Sunday, May 30, 2010
Memorial Day Remembrance
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Thursday, May 20, 2010
Small Business Heath Care Tax Credit
Small businesses started receiving postcards from the IRS last month with details on this new tax credit. Here are the major points:
- Credit is worth up to 35% of the premium costs paid by a small business in 2010 thru 2013. In 2014, the credit is increased to 50%
- Credit phases out for small businesses with average wages between $25,000 and $50,000 and for firms with with the equivalent of between 10 and 25 full time (FTE) employees
- A qualifying employer must cover at least 50% of the cost of health care coverage
- A qualifying employer must have less than 25 (FTE) workers
I have also provided a youtube link for a video that explains this credit in more detail: http://www.youtube.com/watch?v=85i1kzIG57k
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Tuesday, May 18, 2010
New Law Allows Tax-Free Health Coverage to Older Children
In addition to extending coverage to older children, the Affordable Care Act also requires plans that provide dependent coverage to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided no later than plan years beginning on or after September 23, 2010. The favorable tax treatment applies to that extended coverage.
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Thursday, May 13, 2010
COBRA Premium Subsidy extended for 3rd time
The subsidy, which expired March 31, is now available to qualified individuals who lost their jobs between September 1, 2008, and May 31, 2010. The premium reduction, originally a provision of The American Recovery and Reinvestment Act (ARRA), applies to periods of health coverage that began on or after February 17, 2009, and lasts for up to 15 months.
The subsidy already has been extended twice. Democrats in Congress are working on a bill that will extend the COBRA subsidy for a longer period, at least until the end of the year, but passage may prove difficult because of cost concerns.
Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit.
To be eligible for the subsidy, the terminated worker must have experienced a qualifying event, which can include a reduction in hours followed by termination; must elect the coverage within the required timeframe; and must not be eligible for Medicare or any other group coverage.
The premium subsidy is retroactive and will be made available to individuals who lost their job between March 31st and April 15th.
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Monday, May 10, 2010
Is a Reverse Mortgage in Your Future?
Using a reverse mortgage may make sense for a lot of baby boomers who will not have sufficient retirement savings when they finally retire. And with the uncertainly over Social Security and the compelling arguments that benefits will most likely change in the next few years, a reverse mortgage may be the product that allows boomers to have a comfortable retirement.
For some folks, the only true valuable asset may be their home with a low mortgage or no mortgage. A reverse mortgage converts your home equity into tax free proceeds and the owners retain title to their home. The reverse mortgage payments do not count towards Social Security and Medicare. The payments can cover living expenses, long term health care, home health care etc... It can be an important and necessary safety net for those folks with limited savings. Here are some facts about how a reverse mortgage works:
- Qualifying is not dependent on income, health, employment or credit score
- Only available for folks age 62 and over
- Must have a low mortgage balance or no mortgage balance
- Must attend a counseling session with a HUD approved agency so that you are fully informed of how a reverse mortgage works and also look at other options
- Can be taken as a lump sum, monthly annuity or line of credit
- Upon death, the beneficiaries will need to pay back the loan and the interest if they are keeping the house. If selling the house, all monies need to be paid back from the sale.
Please be aware the Reverse Mortgages are expensive--the fees are high. However, the benefits can be huge to folks who simply do not have enough funds to live a comfortable retirement.
In summary, a Reverse Mortgage can be a viable option in retirement in providing needed tax free income. Make sure that you do your homework and know all the ins and outs of how this works before entering into a binding contract.
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Thursday, May 6, 2010
The Truth About Annuities
Annuities are a very lucrative product for insurance sales reps to sell. They typically receive 3 to 8% of the deposit money. So, let's assume that you deposit $100,000 in an annuity. The sales rep can receive up to $8000 for selling you this product! Pretty outrageous commissions.
An annuity is really an insurance contract. Many times the sales rep will tell you that the investment is insured against loss because when you die, your heirs will always receive at least the original value of the annuity insurance contract. So, you are paying a steep fee for this insurance protection. However, with most conservative investments, over time, your investment should at least be worth what you started with. So, the extra cost for the insurance is expensive and not needed.
Annuities carry heavy surrender charges. If you need your money in the first 7 to 10 years after opening the annuity, you most likely will pay anywhere from 7-10% in surrender charges. On your own money!
Annuities are often sold as "safe investments". But remember that insurance companies can fail and investments can go south. Nothing is guaranteed. Especially in this economy where we have witnessed huge companies going bankrupt in the past few years. Did you ever think GM would need to be rescued?
Annuities are sold to folks for "tax savings". This is because the money inside an annuity grows tax deferred. However, once the money starts to get distributed (either to the person who bought the annuity or the heirs) the distributions are taxed at the highest rate. All distributions are treated as ordinary income. If you held this money in a taxable brokerage account, you would pay capital gains rate on the earnings and not ordinary income tax rates. Big difference.
Annuities typically have very limited investment options. Most offer high cost captive mutual funds with few good choices.
Annuities should never be purchased within an IRA account. IRAs are tax deferred already so it makes no sense to put a tax deferred annuity in an already tax deferred account. Remember...big commissions on the sales of annuities!
And finally...annuities are hardly ever "bought"...they are almost always "sold".
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Tuesday, May 4, 2010
California and the new tax credits
- Applications for the credit must be faxed after escrow closes
- Credits are available for taxpayers who purchase a qualified personal residence only after May 1, 2010 and before January 1, 2011
- Tax credits limited to the lesser of 5% of the purchase price or $10,000, whichever is smaller
- Tax credit received over a 3 year period ($3333 per year) beginning with the tax year the home is purchased.
- Tax credits are non refundable and unused credits cannot be carried over
For both the First Time Home buyer and the New Home Buyer credits, the taxpayer must live in the home for 2 years following the close of escrow.
California has allocated $100 million for the New Home credit and $100,000 for the First Time Buyer credit. Credits allocated on a first come, first served basis. We expect the credits to go fast so if you know of someone who qualifies under the rules, let them know ASAP.
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