Turning Point Financial, Inc. » Paying Taxes http://turning-point.us Helping you navigate personal finance. Tue, 27 Mar 2012 18:12:54 +0000 en hourly 1 http://wordpress.org/?v= The CLASS Act – More Taxes on The Way http://turning-point.us/2010/08/25/the-class-act-more-taxes-on-the-way/ http://turning-point.us/2010/08/25/the-class-act-more-taxes-on-the-way/#comments Wed, 25 Aug 2010 19:10:09 +0000 Mark http://turning-point.us/?p=383 Part of Obama’s 2000 page health reform includes another big taxpayer bailout called the Community Living Assistance Services and Supports Act (CLASS) program.  It is designed to try and meet the rising costs of healthcare by providing some long-term care benefits to people who pay into the system, and will begin in 2012.  The problem however is that its numbers just don’t add up.

People paying taxes into the program will have premiums/taxes as high as $240 per month in the first year.  And you would have to pay into the program for at least 5 years to get any benefits from it.  The benefits would be at least $50/day, which isn’t going to go very far when it comes to long-term care.  So that’s the first problem. 

The second, and bigger problem is that the program is going to be unsustainable in short order.  Independent actuaries and budget analysts reviewed CLASS Act and reached the same conclusion – it is fundamentally flawed and financially unsustainable. The Congressional Budget Office concludes that after an initial 5 year period of collecting premiums and not paying benefits, the program begins to lose money.

In fact, CBO found the program “would add to budget deficits in the third decade – and in succeeding decades—by amounts on the order of tens of billions of dollars for each 10-year period.”

Likewise, Rick Foster, the government’s own actuary, declared the program flawed and stated “there is a very serious risk that the problem of adverse selection will make the CLASS program unsustainable.”

The President sent out a mailer to to 40 million seniors to “educate” them about the CLASS program, but failed to mention these concerns in that mailer.  Americans deserve to know CLASS premiums won’t be set aside solely to fund promised benefits.

Instead, Congress spent the money on other parts of the health-care law but still argues it will be available to pay benefits when the time comes. Only in Washington can you collect a dollar once but spend it twice!

It really is amazing how a program this bad could get passed into law.  I guess because it was buried deep inside the 2000 page reform which no one could have possibly read completely, let alone understand prior to its passing.

In my professional opinion, if you can afford to pay out $240/month in extra taxes/premiums, you’d be much better off to buy your own private long-term care insurance policy from a company with a proven track record of success rather than from someone who is on track for financial disaster (our government).
The best time to buy long-term care insurance is when you are healthy and young.  The longer you wait, the more expensive it gets and the greater risk you have of not qualifying due to health conditions.  It’s really just another form of health insurance.  Most people who buy health insurance wouldn’t think of not having it.  But when it comes to long-term care, many of us think that we’ll never be in a position to need it.  But for people age 50 and older, you have a 1 in 2 chance of needing some type of care like this.
Call us today if you would like to learn more about protecting yourself and your family from the rising costs of health care, rather than enrolling in the failing CLASS Act program.


]]> http://turning-point.us/2010/08/25/the-class-act-more-taxes-on-the-way/feed/ 1 Taxes Going Up In 2011 http://turning-point.us/2010/04/09/taxes-going-up-in-2011/ http://turning-point.us/2010/04/09/taxes-going-up-in-2011/#comments Fri, 09 Apr 2010 19:05:01 +0000 Mark http://turning-point.us/?p=287 Everyone is asking the same question these days, “Are taxes going up in 2011?”  I don’t think any of you would admit to enjoying your current low tax rates.  But the reality is, after this year, we’ll all be wishing we could go back to the good ol’ days of 2010.  There will be several changes to our tax rates as the Bush tax cuts of 2001 and 2003 expire.  Unless changes are made by Congress, we will be going back to the tax rates prior to 2001.

Currently the tax brackets are 10%, 15%, 25%, 28%, 33%, and 35%.  The new tax rates in 2011 will be 15%, 28%, 31%, 36%, and 39.6%.  So basically everyone will be paying more in taxes, no matter what your income will be.  We don’t know yet exactly where the income tax brackets will cut off, but if we use the 2010 rates and adjust for inflation, it will likely look like something this:

 

Tax Bracket Married Filing Jointly Single
15% Bracket $0 – $70,040 $0 – $35,020
28% Bracket $70,040 – $141,419 $35,020 – $84,872
31% Bracket $141,419 – $215,528 $84,872 – $177,006
36% Bracket $215,528 – $384,860 $177,006 – $384,860
39.6% Bracket Over $384,860 Over $384,860

 

Capital gains taxes

Income tax rates are not the only thing that will be going up. Currently we pay 15% taxes on long term capital gains (held more than a year) or 0% if your income tax bracket is 15% or less.  Starting in 2011, the long term capital gains tax rate will be 20% instead of 15%, and those in the lowest tax bracket will pay 10%.

Stock dividends

Currently we are paying a 15% tax rates on qualified stock dividends.  Starting in 2011, stock dividends will be taxed at whatever your income tax rate is.  This will be a drastically higher rate for many people who rely on stock dividends for income.

Itemized Deductions 

Obama is pushing to put a cap on itemized deductions.  He ran into some opposition from charitable organizations earlier in the year on this matter, but he’s not giving up just yet.  It’s pretty likely that  this will somehow be overhauled, which will result in you getting fewer deductions and paying more in taxes.

What should you do?

There are a number of things you can do this year to help reduce your tax bill in 2011.  For starters, if you have the ability to take additional income in 2010 that you would normally take in 2011, you should do so.  This could be in the form of a bonus or deferred compensation.  Or, if you own your own business, you could pay yourself extra at the end of 2010 to cover some of your expenses in 2011.  This way you will pay much less in taxes on that income.

Second, if you are thinking about selling any stock, mutual fund, or bond positions, you should do it before the end of the year.  This will allow you to pay capital gains taxes at rates that are at least 33% less than they will be next year.

Third, if you would normally make a charitable donation at the end of 2010, and you can wait until January 1, 2011, it may benefit you to do so. 

And last, this would be the ideal year to consider making some tax efficient shifts to your investment portfolio.  This could include doing a Roth conversion of part of your IRA (at much lower tax rates this year), and/or shifting more of your money to tax deferred vehicles like annuities.

Talk to your personal financial planning advisor about things that you can do to prepare for these higher tax rates.  Doing so will help you pay less to Uncle Sam and put more in your pocket.  Of course you can call us for a free consultation about how to reduce your income tax exposure at 1-866-983-4222.

]]> http://turning-point.us/2010/04/09/taxes-going-up-in-2011/feed/ 1 2010…Year Of The Roth IRA Conversion! http://turning-point.us/2010/01/20/2010-year-of-the-roth-ira-conversion-2/ http://turning-point.us/2010/01/20/2010-year-of-the-roth-ira-conversion-2/#comments Wed, 20 Jan 2010 23:05:13 +0000 Mark http://turning-point.us/?p=246 I’m sure that you’ve already heard the buzz at the water cooler about converting your IRA to a Roth IRA this year.  Roth IRA’s are an important part of personal financial planning for many individuals.  So what’s all the excitement about converting to a Roth IRA you ask?

Pay Now

When you convert part of your IRA or 401(k) to a Roth, you have to pay taxes now on the amount you convert.  Many people feel that tax rates are likely to go higher in the future (especially since our tax rates today are the lowest we’ve seen in decades).  Everyone knows about our government’s debt situation…it’s not good,  not to mention social security and Medicare.  To pay for all these things, they’re going to have to increase taxes at some point.  So to pay your taxes now may end being a pretty good deal.

Play later

Paying taxes at a lower rate today may sound nice, but the real benefits of the Roth IRA conversion are long term.  As you know, Roth IRA’s grow tax free.  That means that when you eventually pull your money out of the Roth at some point down the road, you don’t have to pay any taxes on ANY of the earnings!  This is especially attractive for younger individuals who have time to let the money grow and compound tax free.  In general you need to plan on the money growing for about 10 years or longer before you plan to use it in order to benefit from paying the taxes now.  The more tax rates go up in the future, the sooner you will “break even” so to speak, and come out ahead.

Out of Pocket, But Spread Out Over Two Years

When you convert part of your IRA or 401(k) to the Roth you have to pay the taxes out of your pocket.  You cannot have the taxes taken out of your IRA account.  This can limit the amount you may realistically be able to afford to convert.  If you have savings in an after-tax account, you could use money from that to pay the taxes also.  The best part is, you can spread that tax payment over the next 2 tax years!  So you don’t have to pay them all this year, which helps.

A Higher Tax Bracket?

Be careful as to how much you convert.  Not only do you have to pay the taxes on it out of pocket, but converting to the Roth could bump you into a higher tax bracket for this year.  Whatever amount you convert will be added as taxable income to the rest of your taxable income for the year.  So if you make $80,000 at your job, and you convert $20,000 to a Roth, your taxable income is now $100,000 for the year.  Be sure to consult a tax professional before you make a conversion so that you don’t regret doing it later.

Here are the 2010 tax rates:

Tax Rate
 Married Couples Filing Jointly
 Most Single Filers
10% Not over $16,750 Not over $8,375
15% $16,750 – $68,000 $8,375 – $34,000
25% $68,000 – $137,300 $34,000 – $82,400
28% $137,300 – $209,250 $82,400 – $171,850
33% $209,250 – $373,650 $171,850 – $373,650
35% Over $373,650 Over $373,650

Talk to your personal financial planner today to see if making a Roth IRA conversion might make sense for you in 2010.

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