To save time and money on home renovations, consider these two ideas.

             Proverbs 19:2 says, “It is not good to have zeal before knowledge.”  We live in a society that has zeal and limited knowledge so we miss out on the hidden manna that is available to everyone.

             We have seen many examples where people have sought help at the wrong place or with the wrong people.  Others have found the right people but didn’t know the correct questions to ask.  We know numerous veterans who may be eligible for help but aren’t receiving it because they do not know the rules.  It is often not enough to simply ask a question about taxes and expect to get the right answer from the IRS knowing there are over 71,000 pages of the code. 

             People assume that if they take their taxes to the accountant that the accountant will show them how to pay less in taxes next year.  If you only see your accountant between January and April 15, don’t expect this bleary-eyed person to come forth with all the ways you could have structured your income to pay less in taxes. 

             Equally complex is the college tuition eligibility and financial aid process for reducing college costs.  We have a process for no debt college.  To optimize the result, planning should begin in the eighth grade.  For some we have helped reduce the cost after graduation.

             Most people do not understand the whole process of borrowing and establishing your credit score.  The credit score determines the amount of interest you will pay on a loan.  Our job is to improve the credit score to reduce your interest rate and thus improve your cash flow.

             Food costs can be dramatically reduced by simply understanding how stores merchandize their products and by setting up rules for yourself before entering the store.  Making up lists, using coupons, and checking receipts will add additional money to your pocket.  Even the process of choosing the right store is important to know.

             Utility costs can be dramatically reduced with proper insulation, routine maintenance of your furnace and air conditioner, and attention to energy usage ratings of your appliances.  Additional savings can be found by using water restrictors, fluorescent bulbs, and water efficient toilets.  If the cap and trade agreement happens, you can expect increases of $150 to $250 per month in utility expenses.  Begin making your house energy efficient now. 

             There is so much information available to us today that it becomes overwhelming very quickly.   Be determined and discerning in your search for the best possible solutions.

             Robert Ostrander, CFP®

            SWS Advisors, Inc.

1.  If it has been a few years since you last had your fireplace chimney cleaned, have it done by a professional chimney sweep. 

2. Turn off the water to your outside faucets and drain any remaining water from the pipes.  The outside pipes and faucets are the most prone to freezing, which can eventually cause cracks and leaks.

3. Install weatherstripping around any doors or windows that may be letting in cold air.

       What will this mean to the average family earning $50,000 per year?  Using standard deductions a family earning $50,000 will pay an extra $200 per month in federal taxes.  If this was the only tax to be concerned with it might be possible for a family to survive.  But it’s not. 

        By letting the Bush tax cuts expire, those with high net worth (over $1,000,000) will be faced with a confiscation tax (estate tax and state inheritance tax) of 55% for amounts over $1,000,000.  An additional 2% – 19% will be assessed by your state depending on the state of residence and the size of the estate.  Proper estate planning can minimize some of this tax burden.

       The cap and trade (cap and tax) agreements currently proposed before Congress will come in the form of higher fuel costs, costing this same family an additional $300 per month in gasoline prices and an extra $100 -$200 per month in increases of fuel costs in the home.  The impact will force many to look for alternative means of transportation and force those in rural communities to move closer to their place of employment.  Additionally, people will seek lower square footage homes to decrease their heating and cooling costs.

        As if these issues are not enough, the currently proposed healthcare reform may also have tax implications.  Eighty to ninety percent of Americans work for small business.  Under the new plan, if your employer does not provide health care they will be taxed an additional $100 per month and each employee will be taxed an additional $100 per month on $50,000 of income.  This may also lead to higher unemployment.

       Another concern is the impact of inflation as a result of the stimulus package and years of underfunding of Social Security, Medicare and Medicaid.  When the baby boomers begin to tap these resources, the cost of everything will rise, forcing families to increase their income, thrusting average households into even higher income tax brackets.  The impact will reduce any discretionary income the average family may have left under the previous proposals.

       So what is the cumulative effect of all these taxes on the average family making $50,000?  This family could see an increase of anywhere from $400 to $900 each month in taxes (direct or indirect).  For someone making $30,000 each year the cumulative impact would be $300-$500 each month.

       I used to think that Congress would never make destructive decisions because they have some intelligent people in Washington.  My thinking changed in 1986 when Congress caused the Savings and Loan industry collapse by changing the depreciation schedule on real estate from fifteen years to a 29 year depreciation schedule.  More recently we have seen the relaxed home loan mortgage underwriting mandate through Fannie Mae and Freddie Mac that led to the banking bailout.

       How can you respond to this impact on your cash flow?  You may want to let your voice be heard through your government representatives.  On a personal level consider the following:

1. Review assets you have that may be subject to taxes when you sell the asset. You may want to pay the tax on them now rather than later when you could be in a higher tax bracket.
2. Begin to review ways to reduce your energy consumption both in your home and your vehicle.  You may want to live closer to your employment.
3. Review ways to make more of your income fall in the category of benefits through employment to reduce taxes.
4. For large estates, begin to look for ways to reduce the impact of estate and inheritance taxes.
5. Look for the myriad of ways to reduce living expenses.  If you have a business look for ways to improve cash flow, reduce operating expenses, and reduce taxes.
6. Look at repositioning investment assets for this crisis.
7. Pray for the leadership of this nation.

        We have less than two years before these tax increases take affect.  I encourage you to begin making plans to withstand these tax measures.  Not making plans now could be devastating for you and your family in the future.  Please forward this to anyone you think might be concerned with an increase in their family budget.

 Bob Ostrander, CFP®

SWS Advisors, Inc.

Bob has spent over forty years researching ways to reduce living expenses.  He has written books and workbooks to help families and businesses on this subject.  Bob continually looks at the impact of legislation on a personal budget.  This article raises grave concerns for this nation.

1.  Do an energy audit.  If your utility company offers it, get a free check for energy leaks in and around your home.  You can also go to energystar.gov for a guide to do it yourself.

2.  Lower your thermostat in the winter.  You can cut your heating bill by 1-2% for each degree you lower the temperature.  If you get a little chilly in the evening, put on a comfy sweater or sweatshirt or cuddle up with your significant other under a blanket.

             Under the proposed measures to reduce carbon dioxide emissions by our current Congress, called cap and trade agreements, everyone should expect utilities and gasoline expenses to increase.  This increase will primarily impact the low to middle income families as we expect substantial increases in utility bills.  In addition, this will impact heavy users of electricity, primarily in manufacturing, resulting in either the costs to comply with the regulations being passed on to consumers or the transfer of these operations to countries where the cap and trade rules do not apply.  This of course will cause more job losses in this country. 

It is obvious the goal is not to reduce emissions.  The United States has had more reduction of emissions without these agreements than have European countries, which already put these agreements in place.  So what is the point?  The real goal is to introduce a socialist agenda and to create another profit center for energy producing companies.  Ken Lay, former CEO of the now defunct Enron, was a strong proponent of this plan because of the business opportunities and the profits it creates at the consumer’s expense. 

As consumers, we should begin rethinking of ways to reduce utility bills.  Those with low incomes may find there can be help through the Home Energy Assistance Program (HEAP).  Additionally, newer appliances tend to be more efficient than older appliances.   An eighteen year old air conditioner can use as much as twice the energy as a newer model. 

For those in older homes, window replacement may have long-term savings, but measure how long you plan to stay in the home first.  Another great value is to identify energy loss in remote places in the home including crawl spaces, under sinks, and though openings in the basement.  Insulating in and around these areas and caulking around doors and windows offer great benefits in reducing heat and cooling loss.

Attic insulation will yield a high value because it reduces heat loss in the winter and cooling loss in the summer.  It is also important to know that insulation settles over time reducing the R-factor, or energy loss resistance, and should be replaced.  Insulating hot water pipes, changing filters on furnaces, adding hot water heater blankets, and using florescent bulbs rather than incandescent bulbs will also help.  My books Saving Without Sacrifice and Saving Without Sacrifice In Action cover over forty more ways to reduce utility bills.

            Energy cost should double in the next five years because of inflation and the new cap and trade agreements.  As mentioned earlier, fraud is expected to be rampant based on Europe’s experience with these regulations.  The environmental effect is considered so remote that it will not be measurable.  The economic impact could be devastating.  Preparation for what is coming is always the best cure.

            Robert Ostrander, CFP®

            SWS Advisors, Inc.

A new Energy Star-rated model runs on about $40 worth of electricity.  A new $600 refridgerator will last for decades and could pay for itself in less than seven years.

To see how much you can save by replacing your old refridgerator, click here.

Tax Stimulus Pros……and Cons

The recent economic stimulus bill has some advantages for certain taxpayers.  The following list represents some of the benefits:

1.                  The first $2,400 of unemployment compensation will not be taxed for those who have lost employment between September 1, 2008 and January 1, 2010.

2.                  Those paying for health insurance through COBRA will only have to pay 35% of the cost.  The balance of 65% will be paid by the employer, but reimbursed by the government.  This is available until January 1, 2010.

3.                  The alternative minimum tax exemption allows for couples earning up to $70,950 and single up to $46,700 to avoid paying the tax.

4.                  Anyone who has not owned a home for the past three years can qualify for the $8,000 tax credit if the home is purchased by December 1, 2009, as long as your income does not exceed $75,000 for an individual or $150,000 for a couple.

5.                  There is a temporary expansion of the Hope Credit for the first two years of post secondary education expenses.  The first $2,000 of expenses receives 100% credit while the next $2,000 receives 25% credit up to $500.  This credit phases out for incomes of $160,000 for married couples and $80,000 for single individuals.

6.                  Those with funds in the educational 529 plans can now use the money for computers and computer technology.

7.                  Buyers of new motor homes, motorcycles, cars and light trucks can deduct the sales and excise taxes on the vehicle up to $49,500 of the vehicle purchase price.  The deduction is phased out for incomes of $125,000 for individuals and $250,000 for couples and is only available through 2010.

8.                  There are some credits available for those who install approved energy efficient improvements in their homes.

9.                  A hybrid vehicle tax credit is available for the first 200,000 sold.

Those with small businesses also have some tax incentives available:

1.                  Equipment, supplies or capital expenses can be deducted for up to $250,000 in the first year under Tax Code Section 179 for 2009.  There are additional bonus depreciation amounts for capital expenditures.

2.                  The new Work Opportunity Credit gives incentives to small businesses for hiring military vets and disconnected youths who are 14-24 with no family or support networks.

3.                  An investor may be able to exclude 75% of the capital gain on an investment in a small company if the stock is held more than five years.  The investment must be made between February 17, 2009 and January 1, 2010.

4.                  For those business owners converting a C-corp to an S-corp between 2009 and 2010, there is favorable tax treatment.

5.                  There is favorable treatment for setting aside estimated corporate tax payments.

6.                  There are some additional incentives for writing off 2008 losses by carrying the losses back to as many as five previous tax years instead of the standard two.

   This stimulus plan was designed to give the American people incentives to stimulate the economy by buying new cars or homes, going to college, or improving energy efficiency.  It also was designed to give employers incentives to hire new employees, purchase more supplies, make investments in small companies and pay taxes.  While all this is said and done, it masks the billions of dollars spent by the government in other areas of the stimulus bill.  Few taxpayers will benefit much from these programs, but for those of you who do, take advantage of the list now.  With the government needing to borrow .46¢ for every $1 they spend this year, we’ll being paying for this for a long time to come.

Robert Ostrander, CFP®

SWS Advisors, Inc.