4 Simple Keys To A Successful Retirement

Joseph Alphanso for Credit.com/Business Insider writes: All of us hope that at the end of a long career we will be able to enjoy retirement secure in the knowledge that we can support our desired lifestyle without ever running out of money.

Given that Americans are living longer than ever before, however, the risk of outliving our money in retirement is real. Diligence, careful planning and realistic expectations are therefore essential to achieving a successful life once our working life is done.

Here are some key areas to focus on as you plan ahead for your retirement.

1. Save Enough

In order to realize our desired retirement lifestyle without fear of outliving our money, we need to accumulate enough savings. But how much is enough? That depends on the annual cost of our desired lifestyle. For many, maintaining their current lifestyle in retirement is the goal, so knowing what it currently costs to support that lifestyle is important.

Once we have determined a target annual income in retirement, we can calculate how much of a nest egg will be required to support that income.

One way to calculate the size of the required nest egg is to back into it using a common rule of thumb known as the "4% Rule." This rule is typically used to determine a "safe withdrawal rate" in retirement but is also useful in determining the required savings amount to support a target retirement income stream.

The 4% rule states that a retiree aged 60-65 can safely withdraw 4% a year from a reasonably diversified portfolio divided equally between stocks and bonds (adjusting that rate by annual inflation) and not run out of money for at least 30 years.

Using this rule of thumb, one would need to accumulate $1.5 million by the start of retirement in order to safely withdraw an inflation-adjusted $60,000 per year for 30 years. This is certainly not an insignificant sum. Supporting an inflation-adjusted income of $100,000 per year requires an accumulation of $2.5 million, an even more imposing amount. (Note that the 4% rule has been refined over the years and is also being called into question by some in light of the current low yield environment for bonds.)

While Social Security can provide additional income to supplement a portfolio in retirement, it is clear that saving as much as we can during our working lives is key to being able to afford a quality retirement. Taking advantage of workplace retirement savings plans, such as a 401K, and supplementing that by additional tax-deferred and taxable savings is essential. Target saving at least 10% of your gross annual income throughout your working life and remember that the key to accumulating wealth is to save as much as you can for as long as you can in order to allow the power of compounding to work for you.

2. Tax Diversify Your Savings

The effect of income taxes on our retirement should not be forgotten. Taxes are another "cost" impacting retirement cash flow. It is therefore important to minimize this impact as much as possible through good tax planning.

One way to achieve tax efficiency in retirement is to diversify pre-retirement savings across taxable, tax deferred and tax-free accounts. This practice of "tax diversification" will allow one to fine-tune portfolio withdrawals in retirement, depending on their relative tax impact, and carefully choose which "buckets" to tap for ongoing income needs.

Tapping taxable accounts first often makes the most sense given that this strategy typically enables a retiree to pay less income and capital gains tax while allowing savings to continue to grow in tax-deferred IRA and Roth accounts.

Ongoing tax planning is crucial for single retirees, given how quickly income tax rates rise for single people, as well as for married couples since it is inevitable that one spouse will predecease the other at some point in the future.

3. Use Effective Social Security Taking Strategies

The future of Social Security is often called into question raising concern regarding whether this program will be available to supplement our portfolio income in retirement.

It is true that current projections show Social Security benefit payouts starting to exceed program revenues beginning in 2016. However, even if no reforms are implemented, it is expected that Social Security will continue to be able to pay out 100% of benefits until 2033, and approximately 75% of benefits thereafter.

Social Security is therefore likely to remain a resource in retirement and maximizing this benefit is important. The fact that Social Security benefits are indexed for inflation throughout the benefit period and continue to be paid to surviving spousesmake this program unique and an important supplement to an investment portfolio.

A discussion of the array of Social Security taking strategies is beyond the scope of this article. It is important to note, however, that there is a penalty of approximately 8% for each year benefits are taken before full retirement age. This reduction is permanent and also impacts surviving spouse benefits.

Deferring Social Security at least until full retirement age (age 66 for those born during 1943-1954) can result in significant additional retirement income. Waiting until the maximum deferral age of 70 will increase benefits by an additional 8% each year, to a maximum of 132% of the full retirement age benefit for most baby boomers. This strategy is recommended for the higher earning spouse in a married couple.

4. Have Realistic Expectations

Perhaps the biggest key to retirement success is to have a realistic expectation of the lifestyle we can afford. If savings and other sources of retirement income fall short of our goal as we near target retirement age, we need to assess our options. These essentially come down to living a more modest retirement lifestyle, working longer, or some combination of the two. Rarely is it prudent to swing for the fences by increasing the risk of our investments in an effort to overcome a savings shortfall. This strategy can backfire, leaving you in a deeper hole with no time to recover.

Retirement planning is fraught with complexity. There are no guarantees that we will achieve our goal and lots of risk of falling short given the vagaries of the stock market and the uncertainty around Social Security. The above discussion did not even touch on healthcare costsand the cloudy future of Medicare.

It can be daunting to try to navigate the retirement planning maze on one's own. Consider working with a fee-only financial adviser to be your guide along the way and increase the chance that you will achieve your retirement goals, whatever those may be.

Real Estate Education: 4 Tax Planning Tips for Investors

Than Merrill for FortuneBuilders.com writes: How can you ensure less hassle, less stress, and fewer taxes owed when tax time comes around next year? The answer lies in in proper tax planning.  While an expert tax professional should be consulted before making any moves, so many real estate investors fail to have any real tax plan. Some may be aware of a few potential tax deductions, write-offs or even turn to great CPA’s at the end of the year to file their returns. Yet, without making the effort to actually be proactive about tax planning, investors will end up forking over many thousands of extra dollars to the IRS each year.

Now imagine turning that around. Think about the compounded financial benefits of keeping hold of those funds and putting them to work for you over time. Tax smart investors can easily add double digits to their real estate investing returns.

Here are four ways to improve your tax planning, keep more of your profits, and even increase your income:

1. Paperwork

It might not seem appealing or may appear trivial, but keeping your paperwork and accounts organized year round can make a huge difference when tax time comes. Often accounting firms will charge less if yours is maintained all year versus having truckloads of receipts dropped off on April 14^th. Plus it means making sure you take full advantage of all of your deductions.

2. IRAs

While direct investment in real estate carries many tax benefits by itself, no investor should be selling themselves short by forgoing the advantages offered by regular contributions to a self-directed IRA.

3. Office & Productivity

Many real estate investors limit themselves by trying to pinch pennies rather than set up offices that really engulf them in their optimal surroundings. Meanwhile, the savviest investors look for ways to build their office and create their ideal environment for doing their best work. This can both increase productivity and provide additional tax deductions.

4. Travel & Entertainment

Some may not even realize that travel and entertainment can be expensed on taxes. This could make exploring new investment destinations, making face to face meetings and doing more networking, pay for itself. Find out what you are eligible to write-off.

Investment strategies for US clients faced with FATCA

Daniel Freedman for International Adviser writes: With employment and education scattering family members across the globe, lifestyles are becoming increasingly multi-national.

The enactment of the HIRE Act and the Foreign Account Tax Compliance Act (FATCA) has brought the challenges facing US resident Non-doms and Green Card holders firmly in to the spotlight, the US remaining one of only a handful of countries to impose citizen-based taxation, with significant restrictions on permissible investments.

So what are the challenges facing wealth managers and advisers working with US families?

The principal challenge lies in the formation of a coherent, consistent investment strategy, which is appropriate for the family as a whole.  It is vital to ensure that family members in one jurisdiction are not disadvantaged by the onerous reporting requirements of family members in another. 

The three challenges:

1.    Taxation

Wealth managers with family members based around the globe must optimise their tax position, making full use of tax agreements between countries, working within different accounting regulations and adapting to different tax regimes.  Tax and investment considerations must be viewed together to avoid unintended consequences.

2.    Investment

As family members with a US reporting requirement can impose certain investment restrictions on the other members, it is also vital that any investment strategy is structured so that it does not prove detrimental to either side.  It should fulfil the regulations regarding US permissible investments, whilst avoiding damaging the tax status.  For US members, the biggest challenge is to ensure that Passive Foreign Investment Companies (PFICs) and Controlled Foreign Corporations (CFCs) are avoided.

3.    Reporting

The US applies onerous reporting requirements on its citizens, wherever they are based around the world. The US requires all reporting to be made in dollars, which requires advisers to manage the foreign exchange component. These onerous reporting requirements and the prolificacy of US citizens in multiple jurisdictions is creating a significant problem for US families. The decision on how best to manage these issues is therefore of paramount importance.

How to structure the family’s investments

Tax planning needs to be compatible with the family’s investment strategy.  Tax and investment specialists should work closely together to devise appropriate solutions that mitigate tax without disrupting the investment objectives.

A multi-manager approach, for example, can make it more difficult to avoid PFICs if not properly managed.  For US investors, a multi-manager will need to build an investment strategy from permissible investments such as ETFs, direct equities and fixed interest.  In most cases, assets have to be managed to produce capital gains, rather than income, as income tax rates will be higher than capital gains tax rates.

Any investment adviser must be familiar with the different mechanisms and comfortable putting together a portfolio of compliant investments – such as fixed income, listed equities, qualifying ETFs and derivatives – to achieve a variety of investment objectives. 

Another solution is to make use of US-compliant insurance arrangements, which allows for more flexible structuring of a portfolio.  This can also have trust and tax planning advantages.

The decision on how best to manage these issues for the greater good of the family is of course paramount.  Necessary steps to be taken include reviewing the structure of the portfolio, identifying how best to hold non-compliant holdings, reviewing the legal agreements and determining how FATCA will affect the family overall.

The 6 Most Common Money Leaks Seeping Through Your Savings Account

Chad Fisher for GoBankingRates.com writes: Living on a budget can help you better live within your means, avoid unnecessary expenses and achieve financial freedom. Still, most of us have small money leaks lingering in our finances. We may be spending a little extra for that morning cup of coffee on the way to work or splurging for a nice lunch out with friends. We may easily justify those expenses as rare treats, and remaining aware of those little extras can prevent them from becoming even bigger leaks against our savings accounts.

Other money leaks are less obvious, however, which makes them far more insidious. These leaks can add up to several hundred or even thousands of dollars a year and really cost us over time. Plugging them can leave us with more money to pay down debt, save in a rainy day fund or spend as we see fit. The following are some of the most common money leaks for Americans today.

#1. Failing to Take Full Advantage of Your 401(k)

Many companies offer 401(k)s and similar retirement plans. In fact, 401(k)s are the primary means of savings for most Americans. Unfortunately, the majority of workers fail to maximize the full benefits of these convenient savings plans.

Any investment into your 401(k) is tax free, and you can contribute up to $17,500 annually. Many employers match contributions — meaning your account can grow almost effortlessly. Low-income individuals and families can also take advantage of the saver’s credit, a refundable tax credit that allows for even more savings. Married filers who earn up to $59,000 and single filers who earn up to $28,750 may be eligible for this credit, which refunds a portion of the money they invest for retirement. You should also make every effort to avoid tapping into your retirement savings, however, as TIME estimates that nearly one in four Americans do so to pay for current expenses, which may include unnecessary expenses, too. This can be avoided by practicing smarter money management.

#2. Not Taking All Applicable Tax Deductions

The saver’s credit may not be the only tax credit that can save you money and give you a little more bang for your buck at tax time. Teachers are able to deduct up to $250 for classroom material-related expenses, while self-employed people may be able to deduct the entire amount of their health insurance premiums for themselves and their dependents.

Health savings accounts, self-employment taxes, alimony and education-related expenses may also be able to be deducted. You do not need to itemize your deductions to be able to take advantage of these potentially lucrative deductions, either; you simply need to qualify. Talk to your tax professional, or use tax preparation software that walks you through each step. In some cases, you may be eligible for tax credits for improving your home’s energy efficiency as well.

#3. Energy Inefficiency

If you have not yet improved your home’s energy efficiency, this could be a huge money leak. Use the potential tax savings as the impetus to get started, and then consider your options for savings: plugging energy leaks can help you stop wasting money by dramatically reducing your heating and cooling costs.

Boost the insulation in your roof, caulk around your windows, seal leaks around your doors and frames and invest in new Energy Star appliances to reduce your home’s energy use. A new air conditioning Houston system, or ‘green’ insulation, roof, water heater, windows, and doors may be eligible for a tax credit of up to 10 percent of the cost up to $500. Heat pumps, solar energy systems and wind turbines may be eligible for a 30 percent tax credit that expires in 2016.

#4. Failing to Update Insurance

If you have a vehicle that is more than 10 years old, you have multiple lines with the same company, a home security system, you are a safe driver, you are married, in a domestic partnership or are otherwise qualified, you may be eligible for a discount. Spend a few minutes every year going over your insurance policies and updating all your information to ensure that you are not wasting money and are getting the best possible deals. If you have any status changes, contact your insurance agent as soon as possible.

#5. Rethink Entertainment

Cable or satellite bills can easily be classified as unnecessary expenses, as high as $100 a month. Books can also be pricey, even if you use e-readers to keep the clutter down. Slash your costs by watching your favorite shows online. Become a member of your local library or use online lending programs that send books directly to your e-reader to minimize your costs.

Also, instead of heading out to a pricey restaurant with your friends, consider taking turns hosting house parties, barbecues or themed nights in. Getting creative can help avoid wasting money, while still enjoying the company of your friends.

#6. Competitive Savings Account

Instead of splurging on more coffee, lunches out with your friends or dinner and a movie, the money you save by plugging your money leaks can be placed into a high-yield savings account, used to pay off high-interest credit cards or put towards your mortgage to help you get out of debt even faster. Using your money wisely, which means getting rid of unnecessary expenses, can help you achieve financial security and freedom so you can live your life on your own terms.

Inside Story Americas- The American Tax Trick (US corporations are legally avoiding hundreds of billions dollars in taxes every year, CLICK To View Video)

On Tuesday business journalists focused on Apple's latest profit figures. What got less attention was the company's announcement that it was going to start borrowing money as a mechanism to avoid tax.Apple announced $9.5bn in profits in the first quarter of 2013. According to corporate filings, Apple allocates more than 70 per cent of its profits overseas to countries with lower tax rates, these profits are held in subsidiaries in countries like the Netherlands and Ireland before being moved again to off-shore tax havens in the carribean.

The Ultimate Financial Bucket List

Dan Whalen for Forbes writes: We’re all working towards a more secure financial future. One where we can have the option to retire at an early age. Or one that would allow us to be a little choosier when it comes to which job we accept and under what conditions.

If you are the type of person with whom the notion of being a slave to a wage doesn’t resonate, you will likely want to pay attention to this important financial bucket list. It will increase your odds of retiring early. It will also increase your odds of not running out of money while in retirement.

Unlike the 2007 film starring Jack Nicholson and Morgan Freeman, where “The Bucket List” referred to a list of things both men wanted to do before they “kicked the bucket”, my financial bucket list requires your immediate attention and refers to adding to and growing your investments in three distinct buckets so that you can optimize your financial situation while in both your pre-retirement and retirement years.

The Ultimate Bucket List:

Bucket #1: Tax-Deferred

• Think: 401(k), Traditional IRA, etc.
• Money goes in tax-deferred, meaning you get a tax break at the time of contribution, but the tax man gets paid when it’s time to start taking money out.
• Minimum Required Distributions (MRDs) start at age 70.5 years (don’t ask me why they didn’t just go with 71 and make everyone’s life easier). MRDs exist to make sure that the tax man gets some or all of his money before you kick the definitive bucket.

Bucket #2: Tax Free

• Think: Roth IRA and Roth 401(k)
• Funded with after-tax money, so there is no tax break at the time of contribution. But the account grows tax-free and no taxes are ever owed at the time of withdrawal.
• There are no mandatory MRDs

Bucket #3: Taxable

• Think: Standard account (joint or individual)
• Has no special retirement account qualities, meaning that there are no tax breaks for contributing and taxes are owed every year for any interest, dividends, or capital gains realized.

Consider these three scenarios and how using a combination of one or more of the three buckets in our bucket list can help optimize one’s finances:

Scenario A: Yikes! A Financial Emergency!

Here, we assume that you are employed and under 59.5 years of age. The taxable (and possibly tax-free) buckets come into play.

If you needed to, you could take out up to the amount contributed into your Roth IRA both tax-free and penalty free. But your optimal solution is likely going to be to take money out of your taxable account. There is no such thing as a penalty for withdrawing from a taxable account, but you will have to pay capital gains if the investment has risen in value since you bought. Still, it’s better than dipping into the Roth IRA, since that can be left to grow tax-free, and you only have so many opportunities in life to contribute to any retirement accounts.  So the goal is to leave money in your Roth IRA, or any retirement account for that matter, for as long as you can.

Dipping into a Traditional IRA would be disastrous since you would have to pay a 10% penalty plus the withdrawal would be taxed at your marginal income tax rate. This marginal tax rate is typically higher than capital gains tax rates. Therefore, this would be your last resort.

Winner: Taxable Account!

Scenario B: Unemployment or Underemployment

Whether you choose to take some time off or the choice is made for you, you will likely need to dip into some savings. Depending on your age and the size of your Traditional or Rollover IRA, you may want to take advantage of a unique opportunity to withdraw some of your retirement savings at a lower marginal tax rate. I call this “playing games with the taxman”. It’s totally legal and it involves taking out just enough to take advantage of the lower tax brackets, but not taking out so much that you get bumped up into the higher tax brackets. This strategy could also involve withdrawals from your taxable account in order to supplement any additional needed income.

Keep in mind that you would need to be at least 59.5 in order for this strategy to really be effective since, before that age, it’s not possible to take money out for a one-time need.

Winner: A combination of Traditional or Rollover IRA and Taxable monies, if you’re over 59.5 years, or Taxable Account only if you’re under 59.5 years of age.

Scenario C: Retired and Living off of Savings

So you made it to retirement and now it’s time to start drawing from your retirement savings after years of building them up. Where do you get your money from to do the things you want to do in retirement? Assuming you are at least 59.5 years of age, you would likely want to take some out of your Traditional or Rollover IRA to take advantage of the lower tax brackets that you presumably find yourself in now. Remember, the IRS is going to force you to start taking RMDs when you reach 70.5 years, so you might as well start taking distributions on your terms, while you are at a lower tax bracket.

If you need more income, you could dip into your taxable account and/or Roth IRA once you determine your optimal tax combination, as well as your overall needs.

Winner: Strategic withdrawals from your Traditional or Rollover IRA combined with withdrawals from your taxable and Roth IRA accounts.

Every investor is different and you should check with your financial planner to come up with the strategy that is right for you. The key is being just as deliberate about contributing to your buckets as you are about withdrawing from them. One additional point: having sizeable investments in each of the three buckets provides a hedge against what the government might (or might not) do to our tax code in the future. In a given year, it might make sense to take from one bucket versus another bucket. Having all three means you can zig when the tax code zags and that’s just smart retirement planning.

3 FINANCIAL AND RETIREMENT PLANNING KEYS AS YOUR WEDDING NEARS (Click to View Video)

Ed Slott and Company IRA Technical Consultant Jeffrey Levine discusses 3 financial and retirement planning keys you should discuss with your impending spouse as your wedding nears. Jeffrey talked about these keys:

Court Disallows S Corporation Losses

Grant Thornton writes: The U.S. Court of Appeals for the District of Columbia has agreed with the Tax Court and held in Barnes v. Commissioner (No. 12-1248) that the taxpayers could not deduct certain losses from an S corporation, because the taxpayers lacked sufficient basis.

Marc and Anne Barnes owned stock in Whitney Restaurants, an S corporation for U.S. federal income tax purposes. The Barneses claimed $279,289 in losses on their 2003 individual income tax return as their pro rata share of losses from Whitney Restaurants. The IRS contended that the Barneses lacked sufficient basis in Whitney Restaurants and accordingly disallowed $123,006 of the claimed losses.

The Tax Court ruled against the Barneses (T.C. Memo 2012-80), finding that they failed to properly reduce their stock basis in Whitney Restaurants stock in 1997. Specifically, the Barneses failed to reduce their basis for suspended losses that could have been claimed in 1997 even though the Barneses never claimed such losses on their 1997 individual income tax return. The Barneses then appealed to the U.S. Court of Appeals for the District of Columbia, which sustained the Tax Court. In addition, the Circuit Court sustained substantial understatement penalties against the Barneses.

In general, Section 1366(a) provides that a shareholder of an S corporation must take into account such shareholder's pro rata share of the corporation's items of income, loss, deduction or credit. Section 1366(d)(1) provides that the aggregate amount of losses and deductions taken into account by a shareholder for any taxable year cannot exceed the sum of the shareholder's basis in the S corporation stock and the shareholder's basis of indebtedness of the S corporation to the shareholder. Suspended losses disallowed under this provision are carried forward and treated as incurred by the S corporation in the succeeding taxable year under Section 1366(d)(2). Section 1367(a)(1) provides that the basis of each shareholder's stock in an S corporation is increased by items of income under Section 1366(a)(1). Similarly, Section 1367(a)(2) provides that the basis of each shareholder's stock in an S corporation is decreased, but not below zero, by items of loss and deduction under Section 1366(a)(1).

In the Barnes case, the IRS argued that a shareholder must reduce basis in an S corporation by the amount of any suspended losses in the first year the shareholder's basis is adequate to absorb the losses, regardless of whether the shareholder claims a deduction for the losses on the shareholder's individual income tax return in that year. The Barneses, on the other hand, argued that if no deduction is claimed, no adjustment to basis is required. The Circuit Court agreed with the IRS and relied on the statutory language in Sections 1366 and 1367.

First, the Circuit Court noted that Section 1367(a)(2)(B) requires taxpayers to reduce basis for items of loss taken into account under Section 1366(a)(1)(A) and that any losses suspended because of a lack of basis must be treated as incurred in the succeeding taxable year. Second, the Circuit Court observed that nothing in these provisions provides that a shareholder's basis is not reduced if the shareholder fails to report the previously unabsorbed loss in the first year the shareholder has sufficient basis. The Circuit Court noted the language in Section 1367(b)(1), which specifically mandates that a shareholder's basis is increased by S corporation income only to the extent such income is included in gross income on the shareholder's return. 

The Circuit Court reasoned that the absence of similar language related to the treatment of losses should be interpreted to mean that Congress intended disparate treatment for items of income versus of items of loss. In other words, basis is adjusted only for items of income reported by the taxpayer but basis must be adjusted for items of loss, irrespective of whether such items of loss are reported by the taxpayer on his or her individual income tax return.

Importantly, the IRS was able — in 2003 — to adjust the Barneses' basis in their S corporation stock for items in 1997, even though the statute of limitations had closed related to 1997. The Barneses were not permitted, however, to amend their 1997 return and claim the suspended losses that became allowable in 1997 because of sufficient basis. Thus, as the Circuit Court noted, the Barneses ended up paying more in taxes than they otherwise would have owed had they properly claimed allowable losses on their original 1997 return or on an amended 1997 return filed before the statute of limitations expired.

Republicans and Democrats Come Together – to Keep IRS From Competing with TurboTax

ProPublica.org for GantDaily.com writes: Last month, we detailed how Intuit, the maker of TurboTax, has fought a proposal that could make filing taxes easier and cheaper for millions of Americans.

As we noted, tax activist Grover Norquist and other conservatives have also opposed the proposal, called “return-free filing,” which would give many taxpayers the option to receive a pre-filled return that they could simply review, sign and send back, all for free. Return-free filing has been endorsed by many experts and adopted by several European countries.

As it turns out, Norquist has also recently weighed in on the side of the tax prep industry on another issue.

A House bill introduced earlier this year would bar the IRS from offering taxpayers software that would compete with programs like TurboTax. In March, Norquist and others wrote a letter to members of Congress that urged them to support the bill — what they called a “pro-taxpayer, anti-IRS power grab legislation.”

At issue is how Americans file their taxes and whether electronic filing can be offered directly through the IRS.

The bill is called the Free File Program Act, co-sponsored by Rep. Peter Roskam, R-Ill. and Rep. Ron Kind, D-Wisc. It declares that the IRS, with a few narrow exceptions, “may not establish, develop, sponsor, acquire, or make available” electronic filing service or tax software.

Roskam declined to comment. Spokespeople for Kind and Norquist did not immediately respond.

The bill would also make permanent the Free File program, a public-private partnership between the IRS and the tax software industry created in 2002 to offer some taxpayers free electronic filing.

The industry group behind the program boasts that almost all taxpayers can use software like TurboTax or more primitive electronic forms for free. But access to the more sophisticated software is limited by income. Only about 3.5 million taxpayers used Free File last year, according to a Treasury Department tally through the end of April.

The pact governing the partnership, which counts Intuit as a member, includes a sweet deal for the industry: In return for the companies offering free software to some, the IRS agreed not to develop its own free, online tax prep services. The current deal expires next year.

Intuit lobbied on an earlier version of Roskam’s bill that was introduced in 2011.

The company has spent over $11.5 million on lobbying on a range of issues in the past five years. That money buys high-profile help: Intuit’s lobbyists on the tax prep issue include former Sen. Tim Hutchinson, a Republican from Arkansas; former Rep. Pete Hoekstra, a Republican from Michigan and former Rep. Albert Wynn, a Democrat from Maryland. All three now work for the D.C. office of law firm Dickstein Shapiro. Neither the former lawmakers nor the law firm immediately responded to requests for comment. Intuit also did not respond to requests for comment.

Intuit has given money to the sponsors of the bill. Roskam has received $12,500 from Intuit’s political action committee and company executives in the last two election cycles. Kind has gotten $12,400.

Sen. Mark Pryor, D-Ark., introduced a companion bill in the Senate. Pryor received $3,000 from Intuit’s PAC in the last election cycle.

Another recent bill would actually institute a version of return-free filing, allowing many taxpayers to avoid paying for any prep.

On Friday, Rep. Bill Foster, D-Ill., introduced the bill to create a voluntary system under which an IRS website would offer individual taxpayers forms that are automatically populated with data from employers and other sources.

“Our tax code is complicated enough, we shouldn’t be asking taxpayers to submit information the IRS already has,” Foster said in a press release.

“Taxpayers spend an estimated 6.1 billion hours a year complying with the tax code and an average of over $200 on tax preparation fees,” according to the release. (More on those figures can be found in a 2012 report by the Taxpayer Advocate Service, an independent organization within the IRS.)

The bill is called the Autofill Act, and last week marks the second time Foster has introduced the legislation. A spokeswoman said Foster got interested in the issue after he became frustrated with the “redundant paperwork” needed to file his own taxes and discovered California had a state version of return-free filing. She said he will now be working to collect cosponsors and the bill is likely to be referred to the Ways and Means Committee.

This doesn’t mean an anxiety-free tax season is coming soon: similar bills introduced in the past haven’t gone anywhere.

Advisers Find New Estate-Tax Strategy

Arden Dale for the Wall St. Journal writes:  Wealthy taxpayers now can protect more of their estates from federal tax each year with a new strategy some advisers are starting to employ.

The American Taxpayer Relief Act of 2012 indexed the $5 million estate tax exemption to inflation and set a 40% tax rate. That means the size at which an estate becomes taxable will grow each year--likely by more than $100,000. Estates over $5.25 million are taxable in 2013.

Instead of leaving that extra $100,000 or so each year in an estate until the owner dies, advisers are urging some taxpayers to give that money away, either to a trust or as an outright gift. These gifts, whether securities, real estate, or shares in a business, ideally will rise in value over the years.

"You're moving more out of the estate--assuming the assets you transfer go up in value," said Don R. Weigandt, managing director for wealth advisory with J.P. Morgan Private Bank in Los Angeles.

In coming months, his group will start to talk to clients about the strategy, Mr. Weigandt said.

Other advisers, like Carol G. Kroch, managing director, wealth and philanthropic planning at Wilmington Trust in Delaware, have already started to strategize with clients. The power of the exemption, Ms. Kroch noted, is "pretty dramatic when you think about how over time it's likely to grow."

Houston advisor Henry Bragg said he plans to recommend gifts based on the indexed estate tax to a retired chief executive of a public company and the man's mother.

The family has "multi-generational wealth issues," said Mr. Bragg, director of financial planning for Horizon Advisors, with around $205 million under management. The man and his wife, who have $30 million, stand to inherit more than $10 million from the mother, whose net worth is around $100 million. The family has about 19 trusts and several family partnerships.

"His mother is ready to gift the additional amount...he is not," Mr. Bragg said of client, who's not convinced he can afford to give away his money.

For many wealthy people, making these gifts each time the estate-tax threshold rises could be relatively painless. They can leverage steps they took at the end of 2012, as Congress weighed whether to cut back how much an individual can give away tax-free in a lifetime. Many set up trusts to hold gifts, and could simply "top off the trusts" with gifts as the tax is indexed, according to Mr. Weigandt and Ms. Kroch.

Indeed, those who make gifts to trusts that already exist face no legal fees and can keep the process simple. Some may just ask an adviser to wire money from one account into another. They must file a federal gift-tax return, however.

The gifts taxpayers make to take advantage of the indexed estate tax are separate from the annual exclusion gifts they can make each year. For 2013, a taxpayer can give unlimited gifts of up to $14,000 per recipient.

An important part of the strategy is to pick the right asset to give.

A good choice are those that are easy to transfer and value. For example, it's easy to give $100,000 shares of publicly traded stock, Ms. Kroch said. In contrast, it would be expensive to value a closely held business each year to give away its shares.

Also, clients should choose assets likely to rise in value, and that already have a fairly high tax cost basis. Heirs then don't have to pay as much capital-gains tax when they ultimately sell the gift. That can be a tough combination to find, as often the assets most likely to appreciate have a low cost basis as well.

"If you can only have one or the other, potential appreciation will save more future estate tax," Ms. Kroch said.

How much is the estate tax threshold likely to rise each year? An estimate is available.

Each year, the IRS announces adjustments to tax brackets, exemptions and other items, after it gets official government statistics on inflation. The Tax Policy Center uses projected inflation to estimate its impact on the estate tax.

"Since the exemption increases with inflation, it is projected to rise by a little over $100,00 a year for the next decade," said Ben Harris, senior research associate at Urban-Brookings Tax Policy Center.

What the Internet Sales Tax Means for Small Biz

Aditi Mukherji  for Findlaw writes: The days of tax-free online shopping may be numbered. The Senate is set to vote on a bill that would give states the power to collect sales tax on all Internet purchases.

If the bill passes, local governments could get up to $11 billion (yes, with a "b") per year in added revenue, The Washington Post reports.

Small businesses need to know about The Marketplace Fairness Act because it could affect the way they do business.

What Is the Marketplace Fairness Act?

The Marketplace Fairness Act would give all states the ability to collect taxes from allout-of-state online vendors that sell goods to their residents, the Post reports.

The bill isn't really a new tax liability because online purchases are already supposed to be taxed. If you live in a state that charges sales tax and buy something online tax-free, you're supposed to calculate the tax yourself and add it to your state tax bill.

Don't worry, no one else actually does it either. That's the gap that the bill is trying to fill.

Here's how the Marketplace Fairness Act could affect small businesses:

The Down Side: Tax Confusion

Since sales tax rules vary from state to state, collecting state and local sales taxes all around the country would require quite a bit of effort for online retailers, NPR reports. This isn't a big deal for big retailers, but it could be pretty burdensome for smaller online retailers.

From the perspective of big retailers like Amazon, the new burden on small businesses is a good thing -- it makes life tougher for smaller, would-be competitors.

The Up Side: Small Business Exemption

To protect small businesses from being overburdened, small businesses which generate less than $1 million in annual revenue will be exempt from collecting interstate sales tax, according to The Inquisitr. Basically, this gives a slight advantage to small startup websites over other higher revenue-generating competitors that would have to charge sales tax.

This isn't the first bill about an Internet sales tax. To weather the recession, nine states -- including New York, California, Pennsylvania and Texas -- have passed so-called "Amazon" taxes that require the online retailer to charge sales tax for customers who live in their states, the Post reports.

Unlike an "Amazon" tax, the pending Marketplace Fairness Act would cover all online retailers.

The bill is expected to pass in the Senate next week before it heads to the House, thePost reports. You can read the bill in its entirety at the Library of Congress' website.

Can I Claim a Foreign Exchange Student as a Dependent on My Taxes?

Mark Kennan for Demand Media writes: Hosting a foreign exchange student can be a gratifying and educational experience for your family as well as the exchange student: you all learn about new cultures and share experiences. However, no matter how much you feel like your foreign exchange student is "family," the Internal Revenue Service usually won't consider the student your dependent. But, you might get a charitable deduction.

CITIZEN OR RESIDENT

To claim anyone as your dependent, the person must be a U.S. citizen or a U.S. resident. Most foreign exchange student's won't meet that requirement, so you won't be able to claim the student as a dependent. For tax purposes, the student can be a resident either by having a green card or by being substantially present in the U.S. However, under the substantial presence test, you can't count days when the exchange student is in the U.S. under an "F" visa, used for students.

RELATIONSHIP TEST

Foreign exchange students also run into trouble when it comes to the relationship test. If you're hosting a non-relative, the only way you can claim the student is if the student meets the requirements to be a qualifying relative (instead of a qualifying child). Since the foreign exchange student isn't related to you, that means the student must live with you for the entire year, which is also unlikely to happen if you're just hosting for a semester. Even if you're hosting for an entire academic year, the student usually won't live with you for a full calendar year.

ADDITIONAL QUALIFYING RELATIVE CRITERIA

Even if you're still reading because your foreign exchange student somehow meets the criteria so far, there's still a few other hurdles to clear to count as a qualifying relative. First, you must provide more than half the student's support. Support includes food, education, rent, entertainment, medical care and other living expenses. Second, the student can't have more than the value of an exemption in income for the year, before any deductions are counted. As of 2013, each exemption is worth $3,900.

CHARITABLE DEDUCTION ALTERNATIVE

If the foreign exchange student doesn't count as a dependent, you might qualify to claim a charitable deduction for some of your costs. To qualify, the student must live with you under a written agree­ment with a qualified organi­zation as part of the organization's educational opportunities program; the student can't be your relative or your dependent; and the student must be a full-time student in 12th grade or lower. You're allowed to deduct $50 per month that the student lives with you. Any month that the student meets the requirements for at least 15 days counts as a full month.

The risk of borrowing money from your parents

Richard Montgomery for the Patriot Ledger writes: Reader question: Hello, Monty, I purchased my home in the summer of 2007 for $400,000. My folks took out a home equity loan for $80,0000, which reduced my interest rate. I am now regretting that decision. I need to sell my home, and I am not sure I will recuperate enough cash to pay off my parents' loan. If I were the only borrower involved, I would have gladly done a short sale. The idea of having poured in half a million without denting the principal is heart breaking to me. I'm a single woman and put all of my money into the interest for the last six years. How would you proceed? Thanks so much. Martha W.

Monty's answer: Hello, Martha, thanks for your question. My father once told me that money is easy to borrow, but hard to pay back.

Let us clarify a couple of points in your question. The only borrower involved with your loan is you. The money from your parents was a personal loan. They are not directly involved with your property or your mortgage; their involvement is with you as an individual. Had they asked you to sign a promissory note, you may view their loan differently.

Also, you have not “poured in half a million” into the house. Much of the value can be recovered when it sells. Assuming you invested $20,000 along with your parents, at 6% interest only on $300,000 for six years with 30 years amortization, about $108,000 went toward interest. Your income tax deduction for mortgage interest created tax savings each year. The situation you envision may not be as challenging as the one you are experiencing.

Diffusing the situation

It is not clear what has precipitated your concerns. Is the income you earned to qualify for the loan still flowing? If so, your situation is extremely different from the sale being forced on you due to losing your income. In either scenario, here are the initial steps to take:

Step 1. Develop a “short list” of real estate agents who work in your neighborhood. There is an article entitled “Choosing your real estate agent” at DearMonty.com that describes how to go about this task in such a way that greatly increases your chances of picking the right agent for you and your circumstances. For example, many agents avoid short sales. Some accept them but may not be qualified to handle them.

Step 2. Obtain three separate broker price opinions (BPO) of value on your home. They will all have different values. As a part of the agent selection process, agents prepare BPO’s to demonstrate their value to a potential customer. It gives them a chance to get face-to-face. It also gives you a chance to do the same with them. In your situation, I would not share any hint of your thoughts about the value of the home. Instead, make certain they understand you want to see the sold comparable data sheets they use in determining their opinion of your home's worth. Also ask for a detailed explanation of the market in your neighborhood in terms of competition, sales rate and future supply coming into the market, so you have a sense of neighborhood supply and demand. 

Step 3. Study the BPOs. Are some more thorough than others? Are the comparables truly comparable? The goal here is to understand these BPO’s as they will provide some confidence as to the true range of value of your home based on facts, not hearsay. Understanding the "range of value" or lowest likely price and the highest potential price is particularly important. You will have a much better sense about being underwater, and if so, the extent of your potential loss.

Step 4.  Go to your CPA (certified public accountant) or a credit counseling service armed with this information. A conversation and needs analysis may be an eye opener as you may be living above your means, and unwittingly involved your parents. Find out if this angle is a possibility.

Taking responsibility is the key

To proceed this far will take some of your time, but there is no easy answer. Having this information is critical to your ability to make sound decisions. I expect you have the intellectual and financial resources to create and execute a plan where you can work out of this and not disappoint your parents. This is how I recommend proceeding.