Did You Know...

Did You Know...

...that no matter how you try to avoid the facts, January to April is Tax Season.  Don't forget to file your return on time or to get an extension!

Did You Know...

...that cosigning a loan can end up as a major headache?  Many people agree to cosign loans for friends and relatives.  They do this as a favor, a vote of confidence or because they just can't say no.  Unfortunately, they often find that they've bitten off more than they intended to chew. 

The cosigner of a loan agrees to be responsible for its repayment along with the borower.  While a lender will generally seek repayment from the debtor first, it can go after the cosigner at any time.  (On the other hand, where a loan is guaranteed, the lender can usually go after the guarantor only after the principal debtor has actually defaulted.)

It's better to guarantee a loan than to cosign it.  However, if you're willing to cosign a loan, at least seek the lender's agreement to refrain from collecting from you until the borrower actually defaults, and try to limit your liability to the unpaid principal at the time of default. 

Did You Know...

...although annuities are issued by insurance companies, they may be purchased through banks, insurance agents or stockbrokers. The "load" (commission) you will pay to the middle-man will vary from 3% to 8% of your investment.  This commission obviously reduces the return you can get on your investment.

Some insurance companies sell "no-load" (no commission) annuities directly to the investor.   With the no-load annuity, all of your money goes to work for you earning interest and dividends.

There is considerable variation in the fees that you will pay for a given annuity, as well in the quality of the product.  Thus, it is important to compare costs and qualtiy before buying an annuity.

TIP:  Before checking out the product, it is important to make sure that the insurance company offering the product is financially sound.  Because annuity investments are not federally guaranteed, the soundness of the insurance company is the only thing you have to bank on.   Consult services such as A.M. Best, Moody's, Standard & Poor's, and Duff & Phelps to find out how the insurer is rated.  Choose only companies that are top-rated, after familiarizing yourself with the service's rating system.

The way you should go about comparing annuity contracts varies with the type of annuity:

Immediate annuities:   Compare the settlement options.  For each $1,000 invested, how much of a monthly payout will you get?  Be sure to consider any penalties and charges.

Deferred annunites:   Compare the rate, the length of the guarantee period, and a five-year history of rates paid on the contract.  It's important to consider all three of these factors, and not to be swayed by high interest rates alone.

Variable annuities:   Check out the past performance of funds involved.

Did You Know...
...refinancing generally becomes worthwhile if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate.  Talk to some lenders to determine the available rates and the costs associated with refinancing (such as appraisals, attorney's fees, and points).  Once you know what your refinancing costs will be, determine what your new payments would be if you refinance.  You can estimate how long it will take to recover the costs of refinancing by dividing your refinancing costs by the difference between your new and old payments (your monthly savings).

Did You Know...
...you may be able to reduce your tax liability directly with tax credits generated from rehabilitating an old building?  These are tax credits - not tax deductions.  This means $ for $ reductions.  The credits are available for rehabilitation projects done yourself or those projects done through other pass-through entities such as partnerships.

Did You Know...
...that home equity loan interest is usually deductible on your tax return? As home equity loans are marketed as the solution to all financial woes, and as the way to get a great tax deduction at the same time, people should realize that there are some limitations to that desired deductibility when the loan proceeds are not used for home improvements to the primary home being used to secure the loan. Now, if you are one of the unlucky ones who have their home equity loan deduction limited by tax law there are other options with regard to deductibility if you own rental properties or if you are a business owner. There is an election available to designate your interest as business or rental interest while still using the personal residence to secure the loan. But this is a tricky concept and you should, of course consult with a professional tax consultant.

Did You Know...
...that even if you have more credit card debt than you'd like to and you are only making the minimum payments due now, that you may be able to create a debt reduction plan that will make it possible to pay off all of your debts years sooner with thousands of finance charge dollar saved over the life of all the debts. How can you do this? Will it work for you? Well, if you have debts of various size balances and they are not all long term debts such as mortgage and home equity loans or other bank loans, and you are making your minimum payments on all debts on time you may be a candidate for a simple debt reduction program. Most people are happy when they pay off a debt and use the money they used for the payment as a windfall of additional discretionary spending money but if you apply that additional available money to another debt in addition to the minimum payment you previously paid per month, you're already saving time and money and heading toward a future free of old debts. An analysis of all your credit card balances and types of credit balances and having a plan set up may be just what you're looking for if you're looking for a debt free future.

Did You Know...
..we're located at 2644 Leechburg Road in Lower Burrell, PA?

Did You Know...
...the Taxpayers Relief Act of 1997 drastically changed the rules for reporting gain on the sale of a personal residence? The Act provides a universal exclusion of $250,000 ($500,000) on a Married Filing Joint return) for gain realized on sales of personal residences on or after May 7, 1997. The act made many prior tax issues with regard to sale of a personal residence obsolete. The requirements for eligibility for the exclusion are as follows:

• The home must be the principal residence of the taxpayer and must have been owned and used as the principal residence for two or more years during the five year period ending on the date of the sale.
• The exclusion is available regardless of age and will be available for more than one principal residence as long as the taxpayer does not use it more than once every two years.
• For married taxpayers, the $500,000 exclusion is available if either spouse meets the ownership test and both spouses meet the use test. In addition, neither spouse can have used the exclusion in the past two years.

Did You Know...
...that people are being enticed to get an education with tax credit incentives? The following is a current excerpt from the IRS web site.  Additional detail is available at www.irs.gov

Tax-Free Benefits — Certain payments or special programs’ distributions are free of tax when used for qualifying educational expenses. Such expenses cannot duplicate one another or be used to claim education credits or deductions.

• Scholarships, fellowships, etc. — Generally tax-free when used to pay qualified expenses for degree candidates at eligible schools.
• Coverdell Education Savings Account (ESA) — Distributions that don’t exceed the beneficiary’s qualified education expenses aren’t taxed. Unlike the items listed below, primary or secondary school expenses are eligible for ESA benefits. Beneficiary must be under age 18 when an ESA contribution is made; annual contribution limit is $2,000 and is reduced if contributor’s income is between $95,000 and $110,000 ($190,000 and $220,000, joint return).
• Qualified Tuition Program — distributions from state- or educational institution-sponsored programs aren’t taxed to the extent used for qualified education expenses.
• Education Savings Bond — interest on qualified U.S. Savings Bonds is tax-free if proceeds are used to pay qualified education expenses and income is under $59,850 ($89,750, joint return). The exclusion phases out as income rises to $74,850 ($119,750, joint return).
• Employer-provided educational assistance — employers can give up to $5,250 in tax-free benefits each year; courses do not have to be work-related.
• Cancelled student loan — although a cancelled debt is usually taxable, a student loan may not be if the cancellation depends on you working for a certain time in a specified occupation for a section 501(c)(3) organization.

Education Credits — reduce your tax, not just your income. You may claim only one of these credits for the same student in the same tax year. The credits phase out as income rises from $42,000 to $52,000 ($85,000 to $105,000, joint return).

• Hope Credit — applies only for the first two years of higher education and can be worth up to $1,500 per eligible student, per year.
• Lifetime Learning Credit — applies to most higher education, including non-degree courses, with a maximum credit of $2,000 per return (regardless of the number of qualifying students).

Tax Deductions — lower your taxable income with these breaks:

• Tuition and Fees Deduction — for a student for whom no education credit is claimed. Qualifying expenses must not have been paid with any other tax-free benefit. A maximum deduction of $4,000 if taxpayer’s income does not exceed $65,000 ($130,000 on a joint return); $2,000 maximum if income is between $65,000 and $80,000 (between $130,000 and $160,000, joint return).
• Deduction for work-related education — claim costs of education required to keep your job or to maintain or improve skills needed in your present work, but not if the education is needed to meet the minimum requirements of your position or is part of a program to qualify you for a new trade or business.
• Student loan interest deduction — maximum deduction of $2,500 for interest paid on qualified student loans. Phases out as income rises from $50,000 to $65,000 ($100,000 to $130,000, joint return).

Tax Exception — The additional 10% tax on an early distribution of an IRA does not apply up to the amount of qualified education expenses. (The regular income tax still applies to any taxable IRA distribution.)

Related Item: IRS Publication 970, Tax Benefits for Education

This information is not intended for use without professional advice.

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