UNDERSTAND THE TIME VALUE OF MONEY
When making financial decisions, do you consider the time value of money? If you have a basic understanding of time-value concepts, you’ll be able to make better choices in many business and personal financial situations.
* Here’s an example. Say you want to sell a piece of property for $10,000 cash. A potential buyer offers $5,000 cash down, and $5,500 one year from now. How does the buyer’s offer compare to your terms?
If you receive the entire $10,000 today, let’s assume you could earn 5% on the money. A year from now you’ll have $10,500, which is referred to as the “future value” of $10,000.
On the other hand, the future value of the buyer’s offer turns out to be $10,750, which is the sum of the payment one year from now ($5,500) plus the future value of the down payment ($5,250). If the buyer has good credit, you may be better off taking the buyer’s offer.
* Calculate present value. Another way to evaluate this kind of offer is to compare the “present value” of both alternatives. Using a financial calculator or special financial table, and still assuming you can earn 5% on your money, the present value of the buyer’s offer is calculated to be $10,238, compared to a present value of $10,000 for a lump-sum cash payment. A higher present value means a better deal for you, so the buyer’s offer is more attractive.
If you’re on the other side of a transaction (buying something), time-value concepts can also help you make better decisions. For example, a time-value analysis can help you decide whether to buy or lease a car. You can also use time value to analyze investment alternatives, negotiate a divorce settlement, or hammer out the best possible deal when leasing real estate or business equipment.
If you’re about to enter into any financial arrangement that requires you to pay money over time, or entitles you to receive periodic payments, time value could be an important issue. Before you sign on the dotted line, let us help you work through the numbers.
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UPDATED NUMBERS FOR YOUR 2012 TAX PLANNING
The IRS is required by law to adjust certain tax numbers each year. Here are some of the adjusted numbers you’ll need for your 2012 tax planning.
STANDARD MILEAGE RATE for business driving remains at 55.5¢ a mile. Rate for medical and moving mileage decreases to 23¢ a mile. Rate for charitable driving remains at 14¢ a mile.
SECTION 179 maximum deduction decreases to $139,000, with a phase-out threshold of $560,000.
TRANSPORTATION FRINGE BENEFIT limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.
SOCIAL SECURITY taxable wage limit increases to $110,100. Retirees under full retirement age can earn up to $14,640 without losing benefits.
KIDDIE TAX threshold remains at $1,900 and applies up to age 19 (up to age 24 for full-time students).
NANNY TAX threshold increases to $1,800.
HSA CONTRIBUTION limit increases to $3,100 for individuals and to $6,250 for families. An additional $1,000 may be contributed by those 55 or older.
401(k) maximum salary deferral increases to $17,000 ($22,500 for 50 and older).
SIMPLE maximum salary deferral remains at $11,500 ($14,000 for 50 and older).
IRA contribution limit remains at $5,000 ($6,000 for 50 and older).
ESTATE TAX top rate remains at 35%, and the exemption amount increases to $5,120,000.
ANNUAL GIFT TAX EXCLUSION remains at $13,000.
ADOPTION TAX CREDIT decreases to $12,650 for adoption of an eligible child.
ALTERNATIVE MINIMUM TAX (AMT) exemption decreases to $33,750 for singles and to $45,000 for married couples.
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Don’t forget the “nanny tax”
If you paid a household worker, such as a gardener, housekeeper, or nanny, more than $1,700 in 2011 (or will pay more than $1,800 in 2012), you may be liable for payroll taxes on the wages paid. For details or filing assistance in meeting your nanny tax obligations, give us a call.
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Highlight January tax deadlines on your calendar
* January 17 – Final 2011 individual estimated tax payment is due, unless your 2011 tax return is filed and taxes are paid in full by January 31, 2012.
* January 17 – Due date for calendar-year trusts and estates to pay final installment of 2011 estimated tax.
* January 31 – Employers must furnish employees with W-2 statements for 2011. 1099 information statements for 2011 must be furnished by payers. (Deadline for 1099-B and consolidated statements is February 15.)
* January 31 – Employers must generally file 2011 federal unemployment tax returns and pay any tax due.