Know Your Rights When Debt Collectors Call

Past due noticeAt some point you may be on the receiving end of a debt collection phone call. It could happen any time you are behind on paying your bills, or if there is an error in billing. In the U.S. there are strict rules in place that forbid any kind of harassment. If you know your rights, you can deal with debt collection with minimum hassle. Here are some suggestions.

 

Bullet Point Phone Ask for non-threatening transparency. When a debt collector calls, they must be transparent about who they are. The magic words they must utter are: “This is an attempt to collect a debt, and any information obtained will be used for that purpose.” In addition, debt collectors cannot use abusive or threatening language, or threaten you with fines or jail time. The most a debt collector can truthfully threaten you with is that failure to pay will harm your credit rating, or that they may sue you in a civil court to extract payment.
Bullet Point Rules Know the contact rules. Debt collectors may not contact you outside of “normal” hours, which are between 8 a.m. and 9 p.m. local time. They may try to call you at work, but they must stop if you tell them that you cannot receive calls there. Debt collectors may not talk to anyone else about your debt (other than your attorney, if you have one). They may try contacting other people, such as relatives, neighbors or employers, but it must be solely for the purpose of trying to find out your phone number, address or where you work.
Bullet Point Action Take action. If you believe the debt is in error in whole or in part, you can send a dispute letter to the collection agency within 30 days of first contact. Ask the collector for their mailing address and let them know you are filing a dispute. They will have to cease all collection activities until they send you legal documentation verifying the debt.
Bullet Point Stop Tell them to stop. And, whether you dispute the debt or not, at any time you can send a “cease letter” to the collection agency telling them to stop making contact. You don’t need to provide a specific reason. They will have to stop contact after this point, though they may still decide to pursue legal options in civil court.

If a debt collection agency is not following these rules, report them. Start with your state’s attorney general office, and consider filing a complaint with the U.S. Federal Trade Commission and the Consumer Financial Protection Bureau as well.

Save on Insurance By Raising Deductibles

Having insurance for your home and vehicle is essential to ward off financial disaster should accidents occur. Unfortunately, insurance policies continue to become more expensive. One of the things you can do to lower your insurance cost is to consider increasing your coverage deductibles.

Car key and insurance form

Higher deductible, lower insurance cost

Deductibles are the out-of-pocket cost you must pay before your insurance company steps in with their coverage. If you are willing to increase your deductibles, your insurance company will lower your monthly insurance premium.

By increasing car insurance deductibles from $500 to $2,000, the average American would save 16 percent a year, according to the online insurance broker InsuranceQuotes.com. The actual amount you would save on either car or home insurance depends on the state you live in, your demographic profile and claims history.

Do the math

Before you decide whether upping your deductibles is right for you, find out how much you would save. Suppose you would save $200 a year by increasing your car insurance collision and comprehensive deductibles to $2,000 from $500. After 7½ years, you would accumulate enough savings to make up the extra $1,500 out-of-pocket cost should you have an accident.

Now consider how likely you are to have an accident. About six in every 100 U.S. motorists file a collision claim every year and 3 in 100 file a comprehensive claim, according to the Insurance Information Institute. If those claims were spread out evenly, that means every motorist would go 16½ years before filing a collision claim and more than 33 years before filing a comprehensive claim.

Of course, claims are not spread out evenly and no one person’s experience is “average.” Your actual risk will depend greatly on how safe a driver you are, how many miles you drive a year, and where you drive. You have to make a similar estimate of your likelihood of filing a claim on your homeowners insurance.

Avoid the rate-hike game

Insurance companies are renowned for raising your premium after you file a claim. A higher deductible reduces this risk as fewer claims need to be filed.

A word of caution

Remember that increasing your deductibles can create a financial hardship. In our example, you’ll now have to have $2,000 on hand to cover the cost of an insurance claim. Before you change your policy you need to be prepared by having enough cash in a savings account to cover your higher deductible.

Say Goodbye to the College Tuition Deduction

Mortarboard and money

It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive.

But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that often offer a more valuable tax break:

Bullet Point The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles).
Bullet Point Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $132,000 per year (or singles making $66,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student.

So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction was generally the only means you had to reduce your tax bill.

But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives. Please call if you’d like an overview of the alternatives available to you.

Is Your HSA a Retirement Tool?

How much do you need to retire

The Good, the Bad and the Ugly
Health Savings Accounts (HSAs) are a great way to pay for medical expenses, and since unused funds roll over from year to year, the account can also provide a source of retirement savings in addition to other plans like 401(k)s or IRAs.
But be aware HSAs can also come with significant disadvantages and less flexibility when compared with other retirement investment tools.

 

The Good

HSAs work best when they are used for their designed purpose: to pay for qualified medical expenses. Neither your original contributions to an HSA nor your investment earnings are taxed when used this way.

This makes HSA funds valuable, given that medical costs are one of our largest expenses as we age. The Employee Benefit Research Institute estimates the average 65-year-old couple needs $264,000 to pay for medical care over the course of their retirement. Being able to cover that amount with pre-tax dollars greatly extends the value of retirement savings.

In addition, unlike other retirement plans, there is no required distribution of funds after you reach age 70½.

The Bad

First, you can only contribute to an HSA if you have a high-deductible health insurance plan. That means you will pay more out of pocket each year when you need to use health services, which could make it difficult to build a balance within your HSA.

Second, contributions are limited. Currently, annual contributions to HSAs are limited to $3,400 a year for individuals and $6,750 a year for families. These limits get bumped up by $1,000 for people aged 55 or older. You also may only contribute to an HSA until your retirement age.

Finally, HSAs typically have fewer investment options compared with other investment tools including 401(k)s and IRAs. The accounts often have high management and administrative fees. All this makes building HSA earnings tough to do.

The Ugly

The worst thing about HSAs: before you reach age 65, non-medical withdrawals from HSAs come with a whopping 20 percent penalty. Plus non-medical withdrawls are taxed as income. Even after age 65, both contributions and earnings are taxed when they are withdrawn for non-medical expenses.

In this way, HSAs compare unfavorably with 401(k)s and IRAs, which end their early withdrawal period earlier, at age 59½. They also have lower early withdrawal penalties of just 10 percent.

HSAs are a powerful tool to help manage the ever-rising costs of health care. Knowing the rules and the costs associated with using these funds outside of medical expenses can help you get the most out of an HSA and avoid costly missteps.

The Most- and Least-Taxed States for Retirement

When it comes to choosing where to live during retirement, weather isn’t the only consideration. State and local tax laws have a big impact on your nest egg.

The charts here show the highest and lowest state tax rates and costs of living, from data provided by nonprofit think tanks the Tax Foundation and the Council for Community and Economic Research.

State Income Tax Rates
Highest Lowest
1. California (13.3%) 50. Alaska (0%)
2. Oregon (9.9%) 49. Florida (0%)
3. Minnesota (9.85%) 48. Nevada (0%)
4. Iowa (8.98%) 47. South Dakota (0%)
5. New Jersey (8.97%) 46. Texas (0%)
6. Vermont (8.95%) 45. Washington (0%)
7. Washington DC (8.95%) 44. Wyoming (0%)
State and Local Sales Taxes (state and average local tax rates combined)
Highest Lowest
1. Louisiana (10%) 50. Delaware (0%)
2. Tennessee (9.5%) 49. Montana (0%)
3. Arkansas (9.3%) 48. New Hampshire (0%)
4. Alabama (9%) 47. Oregon (0%)
5. Washington (8.9%) 46. Alaska (1.8%)
Property Taxes (Rankings based on the statewide average of local rates.)
Highest Lowest
1. New Jersey 50. Hawaii
2. Illinois 49. Alabama
3. New Hampshire 48. Louisiana
4. Connecticut 47. Delaware
5. Wisconsin 46. Washington DC
If taxes were the only consideration in our retirement destinations, everyone would move to Alaska, which has no state income or sales taxes. However, the “last frontier” state also has one of the highest costs of living in the U.S. Therefore, you may also wish to consider which states have high and low costs of living.
Don’t Forget: Cost of Living
Highest Lowest
1. Hawaii 50. Mississippi
2. District of Columbia 49. Arkansas
3. California 48. Oklahoma
4. Alaska 47. Michigan
5. New York 46. Tennessee

How Much Do You Need to Retire?

How much do you need to retire

Most Americans simply don’t save enough for retirement. Nearly half of working-age households don’t have any retirement assets, according to the National Institute on Retirement Security. Of those working-age households close to retirement (age 55 and above) nearly two-thirds have less than one year’s worth of their annual salary in retirement savings.

 

 

The goal: a comfortable retirement

So how much do you actually need to retire comfortably? There are many variables to consider, including retirement age, available pensions, and investment returns. Mutual fund broker Fidelity estimates you need enough savings to replace roughly 85 percent of your annual pre-retirement income. Many experts estimate you will have to save between eight and 12 times your pre-retirement annual income to reach this goal.

But the amount you need depends on when you plan to retire. For example, Fidelity estimates a person planning on retiring at age 65 will need to save 12 times their pre-retirement income. By delaying retirement by just five years, to age 70, their savings estimate lowers to eight times your annual income.

This may be why an increasing number of Americans plan on delaying retirement or working during retirement. A majority of workers (51 percent) surveyed in 2016 by the Transamerica Center for Retirement Studies said they plan to continue working during retirement.

Some ideas to consider now

There are actions you can take now to put you in a better position during your golden years:

Bullet Point Contribute as much as possible every year to your employer-provided retirement plans. With a 401(k) pre-tax retirement plan, up to $18,000 can be contributed each year, or $24,000 if you are age 50 or older.
Bullet Point Contribute as much as possible to a Traditional or Roth IRA every year, up to the $5,500 maximum, or $6,500 if you are age 50 or older.
Bullet Point If available, contribute as much as possible to a Health Savings Account, which can be used to offset medical expenses with pre-tax dollars. Individuals can contribute up to $3,400 a year, or $4,400 for ages 55 or older.

Simplified Home Office Deduction

Time ClockThere’s a simple “safe harbor” home office deduction.

You take the square footage of your office, up to 300 square feet, and multiply it by $5. This gives you a potential $1,500 deduction under the simplified option. However, your savings could be much greater than $1,500, so it’s often worth getting help to calculate your full deduction using the standard rules.

Five Home Office Deduction Mistakes

Home office deductions

If you operate a business out of your home, you may be able to deduct a wide variety of expenses. These may include part of your rent or mortgage costs, insurance, utilities, repairs, maintenance, and cleaning costs related to the space you use.

It is a tricky area of the tax code that’s full of pitfalls for the unwary. Here are some of the top mistakes people make.

Bullet Point Not taking it. This is probably the biggest mistake those with home offices make. Some believe the deduction is too complicated, while others believe taking a home office deduction increases your chance of being audited. While the rules can be complicated, there are now simple home office deduction methods available to every business.
Bullet Point Not exclusive or regular. Your home office must be used exclusively and regularly for your business.
Exclusively: If you use a spare bedroom as a business office, it can’t double as a guest room, a playroom for the kids, or a place to store your hockey gear. Any kind of non-business use can invalidate your deduction.
Regularly: Your office should be the primary place you conduct your regular business activities. That doesn’t mean that you have to use it every day nor does it stop you from doing work outside the office, but it should be the primary place for business activities such as record keeping, billing, making appointments, ordering equipment, or storing supplies.
Bullet Point Mixing use with other work. If you are an employee for someone else in addition to running your own business, be careful in using your home office to do work for your employer. Generally, IRS rules state you can use a home office deduction as an employee only if your employer doesn’t provide you with a local office.Unfortunately, this means if you run a side business out of your home office, you cannot also bring work home from your employer and do it in your home office. That could invalidate your use of the home office deduction.
Bullet Point The recapture problem. If you have been using your home office deduction, including depreciating part of your home, you could be in for a future tax surprise. When you later sell your home you will need to account for this depreciation. The depreciation recapture rules create a possible tax liability for many unsuspecting home office users.
Bullet Point Not Getting Help. There are special rules that apply to your use of the home office deduction if:
You are an employee of someone else.
You are running a daycare or assisted living facility out of your home.
You have a business renting out your primary residence or a vacation home.

 

The home office deduction can be tricky, so ask for help, especially if you fall under one of these cases.

Zombie Billing: Automatic Payments Have a Life of Their Own

Zombie billing image

The turn it on and forget it nature of automatic payments can create “zombie billing” cycles that go on without being reviewed or challenged, even after the product or service you pay for is no longer of value.

Here are some ideas to keep this from happening to you.

 

Bullet Point Create a list. Make a list of the companies you authorize to use automatic bill payment. Include the account number each company uses, as well as payment amounts and frequency. When there’s a change in a card or bank account, you can consult the list to find the companies you need to notify.
Bullet Point Watch for fees. Make sure the bill-payment system you’re using is low-cost or no-cost. Some companies will charge you a fee for automatic payments. If your biller wants to charge you, pay them with a traditional check. Consider consolidating all your automatic payments within one bill-paying service. Your bank may even offer online bill payment with no fee.
Bullet Point Review underlying bills. Automated billing usually means you’re not getting paper copies of your bill. If you’re not receiving a physical copy, changes to your service may go unnoticed. If possible, opt to continue receiving email or paper billing statements. Review statements monthly to verify that your payment has not changed and there are no additional fees or errors.
Bullet Point Drop underused services. Periodically review all automatic payments. Drop products and services that are no longer of value.

Automatic billing is meant to simplify your life, but if you allow it to turn into zombie billing, it will have the opposite effect. Take care to review your accounts and statements to protect yourself and keep your finances under your control.

Common Mistakes When Buying or Selling a Business

It is said with every major purchase there’s some kind of remorse either on the part of the buyer or the seller. This can be especially true when buying or selling a business. No matter which side of the negotiating table you sit on, there are some critical areas that could leave you with feelings of regret. Avoid these mistakes and you’ll feel better about your deals after they’re done.

SELLER MISTAKES BUYER MISTAKES
Not researching the value of similar businesses within the industry
Overestimating the value of the company and losing a well-qualified buyer
Insisting on cash-only terms
Selling price
Overpaying based on emotion
Stretching personal resources too thin
Maintaining sloppy financial records that potential buyers cannot trust
Accounting records
Relying on company financials not prepared by a third-party accounting professional
Not requesting payroll returns and other tax filings in the financial review
Agreeing to seller-financing without proper vetting of the buyer’s creditworthiness
Financing
Settling for a high-interest loan, or one with too short a maturity
Selling the assets of the business when it would have been more tax-efficient to sell the corporate shares instead
Assets
Purchasing less than all of the assets used in the business, overlooking items such as licenses, patents or important contractual arrangements
Making a stock-purchase transaction without understanding the benefits of an asset purchase
Neglecting to check the background of the buyer and assessing their ability to run a business
Failing to verify the buyer’s liquid assets
Due diligence
Not asking why the business is for sale
Conducting too little research into the competition or overall industry trends
Not searching for the existence of company loans and other liabilities
Signing a non-compete agreement that is too restrictive in scope or timeframe
Non-compete
Failing to require a non-compete clause from the seller, especially in a service-industry business
Leaving too much of the sale price dependent on the ongoing success of the company
Transition
Having unclear expectations for seller participation in the business after the sale
Not positioning the business to sell well in advance of the first offer
Requesting professional help too late in the sales process
Expert help
Not assembling a team of legal, tax, and insurance experts before agreeing to terms

Buying or selling a business is likely one of the most important transactions an entrepreneur faces. It is always best to seek professional help.