Economics Finance

How does your local municipality calculate your real estate taxes? It may not be as complicated as you think. Here is the break down.

Lets examine the following terms: market value, assessed valuation, tax rate, assessment and assessment ratio. Most homeowners have trouble understanding these terms when they receive their tax bill.

Market Value – The most probable price that a property should bring in a competitive and open market under conditions to a fair sale, the seller and buyer each acting prudently and knowledgeably. After a revaluation, all assessments in the municipality must be 100% true market value.

Assessed Valuation-The value established for property tax purposes.
The homeowner receives a statement indicating that, in the judgment of the local tax assessor, the property is worth $400,000. By law, properties in this municipality are assessed at 75% of market value. ($400,000 x .75% = $300,000 the assessed value). Property taxes will based upon this assessed value. Continue reading ‘How Your Local Real Estate Taxes Are Calculated’ »

I watch and listen to commercials about solving credit card debt all the time. It is about consolidation, elimination, solution, you name it. There are even special shows on TV, that proclaim their knowledge and expertize. I remember one show in particular, where they were talking about “what not to do in order to avoid falling deep in debt”. They were going back and forth about prevention strategies. At the end, there was a questions and answers part. One of the questions was what do if someone was already in the debt hole. The answer was to try and win the lottery. I could not believe my ears. The reality is that even from the place you should expect help you find sarcasm. Both sides – the violent credit card industry and the newly proclaimed debt elimination companies have the same goal. You find yourself squeezed in between and nowhere to turn for help. The only place to go and really find help is you. You are the best advocate to yourself and your family. I hear you saying now that you do not know what to do and how to do it. This is exactly the state they want you in. I know your most common objections and something to say about them.

1. First objection: “I do not know what to do”. Here is the answer: Do something. Do the best you know at the moment. I am not saying that it will be the right thing to do, but you will get a feedback. Next action will be better. For example: Write down all of you credit cards on a sheet of paper. Call the credit card lender and talk to them. Talk to you relatives and friends.

2. Second objection: “I am not knowledgeable to know how to do it”. Even if it is a true statement, which I doubt, there is a solution. It is very simple: ASK. Start with your lender and try to find out. If they try to scare you, do not listen. This is just part of their job. I will give you a priceless tip. Target 0% interest rate and get on a 5 year payment plan. The second option is a settlement. This works out beautifully, just be persistent and know what you want. Continue reading ‘Practical Credit Card Debt – 3 Objections and 3 Solutions’ »

There is a period of non-eligibility for Medicaid for those who have recently transferred assets. The DRA was enacted in 2006. For transfers that were made prior to the enactment, officials will only look at any transfers that were made within 36 months of the application. If transfers were made after the enactment of the DRA, there is a look-back period of 60 months. This period determines how long you must wait to become eligible for the program after the transfer was made.

The formula is based on the amount that was transferred. It takes the total amount transferred and divides it by the average monthly cost of nursing care. For example, if $100,000 was transferred and the nursing costs are $5,000 per month, the waiting period, or penalty period would be 20 months. There is another rule that is involved with the look-back period. The penalty period will not begin until the individual has moved to the nursing home, has spent down their assets to be eligible for the program, has applied for coverage and has been approved for the coverage but not for the transfer.

When making transfers, it is very important to be aware of these rules and time frames. This information will help you better plan your Medicaid asset protection. Make sure that all transfers are done prior to the time of needing nursing care. It is suggested that if you are considering transferring your assets, you do so as soon as possible. This will eliminate any waiting when Medicaid coverage is needed. If transfers are made within the five year look-back period, the penalty time could actually extend past five years. This will depend on the amount of assets that were transferred.

There are many factors to consider when making transfers. You should take into consideration the estimated cost of nursing care you will need, the transfer penalty in the state in which you reside, your current and projected income and other living expenses. The main goal of the DRA was to try to eliminate any planning. The best solution is to contact an elder law expert to assist you with planning and asset protection transfers.

You should also be aware that transfers could have tax consequences if not done correctly. If you transfer the assets to your children, they will be responsible for all taxes. If the value of the asset appreciates, there could be serious consequences. Your children will not receive the tax break that they would if they had received the assets through your estate. This is another reason why it is so important to carefully plan any transfers. Continue reading ‘Transfer Assets For Medicaid Eligibility’ »

“Work with” is the operative phrase; do not assume your accountant knows everything he or she needs to know in order to prepare your taxes.

Make an appointment with your accountant after the peak tax preparation season. Ask him for a list of items he needs from you in order to make the proper deductions.

The six most dangerous words to your financial wealth regarding your income tax preparation, “My accountant handles all of that.”

Remember, it is your income which is affected by your tax preparation not your accountant, so take an active role in your tax preparation.

Also, if there have been changes in your financial responsibilities let him know. For instance if you are responsible now for the care of your or your spouse’s aging parents, let your accountant know, there may be tax deductions you can take.

You may know about the attorney-client privilege. Whatever you say to your attorney is privileged information. Under law your attorney cannot be compelled to reveal your conversation with her. Continue reading ‘Tax Preparation Tactics – How to Work With Your Accountant’ »

The work of preparing and filing your tax return is relatively easier than defending your return in the event of tax audits. Around 1.5 million taxpayers face tax audit every year. There is no ideal formula to avoid tax audit but you can look out for red flags.

Here are top 10 red flags which may trigger tax audits -

1. Unreasonable deductions for home office – If you operate your business from home, you are tempted to deduct most of your spending as business expenditure. There are specific rules published by IRS to classify business and personal expenditure. If you miss out on some of them, you are inviting a tax audit.

2. Mismatching your Federal and state tax returns – If there is a difference between the incomes declared on these two tax returns, it will be immediately picked up by IRS computers and you will soon get a notice for tax audit.

3. High earnings – If your annual income crosses $100,000, it may attract the attention of IRS.

4. Excessive charitable contributions – If your contributions to charity range between 5 to 10 percent of your income, IRS feel it is a good reason to ask you explanation.

5. Mess up in alternative minimum tax (AMT) – If you are subject to AMT, you should approach a tax professional in order to avoid calculation mistakes. Even if you feel to submit AMT schedule, you become prominent to attract attention of IRS. Continue reading ‘Top 10 Red Flags Which Show the Danger of Tax Audits’ »