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What is FICA Tax ?

admin — Sat, 29 Oct 2011 14:05:29 +0000

Despite the fact the every employee in the United States is required to pay taxes, most have absolutely no idea what these taxes are. Perhaps the most confusing of all is FICA tax.

What is FICA Tax?

FICA is actually the acronym for the Federal Insurance Contributions Act. It is the piece of legislation that allows the United States government to collect money, in the form of taxes, from US employees and employers. In theory, the money collected is earmarked for retirement benefits for the elderly, sick, and disabled.

Unlike other forms of taxation, FICA is actually the same for every working American regardless of how much income they earn. Furthermore, this tax is capped; meaning high-income earners are typically not overly burdened by excessive taxation. For the calendar year ending December 31, 2011, the FICA tax limit is $106,800.

FICA Tax Rate

FICA taxes are based on the gross income earned per employee. For each dollar earned, the employee is taxed 4.2% and the employer is taxed 6.2%; for a total of 10.4%. It should be noted that the employee portion was reduced for the 2011 tax year from 6.2%. At the time this article was written, this reduction will be eliminated beginning January 1, 2012.

How Does FICA Tax Impact Self-Employed Individuals?

While it is certainly no fun to be taxed on money that the average citizen may or may not ever see any benefit from, self-employed tax payers are taxed even more aggressively. As noted above, the employee and the employer both contribute funds to pay for government entitlements. If you are self-employed, you must pay not only the employee’s portion but the employer’s portion as well. As a compromise, however, self-employed individuals are allowed to deduct 50% of this tax as a general business expense.

Can an Individual Overpay their FICA Tax?

While it is certainly not a normal occurrence, in some circumstances an individual can actually overpay their FICA tax. This typically occurs when an employee works more than one job during the tax year. As every employer is required to withhold FICA tax, they must do so even if the employee claims that they have already paid in the maximum amount. Individuals that overpay can get a refund of the overpayment when they file the annual 1040 tax returns.

FICA is a relatively straightforward, and easy to understand, tax. It should be noted, however, that if an individual fails to pay in the correct percentage during the year, they will be required to pay it by April 15^th of the following year as part of filing their annual tax returns.

What is Wealth Management?

admin — Sat, 29 Oct 2011 14:03:29 +0000

Since the beginning of the global economic meltdown that began almost three years ago, investors have started voicing a few serious concerns about the status of their retirement portfolios. Investors wonder whether or not they should convert all of their investments into cash, whether the US dollar even a safe bet anymore, or whether or not they should begin investing in foreign stock markets. While it is certainly true that every financial planner would give you a slightly different answer, just about all of them will stress the importance of properly designed wealth management strategy.

What is Wealth Management?

When it comes to popular investing strategies, the ‘smart’ thing to do is almost always a function of what stage of life you are currently in. Wealth management strategies hone in on the various life stages in which the investor is currently in and combines them with other crucial elements, such as the investor’s tolerance for risk, to map out a plan that will help them reach their financial goals and objectives.

Wealth Management Sample Portfolio Ideas

30-Year Old Single Individual

At one time, many financial planners seemed to always recommend that younger investors allocate approximately 20 to 25% of their investment dollars overseas. With the massive debt issues in Europe, however, most are dialing down this percentage to around 15%. Furthermore, as a 30-something has approximately 30 years left until retirement, they should plan to keep around 65% of their investments in US stocks.

45-Year Old Married Couples with Children

With the proliferation of college savings accounts, such as the 529 plan, many married couples have already socked a good chunk of change away for their children’s education. As such, these investors should have a more moderate approach to investing. It would be safe to argue that a 50% allocation to US stocks and a 15% allocation to foreign stocks would be warranted in this stage of life.

65-Year Old Retired Couple with a Large Retirement Portfolio

Chances are that investors that have been regularly investing for decades have amassed a sizeable retirement portfolio. Even at this stage in life, however, proper asset allocation is crucial to the success of any wealth management strategy. As such, a portfolio consisting of 45% US stocks, 20% foreign (or alternative) investments, 20% bonds, and 15% cash is often recommended. Financial planners note that even though stocks have generally outpaced inflation they like adding in a healthy dose of bonds as a way to diversify away some of the risk.

Designing a proper wealth management strategy involves numerous factors that cannot be completely covered in any basic overview. As such, it is always a good idea to consult with a certified financial planner in order to ensure your portfolio meets all of your goals and expectations.

When are Taxes Due?

admin — Sat, 17 Sep 2011 12:27:13 +0000

The due date for filing federal and state income tax returns is typically the 15^th of April. This, of course, assumes that the 15^th does not fall on a weekend or that it is not a federal holiday. Many people, however, are under the erroneous belief that this deadline applies in all circumstances. In order to help you file your tax returns on time each year, here is an overview of the more common tax filing dates.

When are Taxes Due?

Personal Tax Return Filing Date – When it comes to personal tax returns, individuals have until April 15^th each year to file their returns. What this means is that the post office must postmark your return no later than the 15^th. In order to help more people reach this deadline, many post office locations stay open as late as midnight.

Although the IRS only requires that your file be postmarked by this date, it is the individual’s responsibility to prove that it was filed on time. Perhaps the easiest way to do this is to send your return via certified mail.

Corporate Tax Return Filing Date – Unlike personal tax returns, corporations with a December 31^st year end are required to file their tax returns by the 15^th of March each year. If a company has a September 30^th year end, their tax returns are required to be filed by December 15^th.

It is important to note that only businesses that file as either a C-Corp or an S-Corp must file by these earlier dates. As sole proprietors, LLCs, and partnerships are considered disregarded entities, they must file their tax returns by the 15^th of April.

Estimated Taxes – Many businesses, and individuals, must pay estimated taxes each quarter. More often than not this occurs because they have earned income that was not subjected to normal payroll withholding. A few examples include dividends, alimony, self-employment income, or lotto winnings.

If you file your taxes as a sole proprietor, partner, as a member of an S-Corp, or are self-employed, AND you expect to owe at least $1,000 in taxes when you file your tax return you must pay estimated taxes. C-Corps must pay estimated taxes if they will have a tax liability of at least $500. Payments are made quarterly and are due by the following dates:

April 15 – for January 1 – March 31

June 15 – for April 1 –May 31

September 15 – for June 1 – August 31

January 15 (of the next year) – for September 1 – December 31

This year, when your spouse asks when are taxes due, don’t automatically assume that every type of entity has the same deadline. Doing so, can be costly!

What is quickBooks used for and some of its best features

admin — Fri, 16 Sep 2011 21:23:18 +0000

When it comes to day-to-day use, not all accounting software packages are made equally. Many accounting programs are designed to handle thousands of complex transactions simultaneously. Furthermore, as the complexity of the accounting system increases, so does the amount of manpower required to maintain them. Small businesses, however, may not need as much functionality. For companies such as these, QuickBooks may just be the perfect compromise.

What is QuickBooks Used For?

QuickBooks is an accounting software package that is designed to help small businesses track and manage their monthly income and expenses. It is an all-inclusive productivity tool that can streamline and simplify a company’s financial statements. Depending upon the size of the company, and the functionality required, QuickBooks comes in four basic formats; QuickBooks Simple Start, QuickBooks Pro, QuickBooks Premier, and QuickBooks Enterprise.

Accounts Receivable and Accounts Payable Management

Even companies that have no need, or desire, to produce monthly financial statements can benefit from the accounts receivable and accounts payable modules. These vendor and customer control tools allow companies to invoice customers more quickly while holding onto cash a bit longer.

Processing Payroll

Perhaps the most popular function within QuickBooks is the payroll module. Once a company has entered an employee’s payroll information, creating payroll checks is as simple as pressing a button. Quarterly 941s, and annual 940s, can also be created instantly. Additionally, tax withholding and unemployment calculations are done automatically, freeing up employees to work on more important revenue generating tasks.

Writing Checks

Checking writing is, by far, the most commonly used aspect of QuickBooks. It is extremely easy to set up a vendor and print checks to pay those vendors. Even if you do not reconcile your bank accounts through QuickBooks, you can instantly print a check detail which lists every check you have written in numerical order. Additionally, you can alter the date range so that you only see a list of check written for the period in question.

Financial Statement Reporting

Many businesses are under the erroneous belief that they must have an expensive accounting program in order to produce accurate financial statements. This, quite simply, could not be any further from the truth. With QuickBooks, you can create statements, such as the Balance Sheet and Profit & Loss statement, at any time. Furthermore, you can run financial reports on the cash basis; which is crucial for small businesses that are trying to effectively manage their cash flow.

What Qualifications Do You Need to be an Accountant?

admin — Fri, 16 Sep 2011 07:21:06 +0000

In today’s job market, many individuals are looking for a career that not only pays well but one that is relatively recession proof. What good is it, after all, to incur the time and expense of going to college only to find out that decent jobs are difficult, at best, to come by. One field that has been gaining a lot of traction over the past decade is accounting.

What Qualifications Do You Need to be an Accountant?

Unlike many other high paying careers, it is not always necessary to have a college degree in order to become an accountant. All you really need is a decent command of mathematics, an organized and logical mind, and a basic understanding of the principles of accounting. Any other skills necessary can be learned on the job.

If, however, you plan on moving beyond an entry level position in accounting, it may be necessary to obtain additional educational credentials. Many colleges now offer specializations in accounting and finance. While it is certainly true that this option is not as comprehensive as obtaining an accounting degree, it may be enough to help you move up the corporate ladder.

How to Become a CPA

For many people, the ultimate goal of being an accountant is to one day become a Certified Public Accountant (CPA). Despite the fact that each state has their own set of criteria in order to be licensed as a CPA, there are a few commons requirements.

Educational Requirements – Each CPA candidate is required to have a college degree. Additionally, most states also require them to have at least 150 hours of accredited college credit. Most students call this the 5^th year, since it generally adds another year on to their education.
Work Experience – In addition to satisfying the educational requirements, most states also require that the candidate work under the close supervision of a licensed CPA in the state in which they want to practice. This supervisor is typically required to attest to the quality of work and the degree of accounting knowledge that the candidate possesses.
Independence – A CPA must be independent from their clients in fact, and in appearance. What this means is that a CPA cannot provide an opinion for clients in which they have a vested interest. Independence is the foundation on which the entire field of auditing is based.

When it comes to finding a great accounting job, it is crucial that you first determine what qualifications you will need to have. Once you have determined what your ideal career path is, obtaining the right credentials is easy.

What is an annuity and the different types of annuities

admin — Thu, 15 Sep 2011 19:05:42 +0000

Fifty years ago, when an individual took a job with a company, they did so for life. Setting the loyalty factor aside, many of these people did so purely for the pension that they would earn over the course of their employment. In today’s economic environment, however, companies no longer offer pension plans.

In fact, many of the companies that did so as early as twenty years ago cannot afford to repay them. Employees can no longer count on their employers, or the government, to provide supplemental income during retirement. As such, savvy investors have begun taking matters into their own hands.

What is an Annuity?

In its most simplistic form, an annuity is simply a contract between an individual and an insurance company in which the individual is guaranteed a predetermined amount of income each year. In essence, it provides the investor with a steady stream of income through the course of the contract. Many financial planners pitch annuities as a great way to secure your financial future and to ensure that your friends or family does not have to support you during your golden years.

Different Types of Annuity Contracts

When it comes to annuities, there are two basic types; fixed and variable.

Fixed Annuity – A fixed annuity is perhaps the easier of the two to understand. Similar to a bank certificate of deposit (CD), a fixed annuity provides a fixed payment to the investor each year. Generally, this payment includes a portion of the investor’s original principle and a minimum amount of earned interest. It should also be noted that the interest rate can be changed each year by the insurance company but it cannot go below the stated rate in the annuity contract.

Variable Annuity – This type of annuity is much more speculative in nature. Instead of being tied to the current market rate, the amount of interest that is paid to the investor is based upon the rate of return earned by the mutual fund in which it is invested. In a volatile stock market, the value of a variable annuity can vary significantly.

Some risks of annuities

Despite the obvious benefits associated with annuities, there are a few, somewhat negative, things investors need to carefully consider. Perhaps the biggest risk of owning fixed income annuities is inflation. When you purchase a fixed annuity, you are basically making a bet against rising inflation levels. If, however, inflation does rear its ugly head, the purchasing power of your guaranteed payments will be drastically reduced.

It is also extremely important to consider the stability of the insurance company from which the annuity was purchased. Will the insurance company be around long enough to repay your principle? As annuities are not FDIC insured, there are no guarantees that these investments will continue to survive.

What is a CD account and the benefits of laddering CDs

admin — Thu, 15 Sep 2011 06:55:27 +0000

When it comes to personal savings accounts, a certificate of deposit (CD) is perhaps the safest investment an individual can make. CDs are fully guaranteed by the Federal Deposit Insurance Corporation (FDIC) making them extremely attractive investments for even the most conservative of investors.

What is a CD Account

A certificate of deposit is simply one type of savings account that many banks and credit unions offer to their customers. Unlike a traditional savings account, when an individual invests funds in a CD, they agree to keep it invested for a set period of time. As compensation for tying up an investor’s funds, the lending institution typically pay a much higher interest rate.

Common Certificate of Deposit Terms

While it is certainly true that CDs are available in a wide range of maturity periods, the most common terms include 3 months, 6 months, 1 year, and 5 years. Furthermore, as the length until maturity increases so does the interest rate investors can expect to earn. Should the investor need to withdraw their money prior to the CD’s maturity date, they are generally require to either forfeit a portion of the interest they would have earned or pay hefty penalties.

Other Important Considerations

Although the slightly elevated interest rates can be attractive at times, there are a few additional things that you need to consider before agreeing to tie your money up in any CD account. Perhaps the most important thing to remember is that the interest rate is set at the time in which you invest in the CD. If interest rates go up, you may miss out on the increase in rates. If, however, interest rates go down, then the market value of the CD you have could actually go up in value.

Laddering Certificates of Deposit

Since the investor knows the exact date that these investments mature (are repaid), many financial advisors recommend that their clients ladder their CDs. In its most simplistic form, when an investor ladders their CDs, all they are really doing is purchasing different time deposits that have varying maturity dates.

Let’s say, for example, that an investor has $80,000 that they want to put into bank CDs. Instead of simply investing the entire balance in a 5 year CD, a laddered approach would have them investing $20,000 in CDs with maturities in 90 days, $20,000 in CDs with maturities in 180 days, $20,000 in CDs with maturities in 1 year, and $20,000 in CDs with maturities in 3 to 5 years. As each ‘bucket’ matures the investor would reinvest the proceeds into another block of CDs.

In this way, certificates of deposit help to preserve an investor’s capital while reducing their interest rate risk.

What is ISO Insurance?

admin — Wed, 14 Sep 2011 13:01:42 +0000

When it comes to lowering the amount of money you pay for homeowner’s insurance, there are a number of things you can do to positively affect your premiums. You can, for example, install smoke detectors and carbon dioxide monitors, have your major appliances routinely serviced, and fix the loose shingles on your roof. One element that you cannot influence, however, is your home’s ISO Insurance rating.

What is Your ISO Insurance Rating?

he Insurance Service Office, or ISO, is the primary provider of risk management underwriting data to property and casualty providers; i.e. insurance companies. This, for-profit company, ranks each community in the nation with respect to its fire protection levels. On a scale of 1 to 10, a score of 1 is the best while a score of 10 is the worst.

The ISO ratings are intended to help communities compare their fire protection services against others across the United States. The objective is to help fire departments protect their communities more effectively.

Despite the fact that this rating is completely beyond the control of the average homeowner, having a poor ISO rating can actually mean being required to pay much higher insurance premiums. Homeowners living in communities with ratings from 1 to 6 can typically expect to pay the same rates while communities that receive a rating of 7 can expect to pay about $50 more each year. Homeowners living in communities with a rating of 10, however, may have premiums that are twice as much as those that have ratings less than 6.

To confuse the issue even more, insurance companies are not required to use the ISO insurance rating in a homeowner’s premium calculations. As such, you cannot automatically assume that an increase in the quality of your communities’ rating will result in a lower premium. The only way to guarantee that you are getting the best insurance rate is to shop around.

Helpful tips on how to budget a household

admin — Wed, 14 Sep 2011 12:55:50 +0000

Studies have shown time and time again that money problems are among the top three issues facing married couples today. With all of the other types of stress we endure, money, or the lack there of, seems to put many families over the edge. It does not, however, have to be that way. When a family learns how to budget a household, it can make all the difference in the world.

Developing a budget simply means that you are developing a plan. Instead of wondering, at the end of the month, where all of your money went, you tell it where to go before the month begins. A good budget allows a family to easily reach their financial goals. It also provides an element of flexibility should circumstances change.

How to Set Up a Budget

Step 1 – Determine Your Income and Expenses

The first thing you need to do is to determine your starting point. You need to know, with absolute precision, how much money you make versus how much money you spend. Without accurate records a budget simply won’t work so it is crucial that you include everything; regardless of how trivial it may seem

Since most of your bills arrive monthly, it may make sense to prepare a monthly budget. If you earn a different amount each pay period, you may want to prepare a budget that coincides with these payments.

Step 2 – Calculate Your Surplus or Deficit

Once you have subtracted the total amount of money you spend each month from the amount of money you earn, two things will be obvious; your spending is in line with your income or your spending is not in line with your income.

Spending more money that you earn is what actually causes stress in a household. When this occurs, it is imperative that you immediately rectify this problem and start spending less. Many times, after analyzing your budget, you will discover that you, or your spouse, is spending money unnecessarily on things that do not contribute to the overall financial success of the family. Look hard at where your money is going and make a few changes.

Step 3 – Have Monthly Budget Meetings

Contrary to what many governmental agencies believe, a budget is not a one-and-done event. It is something that needs to be constantly reviewed and improved. It takes a lot of effort and time to learn how to budget a household. Set up monthly meetings with your spouse and review any issues that may have come up over the past month. It is also important to discuss the good things that have occurred as well.

How does leasing a car work and when it makes sense to lease a car

admin — Mon, 12 Sep 2011 17:41:13 +0000

For many people, leasing a car seems like a really good concept; drive a car for three or four years and then turn it in a get another new one. Additionally, since the car is still owned by the dealership, it is typically covered by a complete manufacturer’s warranty, right? While this certainly sounds like a wonderful opportunity, there are a number of things that should be carefully considered before entering into any new car lease.

How Does Leasing a Car Work?

When an individual leases a car, they are essentially paying the dealership for the depreciation that naturally occurs while they are driving the car. It is this depreciation, in fact, that determines how much the customer actually pays to lease the car.

Let’s say, for example that a customer wants to lease a car that would normally sell brand new for $20,000 and it is expected to be worth $12,000 once the lease has expired. The difference, or $8,000, is what the customer will be charged for the right to drive this vehicle; assuming that the customer has a good credit score and has no downpayment.

Yearly Mileage Limits and Routine Maintenance

What many consumers fail to recognize is that the number of miles a vehicle has on it can impact the value of that vehicle. As such, most leased cars have clearly defined mileage limits. If, after the lease has expired, an individual has exceeded the mileage limits established in their lease, they can expect to pay a significant surcharge. Furthermore, it should be noted that the customer, not the dealership, is required to maintain the vehicle in peak condition; including having the oil changed every 3,000 miles.

When Does it Make Sense to Lease a Car

Despite these drawbacks, it can sometime make sense, at least psychologically, to lease a car. Perhaps the most common reason is that an individual simply wants to drive a new car but cannot afford one. Leasing allows them to drive a vehicle that they would otherwise not have the means to drive. Of course, once the lease term has expired, the will not own anything of value.

Another reason why many people lease vehicles is for the tax deduction. When properly used as a business vehicle, the monthly payments may be deductible as an ordinary business expense. It is, however, always a good idea to check with a certified financial planner before taking this type of deduction on your federal or state tax returns.