There are a lot of tax benefits for home owners, some of which include deductions on expenses paid during your mortgage closing. However, there are a lot of categories included in your mortgage closing costs, not all of which are deductible. To determine which closing costs involved with your mortgage are deductible, read on.
* Points are deductible on your tax return during the year in which they are paid. For example, if you pay points on your closing costs during the year 2010, you can deduct them on your 2010 return. Points are the costs of obtaining the loan, or a loan origination fee. Most points are equal to 1% of the total mortgage.
* Seller’s paid points are deductable by the buyer as an expense if there is an agreement that the seller will pay the points on the mortgage. However, the seller is not able to claim those points on their tax return; rather the net gain on the sale of the home is reduced by the amount of the points paid.
* Interest costs are fully deductible through the first 10 years of home ownership. During the closing, you will prepay interest through the month, especially if you close in the middle of the month. Prepaid interest is deductible on your tax return.
* If you make too much money, there are limitations on the amounts that you can deduct. For matters in regards to this, it is best to contact a tax professional to assist in filing your taxes. A certified public accountant will know the limitations and can apply them to your taxes in the proper manner.
* Pro-rated property taxes are also deductible. In most cases you will have to pay pro-rated property taxes on the property at the closing. This expense is completely deductible when you file your return.
Closing costs consist of many fees totaled into one lump sum to be paid upon closing of the house. Some of these expenses are tax deductible depending upon your income and the purpose of the fees. Points, interest and property taxes are a few of the items that are considered tax deductible. To get the maximum deductions allowed, it is best to talk to a tax advisor or CPA to determine how much of your closing costs is deductible.
Planning for retirement is vitally important in a world where little if any Social Security will be available when today’s young people are ready to retire. There are many options available, such as IRAs, pensions and 401(k) retirement plans. The 401(k) is perhaps the most advantageous plan available when looking at tax benefits.
The single best benefit to you today of a 401(k) is the opportunity to put money into your retirement savings while reducing your taxable income at the same time. The money you contribute, up to a certain amount, comes out of your earnings before tax.
For example, if your paycheck before any deductions would have been $1000 and you contribute $100 towards your 401(k), Uncle Sam only gets his fingers into a percentage of $900, not the whole $1000. This means that your pay will be larger than it would be if you took $100 out of your post-tax check and put it towards savings.
The fact that your 401(k) payments are pre-tax also affects your earnings at tax time. The maximum contribution of $16,500 could be enough to kick you into a lower tax bracket if you are lucky. At the very least the amount of tax you are responsible for is going to be less.
It’s easier to report it to Uncle Sam as well, since most employers include it on your W-2. If you are instead dealing with IRAs and other forms of savings, you will have to provide all of those tax documents to your tax preparer and make sure they are each reported in the correct section of the 1040.
Another great tax benefit is the tax-free money your employer will be contributing towards your retirement. If you are contributing the full amount allowed by the IRS towards your 401(k), $16,500 in 2010, and your employer is providing a 50% match, the most common amount, you are effectively raising your per-hour earnings by at least a few dollars.
For example, if you earn $100,000 a year and contribute the maximum of $16,500 towards your 401(k) this year, your employer could contribute a match of up to 6% of your income. At 50 cents on the dollar, that would be $3000 of extra income going towards your retirement this year alone.
The final tax benefit is the opportunity to grow your retirement savings without having to pay taxes on that amount as it grows. Capital gains, dividends and other type of distributions will all be put back into your 401(k) account and allowed to grow even more without being taxed.
Remember, you will of course be paying taxes on your 401(k) when you withdraw it, but if you wait until you are at retirement age there will be no penalty and you will pay income tax based upon whatever your income is at that time. Assuming you are making less per year, then the amount of tax you pay on this income will be much lower than what it would have been when you were at the peak of your career.
Are you sick and tired of not having enough money to pay your bills, not having enough money to buy food and medicine? Are you tired of running out of money before you get another paycheck? Are you living on one income when you previously lived on two? Did you recently get laid off your job and are having a hard time making ends meet? Saving Money Club is here to help!
The economic recession has caused many people to not only want to learn how to save money, but it’s forcing most people to do so. Saving money isn’t that difficult but it does take commitment and the desire to want to learn to live a more frugal life.
The goal of our Saving Money Club membership site and blog is to offer members money saving tips and ideas that will help not only save money right now, but to learn a new lifestyle when it comes to personal finance and money spending habits. With the economy in the shape it is, how many of us can afford not to live more frugal?
Saving Money Club isn’t the same old rehashed stuff you find all over the internet. Members will find informative money saving tips for everyday living, freebies and samples (who doesn’t love free stuff?), ways to cut costs, free and low cost ebooks about various topics, yummy frugal recipes, ways to get more for your money, dollar stretcher tips, tips on reducing credit card debt, and more.
Membership is available as a regular monthly recurring subscription. Sign up for the monthly subscription, and we take care of the rest. There’s no need to worry, because each month your subscripton is automatically renewed so that your access to Saving Money Club is never disrupted or stopped as long as you choose to keep your subscription active. You can cancel anytime, however, if you find Saving Money Club is not for you.
Saving Money Club will always offer new and interesting material for members, updated often so that you can always find more money saving advice and tips on various topics. New ebooks will always be available to members totally free or at a very substantially reduced low price. Our goal is to help you save money!
Saving Money Club offers members resources, information, and tips about saving money. Saving Money Club shows readers how to live better on less, how to stretch the dollar, and budget better. We provide members with frugal living tips and frugal advice, money saving tips, better budgeting ideas, freebies, coupons, coupon codes, bargains, discounts, and tips on ways to cut spending and get more for your money. Saving Money Club offers money saving advice on anything and everything about living… fashion and beauty, diet and weight loss, travel, family, house and home, gardening, shopping, crafts, cooking, parenting, babies, teens, entertainment, the economy and recession, credit and debt help, and more.
It’s that time of year again, tax time. With the economy in such a slump, we want to get back as much as we can for a tax refund, or pay in as little as possible. If you already owe back taxes, the last thing you want to do is have to pay in more, or more than you have to. You can get some free tax help by going here.
With the current economic crisis on everyone’s mind, you may be wondering if you should withdraw money from your 401K. Experts recommend that you do not. They advise that contributions should continue based on the “buy low-sell high” theory.
What does this mean for you? Simply stated, right now most individuals may have incurred a severe loss in their 401K plans. But, considering that the stock market has dropped approximately 5000 points since the economic decline, your portfolio will no doubt increase with stocks, bonds, and mutual funds that can now be purchased at a very low rate.
If you withdraw funds from your 401K, the cumulative effect will result in your taking a double loss. First, by paying a penalty for early withdrawal – and second, by decreasing the amount of purchasing power you would have as a result of the stocks tumbling to their lowest rates.
You may withdraw funds from your 401K at age 59½. If you withdraw beforehand, however, you will incur a 10% penalty and pay tax on the amount distributed.
You do have another option. Since most economists believe we are headed for a recession, you can roll over your 401K into a Roth IRA or traditional IRA. If you decide to do so, here is some advice from the IRS:
Rollovers from your 401(k) plan. A rollover occurs when you receive a distribution of cash or other assets from one qualified retirement plan and contribute all or part of the distribution within 60 days to another qualified retirement plan or traditional IRA. This transaction is not taxable but it is reportable on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. and your federal tax return. You can roll over most distributions except for:
* A distribution that is one of a series of payments based on life expectancy or paid over a period of ten years or more
* A required minimum distribution
* A corrective distribution
* A hardship distribution
* Dividends on employer securities
Any taxable amount that is not rolled over must be included in income in the year you receive it. If the distribution is paid to you, you have 60 days from the date you receive it to roll it over. Any taxable distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll the distribution over later. If the distribution is rolled over, and you want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your 401(k) plan transfer a distribution directly to another eligible plan or to an IRA. Under this option, no taxes are withheld.
You may borrow up to 50% of your vested account balance up to a maximum of $50,000. The loan must be repaid within 5 years, unless the loan is used to buy your main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.
However, if you cannot afford to pay back the loan, it is considered a distribution if you default on three consecutive payments and the funds withdrawn will be taxed.
In short, the answer is yes – absolutely. Here are the reasons why. Let’s assume you took a substantial hit to your 401K plan when the stock market plummeted approximately 5000 points.
The amount of stocks, bonds, mutual funds, and other holdings that your 401K provider continues to purchase at a very low price will eventually increase in price once the stock market rebounds. If you do not contribute, you will be losing out on the potential increase your overall portfolio will obtain.
The economic rule of thumb is to buy low and sell high. Now is therefore the best time to make substantial contributions to your 401K, especially if you are a young individual who has just entered the business world or if you are five to ten years from retirement. It’s a good idea to check with your 401K plan provider or employer to determine what the maximum contribution is and, if at all possible, whether you can meet that amount annually.
If you cannot afford to maximize your contributions, you can determine what percentage you can afford per paycheck so that at least you are contributing something to the plan. For example, let’s assume you can only contribute 5%. Take time to set a household budget and then determine how much you can afford to contribute to your 401K. Perhaps you can start with 5% and increase it by 1% each year, until you reach the maximum allowed.
A 401K is non-taxable except in an extreme case wherein you are financially strapped and need to withdraw all the money. In this case, you will be taxed for early distribution. There are other options available to you. If you need money for your child’s college tuition or to pay the mortgage, you can apply for a hardship distribution.
You can also apply for a loan of up to 50% of the total amount accumulated. However, it would have to be paid back in five years and if you default three consecutive months in a row, it will be considered a distribution and is therefore taxable.
While most economists estimate that the current economic crisis will last approximately 18 months or longer, it is advised that you seriously consider whether or not you want to utilize this money. Remember, the 401K provider will continue to increase the amount of equity in your plan now, and at a time when stocks are at their lowest, you can lose out in the long term if you stop contributing.
Having a 401K plan is an important of your financial future. Whether you stop contributing or not is up to you, but it is recommended that you contribute something every paycheck so that when the economy turns around, you will at least have some funds available to you in case of an emergency.
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Frugal Tips to Shrink Your Grocery Bill Ebook
Frugal Tips to Shrink Your Grocery Bill (Plus Recipes!) offers helpful money saving tips that will cut your grocery bill. Who doesn’t want to and need to save money in these hard financial times? Find out how to save money on groceries with this frugal tips ebook. Also included are some delicious frugal recipes.
