”Every day, think as you wake up, “Today I am fortunate to have woken up. I am alive, I have a precious human life. I am not going to waste it. I am going to use all my energies to develop myself, to expand my heart out to others, to achieve enlightenment for the benefit of all beings. I am going to have kind thoughts towards others, I am not going to get angry, or think badly about others. I am going to benefit others as much as I can.”
- His Holiness The Dalai Lama
By Rick Rodgers, CFP
Every year, our politicians talk about the need to simplify the tax code and every year, they make it more complex.
The average taxpayer will spend an estimated 23 hours completing their return this year. Eighty percent of taxpayers will hire someone to do the work, or buy tax software, even though 64 percent of taxpayers don’t owe anything.
There are six definitions of a child; more than a dozen educational credits, and 16 different types of tax-favored savings plans. That may seem daunting, but with some basic knowledge and planning, you can avoid costly mistakes.
Here is a list of the seven common mistakes and missed deductions to help you prepare your 2012 tax return.
1. Charitable deductions – cash. Did you make a contribution to charity last year? The IRS is cracking down on bogus deductions, so be sure to follow the donation tax rules. One of the most important rules is that you give to a charity with an IRS tax-exempt status. Don’t forget to take the mileage deduction when it applies. The IRS allows 14 cents per mile driven in service of charitable organizations.
2. Charitable deductions – in kind. Your used clothing donated to charity may not be seem worth much, but consider using valuation software to determine how much to claim. You may be pleasantly surprised. The same applies for furniture and other household items donated. Clothing must be in good condition or better to take the deduction.
3. Social Security number. Privacy concerns caused the IRS to stop putting taxpayer Social Security numbers on tax package labels. Most of your tax information is keyed to your tax ID number.Tax ID number errors raise red flags with the IRS, which attempts to match reported income to tax returns. This number is also important when claiming the Child Tax and Additional Child Tax credits and credits for educational expenses. Take time to verify that your tax ID number is correct on 1099s, W-2 forms and all tax documents to avoid delays processing your return.
4. Dividend reinvestments. Each time a stock or mutual fund reinvests dividends, it’s the same as making a new purchase of shares. The amount of the reinvested dividend adds to your tax basis when you calculate your taxable gain from a sale. Make sure you don’t overpay the IRS. Mutual funds generally track the average basis of shares and automatically include reinvested dividends in the calculation. Ultimately it’s up to you to make sure you calculate the gain properly.
5. Unused deductions from 2011. The tax code allows capital losses to offset capital gains. When losses exceed gains, the taxpayer can use only $3,000 of losses against other income. Any excess loss can be carried forward into future tax years. Don’t forget to carry the unused losses over to your 2012 tax return. Charitable deductions are capped based on the type of property donated and your adjusted gross income. Excess deductions can also be carried into future years. Don’t let carryovers get lost in the shuffle.
6. Excess Roth contributions. Single taxpayers whose modified adjusted gross income is between $110,000 – $125,000 ($173,000 – $183,000 for joint filers) cannot make a full Roth IRA contribution. Check this number when you complete your tax return. Excess contributions are subject to a 6 percent penalty on the amount you contributed.
7. Overlooked medical deductions. Health insurance premiums are an often overlooked deduction. The portion paid by the employee is a deductible expense when you itemize. This includes the portion you pay to Medicare which is usually deducted from Social Security. Transportation expenses for trips to medical facilities or doctors’ offices are also deductible. The IRS allows 23 cents per mile driven for medical purposes in 2012.
If you have made a mistake or missed a deduction you can file an amended tax return to correct the problem. Some taxpayers worry filing an amended return will increase their chances of being audited. Amending the return doesn’t focus the IRS’s attention on your return but it will extend your exposure to their challenges. The IRS looks back three years from the date you file a return. When you amend your tax return you reopen the three-year window.
No one likes to deal with the IRS and taxes, but you could be leaving money on the table by not filing an amendment. If the total amount of tax you owe is smaller than your original return, the IRS will refund the difference.
Also file an amended return if the correction results in additional tax owed. The IRS will add interest to the amount if you amend after your filing deadline, but it rarely adds penalties. Correcting the mistake early saves interest and can avoid penalties.
Certified Financial Planner® Rick Rodgers is president of Rodgers & Associates, “The Retirement Specialists,” in Lancaster, Pa., and author of “The New Three-Legged Stool: A Tax Efficient Approach to Retirement Planning.”
For more information, visit www.RodgersSpeaks.com.
By John Voket
In the last segment, I began tackling the chilly chore of trying to sell your house during the darker, colder and icier winter season. So we will continue with some great advice courtesy of Dana Dratch, a long-time Georgia real estate pro and writer who blogged on the issue recently at Bankrate.com.
Dratch says as potential buyers come in out of the cold or snow, make your home a comfortable and cozy sanctuary. Consider things such as putting a warm throw on the sofa or folding back the thick comforter on the bed.
She also suggests:
• Emphasizing winter positives. Is your home on a bus route or some other vital service that is plowed or de-iced regularly in bad weather?
• Setting up timers to make your home look warm and welcoming whenever prospective buyers drive past, even if you’re not home all the time.
• If you’re not actually going to be present, greet your buyers as if they were going to be guests at a party. Set up a table with china and silver, have a plate of cookies out along with some warm cider or even chilled bottles of water.
• Give the home a nice aroma, but remember scented candles in every room or plug-in air fresheners can leave buyers wondering what you’re trying to mask.
• Pet smells, smoke and musty odors can cling to curtains and carpets, so ask your real estate agent or a friend to give it a sniff test. If you don’t pass, clean the house, air it out and replace drapes, carpets or rugs before you show it.
• Asking buyers to either remove shoes or slip on paper "booties" over their footwear before touring the house, showing a great degree of pride in ownership, according to one of Dratch’s sources.
And depending on where you live in the “snow belt,” how about promoting your home as a year-round vacation spot? In some parts of the country, such as ski areas or warmer regions where the snowbirds flock, Dratch says winter can actually be a selling point.
EASING YOUR WAY INTO HOMEOWNERSHIP: HOW YOUR REAL ESTATE AGENT CAN HELP YOU QUALIFY FOR A LOW DOWN PAYMENT MORTGAGE
For many renters, the first step in buying a home is becoming educated about the process. If you’re like many people considering a home purchase, you’ve spent nights and weekends poring over your local real estate section. You’ve talked to friends and relatives about their experiences. Maybe you’ve even purchased a book or tow to help you become more familiar with real estate terminology and the various types of mortgages commonly used today.
Coming up with a down payment and finding a loan that meets your needs are the greatest hurdles faced by first-time homebuyers. So, you may even have leafed through stacks of brochures and flyers from lenders offering down payments that are far less than the 20 percent you’d always thought you’d need to save before you could buy. With so many excellent first-time buyer programs to choose from these days, you practically need to be an expert to sort through them all.
That’s why if you’re a first-time homebuyer seeking a low down payment loan, you’ll save time by selecting a professional real estate agent who is experienced in working with people just like you in the area where you plan to buy. An agent who frequently assists first-time buyers will know from experience which lenders in your area offer a low down payment program that will most closely match your needs.
A professional real estate agent can help you determine whether you are likely to qualify for these special programs, since participation in some may be limited to buyers under a certain income level or for the purchase of homes below a certain purchase price. Your agent also will be able to tell you whether there are other requirements you must fulfill in order to be considered. With some programs, for example, you must attend an educational seminar before you can be considered for one of these low down payment loans.
`It’s important that your agent become familiar with your current financial situation. Before you meet with your agent to discuss your financial situation and housing needs, you’ll want to collect some basic information to make the process easier. Be prepared to show recent paycheck stubs or pay vouchers to certify sources of income; a complete list of current credit card, auto and other consumer credit payments you make each month; and recent bank and savings statements. These documents will help you and your agent determine how much home you can afford. It’s also important that you disclose any prior credit problems or late payments. Your agent may be able to suggest ways to remedy any negative remarks on your credit report that could disqualify you from a low down payment loan program.
In addition, because most lenders w2ill require that you have several months of house payments in the bank as a reserve, your agent may be able to suggest ways you can increase your savings in the weeks and months leading up to your home purchase. Don’t forget that some programs allow you to apply a cash gift from a family member to cover the required down payment and losing costs.
Your agent also may know a motivated seller who would be happy to assist you in accomplishing your home purchase by caring a second mortgage. A second mortgage is helpful because it reduces the amount of the first mortgage you need to obtain. In some cases, a second monthly payment and generally is required to protect the lender when a down payment is less than the standard 20 percent of the loan amount. Even if your seller isn’t willing to take a second mortgage to complete the sale, he or she may be willing to pay your closing costs, which will reduce the amount of cash you need to have on hand up-front.
With interest rates edging up, innovative mortgage financing programs that require a low down payment are even more important than ever to first-time buyers. A professional real estate agent can help you sift through the countless programs that are available and help find the one that’s mortgage can eliminate the need for private mortgage insurance, which is added to your right for you.
“This one step – choosing a goal and
staying to it – changes everything.”
- Scott Reed
WHAT TO EXPECT IN CLOSING COSTS ON A HOME PURCHASE
Many are taking advantage of this year’s low mortgage rates to purchase a home. Pent up with excitement, many families, who have scrimped and saved for a down-payment, jump for joy when the mortgage lender finally approves their application. But, they should realize that there’s a whole new set of expenses that must be covered before actually closing on the sale.
New homeowners are often taken aback by up-front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.
A lender’s charge for processing the loan can be determined at the beginning of your buying process. Referred to as “points,” these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. “Points” can also become a tool for negotiation with the lender and seller. In a buyer’s market, home sellers will often agree to pay mortgage fees in order to close a deal.
Title insurance can be a substantial expense. The policy covers any financial set-back caused by unforeseen defects in the purchased property and home. The one-time title fee, including search and examination, averages around $430 for a $100,000 home, but it’s recommended that you check with a local title insurance agent ahead of time to effectively determine what you’ll owe before closing.
Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up-front costs.
Some closing costs, such as “points,” are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re-financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.
Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.
Also, be prepared to pay any assessments if buying a condominium or into an association-governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.
Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.
HOW TO GIVE YOUR HOME A FACE-LIFT:
THE SELLERS’ GUIDE TO A QUICK SELL
One of the great challenges to selling a home can be showing all of its space, decor and natural light potential. For example, every home has crowded closets and dead space. Sellers should be aware that areas such as these are easy to spruce-up with a little elbow grease and old-fashioned innovation.
Begin by evaluating your closet/storage space, determine which areas can cut-down in clutter. Go through old clothes, shoes, etc., and get rid of anything that will not be used and in turn create more space. Consider organizing shelves and other areas to make better use of your storage space, including your garage and basement. Also, try to throw out or give away any old furniture that is no longer of use. All of the discarded items can be given to Good Will, Salvation Army or even sold at a yard sale.
“Although most sellers keep their homes clean and well-decorated, it can be difficult to convince a buyer of a home’s potential when clutter is noticeable. As agents, it’s our responsibility to offer any tips that will expedite the sale and make the experience more enjoyable for the seller,”
Once you’ve eliminated the unwanted items and furniture, begin the ‘renovation’ process. For non-storage spaces that could use a little more decor, consider adding a small bookshelf complemented with a cozy reading chair. Always be sure you’re filtering as much light into your property as possible. Open or replace curtains. For example, light from a window overlooking the backyard offers a room more color, a great view and the illusion of more space.
Always maximize the potential of existing decor; wash old curtains, re-stain old wood casings, anything that refreshes and emphasizes all the potential of the space and decor of the home.
Prospective buyers are often more drawn to homes with features that they don’t have, those with clutter-free closets, open sunny rooms, and cozy little corners. To ensure you’ve realized all of the above characteristics the last step should be to bring in a friend and observe their reaction. Make sure it’s an honest friend, who will offer suggestions as well as notice the improvements. Seeing your own home through someone else’s eyes is a great way to make a home optimally attractive and more sellable to prospective buyers.
Be diligent in your efforts and be sure the renovations improve the aesthetic appeal of the home. All the hard work will be worth the reward of a successful sale.
Century 21 Real Estate Corporation is the franchisor of the world’s largest residential real estate sales organization, with more than 6,300 independently owned and operated franchised broker offices in more than 25 countries and territories worldwide. Century 21 Real Estate Corporation is a subsidiary of Cendant Corporation (NYSE: CD).
You probably protect your car with oil changes and yearly maintenance check, right? Such a big investment needs proper TLC.
Just like your car, your home systems and appliances all need periodic maintenance checks to make sure they’re operating safely and efficiently. A professional preventative maintenance program can help homeowners when it comes to the upkeep of their heating and cooling system, plumbing, electrical system, and most major appliances. Having professional preventative maintenance services performed is key to ensuring tasks are done right and can save you time and money in the long run.
American Home Shield, a unit of the ServiceMaster Company, provides these expert tips to help keep your home’s systems and appliances in great shape:
• Check filters every month. Clean or replace as needed.
• Keep the condensing unit free of debris.
• Trim shrubs and plants near condensing unit to ensure proper air flow and circulation.
• Bent condensing unit fins can often be easily straightened with a fin comb.
• Inspect cold and hot water supply hoses for cracks and deterioration.
• Look for signs of water or oil leakage.
• Check to make sure the machine is level, and adjust it, if needed, by turning the legs clockwise to lower them or counter-clockwise to raise them.
• Clean the lint screen after each load of clothes has been dried.
• For gas and electric dryers, check and tighten supply connections.
• Check to see if the dryer is level; if it’s not, the drum may vibrate and damage the unit. To adjust the level, turn the legs clockwise to lower them or counter-clockwise to raise them.
• Drain and flush sediment from tank twice a year.
• Check pressure-relief valve once a year to make sure this crucial safety device is not clogged.
Severely delinquent balances among first mortgages are on the decline, according to Equifax’s May National Consumer Credit Trends Report. While still elevated relative to historic levels, the May 2012 total of $450 billion in delinquent balances represents a 37 percent decline from the peak of more than $700 billion in January 2010. Of note is that 70 percent of outstanding delinquencies among first mortgages still remain tied to loans opened between 2005-2007.
The greatest level of change was seen among severely delinquent non-agency first mortgage loans (90+ days past due or in foreclosure), which fell 45 percent to $320 billion in May 2012 from its peak of $580 billion in January 2010. By comparison, agency-sourced (Fannie Mae, Freddie Mac, FHA and VA) first mortgages reported as severely delinquent declined just 9 percent to $130 billion in May 2012 after peaking at $142 billion in January 2010. Similar reductions in severely delinquent totals were seen among home equity installment loans, which declined 31 percent from their peak in February 2011 ($880 million) to May 2012 ($615 million).
"That severe mortgage delinquencies are trending downward is not surprising given generally improving economic conditions," explains Equifax Chief Economist Amy Crews Cutts. "What is surprising is that even with the foreclosure moratoriums and the slow resolution of foreclosure backlogs, the downward trend has been a steady, consistent drumbeat of recovery. If this pace continues, we expect the volume of severely delinquent mortgage balances to return to mid-2007 levels by the end of 2014."
Other highlights from the most recent data include:
- Home equity revolving balances fell 18 percent from their peak of $680 billion in May 2009 to $560 billion in May 2012.
- Total credit limits among home equity revolving accounts have declined 27 percent to $1.02 trillion in May 2012 since their peak in March 2008 ($1.30 trillion).
- Year-to-date total mortgage write-offs through May 2012 are down 28 percent from their 2010 peak. Home mortgage balances are down 12.5 percent in May 2012 from their record-high of $9.8 trillion set in Oct. 2008. Total mortgage debt outstanding now sits at $8.6 trillion.
Source: Equifax, Inc.