Francis Vayalumkal

DO A LITTLE HOMEWORK BEFORE A HOME PURCHASE
By FRANCIS VAYALUMKAL

You can start working on your home-buying project before you even begin shopping for homes. According to a survey by National Association of Realtors, most buyers take eight weeks to shop for a home. Your homework of fixing up credit, setting up a budget and organizing your financial documents should start long before those eight weeks and it will go long way in making for a smooth home-buying experience.

You should start your home purchase homework by contacting real estate agent who knows the area and a mortgage person who knows the business. There are several mortgage programs for first-time home buyers and many that will work well for experienced buyers.

Before you begin your house hunting, there are several important steps to take to make sure you are eligible for the best interest rates and make the mortgage application process a breeze. Let�s discuss a few of them.

GET A CREDIT CHECKUP

One of the first steps any prospective buyer should take is ask for the free credit reports everyone is entitled to request annually, thanks to federal law. While there are many sites on the Web offering "free" credit reports, several require that you sign up for a free trial of a credit-monitoring service that will cost money if you fail to cancel during the free trial period. The official site where you can get free no-strings-attached credit reports annually from the Equifax, Experian and TransUnion credit bureaus is www.annualcreditreport.com. You can receive one free credit report from each of these three agencies every year.

It is important to check for errors on a credit report. There could be late payment information noted under your name that belongs to someone else. If you spot an error, you should write to that specific creditor and request a correction.

While paying down credit card balances will improve your financial picture, this is not the time to close credit accounts because reducing the amount of credit available to you can actually lower your credit score.

ORGANIZE YOUR FINANCIAL PAPERWORK

You also should gather up all the financial documents that a lender would need when you submit an application. They include copies of your income tax returns, W-2 wage statements, paycheck stubs, bank and investment account statements, divorce decrees and child support documents and recent credit card statements. Having those documents handy also will help you put together a realistic budget and figure out what you can afford to pay as a down payment and toward subsequent monthly payments for mortgage principal and interest, plus property taxes and insurance.

HOW MUCH HOUSE CAN YOU AFFORD?

There is a difference between the maximum payment a borrower can qualify for and the amount you can comfortably afford. First-time buyers, in particular, often don't know how the tax-deductibility of mortgage interest and property taxes can help offset a mortgage payment that is higher than their rent. A good real estate agent can help you figure out the bottom line.

Once you're closing in on your purchase, and especially after you've applied for a mortgage, do the best not to change your financial picture. If at all possible, don�t change jobs. Lenders like to see a steady history of employment and frown on job changes while your application is pending, unless the new job is in the same field and at the same or greater pay.

As always, consult a loan officer while preparing for a home purchase.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 932-4578, Ext. 234 or via e-mail at [email protected]

	Nitesh Patel

MONEY AND FINANCE: TURN YOUR RETIREMENT DREAMS INTO REALITY
By NITESH PATEL

For some people, saving for retirement means buying a weekly lottery ticket and hoping to win the jackpot. You don�t need a crystal ball to see that the chances are slim these folks will be living the retirement of their dreams.

Ironically, as more and more people hope to retire early, the average life expectancy continues to rise. Consequently, the average number of years spent in retirement is also increasing and the need to plan and save for those �golden years� is more important today than ever before.

Historically, most individuals have relied on three main sources for retirement income: Social Security, company-sponsored retirement plans and personal savings. Yet, in today�s economic environment, retirement income from the government or a former employer is not as certain as it once was. Many people are realizing that if they want to have a comfortable retirement, they have to take responsibility for it by devising and implementing a sound plan.

Without careful preparation ensuring a comfortable retirement can be challenging. Fortunately, there are several things you can do that will help you reach your retirement goals:

Start now. It is never too early to start saving for retirement. The sooner you begin, the more you will benefit from the power of compounding. Let�s look at a hypothetical example assuming an 8 percent compound interest rate. Melissa began contributing $2,000/year to her 401(k) plan at age 30. After 10 years, she stopped putting money into her plan and just let it grow. At age 65 she retired with a balance of $198,422. Erik started contributing to his 401(k) plan when he turned 40. For the next 25 years, he put in $2,000 per year. At retirement, even though Erik had $146,212 (and was in a much better position than if he�d chosen not to participate), he still had $52,000 less than Melissa, despite the fact that he contributed two and a half times as much. Clearly the advantage of time, added to the power of compound interest, makes a dramatic impact. Save early and often.

Take advantage of your company-sponsored retirement plan. Many employers offer plans that allow you to save for retirement automatically (through payroll deduction) on a tax-deferred basis such as a 401(k) or SIMPLE IRA plan. If your employer matches all or a portion of your contribution, putting in anything less than the amount matched is like leaving money on the table. Because it is an easy and painless way to accumulate assets, consider putting as much as you can afford into this kind of plan.

Maximize your personal retirement savings. There are several tax-advantaged savings vehicles that allow you to maximize your personal savings. Let�s take a look at each one.

Traditional Individual Retirement Account (IRA). A traditional IRA allows individuals under 70� with earned income to make annual contributions that may or may not be tax-deductible depending on your adjusted gross income.1 Regardless of deductibility, earnings in a traditional IRA always grow income tax-deferred until they are withdrawn. Be certain to earmark these funds for retirement because withdrawals made prior to age 59 1/2 may be subject to a 10 percent IRS penalty unless you meet certain exceptions.

Roth Individual Retirement Account (IRA). Although contributions to a Roth IRA are not tax deductible,1 earnings and withdrawals are tax-free when left in the Roth IRA for a minimum of five years and until the IRA owner is at least 59�. Like traditional IRAs, contributions are subject to adjusted gross income limits. Withdrawals for disability, death, and a qualified first home purchase2 also are tax-free. While you may be able to convert a traditional IRA to a Roth IRA (also subject to income limits), it will trigger taxable income in the year of conversion.

Annuity. While it is possible to outlive your assets in other retirement savings vehicles, you cannot outlive the guaranteed lifetime income an annuity provides.3 Similar to a Roth IRA, contributions to a non-tax qualified annuity are not tax-deductible. However, unlike a Roth IRA, an annuity has no contribution limits and all earnings grow income tax-deferred, so earnings compound faster. In retirement, earnings will be taxed as they are withdrawn.

Examine all financial tools, including life insurance � A well thought-out life insurance plan encourages regular savings with solid growth. Permanent life insurance provides protection for your heirs as long as you live while accumulating a cash value that may be used during retirement. A qualified representative can also help you integrate mutual funds, savings accounts and other investments into your retirement income planning as well.

Meet with a financial professional � Many people become overwhelmed with the many choices available when it comes to retirement planning and delay or avoid taking any action. Meeting with a financial professional who understands your individual needs and goals can be your most important step. Saving for retirement may be the most important financial decision you will make. Your retirement years could be the best years of your life. Make sure you prepare for them carefully and make your retirement dreams become reality.

3 Contribution limit in 2005 is $4,000 and increases to $5,000 in 2008. Adjusted Gross Income may impact deductibility and/or contribution limits. Individuals must rely upon their own legal accounting or tax advisors to consider and apply these principles to specific situations and transactions.

2 The lifetime limit for first home purchases is $10,000.

3 Because the insurance company solely backs annuity payments, the company's financial strength is an important factor when considering this option.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail [email protected].

	Kamlesh Patel

CRUNCHING �EM NUMBERS: you may qualify for a telephone tax refund

By KAMLESH H. PATEL, CPA

Individuals and businesses will be eligible for refunds of federal excise taxes paid on their long distance phone bills, thanks to a recent court ruling. Applicable to calls made from March 2003 through July 2006, the refund is claimed by filing your 2006 income tax return. And better yet, you may not need to search through old phone records to receive it.

Instead of substantiating the actual excise taxes paid during the covered period, individuals may elect a standard amount based on the number of exemptions claimed on their 2006 tax return. For a person claiming one exemption, the reimbursement is $30; two exemptions � $40; three exemptions � $50; and four or more exemptions � a maximum of $60. No other documentation is necessary to receive the refund.

The IRS has created Form 8913 to be used by businesses and tax-exempt organizations to claim their refunds of this tax. They can either tally the actual tax paid on their phone bills during the 41-month period or use a �simplified� method approved by the IRS. The simplified formula involves comparing the phone bill dated April 2006 (when taxes were still being charged) with the September 2006 bill (after the tax was removed). The percentage of the April bill paid in federal taxes is compared to the percentage of federal taxes paid in September, and the difference is your refund ratio. This ratio is multiplied times the total phone charges for the covered period and the result is your refund amount. The refund is capped at 1 percent or 2 percent of total telephone expenses, depending on the number of employees a business has. Options for requesting the refund vary for sole proprietors.

For most Americans, the excise tax refund is fairly negligible, but for businesses with substantial long-distance expenses, the reimbursement might be significant.

don�t overlook these deductions even if you don�t itemize

You�re probably familiar with the deduction choice you must make when you file your tax return. You either have enough deductions (such as mortgage interest, charitable contributions, and medical expenses) to itemize, or you take the standard deduction, a set amount that doesn�t require you to list specific deductible items.

What you may not be as familiar with are those deductions that you are allowed to take �above the line�; that is, deductions that you can take in addition to your itemized deductions or your standard deduction.

Here�s a quick rundown of above-the-line deductions you shouldn�t miss on your 2006 tax return.

A deduction of up to $250 for classroom supplies purchased by teachers for use in their classrooms.
A deduction of up to $2,500 for interest paid on student loans.
A deduction of up to $2,000 or $4,000 for college tuition and fees, depending on your income level.
A deduction of up to $4,000 for individual retirement account contributions if you�re under age 50. If you�re 50 or older, you can deduct up to $5,000.
A deduction for the expenses connected with a job-related move.
A deduction for 50 percent of the self-employment tax and 100 percent of health insurance premiums paid if you are self-employed.
A deduction for alimony paid. (Note that child support is not deductible.)
A deduction for contributions to health savings accounts (HSAs).

Most of these deductions have qualification requirements or income limitations. Don�t overlook above-the-line tax deductions. An added benefit: These deductions decrease your �adjusted gross income,� an important number on your tax return. The lower your adjusted gross income, the more likely you are to qualify for credits and deductions subject to income thresholds.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail [email protected] or [email protected].

	Satya Shaw

PROTECTING YOUR RETIREMENT ASSETS
By SATYA B.SHAW, MBA, CPA

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.