September 2014 Newsletter

Quiz: How Much Do You Know about Social Security?

You’re probably covered under Social Security–according to the Social Security Administration, an estimated 165 million workers are*–but how much do you know about this program? Test your knowledge by answering the following questions:
1. If you decide to collect your retirement benefit starting at age 62, your benefit will be how much less than if you wait until your full retirement age?
a. 5% to 10% less b. 15% to 20% less c. 25% to 30% less d. 35% to 40% less
2. Your spouse and children may be eligible for benefits if something happens to you.
a. True b. False
3. The Social Security taxes that are collected from your paycheck are called:
a. FUTA taxes b. FETA taxes c. FICA taxes
4. Once you reach full retirement age, you can work and earn as much as you want without reducing your Social Security benefit.
a. True b. False
5. Once you begin receiving your retirement benefit, it will never increase.
a. True b. False
1. c. If you were born in 1943 or later, you’ll see a 25% to 30% reduction in your retirement benefit if you claim Social Security benefits at age 62, rather than waiting until your full retirement age (which is 66 to 67, depending on your year of birth). This reduction is permanent.
2. a. Social Security isn’t just for retirees. Your spouse and dependent children may be able to receive survivors or disability benefits based on your earnings record if certain eligibility
requirements are met.
3. c. Social Security payroll taxes are called FICA taxes because they are collected under the authority of the Federal Insurance Contributions Act. FICA includes two separate
taxes: Social Security and Medicare. The Social Security portion is withheld from your pay at a rate of 6.2% (matched by your employer), but only on earnings up to the maximum earnings limit for the year ($117,000 in 2014).
4. a. Before you reach full retirement age, your benefit will be reduced if your earnings exceed certain limits, but these earnings limits no longer apply once you reach full retirement age.
5. b. There are several reasons why your benefit might increase after you begin receiving it.  First, you’ll generally receive annual cost-of-living adjustments (COLA). Second, the Social Security Administration recalculates your benefit every year to account for new earnings, so your benefit might increase as a result. Your benefit might also be adjusted if you qualify for
a higher benefit based on your spouse’s earnings once he or she files for Social Security.  For more information, visit the Social Security Administration’s website,
*Social Security Basic Facts, 2014


10 Basic Tax To-Dos for the Rest of 2014
Here are 10 things to consider as you weigh potential tax moves between now and the end of the year:
1. Make time to plan
Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There’s a real opportunity for tax savings when you can assess whether you’ll be paying taxes at a lower rate in one year than in the other. So, carve out some time.
2. Defer income
Consider any opportunities you have to defer income to 2015, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.
3. Accelerate deductions
You might also look for opportunities to accelerate deductions into the 2014 tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying them in early 2015, could make a difference on your 2014 return.  Note: If you think you’ll be paying taxes at a higher rate next year, consider the benefits of taking the opposite tack–looking for ways to accelerate income into 2014, and possibly postponing deductions.
4. Know your limits
If your adjusted gross income (AGI) is more than $254,200 ($305,050 if married filing jointly, $152,525 if married filing separately, $279,650 if filing as head of household), your personal
and dependent exemptions may be phased out, and your itemized deductions may be limited. If your 2014 AGI puts you in this range, consider any potential limitation on itemized deductions as you weigh any moves relating to timing deductions.
5. Factor in the AMT
If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions, making it a significant consideration when it comes to year-end tax planning. For example, if you’re subject to the AMT in 2014, prepaying 2015 state and local taxes probably won’t help your 2014 tax situation, but could hurt your 2015 bottom line. Taking the time to determine whether you may be subject to AMT before you make any year-end moves can save you from making a costly mistake.
6. Maximize retirement savings
Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) could reduce your 2014 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) plan are made with after-tax dollars, so there’s no immediate tax savings. But qualified distributions are completely free from federal income tax, making Roth retirement savings vehicles appealing for many.
7. Take required distributions
Once you reach age 70½, you generally must start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you’re still working and participating in an employer-sponsored plan). Take any distributions by the date required–the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of the amount that should have been distributed.
8. Know what’s changed
A host of popular tax provisions, commonly referred to as “tax extenders,” expired at the end of 2013. Among the provisions that are no longer available: deducting state and local sales taxes in lieu of state and local income taxes; the above-the-line deduction for qualified higher-education expenses; qualified charitable distributions (QCDs) from IRAs; and increased business expense and “bonus” depreciation rules.
9. Stay up-to-date
It’s always possible that legislation late in the year could retroactively extend some of the provisions above, or add new wrinkles–so stay informed.
10. Get help if you need it
There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional who is able to evaluate your situation, keep you apprised of legislative
changes, and help you determine if any year-end moves make sense for you.


Bitcoin: Digital Future or Frenzy?

The five-year-old digital phenomenon known as Bitcoin has received a lot of attention. If you’re unclear on what all the fuss is about, here’s a brief introduction to what it is, how it works, and some of the potential pitfalls it presents.  Bitcoin isn’t a company but a virtual currency supported by a peer-to-peer computer-based electronic cash system first outlined in 2009. Unlike printed currency or coins that are minted, Bitcoin is created by “mining”–using complex software to solve complicated mathematical computations. Solving a problem creates a so-called “block,” and the computer that solved it is rewarded with a set number of digital bitcoins, each of which is a set of one public and one private cryptographic key. (The units are generally “bitcoins,” while the general system is “Bitcoin.”) The number of solutions that can be discovered globally per hour (and thus the number of “blocks” created and bitcoins mined) is limited by the system’s software code. The total number of bitcoins available to be mined eventually is said to be limited to 21 million. Most users acquire them either by buying them with physical currencies such as dollars or accepting them as payment for goods and services.

Advocates argue that the advantages of the system are: (1) It’s not controlled by any government’s central bank, (2) a global virtual currency facilitates global commercial transactions, (3) every block and Bitcoin transaction is recorded, and (4) though transactions are recorded, the payer and payee are anonymous, much like a cash transaction. (However, that anonymity has attracted charges that its chief use so far has been for illegal activities such as money laundering; in October 2013, the FBI shut down the Silk Road Bitcoin exchange and seized its assets.)

How does a Bitcoin payment work?  Just as a physical wallet holds paper money and change, a digital wallet stores the private software keys that are bitcoins. It makes or receives payments by communicating with the network of other Bitcoin wallets. Some merchants and services, especially those that focus on online or international sales, are starting to explore Bitcoin transactions. Physical bitcoins, which have a software key embedded in them, have begun to be minted. However, acceptance of bitcoins as payment is entirely at a seller’s discretion; there is no guarantee you’ll be able to spend them where you want to or get the value you expect. Also, as outlined below, problems at some exchanges have sometimes impeded access to Bitcoin funds.

Speculating in Bitcoin.  Bitcoin’s usage as a currency is a ripple compared to the tidal waves of investment speculation it has fueled. “Investing” in bitcoins simply means acquiring them through one of the methods outlined above. However, to say that Bitcoin as an investment is volatile is an understatement. Over Bitcoin’s five-year history, its value has fluctuated wildly as both speculation and confidence in it as a currency have ebbed and surged. In April 2013, after rising from $90 to $260 over two weeks, a bitcoin’s value plummeted to $130 in just six hours;* since then, it has undergone multiple double-digit price swings.** Despite its lack of connection to any central bank, Bitcoin also has been vulnerable to actions by individual governments. After China cracked down on virtual currency transactions by financial institutions in 2013 and halted deposits of yuan at exchanges there, Bitcoin’s worth in dollars was cut by more than half.**  That volatility has led to problems for people trying to make payments in bitcoins. It’s hard to use a currency when you’re not sure whether the amount in your virtual wallet is worth enough to buy a Range Rover or a tank of gas. Complicating the issue is the fact that the value can vary on different Bitcoin exchanges. However, volatility is only one of the problems that have created havoc in the Bitcoin universe.  The cybercurrency has been subject to cyberattacks that have halted trading briefly on several exchanges. At one point, one of the largest abruptly declared bankruptcy and announced that nearly half a billion dollars’ worth of bitcoins held there had vanished. And federal seizure of the Silk Road exchange’s assets created problems accessing those funds. Worse than not knowing how much your bitcoins will buy is not knowing whether they’re available to buy anything at all.

The Wild West rides again So far, regulatory oversight of Bitcoin has been spotty. The currency is not backed by either a government or any physical asset such as gold. Major exchanges are located around the world, and the decentralized nature of the system makes it more challenging for governmental regulators to get a handle on it. If you’re considering exploring virtual currency, either for transactions or as a speculative investment, you should become more familiar with it rather than simply relying on this discussion. And because of the issues outlined above, you should be prepared for dramatic price swings and only use money that you aren’t relying on for something else.


I just learned that my credit- and debit-card information was part of a data breach. What should I do?

Now, more than ever, consumers are relying on the convenience of credit and debit cards to make everyday purchases, such as gas and groceries, and to make online purchases. With this convenience, however, comes the risk of having your account information compromised by a data breach. In recent years, data breaches at major retailers have become commonplace across the United States. Currently, most retailers use the magnetic strips on the backs of credit and debit cards to access account information. Unfortunately, the account information that is held on these magnetic strips is also easily accessed by computer hackers.
While many U.S. banks and financial institutions are in the process of replacing the older magnetic strips with more sophisticated and secure embedded microchips, it will take time for both card issuers and retailers to get up to speed on these latest card security measures. In the meantime, if you find that your account information is at risk due to a data breach, you should make it a priority to periodically review your credit card and bank account activity. If you typically wait for your monthly statement to arrive in the mail, consider signing up for online access to your accounts–that way you can monitor your accounts as often as needed. If you see suspicious charges or account activity, you should contact your bank or credit-card company as soon as possible.

In most cases, your bank or credit-card company will automatically issue you a new card and card number. If not, request to have new cards and card numbers issued in your name. As an additional precaution, you should also change the PIN associated with the cards. Whether you will be held liable for the unauthorized charges depends on whether the charges were made to your credit- or debit-card account and how quickly you report them. For more information on your rights if you are affected by a data breach, visit the Federal Trade Commission and Consumer Financial Protection Bureau websites.


What factors could negatively impact my credit report?
Having a good credit report is important when it comes to personal finance, because most lenders use credit reports to evaluate the creditworthiness of a potential borrower. Borrowers with good credit are presumed to be more creditworthy and may find it easier to obtain a loan, often at a lower interest rate.
A number of factors could negatively impact your credit report, including:

• A history of late payments. Your credit report provides information to lenders regarding your payment history over the previous 12 to 24 months. For the most part, a lender may assume that you can be trusted to make timely monthly debt payments in the future if you have done so in the past. Consequently, if you have a history of late payments and/or unpaid debts, a lender may consider you to be a high credit risk and turn you down for a loan.

• Too many credit inquiries. Each time you apply for credit, the lender will request a copy of your credit history. The lender’s request then appears as an inquiry on your credit report. Too many inquiries in a short amount of time could be viewed negatively by a potential lender, since it may indicate that the borrower has a history of being turned down for loans or has access to too much credit.

• Not enough good credit. You may have good credit, but not enough of it. As a result, you may need to build up more of your credit history before a lender deems you worthy to take on any additional debt.

• Uncorrected errors on your report. Uncorrected errors on a credit report could make it difficult for a lender to accurately evaluate creditworthiness, and could result in a loan denial. If you
have errors on your credit report, it’s important to take steps to correct your report, even if it doesn’t contain derogatory information. 

Finally, if you are ever turned down for a loan, there is a way to find out the reason behind it. Under federal law, you are entitled to a free copy of your credit report as long as you request it within 60 days of receiving notice of a company’s adverse action against you. For more information, visit the Federal Trade Commission’s website.


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