A few weeks ago (Nov.18) I wrote about some year-end tax tips. I came across an article this weekend by Lynn Brenner in Philadelphia Inquirer's Parade Magazine which had a few more interesting tips. Act quickly though as you have less than 3 weeks until the end of the year.
Remember that charitable donations made before December 31 are tax deductible next April. This includes the value of used clothing or household goods you gave away in 2006. If you are short cash, you can contribute by credit card (personally not a big fan of charging donations, but to each his own) and still claim the deduction even though you won't pay the bill until 2007. Don't forget that you can claim the cash donations you give to the church at Sunday collection or to the Salvation Army Santa, as long as it's under $250 per contribution.
If you contributed to a Flexible Spending Account (FSA) make sure you use it up by December 31 or you lose it. Some employers may have different deadlines, so check with your HR dept. for the deadline. Also get a list of eligible expenses. There may be some over the counter medications or items (like humidifiers or blood pressure monitors...) that you need which are eligible.
You should also check out the Saver's Tax Credit. You may qualify for this tax credit if you contributed to an employer sponsored plan like a 401k or to an IRA or a Roth IRA. You will get a tax credit for a percentage of your eligible contributions up to a certain amount if you meet certain criteria. You qualify if you are at least 18 by the end of the tax year and made less than $25,000 for single filers or less than $50,000 for joint filers. You do not qualify if you are listed as a dependent on another person's tax return, or if you are a full-time student. You can get some more detailed information about the Saver's Tax Credit at
http://www.investopedia.com/articles/retirement/04/031704.asp
Tuesday, December 12, 2006
Thursday, December 7, 2006
Inflation or Recession?
You may have heard recent debates lately as to whether we are headed into recession or major inflation. There are good arguments for both, but let's face it, no one can predict with any certainty which it will be. So your best bet is to be prepared for both. Here are some things you can do.
-Lighten up or avoid junk bonds (they will get crushed in a recession)
-Lighten up or avoid long term bonds (their value will get eaten away by inflation)
-Buy short or intermediate term bonds
-Allocate a portion of your portfolio to foreign bonds
-Allocate a portion to TIPS (Treasury Inflation Protected Securities)
-You should put no more than 10% of portfolio into REITS
-Put no more than 10% into commodities or natural resources.
Balance your stocks between those sectors that do well in inflation and those that do well in a recession. Sectors that do well in inflationary periods are energy, food industry and dominant technology. Sectors that do well in recessionary periods are consumer staples and utilities. You are usually better off if you invest in larger name stocks. If you are a fund investor, try large-cap growth (for inflationary periods) and dividend focused value funds (for recessionary periods).
-Lighten up or avoid junk bonds (they will get crushed in a recession)
-Lighten up or avoid long term bonds (their value will get eaten away by inflation)
-Buy short or intermediate term bonds
-Allocate a portion of your portfolio to foreign bonds
-Allocate a portion to TIPS (Treasury Inflation Protected Securities)
-You should put no more than 10% of portfolio into REITS
-Put no more than 10% into commodities or natural resources.
Balance your stocks between those sectors that do well in inflation and those that do well in a recession. Sectors that do well in inflationary periods are energy, food industry and dominant technology. Sectors that do well in recessionary periods are consumer staples and utilities. You are usually better off if you invest in larger name stocks. If you are a fund investor, try large-cap growth (for inflationary periods) and dividend focused value funds (for recessionary periods).
Wednesday, December 6, 2006
Improve Your Credit Score
Take steps now to improve your credit score. One of the most important financial moves you can make is being proactive when it comes to your credit. It all seems to boil down to that three digit number, your FICO score. This number which is based on many factors can determine the amount you can borrow, the interest rate you pay or even rates on car insurance or whether you get that new job. The good news is that there is plenty you can do to improve your credit score, and it's never too late to start.
The first thing to do is get a copy of your credit report and look over it thoroughly for any errors or discrepencies. Make sure you get your FICO score along with your credit report. This number can range from 300 to 850, (the higher the better) but it is rarely under 500. Any errors, as small as they may seem, can take away from your credit score. Fixing them, even if it is time consuming, is worth the effort as it can raise your credit score. Most reports will give you details on who to contact or what needs to be done if you notice any errors.
A few simple things can make you look better to lenders. Number one is to pay your bills on time. This has the greatest bearing on your credit score. The second most important factor is your ratio of debt to credit limit (how much you borrow vs. how much you can borrow), so live well within your limits. Try to use 30% or less of available credit, this will look good to lenders. More than 70% is a serious drain on your score. Next, be careful about opening and closing credit card accounts. Your older accounts are your most valuable. If you cancel older credit cards, you may be shortening your credit history, and since the length of your credit history is another important factor, you may be damaging your score. Opening too many accounts can also hurt your credit score. It's so tempting this time of year to open that store account to save 10-15%, but your credit score may suffer, so be careful.
If your credit score is hurting due to maxed out credit cards and late payments, it's not too late to work on improving your bad habits. Start paying your bills on time and try to pay down those balances. If your problems are more serious, you might consider credit counseling, which will not be as damaging to your credit as bankruptcy, which stays on your credit report for 7 to 10 years. You can make a huge improvement in your credit in as little as 2 years. Creditors consider recent behavior a much better indicator of your credit worthiness than what you did in the past. And a 24 month history of paying your debt down and paying on time, can greatly improve your chances for a better score.
The first thing to do is get a copy of your credit report and look over it thoroughly for any errors or discrepencies. Make sure you get your FICO score along with your credit report. This number can range from 300 to 850, (the higher the better) but it is rarely under 500. Any errors, as small as they may seem, can take away from your credit score. Fixing them, even if it is time consuming, is worth the effort as it can raise your credit score. Most reports will give you details on who to contact or what needs to be done if you notice any errors.
A few simple things can make you look better to lenders. Number one is to pay your bills on time. This has the greatest bearing on your credit score. The second most important factor is your ratio of debt to credit limit (how much you borrow vs. how much you can borrow), so live well within your limits. Try to use 30% or less of available credit, this will look good to lenders. More than 70% is a serious drain on your score. Next, be careful about opening and closing credit card accounts. Your older accounts are your most valuable. If you cancel older credit cards, you may be shortening your credit history, and since the length of your credit history is another important factor, you may be damaging your score. Opening too many accounts can also hurt your credit score. It's so tempting this time of year to open that store account to save 10-15%, but your credit score may suffer, so be careful.
If your credit score is hurting due to maxed out credit cards and late payments, it's not too late to work on improving your bad habits. Start paying your bills on time and try to pay down those balances. If your problems are more serious, you might consider credit counseling, which will not be as damaging to your credit as bankruptcy, which stays on your credit report for 7 to 10 years. You can make a huge improvement in your credit in as little as 2 years. Creditors consider recent behavior a much better indicator of your credit worthiness than what you did in the past. And a 24 month history of paying your debt down and paying on time, can greatly improve your chances for a better score.
Monday, December 4, 2006
Selling Your Life Insurance Policy
Selling your life insurance policy that you no longer need or want to a 3rd party for immediate cash is known as a life settlement. A life settlement can be an attractive option for a seemingly useless policy, as you may receive a large sum of cash in exchange for your life insurance policy while you are still alive. The 3rd party is then responsible for all premium payments and becomes the beneficiary when you die.
Life settlements grew out of viatical settlements which gained popularity in the late 1980's when the AIDS epidemic first hit. Viatical settlements differ in that the policyholder is terminally ill. In life settlements the policyholder has just had a decline in health, such as a heart condition.
Some of the reasons for considering a life settlement are that the premiums are no longer affordable, policy is about to lapse, considering surrender of the policy or it's no longer needed or wanted, because retirement age has been reached, the mortgage is paid off and you are debt free. However, there are alternatives to explore which may better suit your particular situation. You could borrow against the cash value of the policy, cash out based on available cash surrender value, check to see if premiums can be lowered by reducing the death benefit or use the policy as collateral to secure a loan. Insurance companies urge customers to examine all options before making a decision.
Furthermore, not all policies will be eligible for sale. Investment companies that purchase life insurance policies look at many factors. Two of the main factors are the amount of the death benefit (usually no less than $250,000) and the health of the insured. Other things they consider are age of the insured, type of policy(whole, term, universal), rating of issuing insurance company and the amount of the premiums necessary to keep the policy in force. Obviously they are in it to make a profit, so many factors will be considered before they decide if buying the policy is a good investment, and if so what amount to offer for the policy.
If you do decide that the life settlement is the best avenue for you, you should contact several life settlement companies to obtain the best offer. It would be wise to contact your state's insurance regulatory agency to be sure the company is licensed and reputable and learn all you can about the company, including their privacy policy. If possible you should discuss your decision with trusted family members or friends, your financial advisor or legal advisor. It is also good idea to contact your tax advisor, as the proceeds from a life settlement may be taxable.
Life settlements grew out of viatical settlements which gained popularity in the late 1980's when the AIDS epidemic first hit. Viatical settlements differ in that the policyholder is terminally ill. In life settlements the policyholder has just had a decline in health, such as a heart condition.
Some of the reasons for considering a life settlement are that the premiums are no longer affordable, policy is about to lapse, considering surrender of the policy or it's no longer needed or wanted, because retirement age has been reached, the mortgage is paid off and you are debt free. However, there are alternatives to explore which may better suit your particular situation. You could borrow against the cash value of the policy, cash out based on available cash surrender value, check to see if premiums can be lowered by reducing the death benefit or use the policy as collateral to secure a loan. Insurance companies urge customers to examine all options before making a decision.
Furthermore, not all policies will be eligible for sale. Investment companies that purchase life insurance policies look at many factors. Two of the main factors are the amount of the death benefit (usually no less than $250,000) and the health of the insured. Other things they consider are age of the insured, type of policy(whole, term, universal), rating of issuing insurance company and the amount of the premiums necessary to keep the policy in force. Obviously they are in it to make a profit, so many factors will be considered before they decide if buying the policy is a good investment, and if so what amount to offer for the policy.
If you do decide that the life settlement is the best avenue for you, you should contact several life settlement companies to obtain the best offer. It would be wise to contact your state's insurance regulatory agency to be sure the company is licensed and reputable and learn all you can about the company, including their privacy policy. If possible you should discuss your decision with trusted family members or friends, your financial advisor or legal advisor. It is also good idea to contact your tax advisor, as the proceeds from a life settlement may be taxable.
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