Me Myself N My Mortgage Theories

Its tax time guys and by now most of you must have approached insurance companies so that you can deduct the premiums from the taxes.

Let me share with you my knowledge on tax deductible insurance premiums.

Private health insurance and dental plan premiums are deductible as a part of the itemized deduction for medical expenses. But you can only avail this deduction if you itemize and if the cost of the insurance policy is restricted to 7.5% of your income.

However, those who are self-employed can deduct health insurance premiums as an adjustment to their income without having to itemize. Until and unless the tax payer is not involved into some kind of group plan, 100% premiums are deductible.

If you use a car for business purposes, you can deduct your auto insurance. The deduction for business use of the car should be reported in Form 2106 if you are an employee. But if you are self-employed, then you need to report the deduction in Schedule C.

There is another type of insurance available in the market - homeowners’ insurance policy. Premiums on such a policy cannot be deducted on your primary residence. But you cannot deduct such premiums for your rental property. Those who work from home can also deduct a certain part of their insurance as a part of the home office deduction.

You can look forward to your liability insurance and professional insurance policies for tax deduction benefits. If you are an employee, you need to report these expenses as itemized deductions whereas you need to use Schedule C if you are a self-employed tax payer.

Technorati tags:tax deductible insurance, itemized deduction, auto insurance, homeowners insurance

There are goes a common saying - “There are both sides of the same coin”. Similarly, there are positive and negative aspects of every financial move. While keeping a mortgage after retirement may seem to a good option for some, others feel it’s best to get rid of it and enjoy a tension-free life.

Here are some probable reasons as to why you should pay off your loan.

Get debt-free: This is an obvious reason behind paying off your mortgage. At least you can start getting peace of mind when you get out of the debt.

Changes in lifestyle: You may wish to change your lifestyle or retire early and this may not be possible with such a financial obligation.

Options in Retirement: When you pay off the mortgage, you are relieved from the financial obligation and can save the freed-up amount for retirement needs. By clearing the debt, you can build up equity and hence qualify for reverse mortgage after retirement.

Avoid investment risks: If you prefer to avoid risks with your finance, you may avoid going into investments and instead invest your spare cash into the mortgage to pay it off early.

Technorati tags:mortgage, mortgage payoff

Several changes have been introduced into the new pension law under the Pension Protection Act (signed into law on the 17^th of August, 2006).

Some of the provisions include:

• Higher contributions for defined contribution plans like 401k or 403b and also for the traditional and Roth IRA.
• Direct conversion from previous employer’s 401K plan into Roth IRA.
• Continuing with the Saver’s Credit.

Know more on the Pension Plan Changes

Technorati tags: 401K, Roth IRA, Pension law, Pension Protection Act

Generating tax-deferred income is a significant part of an effective tax planning strategy. The income earned on the principal compounds tax deferred until money is withdrawn. However, at the time of withdrawal, you are required to pay taxes.

The government provides individuals with various means of earning tax deferred income. Popular options include retirement plans like the 401K, 403b, IRAs and other qualified plans. Besides the retirement plans, there are fixed and variable annuities, life insurance contracts, and other related options.

However, it is to be kept in mind that most tax deferred investments require you to pay penalty if you withdraw cash prior to being 59 and ½ years old. The penalty is around 10% of the total contribution made to earn tax deferred income.

However, tax-deferred investments help to minimize your current tax liability and increase your net worth by offering you a variety of choices such as equity portfolio, fixed income portfolio or a combination of both.

As the year 2006 is about to end, you still have some time to make plans for your year-end tax savings. While you plan your savings, have a look at the options that can help you out.

1. Sell your principal residence before the New Year’s Day. This will give you the chance to get the maximum tax break. If you owned and occupied your house for at least 2 years out of the last 5 years prior to its sale, you will get tax exemption on $250,000 out of your capital gains taxes. For qualified married couples who file joint tax return, the exemption limit goes up to $50,000. This tax break provided by the Internal Revenue Service is available for only once in every 2 years.

2. Buy a house as your principal residence before the year ends. With fixed rate mortgages being offered at around 6%, you can start shopping for a home loan at your preferable terms and conditions. If you pay a home acquisition fee of 1%-2% of the loan amount, it becomes tax deductible as itemized interest. But you need to record the home purchase by the 29^th of December, which is the last business day for 2006. Besides this, you can deduct mortgage interest paid in 2006 on your 2006 income tax returns.

3. You can refinance any existing mortgage for which you have paid a loan fee which is being amortized over the life of the loan. This will help you get rid of a variable rate mortgage. You can also get tax-free cash out of your home equity. In the year when the loan will be fully repaid with undeducted loan fees, these fees will become tax-deductible as itemized interest.

4. You can make your first monthly mortgage payment for 2007 in 2006 itself. Try to pay the first installment for 2007 well before 29^th of December. If you can send the payments to the lender in time so that he can include it in your IRS 1098 interest deduction statement, you will be getting a higher itemized deduction for 2006.

Financial planning is what most of the people are not aware of, and are far behind in thinking of doing it.

Today, we all are concerned of one thing, may be you are not but I am, that is, to make my finance sail smoothly. You are never late in deciding to plan for your finance; regardless of when you begin, the basics remain the same. Here are some of my tips to make your finances sail smoothly.

• Don’t think beyond what you can afford and always spend less than you earn

Though it sounds simple and easy, but let me tell you that it’s very tough to achieve. Always think about your pocket before thinking of any purchase by conducting evaluation of your income, debts and savings.

No matter how much or how little you are paid, it is always impossible to move ahead if you spend more then you earn. And, believe me you always don’t have to make big sacrifices if you can understand your limit.

• Stick to a Budget

Sticking to a budget is an important factor when it comes to financial stability. Always budget your finance properly and make it flexible. Everybody knows how unfair life can be at times, so getting prepared beforehand is not at all a bad idea.

• Pay Off Credit Card Debt

Small in size and big in impact - this is how I have learnt about credit cards. Getting ahead financially depends a lot on your credit card debt. Credit cards easy to use but we are not aware of all the hidden costs that come along with them. We always end up paying far more than what we would have paid if we had used our cash. We should try to limit the use of credit cards, and utilize it only when we are left with no option. So think twice before using your cards.

• Contribute to a Retirement Plan

You should invest on any such plan like 401(k), either with your employer or with IRA. And, believe me; you will understand its value once you are retired. If you are already contributing to it, try to increase your share.

There’s a lot more to share with you all. But for the time being it’s all that I can let you know. I shall keep updating this information as soon as I can get some time from my work schedule.