Save More Taxes’  Tax and Financial Record keeping Rules of Thumb

Logo of the Internal Revenue Service (Photo credit: Wikipedia)

All of this conversation about IRS correspondence (and the fact that it is that spring-cleaning time of year!) is a good reminder to consider how long you should be keeping your records.

Even in the days of cloud-document storage, it’s important to have hard copies lying around — in a safe place, of course. If you don’t have a full safe, these are the sort of documents for which you may want to invest in a fire safe, at least.

But here is what you should consider for how long to keep them…

Taxes: Seven years
Howard’s Reasons Why:
There are three, actually:
1) The IRS has three years from your filing date to audit your return if it suspects good-faith errors.
2)  The three-year deadline also applies if you’d like to make some sort of amendment because you discover a mistake in your return and can claim a refund.
3)  The IRS has six years to challenge your return if it thinks you under-reported your gross income.

All this adds up to keeping that info for seven years. Beyond that, there’s no reason–except for posterity.

IRA contribution records: Permanently
Howard’s Reasons Why:
You’ll need to be able to prove that you already paid tax on this money when the time comes to withdraw.

Bank records: Usually just one year
Howard’s Reasons Why:
Those related to your taxes, business expenses, home improvements and mortgage payments will obviously need to be included for next year’s taxes. But unless there is some sort of emotional or posterity reason, get rid of everything after one year.

Brokerage statements: Until you sell
Howard’s Reasons Why:
To prove whether or not you have a capital gain or loss for tax purposes; after this point, shred it.

Household Bills: From one year to permanently
Howard’s Reasons Why:
When the canceled check from a paid bill has been returned, you can shred the bill with a clear conscience. However, bills for big purchases — such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. — should be kept in an insurance file for proof of their value in the event of loss or damage.

Credit card receipts and statements: 45 days/Seven years
Howard’s Reasons Why:
Some families don’t even bother to match up their statements, but if you do so, shred the receipts once you’ve verified everything. There’s no reason to keep everyday receipts beyond this point. For tax-related purchases, you need only keep the statements for seven years–after that, shred it, baby!

Paycheck stubs: One year
Howard’s Reasons Why:
This is to verify that when you receive your annual W-2 form from your employer, the information from your stubs match. If so, shred all of the stubs…if not, request a corrected form, known as a W-2c. After that’s been handled–shred.

House/condominium records: Six years/permanently
Howard’s Reasons Why:
You’ll want to keep all records documenting the purchase price and the cost of permanent improvements — such as remodeling, additions and installations as well as records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home.

Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. Therefore, you lower your capital gains tax when you sell your house.

Now that you know what to save, how about getting some help on saving more taxes. Get the free report that will help you to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!

English: “Uncle Sam” toy savings bank (Photo credit: Wikipedia)

So let’s dive right in, shall we?

First, look carefully at your company‘s benefits plan. Disability insurance is probably the most neglected insurance. Consider signing up through a work plan. More employers are implementing flexible savings accounts, which allow you to pay for various medical and other specific types of expenses with pretax dollars. They are typically coupled with a high-deductible health insurance plan. If you are young and healthy, these provide you with disaster insurance as well as health-care insurance savings. If your employer has one, put the maximum away annually, and invest it if possible. If your company does not have a program, give me a call and we can help set one up that benefits you and your employer.

The new healthcare legislation may throw some wrenches into these works in the future, but for now, this is a wise step.

All the pundits say, “Save as much as you can,” which is fine advice, but not specific enough. So allow me to provide more specifics as to how you can and should accomplish just that.

You need to take a substantial chunk of change out of your discretionary money each month, some before it even makes it to your checking account (examples follow below), and the rest (which will necessarily be the majority of your regular savings) after you deposit it. For the amount, I encourage aiming for as much as half your take-home pay.  This may seem excessive at first, but remember, you are trying to grow rich, not live rich.

Live simply and you will have peace of mind.

As your first priority, get the benefit from your company’s 401(k), which usually amounts to contributing 5% of your salary, while your employer matches with another 4%. This is the portion I mentioned as being deducted before you ever see a paycheck. If your employer has a flexible savings account (FSA) program, the money you contribute to that will also come out before your collect your paycheck.

After these deductions, you probably have the remainder of your paycheck deposited automatically into your checking account. You should then automate a transfer out of your checking account into an investment account, to meet many of your long-term financial goals. Money in your investment account will appreciate. Always keep your goals in mind, and stay on track.

For example, make a list of all the big-ticket items you will need to pay for over the next several years. You need to pay your annual car insurance payment. So transfer the appropriate monthly amount for this to your investment account, to save up for the annual payment. You should be saving for your next car. Transfer the appropriate monthly amount needed to afford the eventual cost of it, into your investment account. All of these significant purchases may comprise around 10% of your take-home pay. I use a program that allows you to grow your funds without Uncle Sam taking a piece of it.  I call this a “ Private Reserve Strategy”. Give me a call and I can explain further.

You should be fully funding your Roth IRA while you are young and in a relatively low tax bracket. Put this money into your investment account, and then transfer it once a year to a Roth IRA account.

Save 5% of your take-home pay in a taxable account allocated for your retirement. Again, I use my “Private Reserve Strategy”. This is after fully funding your 401(k) match and your Roth IRA. There are times in life when you will need taxable savings, and you should be saving and investing 5% of your take-home pay.

Save and invest 10% of your take-home pay for charitable giving. As your investments earn money for you, you will give appreciated assets to the charity and replace the same dollar amount from your take-home pay. Donating appreciated assets provides an additional 15% tax savings.

Finally, as a margin of safety, save and invest 10% of your take-home pay to help cover the cost of unknown unknowns. If your first response to this suggestion is to ask, “Like what?” the answer is “Exactly.” Most people who run up credit card debt keep their regular spending within 100% of their take-home pay until some unexpected expense causes them to deficit spend. You can’t anticipate unknown unknowns, so the best you can do is set aside some money to cover them when they arise.

All of these expenses can easily comprise half of your take-home pay. Even if you’ve landed a good-paying job straight out of school, don’t spend over half of your take-home pay on daily expenses. Transfer half of your pay directly to an investment account and let it start growing. Cash in the bank is the best financial security. Cash doubling in an investment account is the best financial future. By the time you need money from your investment account for some of those long-range purchases, ideally it will have already started earning a nice return.

Allow me to summarize, and reassert just once more: Saving and investing should be automatic. You won’t miss what you don’t see. Have as much as half of your take-home pay transferred out of your checking account and into an investment account each month.

Live simply. Avoid buying items you have to store, repair and maintain. Produce twice what you consume. Be generous. Avoid liabilities you have to pay each month. Invest in assets that pay you instead and set up a “Private  Reserve Strategy”. Do these things, and you will have a peace of mind that your contemporaries may never find.


I do hope that if one marriage is served and preserved because of these ideas, that they will be passed along.

In the meantime, if you are not happy about the amount of taxes you paid, get the free report that will help you to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!

English: Budget and Spending (Photo credit: Wikipedia)

An overwhelming number of failed marriages cite financial troubles as a major factor in their breakup. As sad as this is, it really shouldn’t be too much of a surprise, because the way we use our time and money reflects our values.

And, of course, without a strong set of shared values, marriages drift apart. But dealing with finances together can bring a couple closer. After working with married couples for so long, I thought I should share seven principles I’ve seen for how you can build wealth and your marriage. (1-4 this time, and 5-7 next.)

Start young.
June is the most common month for weddings, and there’s no better time to establish the rules of a relationship than at the beginning. And every seven years you delay starting a savings plan cuts in half your ultimate net worth in retirement. Chances are you know someone who’s getting married this coming month, so forward them this email … it may well be more valuable than the check you write.

Work as a team on the budget.
Shared activities help you build and integrate your values and keep your finances in sync with the rest of your life. Couples that share church activities or philanthropic causes typically do better financially, because their common vision allows them to work together, instead of pulling in different directions. They do well, while doing good.

The more opportunities to forge shared values, the better the marriage team. Even the simple process of creating and adjusting a family budget provides a forum for discussion of what is really important to the family.

A budget gives you more freedom, not less.
Couples without a budget can, and often do, fight about every dollar spent. Every purchase is an opportunity for values and priorities to clash. But couples who have worked together on a budget are already in agreement on the big picture. Once the difficult decisions are made about what will help further the family’s values, the specific purchases in each category are much less critical.

Couples with a budget do not get concerned about spending until a category goes over the budgeted amount. Having decided how much money the family can afford to spend on clothes for him and for her, it doesn’t matter as much if he prefers lots of inexpensive clothes and she prefers a few nice pieces, or vice versa. A budget allows discretion and freedom to prevail, with cooperation and teamwork.

Always pay yourself first.
The best way to achieve your financial goals is by moderating your spending and staying on track with your savings needs. Only after you have saved several times your annual salary does the rate of appreciation become more important than the rate of savings.

To pay yourself first, set up an automatic monthly transfer from your checking account to an investment account where your contribution is automatically invested in a diversified portfolio. Even a small amount makes a big difference. Just five hundred dollars a month (that’s just $6,000 a year) at 11.5% annual interest would compound to a million dollars by the middle of the 26th year. Money makes money. And the money that money makes, makes even more money. I recommend to my clients that they set up a “Private Reserve Strategy” where you can potentially eliminate income taxes without the restrictions that a Roth has!

(To be continued next time …)

In the meantime, if you are not happy about the amount of taxes you paid, get the free report that will help you to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!

If you become permanently  disabled tomorrow, you may be forced to retired. 

Are you ready?

This is the internationally recognized symbol for accessibility (Photo credit: Wikipedia)

Here are some startling  statistics.  It happens more often than you’d imagine.

Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire.

Over 37 million Americans are classified as disabled; about 12% of the total population.  More than  50% of those disabled Americans are in their working years, from 18-64.

8.8 million disabled wage earners, over 5% of U.S. workers, were receiving Social Security Disability (SSDI) benefits at the end of 2012.

In December of 2012 there were over 2.5 million disabled workers in their 20s, 30s,

 and 40s receiving SSDI benefits.

Chances of becoming disabled:

A typical make, age 35, 5’10″, 170 pounds, non smoker, who works an office job, with some outdoor physical responsibilities, and who leads a healthy lifestyle has the following risks:

A 21% chance of becoming disabled for 3 months or longer during this working career:

with a 38% change that the disability would last 5 years or longer and with the average

disability for someone like him lasting 82 months.

If he smokes and weighed 210 pounds, the risk increases to 45% to be disabled for 3 months of longer.

To calculate your own Personal Disability Quotient (PDG) go to:

http://www.whatsmypdq.org

Most American workers’ incomes are not protected:

About 100 million workers are without private disability income insurance and

69% of workers in the private sector have no private long-term disability insurance.

Think Social Security or Workers’ Compensation will cover it?

Better do your homework:

65% of initial SSDI claim applications were denied in 2012.

Can your family live on $1,310 a month? That’s the average monthly benefit paid by Social Security Disability Insurance (SSDI) at the end of 2012.

The above information was obtained from:

                            www.disabilitycanhappen.org.

Are you planning on retiring tomorrow? If not, I strongly suggest you check out the sites I am recommending above.  May 2013 is Disability Awareness Month. We would be happy to discuss how we help people to avoid the many potential losses in their financial future including the thought of retiring suddenly.

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Remember, if you are not happy about the amount of taxes you paid, get the free report that will help you to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!

English: image edited to hide card’s owner name. author: Arturo Portilla (Photo credit: Wikipedia)

Last time we talked about Medicare Non-Advantage but is it right for you? Only a quarter of all Medicare participants have opted to use the private Medicare Advantage (MA) insurance option, and this number is expected to drop drastically over the next four years.

As I mentioned last time, the primary reason many choose MA is to minimize their monthly premiums. However, this monthly premium advantage could quickly become a disadvantage in several different scenarios.

The principal reason to avoid MA is because your options become limited to a predefined private health care network. Seeking care outside of this network will quickly lead to escalating financial woe.

The limitations of this network expand beyond asking your primary care physician if he or she participates. Consider that one day you may need a heart transplant or are stricken with a rare form of cancer. You can bet that the Johns Hopkins Hospital has never heard of your local insurance network.

A second disadvantage of MA exists for those who spend long periods away from home. MA plans are required to cover emergency services, so there’s no reason to avoid a trip as brief as say, taking one more cruise … but all non emergency services will be charged at the out-of-network price. Some special policies allow snowbirds from the Northeast to remain in network when they winter in Florida, but this only applies to a limited set. If your vacation home is in Montana or the Cayman Islands, you should expect to pay a hefty price for things such as physical therapy, doctor visits and your prescriptions.

A third larger problem faces MA participants. The government pays a hefty subsidy to private health insurers for each MA plan, and these subsidies are scheduled to be drastically reduced in the coming years. The largest insurer, United Health, expects a 4% drop in subsidy beginning in 2014. And this is during a time when health care costs are expected to rise 3%, which means a 7% real reduction. By 2017, some are estimating that many regions (MA subsidies are set by county) will receive as much as a 60% cut in their subsidy.

Many of these cuts were part of President Obama’s Affordable Care Act (ACA). The Congressional Budget Office projects that the law’s payment cuts alone will result in three million fewer people enrolled in MA.

MA recipients should expect to see their monthly premiums rise to compensate for these cuts. As monthly premiums rise and extra benefits (like a gym membership and other preventive health measures) are cut back, seniors are more likely to switch their care to Original Medicare.

But some seniors will find themselves feeling trapped. Although MA participants can switch to Original Medicare every year during the open enrollment period without underwriting or extra cost, the same cannot be said for supplemental Medigap plans.

Medigap policies supplement Original Medicare by covering the excess coinsurance payments, among a number of costs, that would typically be out of pocket. A $100,000 doctor service could leave an Original Medicare participant with a $20,000 bill. Few retirees want to take this risk, and so they sign up for a privately managed Medigap policy.

These private supplemental policies offer essential coverage for what might otherwise be a financially catastrophic illness. But Medigap policies are allowed to jack up the premiums for those switching from MA with preexisting health conditions.

However, if your MA program shuts down and no longer offers insurance, you will be eligible for a Medigap policy without medical underwriting. Additionally, residents of New York and Connecticut have state laws that allow them to switch at any time without medical underwriting or extra cost.

Those who live outside of these states and have an imperfect health record will be asked to pay significantly higher premiums. And with MA in the cross hairs of a political battle over the future of government-funded healthcare, the reasons I’ve outlined here explain why so many are now opting or expected to opt, for Original Medicare.


All of this said, I should hasten to add that although I compiled this information through careful research, a decision of this sort should always be made with good counsel, for each person’s unique situation — all of which I obviously can’t address here. So just let me know if you’d like me to point you in a good direction for that.

Remember, if you are not happy about the amount of taxes you paid, get the free report that will help you to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!

English: image edited to hide card’s owner name. author: Arturo Portilla (Photo credit: Wikipedia)

As Americans approach age 65, they must begin making complex health insurance decisions related to the government-run Medicare program. Like food choices on a cafeteria line, there are hundreds of ways to assemble your own plate. As you begin this journey, the first big decision is whether to enroll in Original Medicare or one of the newer Medicare Advantage programs.

Medicare Advantage, also known as Part C for its place in the ABCDs of Medicare, was birthed in the Balanced Budget Act of 1997. It was created to offer much needed private competition to the government-run health program whose costs are ballooning out of control.

Public health officials assemble a package of necessary features and benefits, and private health insurers compete on price, service, and additional perks. Seniors can call their Social Security office or go to www.medicare.gov to view all of the Medicare plans offered in their area.

Like many employer-sponsored health insurance plans, Medicare Advantage plans are set up as health maintenance organizations (HMOs) or preferred provider organizations (PPOs). HMOs and PPOs are managed care plans that contract with a set of doctors, hospitals, and other health care providers to manage the costs. For example, an in-network doctor agrees to perform open heart surgery for a predetermined price.

All plans cover emergency care when traveling in the United States, but outside of your network. Most plans also offer international emergency care benefits, but make sure you confirm the details before you book your next cruise. Uninsured traveling can be costly.

Medicare Ratings System
To assist consumers, Medicare now rates Medicare Advantage programs using a star system. Using member satisfaction surveys and plan evaluations, plans are rated between one and five stars. In fact, at any time, you can switch into a five-star Medicare Advantage plan, but only if one is available in your region (only a few states have a five-star plan). Even if your area does not offer a top-rated plan, every state offers at least a four-star plan.

Advantages of Medicare Advantage
Many seniors choose a Medicare Advantage program because it can lower health costs. If you are willing to stay in network, a Medicare Advantage program is likely to have lower costs than the Original Medicare program that has no network restrictions. For this reason, it is important to check with your preferred doctors and specialists to confirm that they are part of the network before joining.

Medicare Advantage also offers greater simplicity. Those who use Original Medicare must purchase a private drug plan (Part D), and they typically buy a supplemental plan (Medigap) to limit costs. This assortment of plans requires carrying around three insurance cards that all have different copayments and deductibles. Medicare Advantage offers one comprehensive plan with one insurance card.

Unfortunately, the only way to really know if Medicare Advantage is right for you is to get an in-depth evaluation. You can pursue this personally by using the cost calculator tool available at www.medicare.gov. This helpful tool will produce a customized report listing your expected total costs for each plan after you enter all of your drug information.

If you do not feel comfortable using the online tool, you can seek advice from an independent advisor who is knowledgeable about the hundreds of Medicare cafeteria line options. Keep in mind that most Medicare insurance advisors are paid more to sell you more expensive policies.

Some of these plans are NOT “advantageous”, so I suggest that you get the help of someone who can inform your decision. Let me know if you’d like advice on that front.

If you want help in reducing your taxes, get our free report by clicking the button on the top right.

People filing tax forms in 1920 (Photo credit: Wikipedia)

It’s a familiar feeling.

Relief. Exhilaration (or frustration at having to pay *more* taxes!). Gratitude for a job well done by your preparer.

But that doesn’t mean you may not still have questions. Here are some common ones we get this week…

1. “When will I get my refund?”
Well, the IRS does seem to have entered the 21st century.

If you had us “e-file” your return, you can check your status right now, or if you had us mail a paper return, after about 3 to 4 weeks.

When you’re checking with the following options, make sure you have a copy of your tax return on hand or know your “filing status“, SSN and the exact dollar amount of the anticipated refund.

• Online: Go to IRS.gov and click on Where’s My Refund.
[or go right to: http://www.irs.gov/individuals/article/0,,id=96596,00.html ]
• Automated Phone: Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
• In-Person Phone: Call 1-800-829-1954 during the hours shown in your IRS form instructions. [Of course, the hold time for the IRS is ... somewhat of an issue -- and they're closed for five days this month because of the furloughs ]

2. “Do I need to keep a copy of my return?”
Yes, for a *minimum* of three years. There’s all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home. (I’ve already written about Amended Returns, and you need a copy for that process, of course).

As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

3. “I think there’s a mistake in my return. What should I do?”
Sometimes, you’ll find a receipt or a documentation after April 15th which really would have changed your prior year tax return. That’s, again, when you would have us file an “Amended Return”. Here are some other, common reasons to Amend…

•          You neglected to report some income earned.
•          You claimed deductions or credits you should not have claimed.
•          You did not claim deductions or credits you could have claimed.
•          You filed under one filing status, but you should have filed under another.

You might have other questions, which I haven’t addressed here. Let me know!

To more of your money in your wallet!


Remember, if you are not happy about the amount of taxes you paid, get the free report that will help you
to save taxes. Click on the tap on the top right and you will get it immediately.  Take charge of your taxes now for 2013!