Oakwoodgroup Financial Planning

Charitable Donations

IRS tightens charitable-gift rules by Jeff Schnepper (MSN Money) September 6, 2006

Substantiation: The recordkeeping nightmare gets worse

Starting with 2007, to claim a deduction, things will get more complicated. You will need a canceled check, bank record or a receipt from the charity listing:

• The organization's name.

• The date of the donation.

• The amount of the contribution

A log will no longer be sufficient.

Remember the deduction for the contribution of old clothes or household items? Things will get trickier in 2007. Under the Pension Protection Act of 2006, you can't deduct charitable donations of clothes or household items (such as furnishings, electronics, appliances and linens) unless they're in "good" condition or better. Congress never defined "good," but I suspect my old socks and underwear are out.

Congress did give the IRS the power to issue regulations to deny a deduction for items with "minimal monetary value."

Even if an item is clearly "good," if you claim a value of more than $500, then you must include a qualified appraisal with your return. That's $500 for an item, not total.

Even if no item is valued at more than $500, if the sum of the non-cash contributions is more than $500, you will still have to file Form 8283 with the date of the contribution, the date acquired, your cost, the fair-market value, and the method used to determine the fair-market value. Special rules apply to contributions of cars, boats and other items (such as art, jewelry, collections) with a claimed value of more than $5,000.

Congress did throw one bone to the charity lobby. Taxpayers age 70 1/2 or older can now contribute up to $100,000 directly from an IRA to a charity without paying tax on the money. This helps taxpayers who don't itemize or who have to exceed a percentage of their adjusted gross income (7.5% for medical expenses; 2% for miscellaneous itemized deductions) in order to claim a deduction. But Congress wasn't all that generous -- this provision is only good through 2007.

Always get a receipt

Never throw non-cash contributions into an unmanned bin where you can't get a receipt.

No receipt means no deduction. If you're in the 25% bracket, a thousand dollars worth of old clothes tossed in a bin without a receipt is exactly the same as throwing away $250 in cash. So always ask for a receipt.

I can't emphasize this enough. You must keep receipts for all your donations whether the donations are old clothes, furniture or cash.

Currently, you can't claim a separate donation of $250 or more without a written confirmation from the charity. A check by itself won't cut it.

If the check is to a religious organization solely for an intangible religious benefit, such as annual dues, you're still going to need written proof. Forget about cash in the collection plate. If you want the deduction, drop in a check.

Contributions of cash require the charity to estimate the fair-market value of any goods or services you may have received in exchange for your donation. If you got a dinner out of your donation, the contribution is reduced by the value of the dinner.

Medicare Appeals

Did you know you could appeal a Medicare decision to reject your claim for benefits? According to the Medicare Rights Center, a national nonprofit organization "Appealing is easy and most people win so it is worth your while to challenge a Medicare denial,". The denial of coverage may be due, for example, to a simple coding error in your doctor's office.

People have a strong chance of winning their Medicare appeal. According to Center, 80 percent of Medicare Part A appeals and 92 percent of Part B appeals turn out in favor of the person appealing.

The Medicare Rights Center offers the following tips to maximize your success when appealing your denial:

• Write "Please Review" on the bottom of your Medicare Summary Notice (MSN), sign the back and send the original to the address listed on your MSN by certified mail or with delivery confirmation.
• Include a letter explaining why the claim should be covered.
• When possible, get a letter of support from your doctor or other health care provider explaining why the service was "medically necessary."
• Save photocopies and records of all communications, whether written or oral, with Medicare concerning your denial.
• Keep in mind that you only have up to 60 to 120 days from the date on the MSN (depending if you are in a private Medicare plan, like an HMO or a PPO) to submit an appeal.

Click here for more information from the official Medicare website, including appeals forms.

Student Loan Consolidation

How to Save Thousands on Student Loans: Loan rates expected to climb a record 2 percentage points come July. So it may pay to consolidate.

By Jeanne Sahadi, May 22, 2006

         If you've borrowed money from Uncle Sam to finance your education or your child's, you might be able to save yourself thousands of dollars. The trick: consolidating your federally guaranteed, variable-rate loans between now and June 30.

         Here's why: your payments will be going up on July 1 due to an increase in loan rates. Those rates are reset every year based on what the 3-month Treasury yield is at the end of May.  Since this time last year, that yield has risen nearly 2 percentage points. And it may not go down much between now and May 30, even with the recent bond market rally.

         Hence, the repayment rate on the federal loans for students known as Stafford loans is expected to jump to about 7.3 percent from 5.3 percent currently.

          If you start repaying your loans while you're still in school or up to six months after graduation, known as the grace period, you get a lower rate. That rate is seen rising to about 6.7 percent from 4.7 percent.

         Meanwhile, the rate on student loans for parents, known as PLUS loans, is likely to rise to roughly 8.1 percent from 6.1 percent.

            If rates do rise 2 points, that will be the biggest one-year hike in the history of the federal loan program, said Mark Kantrowitz, founder of www.FinAid.org and author of the upcoming book "College Gold."

How much you could save

            When you consolidate, you roll all your loans into one and lock in a single rate on the money you owe. If you consolidate your loans now, you can get a rate of 5.375 percent for regular student loan repayment, and 4.75 percent if you're still in school or in the grace period. That applies to Stafford loans obtained after June 1998. Come July 1, those rates are likely to jump to about 7.375 percent and 6.75 percent, respectively. For PLUS loans, the consolidated rate, currently 6.125 percent, is expected to rise to 8.125 percent in July.

Here's what that means in dollars:

• Say you have $20,000 in 10-year variable rate Stafford or PLUS loans. If you consolidate before July 1, you could save $20 a month in payments or between $2,400 and $2,500 in interest over the life of your loan
• If you have $100,000 in loans, as many medical students do, multiply those savings by 5. You'd save $100 a month, or just over $12,000 in interest over the life of the loan

Act before June 30

          By law, you're only permitted to consolidate your student loans once. So if you've done so before, you're out of the running. But if you haven't, Kantrowitz said, here are a few things to keep in mind:

• You must consolidate by June 30 to get the best rates
• You may consolidate to get a better rate even if you just have one loan
• If all your loans are from one lender, you must consolidate with that lender
• If you have loans from more than one lender, ask your school's financial aid office which lenders offer the best consolidation deals in terms of discounts and customer service

              Opt for a lender that offers to knock at leasta quarter point off your consolidated rate if you agree to electronically transfer your payments. This type of short-term incentive is better than one that takes a few years to satisfy - for example, a discount if you make 36 consecutive on-time payments, something that's typically difficult for most new graduates.

• When you consolidate, don't include any Perkins loans you may have. It's already a fixed-rate loan, so there's no benefit from consolidating it and you may, in fact, lose some of the benefits such as certain loan forgiveness provisions
• If you're married and both you and your spouse have student loans, don't consolidate them into one loan. If you divorce, you'll both be on the hook for repayment of the full amount. If your split is acrimonious and one of you reneges on your half of the bill, the other person will be held accountable.

             To see how much money you can save by consolidating, use FinAid.org's loan consolidation calculator.

Identity Protection

ATTORNEY'S ADVICE-----NO CHARGE:

1.  The next time you order checks have only your initials (instead of first name) and last name put on them.  If someone takes your checkbook, they will not know if you sign your checks with just your initials or your first name, but your bank will know how you sign your checks.

2.  Do not sign the back of your credit cards.  Instead, put "PHOTO ID REQUIRED."

3.  When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the "For" line.  Instead, just put the last four numbers.  The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check-processing channels will not have access to it.

4.  Put your work phone # on your checks instead of your home phone.  If you have a PO Box, use that instead of your home address.  If you do not have a PO Box, use your work address.  Never have your SS# printed on your checks. You can add it if it is necessary.  However, if you have it printed, anyone can get it.

5.  Place the contents of your wallet on a photocopy machine.  Do both sides of each license, credit card, etc., You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel.  Keep the photocopy in a safe place.  Also carry a photocopy of your passport when traveling either here or abroad.  We have all heard horror stories about fraud that is committed on us in stealing a name, address, Social Security number, credit cards.

6.  When you check out of a hotel that uses cards for  keys (and they all seem to do that now), do not turn the "keys" in.  Take them with you and destroy them.  Those little cards have on them all of the information you gave the hotel, including address and credit card numbers and expiration dates.  Someone with a card reader, or employee of the hotel, can access all that information with no problem whatsoever.

Here is some critical information to limit the damage in case your information is stolen:

1.  We have been told we should cancel our credit cards immediately. The key is having the toll free numbers and your card numbers handy so you know whom to call.  Keep those where you can find them.

2.  File a police report immediately in the jurisdiction where your credit cards, etc., were stolen.  This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one). 

However, here is what is perhaps most important of all:

3.  Call the three national credit reporting organizations immediately to place a fraud alert on your name and Social Security number.   The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit. 

Now, here are the numbers you always need to contact about your wallet and contents being stolen:

1.) Equifax: 1-800-525-6285
2.) Experian (formerly TRW): 1-888-397-3742
3.) TransUnion: 1-800-680-7289
4.) Social Security Administration (fraud line): 1-800-269-0271

Phishing

It’s ‘phishing’ season for tax scammers
IRS warns public about phony e-mails as tax filing deadline approaches

By Caroline E. Mayer

The Washington Post

Updated: 11:18 p.m. ET Feb. 24, 2006

Marketing pitches masquerading as the 1099 forms detailing non-payroll income have been arriving in taxpayer mailboxes, while e-mails that appear to be from the Internal Revenue Service are really identity theft scams designed to collect personal financial information.

Government officials say they are currently seeing about one widespread IRS-themed e-mail scam a week, but Internet security experts expect them to escalate as the April 15 tax deadline nears.

"Usually these things peak around the time taxes are due," said Dan Hubbard, senior director of security and research for the Internet Web security firm Websense. "Basically it's another timely current event that's on top of people's lists and another lure to deceive people into giving away credentials in some way."

And scammers are capitalizing on the fact that more than half of all tax returns are expected to be filed electronically this year. Consider this recent e-mail claiming to be from the IRS: "You filed your tax return and you're expecting a refund. You have just one question and you want the answer now. Where's My Refund? Access this secure Web site to find out ... "

The Web site looked like the real IRS site. But it wasn't.

Nor was the Web site link in another recent e-mail using what appeared to be IRS letterhead, posing as notification to the recipient of a $63.80 refund.

Both Web sites asked for Social Security numbers and credit and bank account information, part of an online identity theft scheme known as "phishing."

The IRS warns consumers to disregard any e-mail that purportedly comes from the agency. "The IRS does not communicate with taxpayers electronically," said Richard Morgante, the IRS commissioner of wage and investment. "If you get a communication from the IRS, it is via a letter in the mail or a phone call." If in doubt, consumers should call the agency's toll-free number, 800-829-1040, to determine the legitimacy of any notice, Morgante added.

The electronic solicitations are proliferating at the same time that tax forms are flooding U.S. mailboxes. Most are legitimate 1099 forms sent by companies to individuals declaring dividends, interest and other non-wage incomes they must report to the IRS.

However, a number of these letters are promotions — usually for loans to refinance a house, consolidate debt or buy a car — dressed up as a tax form to get a consumer's attention amid the everyday clutter of bills and advertisements.

For example, there's the envelope with bold lettering stating: "Important: Year End Tax and Mortgage Information Enclosed." Inside appears to be a 1099 form for $1,000 to $10,000 of "Lost Non Deductible Interest" that the taxpayer would get from a debt consolidation loan. In the fine print, the letter is called a "Form 1089." There is no such IRS form.

These letters "come around every year" during tax season, said Paul J. Krenn, spokesman for the U.S. Postal Inspection Service, which probes misuse of the mail system.

While government look-alike mailings "are less than desirable," Krenn said they are not an overwhelming source of loss to consumers.

The chief problem seems to be that some consumers have reported throwing away the real 1099s with the batch of promotions they've received.

Government officials said they first started noticing the phony IRS e-mails last year around tax time. They disappeared, only to resurface in November. Since that time, the U.S. Treasury Inspector General for Tax Administration (TIGTA) has received about 1,100 complaints from consumers. William Benton, special agent in charge of strategic enforcement, yesterday said TIGTA has identified at least 12 separate schemes of e-mails impersonating the IRS. Almost as soon as the agency shuts down one Web site, a new one appears. The scammers "are trying to leverage the trust of a government agency and trying to increase the odds of success," said Peter Cassidy, secretary general of the Anti-Phishing Working Group, an association of financial institutions, online retailers, Internet providers and security firms and law-enforcement officials committed to eliminating phishing.

The IRS is an obvious target for scammers, Cassidy added, because it has far more direct correspondence with consumers than a credit union or even a large bank. "Blindly phishing a very small pond, the odds for success are low, but phish an entire U.S. taxpaying population, and the probability of success goes way up. You're phishing a much bigger pond."

The phony tax e-mails are not confined solely to the IRS, noted Hubbard of Websense. He said his firm has also seen some fraudulent solicitations allegedly from H&R Block, offering online tax preparation services. The taxpayer is steered to a fake company Web site that asks for personal financial information.

H&R Block said it is aware that scammers periodically use its name and credibility to phish. "When we become aware of these phishing attempts, we investigate promptly," said Murray Walton, the company's vice president and compliance officer on phishing scams.

Divorce & Debts

Excepts reprinted from Ric Edelman:

If divorce might be in your future, consider the following actions:

1. Get new credit cards that are in your name only. Do this now, for they are likely easier to get than after you divorce.

2. Pay off all credit cards before the divorce is final, and cancel the cards. If you cannot do this, cap your liability by informing each credit card company in writing that you will no longer be responsible for charges incurred after the date of the letter. Send your letter via certified
mail with return receipt requested.

3. Before you sign the decree, check with TransUnion, Equifax, and Experian to verify that all joint accounts are closed. Sixty days after you have closed accounts, order copies of your credit reports to make sure those accounts have been closed.

4. Instead of having one of you continue living in the house, sell it and pay off the mortgage before the divorce is final.  If selling is not an option, work out an agreement so that
the lender will let you check the status of the mortgage. This will help you verify that your ex is making the payments on time if that is the responsibility of the ex-spouse.

Alternative to Reverse Mortgage

ABOUT FACE ON REVERSE MORTGAGES- SELLING & INVESTING is a better option

by Thomas Kostigen, January 20, 2006

        Take the memories and the money and move. That's what the government and financial representatives should be telling senior citizens when it comes to their home sales. Instead, reverse mortgages are the idea being pushed. These are notoriously bad deals for people in all but the soft sense: they get to live in their homes for the rest of their lives.

             Reverse mortgages are exactly what they say they are; you get a loan for the sale of your house, as  opposed to traditional mortgages where you get a loan for a purchase.

• The loan allows you to "cash out" of your home's equity without having to sell or take on any additional debt, such as a second mortgage or home-equity loan.
• Reverse loans are available only to people 62 or older. You can take the money as a lump sum, a monthly payment for life (or for however long you own and occupy the home), as a line of credit or in any combination of your choosing.
• There is no income verification or any of the other caveats associated with traditional loans.

             What's required with a reverse mortgage, however, is that you stay in your home until you die. Then you - well, any heirs -- would have to pay the loan back. The same payback holds true if you sell your home or move out for good.

             The House of Representatives last month lifted the cap on the number of reverse mortgage loans HUD can insure and the Senate is expected to ratify that same provision. Meanwhile, HUD is lifting the limits can effectively "borrow" through these programs to $362,790. Fannie Mae, a quasi government agency, has a program that will raise its ceiling to $417,000. Private lenders have programs that eclipse these limits, although many aren't federally insured. Federal insurance is important because if a loan servicer goes belly up, people don't get their money.

        But the poignancy of people's circumstances is trumping sound financial planning. A quick thumbnail calculation shows you could gain more by selling your home, moving into a rental or less expensive house -- and putting your money in ultra-safe Treasury bills. This would eclipse any reverse mortgage calculation.

        Reverse mortgages only tap up to 80% of the equity in a home. So, right off the top you're losing 20% of your capital. The interest rate you're paying on what's effectively your own money -- typically two percent annually above the prime lending rate -- eats away at what you'd get too. Plus, you still have to pay property taxes and any homeowners fees.

             Consumer advocate groups as the AARP admit these drawbacks, yet they still say a reverse mortgage is an option to consider. AARP does have its guard up, stating it does not endorse any reverse mortgage lender or product, and that "if you are considering a proprietary reverse mortgage, you must proceed with caution."

             Here's where the red flags are: appraisal fees, origination fees, annual insurance premiums and closing costs, which can total $10,000 or more on a loan of just $200,000. Then there's the fact that a lump sum payout could affect any other government subsidies an elderly person receives.

             Those are the facts that should be waved in front of seniors first before a reverse mortgage option is considered. But the opposite is happening.

Long-term Care-New Rules

Summary of New Long-Term Care Regulations

   Congress is in the process of finalizing new regulations regarding Medicaid eligibility, especially for long-term care coverage. The House is expected to pass it when they return in early Feb and Pres. Bush has indicated he will sign it. The alterations are part of the $40 billion budget-cutting bill and the changes are complex, but the major points are:

• A senior who makes a charitable contribution or helps a grandchild pay for college could inadvertently delay her eligibility for months or even years.
• Someone who owns a home that has increased sharply in value could find himself unable to qualify at all, even if the house is his only asset. Homes valued at more than $500,000 (or $750,000 in some states) could make patients ineligible for Medicaid, as the new rules require use of home-equity as a means of paying for long-term care.
• People who bought annuities to protect their assets might instead lose everything to their state's Medicaid recovery efforts. Annuities have long been a non-countable asset in terms of Medicaid eligibility. The funds belong to the annuity provider and the patient receives a stream of income. Leftover value in the annuity could be left to the heirs. Under the new rules, the state must be named as the beneficiary of any leftover funds.

      Medicaid is the program that pays for health-care for the poor and it also covers long-term care expenses if you qualify. Medicare DOES NOT pay for long-term care. Current elder law regulations allow you to transfer your assets to family members or friends and then apply for Medicaid. As long as the transfers occurred prior to a three-year look-back period (five years for trusts), Medicaid can become the primary payer for any long-term care expenses. If the transfers fall within the three year look-back period, your Medicaid eligibility is delayed based on the amount transferred and the timing. The three year time period starts at the date of the transfer.

       The new legislation extends that look-back period to five years and the clock starts when applying for Medicaid. Any transfers within the previous five years will delay Medicaid coverage, even if there are no personal funds to pay for care.

     To view the entire article, visit: http://www.oakwoodgroup.com/LTC-newlaws.html

Tax Documents

     Tax forms will be sent in the next two weeks and we have just mailed our document request letter. Tax forms are due by January 31st and we will complete our forms on a first come, first served basis. The Fidelity documents will surely be reprinted (more than once) and we would only like to see the first version of the documents. Future versions can be accessed online.

    Look for your request letter in the mail and contact us with any questions.

Massachusetts Heating Deduction

Personal Income Tax Deduction for Home Heating Expenses  (Oil, Natural Gas, or Propane) for Low and Moderate Income Taxpayers

        Massachusetts  signed a Heating Assistance and Tax Relief act into law on November 22, 2005. The act allows certain taxpayers to take a deduction (up to a maximum of $800) for the cost of home heating oil, natural gas and propane that was purchased between November 1, 2005 and March 31, 2006. Those not taking the full $800 deduction on their 2005 tax return can apply the remainder to their 2006 returns for purchases from January 1, 2006 through March 31, 2006.

Qualifying Taxpayers:

• Single: Adjusted Gross Income is equal to $50,000 or less
• Head of Household: Adjusted Gross Income is equal to $75,000 or less
• Married Filing Jointly: Adjusted Gross Income is equal to $75,000 or less

Owners and Renters:

     The deduction is available to both homeowners and those who rent their homes. For those who pay rent that includes heating expenses, the deduction is calculated as 20% of the rent actually paid (ie- 20% of the rent expense is considered attributable to home heating).

     More information will be available when the finalized rules are released.