Certified Financial Planner Colorado Springs

 

Authentic counsel, LLC Financial planning team serves best approach on Investors who seek financial planning advice and investment advice. Our partners have over 45 years in the business of preparing financial plans for businesses and families

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What Is a 1035 Exchange?

According to the most recent information available, Americans had individual life insurance with a total face value of $11.2 trillion.¹
Due to a variety of factors, these individuals may find themselves in circumstances where the specific life insurance policy or annuity contract they own does not suit their needs.² They may want to exchange products without incurring a taxable event.
That’s where Section 1035 of the Internal Revenue Code comes in. A 1035 exchange provides a means for exchanging an annuity contract or life insurance policy without being treated as if it had been surrendered or sold. Keep in mind that a 1035 exchange can be used only when it involves the same contract or policy holder and the same type of product.

Trading-In an Older Policy

A 1035 exchange, provided certain requirements are met, gives policy or contract holders the flexibility to “trade-in” an older contract or policy for a newer contract or policy. A newer policy or contract may have lower costs, a higher death benefit, or more investment choices.
1035 exchanges involve a complex set of tax rules and regulations. Before moving forward with a 1035 exchange, consider working with a tax professional who is familiar with the rules and regulations.

Partial Exchanges

Also, individuals can do a partial 1035 exchange for a portion of the total contract. A tax professional should be consulted for a partial exchange because any gain may be subject to ordinary income tax when withdrawn.

Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policy holder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency. The earnings component of an annuity withdrawal is taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.
Variable annuities are sold by prospectus, which contains detailed information about investment objectives and risks, as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or from your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions, and may be worth more or less than the original amount invested if the annuity is surrendered.

Permitted Exchanges

While a life insurance policy may be exchanged for another life insurance policy, a modified endowment contract, an annuity contract, or a long-term care policy, the reverse is not true. This chart details the exchanges permitted under a 1035 exchange.

Source: Internal Revenue Service, 2014

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What If You Get Audited?

“Audit” is a word that can strike fear into the hearts of taxpayers.
However, the chances of an Internal Revenue Service audit aren’t that high. In 2013, the IRS audited 1.0% of all individual tax returns.¹
And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.
The IRS selects returns for audit using four main methods.²

• Random Selection. Some returns are chosen at random based on the results of a statistical formula.
• Information Matching. The IRS compares reports from payers — W2 forms from employers, 1099 forms from banks and brokerages, and others — to the returns filed by taxpayers. Those that don’t match may be examined further.
• Related Examinations. Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.

There are a number of sound tax practices that may reduce the chances of an audit.

• Provide Complete Information. Among the most commonly overlooked information is missing Social Security numbers — including those for any dependent children and ex-spouses.
• Avoid Math Errors. When the IRS receives a return that contains math errors, it assesses the error and sends a notice without following its normal deficiency procedures.
• Match Your Statements. The numbers on any W-2 and 1099 forms must match the returns to which they are tied. Those that don’t match may be flagged for an audit.
• Don’t Repeat Mistakes. The IRS remembers those returns it has audited. It may check to make sure past errors aren’t repeated.
• Keep Complete Records. This won’t reduce the chance of an audit, but it potentially may make it much easier to comply with IRS requests for documentation.

Remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Audits Have Changed

Most audits don’t involve face-to-face meetings with IRS agents or representatives. In 2013, 70% were actually conducted through the mail; only 30% involved face-to-face meetings.

Internal Revenue Service, 2014

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What Do Your Taxes Pay For?

Taxes are one of the biggest budget items for most taxpayers, yet many have no idea what they’re getting for their money.
In 2014, as in recent years, Americans will spend more on taxes than on groceries, clothing, and shelter combined. In fact, we worked until mid-April just to earn enough money to pay our taxes. So what do all those weeks of work get us?¹

The accompanying chart breaks down the $3.5 trillion federal budget for 2014 into major categories. By far, the biggest category is Social Security and income programs, which consume one-third of the budget. This includes Social Security, retirement and disability programs for federal employees, food assistance, and unemployment compensation. Another 17% of the budget goes to defense and related items, and 26% goes to Medicare and health programs.²
Are taxes one of your biggest budget items? Take steps to make sure you’re managing your overall tax bill. Please consult a tax professional for specific information regarding your individual situation.

Pieces of the Federal Pie

Roughly 67% of the 2014 Federal budget will be used for Social Security, Medicare, defense, and related programs.

Source: Congressional Budget Office, 2014

Itemized Federal Spending

Here’s a breakdown of how the Federal budget was spent, according to categories established by the Congressional Budget Office.

Social Security	22%
Medicare, Medicaid, and CHIP	21%
Defense and International Security Programs	19%
Safety Net Programs	12%
Interest on Debt	6%

Source: Center on Budget and Policy Priorities, 2013

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How Income Taxes Work

The Internal Revenue Service estimates that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. To put this into perspective, if all this work were done by a single company, it would need more than three million full-time employees and be one of the largest industries in the U.S.¹
As complex as the details of taxes can be, the income tax process is fairly straightforward. However, the majority of Americans would rather not understand the process, which explains why 60% hire a tax professional to assist in their annual filing.²
The tax process starts with income, and generally, most income received is taxable. A taxpayer’s gross income includes income from work, investments, interest, pensions, as well as other sources. The income from all these sources is added together to arrive at the taxpayers’ gross income.
What’s not considered income? Child support payments, gifts, inheritances, workers’ compensation benefits, welfare benefits, or cash rebates from a dealer or manufacturer.³
From gross income, adjustments are subtracted. These adjustments may include alimony, retirement-plan contributions, half of self-employment, and moving expenses, among other items.
The result is the adjusted gross income.
From adjusted gross income, deductions are subtracted. With deductions, taxpayers have two choices: the standard deduction or itemized deductions, whichever is greater. The standard deduction amount varies based on filing status, as shown on this chart:
Itemized deductions can include state and local taxes, charitable contributions, the interest on a home mortgage, certain unreimbursed job expenses, and even the cost of having your taxes prepared, among other things.
Once deductions have been subtracted, the personal exemption is subtracted. For the 2013 tax year, the personal exemption amount is $3,900, regardless of filing status.
The result is taxable income. Taxable income leads to gross tax liability.
Fast Fact: No Pencil and Paper. The National Taxpayer Advocate reports that 29% of taxpayers use tax preparation software.
But it’s not over yet.
Any tax credits are then subtracted from the gross tax liability. Taxpayers may receive credits for a variety of items, including energy-saving improvements.
The result is the taxpayer’s net tax.
Understanding how the tax process works is one thing. Doing the work is quite another. Remember, this material is not intended as tax or legal advice. Please consult a tax professional for specific information regarding your individual situation.

1. National Taxpayer Advocate, 2011
2. National Taxpayer Advocate, 2011
3. The tax code allows an individual to gift up to $14,000 per person in 2014 without triggering any gift or estate taxes.                                                                                                                                                                                                                                                                                             Resource: http://www.authenticcounsel.com/resource-center/tax/how-income-taxes-work                   

Understanding Marginal Income Tax Brackets

By any measure, the tax code is huge. At the end of 2013, Commerce Clearing House's Standard Federal Tax Reporter was up to 73,954 pages.
And each Monday, the Internal Revenue Service publishes a 20- to 50- page bulletin about various aspects of the tax code.²
Fortunately, it’s not necessary to wade through these massive libraries to understand how income taxes work. Understanding a few key concepts may provide a solid foundation.
One of the key concepts is marginal income tax brackets.
Taxpayers pay the tax rate in a given bracket only for that portion of their overall income that falls within that bracket’s range.

Tax Works

Fast Fact: First Brackets. In 1913 — immediately after the 16th Amendment gave Congress the power to levy taxes on income — the government set up a system of seven federal income tax brackets with rates ranging between 1% and 7%. Only 1 in 271 people had to pay even the lowest rate.
Source: Tax Foundation, 2014; CCH, 2014

Seeing how marginal income tax brackets work is helpful because it shows the progressive nature of income taxes. It also helps you visualize how your total tax rate can be calculated. But remember, this material is not intended as tax or legal advice. Please consult a tax professional for specific information regarding your individual situation.

How Federal Income Tax Brackets Work

Say a married couple, filing jointly, in 2014, had a taxable income of $150,000. Each dollar over $148,850—or $1,150—would fall into the 28% federal income tax bracket. However, the couples total federal tax would have been $29,247—just less than 20%, of their adjusted gross income.

This is a hypothetical example used for illustrative purposes only. It assumes no tax credits apply.

2014 Federal Income Tax Brackets

Your federal income tax bracket is determined by two factors: your total income and your tax-filing classification.
For the 2014 tax year, there are seven tax brackets for ordinary income — ranging from 10% to 39.6% — and four classifications: single, married filing jointly, married filing separately, and head of household.




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Retirement Planning Dallas

Retirement

Where will your retirement money come from? If you’re like most people, qualified-retirement plans, Social Security, and personal savings and investments are expected to play a role. Once you have estimated the amount of money you may need for retirement, a sound approach involves taking a close look at your potential retirement-income sources.

Resource :http://www.authenticcounsel.com/resource-center/retirement

Pay Yourself First

Each month you settle down to pay bills. You pay your mortgage lender. You pay the electric company. You pay the trash collector. But do you pay yourself? One of the most basic tenets of sound investing involves the simple habit of “paying yourself first,” in other words, making the first payment of each month into your savings account.
Americans’ saving patterns vary widely. And too often, short-term economic trends can interrupt long-term savings programs. For example, the U.S. Personal Savings Rate reached 6.5% in December 2008 following the housing and banking crisis. Three years later, as the economic environment appeared to stabilize, the savings rate fell to 4%.¹

The Genius of Pay Yourself First

Anyone who’s ever managed their own finances knows that saving can be a challenge. There seems to be an endless stream of expenses that demand a piece of each month’s paycheck. Herein lies the genius of paying yourself first: you get the cream at the top of the bucket, and not the leftovers at the bottom.
The trick is to prioritize. Make it a point to put your future first. At first, saving may mean a small lifestyle change. But most individuals want to see their net worth increase steadily. For them, finding ways to save becomes more of a long-term commitment than a short-term challenge.

Putting Your Money to Work

What will you do with the money you save?
If retirement is your priority, consider taking advantage of tax-advantaged investments. Employer-sponsored retirement plans, such as 401(k)s and 403(b)s, can be a great way to save because the money comes out of your paycheck before you even see it. Also, as an added incentive, some employers offer to match a percentage of your contributions.²
For money you may want to access before retirement, consider placing the funds in a separate account. When the balance hits your target, you may want to move the money into investments that offer the potential for higher returns. Of course, this may mean exposing your money to more volatility, so you’ll want to choose vehicles that fit your risk tolerance, time horizon, and long-term goals.
In the pursuit of growing wealth, sound habits can be your most valuable asset. Develop the habit of “paying yourself first” today. The sooner you begin, the more potential your savings may have to grow.

Ups and Downs

The U.S. Personal Savings Rate historically has fluctuated as Americans are influenced by the short-term economic environment.

Sources: Bureau of Economic Analysis, 2012; National Bureau of Economic Research, 2012; for the period January 1, 2002 through December 31, 2011.

Resource: http://www.authenticcounsel.com/resource-center/money/pay-yourself-first

Putting a Price Tag On Your Health

We hear over and over again how important it is to maintain a healthy lifestyle. But being healthy for its own sake isn’t easy — especially when you’re facing down temptation or battling procrastination. For some, the monetary benefits of a healthy lifestyle may offer helpful incentive.
Being healthy not only makes you feel good, it may also help you financially. One study found that the healthiest one-third of people had accumulated 50% more in assets than those in the bottom one-third.¹ Maybe that’s because being sick isn’t just unpleasant, it’s expensive. If you’re wondering how your health habits might be affecting your bottom line, consider the following:

• Regular preventative care can help reduce potential healthcare costs. Even minor sicknesses can lead to missed work, missed opportunities, and potentially lost wages. Serious illnesses often involve major costs like hospital stays, medical equipment, and doctor’s fees.
• A study of Medicare beneficiaries showed that preventative dental procedures and regular checkups saved older adults significantly.²
• When poor health persists over time, lost earnings may make it harder to save for retirement. They may also reduce Social Security benefits.³
• Some habits that lead to poor health can be expensive in themselves. Smoking is the classic example. The average smoker can expect to spend around $1,500 a year on cigarettes alone.⁴ Smokers also pay higher premiums for health care and life insurance, and their houses, cars, and other possessions tend to devalue at a quicker rate because of damage from the smoking.
• Obesity is another expensive condition that affects many Americans. Obese individuals with a body mass index (BMI) of 35 to 40 spend, on average, $3,086 more per year in medical costs than someone of a healthy weight.⁵

By focusing on your health, eliminating harmful habits, and employing preventative care, you may be able to improve your self-confidence and quality of life. You may also be able to reduce expenses, enjoy more of your money, and boost your overall financial health.


Resource: http://www.authenticcounsel.com/resource-center/lifestyle/putting-a-price-tag-on-your-health