September 2004 Online Newsletter
What's New in Taxes
You Can Deduct
If you're faced with college expenses this fall, be aware that the deduction for qualified tuition and fees increased this year. The previous $3,000 deduction is increased in 2004 to $4,000 for those whose income does not exceed $65,000 ($130,000 for joint filers).
If your income has been too high to take this deduction in the past, there's another change that might benefit you. A new $2,000 deduction for tuition and fees is available in 2004 if your income falls between $65,000 and $80,000 (between $130,000 and $160,000 for joint filers).
Check Out The Tax Breaks When You Suffer a Loss
Capital loss. Casualty loss. Gambling loss. Net operating loss. A loss by any name causes a financial setback — something no one likes to think about, much less experience. But if you do suffer a temporary reversal of fortune, tax laws may provide a measure of relief in the form of a refund or lower taxable income. Here are four examples.
* Capital loss. Selling assets such as stocks, bonds, limited partnership interests, and collectibles for less than you paid for them can result in a capital loss. The loss can be applied to offset capital gains, then used to reduce ordinary income, up to an annual limit of $3,000 ($1,500 if you're married and file separately). Any remaining balance generally can be carried forward to future years.
How much you'll be able to deduct depends in part on the amount of the loss and your other income. For example, say you have a capital loss of $14,000 and capital gains of $15,000. You can apply the entire capital loss against the gains. However, if your capital gains are $9,000 and you have no other income, your deduction is limited to the amount of the gains ($9,000).
Caution: Capital losses caused by the sale of investments within your retirement accounts are not deductible. Losses on the sale of personal assets, including your home, are also not deductible.
* Casualty loss. A tax deduction may be available to you when a sudden, unexpected calamity like a fire or hurricane causes physical damage to your vehicle, home, furnishings, or other property.
For insured items, you'll have to file a claim in order to deduct the loss, even if you know you won't receive money from your insurance company. The loss must exceed $100. In addition, deductibility limits involving insurance proceeds, basis, and adjusted gross income apply.
Tip: If the President says you're in a federally declared disaster area, you may be eligible for an extra tax break. In this case, you can amend your prior-year return to reflect the current-year loss and claim an early refund.
* Gambling loss. Can you deduct the cost of those weekly lottery tickets on your tax return? Maybe, assuming you have gains from any type of gambling activity — but only if you itemize, and only to the extent of your gains. Excess losses are not eligible for carryover to future years.
* Net operating loss. When expenses from your trade or business exceed your income, a net operating loss (NOL) deduction may result. If so, you have the option of applying the NOL against income reported in prior years to generate a refund. Alternatively, you may choose to carry the NOL forward, to reduce the tax burden from expected future income.
Differing eligibility and limiting criteria, as well as documentation requirements and restrictions on transactions between family members and other related parties, affect the deductibility of tax losses. Call us. We'll help you sort out the rules and obtain the greatest benefit from any losses you sustain.
What's New in Financial Strategies
Medicare Changes Policy On Obesity
In a decision that could affect health care costs for many individuals, Health and Human Services Secretary Tommy Thompson announced that Medicare will no longer refuse to classify obesity as an illness. This could lead to Medicare coverage of anti-obesity treatments that are proven to be effective.
Statistics indicate that 60% of Americans are overweight and 30% are obese. Of those eligible for Medicare, 37% are overweight and 18% are obese. Obesity is considered responsible for an estimated 300,000 deaths each year.
Though Medicare coverage won't change immediately, this new policy signals a major reversal in attitude toward obesity and efforts to prevent rather than cure the diseases it causes.
A Reverse Mortgage Could Provide Retirement Income
If you own your home and are age 62 or older, one option to increase your retirement income could be a reverse mortgage.
A reverse mortgage lets you convert equity in your home into cash while retaining ownership. In basic terms, a reverse mortgage is a loan where you borrow against your home in installments. Each month you receive a payment representing loan proceeds, and the loan gets bigger instead of smaller — a "reverse mortgage."
For homeowners with paid-for homes but little cash, reverse mortgages can provide the money needed for property taxes and other home expenses that might otherwise force them to sell their homes. The older you are, the more valuable your home, and the lower the interest rate, the more you can borrow. The loan is repaid (usually by selling your home) when you move out, die, or at the end of a set term.
Funds received from a reverse mortgage are not subject to income tax and will not affect social security or Medicare benefits.
Federal truth-in-lending laws require lenders to provide information about interest rates, payment terms, and other costs. The AARP Web site at www.aarp.org/revmort is another good source of information about these mortgages. If you're interested, shop for a reverse mortgage as you would for any other loan. Make sure the basic terms of competing loans are comparable. Then go with the lowest price by comparing interest rates, upfront fees, and other charges.
Chuckle of the Month
A little boy wanted $100 very badly and prayed for weeks, but nothing happened. Then he decided to write God a letter requesting the $100.
When the postal authorities received the letter addressed to "
The little boy was delighted with the $5 bill and sat down to write a thank you note to God, which read:
Dear God,
Thank you very much for sending the money. I noticed that for some reason you sent it through
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The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.