georgia of non-exempt tangible personal property purchased at retail outside of Georgia. (Note that property brought into Georgia as a result of a change of domicile is generally exempt as long as the property is not brought into Georgia for use in a trade, business, or profession. O.C.G.A. § 48-8-3(19).)

 

Property used longer than six months outside of Georgia prior to its first use inside Georgia is taxed at the state and local sales tax rate on the lesser of the purchase price or the fair market value of the property. O.C.G.A. §§ 48-8-30(c)(2), 48-8-82(a), 48-8-102(b)(1), 48-8-109.3(b), 48-8-110.1(c), 48-8-201(b), 48-8-241(d), 48-8-269(a).

 

Generally, the applicable local sales tax rate is the rate imposed in the county where the buyer receives the goods. O.C.G.A. § 48-8-77. A taxpayer’s use tax liability will be reduced by like taxes previously paid in another state. O.C.G.A. §§ 48-8-30(c)(3), 48-8-30(e), 48-8-42(a).

 

Example: A contractor buys a bulldozer in another state and pays state sales tax but no local sales tax. The following week the contractor transports the bulldozer into Georgia and performs a job in Hall County.

 

The contractor now owes Georgia state use tax on the purchase price of the bulldozer at a rate of 4%. His Georgia state use tax liability will be reduced by the sales tax previously paid in the other state. In addition, he owes Hall County use tax on the purchase price of the bulldozer at the Hall County sales tax rate.

 

Tax imposed on non-exempt items and taxable services that were not taxed at the point of sale

 

If a taxpayer purchases taxable goods or services in Georgia without the payment of tax, the taxpayer must accrue and remit the tax. O.C.G.A. § 48-8-30(g).

 

Example: A retailer buys light bulbs tax free under terms of resale to sell in her store. She takes the light bulbs out of inventory to light up the store. She now owes sales tax on the price for which she purchased the bulbs. The sales tax in this case is commonly referred to as “use tax” because it is not paid at the point of sale, but accrued at the time of use.

 

Example: Joe purchases a bicycle online. The seller does not charge sales tax. The bicycle is delivered to Joe in Georgia. Joe now owes “use tax” on the bicycle’s sales price.

 

$1.00 per tire disposal fee

 

Charges made for delivery, transportation, freight, or shipping and handling are part of the sales price and subject to sales tax in the same manner as the underlying sale. Thus, if a taxable item is sold, and the seller makes a separate charge for delivery, transportation, freight, or shipping and handling, the separate charge is taxable. O.C.G.A. §§ 48-8-2(34). Charges for delivery that are not associated with the sale of taxable property are not taxable.

 

Is property tax on leased personal property subject to sales tax?

 

The question of whether a tax should be included in the sales price (and therefore subject to sales tax) depends on whether the legal incidence of the tax falls on the seller or the purchaser. If the legal incidence of the tax falls on the seller, the tax is included in the sales price, like any other portion of the price designed to recoup the seller’s expenses. O.C.G.A. § 48-8-2(34).

 

Therefore, if a tax on personal property that is held for lease is imposed on the seller/lessor and the seller/lessor requires the customer/lessee to pay this amount, such amount must be included in the sales price and is subject to sales and use tax.

 

Itemized charges made for repair labor or installation labor are not subject to sales tax. O.C.G.A. §§ 48-8-2(34)(B)(iv), 48-8-3(23).

 

Mandatory gratuities associated with a taxable sale are subject to sales tax. Voluntary gratuities are not taxable. O.C.G.A. § 48-8-2(34)(A), Ga. Comp. R. & Regs. r. 560-12-2-.115.

 

Are restocking fees subject to sales tax?

 

At times, when a customer returns an item, the seller requires the customer to pay a restocking fee, thus resulting in only part of the original sale price being refunded to the customer.

 

Because sales tax can only be refunded to the extent the original sales price was refunded, when a restocking fee is charged, tax can only be refunded on the amount of the sales price refunded to the customer. Therefore, amounts designated as “restocking fees” are subject to sales tax because such amounts are refund reductions.

 

Retail sales of newspapers, magazines, periodicals, etc. are subject to Georgia sales and use tax. O.C.G.A. § 48-8-30(b). Publications sold by subscription are subject to sales tax based on the subscription price. Ga. Comp. R. & Regs. r. 560-12-2-.77.

 

Newspapers are often sold for a single amount, with sales tax included in this amount (i.e., the stated price of the newspaper includes the taxable sales price of the paper and the sales tax).

 

Aircraft and watercraft sales are taxable in the same manner as the sale of any other tangible personal property. Tax is due at the rate of the jurisdiction where the buyer takes delivery. O.C.G.A. §§ 48-8-30, 48-8-77.

 

Does Georgia have an exemption for aircraft or watercraft purchased in this state when the aircraft or watercraft will be immediately removed from this state?

 

The sale of aircraft and watercraft in Georgia is subject to the tax even when the aircraft or watercraft sold will be immediately removed from this state.

 

However, there is a specific exemption for aircraft, watercraft, motor vehicles, and other transportation equipment manufactured or assembled in this state when

 

1. sold by the manufacturer or assembler for use exclusively outside this state and

 

2. possession is taken from the manufacturer or assembler by the purchaser within this state for the sole purpose of removing the property from this state under its own power when the equipment does not lend itself more reasonably to removal by other means. O.C.G.A. § 48-8-3.

 

Can the sale of an aircraft or watercraft be excluded from the tax when the transaction meets the requirements of a casual sale?

 

Yes. The sale of aircraft or watercraft is not subject to sales tax when the sales transaction meets the requirements of a casual sale. Ga. Comp. R. & Regs. r. 560-12-1-.07.

 

Are sales and use tax due on motor vehicles?

 

If the vehicle is subject to Title Ad Valorem Tax (TAVT), no sales and use tax is due on the vehicle. When applying for a Georgia title and license plate for a vehicle that was not subject to TAVT and purchased from an out-of-state or country dealer or an out-of-state business or a Georgia business, Georgia sales tax must be paid at the time of registration or proof submitted that the sales tax has already been paid.

 

If the selling dealer used an incorrect sales tax rate to calculate the amount of Georgia sales tax due, then any additional sales tax due must be paid at the time of registration or proof of payment submitted.

 

A Georgia title and license plate will not be issued until any Georgia sales tax due is paid. The amount of sales tax due is based on the vehicle’s purchase price or the vehicle’s fair market value if a sales invoice is not submitted.

 

See the sales tax rate in your county as the published sales tax rates for counties include the State of Georgia’s sales tax rate.

 

Please visit the webpage When & Where to Register Your Vehicle for more information about the vehicle registration process. For additional information regarding sales tax, please contact the Department of Revenue’s Regional office serving your county.

 

Use Caution when Choosing your Tax Professional

Tax return preparers are held to a high standard of conduct in their preparation of clients’ income tax returns.

 

To prevent filing returns with stolen identities, tax preparers should ask taxpayers not known to them to provide two forms of identification—preferably forms of identification containing the individual’s picture–that include the taxpayer’s name and current address.  In addition, tax return preparers must confirm the identities and Social Security numbers of taxpayers, spouses and dependents.

 

The Federal Trade Commission (FTC) is the lead federal agency for identity theft, and the agency recommends the following steps for an identity theft victim:

 

1. Report the identity theft to the FTC at www.identitytheft.gov.

 

2. Contact one of the major credit bureaus to place a fraud alert on the victim’s records.

 

The contact information for the credit bureaus is as follows:

www.Equifax.com 800-525-6285

www.Experian.com 888-397-3742 and,

www.TransUnion.com 800-680-7289.

 

3. Be sure to close any financial or credit accounts that were opened fraudulently.

 

Additional suggested steps may be found on the FTC Website.

 

Be sure your tax professional understands the importance of meeting their obligations with respect to safeguarding your data and be sure that you too do all you can to safeguard your own data!

 

Be aware of how your tax professional handles the following:

 

  • Administrative activities

 

  • Facilities security

 

  • Personnel security

 

  • Information systems security

 

  • Computer systems security

 

  • Media security

 

  • Certifying information systems for use; and

 

  • Reporting incidents

 

Due diligence is the care and attention to detail appropriate to the subject to which it refers.

 

Thus, due diligence with respect to the preparation and safeguarding of your taxes is the care and attention to detail required of each tax professional in their preparation of your tax return.

 

In the end when it comes to reducing your taxes, remember that the tax laws “are what they are” however there are actions that you can take to reduce or lessen the tax burden that you and your family now face or could potentially face by getting “out in front” of your taxes and tax planning so that you can achieve more throughout your lifetime.

 

Doing a comprehensive review of your tax position or potential tax position is not a walk in the park–but it is worth it for those who desire true wealth building success.

 

All the best….

 

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Investments & Wealth Building

 Learn why it is important to invest in a wise manner as you build wealth…

In the current economy consumers are bombarded with investment options on a daily if not hourly basis.  

 

Many have no approach or a wrong approach when it comes to investing and this discussion is designed to clear up some misconceptions that you and possibly others may have about investing and building wealth in the current economy—or any economy.

 

It is important that you do all you can during your working years to invest in a wise manner and in a manner that is more beneficial for you and your family.  You must have a basic understanding of how investments work so that you can build wealth more efficiently.

 

In the following paragraphs TheWealthIncreaser.com will discuss investment options and what you need to be aware of investment wise–at the various stages in your life.

 

Annuities

An annuity is a stream of income that you receive throughout your life based on your contributions–in a lump sum or over time.

 

There are immediate annuities (you contribute a lump sum and begin to receive payments immediately) and the type where you invest at set intervals and receive payments later.

 

Social Security is a form of an annuity (although not in the traditional sense) and will be discussed later.

 

Bond Investments

Investing in bonds and bond funds may be an important component of your wealth building efforts.  I-bonds, municipal bonds, treasury securities, corporate bonds and the like can play an important role in your portfolio.

 

Certificates of Deposit

CD’s and savings accounts can be used for investing and are particularly effective inside of an emergency fund or short-term savings plan.  Many super conservative investors will even use CD’s (laddering approach) for long-term investing due to its relative safety and their low tolerance for risk.

 

Crypto Currency

A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms and they don’t need banks or any other third party to regulate them and they are normally uninsured and can be hard to convert into a form of tangible currency (such as US dollars or euros).

 

  • A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.

 

  • The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.

 

  • Blockchains, which are organizational methods for ensuring the integrity of transactional data, are an essential component of many cryptocurrencies.

 

  • Many experts believe that blockchain and related technology will disrupt many industries, including finance and law.

 

  • Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.

 

Cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

 

Currencies

Currency investing is somewhat more advanced investing and should be entered into with caution.  Those who are skilled normally have good returns.  There are many foreign exchange companies that offer services for the novice to advanced investors.

 

ETF’s

An Exchange Traded Fund often called ETF’s is a group of securities that track an index.

 

A well-known example would be the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.

 

ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types.  An ETF is a marketable security, meaning it has an associated price that allows it to be easily bought and sold and is considered more liquid than a mutual fund.

 

Gold and Other Commodities

If you wanted to invest in gold and other precious metals you could do so through mutual funds, individual gold stocks, exchange-traded funds (ETFs), buying stock in gold mines and associated companies, and the buying of a physical gold or other precious metal product.

 

Most gold investors have a high net worth and see gold as a diversifying investment!

 

Gold has historically served as an investment that can add a diversifying component to your portfolio, regardless of whether you are worried about inflation, a declining U.S. dollar, or even protecting your wealth.

 

If your focus is simply diversification, gold is not correlated to stocks, bonds, and real estate and could be what you are looking for if you are properly prepared to invest successfully at this time.

 

Insurance

Many consumers invest through various whole life insurance products.  Whether it is wise or the best thing to do is a personal decision and has been up for debate for years.

 

It is the opinion of TheWealthIncreaser.com that insurance products primarily should be used for insurance purposes! 

 

Use caution if you are using insurance products for investment purposes.

 

Money Market Accounts and Money Market Mutual Funds

Normally provides a better rate of return than a savings account and could be more beneficial inside of a properly funded emergency fund than a regular savings account.

 

Money Market accounts could also be a great place to “park” your money during volatile market activity or as a transfer portal when you transfer funds from your retirement accounts.

 

Mutual Funds

Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy, therefore effective management is key.

 

When you buy a unit or share of a mutual fund realize that it is not the same as investing in shares of stock, you are buying the performance of its portfolio or, more precisely, a part of the portfolio’s value and as a holder you “would not” have any voting rights.

 

A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding.  That’s why the price of a mutual fund share is referred to as the net asset value (NAV) per share, sometimes expressed as NAVPS.

 

A fund’s NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. Outstanding shares are those held by all shareholders, institutional investors, and company officers or insiders at the company.

 

If you buy 10 shares in a Mutual Fund with a NAV of $111.00 for $1110.00 on Monday November 21st and the NAV goes to $141.00 per share on December 1st of the following year–you would have a long-term gain of  $300.00 and would be taxed at your capital gains rate if held outside of your retirement accounts.

 

Mutual fund shares can typically be purchased or redeemed as needed at the fund’s current NAV, which—unlike a stock price—doesn’t fluctuate during market hours, but it is settled (updated) at the end of each trading day.

 

There are funds for nearly every type of investor or investment approach and common types of mutual funds include money market funds, sector funds, alternative funds, smart-beta funds, target-date funds, socially conscious funds, growth funds, aggressive growth funds, growth and income funds, income funds, international funds and even mutual funds that buy shares of other mutual funds–among others.

 

Options & Futures

Options and futures investing is somewhat more advanced investing and should be entered into with caution.

 

Options trading is the trading of instruments that give you the right to buy or sell a specific security on a specific date at a specific price.

 

An option is a contract that’s linked to an underlying asset, e.g., a stock or another security and you have the right to exercise your option or you can choose to not exercise your option.

 

Real Estate Investments

When it comes to investing in real estate there are many options.  You can invest in single family homes, multi-family homes, apartments, commercial, industrial, REIT’s, land and other areas as well.

 

Your risk tolerance level, real estate knowledge base and financial position at this time is the key to successful real estate investing!

 

Whether you desire to purchase and hold to refinance or sell later, rent out for income or purchase and quick turn for a profit–real estate investing can potentially provide good returns if done right.

 

Real Estate Investment Trusts could allow you to take a “hands off approach” to real estate investing as you do not have to directly own and manage the property.

 

The REIT’s that are now on the market come in several varieties including publicly traded, public and non-traded, private and Exchange Traded Funds–giving you ample options to invest in various real estate sectors if you desire to avoid the headaches of directly owning and managing real estate.

 

Retirement Investing

Retirement investing consists of investing for your future during your working years so that your retirement years are more enjoyable and rewarding.  Retirement investing is so important that it deserves a discussion in great depth and will be covered in detail in a future discussion.

 

For now, realize that you must invest in a wise manner with the goal to live comfortably during your retirement years as your primary focus.  In addition, the avoidance and/or reduction of your taxes during your retirement years are also a major concern and that too will be discussed in great depth in a future discussion.

 

Social Security & Medicare

If you live and work in the United States you would pay into a social network plan called social security and during your retirement years you would be entitled to a monthly stipend–with the amount determined by your work history.

 

Each pay period during your working years a portion of your earnings would go towards Social Security and Medicare.  In a real sense by contributing to social security and Medicare during your working years–you are investing in your future and you would receive annuity payments once you reached a certain age and elected to receive the benefits.

 

Stock Investments

A stock (also known as equity) is a security that represents the ownership of a fraction of a corporation.

 

This would entitle you if you were the owner of the stock to a proportion of the corporation’s assets and profits equal to how much stock you own.

 

Units of stock are called “shares” and are bought and sold predominantly on stock exchanges, though there can be private sales as well, and effective stock purchases are the foundation of many individual investors’ portfolios.

 

Stock transactions have to conform to “government regulations” which are meant to protect investors from fraudulent practices.  Stocks have historically outperformed most other investments over the long run  and can be purchased from most online stock brokers–including many that you may already be familiar with.

 

Other

Many other commodities and investment vehicles are available and being created each year that allows you to invest.  Many are novel and unusual such as sneaker investment, cryptocurrency, oil and gas exploration and mining among others.  Be sure you understand your financial position and how you handle risk and always remember that generally speaking:

 

Less Risk Less RewardMore Risk More Reward

1    – –       2      —        3          – –       4      —    5

 

Selling real estate (including your personal home)–particularly can bring you a financial windfall.   If done properly you can sell and avoid taxation on all or a  portion of the gain.

 

Be sure to keep all records in regard to your home purchase, including improvements that you make to your home as that could be beneficial when you sell your home.

 

At this time limited housing is pushing home prices up and now may be a great time to sell.

 

Refinancing, a home equity loan or a home line of credit (HELOC) could be right for you as interest rates are at historical lows (around 3% at this time) and if you wanted to pay off other debt, improve your home prior to selling or retiring and pursue other goals that you may have–now may be the time to do so.

 

If you sell your home, always realize that you will need a place to stay.  Be sure you know the costs associated with your move and the age, location, area, taxes, closing costs, utility costs, transportation costs etcetera in the area of the home or apartment you plan on moving into.

 

You definitely want to know the cost of your new home, your intended down payment, monthly payment and a rough estimate of your utility payments.   You can then put an interim plan (now until retirement) and post retirement plan in place so that you don’t have any unwanted surprises down the road.

 

Conclusion

When it comes to investing you want to minimize your risks, minimize unpleasant surprises and maximize your ability to succeed so that you can achieve more.

 

By gaining a basic understanding of investing you can put yourself and your family on a more prosperous path toward wealth building in any economic environment.

 

Investing must be balanced against your current cash flow and plans for your and your family’s future.

 

You must know your risk tolerance level, diversify appropriately, invest intelligently and have a comprehensive overview of your finances so that you know how to invest in a winning style.

 

By doing so you can avoid being in an adverse position that makes your life more challenging–and not rewarding!

 

Furthermore, you must know the Goals that you seek, know your Risk tolerance level, know your Income level and know your Personal situation at this time.  Or another way of looking at it is–you must get a real GRIP on your wealth building activities at this time so that you can reach your highest potential.

 

Proper wealth building and investing for those who are “in tune” is like music of the mind transmitted from your brain–and if done right is one of a kind–that has the real potential to roll like a train.

 

Your goals are unique and so is the success that you now seek.

 

Make the choice today to do your wealth building in a better way!

 

When it comes to investing you want to minimize your risks, minimize unpleasant surprises and maximize good decisions so your net worth rises!

 

By doing so you can sincerely get on a continuous path–that ensures that your net worth rises–because you have done the math.

 

You must have an unstoppable feeling on the inside–along with a view of what you plan to do–to make your wealth building dreams come true!

 

Now is the time that you invest at a level that allows you to past any test.

 

All the best toward your investment and wealth building success…

 

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Insurance & Wealth Building

Learn why you must adequately insure your property, yourself–and your family so that you can build wealth more effectively regardless of where you reside…

 

It is very important that those who desire to build wealth in an efficient and highly effective manner reduce or minimize their risks to the lowest level possible based on their financial ability to do so.

 

At this time you may want to consider all areas of your life in which you need or should have insurance coverage –including other individuals and family members that you have an insurable interest in or others who may have an insurable interest in you.

 

Insurance provides you the needed vehicle to help protect your property, health, life and other areas of concern for you and your family so that you don’t have to borrow and go into further debt, tap into your savings and other accounts or liquidate your assets due to an untimely or unplanned event occurring.

 

In this discussion TheWealthIncreaser.com will show you why it is imperative that you understand the areas of insurance that may be applicable to you so that you can more effectively move toward making your dreams come true.

 

It is very important that you have insurance at the appropriate levels in all areas that could be of benefit to you and your family!

 

Property Insurance

Auto–Boat–Home–Motorcycle–Riders etc.

Auto–insurance for your auto is a requirement in most states and countries and you must normally carry minimum limits of liability–and in some states and countries property damage coverage as well.

Boat–if your boat engine is 50 HP or less your HO coverage may be appropriate–for greater HP you need a specific boat policy.  Each state in the U.S. have their own requirements when it comes to boat insurance.

 

In most cases boat insurance is a worthwhile investment as it can cover you from a number of perils–including theft up to higher limits than your home owners policy.

Homeowners or Hazard Insurance–you must have coverage for your home and the contents that are inside your home.  In most cases it is best to avoid percentage deductibles as it can end up costing you more in the event of an untimely event.

Percentage deductibles may exceed your normal deduction and may not be in your best interest as it can possibly cost you more when you have a need to file a claim.

Flood insurance is also worth consideration as it can be a cost saving coverage–especially if your home is located in a designated flood zone.

Motorcycles–you may need a separate policy in most states and countries.

Riders are additional insurance that provides coverage for specific items or perils.  Paintings, expensive jewelry and the like may require that you pay an additional premium to get additional coverage.

 

Title Insurance

Lender’s Policy

Lenders will require that you purchase a policy to protect their interests when you get a home loan.  The purchase of a policy to cover you and your family is optional but highly recommended as it can help protect you from title issues from the day of purchase and well into the future–up to the policy limits.

Buyer’s Policy

As mentioned above the purchase of a buyer’s policy at closing is normally optional but highly recommended if you are a home buyer.

Keep in mind that there are limitations on the policy as it will normally only provide coverage for the purchase price–not appreciation of your home that may occur in future years.

 

Business Insurance

If you have a business including an office in the home where you meet clients–you more than likely will have a need for coverage.  Depending on your business–coverage on key employees may be a wise investment as well.

Errors and Omissions insurance may be required if you are a professional and that coverage can protect your company, your workers, and other professionals against claims of inadequate work or negligent actions.

 

Disability Insurance

If you become disabled–you want income replacement of at least 60% and a disability policy may be appropriate depending on your current financial position and ability to pay.

 

Health Insurance

It is imperative that you have health insurance, including dental, vision, hearing etcetera–where appropriate.

 

Liability Insurance

If you own a business make sure you are bonded & insured when appropriate.  If you have a high net worth or you are a high income earner make sure you have an umbrella policy.

 

Umbrella policies are a life saver for those who have a real need for coverage as it can help prevent you from coming out of pocket to settle large liability claims that could adversely affect your net worth.

 

Life Insurance

A major area of insurance that you want to get right at the earliest time possible is the coverage for your life–whether term insurance, whole life or a combination.

 

Whether term or whole life you want to insure that you and your family are covered at the appropriate level based on your financial position at this time.

 

Long-Term Care Insurance

With long-term-care costs rising yearly it is important that you have the appropriate coverage or a plan in place that allows you to pay monthly payments for long-term care from your personal savings.

 

Mortgage Insurance

MIP

Mortgage Insurance Premiums, commonly known as MIP is insurance for an FHA government loan that provides protection against the risk of loss to lender due to low down payment requirements of an FHA loan.

PMI

Private Mortgage Insurance, commonly known as PMI is insurance for a conventional loan that provides protection to lender against the risk of loss due to low down payment (less than 20% down).

VA Funding Fee

VA funding fee allows lenders to provide loans at little to no down payment for veterans–and at its core is protection for lenders who offer VA loans.

In some cases the above insurance fees will be held in escrow and you would include the fee in your monthly mortgage payment.

Mortgage Life Insurance will pay off your mortgage in the event of your untimely death or possibly inability to work and the premiums are often high compared to other insurance products.  They are often promoted by lending companies, life insurance companies and other financial providers.

 

Rental Insurance

Provides protection against property that you own while renting a premise up to policy limits–therefore you won’t have to come out of pocket to replace the covered items.

 

Rental insurance could be coverage for contents in your apartment, a rental house or other covered property.

 

Self Insurance

Self-insurance is the ideal position to be in as it allows you the ability to provide insurance to yourself and possibly family members and it is a lofty goal.  Your net worth is effectively so high that you don’t have a need for life insurance or possibly other insurance products.

 

Be sure to use caution with this approach as subjectively thinking you can self-insure may lead to you not having the coverage that you need.  Use this approach wisely and consult with a number of financial professionals if you anticipate using this strategy.

 

Even if you can self-insure–carrying insurance in a number of areas (particularly life insurance) can be a part of a well thought out estate planning strategy–if done right.

 

Umbrella Insurance

Provides additional liability coverage on top of what you may have in your home and auto policies, therefore preventing or reducing the likelihood that you will have to tap into your personal assets if you are liable after a lawsuit is filed against you or your household.

 

Other Insurance

Burial, insurance that covers your mortgage, accidental and other products are on the market and they are often heavily marketed to target audiences.

 

In most cases the premiums are high compared to the payout and you may have better options, therefore it is important that you shop for your insurance needs in an appropriate manner and in a competitive manner based on your needs, desires. and ability to pay on a consistent basis.

 

A number of companies–and most notorious Lloyd’s of London will insure just about anything including what you may think is not insurable.

 

If you have something or someone that you need to insure and traditional insurers don’t cover–consider going outside the box–so to speak–to find the coverage that you need when and where applicable.

 

Dismemberment, accidental injury and other policies that insurer’s come up with are available and you must do a careful, critical and analytical review of whether those insurance products are right for you.  By doing so you can stay on a more positive path toward making your dreams come true.

 

Or another way of looking at it is–will these products benefit me and my family the most or the insurer the most?

 

Conclusion

 

You must proactively analyze all areas of insurance to determine if you need coverage in areas that are applicable to you and then search the marketplace to find the best insurance products that fit your needs and goals.

 

It is imperative that you select a highly rated insurance company that on the surface looks like it will be around well into the future as you want a solvent company that is well managed and can pay out benefits well into the future.

 

By introspectively contemplating your need or requirement for insurance in all areas of your life that is applicable to you and your loved ones, you can position yourself for a lifetime of success and reduce the risks that you face–thereby putting you on a a more solid pace–to win your financial race.

 

Also realize that a properly funded emergency fund is a form of insurance (although not in the traditional sense) and can help you avoid using your insurance policy for minor occurrences (thereby increasing your premiums) and can help prevent you from tapping into your retirement and other accounts, thereby “insuring” a more prosperous future for you and your family.

 

You can now reduce the anxiety in your life by utilizing insurance appropriately so that you can avoid financial strife.

 

Isn’t it time you decide to give it your best!

 

All the best to your insurance and financial success as you now should expect nothing less…

 

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Credit & Wealth Building

 

Learn how you can understand how credit really works so that you can manage your credit effectively throughout your lifetime…

 

As TheWealthIncreaser.com  stated in the last discussioncredit and how you (and others) could thoroughly understand and benefit from would be discussed in clear and concrete terms.

 

In the most recent posts you gained a practical understanding of Personal Finance Statements, including a Personal Cash Flow Statement or Budget, an Income Statement, a Balance Sheet and a Net Worth Statement.

 

In this discussion TheWealthIncreaser.com will “hone in on credit” so that you will have an understanding and practical application of credit that you can use throughout your lifetime as you build wealth–therefore leaving all excuses behind as far as why you can’t achieve credit success!

 

Even though this discussion may be longer than most that you are accustomed to on TheWealthIncreaser.com–you will have no excuse for not managing your credit effectively throughout your lifetime after reading this blog and applying what you feel is relevant in the management of your finances.

 

How to Manage Your Debt Before a Major Purchase

 

A major purchase such as buying a house, car or boat is a big investment–and not only should you be prepared in advance—you should know what to expect throughout the process.

 

When you manage your credit you are in effect “putting on a show” (pun intended) for lenders of all types who have the power to grant you credit for various purposes.  Whether you are seeking approval for your home loan, car loan, boat loan or any other purchase, your lender would be agreeing to lend you all or a portion of the funds needed to cover your purchase.

 

Because a high-cost purchase often involves the use of borrowing, lenders (as best as they can) want to guarantee that you’re not a “risky borrower” and they want to know that you’ll be able to make your monthly payments on time and in full for the life of the loan.

 

Lenders will decide whether you’re a risk for a major purchase by looking at how well you’ve managed debt in your past, and how well you’re managing debt at this time.  Therefore, having some debt can be a good thing if you have managed your credit well in your past.

 

This should make sense to you because if you’re making a major purchase where borrowing is involved, you’d expect others who lend you money “would” want to ensure as best they can that they will be paid back according to the terms of the lending agreement.

 

It is important that you realize that whether you feel that it is fair or not, your payment history shows potential lenders your character and the real likelihood that they would be payed back in the future!

 

You may want to save as much money as you can before a major purchase—and in some cases that can be a wise strategy.

 

Even though you may not want your money tied up in debt—borrowing can serve a useful and beneficial purpose if used appropriately and in a wise manner.

 

You may have a need to borrow if:

 

  • You are hurting for cash to meet a current need and there are no other options

 

  • You anticipate a major purchase and borrowing makes good financial sense

 

  • Over a period of several months your bills are starting to pile up

 

  • You get interest rates that are better than the credit card payments that you are making

 

  • You desire to utilize credit as an overall strategy to build wealth more efficiently (use leverage to your advantage)

 

Even though you may use borrowing as an overall strategy to reach your goals more efficiently, always realize that “saving money” is always a good idea and cannot be overstated!

 

However, having some debt before buying your house or any other major purchase could actually be an important factor in getting you approved for your future loan(s)–including an auto loan, boat loan, mortgage loan or rental property acquisitions.

 

Why having some Debt can be of benefit

 

To see how well you manage your debt, lenders of all types, including mortgage underwriters will take a detailed look at your credit score, credit history and your debt-to-income ratio (DTI) to see if you are worthy of granting a loan.

 

In almost all cases where you want credit to work optimally for you, you’ll want to have a high credit score and a low DTI.

 

A high credit score indicates that you manage your debt reliably and responsibly.

 

A low DTI indicates that you don’t have too much of your income tied up in paying off debt and make you a less riskier borrower in the eyes of lenders!

 

Let’s take a closer look at your credit score–and DTI—so that you can achieve more:

 

Your Credit Score

 

Virtually every factor in your credit score is defined by your borrowing behavior.  If your goal is to create and improve your credit score, you need to take on debt and manage debt as responsibly as you can based on your finances and living circumstances.

 

Your credit score is usually impacted by the following five factors according to FICO:

 

(35%)

— Your “payment track record” is the most important factor considered in your credit score.  Lenders want to know if you’re a trustworthy borrower, therefore, they want to see if you make on-time payments on your debt.

 

(30%)

— Owing money on your credit cards, in particular, is not a bad thing.  However, if you’re using too much at one time, underwriters might take that to mean that you’re overextending yourself financially–and that is not good.

 

(15%)

— A longer credit history is favorable to a short credit history.  Therefore, if your credit history is limited you won’t necessarily be disqualified from borrowing money–but a longer history is looked at more favorably.

 

(10%)

— Underwriters want to see how you manage different types of debt or how you manage a mix (credit cards, auto loan, mortgage loan, personal loan, student loan etc,) of credit.

 

(10%)

— If you’ve opened multiple credit accounts at one time, this is a red flag for underwriters because it can suggest that you’re in financial distress–keep inquiries low if you are in the process of building your credit and you plan to use your credit for a major purchase in the near future (within the next 2 years).

 

If you were anticipating an auto loan, you want a minimum credit score of 640 and for a mortgage, you’ll typically need a credit score of at least 640 for a conventional loan and possibly 620 for an FHA or other government home loan–depending on the lender.

 

In many instances it could be best to shoot for a credit score of 700 or more in both instances, as you may be able to save thousands or tens of thousands over the life of the loan(s).

 

A higher credit score increases your chances of approval, and also increases the loan amount that you’ll be approved for–regardless of the “scoring model” being used.

 

In particular, a higher credit score could also help you secure a lower mortgage rate, which could save you a significant amount of money over the life of your home loan (in many cases from thousands to possibly tens of thousands)—depending on your mortgage amount and term(s) of the loan.

.

Your Debt-to-Income Ratio or (DTI)

 

Your DTI is a percentage representing how much of your income is put towards paying down debt.  Since a mortgage is such a large investment, and your monthly payments could be fairly substantial, underwriters, loan processors, lenders or anyone who plans on lending you money for the purchase will want to make sure that you’ll be able to make those payments on a consistent basis and repay the loan amount and interest.

 

Therefore it is imperative that you keep your DTI ratio low, the lower—the better—generally speaking!

 

In general, a DTI of 36% or lower (including housing) is ideal.

 

Generally, a DTI above 50% for conventional or government loans most likely would not be approved (although there are exceptions).  43% on the back-end and 31% on the front-end is what FHA loan grantors look for, meaning your debt of 31 percent excluding housing (front-end ratio) and your housing and debt income up to 43% (back-end ratio) would be preferable—however some lenders will allow you to exceed those limits–but it may not be wise to do so on your part–particularly if you do not have a properly established emergency fund or have a plan in place to create one.

 

To calculate your DTI, simply divide your monthly debt (debt that takes 12 months or more to pay off such as your credit cards, auto loan, student loan, personal loan, boat loan etc.) by your monthly gross income.

 

To calculate your housing plus debt ratio, simply divide your monthly debt (debt that takes 12 months or more to pay off) plus your anticipated housing monthly payment by your monthly gross income.

 

If your resulting percentage is higher than 50%, you’ll want to work on paying off some of your debt in most cases so that you can get a more favorable loan and also to help improve the odds that you will remain a home owner in the future as life can be unpredictable at times.

 

Homeowners who purchase with DTI ratios above 50% normally have other “compensating factors” at work such as an expected financial windfall, social security or pension income that will start in one year and other factors that compensates the high ratio–or makes the 50% or more ratio less risky.

.

Other Credit & Debt Management Tips

 

It is important that you reduce your debt to a more favorable level before making a major purchase such as buying a house.  It is very important that you maintain a solid credit score by making consistent credit payments, managing your debt at an optimal level and managing your overall finances at a level that is the best that is within you throughout your lifetime.

 

By maintaining a solid credit score you can get “more favorable loan terms” when you make a major purchase and particularly a mortgage loan–if you desire to become a home owner at this time or in your future.

 

A solid credit score can also reduce your daily stress levels and your money management will be made more efficient during your lifetime as well!

 

The following tips can help you manage your debt more efficiently whether you desire to make a major purchase such as buying a house or use credit for other purposes.

 

Whether you have already purchased your dream home and are currently making monthly mortgage payments or you desire to manage your credit for a home purchase or any other credit goal(s) in your future, you can more effectively and efficiently build your net worth to a more acceptable level by doing the following:

 

Take a Detailed Look at Your Credit Report

Your credit score is an important qualifying factor for building wealth and qualifying for a mortgage loan at a good or the best rate.

 

Therefore, it can be a good idea to take a look at your credit report at this time to ensure that everything has been reported correctly and that there aren’t any errors that need correcting.

 

You wouldn’t want your credit score to be negatively impacted because of mistakes in your credit report–and now you can eliminate that possibility by pulling your credit report at this time and challenging inaccuracies if and when they exist.

 

You can order your credit report for free from any of the three major credit bureaus:  TransUnion, Equifax and Experian, once per year by going to annualcreditreport.com.

 

Once you have your credit report it is important to look at the following:

 

  • Your personal information

 

  • Your credit accounts

 

  • Your credit inquiries

 

If you see any errors or inconsistencies anywhere in your credit report, they can be challenged with the credit bureau that created the report and you must exercise your right to do so as soon as you become aware of them.

 

Consolidate Your Debt if it makes Good Sense to Do So

 

If you find that you’re making payments on various loans and/or credit accounts, it could possibly save you money (and help you avoid negative stress) to consolidate your debt into one loan.

 

By doing so you could possibly pay interest on one loan instead of multiple loans!

 

Therefore, you won’t have multiple payments to keep track of and your stress levels could possibly be reduced.  Depending on your debt level and credit position you may be able to use zero percent credit promotions to consolidate a number of credit card payments and pay the debt off faster during the zero percent promo period to avoid high interest charges.

 

There are caveats that could make this and other approaches unwise—therefore you want to ensure that you have a wholesome approach to managing your finances prior to consolidating your debt and making other financial moves.

 

Always realize that what may appear prudent on the surface–could work against your best short, intermediate or long-term goals if not analyzed in a careful, critical and accurate manner.

 

In Many Cases it May Not be Wise to Make Drastic Changes to Your Credit

 

It can be tempting to pay off debt right before applying for a mortgage–however, doing so could actually hurt your credit score.  In many cases when you pay off a debt, your credit score will actually drop temporarily in the short run.

 

On the flip side, if you’re trying to build credit and try to open multiple credit cards, or take on other debt before applying for a loan, this will also reduce your credit score.

 

If you are applying for a loan (or anticipate doing so in the near future) a lot of change in your banking activity (large deposits that are not your norm etc.) and taking on new debt before applying for a loan (and particularly a mortgage) is a red flag to lenders and underwriters.

 

It can indicate that you might not be financially prepared to take on a mortgage! 

 

To put it bluntly, your credit pay off, opening new credit and overall credit and financial behavior must align with your goals!

 

Create a Budget or Cash Flow Statement as Soon as Possible

 

Whenever a financial discussion is taking place, budgeting or cash flow management often comes up and many are not enthused by the coversation.  Even though you are possibly bored by the conversation, it’s a meaningful way to track your income and expenses and ensure that you’re managing your finances as best you can.

 

There can possibly be a lot of costs involved with buying a house, and many other major purchases, therefore, you’ll want to make sure that you can afford your monthly payment and meet your other debt obligations in a manner that allows you to enjoy life on a consistent basis.

 

In most cases, creating a budget or cash flow statement can help you map out your current debt and other expenses in relation to your income so that you can meet your debt obligations from a more advantageous position!

 

By doing so you can improve your vision and see what’s happening with more clarity and make adjustments as needed.

 

A personal cash flow statement or budget can give you the peace of mind, confidence and clarity that you need–so that you can truly succeed.   You can therefore avoid overspending, and meet all of your other financial responsibilities from a position of strength as opposed to having a cluttered and in many cases overburdened mind that leads to unhealthy stress levels.

 

Properly Build Your Emergency Fund

 

Building and properly funding your emergency fund before getting a mortgage may be one of the most important things that you can do to proactively prepare for long-term success.

 

Even so, it is often overlooked by even those who consider themselves to be savvy money managers!

 

In life, emergencies of all types will occur and you never know what expenses might arise once you purchase your home or even while you are renting or leasing an apartment or house.

 

You don’t want all of your money tied up in your mortgage payment (you must manage your DTI effectively) and other monthly payments if, for example, your roof needs to be repaired, car issues occur, your HVAC goes out, plumbing issues occur and you encounter water damage or other concerns.

 

Many financial professionals suggest that you set aside three to six months worth of expenses in an emergency fund–and that is a wise suggestion in almost all cases.

 

Conclusion

 

 

A major purchase, including buying a house is a big purchase, and it can be daunting to think of getting a mortgage if you are trying to pay down student loans, an auto loan, credit cards, your monthly utility bills and other burdensome debt.

 

To help you save money and avoid or reduce unhealthy stress, work on paying down your other debt so you can be confident in your ability to make mortgage payments and enjoy your new home–if there is a need for you to do so.

 

However, you don’t need to be debt-free to buy a house.

 

In reality, some well-managed debt can boost your credit score, showing mortgage underwriters that you are a responsible borrower and can manage debt effectively!

 

Your goal is to avoid a financial hole that you’ll never come out of or  makes it difficult to manage your finances from month-to-month.

 

By taking the time to create a budget and analyze your credit report, you can see how you’re doing financially and where some changes (improvements) can or need to be made.

 

You may be able to consolidate some of your existing debt if it makes good financial sense to do so, or you could completely pay off some of your debt to improve your credit score and financial ratios and make your housing payment more comfortable!

 

In the end, you just want to make sure that you’re comfortable taking on a mortgage and you can afford to do so in a manner that allows you to enjoy life and live in as stress-free a manner as possible.

 

You already know how FICO scores are calculated and how you can improve your credit report and credit score.

 

Additionally you want to be aware of the VantageScore as well, as it is increasing in popularity and has slight differences from the FICO score.  VantageScore is the other scoring model that is widely used by some lenders but is not as popular as FICO–but you should be aware of.

 

However, if you manage your credit well based on the FICO standards—your VantageScore will improve as well!

 

Just so you are aware of and have a point of comparison the VantageScore consists of:

 

Payment history (approximately 40%)

 

The biggest factor in your VantageScore 3.0 credit scores is payment history.  VantageScore 3.0 puts more weight than FICO on your payment history–therefore you want to consistently pay your bills on time  and avoid being delinquent on your accounts.

 

A late or missed payment on the VantageScore 3.0 scoring model can significantly harm your credit scores, therefore you must pay all of your creditors in a timely manner.

 

Your payment history is a record of how often you pay your bills on time and how often you miss your payments or pay late.  Therefore, it is imperative that you make your payments on time as that can help improve your payment history and give lenders confidence that you’re likely to make future payments in a timely manner as well.

 

Age and type of credit (approximately 21%)

 

VantageScore 3.0 also factors in how long you’ve had different types of credit accounts open.

 

Ideally, lenders like to see long-term, established lines of credit , therefore having a variety of account types is preferred—as long as you stay up-to-date on your payments.  Lenders and underwriters normally like to see that you’ve used a mix of accounts or different types of credit on your credit report to see if you can effectively manage debt.

 

Your credit history or age of your accounts will indicate the types of credit accounts that you have and will show how long you’ve had them open and active.

 

By having a longer credit history and showing that you have different types of credit you will improve your score more than if you have a short credit history or  just one type of credit on your report, like credit cards or short-term loans.

.

Credit utilization (approximately 20%)

 

The purpose of the credit scoring industry is to help lenders get a clearer picture of the type of borrower you might be if they were to grant you a loan.  They want to see how you use credit and using a lower percentage of your available credit at any given time is preferable.

 

You want to ensure that your credit utilization ratio is below 30% or more preferably below 10%.  Another important goal to aim for is to pay your revolving (primarily credit card debt) debt off monthly.

 

You also want to get into the habit of using all of your credit cards every 4 to 6 months or so to keep the credit cards in your active mix as that will help ensure that your current credit issuers will not close your account due to inactivity.

 

If you have 6 credit cards use a different one every month for 6 months and then repeat the process–pay them off in full once you get your credit card statement if you are in financial position to do so and you will improve–or at a minimum maintain your credit score and lending power.

 

In a nutshell, your credit usage compares the amount of credit you’ve utilized to what you can still borrow.  You do not want to consistently use all of your available credit, like maxing out lines of credit or carrying high balances on credit cards or loans.

 

If you carry large balances–particularly on revolving debt, that will hurt your credit score, therefore you must do your best to maintain your balances at less than 30% of your credit limits or preferably 10% to help improve or maintain your credit score.

 

Balances (approximately 11%)

 

Be sure to keep the total amount of recently reported balances (current and delinquent) on your credit accounts low as lenders generally like to see low balances as it suggests the chances of you making on-time payments each month is higher.

 

Paying off your balances monthly is a good way to improve or maintain your credit and is something that you should strive to do–if you are not doing so at this time as you must avoid delinquent payments as best you can.

 

Your total balance includes all of your credit balances, and by maintaining low balances (primarily and particularly on your revolving debt) and making your required payments on time you can help improve your score and give lenders more confidence that you’re financially responsible.

 

Recent credit (approximately 5%)

 

If you applied for a new credit card lately or you have taken out a personal loan–lenders will want to know.  Your recent credit activity, including recently opened credit accounts and credit inquiries, can be an indicator of your future financial behavior.

 

Your recent credit activity typically covers credit checks made over the past two years.  It factors in any new credit cards or loans that you’ve applied for or opened.  A large number of recent credit checks, also known as credit inquiries by lenders could indicate that you’re in financial distress or opening credit lines in an irresponsible manner.

 

On the other hand, few, if any inquiries in your credit history may help your score.

 

Available credit (approximately 3%)

 

Although not a huge factor, lenders typically like to see that you’re only taking out the credit that you need.  By having available credit that you don’t use you are showing lenders that you are not over-extending yourself.

 

Therefore, you want to keep a good amount (70% or more of your available credit) of credit available that you don’t use.

 

Your available credit has the least impact on your credit score in the Vantage 3.0 scoring model.  This factor takes into account the amount of credit you can access and use.  Therefore, maintaining a low balance at or below 30% of your available credit could help improve your credit score.

 

Although you generally can’t control how your score is calculated, you can protect your credit score by paying your bills on time, maintaining a good mix of credit, avoiding high balances, and using only a fraction of your total available credit.

 

Key Points

 

  • Your credit score is a number, typically between 300 and 850, that shows potential lenders a snapshot of your credit history. Whether your score falls into an “excellent” range, “poor” range, or “somewhere” in the middle, it may impact your ability to access loans and services at a good or the best rate.

 

  • Many credit scoring providers use the VantageScore 3.0 scoring model which calculates your score based on six factors.  Each factor has a different impact on your credit score.  However, the majority of lenders use the FICO 8 scoring model which calculates your score based on five factors.  Factors and the applicable percentages on both scoring models are based on your unique credit file, so “percentages that are applicable to you” may vary according to your unique credit file.

 

  • Paying your bills on time, using only the credit you need, and maintaining different types of credit may have a positive impact on your credit score–regardless of the scoring model.  Also keep in mind that there are other scoring model versions for specific industries and other scoring models (including FICO and VantageScore) are updated to new versions and many lenders will use older versions, newer versions, industry specific versions and the like.

 

  • A good credit score might make a difference in whether you get favorable rates when applying for credit whether a major purchase such as a car or home, a credit card, employment, insurance, rental property and other areas of commerce (the 4th bureau–cell phones, utilities etc.).

 

  • Your goal should be to gain a general understanding of credit and not have a cluttered mind about credit and your finances, including what has been discussed above in this article.  Even so, you always need to know that Negative information, credit Utilization, the Time length of your accounts, the Type of accounts that you have and the number of Inquiries in your credit file are very important to understand and apply to your unique credit position.  Your understanding of a “budget or cash flow statement” and “properly establishing an emergency fund” are also a key takeaways from this discussion on credit.

 

Credit score ranges

 

To further drive home credit scores you must understand that FICO ranges from 300 to 850 while VantageScore also ranges from 300 to 850 but have slightly different weighting factors and weights as mentioned above!

 

  • Knowing where your credit score falls within the FICO and VantageScore ranges can help you get a sense of whether you might qualify for a loan or credit card—and what kind of rate you might be offered.

 

  • There are a few key differences between the VantageScore and FICO scoring models, including how they weigh different factors in determining your scores.  They both have a score range of 300 to 850, but there primary difference is the way the ranges are considered–poorfairgood or excellent.

 

Vantagescore 3.0

 

 

   FICO 
Excellent 781–850 800–850
Very good N/A 740–799
Good 661–780 670–739
Fair 601–660 580–669
Poor 500–600 < 580
Very poor < 500

 

Why does a good credit score matter?

 

  • A  good credit score varies across credit scoring models, however a score of 680 or higher is generally considered a good score with virtually all scoring models.

 

  • For FICO, a good score ranges from 670 to 739.   VantageScore considers a score of 661 to 780 to be good.

 

  • A credit score that falls in the good (680 and above) to excellent (800 and above) range should always be your goal.  Lenders will look at a variety of factors when considering a loan or credit application and higher credit scores play a huge role in getting approved at a good or the best rate.

 

  • You want to get the lowest interest rate possible and the most competitive terms possible, therefore an excellent credit score allows you to have an even better chance of being offered the best rates and terms available.

 

If you have poor or bad credit scores, you may be able to get approved by some lenders, but be prepared to pay higher rates than if you had good to excellent credit.

 

You may also be required to make a down payment (or larger down-payment) on a loan or get a cosigner.  Consider improving your credit position and pursuing your loan options at a later time if at all possible if your credit position is not ideal at this time.

 

The Consumer Financial Protection Bureau recommends keeping your credit utilization ratio below 30%.  This may not always be possible based on your overall credit profile and your short, intermediate and long-term goals, but it’s a good benchmark to keep in mind.

 

Aim for under 10% if possible!

 

Also realize that there are many credit resources available that can help you manage your credit and credit score more effectively and it is “your responsibility” to know what is available and can possibly benefit you and your family.

 

Micro lending companies, investment companies, banks, credit card issuers and many others now offer credit products and services that can assist you as you manage your credit and finances at a nominal or free level–and may be appropriate for you depending on your financial position and future goals.

 

Many different credit scoring models are available and it is important that you know what model is in use or what model your potential credit grantor will use when you apply for a loan!

 

Credit Score FAQ

 

How long will it take me to improve my credit to an acceptable level?

  • Your current credit position is unique and the time needed will vary from person to person and the type of loan that you will be pursuing along with your credit behavior over the past few years.

 

If you anticipate a major purchase such as a home purchase it may take anywhere from 1 month to 2 years to get your credit file in position to get a loan at a good rate.  However your credit patterns over the past few years will determine the real time frame.

 

By addressing your credit concerns at this time you are getting out front of your credit and your utilization of credit in the future will be more advantageous for you and your family.

 

Does checking my credit scores affect my credit?

  • Checking your credit scores and reports yourself won’t hurt your credit—it’s considered a soft inquiry. By keeping tabs on your credit scores you can spot potential issues early.  If your scores suddenly drop, it could be a sign that there’s an error in your credit report information, new credit was opened or that you may be a victim of identity theft.  In addition to your credit scores, you also want to check your credit file at the credit bureaus on a planned basis as well.  Also, credit checks by your current creditors are also considered soft inquiries.

 

  What is the maximum credit score that I should aim for?

  • Getting an 850 credit score is possible, but uncommon and unrealistic in most cases. Only about 1% of all FICO scores in the United States are 850, according to most public data.  Those with credit scores of 850 generally have a low credit utilization rate, no late payments on their credit reports and a longer credit history than most.

 

  • Keep in mind that having a “perfect” credit scores of 850 shouldn’t really be your goal.  You can still qualify for the best loan rates and terms if your credit scores are considered  excellent (roughly 800 or higher)–therefore aim for a score of 800 or more and then maintain that score and you will put yourself among the best potential lending candidates in the eyes of most–if not all–lenders.

 

What credit scores do I need to get approved for a credit card?

  • There’s no agreed upon minimum credit score needed to get approved for a credit card and issuer’s have their own criteria. Credit card issuers have different score requirements for their credit cards, and they often consider factors beyond your credit scores when deciding to approve you for a card.

 

  • In general, if you have higher scores, you’re more likely to qualify for most credit cards–and at a good or best interest rates.  If your credit is fair or poor, your options will be more limited and you may receive a lower credit limit and higher interest rate or you may have to start with a secured credit card.  If you are new to credit, you can establish a credit file within 6 months.

 

Which credit score is more important?

  • No one credit score holds more weight than the others generally speaking.  Different lenders use different credit scores and versions. Regardless of the scoring model or score that is used, making on-time payments, minimizing debt utilization, paying on time over time, maintaining different types of credit (cards and loans) and limiting new credit applications or inquiries, can help keep your credit in good to excellent shape and you will be looked at favorably by most lenders.

 

By stretching your mind and learning more about credit and wealth building, you are now on a serious path toward reaching your goals and ensuring a more prosperous future for yourself and your loved ones.

 

All the best as you are no longer “frightened” as you pursue a lifetime of credit and financial success…

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Personal Balance Sheet & Wealth Building

Learn why knowing what your “assets and liabilities” are can help determine your net worth and help you build wealth more efficiently in the current economy…

 

As you build wealth it is important that you have an understanding of the assets that you own and the liabilities that you have incurred so that you can do more to build your wealth to an acceptable level or a level that you need to attain to make your life more meaningful and significant while you are here on planet earth.

 

By knowing what you are worth you put yourself in a better position to manage your finances and reach your financial goals.

 

In this discussion TheWealthIncreaser.com will discuss the importance of utilizing a “personal balance sheet” so that you can know what you are worth “from a financial perspective” and provide guidance on how you can use that knowledge to build wealth more efficiently in the coming years.

 

This discussion builds off of Personal Financial Statements including  Cash Flow Analysis, Personal Income Statements and Net Worth that were discussed in previous articles.

 

By taking the following 3 steps you can help ensure a more prosperous future for your family and loved ones and by implementing those three steps at this time–help you “engage in your finances” in a manner that can lead to true and lasting success for the duration of your lifetime, and even after you transition!

 

1) Compile a list of your assets and liabilities

It is important that you take inventory of what you own and who you owe.

 

A personal balance sheet can help give you the needed focus so that you know who you owe and what you own in a more concrete and definite manner.

 

At this time you may want to gather all of your financial documents (bank statements, investment statements, mortgage statement, life insurance policy, auto loan statement, credit card statement, student loan statement, personal loan statement along with other documents that show ownership or in which you owe others) so that you can determine your “net worth” and start on a realistic path that can lead to you making better financial moves from this day forward.

 

By entering the required data in the form below you can get a better feel of where you can go in your financial future and you can enhance your probability of achieving the success that you desire from this day forward!

 

To determine your value of your home you may want to contact your real estate agent or the agent who helped you purchase your home to determine the value.  If you have a mortgage you would subtract what you owe from the valuation that you get from the real estate agent to determine your equity position of your home (asset).

 

On the form below enter the market value of your home under assets and what you owe on the mortgage(s) (if you have one) under liabilities.

 

To determine your value of your auto you may want to utilize the kelley blue book to determine the value of your auto and if you have a loan you would subtract what you owe from the valuation that you get from the kelley blue book or other auto valuation service to determine your equity position of your auto (asset).

 

On the form below enter the market value of your auto or other personal use  asset under assets and what you owe on the loan(s) (if any) under liabilities.

 

Keep in mind that “personal use assets” include your auto, motorcycle, boat or other watercraft, bikes, recreational vehicles and other assets that are of a personal nature.

 

For your household assets and other assets you can use an appropriate method of valuation or use professionals if you desire–just keep in mind the valuation may not be accurate as it is only an estimate and estimates may not reflect the true value of the asset(s).

 

However, your estimate or other professionals estimate of value will provide valuable insight (no pun intended) in helping you to determine your net worth as opposed to “shooting from the hip” and not being close to the true value of your assets, and hence your net worth.

 

How to create a Personal Balance Sheet in Simple Form:

 

Balance Sheet 10/16/2021 (Enter the date that you create your balance sheet)

Assets:

Cash/Cash Equivalents 

JT Checking                                     $_________

JT Savings                                        $_________

H Checking                                       $_________

W Checking                                      $_________

H Savings                                          $_________

W Savings                                         $_________

JT Certificate of Deposit                   $_________

JT Money Market                             $_________

JT Other                                            $_________

Total Cash & Cash Equivalents                                      $_________

 

Invested Assets

Cash Value Life Policy                       $_________

Stocks                                               $_________

Bonds/Mutual Funds                        $_________

Other                                                $_________

Total Invested Assets                                                         $_________

 

Personal Use Assets

JT Personal Residence                        $_________

JT Vacation Home                              $_________

JT Jewelry                                           $_________

JT Furniture & Household                  $_________

JT Auto(s)                                            $_________

JT Other                                               $_________

Total Personal Use Assets                                                  $_________

 

Total Assets                                       $_________

 

Liabilities & Net Worth:

Current Liabilities 

JT Credit Cards                                     $_________

H Credit Cards                                      $_________

W Credit Cards                                     $_________

Other                                                    $_________

Total Current Liabilities                                                     $_________

 

Long-term Liabilities

H Mortgage                                       $_________

W Mortgage                                      $_________

H Auto Loan                                      $_________

W Auto Loan                                     $_________

Other                                                 $_________

Total Long-term Liabilities                                            $_________

 

Total Liabilities                            $_________

 

Net Worth

Total Assets                     $_________

– Total Liabilities             $_________

 

TOTAL Net Worth                                                       $_________

 

Note:  JT means Joint Tenancy

H means Husband

W means Wife

 

2) Use your knowledge of your net worth and your current financial position to build your wealth more efficiently and reach your retirement number

After plugging in the appropriate numbers above and determining your net worth and knowing where you now stand financially, you are now in position to plan for long-term success.

 

You can now plan for your retirement years in a more appropriate manner because you now know your cash flow position on a monthly and annual basis and that allows you to use your discretionary income to save for retirement and reach your retirement number.

 

If you lacked the discretionary income you would know what you need to do to get in a better (pay off debt, get more income, gain new skills etc.) position so that you can pursue your retirement number and other goals at a later date.

                                                                                              

3) Ensure that you comprehensively manage your finances so that you can achieve more

By knowing your net worth at this time you can plan for your future in a more wholesome manner.

 

You can address your insurance, investments, taxes, education planning, estate planning/wills and retirement planning from a position of strength as opposed to letting anxiety and other excuses that you may come up with rule the day!

 

You can create and properly fund an emergency fund (if you have not done so already) so that you can achieve more and you can manage your credit, assets and other liabilities that you may owe in a manner that is more favorable to you and your family–not creditors.

 

Conclusion

By knowing what you own and what you owe “at a particular point in time” you can create written plans that can lead to your net worth increasing on a consistent basis.

 

Always realize that when valuation of your assets are concerned you may have to use estimates that you or other professionals make, and as we all know an estimate is only and estimate–however it does help you get a better handle on your finances and net worth than merely guessing.

 

Regardless of your net worth, you must realize that your self-worth is far more important in the long run as you must know that you are worthy of what you think you are worthy of.

 

By having that mindset, you position your mind and heart to make future moves that can increase your net worth to an acceptable level and help you manage your money more efficiently at the various stages of your life–even if you now have a negative net worth.

 

You can position yourself to manage your money better and achieve at your highest level of excellence.

 

It is imperative that you know your net worth at a particular point in time so that you have a metric that you can use to track your advancement over time so that you can truly reach your goals!

 

If your current net worth is $150,000 in October of 2021 and you manage your finances effectively for a number of years and your net worth increases to $500,000 by October of 2030, you know that you are making real progress and making good financial decisions.

 

On the other hand if your current net worth is $150,000 in October of 2021 and you manage your finances for a number of years and your net worth only increases to $200,000 by October of 2030, you know that you are not making real progress and you are not managing your finances effectively–generally speaking.

 

You now have an understanding of how you can use your personal balance sheet and other  personal finance statements to make your dreams come true if you do what you  need to do.

 

Over the past six weeks or so you have learned how you can use a budget or personal cash flow statement, personal income statement and personal balance sheet to improve your net worth and achieve your goals more efficiently.

 

It is important that you realize that your “personal net worth” and your “credit score” are in most cases the two most important numbers that measure your financial health–and your understanding of how you can use these numbers to your advantage is critical as you build wealth.

 

Y9u also know that your “retirement number” is a key number that you should aspire to reach if you desire to live out your life in a dignified manner that allows you to do what you want to do during your retirement years and even after you transition from planet earth.

 

While you may have thought it to be hard and time consuming to calculate your personal net worth prior to visiting this page and site, you now know that calculating your net worth is not as difficult and draining as you may have thought if you organize your financial data and you have an effective approach.

 

Likewise, your credit file and credit score is easy to access and improve upon if you have the right approach!

 

Always realize that your net worth and credit score are highly correlated, meaning if you have a high net worth you would generally have a higher credit score than those with a low or negative net worth.

 

Even so, your net worth is not used to calculate your credit score, as rating agencies use figures other than net worth to calculate your credit score.   In our next article TheWealthIncreaser.com will discuss in clear terms how you can improve your credit score and manage your credit effectively throughout your lifetime.

 

You are now on a serious path toward achieving your goals and you are now much more informed on how you can achieve more financially and make your journey toward significantly improving your finances a more joyous and rewarding experience.

 

All the best as you increase your net worth and improve your living conditions while you are here on earth…

 

NOTE: You or your in this discussion could mean you as well as other members of your household who contribute financially whether it be your spouse or other members of your household.

 

Find out what you can do to make your dreams come true–by visiting our most frequented page–Wealth Building & You…

 

More on Personal Cash Flow Statement (Budget)Income StatementBalance Sheet & Net Worth Statement

 

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Personal Income Statement & Wealth Building

Learn how you can use your knowledge of what you earn on an annual basis to achieve more…

 

It is important that you know your income that you earn along with your expenses that you pay out on an annual basis.

 

In this discussion TheWealthIncreaser.com will discuss the importance of looking at your income over a period of time so that you can more effectively pursue and reach your future goals.

 

In the last article TheWealthIncreaser.com discussed the importance of creating a budget or cash flow statement in concrete terms so that you could achieve more throughout your lifetime.

 

This discussion will build on that theme as it is important that you have a real grasp on how you can use personal finance statements to achieve more throughout your lifetime.

 

Although creating a “personal income statement” for the first time can be difficult and challenging for some, the benefits and time spent will be well worth it if you are now sincere in your desire (efforts) to achieve real success and build wealth in a manner that allows you to give it your best.

 

If you have a yearning to reach higher and achieve more–you can do so with a high level of determination and the inclination to look at your yearly inflow and outflow of cash into your household and use the results of that analysis to plan for a more rewarding future as you build wealth.

 

By utilizing the following 3 steps you can start on a more definite path to building wealth in the current economy–or any economy!

 

1) Complete a self-analysis of where you now are financially on an annual basis

It is important that you know what amount of income comes into your household and goes out of your household on an annual basis or a set time or interval as that knowledge is invaluable when you are in the process of building wealth.

 

Does your annual income exceed your annual expenses or is there a shortfall? 

 

You can think of your personal income statement in the same manner as your personal cash flow statement but realize that instead of monthly, it is over an interval of time such as 6 months or more commonly 12 months.

 

The following personal income statement provides you a blueprint of what you need to enter to come up with your income and expenses over a 12 month interval to help you better determine financial moves that you can possibly make in your future that can lead to more success for you and your family.

 

How to Prepare a Personal Income Statement in Simple Form:

 

Yearly Receipts (2021)

 

Wages                                                                     $_________

Dividends                                                               $_________

Interest                                                                   $_________

Rental                                                                      $_________

Royalty                                                                    $_________

Other                                                                        $_________

TOTAL Yearly Receipts                           $_________

 

Yearly Expenditures

 

Auto loan payment                                              $_________

Auto maintenance                                               $_________

Child care                                                               $_________

Clothing                                                                  $_________

Contributions                                                        $_________

Credit card payments                                           $_________

Dues                                                                         $_________

Entertainment                                                       $_________

Food                                                                         $_________

Household maintenance                                     $_________

Income & SS taxes                                                $_________

Insurance                                                               $_________

Personal care                                                         $_________

Property taxes                                                       $_________

Rent payment                                                        $_________

Mortgage payment                                               $_________

Retirement Investment                                       $_________

Saving/investing                                                   $_________

Transportation                                                      $_________

Utilities                                                                   $_________

Other                                                                       $_________

 

TOTAL Yearly Expenditures                     $_________

 

 Net Cash Flow

Total yearly receipts                                             $___________

Total yearly expenditures                           –       $___________

 

Annual Discretionary Net Cash Flow                 

$___________                                                                             

 

The above income statement is rather simplistic, however if you enter accurate data it can be used as a template to transform your financial future and help you build wealth more efficiently.

 

It is important that you know what amount of income you earn annually and the amount of payments that you pay out on an annual basis and an income statement allows you to determine in a real sense where you can go financially  in not only the coming years but also decades, if used properly.

 

If your income and expenses listed above are of a fixed amount (same dollar amount) monthly you can multiply by 12 to come up with your annual numbers.  If you have variable expenses you may want to use estimates (be sure that the estimates are realistic) or average on a monthly basis.

 

If you have 12 consecutive months of cash flow statements available you may want to total them up and use them to construct your annual personal income statement on a fiscal rather than annual basis.

 

2) Determine where you want to go based on what your income statement allows you to do

By knowing the amount of income that you have available on an annual basis (or knowing if you have a shortfall) you can plan your future with more certainty.

 

You will know the amount of income that you have available so that you can formulate goals and objectives that can move you forward and make your existence on earth a more pleasurable one.

 

You will know if you need to get more income, reduce your expenses and/or put together debt payoff plan(s) so that you can truly reach your desired goals.

 

You no longer have to live your life in a manner where anxiety rules the day–as you now are aware of a more effective way–to keep financial problems at bay!

 

3) Determine that you will manage your finances in a comprehensive manner so that you can achieve more throughout your lifetime

Now that you have a handle on your annual income and expenses you can use what you now know to plan more appropriately for a more prosperous and rewarding future.

 

You can also expand your mind by learning new areas of your finances that you may not have addressed appropriately at this time or in your past.

 

By looking at your finances in a comprehensive manner at this time you position yourself and your family for a more rewarding financial future where success is even more likely to occur.

 

Conclusion

A personal income statement may be what is needed to give you the mental picture of what you can achieve in your financial future.

 

By seeing what you earn annually and what you pay out annually with more clarity–you can move forward confidently toward who you were meant to be.

 

You can think of your annual personal income statement as a budget or cash flow statement, however instead of a monthly time period it covers a 12 month or other designated time period.  You can also more clearly visualize your “personal income statement” by looking at the net discretionary cash flow for the year as your household profit–or if you come up with a negative number(shortfall)–your household loss for the year!

 

You now know that success lives in you–use your practical knowledge of personal income statements and how you can enhance your mental qualities for the better–to really make your dreams come true!

 

Now is the time that you display your commitment to your future by mapping a path forward where you are “all in” and the wealth building that you desire is more likely to occur–due to your efforts to put yourself in position to  win–again and again!

 

All the best as you achieve a new level of success…

 

NOTE: You or your in this discussion could mean you as well as other members of your household who contribute financially whether it be your spouse or other members of your household.

 

Find out what you can do to make your dreams come true–by visiting our most frequented page–Wealth Building & You…

 

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Cash Flow Analysis & Wealth Building

Learn how knowing your cash flow position and acting on that knowledge can lead to a lifetime of financial success…

 

In the current economy many are concerned about their financial future and are interested in improving their finances in an efficient and highly effective manner.

 

In this discussion TheWealthIncreaser.com will make a shift from the most recent discussions that focused on inspiring you to take action and showing you action steps that could lead you toward achieving more, to discussing in concrete terms how you can improve your “cash flow position” and finances throughout your lifetime.

 

Although managing your cash flow or budget can be difficult and challenging for many, it really is not as difficult as you may think if you have an effective plan of attack and you are sincere in your desire (efforts) to achieve real success.

 

If you have a yearning to reach higher and achieve more–you can do so with a high level of determination and the inclination to look at your monthly inflow and outflow of cash into your household at this time.

 

On many occasions in the past TheWealthincreaser.com sent visitors to other pages and sites when it came to constructing a budget or cash flow statement, however in this discussion the creator of TheWealthincreaser.com will show you in precise terms how you can budget effectively in your future by taking the following 3 actions.

 

1) Complete a self-analysis of where you now are financially

In the following data (cash flow statement) you will find information that you can use to start on a path of life that you choose.  Whether you earn $50,000 per year or if you earn $100,000 per year or any other amount–you can plan your future in a more certain manner by analyzing your income and expenses on a monthly basis by creating a cash flow statement or budget–at a minimum.

 

How to Prepare Your Monthly Budget (Cash Flow Statement) in Simple Form:

 

Monthly Receipts

 

Wages                                                                     $_________

Dividends                                                               $_________

Interest                                                                   $_________

Rental                                                                      $_________

Royalty                                                                    $_________

Other                                                                        $_________

TOTAL Monthly Receipts                           $_________

 

Monthly Expenditures

 

Auto loan payment                                              $_________

Auto maintenance                                               $_________

Child care                                                               $_________

Clothing                                                                  $_________

Contributions                                                        $_________

Credit card payments                                           $_________

Dues                                                                         $_________

Entertainment                                                       $_________

Food                                                                         $_________

Household maintenance                                     $_________

Income & SS taxes                                                $_________

Insurance                                                               $_________

Personal care                                                         $_________

Property taxes                                                       $_________

Rent payment                                                        $_________

Mortgage payment                                               $_________

Retirement Investment                                       $_________

Saving/investing                                                   $_________

Transportation                                                      $_________

Utilities                                                                   $_________

Other                                                                       $_________

 

TOTAL Monthly Expenditures                     $_________

 

Net Cash Flow

Total monthly receipts                                             $___________

Total monthly expenditures                           –       $___________

 

Monthly Net Cash Flow                 

$___________                                                                             

 

The above cash flow statement is rather simplistic, however if you enter accurate data it can be used as a template to transform your life and particularly your financial future.

 

In simple form in the end you are basically subtracting your monthly outflow (expenditures) from your monthly inflow (receipts) to come up with your monthly net cash flow (discretionary income).

 

Your wages would be your “gross wages” for the month  and would be entered in the monthly receipts category along with other sources of income (cash or equivalents) that you receive on a monthly basis.

 

Your federal and state (if applicable) income taxes paid, social security and medicare (amount withheld on your pay stub(s) for the month) would be entered in the monthly expenditures category along with your other expenditures or monthly payout of cash or cash equivalents.

 

If your retirement contribution is made on a pre-tax or post-tax basis include that as well.

 

Keep in mind the statement can be further broke down into categories such as fixed and variable expenses to add further clarification as you formulate your goals.

 

The key point is that you are ready to get started on a path toward financial success and you are fully committed in doing so.

 

It is very important that “you” want to determine your discretionary income  (monthly net cash flow) or lack thereof, so that you can plan accordingly or make adjustments so that you can reach your desired goals.

 

If you come up with a low or negative “net cash flow number” there is no need to panic at this time as that is not uncommon.

 

The key is that you may need to change your habits, get more income, cut expenses or do a combination of actions to get your cash flow in the positive column in the future so that you can more effectively reach your goals.

 

In a future discussion TheWealthIncreaser.com will provide an actual cash flow statement with real numbers so that you can have a real blueprint of what you can do to further enhance your finances and use the data entered as a guide to give you ideas that you can readily comprehend so that you can make your dreams come true.

 

2) Determine where you want to go based on data from your self-analysis

Can you use the data derived to move forward or must you come up with a payoff or pay down plan before you can actually make real progress?

 

Either way, as mentioned earlier there is no reason to panic! 

 

You can manage your money better on a consistent basis by being open to learning new and more empowering ways of doing so and putting what you learn into action on a consistent basis.

 

You can reach your retirement goals, you can pay off your credit card debt, you can get more income to make your life more meaningful, you can donate and spend time at your favorite charities–however it starts by leaving excuses or reasons why you can’t (or won’t) move forward behind you!

 

3) Determine to do even more to improve your finance and wealth building position

You must realize that improving your finances is a lifelong process.

 

That means you must build off of your financial analysis and decide to do even more by looking at your finances in a comprehensive manner.

 

By making a sincere effort to analyze your insurance, investments, taxes, education planning, estate planning/wills and retirement planning in a more congruent manner you can set yourself up for a lifetime of success where you control the direction as opposed to being pulled in directions that are not of your choosing.

 

Conclusion

By knowing your cash flow position at the earliest time possible you can position yourself and your family for a more prosperous and relaxing future.

 

You can use the above blueprint to change the direction of your life right now and leave all excuses and reasons that you can’t have a successful financial future behind you–once and for all!

 

Your actual numbers from your cash flow analysis will be unique to you, however the basic concept or understanding of how to move forward will remain constant for the most part.

 

If  after entering your data above you find out that you have adequate discretionary income that allows you to reach your desired goals–great!

 

If after entering your data above you determine that you don’t have adequate discretionary income you must make adjustments and possibly cut expenses, get more income or more than likely do a combination of the two!

 

It really is just that simple!

 

Isn’t it time that you forge a new and brighter future where success is more likely to occur and not just move about daily with no certainty of where you are headed?

 

All the best as you “analyze your cash flow” and set meaningful goals in an attempt to reach your highest level of success and make your money grow–so that you can once and for all put excuses to rest…

 

NOTE: You or your in this discussion could mean you as well as other members of your household who contribute financially whether it be your spouse or other members of your household.

 

Find out what you can do to make your dreams come true–by visiting our most frequented page–Wealth Building & You…

 

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Decisive Action & Wealth Building

 

Learn why your “decisive action” at this time can lead you toward effective wealth building throughout your lifetime…

 

When it comes to reaching meaningful and significant goals that you “really” want to achieve it is important that you have a decisive mindset if you sincerely desire to achieve those goals.

 

And when it comes to building wealth efficiently it is more important than ever that you are “decisive” in your decision to pursue what you desire most at your highest level of effort and energy.

 

In this discussion TheWealthIncreaser.com will discuss the importance of “being decisive” when it comes to building wealth and pursuing your goals in a manner that is more beneficial for you and your family.

 

Decisive Mindset

It is important that you have a “made up mind” when it comes to building wealth more efficiently.

 

It is important that you run through your mind in a serious manner what it is that you really believe and you really want to achieve.

 

You must know that success lives in you–because if you do–you put the most important ingredient necessary (that can lead you toward making your dreams come true) in the mix and that can be the needed ingredient that can give your finances a needed fix!

 

You must know in certain terms that you are responsible for achieving the results that you want to see and you must have the mental fortitude that is stronger than a palm tree.

 

Decisive Action

It takes more than just a mindset of decisiveness to get things done—you must also move to action toward what you desire to occur in a consistent manner.

 

You must act on what you know can move you forward and not just let what can move you forward exist in your mind.  Your daily habits and consistency in action is what will give you real traction.

 

When you really think about it your thoughts or plans that you have are really nothing!  

 

It is only when you take action and put into motion what you know you need to do to turn those thoughts into something (the goals that you desire or need to achieve) that you want to see come true that you will reach significant goals.

 

Decisive Determination

You must have an unrelenting spirit to pursue what you desire at a level that is the best that is within you and at a level that allows you to do what you need to do to make your dreams come true.

 

Even if you have the mental toughness and you plan on taking action on a consistent basis–that alone will not be enough if you are not determined or determined at a really high level.

 

You must put into motion what you need to do “and” you must also be determined at a high level to always take what you are pursuing in as serious a manner as possible as you must have every intention on achieving what you desire.

 

Conclusion

There is no reason for you to be MAD about your current state of your finances and there is no reason for you to “fear your wealth building future” if you possess in your mind the right tools and you use those tools to your best advantage at the various stages during your life.

 

You must have the right mindset, take the right action and determine at this time that you truly want success in your future!

 

It is also important that you know your money management personality at this time and then take action and choose to achieve at a higher level by taking the necessary steps in a determined manner (starting right now) that will allow you to achieve in a more definite and efficient manner.

 

Why leave your future to chance when you can put in place steps that can take you toward your destiny and who you were truly meant to be while you are here on planet earth?

 

All the best to your decisive action to work toward achieving a higher level of success…

 

Find out what you can do to make your dreams come true–by visiting our most frequented page–Wealth Building & You…

 

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