Thursday, 12 June 2014

Pre-payment of mortgage?

For a lot of us, it makes sense to prepay mortgage. If there is enough cash, you can invest it in your home. No need to worry about monthly interest payments running into tens of thousands of dollars, and pay off your debt early. Seems very simple, right? However, to determine whether prepayment of your mortgage is a wise move, you need to weigh in variables such as your mortgage rate, age, tax bracket and other debts.
The obvious advantages to prepaying your mortgage include peace of mind, freeing up your income from monthly mortgage payments, freedom to sell the house and earn back all the money put in with the bonus of increase in value from the price you originally paid for it. Also consider the effects on your estate and what happens if you marry. More than anything else, prepaying the mortgage ensures you save on paying additional years of interest on the house.
On the flip side, you will no longer receive a tax credit on your taxes while itemizing deductions. This increases the risk of crossing into the next tax bracket. You will have to pay your property taxes directly ending your ability to make monthly mortgage payments that go to your taxes. Consider the interest rates. Suppose you owe $30,000 more on your mortgage at 6% interest rate and there is another investment paying 9% on the money. Put that $30,000 into the other investment vehicle, giving you more money in the long run to keep the mortgage. Take into account your entire debt load when thinking about prepayment. If you owe a high-pried debt such as a credit card, you're probably better off paying that down before looking at your lower-interest loan.
Overall, you should take into account the effects of taxes and interest in your decision to prepay your mortgage. Consider whether other investment options could be a better place for your extra money before making the prepayment decision. 

Go Green & save costs

Going green augurs well not only for the environment, but for business bottom line too as it cuts down  on waste & conserves resources. An eco-friendly act need not be large to be impactful – for instance, have you imagined how much paper you will save if you always printed out double-sided copies consistently over a year? A small measure with a big result indeed!
Turn off equipment when not in use. This can reduce energy usage by a whopping 25-50%. Try using renewable energy resources for powering your office. For example, unplugging laptops once completely charged & turning off computers at the end of each day are simple tasks. They save on wasted energy by around 50%. Change your lighting. Switch to CFL or LED lights for 75% greater energy efficiency over traditional incandescent bulbs and savings of up to $200 per bulb! Installation of occupancy sensors in rest rooms & meeting areas is another way to save on energy.
Go paperless. Before printing out anything, rethink on whether you really need a paper copy. Encourage communication via email. Use social media as much as possible to advertise your company's services instead of printing out flyers, handbills, pamphlets et al. Request your clients to utilize electronic billing for sending out monthly statements. Have your incoming faxes delivered as electronic copies (fax-modems) instead of incurring expenses over installation & maintenance of expensive fax machines. Get your business a non-geographic number so that you can receive calls on your hand phone anytime, saving electricity usage, travel costs and expenses on installing extra telephony equipment.
Limit long-distance meetings. Schedule long distance in-person meetings monthly and try handling all other meetings electronically via Skype, conference calls or over emails. This helps reduce your carbon footprint and travel costs as well. Store your business data remotely on the cloud network - while energy savings will be immense, it also improves employee productivity with access to documents from anywhere at all times. Purchase office supplies locally. This will minimize gas usage & release of CO2into the environment. Do not discard used printer cartridges – send them in to your ink supplier for discounts / incentives against your next purchase.
Eliminate bottled water. Use a water filtering system connected to tap water. You will decrease the plastic waste that accumulates as well as save considerably. Donate unused batteries or cell phones to recycling agencies. If there are old magazines piled up in your waiting area, pass them on to hospices or charities that can find some use for them. Encourage public transportation, car pooling, hybrid / alternative fuel vehicles for commuting to work. This helps reduce the overall carbon footprint and highlights your commitment to the environment.
There are multiple ways to turn into a more eco-friendly business. Ensure you and your employees understand the options available and stay committed to the cause.

Health Insurance for the self-employed


Losing out on employer-sponsored health insurance can be a big concern for people looking to make the leap to self-employment. The average cost of buying an individual health insurance plan can easily cost up to four times as much as your contribution towards your employer plan. Many sole proprietors choose to forego health insurance because of its expense, but that is certainly not the ideal course to take. After all, it hardly makes sense to run a business without insuring its primary asset - you, the owner.
What are the health insurance options open for the self-employed?
Self-employed workers or business owners are sometimes covered under a former employer's plan through the federal COBRA regulation (Consolidated Omnibus Budget Reconciliation Act). COBRA states that employers who offer group health insurance and have at least 20 employees must allow an employee to continue the group coverage after he leaves their job. The employer is allowed to charge the employee the full cost of the coverage plus 2 percent for administrative expenses, which can result in a significant increase in the cost of coverage for the employee but may still not be as expensive as a personal policy. In addition, the period of coverage is usually limited to 18 months, so COBRA is a temporary solution to health insurance coverage at best.
Spousal Insurance                                               
One of the most common ways for the self-employed to obtain health insurance coverage is through a spouse's plan. If your spouse works for a large employer, this is often the simplest and most cost-effective way to obtain coverage for you and the rest of the family.
Individual Plans
If you're healthy, an individual plan can be another good option. Individual plans are offered through insurance brokers or sometimes directly from the insurance companies themselves. If you have some health issues, you may find that the coverage is quite a bit more expensive. But, as of 2014, the federal Affordable Care Act will prohibit insurers from denying you a policy due to a preexisting condition.
Some self-employed workers are members of associations, such as professional or alumni groups, that make health insurance available to their members. The quality of this kind of coverage can vary considerably, and the plan may or may not be underwritten.
A good place to start would be with your local chamber of commerce and then expand out from there. Even if they don't offer their members a health insurance plan, they can probably point you in the right direction of a group that does.
Small business group plan
If you hire an employee (your spouse, for instance) you may be eligible to buy a small group insurance plan. This could come in handy, if you have a pre-existing condition. Some states require that health insurers offer guaranteed issue group health plans to small groups. And, presumably, that means that your group can't be turned down, even if the group has members with health issues. You'll probably need an insurance broker to help set this up. Some states also have health benefits associations that provide insurance for small-business owners with at least two employees.

The world of health insurance is rapidly changing. In the long run, many of the healthcare reforms taking effect in 2014 will help the self-employed purchase health insurance hassle-free.

Public Wi-Fi networks - the malignant risks

"Do not perform monetary transactions or anything sensitive on a public Wi-Fi network" – how often have we heard this advice? As they are not encrypted or password protected, public Wi-Fi networks have significant vulnerabilities. Their open nature allows for snooping, machines on the networks could be completely compromised or malicious.
For corporate employees, portable gadgets offer convenience to work away from office, follow flexible schedules and be more productive while traveling. However, employees are most likely to work with corporate data on consumer-grade applications not of the same security class as that of an enterprise network. This can be detrimental to security if the right measures are not put in place.
Safeguard against Wi-Fi threats
In general, public Wi-Fi networks are an easy target for cybercriminals because they lack the safeguards that prevent hackers from tapping into secured networks. 
To reduce the chance of exposure on public Wi-Fi networks, be aware of the following points:
  1. Verify the network name to prevent connecting to a hacker's network instead.
  2. If you really need to share sensitive personal information such as Social Security numbers or bank account / credit card information, try to do so from home on a secure encrypted & password protected connection.
  3. Look for https in the URL bar when sending sensitive information on the Web to make sure it's encrypted.
  4. Use a VPN service to add a physical barrier between user activity and the Web. For maximum security, purchase and set up a Virtual Private Network (VPN) which will encrypt information from your mobile device and make it secure.
In addition to these, companies can consider equipping their employees with more secure mobile devices and tools, such as managed file transfer services that allow employees to access company resources without pulling files out of the secure environment. This reduces the vulnerability associated with Wi-Fi networks by adding a solid layer of protection for transferring and managing documents. Every person, manager or employee, has a responsibility to make sure they're educated about the risks of wireless computing on public Wi-Fi. It's important to involve all individuals with the maintenance of security controls.
The Internet is an amazingly powerful tool, but don't be duped into giving up your sensitive personal information just to save a few minutes while browsing the web in public.

Deducting your vehicle donation

If you donate your motor vehicle, boat, or airplane to a qualified charity & itemize deductions, you can generally claim a handsome charitable donation deduction on your federal tax return. The extent of deduction will depend in part on what the charity does with your vehicle. Here are a few examples that illustrate how this has an effect on the final deduction, and the records you need to substantiate.
You generally may deduct the fair-market value if the organization makes what the IRS calls a "significant intervening use" of the vehicle, such as using it to deliver meals to needy people. 
Example 1: Suppose you donate a vehicle to a local charity with a fair market value of, say, $3,000. But the charity sells it to someone other than a needy person for $2750. Before the sale, the charity did not significantly use or improve the vehicle. If a charity sells a vehicle for more than $500 to someone other than a needy person, the deduction is generally limited to the gross proceeds the charity receives, which in this case is $2750. The charity is supposed to report that sale-price information to you.
If your deduction is less than $500, obtain from the charity a written acknowledgement that includes your name, tax payer identification number, vehicle identification number, contribution date, sale date, gross proceeds from the sale and statements that the vehicle was sold in an arm's length transaction between two unrelated parties and that you cannot deduct more than the gross proceeds.
Example 2: Let us assume the same donated vehicle at a fair market value of $3000 is sold by the charity for a return of $400 in gross proceeds. In this case, when a charity sells a vehicle for less than $500 to someone other than a needy person without significant use or material improvement, the deduction is generally the lesser of $500 or the vehicle's fair market value on the contribution date. So, you can deduct $500 in this scenario.
If the deduction is at least $250 and not more than $500, you will require a written statement from the charity with a detailed description of the vehicle and a statement as to whether the charity provided you with goods or services in return for your donation. If so, the charity must include an estimate of their value. If the charity only provided intangible benefits, a statement to that effect must be included. To deduct your donation, you must receive the written acknowledgement or Form 1098-C from the charity within 30 days of the vehicle's donation or sale.
If your deduction is less than $250, a written acknowledgement from the charity is not a must, but you must keep records that include the charity's name and address, the date and place of donation, and a description of the vehicle.

Three things to know about the FBAR

FBAR is not part of a regular tax return sent to the IRS. Remember, FBAR does not cause a tax liability, but is for information reporting only. 
As a U.S. citizen, you may have to file an annual "Report of Foreign Bank and Financial Accounts" (FBAR) with the U.S. Treasury Department. Existence of such an account or accounts must be reported on schedule B of IRS form 1040, as well as interest earned from such accounts. Keep a copy of your FBAR, quarterly bank reports, and yearly reports of all other financial holdings. Make an appointment with us at GKM for more information on FBAR and our range of tax preparation & consulting services. 
The consequences for failing to file an FBAR when required can be drastic. It is critical to understand the extent of the filing obligation, governed by stringent rules & regulations. The official name of the FBAR has changed, from Treasury Form TD F 90-22.1 to FinCEN Form 114.
1.     If your foreign financial accounts totaled more than $10,000 last year, you need to file an FBAR by 30th of June
The Report of Foreign Bank & Financial Accounts (FBAR) is an annual disclosure form used to collect information from US citizens, residents & legal entities about their foreign financial accounts. If you have a financial interest in or signature authority over a foreign financial account and the total value of your foreign financial accounts exceeded $10,000 at any time during 2013, you must e-file this form with the US Department of the Treasury by June 30, 2014 (no extensions allowed)

2.     You need to report more than just foreign bank accounts
The FBAR reporting requirements apply to foreign bank accounts, brokerage accounts, mutual funds, life insurance or annuity contracts with a cash value, and certain other financial accounts located outside the US. They do not apply to domestic mutual funds that invest in foreign stocks & securities and certain other exceptions.

3.     If you fail to file an FBAR, you can incur significant penalties
The penalty may range up to $10,000 unless there is a reasonable cause for failing to file. If the failure to file is found to be willful, the greater of $10,000 or 50% of the accounts' balances and criminal penalties may be applicable.

The consequences for not properly complying with FBAR filing requirements can be severe. If you have foreign financial accounts or assets, please get in touch with international tax experts at GKM relating to your reporting requirements.