Archives for January 16, 2019

Your home isn’t just your castle; it is also a source of tax deductions. Yet, every year, Americans let these potential tax deductions pass by, not realizing how to take advantage of them. Complicating matters, the Tax Cuts and Jobs Act of 2017 has made major changes to the tax breaks that every homeowner should know.

IRS Publication 530, titled “Tax Information for Homeowners”, can fill you in on the deductions that are available to you for the 2018 tax year. Several of the most important tax benefits are listed below.

• Mortgage Interest – This should be the largest home-related tax deduction that is available to you. If you bought your home before December 15, 2017, you can deduct interest payments on either primary or secondary homes, up to the limit of $1 million in collective mortgage debt if married and filing jointly, or $500,000 for single filers or married couples filing separately. Under the new tax law, if you purchased your home on or after December 15, 2017, you may only deduct interest payments on up to $750,000 in mortgage debt.
  
  The mortgage interest deduction applies to anything that meets the definition of a basic living space that you own. Condominiums, mobile homes, and even boats are included assuming that they meet the living space definition with at least one sleeping area, a kitchen, and a toilet. Details may be found in IRS Publication 936, “Home Mortgage Interest Deduction.”
• Points – Any points that you paid at closing to lower the interest rate on your mortgage are deductible. Generally, the deductions must be amortized over the life of the mortgage, but there are circumstances where you may be able to deduct the entire amount of your points paid in the year of purchase.
• Property Taxes – You can deduct real estate taxes that are assessed uniformly (no taxes that reflect a special privilege or a service granted to you). Property taxes associated with the purchase of a home may also be deducted. Under the Tax Cuts and Jobs Act, the deduction is capped at a total of $10,000 for all property taxes, sales tax, and state and local taxes starting in 2018.
• Mortgage Interest Credit – Typically, mortgage interest is taken as a deduction. However, if you have a qualifying low income, you can claim mortgage interest as a credit instead. This subtracts the total directly from your tax bill instead of from your taxable income used to determine your tax bill. To claim this credit, you must have received a qualified Mortgage Credit Certificate from a suitable state or local agency. File Form 8396 along with your tax form to claim your credit.
• Home Equity Loans – If you borrowed against your home equity in 2018 or prior, either with a loan or a line of credit (HELOC), the interest may be deductible only if you used the funds to “buy, build or substantially improve” your main home and second home. This loan counts towards your total qualified residence debt, which includes your mortgage and is capped at $750,000.

Check the IRS publications and see if any of these valuable deductions apply to you. Take advantage of every tax deduction that you can. Otherwise, the government simply keeps more of your money.

Failing to pay your taxes or a penalty you owe could negatively impact your credit score. 

Here’s something we haven’t heard in a long time: whispers of a looming recession. And those in the know think it could start in 2019.

We agree. While the economy seems to be powering ahead, there are troubling signs for the vast majority of Americans: More than 75 percent are living paycheck to paycheck, and more than 40 percent don’t have $400 in cash in the bank to cover emergencies. And now, with the government shutdown entering its second week, millions are struggling to cover basic living expenses until their furloughs end and their paychecks start coming again.

Why are so many people struggling in what is arguably the best economy in a decade? Turns out that the 2018 wage increases haven’t come close to making up for incomes that barely moved in more than 20 years. The Federal minimum wage is still $7.25, although plenty of states require employers to pay a far higher amount. And, the amount of debt being carried is staggering, particularly student loan debt.

It’s now accepted that millennials are delaying home buying (and marriage and children) in order to get their finances on more solid footing. Understanding what it takes to qualify for a mortgage is tough when you’re young and have a lot of debt. Mortgage lenders follow strict guidelines that limit how much debt you can carry relative to your income.

So, as we move well into 2019, and everyone heads back to the gym and goes back on their diets, here are some personal financial resolutions you might want to make, especially if we’re heading into a recession.

1. Bulk up your savings. No matter how much you’ve socked away, save more. Whether you’re buying a home this year or just trying to save up for a future down payment, having more cash on hand gives you options. And, in a recession, you’ll be grateful for every penny.
2. Pay down as much debt as you can. As long as mortgage lenders require borrowers to follow strict rules regarding debt-to-income ratios, you’ll need to focus on your debt repayment strategy. Be smart about the debt you carry, and try to “snowball” your debts by paying off the smallest debt first and then adding that amount to the next smallest debt once it’s gone.
3. Track your spending. Write down every cent you spend for a month. We guarantee that you’re spending more than you think, and wasting dollars (not just cents) on items that don’t matter in the long or short run. And, if you have a coffee habit, know that your $5 per day habit translates into more than $1,800 per year.
4. Get your docs organized. Lenders need to see your docs. They want to verify tax returns (especially if you’re self-employed), see bank account statements, divorce decrees and other items. Even if you are going to provide these in an encrypted electronic file, you’ll want to get those copies in one place so that when the time comes to apply for your loan, you’re ready.

Remember this: Whether you hit your goal exactly by the end of the year is largely irrelevant. What you’re trying to do is build a foundation of financial stability, with good money habits, that will last you a lifetime.

Determine if your partner shares your financial values.

While kindness, intelligence, humor and shared interests are crucial attributes single people often look for in a partner, taking stock of whether you’re financially compatible can help you build the foundation of a healthy relationship. With study after study showing that disagreements on important money matters can lead to significant damage to a relationship and, in many cases, divorce, ensuring you and your partner are on the same page is key. In fact, a 2018 survey from the financial education company Ramsey Solutions found that money issues are the second leading cause of divorce, after infidelity. So, if you want to make sure you and your partner are a financially compatible couple, look for these telltale signs.

You talk openly about your finances.

If you or your partner routinely hide spending habits from one another, that’s a problem. “This behavior is called financial infidelity,” says Derek Hagen, a certified financial planner and owner of Hagen Financial, a financial planning and coaching firm in Minnetonka, Minnesota. While keeping financial secrets may not seem like a deal-breaker, it could signal distrust in your relationship. Financial infidelity “usually happens because a couple fights a lot about money and one partner views it better to hide financial facts than to have a discussion or fight,” Hagen says. To build trust, make sure to disclose your financial information, including any debts you have, your credit scores and your plans for saving for retirement.

You share the same future financial goals.

If you have different financial objectives, this could be a red flag for issues later on, says Brie Sodano, financial advisor and owner of the financial firm From Sheep to Shark in Watertown, Connecticut. Sodano recalls one older couple she worked with, where the husband wanted to spend most of their money traveling. “She wanted to pay for their children’s student loans, weddings and give them each a down payment on a first house,” she says. “When the goals are vastly different, it’s best to start where you agree and move outward from there,” she explains. “Taking a win-win collaborative approach is better than a compromise, where both feel they have won on one thing, but lost on another.”

You have a similar financial upbringing.

“When one person in the marriage comes from a more wealthy family, they can have much higher expectations of standard of living,” Sodano says. “This is especially troublesome for young couples, where they may not yet be able to afford the same lifestyle as their parents.” That said, if you grew up in a less-affluent neighborhood than your partner, it doesn’t mean you won’t be a money-conscious and supportive couple, but adjusting your financial outlooks may take some work.

You have the same financial comfort zones.

“We each have a financial comfort zone, a place where our savings, debt, earnings or expenses typically live,” Sodano says. Sometimes, according to Sodano, a couple will start off in the same financial comfort zone, but over the years, you or your partner isn’t as happy because you’re no longer making as much money. Or perhaps your partner is earning more, but one of you is unsatisfied with how the money is being spent. “Often, I will see clients self-sabotage when they grow out of their comfort zone or become obsessive when below their comfort zone,” Sodano says. “If a married couple has vastly different comfort zones, it can feel like your spouse is a financial weight or a greedy, nagging lunatic.”

You take financial responsibility for shared expenses.

When it comes to budgeting with your partner, do you feel confident that you spend within your means and never lecture each other about your money-management strategy as a couple? If so, you’re on a good track. On the other hand, if you constantly chide your partner for overspending and bringing in too little, this has the potential to cause a lot of stress. “Blaming your spouse for financial trouble isn’t helpful in solving the problem or having a happy marriage,” Sodano says. Nobody wins in the blame game, and if you get in the habit of criticizing each other for being broke, chances are, you’ll start arguing about financial issues later on.

You have similar spending and saving patterns.

If you and your significant other tend to make the same spending and saving decisions, chances are you share the same financial values. On the other hand, if your partner has poor spending habits and you criticize him or her for it, you may be labeled as a nag. Instead of criticizing your partner’s financial habits, “clean up your side of the street,” Sodano suggests. In other words, if you want your partner’s financial habits to improve, correct your own first. “Consider your spending (patterns), look at your transactions and make the moves that you can make on your own. When you want to get your spouse on board, it is much easier when there is already momentum,” Sodano says.

Your income levels are comparable.

If you and your partner earn vastly different salaries, that can spell trouble, says Russell Knight, a divorce attorney in Chicago. What often happens is that the partners end up resenting each other, he explains. Usually, “the bigger earner will resent the smaller earner because they are both working just as much, while getting completely different results.” If the partner earning less spends money too freely, the higher earner may also resent his or her partner. And if the couple keeps their finances separate, “then the relationship becomes absolutely unsustainable,” Knight says. “This doesn’t seem to happen when one party does not work. I think there’s just a different dynamic.”

You don’t argue about your finances.

If you openly and frequently talk about money, that’s a good indication you’re a suitable match. “At the end of the day, having similar goals and values will make couples’ lives much easier when it comes to settling any money problems,” says Michael Minter, managing partner of Mintco Financial, a financial planning firm with offices in Buffalo, New York, and Tampa, Florida. But you have to talk about those goals and values and discuss your budget. “I always say to my clients, when it comes to finances if something bothers you in the relationship, you must be willing to say it,” Minter says. “Saying it builds trust and trust builds intimacy. It may hurt, but you still need to do it.”

Learn how to tell if you’re a financially compatible couple.

To recap, here are eight signs you and your partner are financially compatible:

• You talk openly about your finances.
• You share the same future financial goals.
• You have a similar financial upbringing.
• You have the same financial comfort zones.
• You take financial responsibility for shared expenses.
• You have similar spending and saving patterns.
• Your income levels are comparable.
• You don’t argue about your finances.

The American dream Opens a New Window. is alive and well, and Americans who aspire to build wealth and become rich may be surprised to know they don’t need a flashy job Opens a New Window. or come from an affluent family to build a fortune.

The truth is, eight out of 10 millionaires reach that milestone through their company’s 401(k) plan Opens a New Window. , according to the National Study of Millionaires by Ramsey Solutions. Additionally they are hitting it years before the traditional retirement age.

“Typically they are hitting it around 25 to 28 years, so right before age 50,” said Chris Hogan of Ramsay Solutions to FOX Business’ Maria Bartiromo Opens a New Window. on Tuesday. “So that shows using the 401(k) and 403(b) and IRAs puts people on the path to build wealth over time.”

What’s more, it’s not the glamorous jobs like being a professional athlete or entertainer that are raking in the dough. Rounding out the top five professions were engineers, accountants, teachers, managers and attorneys, Hogan said.

Hogan also offered tips for the pursuit of millionaire status. In his opinion, one of the biggest mistakes made is not understanding the threat associated with debt.

“Any time you have debt in your life, you’re paying interest and so that’s preventing you from growing your money,” he said.

On the other hand, being intentional with your money, he said, is a good way to help you grow your nest egg.

“Understanding the power of budgeting –that it gives you control–understanding the importance of investing to be able to grow your money,” he said.

The number of 401(k) millionaires surged in 2018, according to Fidelity Investments.