QUEST Financial Communications

Transcription

1 Page 1 of 7 Having trouble viewing this ? Click here Volume 10 - Issue 1 November 2013 This Issue: New Options for IRA Investments Significant Tax Free Income Reverse Mortgage Line of Credit for Cash Flow Management 2013 & 2014 Maximum Benefit Contribution Limits Important Financial Dates QUEST Financial Communications Effective in November, 2013 Quest Financial Services Inc. will be communicating to our client base and interested consumer parties with two new communications. Effective today, November 15 th, we will be sending our professional newsletter with in depth articles on various subjects including taxes, investments and financial planning subjects. This will be transmitted the 15 th of each month. We hope to cover a broad range of subjects that should be informative and applicable to most of our readers. If anyone has questions or issues, please contact our office at info@questfsi.com or (888) Also effective next week we will be sending out each Tuesday morning a one page communication called QUEST FIT Facts, (Finance, Investment, Taxes). Our goal is to provide you with straight, concise knowledge to help you in your pursuit for financial freedom. November 15 December 15 Pay Federal 4th qtr. estimated taxes (corporations) December 31 New Options for IRA Investments For many years the IRS has had restrictive rules on what types of investments you can make in your self-directed IRA. These generally included listed equities, mutual funds, bonds and saving CDs. Collectibles and life insurance were not allowed. For a long time, the IRS has allowed certain IRA custodians with defined administrative services to establish self-

2 Page 2 of 7 State estimated taxes should be paid (to take deduction) Company Retirement Plans must be established and should be funded January 15 Federal 4th qtr. estimated taxes should be paid Tax organizers mailed to clients January 31 W 2 forms & 1099 forms must be sent out 4th qtr. payroll tax returns due 940 FUTA annual due February 15 February 29 Employers file W2/W3 forms & 1099 forms March 15 File Corporate returns or extensions April 15 File Personal, Partnership, Trust/ Estate returns or extensions Federal 1st qtr. estimated taxes due April 30 1st qtr. payroll tax returns due directed IRAs to invest in alternative assets like real estate, precious metals, coins, private lending and private equity. These "Self-Directed" IRAs include: Traditional IRA Roth SEP IRA (Simplified Employee Pension) Simple IRA (Savings Incentive Match Plan) 401K (Individual) HSA (Health Savings Account) Coverdell (Education Savings Account-ESA) Each of these above SDIRA (Self-Directed IRA) can invest in the following categories: Real Estate Precious Metals Private Lending Private Equity Brokerage Your Expertise These SDIRA plans have the same tax advantage as non self -directed IRAs. SDIRA accounts offer IRA holders the ability to invest the types of investments that meet their needs. Account holders like the flexibility that a SDIRA account provides, and clients have invested in assets as varied as trees, oil, and livestock. An investor can rely on their own investment expertise, making tax free or tax deferred investments in assets they know and understand personally. SDIRAs with investments in real estate can charge rent to tenants or visitors, let land appreciate in value, rent commercial space to business, fix and flip property and much more (plus the property can be distributed for personal use after reaching retirement age). The IRS allows SDIRA to acquire most assets without penalty while keeping the tax benefits associated with that account type. This means that the SDIRA holder can utilize his personal expertise and experience that they have with business and investments to make money for their IRA. The SDIRA holder's private information or experience can be used. Almost any investment that makes money outside an IRA can be used to make money in a SDIRA (Some investors have social agenda, "green" investments or local opportunities). As long as the asset acquisition is a "real"

3 Page 3 of 7 May 15 All Non-Profit Entity tax returns are due FREE Rollover Helpline economic transaction, intended to make money for the SDIRA, the IRS will allow you to exercise your own agenda when selecting an investment. The following are some investments that account holders have looked into for their IRAs. If you have specialized knowledge about a field, you can put it to use with your IRA funds. Golf Courses Race Horses Hardwood Trees Boat Chartering Mineral Rights Alternative Investment fund Coins The benefits of choosing assets that utilize your personal expertise Use your hard earned expertise in a tax advantage environment True diversification of retirement account Strategic control over assets that your IRA owns Personal values can guide your investments If you have questions or want to learn more, give Quest a call at (888) to set up an appointment to discuss your unique opportunity. Significant Tax Free Income There is a very positive tax savings strategy that can be used by almost any taxpayer filing a Form 1040 with both earned income and unearned income that can harvest significant tax savings immediately. It has been available for several years but not publicized. Also it may require some overt tax planning to tax full advantage of the rewards. This tactic will provide for no taxes for up to the following Federal Filing Status for non-earned income of qualified dividends and/or capital gains (both short and long term): Married filing Jointly or qualified widow(er) $70,700 Head of household $47,350 Single or married filing separately $35,350

4 Page 4 of 7 Most taxpayers will have some form of earned income from salary & wages, Schedule C, pass through income from (Sub -Chapter S, Partnerships, &/or LLC) and social security. To take full advantage of this strategy your itemized deductions and exemptions should equal your earned income from the above sources as close as possible. Many taxpayers can have some control on planning their itemized deductions of taxes paid, mortgage interest, contributions, medical expenses, employee business expenses, and miscellaneous deductions such as appropriate legal expenses or investment advisory fees. Many taxpayers have the ability of bunching up real estate taxes or state income tax estimate payments. Excess deductions and exemptions will reduce the nonearned dividends and capital gains and you will not get full advantage of the benefit. Any excess non-earned income will be taxed at 15%. The following is straight forward illustration of the above benefit. If a taxpayer filing jointly has $140,700 of adjusted gross income composed of $40,000 of W2 wages, $15,000 social security, $15,000 IRA distribution, $30,000 dividends and a $40,700 long term capital gain. The taxpayer has $62,400 of itemized deductions composed of real estate taxes, state income taxes, medical expenses, mortgage interest, charitable contributions and miscellaneous deductions. Based on the above data, the taxpayer has total exemptions of $7,600 and itemized deductions of $62,400 for a total of $70,000 which offsets the earned income. The resulting income tax is $0.00 for the remaining dividend and capital gain income. If you would like to see how to take advantage of this proactive tax planning tactic, call our (888) to set up an appointment. We will be happy to address any questions or options you may have. Reverse Mortgage Line of Credit for Cash Flow Management In 2008 when the housing and economic crash occurred most home owners lost 25%-40% of their real estate value. Simultaneously, the earnings on most conservative fiscal

5 Page 5 of 7 investments have dropped to historic lows causing many retirees and baby boomers to have severe cash flow problems. However, there is a relatively new tool to help these people. The adjustable rate reverse mortgage and the line of credit feature offers a great solution to these folks. The reverse mortgage converts a homeowner's illiquid asset into a liquid source of tax free income. They were created in the late 80's and insured by the FHA. The amount a homeowner can borrow is directly dependent on the owner's age, current interest rate and value of the home. The maximum value is $625,500 subject to appraised value. On homes of greater value, the calculation is done on the Home Equity Conversion Mortgage maximum subject to the interest rate and age of the owner. (The older the applicant (s), the more can be loaned. Some of the benefits are that the borrower does not have to make monthly payments or repay the loan as long as they maintain the home as their primary residence reflected in the deed. There are no restrictions on how the funds are used and the proceeds are not taxed. Borrowers can ask for distributions in almost any amount and time frame, from monthly amounts to specific sums over a predetermined time. The borrowers are not subject to credit checks and the mortgages are non-recourse. The FHA insurance protects the borrower from the lender closing or filing bankruptcy and not being able to make the promised periodic payments. The adjustable rate reverse mortgage offers a line of credit option. Instead of taking all the available cash out, the borrower leaves the available with the lender in a LOC (line of credit). The reverse mortgage LOC is non-cancelable and non-freezable, and the terms cannot be changed. There is also a growth benefit. Funds left in the LOC will grow at the same monthly compounded interest rate that the borrower is paying on the loan's principal balance outstanding, less the 1.25% FHA insurance. The growth rate and actual interest rate plus insurance premium are exactly equal. The LOC grows and is available for use by the borrower, regardless of the current value of the home. This feature provides a valuable hedge against volatility in the real estate value and general economic recessions. However, it should be remembered that the interest rate adjusts monthly. Any payments on the reverse mortgage go to increase the LOC as well as reduce their outstanding loan balance.

6 Page 6 of 7 The benefits of using this tax free source of funds to meet cash flow needs, rather than having to draw down investments assets in a borrower's portfolio include: Avoid penalties for early withdrawal from CD's or some mutual funds Avoid withdrawing taxable funds from an IRA Delay social security benefits to take advantage of higher future levels benefits Avoid taking investment losses Some cautionary notes with respect to reverse mortgage LOC's are: Origination costs which are capped by HUD and FHA insurance Non-borrowing spouses younger than 62 do not have right to keep the reverse mortgage and stay in house if borrower dies or moves out. Loss or property if they fail to pay real estate taxes and insurance 2013 & 2014 Maximum Benefit Contribution Limits With approximately 45 days left in this year, many business owners and taxpayers are looking to maximize their 2013 tax deductions. As most of you know, some of the biggest tax deductions are contributions to retirement plans up to $255,000 per individual for 2013 to a defined benefit plan. Another great flexibility is that these contributions do not have to be made until the day the return is filed which can be deferred out to October 15, 2014, for those returns put on extension. In order to be able to make the deduction, the respective retirement plan must be created and registered with an investment custodian by December 31, Attached is a matrix showing the maximum contribution limits of each type of plan from If you have any questions or would like to establish a plan, please call us at Quest Financial Services Inc. at (888) for a complimentary appointment.

7 Page 7 of 7 The Compass is produced by Quest Financial Services, Inc. for the benefit of its clients. Although the information herein is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Quest Financial Services, Inc., Lynnfield Office Park, Building 2, 40 Salem St., Lynnfield, MA Tel: Fax: info@questfsi.com Website: Robert Dubee Robert Dubee Quest Financial Services, Inc. Forward This was sent to info@questfsi.com by info@questfsi.com Update Profile/ Address Instant removal with SafeUnsubscribe Privacy Policy. Quest Financial Services, Inc. 40 Salem Street Building 2, Suite 3 Lynnfield MA 01940