Janell A. Israel & Associates
February 2006 Tax Newsletter
What's New in taxes:
The Early Bird May Get The New Energy Credit
If you're thinking of buying a hybrid or alternative fuel vehicle this year, you may want to take action earlier rather than later. The 2005 Energy Tax Incentives Act provided tax credits of up to $3,400 for the purchase of a hybrid car or truck.
The IRS recently issued guidelines that car manufacturers can follow to get their hybrid vehicles certified for these new energy tax credits. Taxpayers will be able to rely on these certified credit amounts in filing their 2006 income tax returns next year.
The law limits the number of cars from each automaker that will qualify for the credit. The IRS is suggesting that consumers who hope to take the credit may want to buy their vehicle early in 2006 before the qualifying number of sales is reached.
How Long Should You Keep Tax Records?
How long should you keep your tax records? Unless fraud, evasion, or a substantial understatement of income is involved, the IRS generally has only three years in which to question your return. If the IRS asks, you must be able to prove the validity of your tax return, which includes providing the underlying supporting data. How long you keep your paperwork depends directly on the statute of limitations, but here are some guidelines.
* Your copy of the tax return. Consider keeping it forever since you never know when this document will come in handy. Remember that in many cases, the IRS destroys original returns after four or five years. It's always best to have your copy to fall back on.
* Cancelled checks, bank/investment statements, and receipts. Keep them for seven years. Because of various combinations of the statute of limitations and technical provisions in the law, keeping them for seven years, rather than just for three years, is recommended.
* Stock or bond trade confirmation statements. Keep for seven years after the sale of the stock. For example, say that you bought 200 shares of stock in 1983 and sold them in 2005. You’ll want to hold on to both the buy and sell confirmation statements until at least April 2013.
* Escrow closing documents and improvements to property. Keep for seven years after the sale of the property. Keep these documents to prove your cost of the property when it is finally sold. This is true for rental property, investment property, and even your personal residence. You might think that keeping cost basis records on your personal residence is no longer required because of the gain exclusion rules on the sale of a principal residence. That's not entirely true, since these laws could change at any time, or your gain could exceed the gain exclusion limits.
This listing is not all-inclusive, and you might have special circumstances. If you need any help with your recordkeeping requirements, give us a call.
What's New in Financial Strategies:
Credit Cards Are requiring Higher Minimum Payments
You may be seeing higher minimum payment amounts on your credit card bills. Banks are finally making changes regulators urged three years ago, changes that would enable consumers to pay off debt “in a reasonable period of time.”
The Federal Reserve and other government agencies issued guidelines following years of concern over the lowering of credit card minimum payments – an attractive feature to credit card users, but a feature that increased consumers’ debt significantly.
Before the recent changes, minimum payments were often set at 2% of a card's outstanding balance. On a $5,000 balance at 18% interest, paying the minimum each month would take a person 46 years to pay off the card. Total interest paid during that time would be $13,931. If minimum payments of 4% were required, the $5,000 balance would be paid off in 12½ years, and total interest paid would be $2,915.
Though higher required minimum payments may squeeze your budget now, they work to your benefit in the long run.
Dollar-cost Averaging Can Offer Long-term Benefits
In today's rabbit-fast world, it pays to remember that the tortoise won the race. For investors, dollar-cost averaging - a slow and steady investment plan - can be a winning strategy.
With dollar-cost averaging, you invest a set amount of money on a regular basis, typically in a mutual fund. The idea of investing a fixed dollar amount at regular intervals is simple, but the benefits add up. Here are some advantages offered by dollar-cost averaging:
* Lower average cost. An investing schedule based on a fixed dollar amount lets you buy more shares when prices are low and fewer shares when prices are high. This averaging effect makes the per-share cost of your investment lower than the average market price per share for the same time period.
* Expanded investment options. Coming up with the minimum that some mutual funds typically require to open an account can be difficult. But many funds will waive the minimum initial investment if you sign up for an automatic monthly investment plan.
* Decreased market timing risk. Committing to a plan of dollar-cost averaging takes the guesswork out of when to invest. Once you’ve decided how much to invest and how often, you make purchases regardless of the direction of the market.
* Disciplined investment. Fixed, automatic payments on a regular schedule provide an easy yet disciplined way to finance your investment goals. Because the amount you invest stays constant, you can more easily budget for it.
Dollar-cost averaging is a disciplined investment strategy. It doesn’t eliminate the need to review your investments periodically to make sure that they still meet your expectations and your risk tolerance.
Measured and consistent investing offers long-term benefits. And, like the tortoise, your portfolio can end up the winner.
Take a Break
Ponder these numbers
According to the
* The population of the
* In 2004, 12% of the population, or 36.3 million Americans, were 65 or older. By 2050, 21% of the population, or 86.7 million, will be 65 or older.
* In 2005, 71,000 Americans were 100 years old or older. By 2010 that number will grow to 114,000 and by 2020, there will be 241,000
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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 the ONLINE ADVISOR, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Notice required by U.S. Treasury Regulations: Be aware that this communication is not intended to be used, and it cannot be used, for the purpose of avoiding penalties under