Tax Q & A

Q & A - Tax & Life Events & Financial         Q & A - Business & Banking & Insurance

Business
Small Business
▼ What can I do to prepare my small business for the generation to come?
▼ How do I create a successful strategy for passing on my family business?
▼ Do I have what it takes to own and manage my own business?
▼ What should the business strategy contain?
▼ How do I know if a business based at home is good for me?
▼ Are there certain legal standards that will affect my home based business?
▼ How can I prevent cash flow problems from hindering my small business?
▼ What can I do to develop a better business cash flow?
▼ Is a cash reserve necessary in my small business?


Choosing a Professional
▼ Should I hire an attorney?
▼ What process do I follow to handle the dispute by myself?
▼ What method should I use to find a good attorney?
▼ What should I ask my possible lawyers?
▼ Is a certain fee agreement better for me?
▼ What can I do to save money on legal fees?


Employee Benefits
▼ Do I need to know anything specific about employee benefits as a small employer?
▼ Are there different types of medical plans for employees?
▼ What is a preferred provider organization (PPO)?
▼ What is a health maintenance organization (HMO)?
▼ What are the typical disability benefits provided to employees?
▼ Employees have what kinds of life insurance plans available to them?
▼ What do I need to know about self-insurance?
▼ Do I need a "cafeteria plan"?


Record Keeping
▼ For my business, what types of records are important to keep?
▼ What should I know about automating a portion or all of my business?
▼ How can I guarantee that the computer system I'm using is right for me?
▼ What can I do to successfully implement the new computer system?


Travel and Entertainment
▼ May I deduct meal expenses when visiting clients out of the office?
▼ Do I need to report employer reimbursements for travel and meals?
▼ Are there limits on deductible travel and meal costs?
▼ May I deduct living expenses while away from home on temporary assignment?
▼ Which expenses are deductible when I am traveling away from home?
▼ Are there travel expenses that cannot be deducted?
▼ Business entertainment - what can I deduct?
▼ How do I document my travel expenses?


Marketing and Pricing
▼ How can I be certain that my small business product or service will be marketable?
▼ What questions are appropriate to ask in market research?
▼ When setting prices for my products or services, what should I consider?


Business Forms of Organization
▼ Will some types of business organization or entity limit my liability to business creditors?
▼ How can I avoid the "corporate double tax" and what exactly is it?
▼ For tax purposes, what type of business entity is best?
▼ What entities are considered to be "pass-through"?
▼ To avoid double tax and limit my liability, which entity should I choose?
▼ Why are limited liability companies (LLCs) so great?
▼ If my business is a professional practice, what are the special conditions?
▼ If I change my form of business organization, what are the federal tax consequences?
▼ Is it necessary for state business entity rules to follow federal tax rules?


Incorporating
▼ What is the definition of a corporation?
▼ There is a difference between an "S" corporation and a "C" corporation, what is it?
▼ Is an attorney necessary to incorporate?
▼ Is there a process for naming my corporation?
▼ Are there benefits to incorporating?
▼ What exactly is a Registered Agent?
▼ Do I need a specific number of Directors or Shareholders?
▼ Are there a number of shares of stock I should choose and at what par value?
▼ What does EIN stand for and what is a Federal Tax Identification Number?
▼ After I incorporate, what do I do next?


Limited Liability Companies
▼ Who should establish an LLC?
▼ Is an LLC or an S corporation better?
▼ What does an LLC Operating Agreement signify?
▼ Is it necessary to have an Operating Agreement?
▼ Is it necessary to have LLC meetings?
▼ Are there exceptions to Limited Liability?



Banking
Financing
▼ What can I do to raise money for my small business?
▼ For business financing, what kinds of loans exist?
▼ When considering a loan request, what do banks look for?
▼ What do I need to include in a good loan proposal?


Getting a Loan
▼ What are the advantages of prepaying a mortgage, and should I if I can?
▼ Should I refinance?
▼ Does borrowing against my securities make sense?
▼ Can a Home Equity Line of Credit be beneficial?
▼ What costs are associated?
▼ How can you lock in an interest rate?
▼ What disclosures should I get from my lender?
▼ How does a reverse mortgage work?
▼ Is any loan interest tax deductible?
▼ Can you stop paying Private Mortgage Insurance (PMI)?


Loan FAQ
▼ What are the possible implications if I co-sign for a loan?
▼ How can I ensure that I get the best possible rates on my loans?
▼ Is it better to get a home equity line of credit or a traditional second mortgage?
▼ What will the loan cost?


Bank Accounts FAQ
▼ Which banking fees should I watch for with a new bank account?
▼ What are the different types of bank accounts I can choose from?
▼ What type of account should I go with?
▼ How should I "shop around" for an account?
▼ How much protection do I get from federal deposit insurance?
▼ Can I negotiate my checking account fees with my current bank?
▼ What is overdraft protection and should I have it?
▼ What is the Truth in Savings Act?


ATM Transactions
▼ How do ATM transactions work?
▼ What should I do if I find an error on an EFT or ATM transaction?
▼ What if my ATM card is lost or stolen?
▼ Can I use my ATM card abroad?
▼ How do I know when a pre-authorized credit has been deposited into my account?
▼ How do I cancel a pre-authorized payment?

Insurance
Car Insurance
▼ How can I keep my car insurance costs low?
▼ What coverage is essential for my auto policy?
▼ How do I file an auto insurance claim?
▼ How much is it possible to save by comparison shopping?
▼ What deductible should I have on my car insurance?
▼ Should I keep collision coverage on my old car?
▼ Does my car affect my insurance rate?
▼ How significantly does my address affect my insurance?
▼ Should I pay monthly or semi-annually?
▼ How else can I save on insurance?
▼ What will worker's compensation cover if I ever need it?
▼ What exactly is long-term care insurance and how does it work?
▼ What should I consider when choosing a long-term insurance provider?
▼ What can I do to get a good price on my homeowner's insurance?
▼ What level of home insurance should I buy?
▼ What can I do to ensure that I am insured adequately?
▼ What deductible should I have?
▼ What other ways can I decrease my home insurance costs?
▼ When should I review my policy?


Life Insurance FAQ
▼ How are people classified for rate purposes?
▼ What should I be on the lookout for when I am purchasing life insurance?
▼ How can I easily compare prices between insurance companies?
▼ Why should I have life insurance? Do I really need it?
▼ What amount of life insurance should I have?
▼ Which type of life insurance fits me best?


Long-Term Care Insurance FAQ
▼ Is it worthwhile for me to purchase long term insurance?
▼ What features should I look for in a Long-Term Care Insurance Policy?
▼ Do I really need Long-Term Care Insurance?
▼ What is the elimination period?
▼ How are Long Term Insurance Companies rated?
▼ How can I ensure that I have adequate coverage?




Small Business

▼ What can I do to prepare my small business for the generation to come?
The process of passing a family business onto the second generation is so difficult that not even a third of them survive. Beyond that, roughly half make it to a third generation. In a normal day in the U.S., 40 percent of businesses are confronted with a change of owners. Those who have founded the companies are struggling to find remedies, but there aren't many options.
Here are a few possible remedies to this problem:

The most common causes for failure of the transition of the small business are as follows:

The main reason for closure is not having a strategy. If planned properly, the business has no reason to worry.

▼ How do I create a successful strategy for passing on my family business?
The family must do the following to attempt to have a worthwhile transition:

These are the four key points to a successful business transfer. They basically guarantee a transition for years to come within your family when implemented correctly.
What is a strategy focused on the family?
The purpose of the family strategy is to keep a well-functioning business. The policies for the role of the family in relation to the company are set in this strategy. There may be policies for entering and exiting the workforce of the business. It should incorporate the basic guidelines as well as a mission statement that explains what is important to the family. The strategy needs to take into consideration who in the family would like to have significant roles in the business and who would like less responsibility.
What is a strategy focused on the business?
A strategy focused on the business permits each new member of the family to establish their own future for the company. To make sure that everyone has the same idea as to where the business is headed, there is a need to formulate goals. The strategy should concentrate on the future of the company at a particular date.
What is involved in a Succession Plan?
The purpose of the succession plan is to aid those who founded or are in control of the company through the transition. It should explain the details of how to know when the next generation is ready to take over and the process for that transition.
What is contained in an Estate Plan?
The plan for the estate is vital for the company and family. In the end, without a strategy, there will be higher estate taxes than needed, which in turns gives less to the successors. This plan should be in accordance with the succession plan to ensure the transition of the business is done in the most tax effective way.

▼ Do I have what it takes to own and manage my own business?
First, think about why you want to start your own business and make a list. The thrill of being self-employed, the need for independence both financially and professionally, and the desire to use the most of your intelligence and talents are a few of the most frequent motivations.
You also need to make sure you have the desire to put in the time to make a successful business. To decide what type of business fits you the best, you should think about what you find enjoyment in doing and what talents you have. Ask others for their thoughts, and see if any of your everyday activities can be made profitable.
At this point, you will need to investigate what will be the exact niche for your company. Determine what it is you want to put on the market, what the competition is like, and how to get ahead of the competition. The most important consideration is the demand for your product or service.

▼ What should the business strategy contain?
A business strategy, when applied to your company, should include an introduction, details about marketing, financial management, operations of the company, and a closing statement.
In the introduction of the business strategy, what should I incorporate?
This segment of the business strategy should contain information about the company and its objectives. Detail the experience within your company and the structure of management and legal status. State what your business has to get ahead of the competition.
In the marketing portion of the business strategy, what should I incorporate?
This is where you should state the products or services being offered and their demand in the market. It should also detail the market and its particular location and size.
In the financial management segment of the business strategy, what should I incorporate?
You should outline the source and amount of the initial equity capital. You also should create a monthly operating budget for the beginning years, as well as expected return on investment (or ROI) and monthly cash flow for these years. After that, present the balance sheets and income statements for the first 2 years and state the break-even point. Discuss your own balance sheet and ways of compensation. Explain who will be in charge of accounting affairs and how they will be maintained. Lastly, think through the possible problems that may arise and develop solutions.
In the operations segment of the business strategy, what should I incorporate?
This is where the explanation of the management of the daily activities will be. It should include insurance coverage, lease or rent agreements and the processes related to the staff and employment. It should also detail what is necessary to produce the products/services and the processes of production and delivery.
In the closing statement of the business strategy, what should I incorporate?
You should restate the company's objectives and purposes and explain the dedication you have to make your company succeed. Be sure to include the methods you plan to use to reach your objectives.

▼ How do I know if a business based at home is good for me?
You have to base your decision to start your own business on something other than the desire to be your own boss, such as: knowing beforehand what it is going to take, a thorough evaluation of your personality, and willingness to go the extra mile.
You must be able to make plans and continually make the necessary changes and developments as you go. You will want to set up an environment that is devoted to the professional aspects of your life and even consider a separate office within your home.

▼ Are there certain legal standards that will affect my home based business?
A home based business is affected by many of the same laws that apply to normal companies. You need to speak with a lawyer and the state department of labor to learn which of these laws and regulations will come into play. You will need to know your city's zoning regulations as well as knowing which products may not be produced from home.
Explosives, fireworks, toys, drugs, sanitary or medical products, and poisons are normally outlawed for production based at home. Other states will not allow the production of drink, food or clothing from home.
You may be required to obtain a business bank account, a separate business telephone, a work certificate or license from the state, and a sales tax number for registration and accounting standards.
If you have employees, you will be held responsible for social security taxes and withholding their income as well as observing the employee health and safety laws and minimum wage.

▼ How can I prevent cash flow problems from hindering my small business?
One of the main reasons small businesses collapse is they have a poor cash flow strategy. The most common reason for this is that many small business owners do not have a grasp on basic accounting principles. You should learn the basics to maximize your cash flow.
You can either keep cash on hand or in a business bank account in order to take care of the expenses. This will be enough to allow the company to pay bills, to supply investment capital and to have sufficient funds in case of emergencies.
An operating cycle begins with the buying of inventory, and ends with receiving the payment for the inventory. It keeps track of the transition of assets to cash. Normally, you purchase an excess of inventory so as not to exhaust your stock as soon as sales are made. Accounts receivable and cash sales will make up your sales. The normal payment date for accounts receivable is 30 days from the purchase date, which is applicable to both your inventory and products sold. Cash and accounts payable are lessened with an inventory payment is made. The collection of receivables will raise your cash. At this point, the operating cycle and the cash has made a full circle and will start again.
An analysis of the cash flow will demonstrate if the everyday operations produce sufficient cash to reach the obligation and the relation between large expenditures to pay for obligations and large inflows of cash from sales. With this information, it will be apparent if the inflows and outflows of your business have a positive cash flow or a net loss. Over time, important changes will be seen.
A projection of the monthly cash flow will uncover and eliminate any deficiencies or surpluses in the cash flow and show the relations between previous projections and actual figures. A business financial strategy should be changed to allow for more cash when cash deficiencies are discovered. If a surplus of cash is found, it may be due to excessive borrowing or money that should be invested. The purpose is to construct a strategy to allow a well-balanced cash flow.
▼ What can I do to develop a better business cash flow?
There are several options for increasing cash reserves:

▼ Is a cash reserve necessary in my small business?
It is important to have sufficient cash on hand to pay for expenses and emergencies. Cash beyond this should be put in a manageable, low-risk, interest bearing account, like a savings account, Treasury bill or short-term certificate of deposit.

 


Choosing a Professional
▼ Should I hire an attorney?
It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire one for a significant business transaction. If there is a problem where the court is concerned, it is advisable to hire an attorney.
The following should be considered when determining if an attorney is necessary:

Certain disputes can be solved without needing an attorney. For example, a living will can be prepared by a non-legal organization such as the American Association of Retired Persons. There are several organizations that can aid in the process of obtaining a living will form from the state along with information for filling it out.

 

▼ What process do I follow to handle the dispute by myself?
The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid in resolving disputes.
Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.
Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.
Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hot line or consulting resource.
Mediation or arbitration: You can find dispute resolution centers in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.
Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.
These are the low cost options in comparison to going to court or hiring a lawyer for representation.
Small claims court: Each state defines the limits for the amount of damages, which can be filed in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.

 

▼ What method should I use to find a good attorney?
Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are compiled by the Bar Association.
Pay close attention to the specialty area in the Bar Association lists, as many attorneys work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.
More sources are the Who's Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups (for example, people with disabilities, elders or victims of domestic violence).
If using the referral service, ask for details on how the lawyers were selected. Many referral services use lawyers who are members of a certain organization.
The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.

 

▼ What should I ask my possible lawyers?
Before beginning a consultation, the following questions should be asked:

Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation is complete.
It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you, and 2) to see if you are comfortable with the attorney and the fee agreement.

▼ Is a certain fee agreement better for me?
The basic rate for legal services depends on location. Based on your knowledge of the fees, a "fair" fee should be selected. Here are a few factors that play a role in the decision:

The following are basic fee agreements in use by attorneys:
Flat fee: There is a specific total that will be charged for work on your case.

Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney's fee is $50 per hour and puts in five hours of work, then the cost will be $250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.

Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenario, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.

 

▼ What can I do to save money on legal fees?
Bear in mind that attorney fees are usually negotiable even though you will not be asked to bargain over the fees. The following are a few tips to make sure you save the most money possible:

 

Employee Benefits
▼ Do I need to know anything specific about employee benefits as a small employer?
The employer must pay for certain legal benefits and insurance coverage such as Social Security, unemployment insurance and worker's compensation. The money for the Social Security program comes from payments made by employers, employees and self-employed persons to an insurance fund that will provide income after retirement. At the age of 65, full retirement benefits usually become available. There are other aspects of Social Security that deal with survivor, dependent, and disability benefits, Medicaid, Supplemental Security Income and Medicare.
Benefits for unemployment insurance are to be paid under the laws of individual states from the Federal-State Unemployment Compensation Program. Contributions to the program include payments made by the employer, based on the total payroll. The purpose of worker's compensation is to provide benefits to workers who are disabled due to an illness or injury while at work. The coverage and benefits vary by state. In the majority of states, private insurance or employer self-insurance will provide the coverage necessary. Short-term disability benefits are governed by the state also.
Health insurance, disability insurance, life insurance, a retirement plan, flexible compensation, and leave are often included in a comprehensive benefit plan. An employer may choose to offer such benefits as bonuses, reimbursement of employee educational expenses, service awards, and perquisites appropriate to employee responsibility.
You need to determine what you are willing to pay for this coverage before implementing a benefit plan. It might be a good idea to consult employees as to what benefits they are seeking. For example, is a retirement plan more important than a medical plan? Another decision is whether you will protect your employees from current economic hardships or in the future. The last step is deciding who will manage the plan, you or an insurance broker.

▼ Are there different types of medical plans for employees?
There are two options: a fee-for-service plan, or a pre-paid plan (commonly referred to as a Health Maintenance Organization, or HMO).
An indemnity plan or insurance permits each employee to decide their own doctor. The employee will pay for the medical care and then file a claim with the insurance company for reimbursement. There are deductibles and coinsurance as well. Deductibles vary from $100 to $1000 a year.
With coinsurance, a percentage of the medical expenses are paid by the employee and the remaining are covered by the plan. 20 percent is the normal coinsurance amount to be paid by the employee - the remaining 80 percent is paid by the plan.
There are three common indemnity plans that give health care to groups of employees: 1) a basic health insurance plan that will cover hospitalization and surgery as well as physician's care in the hospital; 2) an insurance plan that will supplement the basic plan by reimbursing the charges not paid by that plan; and 3) a comprehensive plan that (with one common deductible and coinsurance features) will cover both hospital and medical care.

▼ What is a preferred provider organization (PPO)?
A network of doctors and/or hospitals that has contracts with a particular health insurer or employer that will give health care to employees at lower than the market rate. This offers a broad range of health care providers.
PPOs can be more expensive than HMOs due to the broader range of providers. There are no obligations to use the PPO providers, but there are strong financial incentives. PPOs often have less comprehensive benefits when compared to HMOs. The PPO providers normally receive payment from the insurers directly.

▼ What is a health maintenance organization (HMO)?
Health care that is provided through a network of hospitals and doctors is a health maintenance organization (HMO). The benefits usually include preventative care, such as physical examinations, weight control and stop-smoking programs, baby care and immunizations. The most common characteristic of HMOs is that the primary care provider is limited to only one doctor within a network, although there is usually a variety to choose from.
Outside of the network of hospitals and doctors of the HMO, there is no coverage. Due to the limited choices, the costs are lower. The payment for the HMO premiums are fixed and per employee. A small co-pay is due for the medical services, and no reimbursement is necessary.

▼ What are the typical disability benefits provided to employees?
If an employee cannot work due to illness or accident, the disability plan gives him/her income replacement. These defer from worker's compensation as they pay benefits for non-work related illness and injury, and can be either short-term or long-term.
Short-term disability (STD) is used if the employee is unable to perform the normal duties of his/her occupation. The benefits are typically paid for a maximum of 26 weeks and begin on either the first or the eighth day of disability. The benefit level is dependent upon the employee's salary and will range from 60 to 80 percent.
Long-term disability (LTD) commences after the conclusion of the short-term benefits. LTD benefits then continue for the entire length of the disability or until the date of normal retirement. This is also a percentage of the employee's salary, typically between 60 and 80 percent. Social Security disability normally offsets these benefits - if an employee qualifies for the Social Security disability benefits, they will be subtracted from what the employer has paid.

▼ Employees have what kinds of life insurance plans available to them?
The beneficiaries of an employee may collect death benefits from life insurance if the employee dies during their working years. The two main kinds of life insurance are:

  1. Survivor income plans that provide regular payments to survivors
  2. Group life insurance plans that will provide lump-sum payments to beneficiaries

The most popular plan has group term life insurance, protection provided by one-year, renewable, with no cash surrender value or paid-up insurance benefits.

▼ What do I need to know about self-insurance?
Self-insurance means the business will pre-determine and pay a portion or all of the expenses of employees in ways similar to traditional health care providers. The funding comes from a trust or reserve account.
A portion of the cost may be paid through premiums, as is common in health care plans. A kind of coinsurance purchased by the company is called catastrophic coverage given through a "stop loss" policy. The company can manage this directly or it can be done through a contractor.

▼ Do I need a "cafeteria plan"?
With a "cafeteria plan", money which would normally be used as taxable salary is used, normally tax-free, for services that are necessary like health or child care. This saves the employee income and Social Security taxes. In addition, the salary used in the cafeteria plan isn't subject to Social Security tax on the employer. The employee has the choice from several levels of supplemental coverage or different benefits packages. Each employee may select what he/she wants based on their own personal goals or to satisfy differing needs, such as health coverage, legal services (legal services amounts are taxable), retirement income (401(k) plans) or specialized services (dependent care, adoption assistance).

 


Record Keeping
▼ For my business, what types of records are important to keep?
A crucial aspect of your business success depends on thorough and accurate financial record keeping. Accurate records help to provide information to operate efficiently as well as allow you to identify all your business assets, liabilities, income and expenses. This data will help you locate both strong and weak cycles of your business.
It is necessary to keep good records to prepare current financial statements like income statements and cash flow projections. They will also help you maintain a good relationship with your banker. The records will even ensure you don't overpay or underpay your taxes. During an Internal Revenue Service audit, it is crucial to have good records in order to properly answer the questions and satisfy the IRS.
Financial records should demonstrate how much income you are currently making as well as what you expect to generate in the future. They will indicate the number of accounts and their balances in accounts receivable. They will also inform you of what you owe in terms of utilities, rent, merchandise, and equipment, and even expenses such as advertising, payroll, payroll taxes, equipment and facilities maintenance, and benefit plans for yourself and employees. Good records will show how much cash is being used for inventory and how much is on hand. They should also indicate which of your products are making a profit as well as your gross and net profit.
The Basic Record Keeping System
This should include a basic journal to record transactions, payroll records, accounts payable records, accounts receivable records, inventory records and petty cash records.
With the help of an accountant, you can develop an entire system that fits your business needs. They can teach you how to update these records regularly. The records will become the base for your financial statements and tax returns.

▼ What should I know about automating a portion or all of my business?
First, you need to have a clear understanding of your company's short and long-term goals. Consider the disadvantages and advantages to a computer, as well as what you want to achieve with a computer. Look at the best non-computerized system that you can develop in comparison to the computer system you are considering. It is possible to achieve your goals by improving your existing manual system. Just remember, no one can automate a business without first creating and optimizing the manual systems.
Computer Performed Business Applications
Maintaining transaction records and preparing statements and reports to keeping customer and lead lists, creating brochures, and paying your staff are a few of the capabilities that can be done by a computer. A thorough computer system can organize and store many similarly structured pieces of information, print information quickly and accurately, perform complicated mathematical computations quickly and accurately, facilitate communications among individuals, departments and branches, and connect the office to many sources of data available through larger networks. It can also restructure such manual business operations as payroll, accounts receivable, inventory, advertising, and planning. A computer can improve efficiency, decrease errors, and lower costs.
Computer Business Applications
Computers also have the ability to do more complicated operations, such as spreadsheet and accounting programs that compile statistics, plot trends and markets and complete a market analysis, modeling, graphs and forms and financial modeling programs that organize and analyze financial statements. Several word processing programs produce typed documents and provide text-editing functions, while desktop publishing programs allow you to create good quality print materials on your computer. To divide large projects into smaller, more easily managed segments or steps you can use the critical path analysis programs.

▼ How can I guarantee that the computer system I'm using is right for me?
Selecting the right programs, choosing the right equipment and implementing the diverse applications are factors to consider when you computerize your business. There are three common types of software. Compilers and interpreters translate programs that are written in human-readable programming language to the computer language that the CPU understands. The operating system software controls the individual components of the computer. The computer generally comes with system software which must be loaded into memory before the application can start.
Software for specialized functions such as accounts receivable, payroll check writing, posting or inventory reporting are usually purchased separately from the computer hardware.
In order to determine your needs, make a list of all the functions of your company where speed and accuracy are important for mass amounts of data. These are referred to as applications.
Prepare a list of all the reports that you are currently producing for each of these applications. Make sure to include any preprinted forms such as vouchers, checks or billing statements. If these forms don't already exist, come up with a good idea of what you want. List the frequency with which each report is to be generated, who will make it and the number of copies necessary.
Prepare a hand-drawn version that also lists the circumstances in which you would like the data shown. Write a list of all the materials that are used as input into your manual system for each application. These may include, but are not limited to, work orders, receipts, time cards, etc. Detail who will create them, how they will get into the system and the time in which the items take to be created. For the appropriate time period, make a maximum and average expected number of these items produced.

▼ What can I do to successfully implement the new computer system?
You will come across problems when implementing computer applications, but correct planning can make the process smoother. Sit down with each employee and explain how the computer will have an effect on his or her position. Set dates to have the main phases of the implementation complete as well as the last day for format changes. Find a location for your computer that meets the system's requirements for temperature, electrical power and humidity. Make a list of the priorities for the applications that will be converted from manual to computer systems and convert each one individually instead of in a group. Ensure that everyone using the system will be trained.
Each application that has been converted should be entered and run alongside the pre-existing manual system to ensure that the new system works.
System Security
If you plan on having confidential information in the system, you will need to set up the proper precautions to keep unauthorized users from modifying, stealing or destroying data. The options are locking the equipment or installing a user identification and password software program.
Data Safety
The most moderately priced and best insurance to prevent the loss of data is the back-up of information on a diskette on a regular basis. These copies should be put in a safe location away from the business site. It is also helpful to own and test a disaster recovery plan and to identify all programs, documents and data necessary for essential tasks during disaster recovery.
Lastly, make sure that you have more than a single person capable of operating the system and be sure that someone monitors all systems continuously.


Travel and Entertainment
▼ May I deduct meal expenses when visiting clients out of the office?
That is not common. Normally, you can only deduct the cost of a meal when away on a business-related trip or gone overnight.

▼ Do I need to report employer reimbursements for travel and meals?
If you are required to give back any excess reimbursement, provide your employer with a detailed expense report and meet other requirements. There is no need to report the reimbursement or to deduct the expenses on your return.
Deduction limits are obligatory for your boss, not you, and the floor of 2% of AGI on miscellaneous itemized deductions will not have an effect on your travel and meal costs.
If you are not required to give back any excess reimbursement, the expense arrangement is not an accountable plan and your employer will have already included the reimbursement in your Form W-2. There is no additional reporting requirement.
If your employer reimbursement is less than your actual costs and you wish to deduct your excess expenses, you will need to report the employer reimbursement on Form 2106 as an offset to your expenses.
Caution: Please note that for 2018-2025, only Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses may deduct their unreimbursed employee business expenses, including travel and meal expenses.

▼ Are there limits on deductible travel and meal costs?
Although there is no specific dollar limit, expenses should be ordinary and necessary and not over-generous.

▼ May I deduct living expenses while away from home on temporary assignment?
Because temporary work site living expenses are separate from home travel expenses, they may be deducted.
An assignment that is not expected to last more than a year is considered temporary. If the assignment is for more than one year than the new area becomes your tax home and you can't deduct expenses as away-from-home travel.

▼ Which expenses are deductible when I am traveling away from home?
There is a broad range of expenses that you can deduct while traveling. The most common are as follows:

▼ Are there travel expenses that cannot be deducted?
The travel expenses below cannot be deducted:

▼ Business entertainment - what can I deduct?
The 2017 Tax Cuts & Jobs Act (TCJA) eliminated deductions for any expenses related to activities generally considered entertainment, amusement or recreation. See https://www.irs.gov/newsroom/irs-issues-guidance-on-tax-cuts-and-jobs-act-changes-on-business-expense-deductions-for-meals-entertainment for more information.

▼ How do I document my travel expenses?
If your employer is reimbursing you for your expenses, you only need to prove them to him/her. To do this, submit a written accounting to the employer and return any excess amounts.
"Accountable plans" or per diem arrangements and mileage allowances are used instead of detailed accounting for the employer, if place, time, and business purpose are verified.
Detailed documentation is required by the IRS when expenses aren't fully reimbursed by the employer or you fail or are not required to return excess reimbursements. If you are the employee, a 2% of AGI floor on miscellaneous itemized deductions is applied to your deductions. However, these deductions are not allowed to an employee from 2018-2025 unless you are an Armed Forces reservist, qualified performing artist, fee-basis state or local government officials, or employee with impairment-related work expenses. If you meet one of these categories, your expenses are deductible on Schedule 1 of Form 1040 and are not subject to the 2% of AGI floor on miscellaneous itemized deductions.
You should record the expenses as close to the time of expenditure as possible.

 


Marketing and Pricing
▼ How can I be certain that my small business product or service will be marketable?
To determine where and how you can successfully sell your product or service (and at what price), you will need to use one of the most critical elements of business planning - market research. This includes interviewing potential suppliers and investigating your competition and consumer base.
Market research has many different benefits. It can help you categorize marketing activities, generate primary and alternative sales approaches to a given market, make profit projections from a more precise base, establish the market's profit boundaries, and develop critical short/mid-term sales goals. You will need to identify your objectives and organize the collection/analysis process first.

▼ What questions are appropriate to ask in market research?
You will want to learn about the consumers' location, needs and resources, and what they can afford. Significant questions should be addressed, for example, Can you compete effectively in price, delivery and quality? Where can the demand be created?
Can the product or service be priced to guarantee a profit? Also, discover how many competitors provide the identical product or service. You will want to have a basic understanding of the economy of the area in which you will sell your product or service and the areas where that market is growing or lessening.

▼ When setting prices for my products or services, what should I consider?
There are different individual costs for each component of your service or product. Be sure to analyze every component of the product or service's total cost. Upon completion of the analysis, prices can be established to maximize profits and eliminate deficit services. Material, labor and overhead costs are included in the cost components.
Material costs are the total of the costs of all materials of the finished product.
Labor costs are calculated based on the total work put into preparing the product. To determine the direct labor costs, you multiply the cost of labor per hour by the number of personnel hours necessary to finish the job. Be sure to include the dollar value of fringe benefits as well as the hourly wage, which include workers' compensation, retirement benefits, social security, insurance, unemployment compensation, etc.
Overhead costs cannot be easily identified with a product. They consist of indirect materials, such as depreciation, supplies, advertising, heat and light, taxes, rent, insurance, and transportation. Indirect labor costs, such as legal, clerical, and janitorial services are also included in overhead costs. Don't forget to include shipping, handling and/or storage and any other cost components.


Business Forms of Organization
▼ Will some types of business organization or entity limit my liability to business creditors?
Yes. Limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs) and corporations are the most common forms. General partnerships and sole proprietorships don't restrict owners' liability, whereas limited partnerships limit liability of some partners (such as limited partners) and not others (like general partners).

▼ How can I avoid the "corporate double tax" and what exactly is it?
A "corporate double tax" happens when a business corporation (or an entity that is treated as a business corporation for tax purposes) pays a federal tax on its income, and then its owners pay another tax as they collect corporate profits. The "entity level tax" is the tax on the corporation and so an entity taxed in this way is called a "C corporation" or C corp.
Here are ways to avoid the double tax:

▼ For tax purposes, what type of business entity is best?
Each business is different, although to save on overall taxes a "pass-through" entity is generally best, as it eliminates tax at the entity level. Owners of pass-through entities are taxed on the profits of the entity that they own. Owners are able to make tax deductions for startup and operating losses, against the income from other businesses or investments.

▼ What entities are considered to be "pass-through"?
The leading "pass-through" forms are limited partnerships, LLCs, LLPs, S corps, sole proprietorships and general partnerships. You have a lot of power over whether or not your entity is treated as a pass-through for federal tax purposes.
If you have a partnership of any type or a limited liability company, it is possible to choose if your business functions as a corporation or partnership for tax purposes. This is called the "check-the-box" system by tax and business advisors. You can qualify to have it treated as a pass-through by choosing S corp. status if your entity is incorporated or if you elect to be treated as a corporation.
This decision is binding. This means if you select one entity one year and a different one the next, you will have to pay the taxes as though last year's entity was sold and use those profits towards this year.

▼ To avoid double tax and limit my liability, which entity should I choose?
Assuming you don't select to have them function as corporations, the following types will avoid double tax and limit liability: LLPs, LLCs, and limited partnerships (only for the limited partners). An S Corporation is usually another option. If you are a sole owner, the only option is an S Corp (or in certain states, LLCs).

▼ Why are limited liability companies (LLCs) so great?
Limited liability and pass-through tax treatment are both combined in LLCs. This provides benefits that are unavailable from S Corps. The main benefits are:

LLCs are sometimes permitted to have a single owner - laws vary by state. If permitted, the owner has the opportunity to elect to be under the check-the-box rules.
A good alternative where sole ownership LLCs aren't permitted is an S Corp. This structure will also defer tax, in comparison to LLCs, when a corporate giant is buying out the business.

▼ If my business is a professional practice, what are the special conditions?
A major concern is the limitation of liability, especially malpractice liability. Against the liability of your own malpractice, there is no entity that will protect you. For protection against liability for malpractice of co-owner professionals in the firm and possibly for other debts, Professional Limited Liability Companies (PLLCs), LLCs, and LLPs, when accessible for professional practices, should be used. Depending on the state law, Professionals Corporations (PCs) might not offer protection from liability for a co-owner's malpractice.
LLPs, PLLCs, and LLCs all have about the same tax rules that govern them while those for PCs are a little more liberal.

▼ If I change my form of business organization, what are the federal tax consequences?
A change of entity is an event that may need to be carefully planned and implemented to avoid a taxable event. It also may have significant future tax implications. You should consult with a professional before making any changes or decisions to your business organization.

▼ Is it necessary for state business entity rules to follow federal tax rules?
Bear in mind the differences between state tax law and state business law. Whatever tax status you select for your entity beneath the federal check-the-box system, keep in mind that you may be considered a different type of entity for state business law purposes. This means that if you choose corporate tax treatment for a partnership, it will not necessarily bring corporate limited liability.
A state normally treats the entity selected under federal check-the-box as the entity acknowledged for state tax purposes, but this is not always the case.
The law of a state may agree to pass-through status for an entity like an S Corp or an LLC, but still enforce some sort of tax on the entity.


Incorporating
▼ What is the definition of a corporation?
A legal entity that exists independently of its owners is a corporation. When correctly filled out articles of incorporation are filed with the proper state authority and all fees are paid, a corporation is created.

▼ There is a difference between an "S" corporation and a "C" corporation, what is it?
Every corporation begins as a "C" corporation and must pay income tax on the taxable income made by the corporation. After filing federal form 2553 with the IRS, a "C" corporation becomes an S corporation. The net income or loss of an "S" corporation is included in their personal tax returns and are "passed-through" to the shareholders. There is no double taxation as with "C" corporations because income tax is not taxed at the corporate level. Also known as Subchapter "S" corporations, they are limited to 100 shareholders.

▼ Is an attorney necessary to incorporate?
Obtaining a lawyer is not a necessity to incorporate (except in South Carolina, where an attorney's signature is required). You can fill out and file the articles of incorporation by yourself in every other state. However, you should be completely briefed on all aspects of the law beforehand.
A good corporate attorney can be an irreplaceable resource to a small business despite the expensive hourly rates. A one-hour consultation can be very beneficial if you are unsure of the process, or if there isn't time for research. Prepare a list of questions before the consultation.

▼ Is there a process for naming my corporation?
Take time to think about a name for your corporation. The most common rule for naming your corporation is that it cannot be misleadingly similar to a company that is already formed, but each state has their own rules. A suffix must be included in the corporation name such as "Incorporated", "Inc.", "Company", and "Corp." Each state has suffix standards of their own.

▼ Are there benefits to incorporating?
Limiting your liability to the assets of the corporation is the primary advantage of incorporating. It is common that shareholders are not responsible for the debts or obligations of the corporation. Unless you didn't personally sign for the loan and your corporation defaults on it, your personal assets are safe. With a sole proprietorship or partnership, this is not the case. There are many tax advantages that are available to corporations and not sole proprietors.
A few of the advantages are:

▼ What exactly is a Registered Agent?
In the majority of states, a corporation is required to name a "registered agent." The agent must be located in the formation state. The registered agent must be accessible during regular business hours to receive official state documents or service of process.

▼ Do I need a specific number of Directors or Shareholders?
Most states permit one person to function as director, shareholder, and all officer roles.

▼ Are there a number of shares of stock I should choose and at what par value?
You may select any quantity that you wish. The par value is either "No Par Value" or any dollar amount per share as you choose. In some states you must issue the stock for no less than the par value. Some states establish their fees from the amount of shares approved, multiplied by the par value.

▼ What does EIN stand for and what is a Federal Tax Identification Number?
A Federal Tax Identification Number, which is also known as an Employer Identification Number (EIN) is required for each corporation so the IRS may track payroll and income taxes paid by the corporation. Just as a Social Security number, an EIN is used for almost every function of the business.

▼ After I incorporate, what do I do next?
If your director(s) have yet to be designated in the articles, you will need to hold your first shareholder meeting to select your director(s). After that, you will need to hold the first organizational meeting of directors. During this meeting, you will hold elections for officers, approve the company's bylaws and issue your stock, as well as other actions.


Limited Liability Companies
▼ Who should establish an LLC?
If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC (Limited Liability Company). For instance, you might be concerned that your commercial liability insurance will not completely protect your personal assets from possible slip-and-fall lawsuits or claims by your suppliers for unpaid invoices if you open a storefront business that works directly with the public. An LLC gives you personal protection from these and other possible claims against your business.
However, not every business can function as an LLC. Businesses typically prohibited from establishing LLCs are those in the banking, trust and insurance industries.

▼ Is an LLC or an S corporation better?
Even though the special tax status of the S corporation does away with double taxation, it doesn't have the elasticity of an LLC in distributing income to the owners.
Various classes of membership interests are offered with an LLC, whereas you can only have one type of stock with an S corporation.
In an LLC, a variety of individuals or entities may have interests, although the number of shareholders who can have ownership interest is restricted to no more than 100. C corporations, many trusts, LLCs, nonresident aliens, partnerships, or other S corporations may not have ownership of S corporations. It is also important to note that LLCs are permitted to have subsidiaries without limitations.

▼ What does an LLC Operating Agreement signify?
It allows you to structure your financial and working relations with your co-owners in a way that best fits your company. Your co-owners and you determine each owner's percentage of ownership in the LLC, his/her rights and responsibilities, his/her share of gains or losses, and what will become of the business in case one owner leaves.

▼ Is it necessary to have an Operating Agreement?
It is possible to have a written operating agreement in most states, but you are not advised to begin a business without one. The following are a few reasons why an operating agreement is necessary:

▼ Is it necessary to have LLC meetings?
Failure to have shareholder or director meetings can cause the corporation to be subject to alter ego liability, although this is not typical of LLCs in most states. For example, in California the failure of an LLC to have meetings with members or managers is normally not regarded as grounds for enforcing the alter ego doctrine if the LLCs Articles of Organization or Operating Agreement do not state the requirement of said meetings.

▼ Are there exceptions to Limited Liability?
Even though LLC owners enjoy the benefits of limited personal liability for many transactions of their business, it is important to note that this protection is not absolute. The owner of the LLC may be held personally responsible if he/she:

The most important is the final exception. There are times when a court may declare that an LLC isn't real and find that its owners are actually conducting business as individuals who are in fact responsible for their actions. To prevent this, be sure that your co-owners and you:

When your limited liability protection doesn't shield your personal assets, a good liability insurance policy will help. For example, if you are a massage therapist and you hurt a customer's back by accident, you will be covered by your liability insurance policy. This insurance also comes into play to protect your personal assets in the event that the court ignores your limited liability status.
This insurance can also protect your corporate assets from claims and lawsuits, as well as protect your personal assets in certain situations. However, it is important to realize that commercial insurance typically doesn't protect corporate or personal assets from unpaid debts of the business, whether they're personally insured or not.

 


Banking
Financing
▼ What can I do to raise money for my small business?
Although the process is complex and frustrating, raising capital is the most basic of all business activities. When looking for financing, there are various sources to consider. For most new businesses, the main source of capital comes from savings and other forms of personal resources. There are better options available than credit cards that are often used for financing, even a small business loan.
When beginning, entrepreneurs usually look to private sources like friends and family. Generally, the money is loaned at a low interest rate or interest free, which is very beneficial at the beginning.
The most common source of funding, not including personal resources, are credit unions and banks who will provide a loan if it is possible to show that your offer is worthwhile. Other sources are venture capital firms that aid businesses in exchange for partial or equity ownership.

▼ For business financing, what kinds of loans exist?
You must know the exact amount of money that you need, what your purpose is and how you will repay it in order to be successful in getting a loan. You must convince the lender in a written proposal that you are a good credit risk.
There are two basic kinds of loans, although terms vary by lender:
Short-term and long-term, maturity periods of up to one year are generally short-term, which include accounts receivable loans, working capital loans and lines of credit.
Maturities greater than a year and less than seven years is a typical long-term loan. Equipment and real estate loans can have maturity up to 25 years. Major business expenses such as purchasing real estate and facilities, durable equipment, construction, vehicles, furniture and fixtures, etc. are a few purposes for long-term loans.

▼ When considering a loan request, what do banks look for?
The bank official who reviews the loan request is focused on repayment. Most loan officers request a copy of your business credit report to determine your ability to repay.
The lending officer will consider the following issues while using the information you provided and the credit report:

▼ What do I need to include in a good loan proposal?
The following main points should be contained in a good loan proposal:
General Information

Description of Business

Management Profile

Market Information

Financial Information


Getting a Loan
▼ What are the advantages of prepaying a mortgage, and should I if I can?
It is highly recommended that you prepay as much of your mortgage as possible every month, which will drastically reduce the total amount that you pay.
However there are times where this could be disadvantageous.
If you are in a situation where you don't have funds to cover three to six months of expenses, it is recommended that you save that amount before you pay additional amounts on your mortgage.
If you have a large amount of credit card debt, over the long run, you will save more money by knocking down those high interest loans first.
There also may be times where that money would be more wisely invested in the market, depending on the expected rate of return versus how much you would save in early payments.

▼ Should I refinance?
In order to refinance your home, the current market rate should be at least 2 percentage points lower than what you are paying on your mortgage. Speak with a lender to see what rate you may be able to get. Remember to factor in costs like appraisals, points from the lender, and others, which may not be apparent in your initial price assessment.
After assessing that cost, get a quote of what your total payment would be after refinancing. The simplest way to find out how long it will take to recover the refinancing costs will be to divide your closing costs by the monthly savings with your new monthly payment.
Also take into consideration how long you plan on holding your home. It may not make sense to refinance the home if you plan on selling in the near future.

▼ Does borrowing against my securities make sense?
This could be a low-cost option for borrowing but there is some risk involved. Deductions are not allowed for the interest unless that loan is used to invest in a business.
▼ Can a Home Equity Line of Credit be beneficial?
A home equity line of credit is a form of credit which allows you to borrow and use your home as collateral. Since for many, a home is their greatest asset, they tend to use these sorts of credit lines for large things like a college education for their children, medical expenses or for large unexpected bills as opposed to luxuries or day to day expenses.
After receiving a home equity line, one is approved for an amount of credit, or a maximum that may be borrowed at any given time for the duration of the plan.
On many occasions a lender will set a credit limit on a home equity loan by setting a percentage, after considering the amount of the appraised value of the home and the amount owed on the home.
After the line of credit is approved, you will be able to borrow up to the set limit, usually in the form of checks. In some instances a borrower may be given credit cards to utilize, sometimes with minimum spending requirements.

▼ What costs are associated?
The costs associated with getting a home equity loan are basically the same as a refinance.

▼ How can you lock in an interest rate?
After choosing a lender, you may be quoted a rate, which may "float" until the actual closing, meaning that it is not guaranteed. With a lock-in you are guaranteed that the interest rate will not change before your closing. You may want to ask for an agreement that ensures that your rate is capped, but allows you to take advantage of a lower rate if the rate lowers before your close.
There is usually a time limit that a lender will put on this guarantee, and if you don't close before that time, they no longer have to honor that lock-in. It is recommended that you stay in close contact with your loan officer during the process to ensure that you are able to close in a timely manner and get the locked-in rate.

▼ What disclosures should I get from my lender?
The lender is obligated by the Truth in Lending Act to provide you with a written statement with a list of all of the costs associated with the loan and the terms of financing. This statement must be delivered to you before the settlement.
If you want to rescind the loan, you may do so within 3 business days of the receipt of the Truth in Lending paperwork, receipt of cancellation notice, or your settlement, whichever was the most recent.
You will want to carefully review the disclosure that you are given before you sign. This disclosure will have all of the pertinent information about your loan, the finance charge, the amount financed, the payment schedule and the APR.

▼ How does a reverse mortgage work?
A reverse mortgage is a way for you to take advantage of some of the equity that is currently tied up in your home. A reverse mortgage works in the same manner as a normal one, reversed, and the homeowner is paid monthly versus having to pay. The major difference between this and a home equity loan is that you aren't required to pay anything back to the lender as long as you retain ownership of the home.
The major benefit of a reverse mortgage is that it allows homeowners to take advantage of some of the equity that they have built up in their homes without the burden of having to pay it back in monthly payments. This could be used to supplement income, defray the cost of medical aid, pay for college education, stop a foreclosure, or make it possible to retire.
When the homeowner sells the home or dies, the home must be paid off and, if sold, the remainder of equity is given to its rightful heirs.

▼ Is any loan interest tax deductible?
These interests are deductible, some fully, some partially:

▼ Can you stop paying Private Mortgage Insurance (PMI)?
Usually people that make a down payment of less than 20% are required to pay private mortgage insurance by their lender. Once you reach 20% equity, PMI is cancelled, and any money accrued in your escrow account towards it will be credited to you.

Loan FAQ
▼ What are the possible implications if I co-sign for a loan?
The co-signer enters an agreement to be responsible for the repayment of the loan if the borrower defaults. A lender will usually not go after the co-signer until the borrower defaults, but they can lawfully go after the co-signer at any time.
It has been stated by finance companies that in the case of a default most co-signers actually pay off the loans that they have co-signed for including the legal and late fees that end up being tacked on. Clearly this can be a large financial burden, and it can also reflect negatively on the co-signer's credit.
If you do agree to co-sign on a loan for someone, you can request that the financial institution agrees that it will refrain from collecting from you unless the primary borrower defaults. Also, make sure that your liability is limited to the unpaid principal and not any late or legal fees.
Upon co-signing you may have to brandish financial documents to the lender just as the primary borrower would have to.
Co-signing for a loan gives you the same legal responsibility for the repayment of the debt as the borrower. If there are late payments, this will affect your credit as well.
If you are asked to co-sign for someone, you may want to provide another option and suggest that they get a secured credit card. This way, they can build up their own credit history and not open themselves up to the possibility of taking on a debt too large, placing themselves, and you, in financial danger.

▼ How can I ensure that I get the best possible rates on my loans?
Be careful when signing up for a home equity loan or line of credit - the disclosed APR does not reflect the total fees that are associated with the loan, such as closing costs and others. Do not forget to compare this cost, as well as the APR, across multiple lenders.
The vast majority of home equity plans will utilize variable interest rates instead of fixed. A variable rate reflects the current prices of a publically available index, like the prime rate, or the U.S. Treasury Bill rate, and the rate of your loan will oscillate accordingly.
Generally a lender will offer a discounted introductory rate, often referred to as a "teaser rate". Take caution - these rates can sometimes fluctuate unless it is stated that there is a fixed rate. Sometimes the lender will give you a great introductory rate that is variable and can change with time to a rate much higher than you originally agreed to.
Since the rate is linked to an index rate, find out which one it is and how much their margin is. Some companies will have a cap on how much your rate can vary within a particular period of time.

▼ Is it better to get a home equity line of credit or a traditional second mortgage?
With a second mortgage you will have a fixed amount of money that is repayable over a fixed period of time or is due in full at a given time. A home equity line of credit, on the other hand, is much more open-ended. You have a line of credit that can be borrowed from as you wish, and generally has a variable rate as opposed to a fixed rate.
Pay attention to the fact then when the APR is calculated it takes into account the interest rate charged plus points, finance charges and other fees, whereas with a home equity line the APR is calculated with solely the periodic interest rate.

▼ What will the loan cost?
Before you are charged any fees, the Truth in Lending Act requires that the lenders disclose to you all pertinent terms of the agreement: the APR, payment terms, other charges, and any information about variable interest.
Generally you will receive these disclosures at the same time that you receive an application form and any additional disclosures promptly after. If any of the terms change prior to the loan closing, the lender must return all fees that have been applied, should you choose to back out of the deal.
The finance charge is the total amount paid in exchange for the use of credit, which includes the interest rate, service charges and insurance premiums. The Annual Percentage Rate (APR) is the percentage paid on a yearly basis.


Bank Accounts FAQ
▼ Which banking fees should I watch for with a new bank account?
Keep in mind that banks are always required to notify you of the fees for their accounts. The best account to choose is usually the one with the lowest fees, regardless of the interest rate.
Keep an eye out for potential extra charges when shopping for checking accounts. Ask about monthly fees, check processing fees, and ATM fees. Also be wary of cost-free checking accounts, as the bank may charge you if your balance drops below a certain amount. Also, the charges for printing new checks can often be much higher at your bank than through an outside printing provider.
In this day and age, it doesn't really benefit you to put money into an old fashioned "passbook" savings account. Often monthly account fees overshadow the small amount of interest you will earn. Instead, put your money into a checking account. If it is a larger sum, look into a money market account. In this type of account you will earn more interest than in a savings account, but watch out for additional charges if your balance drops too low.

▼ What are the different types of bank accounts I can choose from?
Checking Accounts
Checking accounts provide you with quick, convenient access to your funds. You are able to make deposits as often as you wish, and most banks provide you with an ATM card to access your funds, or to charge debits at stores. Of course, you can also use the conventional method of writing checks.
Some checking accounts pay interest. These are called negotiable order of withdrawal (NOW) accounts. The more commonly used type, a demand deposit account, does not pay interest.
There are several fees that are associated with checking accounts, other than the check printing fees. These will vary depending on the bank you choose. Some will charge a monthly maintenance fee regardless of your balance, others will charge a monthly fee if your balance drops below a certain point. Further, some institutions charge you based on the transactions you make, such as each ATM withdrawal, or each check you write.
Money Market Deposit Accounts (MMDA)
An MMDA is basically an account that accumulates interest. You can also write checks from it. The rate of interest is usually higher than that of checking or savings accounts. However, they require a higher minimum balance in order to earn that interest. The higher your balance becomes, the higher your interest rate may rise.
However, it is less convenient to withdraw money from an MMDA than it is from a checking account. You are limited to six transfers from the account a month, and only three of these can be through writing a check. Also, there are usually transaction fees associated with these accounts.
Savings accounts
You may make withdrawals from savings accounts, but there is less flexibility than with a checking account. Like an MMDA, the number of withdrawals or transfers may be limited.
There are a few different types of savings accounts. The two most common are passbook and statement. Passbook accounts involve a record book that tracks all deposits and withdrawals and must be presented upon making these transactions. With a statement savings account, you are mailed a statement showing all withdrawals and deposits.
Minimum balance fees may also be charged on savings accounts.
Credit Union Accounts
These accounts are similar to those of banks, but with a different title. In a credit union, you would have a share draft account (a checking account), a share account (savings account), or a share certificate account (certificate of deposit account).
The great thing about credit unions is that they usually charge less for banking services than banks do. If you have access to one, use it!
Certificates of Deposit (CD)
CDs are time deposits. They offer a guaranteed rate of interest for a specified term which can be as short as a few days or as long as several years.
When you pick the term you generally can't withdraw your money until the term expires. In some cases the bank will let you withdraw the interest you have earned on the CD. Because CDs are for a set amount of time, the rate of return is usually higher - and the longer the term, the higher the annual percentage yield.
A penalty can be issued if you withdraw your funds before the maturity of your term. Sometimes the penalty can be quite high, eating into your interest earned as well as your principal investment.
Your bank will notify you before your CD matures, but often CDs renew automatically. You should keep track of your maturity date if you would like to take out your funds before the CD rolls over into a new term.

▼ What type of account should I go with?
This depends on how you plan to use the account. If you want to grow your money and do not need to access it readily, put it in a CD.
If you need ready access to your money, a savings account could be a good option.
If your primary concern is paying bills, a checking account would be easiest.
Remember, if you only write 2-3 checks a month, an MMDA could suit your needs very well. They have a higher rate of return, but also have a higher minimum balance requirement.
Checking accounts can be very efficient. They simplify your recordkeeping - if you cancel a check, you have a receipt at tax time, and the check register is an easy way of tracking monthly expenses.
Bank institutions have varying fees and features with each of their accounts, so it is important to find out what these are before making a final decision on which bank and which type of account to choose.
A good way to get the most out of a checking account is to inquire into what the minimum balance is and make sure you maintain that amount. Another way to maximize efficiency is to get a checking account that pays interest, or go with a bank that lets you distribute funds into both checking and savings accounts that, combined, reach the minimum balance.

▼ How should I "shop around" for an account?
There are several features of accounts you should investigate at various banks.
Interest Rates

Fees

Additional questions:

Limitations

CDs

▼ How much protection do I get from federal deposit insurance?
Only deposit accounts at federally insured depository institutions are protected by the FDIC. Check to see if your bank falls into this category. In general, the government will protect accounts up to $250,000. If you have an account with special ownership, such as a trust, or an account with co-owners, this may change the amount of coverage you receive.
If you invest in an annuity or mutual fund with the institution these are usually not protected by the FDIC.

▼ Can I negotiate my checking account fees with my current bank?
Yes. Here are some tips on how to approach this:

▼ What is overdraft protection and should I have it?
This protects you from the possibility of bouncing checks. If you write a check and do not have sufficient funds, it will draw money from your line of credit to make sure the check goes through.
This is a good service for people who are self-employed because if business is seasonal and there are times of the year that have low cash flow, the overdraft protection can help you pay less interest than other forms of borrowing.

▼ What is the Truth in Savings Act?
This is a federal law that requires depository institutions to inform you of the following:

Because of this act, you will get a disclosure of all this info from the bank you are opening an account with. This act also requires that banks provide you with this info upon request.
The Act also requires that interest and fee information be provided to you in periodic updates, and that if you have a rollover CD, you will be notified before the maturity date.

ATM Transactions
▼ How do ATM transactions work?
There are a variety of electronic transactions one can execute:

▼ What should I do if I find an error on an EFT or ATM transaction?
Call your bank as soon as possible, or within 60 days of the error. They may ask you to submit your account information and the alleged error in writing. Generally they have 10 business days to investigate the error, and if they fail to come up with an answer your funds should be reimbursed. If the funds in questions were withdrawn from a point-of-service debit or a foreign electronic transfer, the bank may be allowed more time to investigate the error. In the meantime, however, you should have full access to the funds in question.
Your bank should notify you immediately of their findings. If you were correct about the error, they must immediately finalize the re-credit to your account. If there was no error, they must present in writing the findings of their investigation, and notify you of any funds they have deducted after you had been re-credited.

▼ What if my ATM card is lost or stolen?
It's important to note the difference in how you will be reimbursed for credit cards vs. ATM or debit cards. For a credit card your loss is limited to $50.
However, for an ATM or debit card the loss is limited to $50 if you notify your institution within 2 business days after the card is lost or stolen.
Keep in mind that the loss could be up to $500 if you do not tell your bank within two business days of the loss or theft.
If you do not report unauthorized transfers within 60 days of your statement being mailed to you, you run the risk of having unlimited loss on transfers made after the 60 days.

▼ Can I use my ATM card abroad?
Yes, there are plenty of ATMs all around the world, but it is wise to check beforehand. With Visa and MasterCard, you can pinpoint ATM locations worldwide on their website.
Often it is a good idea to travel with an ATM card because you can withdraw foreign currencies at a better exchange rate, and also if you lose your card and report it promptly you will not experience the type of losses you would with cash. Be wary of fees your bank will charge you for each withdrawal - it may be wise to withdraw larger sums to minimize the frequency of transactions.

▼ How do I know when a pre-authorized credit has been deposited into my account?
Your institution may notify your employer, or you. Many times your bank may only notify the recipient if a scheduled credit does not come through. Often, you can check your statement online or call your bank to check on your credits.

▼ How do I cancel a pre-authorized payment?
You can call or write your bank, or often stop the payment by going to your bank's website. Do this at least 3 days before the scheduled payment. It is a good idea to request a written confirmation of giving a telephone notice to stop the transfer.

Insurance
Car Insurance
▼ How can I keep my car insurance costs low?
The first thing to do is bargain shop to make sure that the rates you are getting are reasonable in comparison to other companies. Within the policy that you have, these are a few tips that could save you a few bucks.

▼ What coverage is essential for my auto policy?
You will need to have liability coverage, property damage, and bodily injury. This way you will be protected if you are at fault and cause damage to a person or their property. It is recommended to have $300,000 per accident to pay medical costs and other costs that may be affiliated. You should also have at least $50,000 in property damage.
You should have uninsured motorist coverage, which will protect you against financial damages caused by an uninsured motorist or a hit and run, should one occur.

▼ How do I file an auto insurance claim?
A few tips to ensure that you claim correctly and receive your money as quickly as possible:

▼ How much is it possible to save by comparison shopping?
It is possible to save up to 50% by changing your companies.
There are many factors that are taken into account by the issuing company, such as:

Do not choose your insurer strictly on price, however. Quality and level of service should be a factor in your choice as well, and their ratings should be checked.

▼ What deductible should I have on my car insurance?
Usually it is most cost efficient to get a large deductible which will drastically reduce the amount you pay for the service. For instance, raising your deductible from $100 to $500 will save you around 10 to 15 percent. A change from $100 to $1000 will generally save you anywhere from 25 to 30 percent.
If you are in an accident and the damage isn't substantial, it is more economical to pay to fix the car yourself rather than involve the insurance company and having them raise your premium.

▼ Should I keep collision coverage on my old car?
Collision coverage ensures the repair of your car whether you were at fault or not, even if your car is damaged by fire, flood, wind or hail. Depending on the value of your car, this coverage may not be cost effective.

▼ Does my car affect my insurance rate?
It is a good idea to check the insurance rates that are given to certain cars before you buy them. Usually as the cost of the car rises, so does the insurance premium. The insurance rates on used cars are generally substantially lower than those of new cars.

▼ How significantly does my address affect my insurance?
There is a big difference in the premiums that people pay in the suburbs where there is much less traffic congestion as opposed to people that live in big cities with many accidents per capita. Usually this is judged by the zip code of which you register as your home.

▼ Should I pay monthly or semi-annually?
Monthly payments are convenient and you don't have to pay as much at once. However, monthly payments end up costing you more in the long run.

▼ How else can I save on insurance?
There are a variety of discounts available from the insurance company for all sorts of reasons: living close to work, getting good grades, and so on. Be sure to ask for a list of these discounts to see if you qualify for any of them. Agents may not ask you about these so make sure that you bring it up.

▼ What will worker's compensation cover if I ever need it?
Worker's compensation will only cover you for injuries that occur on the job site. The compensation varies from state to state, but most states will pay throughout the lifetime of the worker, in the case of a permanent disability.
You can get all of the information that you need regarding individual state's worker's compensation benefits by contacting your state's Department of Labor.

▼ What exactly is long-term care insurance and how does it work?
With long-term care insurance (LTCI), you are guaranteed to be paid a certain amount of money towards care for a specified length of time.
As the age of the covered individual increases, so does the premium, so in order to get a better rate, this is something that you may want to purchase earlier in life while the premiums are still low.
Indemnity-type insurance actually distributes the money to the caregivers, and pays the daily benefit directly to the insured party; this type can be easier because there is much less paperwork and more flexibility about how the money can be spent.

▼ What should I consider when choosing a long-term insurance provider?
It is important to look at the stability of the company that you are looking into, because they need to be there when you are in your time of need. Companies who sell long-term insurance may not be as closely regulated as other insurance companies. You can find the ratings of these companies from Standard & Poor's.

▼ What can I do to get a good price on my homeowner's insurance?
Clearly you should always perform a good amount of due diligence when searching for any policy. Be sure to compare the differences in services offered and prices quoted. There are many discounts available for different things, don't forget to ask if you qualify for any of them.
Remember that the deductible will largely affect the price of the premium. It is a good idea to keep the deductible as high as you feel comfortable with to keep the premium down.
You can generally get a better deal when you purchase your auto and house policies from the same company and you can also get a better rate by not insuring the land.

▼ What level of home insurance should I buy?
Make sure that you are insured against whatever natural disasters are common in your area, because insurance against these differs. If you don't specifically ask, you may not be covered.
Be sure to insure for 100% of rebuilding costs. The price of rebuilding your home could differ greatly from the amount that your home is valued at today.

▼ What can I do to ensure that I am insured adequately?
Make a list of your possessions in your household. The better documented this is the more likely you will be to be able to replace them.
Make sure that you inform your agents of any changes that you make to the home so that if anything happens to the structure, the recent changes will be reflected in the payout.
Check to see if there are any specific limits to what is insured by your company. Sometimes a person may think they are covered for certain things, but the limits negate that.

▼ What deductible should I have?
It is always a good idea to keep the deductible as high as you are comfortable with. A high deductible will substantially decrease your premium.
Do not insure the land, because the land isn't at risk of being demolished in a flood, fire or other natural disaster and you will save on your premium.

▼ What other ways can I decrease my home insurance costs?
If a home has a sophisticated alarm system and/or a sprinkler system to prevent against fires, the insurance company may drop the price of a policy. Be sure to ask your provider and do the calculations to see if it will be cost efficient.

▼ When should I review my policy?
At least once a year, you may want to look over your policy to ensure that it will cover all of the possessions in your home and any additions that you have made over the last 12 months.

 

Life Insurance FAQ
▼ How are people classified for rate purposes?
To ensure that you receive the best rate possible it is useful to understand how these premiums are calculated by insurers. Firstly insurers will place people into four main categories:

Someone who has a semi-serious illness such as diabetes or heart disease can be insured but will pay a higher premium. People with a chronic illness will be placed in the substandard category. Someone with a terminal illness will be rendered uninsurable.
People with high risk jobs or hobbies will be considered substandard as well.
The premiums that you are charged will correlate with the category that you are placed in. Since the categorizing is not an exact science, one company may place you in a different category than another, thus drastically changing the prices of your premiums.
Once you are approved for coverage from a company, they cannot deny you coverage for any reason unless you cease payment.

▼ What should I be on the lookout for when I am purchasing life insurance?
First of all, beware that many insurance salespeople work on a commission basis, and may want to persuade you to purchase the policy that brings them the largest commission, rather than getting you the policy that makes the most sense for you.
Most of all, be sure that the company you are buying from will be in existence when you need them. Make sure that you check the insurer's rating before you consider doing business with them.
Always review the costs of any recommended policy. The commissions will be stated, and you can see exactly where the money that you contribute will go.
Ask the insurance agent to explain the different policies and why the one you agree on is the best for you considering your circumstances.

▼ How can I easily compare prices between insurance companies?
In most states there will be a set of rules laid down by a group of insurance regulators. Agents may be required to calculate two different types of indexes to aid in price shopping.

The net payment index calculates the cost of carrying the policy for ten to twenty years. This can be judged easily by remembering that the lower this number is, the more inexpensive the policy is. This is most helpful if you are more concerned with the death payout than the investment.
On the other hand, the surrender cost index is more useful to those who are concerned with the cash value of the investment. The lower this number is, the better.
The cash surrender value is what you will receive in return if you were to surrender the policy, which is different than the cash accumulation value. If you are checking the prices of universal life policies, if the policies have different premiums and death benefits, the policy with the higher cash surrender value would be the better investment.

▼ Why should I have life insurance? Do I really need it?
The main reason that people purchase life insurance is to know that in the event of their passing, their children and loved ones will be taken care of. Life insurance can also help with the distribution of your estate. Your payout could go to family, charity, or wherever you choose to distribute it.
The main reasons to buy life insurance would be because you have dependents that would be put in a tough position without you providing for them. For example, if you have a spouse, a child, or a parent who is dependent on your income, you should have life insurance.
If you have a spouse and young children, you will need more insurance than someone with older children, because they will be dependents for a longer amount of time than older children. If you are in a position where you and your spouse both earn for the family, then you should both be insured in proportion to the incomes that you garner.
If you have a spouse and older children or no children, you will still want to have life insurance, but you won't need the same level of insurance as in the first example, just enough to ensure that your spouse will be provided for, to cover your burial expenses, and to settle the debts that you have accumulated.
If you don't have children or a spouse, you will only need enough insurance to make sure that your burial expenses are covered, unless you would like to have an insurance policy in order to help in the distribution of your estate.

▼ What amount of life insurance should I have?
In order to figure out how much insurance you need, you will need to explore your current household expenses, debts, assets, and streams of income. If you need assistance in this, consult either your accountant or financial advisor.
The amount of money that you want to leave behind for your dependents should allow them to use some of the money to maintain their current standard of living, then reinvest another lump sum to ensure that they will be well off in the future.
When attempting to calculate the amount of money that you need to leave behind, be extremely meticulous. If you err low, your family may not receive the help that they need from the insurance company, and if you err the other way, you will be spending more than necessary in insurance premiums.

▼ Which type of life insurance fits me best?
There are 7 major types of life insurance:

▼ Term
Term insurance is best described as a policy for which you pay over a specific amount of time. In the event that you die within that period of time, your beneficiaries will receive a payoff.
People that are under the age of 40 will find this package less costly than a whole life policy. These policies generally do not build in cash value. However, they can convert over to a whole life policy without a mandatory physical.

▼ Renewable
The policy which is bought most frequently is the Renewable Term Policy. This policy renews every year without you having to do anything, and there is no need to input any new information or take physicals. This can continue every year until you are in your 70s. The policy will increase incrementally every year, along with your age.

▼ Re-entry
With this life insurance policy, you will have to periodically take physicals for the company to judge your rate of risk. If you don't, you will be subject to paying an extra premium.

▼ Level
In the Level Term policies, you will be locked into a given rate of premium and you will stay there during a certain period (although not necessarily during the entire period of coverage).

▼ Decreasing
A Decreasing policy is one which decreases in face value with time while the premium remains the same.

▼ Whole Life
Whole Life is the most traditional policy given; this has a cash-value build up, sometimes offers dividends, and provides death benefits. This is not a policy that needs to be renewed constantly, as long as the payments are made, the policy will continue until death.

▼ Universal Life
This policy is similar to the whole life policy. However, it offers more flexibility in many ways; you will have different options in cash value growth and the payment of premiums.

▼ Variable Universal
Variable Universal policies will give you the option to choose the investments for your cash value. This is more risky, but simultaneously gives you more control over where this money is invested.

▼ Variable Whole Life
This is the same as the previous in regards to control over the investments that are made. The difference between these two is the same as the difference between Whole Life and Variable.

 

Long-Term Care Insurance FAQ
▼ Is it worthwhile for me to purchase long term insurance?
There are good arguments for and against purchasing this type of insurance, and every person's situation will differ.
Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.
If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don't have sufficient funds to support yourself and your personal help.

▼ What features should I look for in a Long-Term Care Insurance Policy?
The four main factors that you will want to take into consideration when looking for a LTCI policy are: flexibility, eligibility, inflation, and duration.
Check to make sure that the flexibility of your policy allows for personal help so you can stay in your home for as long as possible before assisted living is absolutely necessary. Some of the policies will allow you to be paid cash for you to distribute as you please.
Make sure that your policy will pay for more than just what is medically necessary. These policies may not cover all of your needs.
Make sure that you are protected against inflation; you can place a clause into the policy that your payout adjusts 5% annually to cover you against raising prices.
Remember that a policy which lasts 5 years is probably more than you would need. A policy of two to three years will generally be enough.

▼ Do I really need Long-Term Care Insurance?
Over 40% of the American population will eventually need to be in a nursing home or an assisted living facility. Your chances of needing this depend on a number of health factors.

▼ What is the elimination period?
The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

▼ How are Long Term Insurance Companies rated?
These companies are rated in the same manner in which stocks and bonds are rated, through Standard and Poor's.

▼ How can I ensure that I have adequate coverage?


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