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How
to start planning
About 60% of people that were surveyed said that they worry about their
financial future.
Here are a few simple steps you can follow to reduce your anxiety:
Put aside some amount regularly in a savings account of other investments.
The compounding of earnings can be substantial. The longer your
investment period, the greater the beneficial effect of compounding.
Invest in what you know. The better informed you are, the better
your investment decisions will be. If you don't want to learn about
investments, consider hiring a money manager and paying him or her to do your
investing for you.
Don't put all your eggs in one basket.
Diversify your investments.
Have some of your money in an investment that is easily converted to cash in
case of emergencies.
Prepare an annual balance sheet to determine your net worth. A
comparison will reveal your success at growing your retirement funds.
Plan where you want to be financially by retirement age.
Don't use credit to purchase consumption items.
Wait until you can pay cash
for things which decrease in value. Borrowing money to purchase a home
is usually a sound idea. Using credit to purchase household
furnishings is not.
Pay off your credit card balance every month. Your credit card
should be for the convenience of purchasing not a source of permanent finance.
The interest rates are much too high.
Monitor your investments to maximize your after-tax return.
The difference that a
2% greater return can make in the growth of your investment is dramatic.
Have your insurance agent do at least an annual review of your insurance
needs.
How compound interest works
If you could have one of the following as your pay for thirty days' work,
which would you choose ?(a) $10 000 or
(b) a penny the first day, two cents the second day, four cents the third day,
eight cents the fourth day, and so on, with each day doubling on out to thirty
days.
The $10 000 sounds very attractive, but the fact is that the penny doubled
each day for thirty days adds up to over five million dollars. Of course,
that is 100% interest compounded daily, a rate not available to most of us
working fold. Nevertheless, this example shows you the power of
compounding on your investment earnings.
Credit card
information is available to the IRS
The IRS is using a new tool to track tax evaders. The agency
recently obtained information from MasterCard on 230,000 offshore credit
card accounts. Visa and American Express are expected to turn over
similar information soon. Having an offshore credit card account
isn't illegal. It is illegal to use the account to evade U.S. taxes.
Deduct the cost of fighting obesity
The costs to fight obesity may qualify as a medical expense according
to the IRS. This deduction only applies to individuals under a
doctor's orders to lose weight for health reasons. It does not
include the cost of diet food or the costs of losing weight for your
general health or appearance.
You can deduct medical expenses if you itemize your deductions and to
the extent that your medical expenses exceed 7.5% of your adjusted gross
income. Also, you can amend returns back to 1999 to cash in on this
tax break.
Luxury autos
Autos costing more than $15,300 and purchased after September 10, 2001,
the first-year depreciation limit jumped to $7,660.
Tax breaks
Tax breaks for business and
professional practices include the following changes:
- An additional 30% first-year depreciation write-off for most types
of new nonrealty property acquired after September 10, 2001 and before
September 11, 2004. For example, if a business or practice bought
a new qualifying $10,000 machine normally depreciated over five years,
the first-year write-off under the new law is $4,400. Under prior
law, the maximum first-year write-off is only $2,000. The extra
30% first-year write-off also applies to certain types of interior
improvements to leased nonresidential realty (such as an office building
or factory).
- The first-year depreciation dollar cap on new luxury autos bought for
business purposes is boosted by $4,600, effective for autos acquired after
September 10,2001 and before September 11,2004. For qualifying autos
bought after September 10,2001 and before 2003, that means a maximum first year
write-off of $7,660 ( the regular $3,060 first year dollar cap plus $4,600).
The extra write-off applies only if the auto is used more than 50% for business,
and is fully available only if the auto is used 100% for business. The net
result is a larger up-front deduction for those who buy new autos for use in
their business or practice.
- The net operating loss (NOL) carry-back period is increased from two or
three years to five years, for NOLs arising in tax years ending in 2001 or 2002.
This change could create additional refunds for businesses suffering losses.
Related changes help businesses with NOLs avoid alternative minimum tax
problems.
- Many tax breaks that expired at the end of 2001 are retroactively
reinstated and extended for two years. These include the work opportunity
tax credit and the welfare-to-work credit.
If you had a tax loss
If you had a tax loss in your business in 2001 or lost money in 2002,
you can carry back the loss to offset income in the previous five years
instead of the usual two years. That means you may be able to use
the loss to offset taxes you paid in earlier years and obtain a refund.