The August 2009 Consumer Price Index – the main indication of inflation – has a surprise. It’s one that may mean no raises next year if you receive social security, invest in TIPS or if your income is somehow tied to the CPI. The Bureau of Labor Statistics (BLS) apparently decided those Cash for Clunkers checks decreased the price of new vehicles. With an estimated 700,000 cars bought under the program, that’s a lot of money not being counted as what Americans spent on cars.
Here are 8 tax tips that will help you start a new business. As you create this new business and run it in the future, keep in mind the first rule of tax law. It is the first thing my tax professor in law school told us on the first day of class. Here’s what he said. “Ladies and gentlemen. Let me tell you the one rule, which if followed, will keep you out of tax trouble. It is this: Pigs may get fat but hogs are slaughtered.” In other words, when it comes to taxes you may be able to get away with being (a little) greedy. Be too greedy, however, and you will not enjoy the results.
Google may indeed have a crystal ball that lets you peak into the future. It may help you predict things like whether there’s a growing (or dying) market for a product or service. Or who is going to win a political race. And who knows what else. It may be able to do that faster and cheaper than other tools you might be using.
If you own a business, consider this question. Will your bank, suppliers, and employees – and investors – feel more confident or less confident if the death of a key person is followed by a large infusion of cash into the business?
People won’t buy something until they understand it. It doesn’t matter whether it is a product, a service or an idea.
You have probably come across people who refused to take action even after you clearly and concisely laid everything out for them. They just didn’t seem to get it. And, because they didn’t get it, they were be unable – or unwilling – to move forward.
Here are 3 principles that will help you become an expert communicator. If you apply them, others will ‘get it’ and will be more decisive. I can’t guarantee what they do will be what you want them to do, but it will normally be what they decide is best for them.
The first principle of effective communication is this: To help people get it, you must involve them. You must talk with them and not just at them. The easiest way to do this is to ask questions.
Why is this so important? If you just throw information around – even accurate information – it is very hard to know if others understand what you are saying. But ask even a single question and you’ll immediately know if they are with you. If they are not, slow down and go at it from a different angle until their answers to your questions show they do understand.
The second principle of effective communication leading to action is to motivate people by telling stories. While you want people to understand, your job is not just to educate. Instead, you are helping others get to the point where they can make a decision. What product best meets their needs? Which service? Which of the competing ideas?
People don’t act just because they have the facts needed to make a decision – though they often will not […]
Imagine an exciting race between two great sailing ships. They are about to glide along a sea filled with sand bars and uncertain currents.
The ships are identical in all respects – except one. One ship has a rudder; the other does not.
Wagers are about to be placed on the outcome of the race. Which ship do you bet on? The answer is obvious. You bet on the one that has the ability to avoid the hazards and take advantage of the most favorable winds.
What’s the point?
In our financial and estate planning, we need a rudder. As we navigate the murky waters and twisting bends of tax law, we need help. Each of us. It doesn’t matter how sophisticated and learned we are – or how unsophisticated and unlearned we might be. We need help.
It’s not enough just to know the law – although the good captain of the ship had better have good charts. Knowledge alone is not enough. The events of late 2008 and early 2009 proved to one and all that even those with the facts in their hands were not immune from the financial traps sprung by others. In addition to a set of good maps, we also need someone who can see the big picture and who can keep the ship moving in the right direction – someone who can be the rudder.
Who is your rudder?
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We see the world through our own experiences. You and I can both look at the same thing and see something entirely different. That’s most definitely true when we talk about financial concepts like retirement planning, financial planning or estate planning.
If you cannot put yourself into another’s shoes and cannot see things as they see them, you may find it difficult to understand why they make the decisions they do.
Here’s a story that shows how two people can look at the same situation and see a different world.
A young man walked into a bank to apply for a $100 loan. The loan officer told him he was crazy. “Use your Visa to take a cash advance from the ATM.”
“I only want to borrow the money for 30 days,” the young man replied.
“We charge a $25 loan fee. What you want to do makes no sense.”
The young man paused a moment. “Yes. I understand. But I really want to borrow the money. I’ll even give the bank my car as security. Not just the title, but the car itself.”
The loan officer gave up and approved the loan. The young man handed over the keys to the car, received his $100 and left the bank.
He returned 30 days later to pay off the $100 (plus change for interest) and to collect the keys to his car. The loan officer, having had time to ponder this strange deal, asked the young man to sit down for a cup of coffee. “This must be the strangest loan I’ve ever made in all my years as a banker. It aroused much interest around here. Everyone is thinking there must be more to the story!”
Yes. There was more to the story. The young man explained he […]
A little mouse once dreamed of the future. He was a smart little mouse and sought out the elderly mice of his community to benefit from their wisdom.
The elderly mice spoke of the past. They pondered the future. They reflected on the friends they had enjoyed during their lives. And remembered the lessons learned – sometimes at great cost.
Among the tidbits the little mouse picked up was knowledge of strange creatures that lived far away in the big city. These beasts had never strayed into the little mouse’s part of the country. In fact, few of the elderly mice had ever seen these horrid beings – though all had heard of them. The man people, the wise ones whispered in hushed tones, called them “cats.”
After listening carefully and learning from his elders, he decided to make a plan, having learned that a plan would help make his dreams come true. He made plans for the future of both himself and then of his growing family. He was confident that by careful planning, he could help the future unfold as he dreamed it. He briefly contemplated including plans to deal with the cats of the far off city but rejected those thoughts. They had, after all, never been seen in his part of the country and it seemed foolish to spend time planning for something so unlikely to happen.
After many days of thought and after much preparation, the little mouse’s plans were complete. He documented them carefully and bound them in a beautiful leather binder. He carefully put the binder with his plans on the shelf. He, his children and grandchildren admired the binder almost every day as they looked forward to the day the little mouse’s plan would be fully realized.
One day a famine […]
What would you think of a bridge builder who makes assumptions like these in designing a new bridge you will drive across every day?
Earthquakes never happen. The temperature will never be lower than 65 nor higher than 75. Ships never run into bridges. The wind never blows more than 30 mph. The quality of concrete and steel used in building the bridge is not important. The amount of traffic on the bridge at any given time is insignificant.
Next, ask yourself if you have ever made any of the following assumptions in your personal financial planning?
You will live forever. You will never be disabled. You will never lose your job. Your employer will never change the benefits you now enjoy. You will never experience an emergency in your life. The economy will never go south. The market will always go up. Your kids will never need your help.
No one likes to think about what could happen. But events of late 2008 and early 2009 make it clear that we must. Prudent planning requires that we take off our rose-colored glasses as we look at the future. Solid principles and good information is the basis of good planning. You can get a good start at the Provident Living website. You’ll find tips (and guiding principles) on everything from employment to family finances to social and emotional strength and emergency preparedness.
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As it does each year, the IRS has released its Dirty Dozen – the top tax scams taxpayers should be aware of. This year the IRS has included a 30-second video on YouTube warning: “If it seems too good to be true, ask a reputable tax advisor or go to www.irs.gov.” Unfortunately, after watching the video on the YouTube site, some of the suggested follow-ups YouTube offers promote just such tax scams. Ouch!
On this year’s list:
Phishing Hiding Income Offshore Filing False or Misleading Forms Abuse of Charitable Organizations and Deductions Return Preparer Fraud Frivolous Arguments False Claims for Refund and Requests for Abatement Abusive Retirement Plans Disguised Corporate Ownership Zero Wages Misuse of Trusts Fuel Tax Credit Scams Offshore Transactions
The IRS is concerned about offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities and life insurance plans. It has also seen schemes that involve electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.
These “offshore” accounts include those 52,000 Swiss bank accounts the IRS is going after that may have as much as $15 billion taxable income. Of course, in this age of government bailouts, Everett Dirksen’s famous quote may need to be rephrased to read “A [trillion] here, a [trillion] there, and pretty soon you’re talking about real money.” Most people have forgotten that he also said “We are becoming so accustomed to millions and billions of dollars that ‘thousands’ has almost passed out of the dictionary.” Maybe it’s millions that has almost passed out of the dictionary now. While we’re talking about Dirksen, Ralph Keyes in his book The Quote Verifier: Who Said What, Where, and When says that although the billion here, billion there quote is virtually Dirksen’s epitaph, no one has […]
Remember the good old days of Grandma’s feather bed? Remember when you had a pillow fight with your brothers and sisters? Your parents were yelling at you to cut it out before someone got hurt.
And then one of the pillows broke open…
Wow! You’d never seen so many feathers. They were floating everywhere. And they landed everywhere. On things. Under things. Behind things. After Mom and Dad found out what happened, you and your siblings thought you’d never get the mess cleaned up. It took hours! Pretty soon it looked “good enough” and you moved on to other things.
It was nine feet tall and six feet wide soft as a downy chick It was made from the feathers of forty eleven geese took a whole bolt of cloth for the tick It’d hold eight kids ‘n’ four hound dogs and a piggy we stole from the shed We didn’t get much sleep but we had a lot of fun on Grandma’s feather bed –Jim Connor (sung by John Denver)
You can probably go back to that bedroom even today and find evidence of that pillow fight. That’s the way it is with many things in the financial world we live in. As we go through life, our battles leave lots of feathers lying around.
We pick up most of them. But there are always some we miss the first time around.
Could there be feathers left over in your financial life – feathers you may have missed cleaning up? What should be on your retirement and estate planning checklist?
Beneficiary changes when life’s circumstances change. Corporate resolutions and minutes for key person life insurance. Assets not transferred (and titles […]
Here’s a 60-second course in charitable giving. If you understand this, you’ll have a framework to help understand complex charitable gifts. Start your stopwatch. Picture in your mind Bessie, the milk cow. (You can read about her on the famous cows website.)
That’s it. That’s all you need to know. If you can picture Bessie, you understand even the most complex charitable gifts. Well, perhaps I should give you a little more.
If you have a cow standing out in your back yard and you’re interested in helping others by giving a gift to your favorite charity, what options do you have? When you think about it for a moment, you’ll realize you have really only 3 options.
Although there may well be combinations of the 3, all charitable gifts break down into one of three types.
You can give both the cow and the milk. Or you can give just the milk (and keep the cow). Finally, you can give the cow (but keep the milk).
You can go to that charity and say something like this: “Folks, I have a cow. However, I need milk for my bowl of Cheerios® every morning. I’m more than willing to give you the cow right now if you’ll let me keep the milk. When I die (and no longer will be eating that bowl of cereal in the morning), you can have the milk as well as the cow. (You can also agree that the charity will get the milk after a certain number of years instead of after you die.) When you do that, you’re making a gift of a remainder interest – the charity is getting the rest (or remainder) after you’ve taken the income. Because of tax rules, that’s usually that’s […]
Because it looks like income tax rates will go up in future years (how else will Congress pay for all the bailouts they’re making?), Roth IRAs promise to become even more popular. Although we usually focus attention on the income tax benefits of a Roth IRA, there are also estate planning (and not just estate tax) benefits as well.
First, a Roth IRA lets you leave money to heirs without also leaving an income tax bill. If you had a regular IRA, they would pay income tax on the money they take out – just like you would. But when they take money out of a Roth IRA, they do not pay income tax.
Second, you can leave more to them because the money can keep growing tax free until you die. If you own a regular IRA, you must start taking money out after you turn 70½. If you have to take out $2,000 this year and pay $500 income tax on that money, that’s $500 you can’t leave to your family. But they also don’t get the interest or capital gains the IRA would get on that $500 this year – and every year that it stayed in the IRA. If you own a Roth IRA, you do not have to take distributions after you turn 70½. The entire $2,000 continues to grow as long as you live. Only after you die do your heirs need to take money out of the Roth. Like a regular IRA, they can take the money out over their lifetime (letting it grow tax-free meanwhile). However, unlike a regular IRA, when they do start taking money, they do not pay tax on what they take out.
The third benefit is that you can leave more because you can keep putting money […]