Archive for February, 2007

Though studies estimate that only about 1% of all tax returns are actually audited each year, your lifetime chances of being questioned by the IRS are closer to 50%. If your tax return is audited, it’s important to know your rights. Refer to IRS Publication 1, Your Rights as a Taxpayer, to read about the rules the IRS must follow during the audit. It’s good to know that you are guaranteed the following liberties:

• Ask for explanations
• Record interviews
• Submit only the specific documents the IRS requests
• Legal representation at IRS hearings
• End an interview to consult a professional or do research
• Appeal findings
• Ask for an installment plan

Thinking about buying a home? The steps you need to take may seem a bit overwhelming if you are a first time home buyer. Here are the basic steps you need to make to call it home sweet home.

1. Offer
Once you look around and find the perfect home, you’ll need to make an offer on the property. If your offer is accepted, you pay a fee to secure your offer. If the deal goes through, your fee goes towards the purchase price of the house. If the deal folds, you’ll get your deposit back.

2. Inspection
Arrange to have a licensed inspector examine your intended property. If the inspection turns up serious issues such as a leaky roof or cracks in the foundation, you may negotiate a better offer or withdraw it altogether based on the severity of the problems.

3. Negotiation
Your agent will negotiate with the seller’s agent to get you the best price. If the owners are eager to sell, they may consider a reduction in price or even holding part of the mortgage to make the deal.

4. Contract
This is a legal document between you and the seller detailing the purchase agreement. Standard contracts are modified to include the details of your property, such as price, date of transaction, and fixtures. Contracts are usually contingent upon your ability to secure a mortgage.

5. Deposit
When you sign the contract, you will make a deposit of the agreed amount. This is held in escrow and will become part of your down payment. The deposit is returned if the deal does not close.

This is the Year of the Pig and experts in Asian markets predict that earthy stocks such as banks and properties will fare well. If you are looking for Chinese property plays, stocks such as Shimao Property Holdings Ltd., China Resources Land, and China Overseas Land and Investment Ltd. may be of interest.

Stocks in keeping with the water element like tourism, logistics, and transportation will be good bets according to geomancy specialist Yeung Tin-ming. Another guru said the best bets lie with fire-related sectors such as electronics and computer makers, as these will do well given the strength of the fire element in the new lunar year. In Hong Kong, masters of feng shui warn that these elements of fire and water clash in the year ahead, causing markets to roil in the new lunar year, beginning on February 18. Beware of turbulent times ahead, they caution.

Perhaps less romantically but more realistically, decreasingly attractive valuations since last year’s unexpected gains and recent actions from Chinese authorities regarding the cooling of overheated domestic stocks could be what’s really behind a more volatile Asian market.

Partly amusing, partly true, these thoughtful words on the topic of credit are courtesy of Poor Richard via Ben Franklin. If you are being chased by the credit monster, this wisdom may help you to see your credit in a different light.

Fond Pride of Dress, is sure a very Curse;
E’er Fancy you consult, consult your Purse.
Pride is as loud a Beggar as Want,
and a great deal more saucy.

“When you have bought one fine Thing you must buy ten more, that your Appearance may be all of a Piece; but Poor Dick says, ‘Tis easier to suppress the first Desire, than to satisfy all that follow it. And ’tis as truly Folly for the Poor to ape the Rich, as for the Frog to swell, in order to equal the Ox…And after all, of what Use is this Pride of Appearance, for which so much is risked, so much is suffered? It cannot promote Health, or ease Pain; it makes no Increase of Merit in the Person, it creates Envy, it hastens Misfortune.

But what Madness must it be to run in Debt for these Superfluities! We are offered, by the Terms of this Vendue, Six Months Credit; and that perhaps has induced some of us to attend it, because we cannot spare the ready Money, and hope now to be fine without it. But, ah, think what you do when you run in Debt; You give to another Power over your Liberty. If you cannot pay at the Time, you will be ashamed to see your Creditor; you will be in Fear when you speak to him; you will make poor pitiful sneaking Excuses, and by Degrees come to lose your Veracity, and sink into base down right lying; for, as Poor Richard says, The second Vice is Lying, the first is running in Debt. And again, to the same Purpose, Lying rides upon Debt’s Back. Whereas a freeborn Englishman ought not to be ashamed or afraid to see or speak to any Man living. But Poverty often deprives a Man of all Spirit and Virtue: ‘Tis hard for an empty Bag to stand upright, as Poor Richard truly says.

What would you think of that Prince, or that Government, who should issue an Edict forbidding you to dress like a Gentleman or a Gentlewoman, on Pain of Imprisonment or Servitude? Would you not say, that you are free, have a Right to dress as you please, and that such an Edict would be a Breach of your Privileges, and such a Government tyrannical? And yet you are about to put yourself under that Tyranny when you run in Debt for such Dress! Your Creditor has Authority at his Pleasure to deprive you of your Liberty, by confining you in Goal for Life, or to sell you for a Servant, if you should not be able to pay him!

When you have got your Bargain, you may, perhaps, think little of Payment; but Creditors, Poor Richard tells us, have better Memories than Debtors; and in another Place says, Creditors are a superstitious Sect, great Observers of set Days and Times. The Day comes round before you are aware, and the Demand is made before you are prepared to satisfy it. Or if you bear your Debt in Mind, the Term which at first seemed so long, will, as it lessens, appear extreamly short. Time will seem to have added Wings to his Heels as well as Shoulders. Those have a short Lent, saith Poor Richard, who owe Money to be paid at Easter. Then since, as he says, The Borrower is a Slave to the Lender, and the Debtor to the Creditor, disdain the Chain, preserve your Freedom; and maintain your Independency: Be industrious and free; be frugal and free. At present, perhaps, you may think yourself in thriving Circumstances, and that you can bear a little Extravagance without Injury; Gain may be temporary and uncertain, but ever while you live, Expence is constant and certain; and, as Poor Richard says, rather go to Bed supperless than rise in Debt.”

Changes in legislation for 2007 just might put more money in your pocket. The government has made decisions regarding taxation and retirement account contributions that you may find valuable in the coming year.

Higher Limits on Roth IRA Income

Single tax filers with incomes below $114,000 now qualify for a Roth, as do married couples with incomes below $166,000. The income limits previously were $110,000 and $160,000. Also new this year, you may choose to have your tax refund directly deposited into your IRA account. Heretofore your only choices were to deposit your refund check to a bank checking or savings account. You can complete IRS Form 8888 to have your refund directly deposited into a maximum of three different IRA or bank accounts.

Increased 401(k) Contribution Limits

The maximum contribution that you can make annually to your 401(k) was increased from $15,000 to $15,500. The maximum for individuals over the age of 50 was raised from $20,000 to $20,500. If you contribute the maximum allowed automatically, be sure to adjust your 2007 contribution to take advantage of the extra $500 you can save this year.

Tuition Break Extended

Individuals with incomes below $65,000 and married couples with incomes below $130,000 can deduct up to $4,000 in tuition and education expenses for dependents or themselves. This break had expired after the 2005 tax year, but Congress voted to extend the break for the 2006 and 2007 tax years.

Sales Tax Break Continued

Congress passed legislation to extend the sales tax deduction for 2007. If you itemize your tax return, you can choose to deduct your state income tax on your federal return or your state sales tax. This is a major bonus for folks in states with no income tax.

PMI May Be Deductible
A new law permits homeowners who need to carry private mortgage insurance (PMI) to deduct their premium costs if their income is below $100,000. This break is only good for new mortgages in 2007; paying PMI on an old mortgage won’t qualify you for the deduction. Be aware that this new deduction is only good for 2007.

Here are a few easy ways to make little changes around your home that will turn into dollars in the long run.

1. Ask your power company to do a free energy audit on your home to help you find ways to cut waste (and costs). Remember to do this annually.

2. Lower the thermostat by two degrees and save an average of 25 kilowatt hours each month. This small change will add up over the months. If your home is vacant for a fixed time each day, a programmable thermostat may be a good investment for you.

3. Lower your water heater by ten degrees and save another 25 kilowatt hours per month. You won’t even notice the difference in water temperature.

4. Fix drafts with weatherstripping or even old tube socks filled with sand. Cover unused windows with plastic sheeting in the winter.

5. At the supermarket, use the idea of the farmer’s market to save: buy only fresh produce in season, you’ll spend less and eat better. Keep in mind that the highest markups are on the shelves at chest level. Reach up or down for cheaper house or generic brands.

6. Clip coupons. Hint: call the toll-free numbers on product labels and tell the rep how much you use the product. Some will offer coupons, be sure to ask if they do not offer.

7. Have a specific goal for the money you save, such as a trip, a college fund, or a car, and deposit your savings in this account regularly.

8. If you have a tough time holding a credit card for emergencies only, make it impossible to impulse shop by freezing it in a bowl of water in your icebox.