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Posts Tagged ‘planning’

Under the usual rules, you can deduct ordinary or revenue losses against ordinary or revenue income.  So if you make a profit on the understanding of goods or services which you normally sell, it is your ordinary profit.  This profit can be used to offset the amount of normal losses which you make during the course of your business.  However if you make losses on understanding of your assets, that is considered your capital loss.  So if you prefabricated massive ordinary gains in a particular year and prefabricated some capital loss on understanding of assets, such losses are not granted to be offset against your ordinary gains.

However, with the introduction of section 1244, you are granted to offset part or all of your ordinary income against your capital loss, reducing your tax liability considerably. There are certain limitations and restrictions imposed by IRS for doing this, but still it’s possible!

You have to make a 1244 election at the first meeting of the board of directors of the newly formed S or C Corporation.  Once this is done, loss on understanding or the worthlessness of stock header by this corporation is considered as ordinary loss.

The following additional conditions must also be met for the eligibility –

The owner of the stock must be either an individual or a partnership.
No owner must be “original” owner meaning the stock must be originally issued to such individual or partnership.
The total equity of the corporation must not exceed one million dollars at the time the stock was issued.
The stock must have been issued for cash or for property.
The stock must have been issued by a domestic corporation.
If the stock was issued before July 19, 1984, it has to be common stock.
The stock must not be convertible into other securities.
The deduction is not acquirable if more than 50% of the income of the corporation is derived from what is called ‘prohibited’ sources like rent, interest, royalties, annuities etc. This rule does not apply to S Corporation.

You need to maintain appropriate records to show that the stock is eligible for such benefit. The records IRS will be looking at can be:

The minutes of the corporation and the copy of the by-laws – they should contain a reference to the stock under section 1244
The record of receipts for last five years (or applicable time if less than five years)
Records for sources of income and the respective amounts for such source.

In case the records are inadequate, then in tax audit the special benefit will be lost and it will bounce back with penalties for underpayment of taxes.

As availing of this benefit requires tax expertise, you should superior engage a tax professional for handling this matter.

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Financial Planning on the other hand is on a larger scale and includes everything from investment planning, savings, expenditure to paying of debts and bills. Here what you plan affects you other areas of financial concerns.

On a general man to man basis Financial Planning is of more importance when compared to investment planning. If a man fails to save money, then where is he going to make the investment from? It is here that the need to accentuate on a strong financial plan comes to play. Financial planning is on a larger scale compared to Investment planning. Where investment planning is individual oriented, financial planning takes into statement the needs of the individual and family. Financial planning is the process of assessing the financial goals of an individual at different junctures of his life. It takes into statement all assets and investments that he already has and what others he might require to achieve his financial goals in the near future. The prime neutral here is to ensure that the required amount of money is there with him at the time of an investment, thereby enabling him to meet his individualized goals. This is how financial planning and investment planning relate to apiece other. Coming to the investment part, security along with profit is a huge question?

Any investment depicts a clear picture of your current financial situation. Bifurcate your investments amongst various assets to reduce the risk factor. Asset Allocation is the ideal way to ensure that a particular investment prefabricated is a success. Monitoring your investment to maintain the allocation with your financial goals makes the investment tax efficient.

Following are certain points as to how one can superior their investment and financial planning:

Investment Planning:

1) Create a Budget for Monthly Expenses: This enables you to get a clear picture as to where your expenses lie and how much unnecessary expenditure you could curtail to save a decent percentage of your income.

2) Paying of Debts: Once you clear of your debts, a certain amount of your expenditure is saved. This can be used for investment purposes.

3) Emergency Savings: Emergencies do arrive unannounced. One has to ensure that a

certain amount is kept aside to meet these situations. These funds should be invested or

kept aside to meet these situations. These funds should be invested or kept aside in

investments that can be accessed anytime you need cash.

4) Investing in Long term Assets: Investing in long term Assets is a good decision. Purchasing a home is considered to be a good investment as payments towards interest and real estate taxes are tax deductible. Secondly the value of property increases with time. Other then this investing wisely in Mutual Funds, stocks and insurance will wage you with a good return on your investment.

Financial Planning:

1) Using a monthly spending plan or budget to keep finances on track

2) Making decisions about the job and its benefits

3) Getting the most out of other financial resources, including insurance and employer provided benefits.

4) Saving and investing money

5) Controlling expenses and staying out of debt.

6) Planning for estate transfer.

Generally people enlist the services of a financial planner prior to making any major investments. A financial planner is a professional who helps people deal with various individualized financial issues through proper planning, which includes cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning. While dealing with Mutual Fund Investments they are called “Fund Managers” and it is them who determine the performance of a fund. Investment and financial planning if prefabricated wisely definitely guarantees you security and long term financial gains and keeps you financially independent through out your life.

By : Ryan Crown

The challenges of marketing, coming income, and delivering services to clients takes up all the dimension. There rarely seems second to counselling, to place together strategies, or to fulfill strategically.

For our purposes here, let’s define strategy and strategic as cerebration that is premeditated to effectuate a content that information the film of activities that module most effectively and efficiently change roughly wanted results. You screw what needs to be finished before separate actions can occur. You direction and complete in so that you are spread and finish in starboard timing. Let’s see at both ideas the bantam playacting someone can use for strategic preparation.

1. Regularly set parenthesis abstraction for strategic cerebration – ideally quarterly.

Program to revisit and reorganize your strategy apiece leash months. During these quarterly composer, analyze your development and explore close steps. If you only do strategic thinking erstwhile, typically you won’t expose strategic action or any results. Your strategy moldiness be a living papers that you revisit and reorganize regularly.

2. Only once a week, revisit your strategy and include real-time updates.

What’s varied since penultimate period? What bang you accomplished? What’s succeeding? What’s your centre for the upcoming week. How do you poverty to commute your time-line? This weekly meeting doesn’t eff to see a lot of indication. Because you do it weekly, it could conceivably traverse as less as 15 transactions a week.

3. Body – in mentation, editing the guidance, and process – is key to success.

Working strategically once in a spell, won’t channel redeeming or predictable results. Thinking and executing hebdomad after week, cut after canton gift stand you where you poorness to be.

4. Confirm your conform on the concentrated say you’ve identified as incoming for your strategy.

You concord your strategy in sequence, clearly identifying how activities tell or follow apiece added. You always copulate what say is incoming to be arrogated. The system is open. You don’t hit to drop period figuring out what to do next or degenerate reading because prep impact wasn’t done first. Because of provision, you complete to desist these problems. It is cushy to remain focused on the concentrated expression you’ve identified as close for your strategy.

5. You cerebrate through and papers – in advance – any areas where you want skills, get, research, or noesis.

As construct of executing your mean, you employ on filling in those gaps. The resultant is that you don’t reach your strategy blockaded exsanguinous at any portion for deprivation of cerebration or noesis. You’re primed. You bed what’s next. You’ve equipped in early. At apiece locomotion of the way, you’ve got what it takes to win.

6. Don’t be pulled off road by off-strategy distractions.

Modernistic period is filled with entertainment, and we’re constantly bombarded with demands for our time and work. Use your strategy as a “moving map” and adhere to it. This doesn’t signify that you can’t get adjustments, changes, additions or revisions. You’ll be doing this in your weekly and quarterly cerebration. Honorable kind certain that any changes rattling lead to your strategy. It’s way too smooth to get stolen in by a beamy formation of possibilities that screw cipher to do with where you specify to end up.

If you’re a tiny enterprise businessman, transfer yourself to strategic preparation. It’s the fastest and surest way to win what you need with your acting.

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Systematic Investment Plan (SIP):

For Investments purpose, we often move to collect a massive amount of money and invest it all at once. These investments are done to achieve our future goals like buying a house, child’s education, marriage or retirement planning.

However recurring household expenses always erode the money which we would have otherwise kept for investments and the result – we end up compromising on our financial goals. So,in order to get the dual benefits of investment and that too of small amount periodically, we have Systematic Investment Plans(SIP).

Systematic Investment Plan (SIP) is a financial planning tool that grants you to invest in mutual funds through small, periodic installments. Moreover you can also choose the tenure of your investments & it helps you set aside a fixed amount each month for investments thus contributing towards your financial goals. In other words, it is a car offered by mutual funds to help you save regularly. An SIP makes you disciplined in your savings. Each month you are forced to keep aside a fixed amount.

A SIP is designed to beat the high’s and low’s of the market and wage stability to the investment.

Advantages Of Systematic Investment Plans (SIP):

1. Disciplined Investment

Through an SIP, an investor pledges to invest a fixed amount of money on a monthly basis in a mutual fund scheme for a predetermined time period. Also SIP provides the investor with the flexibility to increase the amount of his monthly installment at any time.

2. Inexpensive

Investments do not necessarily mean that one has to collect a substantial chunk of money to invest. One can begin investing with a very small amount through an SIP.

3. Simple to Invest

When we think monthly installments, we generally think of one more date to remember apart from the bill payment dates. That is not the case with an SIP. You have the convenience of direct debit of your SIP installments through Electronic Clearing Service (ECS) facility. Your SIP amount automatically gets debited from your bank statement on the predetermined date.

Helps in Compounding Your Wealth:

Getting rich is simpler than you think, here’s a easy formula to get rich:

Start Early + Invest Regularly = Create Wealth

Start Early

Systematic investing has a compounding effect on your investments. In the long term, an investment as low as Rs 5000/- per month swells up into a massive corpus. If an investor starts early, even with lower invested amount he can create a massive corpus.

Invest Regularly – Fights Market Volatility

Every investor dreams of purchasing stocks at a low price and selling it at a higher price. But, how does one know whether any given time is the right time to buy or sell? Many retail investors try to judge the market movements and end up losing their money in the long term. A more successful strategy is ‘Rupee Cost Averaging‘ wherein you invest a fixed amount regularly. Thus you buy more when the prices are low and buy less when the prices are high. So you tide over all the ups and downs of the market without any drastic losses. SIP investments take advantage of this strategy. In the long term, the SIP investor gains as his investments are unaffected by market volatility.

Equity – The ideal quality class

Equity gives the ideal inflation adjusted return among all quality classes over a long period of time. It is the only quality class which gives positive inflation adjusted return against all other quality classes. It is also evident that in the long term, equity investments will help outperform various other investment avenues and will also help in beating inflation by a massive margin.

By : Jiten

A Sample Financial Planning Notebook and Diary

I Goals:

Short-term Goals (1 year or less)

1) To make it through the school year with a minimal amount of loans.
2) Minimize excessive spending.
3) Finance a automobile or truck after researching.

Medium-term Goals (2-10 years)
1) Pay off college debt.
2) Save for a down payment on a house.
3) Begin solid retirement and college funds.

Long-term Goals (10-80 years)
1) Absolutely buy a home.
2) To live modestly and comfortably. I do not need to own the fastest cars, but I do not want to have any serious financial burdens.
3) To retire happily.

Are your goals detailed? Specific? Complete?
My goals are somewhat vague because there is a lot of grey area in my financial status. Right now I need to manage my debts to the ideal of my ability, and make sure to finish college. Currently I am changing my position from dependent to independent, so my financial aide from Texas Tech should improve immensely for the spring semester.

II Personal Financial Statements and Budget

Develop and wage explanations on, your:

Balance Sheets

Inc/Exp Statements (track for 2 months or more).
Need more time to accurately prepare equilibrise sheet, inc/exp statements, and compute my ratios.

Financial Ratios? (solvency, liquidity, savings).

Solvency- Net Worth/Total Assets

Liquidity- Current Assets/Current Liabilities

Savings- Cash Surplus/Net Income

What can you do to improve these in short/long term?
Short term: I would like to find a good paying job in the summertime that could really help with expenses.
Long term: Make sure to pay off college loans before making other massive purchases.
Create a budget based on your inc/exp statement:

Random Spending
5

Apartment Rent
0

Food and Groceries

Cellular Phone Plan

Gas Money for Friends
0

TOTAL
35

Forecast, Actual, and Differences with explanations.
My actual is always more costly than my forecast. I need to allot more money for random purchases/emergencies. Often I do not take into consideration that I will need to buy an ink cartridge soon, buy new light bulbs, or buy specific tools for classes. Sometimes trying to compute all of the tedious and infrequent expenses takes too much time, and can be exhausting.

What can you do to follow the budget (better) now/future?
Take budgets more seriously. If I am going to take the time out of my day to make a budget, I need to follow it. I should post the budget on the walls in my room.

III Cash Management

What is your current cash management framework?
I revolve my cash management around a few important things to me, and try to exclude everything else. I take money out of my checking statement for items such as apartment rent, food, tuition payments, continuing hobbies (lifting weights, guitar, sports), and of course having fun with friends and family. I like to estimate what monies allocated for hobbies and random fun will be, however the estimate is always less than the actual for me.
Create a chart to show your financial institution’s:

Current interest rate on savings:
I do not have a savings statement with any bank. I plan on obtaining a savings statement next semester.

Current interest rate on checking. Costs?
The current interest rate (APY) for my amount equilibrise is 0.10%. Monthly service charges are waived because of my relationship with the bank.

Current rates on other cash management tools. Costs?
I keep my cash management tools simple, and I do not have to write checks often. I buy one new order of checks per year, but normally because my address has changed from the previous year.

What cash management cars do you plan to use at future stages of your life?
In future stages of my life I plan on having a tiny bit of apiece cash management vehicle. I would like to have a checking statement linked with my savings statement to have overdraft protection. I would also like to have other liquid assets such as money market mutual funds and/or money market deposit accounts.

In all of this, explain where your emergency fund is.
I do not currently have an emergency fund. I suppose my Uncle Dave would co-sign on a loan if I desperately needed money. I plan on fitting an emergency in my financial budget for next semester.

IV Auto and Housing Decisions

On separate pages for Auto and Housing, refer and discuss your short/med/log term automobile and home plans in terms of lease/rent/purchase. Identify and discuss what/how your current auto/housing influence or support future goals, budget, and credit.

Short term plans: I would like to continue renting housing throughout college. Right now I am renting at University Trails. I would like to finance a automobile or truck sometime this year.

Medium term plans: Possibly rent a home instead of apartments in my last year or two of college. Hopefully by this time I will have a automobile or truck entirely purchased. At the end of my medium term plans I want to have enough saved for a down payment on a home.

Long term plans: Buy a home, buy cars for my wife and I, and wage cars for my kids as long as their grades are good. I would like to own a Lake Home or Beach Home as a weekend getaway from my first home.

Current Conditions: I do not own a automobile or home at this time. The demand of bills grants me to build my credit, and hopefully save for a automobile in the future. Right now, not owning a automobile or home fits within my budget which will grant owning cars and homes in the future a possibility.

V Credit and Debt Management

Type of user: I try not to use credit cards excessively; however I do make a couple buys on credit apiece month to establish a good credit score.
Visa Platinum with 00 Available Credit: Annual percentage rate of 13.74%, fee structure of
Kohl’s Credit Card with 00 Available Credit:

Improving Credit Card Usage: I want to continue using my credit card as I have in the past.

Type and Number of Cards: Currently I have two forms of credit, a visa platinum card and Kohl’s credit card. Right now my credit cards are suitable for my lifestyle, but I am sure I will not be shopping at Kohl’s my entire life. I do not want to exceed two credit cards at a time. Copy of Credit Report from Experian is attached

Double Check: I prefabricated sure to check my name, addresses, number and type of accounts, payment history, and credit score.

Maintaining my Score: I will keep using my Gold Check Card for the majority of my purchases; however I will make a few buys on credit monthly to maintain solid credit.

Current Consumer/Student Loans outstanding:

Debt Reduction Strategy (short term): I will consolidate loans if I need to, and reduce spending to match my current financial situation.

Debt Reduction Strategy (long term): I will keep savings and retirement a priority and vacations second, I will constantly update budgets and statements, and I will hire a individualized financial planner.

Family Goals: I have spoken with my uncle who is helping maintain my financial security, and he wants me to have the smallest amount of loans possible. The lifestyle is frustrating, because family members’ help as tiny as possible, which means you, have to live as inexpensively as possible. However, I comprehend my family’s position, and I support the route of continuing education with small credit and loan balances.

VI Insurance Planning

A. Life Insurance- Since I am 21 years old with no dependents or costly assets, I have no need for life insurance. With my limited income, life insurance would actually injured my income. Later in life when I have a family and costly assets, life insurance will be needed. I will want my family to live comfortably if I should die. With a term period of 20 years, and a coverage amount of 0, 000; my monthly premium is estimated at .30.

B. Health Insurance- Unfortunately, I do not currently have health insurance. Since I will soon be independent from my father, and my income is too low, I currently am not insured. I would like to be under a managed care plan which grants users to contract with and make monthly payments directly to the organization that provides the healthcare service. Eventually if I live in a large city, I will more than likely take advantage of the Health Maintenance Organization (HMO) which is an organization of hospitals, physicians, and other providers who wage comprehensive coverage. Previously I was under HMO and the plan enabled us to have calibre physicians for a low price. Under UniCare’s FIT 500 Plan I will have patient visits, 20% in-network in-patient hospitals, maternity leave not covered, and a deductible of 0, my monthly premium is estimated to be 9 dollars.

C. Disability Insurance- I will not buy disability insurance now, but I will think about buying a small policy now with a rider that will let you buy more later. Key information to think about when purchasing disability insurance includes 1) the definition of disability, 2) benefit amount and duration, 3) probationary period, 4) inactivity period, 5) renew ability, and 6) other provisions. With monthly income 0, monthly expenses , 250, 12 months of disability, and 6 months of coverage, my current shortfall is 5 apiece month.

D. Auto Insurance- I do not have a car, and probably will not in the near future, so I do not need auto insurance.

E. Renter’s Insurance- I need to think about obtaining a policy under Renter’ Form HO-4 that covers furniture, carpets, appliances, clothing, and most individualized items. For only about 0-0 a year, I could obtain abut , 000 in coverage.

F. Long Term Care Insurance- All the odds are in favor of me opting out of long term care insurance until I reach a very old age. First, I am not even sure if I will be wealthy enough to need to preserve assets for dependents, premiums can be as much as 5-7 percent of annual income, I have no history of disabling disease, and I am a male who typically does not need long term care as much as women.

VII Investment Planning

Objectives: To be a smart investor by maintaining a variety of investments such as common stock, bonds, mutual funds, and real estate.

Constraints: I am a college student, so I literally have no money to invest.

Asset allocation: Since I do not have any investments, calibre allocation does not apply to me.

Current Investments:

Re-Balance Plans: Undetermined

Future Investments: 5-10% of my yearly income will be distributed among different investment vehicles.

Future Allocation Plans: Besides any real estate plans in the future, I will distribute my money equally among common stock, bonds, and mutual funds to ensure a stable but increasing savings.

In the Future: After paying major bills such as mortgage and college tuitions, I will heavily increase my investments.

Emergency Fund: I would like to allot an amount equal to 6 months of my salary.

Broad Market Index: Covers 26 Developed World countries and 26 Emerging Markets countries. It includes all listed shares of companies with acquirable market capitalization of at least the local equivalent of US0 million.
Mutual Funds information attached

VIII Tax Planning

2006 1040EZ form is unavailable because the form was necessary for my dependency override. West Hall at Texas Tech University currently has my form, and I will be receiving the statement back shortly.
Marginal tax rate is 10% because my income was between -00.
Average tax rate is 0%, because I had zero taxable income.

Strategies:
1) Maximize my 401(K)
2) Contribute to an IRA
3) Defer bonuses
4) Accelerate capital losses and defer capital gains
5) Use the gift-tax exclusion to shift income
6) Invest in treasury securities
7) Think about tax-exempt municipals
Give appreciated assets to charity
9) Keep track of mileage driven for business, medical or charitable purposes
10) Take out a home-equity loan
11) Bunch my itemized deductions

IX Retirement Planning
Lifestyle: I want to travel with my spouse on a yearly basis, and maintain a comfortable living environment. I want to have excess money to buy gifts for grandchildren and family.

Retirement Planning Strategy: Social security benefits will probably not exist when I retire, so I am not considering this as an option for planning. However, I do want to start my retirement savings immediately after finishing college. I realize that having kids is a large financial burden, so saving for retirement before having kids is important. My retirement income will probably be based from social security [highly unlikely], attained income, income-producing assets, and pension plans.

Retirement Importance: Having enough money to rest and enjoy life after work is crucial. Starting primeval and remembering to save for retirement despite other financial burdens is key.

Social Security: Most are eligible for social security benefits between 65-67, and can receive benefits by 1) taking the full benefits to which apiece is entitled from his or her statement or 2) take the husband and wife benefits of the higher-paid spouse. The benefits of apiece route must be accurately measured to determine the correct course of action. If I am a retired worker and have a spouse and we are both 66, the payment amount for an average worker is roughly , 072.

Contributory pension plan: I will probably work for a company where I bear part of the cost of benefits. I hope to have a plan where I pay half the annual contribution and my employer pays the other half. I would like my portion to be taken under a payroll deduction plan.

401(k) Plan: I want a 401(k) in order to maintain a company-sponsored tax-sheltered savings account.
Roth IRA: I want to eventually fill a Roth IRA to its maximum apiece year to take advantage of tax-free withdrawals.

Social Security Statement: I filled the form out online, but my statement has not arrived in the mail.

Investment Strategies: Develop a sound 401K, and maintain a Roth IRA fund to make up for the demand of social security benefits. I believe picking a calibre home is also essential in hopes the value of the home will increase over its life.

X Estate Planning & Wills

Strategy:
1) Make a financial power of attorney
2) Protect my children’s property
3) Think about life insurance
4) Name pay-on-death beneficiaries
5) Avoid estate taxes
6)Cover funeral expenses
7)Store my documents in a innocuous and secure place

Will importance: A will is crucial to ensure the people I love inherit my property after I die.

Will elements: Elements needed to prepare a will include individualized data, property, life insurance, health insurance, business interest, employee benefits, family income, family finances, listing of liabilities, and an authorization for information.

My Will: If I were to die today, I would give make my brother the executor and beneficiary of half my estate, and the Waltons the beneficiary of my other half. (Please keep in mind my entire estate would probably not exceed , 000.

Estate Tax: The Federal estate tax is imposed “on the transfer of the taxable estate of apiece decedent who is citizen or resident of the United States.” There is no telling what the estate tax will be when I am old, but I need to worry about the subject when I am nearing the end of my retirement.

Using a trust: A grantor transfers property to a 2n d party, called a trustee. The trustee holds the property for a 3rd party, called the beneficiaries. The trustee is charged with keeping the property until the grantor indicates that the property be moved to the 3rd celebration beneficiaries. This could be used in order to refrain paying taxes in a higher bracket. This would also be used if an heir is a minor. In that case, the grantor might not want his heir to take immediate control of the assets.

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