Second Mortgage - Valuable Tips To Help You Make The Right Decision
By Dean Shainin
When considering the facts within this article, it may be quite surprising to find some of the issues you thought were settled are actually still being openly discussed as to which type of loans are best.
A second mortgage is a mortgage whose terms are subordinate to the first mortgage. Loans with a second mortgage are usually done when the homeowner needs money in order to pay for an existing loan.
What Type Of Loan Is Best - A Second Mortgage, Home Equity Loan Or Refinance?
This is a question every homebuyer is faced with when shopping for mortgages. Take this scenario: A homeowner is facing a credit card debt of $50,000. Should he take a $190,000 second mortgage to refinance an existing mortgage with a balance of $140,000? Or should he borrow the money from a $50,000 home equity loan?
In most cases, borrowers who took a mortgage when rates were lower will find a second mortgage better than a home equity loan. But to be certain, some factors need to be considered.
You need to compare the interest rate and points of the first mortgage with that of a second mortgage. Second, find out if there are any PMIs (Private Mortgage Insurance) involved with the second mortgage. Find out what loan term is most favorable for you on your second mortgage. Your income tax bracket and amount of cash you need from your second mortgage are also necessary factors.
Consider the case above. If the first mortgage at $14,000 was acquired two years ago, the interest rate would be 7 percent for 30 years without PMI. Let’s say your income bracket is 39.6% (the highest) and you are capable of earning 5% more on your investments. Your house is now worth $213,000.
Hopefully the information presented so far has been applicable. You might also want to consider the following examples before you select a loan.
A second mortgage for $190,000 with settlement costs will require PMI. If you decide to get a home equity loan instead, you will get 30 years loan term at 8.25% and one point. For $50,000, your second mortgage will include additional costs for 15 years at 11.5% and one point. The result will be that over the course of five years, your second mortgage will have saved you $11,361 more than what refinancing will.
Take A Second Mortgage Or Get A New One And Pay PMI?
Getting a second mortgage has more advantages when it comes to taxes than a separate loan. But usually, this depends on many other factors.
Getting a second mortgage is better than getting a separate loan when the rate difference between the second mortgage and the first mortgage is small. If the loan term is short, then getting a second mortgage probably makes more sense than getting a separate loan. Balance is paid off faster with shorter term loans. Since second mortgages have considerably higher rates, the shorter the loan term is, the better it is to get a second mortgage loan.
Other factors that affect the advantage of second mortgages over separate mortgages are tax brackets, closing costs, and expected appreciation rate.
For example, you have a tax bracket of 15% and a 30-year first mortgage for $160,000 and a second mortgage for $20,000 at 11.75%, zero points, and to be paid off in 15 years. A separate mortgage would be for $180,000 with down payment at 10%. Interest rate for this separate mortgage would be at 8.25%, zero points, and 0.52% PMI.
When you calculate this, you can see that over the five years, a second mortgage will have saved you 16.97% more than a separate mortgage would.
With the right facts and information you will know you have made the right financial decision. The time spent educating yourself can be well worth your time and effort. Be sure to read more articles before you make your final choice of loan that is best for you.
Dean Shainin is a consultant specializing in home loans, strategies for loan financing, home equity loans, and consolidation loan information. To see a list of recommended loan companies, tools, resources, free quotes and articles, visit this site: http://www.homemortgageloantips.com
Get free valuable online tips for saving money from his: Home Equity Loan website.
Article Source: http://EzineArticles.com/?expert=Dean_Shainin
Monday, March 26, 2007
Retirement Calculator
Retirement Calculator
By Milos Pesic
How financially secured are you for your retirement? To help you find out what it takes to work towards a secure retirement or create your retirement plan, you can make use of retirement calculators. The retirement calculators, which are available as added feature to the many websites covering up retirement issues, are free of charge.
Planning carefully your retirement finances the earliest possible time, could mean better days ahead. Although many of our younger workers of today don’t give so much thought about retirement planning, sooner or later they will come to realize the importance of a secure retirement. And for those who already knew and wanted to prepare for it, retirement calculators can be an additional help to planning investing strategy in order that you will have enough to see you through retirement years. This is why retirement calculators are sometimes called retirement planner.
After you have made your calculations that show you’re on the right track does not mean that’s it! - You’re secure. No, not yet. It is advisable to update your calculations every three to five years since the results from your previous assumptions are likely to change every few years. Just remember that you shouldn’t rely your retirement planning on retirement calculators alone. Everything computed isn’t fixed. Are you ready to secure your golden days? Do your computation now. It’s very easy to find these retirement calculators and it’s just a mouse-click away. Just look it up on the internet and voila, you’re ready to go.
Using these retirement calculators is not very difficult. Most of the websites with this feature often have instructions how to work on them. Note that not all calculators have the same input requirements, so follow the instructions carefully. These are the basic information required to make your calculation:
Current Savings - The total savings you have set aside for your retirement.
Annual Retirement Income – The amount you need to live on once you retire (after taxes). This amount should cover all living expenses for a year and should not be less than 70 % of your current income if you want to maintain your current standard of living.
Annual Yield – It is your expected rate of return. For stocks or mutual funds, consult a prospectus.
Other Income – The amount you’ll enter here can include Social Security, employer-funded pension plans, or other external source of income.
Inflation Rate – This is the average expected annual inflation rate over the period encompassing your remaining working years and retirement years.
Current Age
Current Tax Rate – Enter your current federal tax bracket.
Retirement Age –Know the official retirement age. For those who were born in 1960 or later, 67is the official retirement age.
Retirement Tax Rate – The tax bracket you expect to be in, once you retire.
Withdraw Until Age – The number of years you need your retirement income.
Inflate Contributions – Do you like to increase your investment amounts to account for inflation over the length of the investment period? Clicking on Yes will increment the investment each year by the exact amount of inflation. Selecting No will make each investment an equal amount.
Are Annual Contributions Tax Sheltered – Yes, if your investments are in a tax deferred account such as a 401(k) plan or a retirement IRA. No, if your investments are subject to federal income tax each year.
Milos Pesic is a successful webmaster and owner of popular and comprehensive Retirement information site. For more articles and resources on Retirement related topics, Retirement Plans, Retirement Communities, Individual Retirement Accounts and more visit his site at:
http://retirement.need-to-know.com
Article Source: http://EzineArticles.com/?expert=Milos_Pesic
By Milos Pesic
How financially secured are you for your retirement? To help you find out what it takes to work towards a secure retirement or create your retirement plan, you can make use of retirement calculators. The retirement calculators, which are available as added feature to the many websites covering up retirement issues, are free of charge.
Planning carefully your retirement finances the earliest possible time, could mean better days ahead. Although many of our younger workers of today don’t give so much thought about retirement planning, sooner or later they will come to realize the importance of a secure retirement. And for those who already knew and wanted to prepare for it, retirement calculators can be an additional help to planning investing strategy in order that you will have enough to see you through retirement years. This is why retirement calculators are sometimes called retirement planner.
After you have made your calculations that show you’re on the right track does not mean that’s it! - You’re secure. No, not yet. It is advisable to update your calculations every three to five years since the results from your previous assumptions are likely to change every few years. Just remember that you shouldn’t rely your retirement planning on retirement calculators alone. Everything computed isn’t fixed. Are you ready to secure your golden days? Do your computation now. It’s very easy to find these retirement calculators and it’s just a mouse-click away. Just look it up on the internet and voila, you’re ready to go.
Using these retirement calculators is not very difficult. Most of the websites with this feature often have instructions how to work on them. Note that not all calculators have the same input requirements, so follow the instructions carefully. These are the basic information required to make your calculation:
Current Savings - The total savings you have set aside for your retirement.
Annual Retirement Income – The amount you need to live on once you retire (after taxes). This amount should cover all living expenses for a year and should not be less than 70 % of your current income if you want to maintain your current standard of living.
Annual Yield – It is your expected rate of return. For stocks or mutual funds, consult a prospectus.
Other Income – The amount you’ll enter here can include Social Security, employer-funded pension plans, or other external source of income.
Inflation Rate – This is the average expected annual inflation rate over the period encompassing your remaining working years and retirement years.
Current Age
Current Tax Rate – Enter your current federal tax bracket.
Retirement Age –Know the official retirement age. For those who were born in 1960 or later, 67is the official retirement age.
Retirement Tax Rate – The tax bracket you expect to be in, once you retire.
Withdraw Until Age – The number of years you need your retirement income.
Inflate Contributions – Do you like to increase your investment amounts to account for inflation over the length of the investment period? Clicking on Yes will increment the investment each year by the exact amount of inflation. Selecting No will make each investment an equal amount.
Are Annual Contributions Tax Sheltered – Yes, if your investments are in a tax deferred account such as a 401(k) plan or a retirement IRA. No, if your investments are subject to federal income tax each year.
Milos Pesic is a successful webmaster and owner of popular and comprehensive Retirement information site. For more articles and resources on Retirement related topics, Retirement Plans, Retirement Communities, Individual Retirement Accounts and more visit his site at:
http://retirement.need-to-know.com
Article Source: http://EzineArticles.com/?expert=Milos_Pesic
Why Is A Hybrid Car Tax Deduction Worthwhile?
Why Is A Hybrid Car Tax Deduction Worthwhile?
By Mike Singh
Being environmentally conscience can be an advantage when it comes to saving you some money on your taxes with the fairly new hybrid car tax deduction. This is a new provision, since 2004, under the Working Families Tax Relief Act that allows for a hybrid automobile tax reduction. It can only be used once, but if you have recently bought one you could qualify for the tax reduction.
The way it can be taken advantage of is for those owners who bought them from the year 2004 and 2005 only. There is a limit when it comes to the car tax reduction, and that is $2,000, unfortunately that will decrease in 2006, when the car tax reduction limit will only be $500.
There are some improvements that are trying to be made in the hybrid car tax deduction. For one thing in August 2005 a revised energy bill was put into place to help increase incentives in buying a hybrid car. This bill helped exceed some of the limitations of the original hybrid automobile tax reduction by creating full dollar tax credits, which are an even greater advantage.
Going back to the car tax reduction that is in place right now, how much is dependent on the tax bracket you fall into. You can claim up to $2,000 but what comes off depends on where you fall in the tax brackets. The higher percentage tax bracket the more you will receive from the reduction and vice versa.
If you bought a hybrid car within three years of 2004 you can also apply for the car tax deduction. Of course this requires going back and modifying the original claim within three years of the return date or within two years of when any taxes were paid.
One good thing about claiming a tax reduction is you don't have to itemize. You can basically do your taxes as you normally would. The only thing is you must use a 1040 form and classified as 'clean fuel'. Other than that claiming this type of deduction is relatively simple and in the end can save you a good amount of money. As simple as it is, claiming a tax rebate is well worth it.
Now that you know what exactly qualifies you for this type of deduction you can see the benefits far outweigh any effort on your part it may take. Being environmentally conscience can not only help us all in keeping our planet clean, but can also help you personally by saving you money. So why not buy a hybrid and save with the hybrid car tax deduction?
Check out http://www.easy-tax-deductions.com/ for more articles on hybrid car tax deduction and tax deductions for business.
Article Source: http://EzineArticles.com/?expert=Mike_Singh
By Mike Singh
Being environmentally conscience can be an advantage when it comes to saving you some money on your taxes with the fairly new hybrid car tax deduction. This is a new provision, since 2004, under the Working Families Tax Relief Act that allows for a hybrid automobile tax reduction. It can only be used once, but if you have recently bought one you could qualify for the tax reduction.
The way it can be taken advantage of is for those owners who bought them from the year 2004 and 2005 only. There is a limit when it comes to the car tax reduction, and that is $2,000, unfortunately that will decrease in 2006, when the car tax reduction limit will only be $500.
There are some improvements that are trying to be made in the hybrid car tax deduction. For one thing in August 2005 a revised energy bill was put into place to help increase incentives in buying a hybrid car. This bill helped exceed some of the limitations of the original hybrid automobile tax reduction by creating full dollar tax credits, which are an even greater advantage.
Going back to the car tax reduction that is in place right now, how much is dependent on the tax bracket you fall into. You can claim up to $2,000 but what comes off depends on where you fall in the tax brackets. The higher percentage tax bracket the more you will receive from the reduction and vice versa.
If you bought a hybrid car within three years of 2004 you can also apply for the car tax deduction. Of course this requires going back and modifying the original claim within three years of the return date or within two years of when any taxes were paid.
One good thing about claiming a tax reduction is you don't have to itemize. You can basically do your taxes as you normally would. The only thing is you must use a 1040 form and classified as 'clean fuel'. Other than that claiming this type of deduction is relatively simple and in the end can save you a good amount of money. As simple as it is, claiming a tax rebate is well worth it.
Now that you know what exactly qualifies you for this type of deduction you can see the benefits far outweigh any effort on your part it may take. Being environmentally conscience can not only help us all in keeping our planet clean, but can also help you personally by saving you money. So why not buy a hybrid and save with the hybrid car tax deduction?
Check out http://www.easy-tax-deductions.com/ for more articles on hybrid car tax deduction and tax deductions for business.
Article Source: http://EzineArticles.com/?expert=Mike_Singh
Income Tax Preparation
Income Tax Preparation
By Richard Romando
People do not generally think much about taxes, except during the annual tax season. For millions of Americans, it's probably the most dreaded time of the year and most people mark it on their calendars along with holidays and birthdays. However, there is no joy associated with April 15th, the deadline for filing of tax returns.
Preparation of income tax returns is one job that requires concentration and time. It might seem a cumbersome and a tiring job, but it is extremely important.
For calculating tax as an individual, you must start by assessing your gross income, which includes your work income, interest income, pension and annuities. Subtracting any adjustments such as alimony, tax on self employment, retirement plans, education loan interest paid, interest penalty on early withdrawal of savings and others, provides the adjusted gross income (AGI).
After calculating the AGI, there are two options. You can either subtract a standard deduction, or subtract itemized deductions, whichever is greater. Some examples of itemized deductions might include some medical and dental expenses, interest on home mortgages, charitable contributions, state and local taxes and casualty losses.
When you subtract the personal exemptions, you will reach the figure of your taxable income. If your taxable income is more than $100,000 you need to go to the IRS tax rate schedules. Here, things get a little complex because a marginal tax rate system is used. Six tax brackets have been created: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. What tax bracket you fit in depends upon your income and your marital status.
In the United States of America, tax returns are forms that are filed with the Internal Revenue Service (IRS), with the state, or with the local tax collection agency, which has information on how to calculate income tax or other taxes.
Form 1040 is the standard U.S. individual tax return form. Several variations of this form are also available, such as the 1040A and the 1040EZ. In addition to these, different supplemental forms are also found.
One interesting fact is that any income, whether from legitimate or illegitimate business, is taken into consideration for the purpose of taxation. For example, income from the sale of illegal drugs is taxable and is not exempted. Not filing one?s tax returns is also considered a criminal action.
Income Tax provides detailed information on Income Tax, Federal Income Tax, Income Tax Preparation, Income Tax Software and more. Income Tax is affiliated with IRS Tax Problem Help.
Article Source: http://EzineArticles.com/?expert=Richard_Romando
By Richard Romando
People do not generally think much about taxes, except during the annual tax season. For millions of Americans, it's probably the most dreaded time of the year and most people mark it on their calendars along with holidays and birthdays. However, there is no joy associated with April 15th, the deadline for filing of tax returns.
Preparation of income tax returns is one job that requires concentration and time. It might seem a cumbersome and a tiring job, but it is extremely important.
For calculating tax as an individual, you must start by assessing your gross income, which includes your work income, interest income, pension and annuities. Subtracting any adjustments such as alimony, tax on self employment, retirement plans, education loan interest paid, interest penalty on early withdrawal of savings and others, provides the adjusted gross income (AGI).
After calculating the AGI, there are two options. You can either subtract a standard deduction, or subtract itemized deductions, whichever is greater. Some examples of itemized deductions might include some medical and dental expenses, interest on home mortgages, charitable contributions, state and local taxes and casualty losses.
When you subtract the personal exemptions, you will reach the figure of your taxable income. If your taxable income is more than $100,000 you need to go to the IRS tax rate schedules. Here, things get a little complex because a marginal tax rate system is used. Six tax brackets have been created: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. What tax bracket you fit in depends upon your income and your marital status.
In the United States of America, tax returns are forms that are filed with the Internal Revenue Service (IRS), with the state, or with the local tax collection agency, which has information on how to calculate income tax or other taxes.
Form 1040 is the standard U.S. individual tax return form. Several variations of this form are also available, such as the 1040A and the 1040EZ. In addition to these, different supplemental forms are also found.
One interesting fact is that any income, whether from legitimate or illegitimate business, is taken into consideration for the purpose of taxation. For example, income from the sale of illegal drugs is taxable and is not exempted. Not filing one?s tax returns is also considered a criminal action.
Income Tax provides detailed information on Income Tax, Federal Income Tax, Income Tax Preparation, Income Tax Software and more. Income Tax is affiliated with IRS Tax Problem Help.
Article Source: http://EzineArticles.com/?expert=Richard_Romando
How Tax Deductions Work
How Tax Deductions Work
By Martin Lukac
Many people know that the interest paid on a mortgage is deductible on their income taxes. But they don't understand how it really works.
When you understand the way a tax deduction works, you should be able to estimate the amount of tax relief you would receive from owning your own home and paying a mortgage.
First, you need to know what is deductible. In many cases, homeowners are allowed to deduct the amount of mortgage interest paid from their income. They are also able to deduct the amount of real estate property taxes paid on the property.
For example, we have a homeowner and a renter who both make the same annual income of $60,000.
The renter pays $1,000 a month in rent and receives no tax benefits for renting a home.
The homeowner holds a $140,000 fixed rate mortgage with a 7% interest rate. His total mortgage payment is $1,100 a month. He pays $1,500 in real estate property taxes. His total mortgage interest paid for this tax year was $9,755.
Here's where the taxes make a difference. The owner is able to deduct $11,255 from his income before he calculates his tax liability. The renter has no deduction from his income and is taxed on $11,255 more than the owner.
Let's keep it simple and assume that both are in a 25% tax bracket. The renter will owe the IRS $15,000 in taxes on his income of $60,000. The owner's taxable income has been reduced to $48,745 after his deductions. He only owes $12,186 in income taxes. The owner saves $2,814 in taxes each year. That's a savings of $234 each month.
Basically, the homeowner's after-tax monthly payment is actually $866. The renter is still paying $1,000. The homeowner gets to keep his house in the end.
There are many variables that can affect the amount of mortgage interest you pay in any given year. But, you could often say that you can take 20% off of your mortgage payment to get a rough idea of the tax benefits of owning.
Ask your lender. A good loan officer should be able to give you a reasonable estimate of your mortgage interest and tax payments over a given period of time. Many lenders will give you a schedule when you close on your home.
When it comes to determining your tax bracket and deductions, ask your CPA or tax attorney for advice. Your loan officer can't really help you with tax details.
The bottom line is that owning your own home has many financial advantages. If you are tired of spending your paycheck on rent, but getting nowher, home ownership may prove to be a more affordable solution for you.
Martin Lukac, represents http://www.RateEmpire.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit http://www.RateEmpire.com today
Article Source: http://EzineArticles.com/?expert=Martin_Lukac
By Martin Lukac
Many people know that the interest paid on a mortgage is deductible on their income taxes. But they don't understand how it really works.
When you understand the way a tax deduction works, you should be able to estimate the amount of tax relief you would receive from owning your own home and paying a mortgage.
First, you need to know what is deductible. In many cases, homeowners are allowed to deduct the amount of mortgage interest paid from their income. They are also able to deduct the amount of real estate property taxes paid on the property.
For example, we have a homeowner and a renter who both make the same annual income of $60,000.
The renter pays $1,000 a month in rent and receives no tax benefits for renting a home.
The homeowner holds a $140,000 fixed rate mortgage with a 7% interest rate. His total mortgage payment is $1,100 a month. He pays $1,500 in real estate property taxes. His total mortgage interest paid for this tax year was $9,755.
Here's where the taxes make a difference. The owner is able to deduct $11,255 from his income before he calculates his tax liability. The renter has no deduction from his income and is taxed on $11,255 more than the owner.
Let's keep it simple and assume that both are in a 25% tax bracket. The renter will owe the IRS $15,000 in taxes on his income of $60,000. The owner's taxable income has been reduced to $48,745 after his deductions. He only owes $12,186 in income taxes. The owner saves $2,814 in taxes each year. That's a savings of $234 each month.
Basically, the homeowner's after-tax monthly payment is actually $866. The renter is still paying $1,000. The homeowner gets to keep his house in the end.
There are many variables that can affect the amount of mortgage interest you pay in any given year. But, you could often say that you can take 20% off of your mortgage payment to get a rough idea of the tax benefits of owning.
Ask your lender. A good loan officer should be able to give you a reasonable estimate of your mortgage interest and tax payments over a given period of time. Many lenders will give you a schedule when you close on your home.
When it comes to determining your tax bracket and deductions, ask your CPA or tax attorney for advice. Your loan officer can't really help you with tax details.
The bottom line is that owning your own home has many financial advantages. If you are tired of spending your paycheck on rent, but getting nowher, home ownership may prove to be a more affordable solution for you.
Martin Lukac, represents http://www.RateEmpire.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit http://www.RateEmpire.com today
Article Source: http://EzineArticles.com/?expert=Martin_Lukac
Home Based Business : Your Ultimate Tax Shelter
Home Based Business : Your Ultimate Tax Shelter
By J. Stephen Pope
Starting and operating your own home based business is the ultimate tax shelter.
Although this article has been written from a Canadian income tax perspective, the principles should be practical in other tax jurisdictions.
1. Non-Deductible Personal Living Expenses
All of us have expenses that we incur in everyday living.
Either you rent an apartment or house or you own your residence. Utilities, insurance, rent, mortgage interest, property taxes, and maintenance and repairs are typical costs of operating your home.
Likely, you have a vehicle which also consumes large amounts of cash.
Add to this, dining out, entertainment, gifts, alcoholic beverages, office supplies, telephone and many other expenditures, and you have a significant cash outflow.
In most cases, as an employee, retired person, investor, student, or homemaker, few of these expenses are tax-deductible to you.
This means that you must earn a considerable income, pay your income taxes first, and then use what is left to pay all your expenses.
Some employees may be able to write-off some of their employment related expenses, if such are required by their contract of employment. However, even in this situation, the tax deductions are very limited.
2. Your Own Home Based Business Means Tax Deductions
Now consider the situation where you decide to start your own home based business.
Suddenly, many of your everyday expenses are now being used for business purposes and are now tax-deductible.
If you use one quarter of your home exclusively for business use, you will be able to deduct (or write-off) one quarter of all related occupancy costs. These expenses may include maintenance and repairs (that are not capital in nature), rent, mortgage interest, house or apartment insurance, power, heat, water, and property taxes.
As well, your vehicle expenses used for business purposes are another tax write-off. If you use your car ninety percent for business purposes, you can deduct ninety percent of your vehicle insurance, gas and oil, maintenance and repairs, car washes, license and registration, auto club, loan interest (within certain limits), and other costs from your income. You may also write-off one hundred percent of your business related parking. Capital Cost Allownance (C.C.A.) on your vehicle is also allowed for income tax purposes; depreciation is the accounting term for this tax deduction.
The Canadian government also allows as a deduction, fifty percent of your business related entertainment expenses.
Also tax-deductible are business related telephone expenses, Internet access, office supplies, travel, books, memberships, and a host of other expenditures.
3. Income Splitting with Your Home Based Business
If you have a high paying job, you will pay higher taxes because the rates of tax increase as your income does.
With your own business, you can pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.
This tax saving technique is called income splitting. It is another good reason why your own home based business is the ultimate tax shelter.
4. Even a Part-Time Home Based Business Works
Even if you have a full-time job, running a part-time business can be advantageous.
Of course, you must actually run a real, moneymaking business. Any attempts to write unprofitable hobbies off will ultimately fail with the taxation authorities.
If you earned eight thousand dollars during the year from your part-time business and were able to deduct eight thousand dollars in car expenses, home office expenses, entertainment costs, office supplies, and other business related expenditures, you would have a net business income of nil. You would pay no tax on this additional income.
Don`t miss this important point! Although these tax deductions are actual, legitimate business expenses, these are expenditures you would probably have made anyway, whether you had a business or not.
Thus, by rearranging your affairs to start and operate a home based business, you have been able to convert non-deductible personal expenditures into legally deductible business expenses. You have successfully sheltered your income from tax and have split your income with family members in lower tax brackets.
Yes, indeed, your home based business has become your ultimate tax shelter.
RESOURCE BOX:
J. Stephen Pope, President of Pope Consulting Inc., http://www.popeconsultinginc.com has been helping clients to earn maximum business profits for over twenty-five years.
For valuable Work at Home Small Business Ideas, visit: http://www.yenommarketinginc.com
Article Source: http://EzineArticles.com/?expert=J._Stephen_Pope
By J. Stephen Pope
Starting and operating your own home based business is the ultimate tax shelter.
Although this article has been written from a Canadian income tax perspective, the principles should be practical in other tax jurisdictions.
1. Non-Deductible Personal Living Expenses
All of us have expenses that we incur in everyday living.
Either you rent an apartment or house or you own your residence. Utilities, insurance, rent, mortgage interest, property taxes, and maintenance and repairs are typical costs of operating your home.
Likely, you have a vehicle which also consumes large amounts of cash.
Add to this, dining out, entertainment, gifts, alcoholic beverages, office supplies, telephone and many other expenditures, and you have a significant cash outflow.
In most cases, as an employee, retired person, investor, student, or homemaker, few of these expenses are tax-deductible to you.
This means that you must earn a considerable income, pay your income taxes first, and then use what is left to pay all your expenses.
Some employees may be able to write-off some of their employment related expenses, if such are required by their contract of employment. However, even in this situation, the tax deductions are very limited.
2. Your Own Home Based Business Means Tax Deductions
Now consider the situation where you decide to start your own home based business.
Suddenly, many of your everyday expenses are now being used for business purposes and are now tax-deductible.
If you use one quarter of your home exclusively for business use, you will be able to deduct (or write-off) one quarter of all related occupancy costs. These expenses may include maintenance and repairs (that are not capital in nature), rent, mortgage interest, house or apartment insurance, power, heat, water, and property taxes.
As well, your vehicle expenses used for business purposes are another tax write-off. If you use your car ninety percent for business purposes, you can deduct ninety percent of your vehicle insurance, gas and oil, maintenance and repairs, car washes, license and registration, auto club, loan interest (within certain limits), and other costs from your income. You may also write-off one hundred percent of your business related parking. Capital Cost Allownance (C.C.A.) on your vehicle is also allowed for income tax purposes; depreciation is the accounting term for this tax deduction.
The Canadian government also allows as a deduction, fifty percent of your business related entertainment expenses.
Also tax-deductible are business related telephone expenses, Internet access, office supplies, travel, books, memberships, and a host of other expenditures.
3. Income Splitting with Your Home Based Business
If you have a high paying job, you will pay higher taxes because the rates of tax increase as your income does.
With your own business, you can pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.
This tax saving technique is called income splitting. It is another good reason why your own home based business is the ultimate tax shelter.
4. Even a Part-Time Home Based Business Works
Even if you have a full-time job, running a part-time business can be advantageous.
Of course, you must actually run a real, moneymaking business. Any attempts to write unprofitable hobbies off will ultimately fail with the taxation authorities.
If you earned eight thousand dollars during the year from your part-time business and were able to deduct eight thousand dollars in car expenses, home office expenses, entertainment costs, office supplies, and other business related expenditures, you would have a net business income of nil. You would pay no tax on this additional income.
Don`t miss this important point! Although these tax deductions are actual, legitimate business expenses, these are expenditures you would probably have made anyway, whether you had a business or not.
Thus, by rearranging your affairs to start and operate a home based business, you have been able to convert non-deductible personal expenditures into legally deductible business expenses. You have successfully sheltered your income from tax and have split your income with family members in lower tax brackets.
Yes, indeed, your home based business has become your ultimate tax shelter.
RESOURCE BOX:
J. Stephen Pope, President of Pope Consulting Inc., http://www.popeconsultinginc.com has been helping clients to earn maximum business profits for over twenty-five years.
For valuable Work at Home Small Business Ideas, visit: http://www.yenommarketinginc.com
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