Estate and Tax Planning
Private Fiduciary Services
Retirement Planning
Long Term Care
Risk Management

Reduction in Social Security Benefits

June 6, 2011 | Filed Under Finance, Retirement Savings, Tax Articles | Comments Off

Social Security has been a heavy burden upon the government for some time.  The number of baby boomers reaching retirement will flood the Social Security roll call to an unsustainable level.  The government has borrowed against Social Security, leaving it highly susceptible to collapse.

In an effort to solve the Social Security dilemma, if at least for political gain, proposals are being offered to reform the program to shore up it’s financial coffers.

One of the proposals suggests changing the formula used to calculate the Cost-of-Living-Adjustment(COLA).  Automatic annual increases to benefits occur to offset the rising cost of living…inflation. The modification would reduce the increase by three tenths of one percent(0.3%).  The adjustment for inflation is a valuable aspect of Social Security, one not often found in pension benefit programs.   A reduction in the adjustment, however slight, will erode further the retirees’ ability to survive financially.

As it stands today, an estimated 29% of Americans in the second-highest income bracket will run short of money after 20 years in retirement and approximately 40% in the lowest pre-retirement bracket will run short in just 10 years, according to projections by the Employee Benefit Research Institute(EBRI)’s 2010 Retirement Readiness Rating ™.

A 0.3% reduction may not sound like much,  but the impact will have a compounding effect on the benefits one receives and is predicted to be almost immediate with no grandfathering in of current recipients to the old rates.   Compounding interest is great when it is in your favor, but it will eat away at your buying power when it is against you.

The National Academy of Social Insurance(NASI) estimates a 3.3% reduction in the COLA will cut lifetime benefits by about 9% for someone reaching the age of 92.


Here are 5 Tips to counter measures proposed to reduce one’s overall Social Security benefits:

  • Save as much as you can now.  A rule of thumb is 10% of your income.
  • File for Social Security benefits later rather than earlier.  The longer you wait to draw on Social Security, the greater the benefits you may receive over your lifetime.  For example, someone starting to take benefits at age 62, will likely receive 25% less in benefits then someone who waits until the age of 66.   If you wait until age 70, your benefits could increase by as much as 32%!
  • Keep working.  Not a prospect most of us are looking forward to, but the longer you work, the more you can contribute to your 401(k) with hopefully company matches.  You’ll also delay onset of receiving
  • your SS benefits.
  • Reduce  your fixed costs, in particular, your mortgage.
  • Stay ahead of inflation with investments that outperform or at least keep pace with inflation.

Some reform measures look to raise the retirement age(this is just a forced delay in taking your Social Security benefits…one that profits the government and not you), or raising Social Security taxes.  These ideas I think will merely benefit the politicians and hurt the rest of us.  Reducing the Cost-of-Living-Adjustment would keep a little more in the Social Security storehouse, and will seem less of a threat to many retirees lifestyle, that it may just pass.  This however, is seen by some experts to be a bigger threat to retirees future financial security.

Simpler Tax Laws

May 13, 2011 | Filed Under Tax Articles | Comments Off

Simplifying the tax code has been the cry of the common citizen for decades and yet the tax laws only continue to increase in complexity.
A House Ways and Means Committee hearing in April heard once again the need for simpler tax laws. The American Institute of Certified Public Accountants was one of the voices heard.

“Individual taxpayers and their families need simple tax laws so they can understand the rules and follow them correctly in a cost-efficient manner”, Annette Nellen, chair of the AICPA Individual Income Taxation Technical Resource Panel, said.

Ms. Nellen highlighted education as a prime example of the complexity woven into the tax code, that often confuses and intimidates taxpayers. Not to mention, costing them potential tax savings.

“Few, if any, taxpayers are both aware of all the education tax incentives and fewer still can perform the analysis to determine which incentive is most advantageous,”  Nellen said.  “The  requirements, eligibility rules, definitions, and income phase-outs vary from incentive to incentive.”

IRS Publication 970  takes over 80 pages to explain all the education provisions applicable to the two-page Education Credits Form 970.

A couple of years ago, a Government Accountability Office report, determined that nearly one-fifth of eligible taxpayers had not claimed either a tuition deduction or a tax credit that could have reduced their tax liability by $219 on average.

Over 6.1 billion hours a year are spent by taxpayers and businesses in complying with tax-filing requirements.  Imagine what a nation of productive workers could accomplish with a regained 6.1 billion hours!

Education of course isn’t the only area that is bogged down in tax “red-tape”.  The Earned Income Tax Credit (EITC), Alternative Minimum Tax, mileage rates, due dates as well as most of the tax code should be simplified.

The taxpayer isn’t the only one to benefit from proposed tax reform. The government is estimated to have lost revenue of between $9.6 billion to $11.4 billion in 2005 from “over claims” in the EITC.

Reducing the complexity in the tax law would improve compliancy by a tax base that could complete a tax return accurately and quickly.  More taxpayers would be able to claim benefits they were entitled to and the government would more easily be able to identify inaccuracies and out right fraud.

Tax Reformers Targeting Life Insurance

March 11, 2011 | Filed Under Insurance, Retirement Savings, Tax Articles | Comments Off

Is the cash value in your life insurance policy on its way out with tax reform?

In an attempt to tackle the federal deficit and increase revenue, Congressional members are tossing around ideas to alter the tax treatment in insurance policies and retirement plans.  House Budget Committee chairman and a leader of the tax reform effort, Republican Paul Ryan, R-Wisconsin., said in January to the National Press Club, that he would not rule out removing the tax treatment policyholders receive on the cash that is built up in their life insurance policies.

This comes in the wake of a Congressional defeat of similar proposals offered by the President’s National Commission on Fiscal Responsibility and Reform in December 2010.  Mr. Ryan voted against that commission’s proposals.  But a month later, in a response to questions regarding tax reform and the favorable tax treatments in insurance policies, Mr. Ryan said, “We’re looking out for the American people,”  “We’re looking out for the American economy. We’re not looking out for this narrow special interest that has a little piece of the tax code carved out which serves as a direct barrier to entry against….competitors.”  He stated, however, that it is too early to tell whether he and his GOP colleagues will eliminate the tax benefits in insurance policies through future tax reform.

In defense of it’s policyholders, the insurance industry will fight against any attack on the tax-deferred buildup of cash value in life insurance policies, and the tax-free death benefit.  Terry Headley, president of the National Association of Insurance and Financial Advisors, said “What we don’t want to do is for the American public to be disinclined to provide for their own financial security and, therefore, creating a greater dependence on government.”

Death and Inheritance Taxes

March 9, 2011 | Filed Under Insurance, Retirement Savings, Tax Articles | Comments Off

A lot of attention has been paid to the Federal Estate Tax, but there are 20 states in the Union, including D.C. that have their own Estate or Inheritance Tax. Two states, Maryland and New Jersey, have both!

Many people are unaware that they may be living in a State that has it’s own Estate or Inheritance Tax. According to Constance Fontaine, an Associate Professor of Taxation at American College, “People are writing checks in the thousands who didn’t expect to be.”

Exemption levels are often low, so many beneficiaries are surprised the estate they inherited qualifies to be taxed.  In Ohio, for example, the Estate Tax exemption level is only $338,333.  In New Jersey, the exemption level is $0.

Estate tax rates are typically in the teens, unless you live in Minnesota. The top estate tax rate there is a whopping 41 percent for estates totaling more than $1 million.  Inheritance tax rates are usually in the teens as well.  In Indiana, however, you will pay 20% of your inheritance back to the state, if you inherit more than $150.

Many people in these 20 states are affected more by these state taxes than they are of the federal taxes.

Life insurance policies can sometimes be used to pay for the expected taxes, since their benefits are exempt from these taxes in most states.  However, you have to be careful the insurance benefit goes to an individual and not to the estate or executor.

Estate Tax                                2011 Exemption                                  2011 Top Rate

  • Connecticut                             $3,500,000                                          12
  • Deleware                                 $5,000,000                                          16
  • District of Columbia                 $1,000,000                                          16
  • Hawaii                                     $3,600,000                                          16
  • Maine                                      $1,000,000                                          16
  • Massachusetts                        $1,000,000                                          16
  • Minnesota                               $1,000,000                                          41
  • New Jersey                             $   675,000                                          16
  • New York                                $1,000,000                                          16
  • North Carolina                        $5,000,000                                          16
  • Ohio                                        $   338,333                                           7
  • Oregon                                   $1,000,000                                          16
  • Rhode Island                          $   850,000                                          16
  • Vermont                                  $2,750,000                                          16
  • Washington                            $2,000,000                                          19

Inheritance Tax                        2011 Exemption                                 2011 Top Rate

  • Indiana                                    $100                                                  20
  • Iowa                                        $0                                                      15
  • Kentucky                                 $500                                                  16
  • Maryland                                 $150                                                  10
  • Nebraska                                 $10,000                                             18
  • New Jersey                              $0                                                      16
  • Pennsylvania                           $0                                                      15
  • Tennessee                                $1,000,000                                        9.5

Shari Mattingly-Bevan – “Remodeling the Mortgage Interest Deduction”

February 16, 2011 | Filed Under Finance, Real Estate, Retirement Savings, Tax Articles | Comments Off

2/16/11

The decision to purchase a home is often influenced by the tax break a homeowner receives with the mortgage interest deduction. Recently, even those who just take the standard deduction can take advantage of the property tax deduction on their federal return.

The federal government is in desperate need of revenue and is looking for it in places it once did not touch. Altering the deduction has been a consideration by both Democrats and Republicans for years. The national concern over the federal debt may be the window of opportunity both parties are looking for.

One idea is to lower the cap on the loan amounts that qualify for the interest deduction. The Congressional Budget Office examined a proposal to cut the loan amounts to $500,000 by 2018. I speculate many of California homeowners would be left out because of this cap. Considering California’s own financial troubles, I imagine this could send California into the Pacific, sooner than an earthquake would.

Another recommendation put forth by President Bush’s 2005 Tax Reform Advisory is to remodel the deduction to a tax credit. This would mean a dollar-for-dollar reduction in the taxes you owe.

The projected revenue the modification in the benefit would bring the Federal government, is in the billions, according to the Congressional Budget Office. Perhaps, it is only a matter of time, not if, before the government takes this sacred cow to the butcher?

Reducing the national debt is going to hurt, if it is to be done right and quickly. Nobody wants “their benefits” to be on the chopping block. However, with the housing market in a whirlwind, making home buying less attractive might not be the smart choice to fix our financial woes.

Tax-friendly states for retirees. Do they exist?

February 8, 2011 | Filed Under Finance, Real Estate, Retirement Savings, Tax Articles | Comments Off

Looking for tax savings can be a full-time job these days. Whether it’s income tax, sales tax, estate tax and even taxes on your Social Security Benefits or Pension, we all could improve our financial picture by reducing the amount of taxes we pay out. Retirement brings a reduced income for most people, even with Social Security Benefits and Pensions to draw upon. That is all the more reason to look for legitimate ways to decrease your tax liability.

Reducing your taxes doesn’t always have to be complicated. Retirees have an advantage over the working class. That is, they aren’t tied down to any one spot because of a job. Freedom to pack it up, and move to greener pastures is one way that you could save on taxes.

I found this great guide to looking up which states are more favorable for reducing taxes. For instance, you can look up the 5 states with no sales tax, the 9 states with no income tax, states with the lowest sales and real estate tax. Particularly important for retirees, is the states that don’t tax your Social Security Benefits and that are Pension-Friendly. I recommend you take a look at the guide and see if perhaps a move is in your future.

Check out http://www.kiplinger.com/tools/retiree_map/index.html

What Expenses Congress Should Cut

January 23, 2011 | Filed Under Finance, Retirement Savings, Tax Articles | Comments Off

01/21/11

The politics of spending has changed with the recent economic tide. There is an expectation among fiscally conservative voters; Republicans, Independents, Tea Partiers and even some Democrats, that the government tighten its financial belt, just as some Americans have been forced to do during this recession. The primary economic challenge in today’s economy is that our government spends too much money and it is money the government does not have. Nothing evidences this more than the $1.3 trillion annual deficit and a $14 trillion dollar national debt. The more insidious effects of this fiscal policy are (1) a debased dollar; (2) possible double-digit inflation; (3) massive unfunded liabilities such as Medicare and Social Security; and (4) a deterrent to hiring by employers.

Milton Friedman, a Nobel Prize winning economist, argued that the “real cost of government, the total tax burden, equals what government spends plus the cost to the public of complying with government mandates and regulations, as well as, the calculating, paying and taking measures to avoid taxes.” He added “anything that reduces that real cost, lower government spending, elimination of costly regulations on individuals and businesses and simplification of taxes” all mean tax reform. Tax reform is good for the taxpayer.

If Congress returned to the baseline spending before the supposedly “temporary stimulus bill” of 2009, $177 billion per year would be saved, according to the Congressional Budget Office (CBO). If spending went back to the 2007 baseline, the beginning of the first Pelosi Congress, $374 billion per year would be saved.
Other major sources for reduced spending include repealing ObamaCare and elimination of taxpayer funded bailouts, especially for Fannie Mae and Freddie Mac. Taxpayers have already contributed more than $127 billion to the bailout and they are on the hook for hundreds of billions more for Fannie Mae and Freddie Mac.

Entitlement programs comprise 56% of the annual budget and they are growing. They are the most difficult, but the most important programs to reform because the total unfunded liability tops $100 trillion for Social Security and Medicare alone. The federal government does not put these liabilities on the books, but serious budgeting requires that this ominous and looming problem be dealt with sooner rather than later.

Republican, Ryan Paul, the new chairman of the House Budget Committee, has designed a complete work on entitlement reform referred to as the “Roadmap of America’s Future”. This “Roadmap” combines a gradual slowing of Social Security benefit growth with optional personal accounts that seniors would own and control. He also converts the big 3 health care programs, Medicare, Medicaid and tax subsidies for employer sponsored health benefits, into capped contributions to individuals. This is a patient-driven approach, allowing individuals to take control of their own dollars. According to an analysis by the CBO, the “Roadmap” would reduce government spending by $370 billion a year by 2020.

There is some good news on the horizon. The New House rules enable Mr. Ryan to create the conditions for reform via enforceable spending caps on all domestic government spending, if Congress fails to produce a budget. He should use that authority to halt the current government spending binge.

The New Estate Tax Law and Gift Tax Exemption

January 11, 2011 | Filed Under Finance, Investment, Retirement Savings, Tax Articles | Comments Off

As most people are aware, Congress passed a new estate tax law just prior to the end of calendar year 2010. Not only was the estate tax law changed, so was the lifetime gift tax exemption, as well as the generation skipping transfer tax exemption.

First, the estate tax exemption was increased to $5 million per person from the prior law, which was scheduled to sunset and be reduced to $1 million dollars. This is a $4 million dollar increase in the amount of wealth that an individual can die with, before the federal estate tax law applies to an estate. There is no way to describe this law change other than it is a windfall to taxpayers. Very few people have estates that are subject to estate tax and most of these people either reside on the east coast or west coast, due in large part to real estate values. Although this is a tremendous windfall to taxpayers, the counterargument is that the reduction in estate tax revenue to the federal government will hinder the government’s ability to decrease the federal deficit that is currently spiraling out of control.

The estate tax exemption is also now portable between spouses. This means that if spouse #1 dies and doesn’t need or use all of his or her $5 million exemption, the unused portion is portable or transferable to the surviving spouse. For example, husband dies and has an estate worth $3 million. His surviving widow can aggregate the unused $2 million exemption of her late husband and add it to her $5 million exemption, so she now effectively has a $7 million exemption. This provides for huge tax planning opportunities for wealthier people. Amounts passing to a US citizen spouse and to charity don’t count against the exemption amount.

Second, the lifetime gift tax exemption and the federal estate tax are once again unified; meaning both are set at a $5 million dollar exemption amount for 2011 and 2012 and are tied together. This concept is confusing for many people, so hopefully this will add clarity to the subject. Each year, you may gift up to $13,000 to any person (unlimited in number). This is referred to as the annual gift tax exclusion amount. If the amount of the gift is over $13,000, then it is subject to gift tax and reduces the amount of one’s lifetime gift exemption of now $5 million dollars. The reduction in the lifetime gift tax exemption also reduces the estate tax exemption because the system of gift and estate tax is designed to limit the amount of wealth that can be transferred either during lifetime or upon death. However, tremendous gift planning opportunities are available, without paying a gift tax, to reduce the size of an estate so that an estate tax will not apply upon death.

Lastly, the generation skipping transfer tax exemption, which is an additional tax imposed on transfers of assets to a “skip generation”; generally, one to grandchildren when the parents are still alive, is $5 million, up from $1 million in 2009. When this $5 million GST exemption is leveraged with advanced wealth transfer techniques, such as a grantor retained annuity trust or an installment sale to a trust, wealthy clients will be able to transfer vast sums, tax free, to trusts for their children, grandchildren and generations beyond.

With these new tax law changes, it is critically important to revisit your estate plan. Planning opportunities abound for people with substantial wealth.

The Expiring Bush Tax Cuts: What’s the Fuss?

October 2, 2010 | Filed Under Tax Articles | Comments Off

Thought provoking question. “Should the Bush tax cuts be extended or should they be permitted to expire?”

by Steve Cook. Steve is an associate with a Phoenix, AZ-area law firm that specializes in taxation. He is also a bit of an economics, web design, and software engineering nerd.
Read Steve’s post at Wisebread.com and tell me what you think.

http://www.wisebread.com/the-expiring-bush-tax-cuts-what-s-the-fuss

10 Ways to Cut Your Property Taxes

July 29, 2010 | Filed Under Tax Articles | Comments Off
By: Paul Wilson

Property taxes are decided collectively by school boards, town boards, legislators, and councils. The tax rate is set by collating the amount of funds an area needs. This is then divided that by the “total taxable” assessed value of the area. The tax an individual pays is computed by multiplying the tax rate by the assessed value of your property and then deducting any applicable exceptions. Property taxes are at an all time high. Studies indicate that they have increased more than 35% in five years.

Property is assessed by determining property costs in any given area. Property is valued by studying: the current sale price of properties in the area, costs to be incurred to replace the property, potential realization of property if it is rented, sold, or gifted, and the historical value of a property.

There are a few ways in which you could save on taxes:

1. Check if the state you reside in is offering any rebates. For example, a money back rebate, energy rebate, capping of taxes, or home owners rebate where under certain conditions you may be eligible to claim a rebate.

2. Ensure that the property is assessed right. This will ensure that you do not have to pay excess taxes. Assert your right to check you assessment report ensure that there are no miscalculations, mistakes, or assumptions. If in any doubt, do put in an appeal. According to statistics almost 50% of the cases win some relief.

3. Check all exemptions allowed according to the law.

4. Buy property jointly with a partner or family member. This way both owners become eligible for tax rebates.

5. Check if your assessment is in according to other properties in your neighborhood. Check with the assessment office or with your neighbors themselves. It helps to know applicable laws. Use the help of a real estate professional to put together a file of properties similar to yours that have a lower assessment. Or, use the bank’s appraisal to support your case. Be sure that the case you gather together is water tight.

6. Use a property consultant to help you save taxes. Some charge a flat fee while others just a percentage of what you save. A professional will check how assessment is done and also if there are any loop holes you can use.

7. There is strength in numbers. Get together with other owners who are also checking or fighting assessments. Check on the National Taxpayers Union Web site http://www.ntu.org for your rights.

8. Ask you home loan provider whether you are eligible for refund of property taxes paid. Some agreements have a provision for this. Many mortgages have automatic escrow of taxes.

9. Even before you buy a home find out what the property taxes are in the area and what have been the increases in tax rates.

10. Be sure to read through assessment and tax manuals published by your local authorities. These will give a clear idea of what are the parameters used and what you must do to reduce or pay the correct property taxes.

In order to be money smart you need to get the help of an efficient and dedicated accountant, plan your tax liabilities well, known thoroughly all aspects of Property Tax. If you are prudent, you can benefit by using ways and means to cut your tax burden and liabilities.

Author Bio
Paul Wilson is a freelance writer for http://www.1888PressRelease.com/Home-and-Family-Taxes-1-81.html, the premier website to Submit Free Press Release for any announcements including launching of new product or services, new website, announcing new hires, sponsoring a special event or seminar and more. His article profile can be found at the premier Legal Article Submission Directory www.1888Articles.com/legal-articles-3.html

Article Source: http://www.ArticleGeek.com – Free Website Content

www.Shari-Mattingly-Bevan.com

Next Page »