jIM_Ohio is Investing to retire early

The purpose of this post to have a place for me to refer people to this link if they are trying to decide how much risk to take.

If you have other factors which influence risk, feel free to comment. This same post will appear in forums soon.


INVESTMENT RISKS
Nothing is risk free. Nothing. There are many types of risks. Do you know what the following risks are?
a) market risk
b) principal risk
c) interest rate risk
d) currency risk
e) investment risk
f) geo political risks
g) information risk
h) sector risk
i) liquidity risk
j) inflation risk

I will give some examples of the above.

Market risk is the risk most people talk about. Its the concept that you invest $5000 today, and the market's movements up and down take away some of that $5000 you put into your IRA this year. Could be 10% of it ($500) or could be 50% of it ($2500). You have no control over the market's movements either. If you invest in stocks and bonds, you subject yourself to market risk (or risk of principal).

The best way to lower market risk or principal risk is to do any of the following:
1) own more than one mutual fund or stock or bond or investment type.
2) Keep some money in cash

Interest rate risk. If you invest cash, you take on this risk. Interest rate risk takes on two facets- one facet is that you put money into your savings account or money market account, and the rate the bank charges you interest changes daily. Invest today, get a 1.5% rate... rates tomorrow change and you get a 1.3% interest rate, 2 years later rates change and you are getting a 6% interest rate. You have no control over the rates the bank is giving you.

The second type of interest rate risk is the idea you lock in returns with a bond or CD, and the changing of interest rates affects the value of your investment. For example if you put $2000 into a 24 month CD today and the bank gives you a 2.5% interest rate, you have the risk that the rates go up tomorrow and the same bank offers a 3% interest rate on a 24 month CD. You also have the reverse benefit- if you invest $2000 in a 24 month CD at 2.5% today, and rates go down tomorrow, you have your 2.5% locked in.

Similar behavior happens with bonds, you can purchase a $10,000 bond, and it will give you a guaranteed rate (depending on the bond, these rates can come from inflation or intesest rates). If your $10,000 bond pays 5% and interest rates change, the value of the $10,000 bond will change (if rates go up, the $10,000 bond is worth LESS if rates go down, the $10,000 bond is worth MORE). If you hold the bond to maturity, you can remove interest rate risk from changing the value of the bond. If you own a bond fund, you will see the value of the fund change as rates change.

The way to deal with interest rate risk on bonds is to own bonds with varying maturies. Ultra short (less than 2 years duration on until bond matures), intermediate (bond matures between 5 and 10 years from now) and long term (bonds mature in 10-20 years). Each type of bond will respond slightly different to changing of interest rates.

Currency risk is based on foreign investments. Some investors exchange US dollars for other currencies (like swiss francs, the euro or possibly the japanease yen). If you buy $1000 of something from japan for example (a stock or bond), there is the risk that even if the investment went up in japanease currency, the exchange rate might change, and actually have you lose money.

The way to deal with currency risk is 3 fold:
1) own more foreign bonds or foreign stocks from many different countries and regions- do not focus only on Europe or only on Japan
2) focus most international investing in established countries (France, Spain and England have more established economies than Russia, Vietnam or Bosnia).
3) do not put all of your porfolio into foreign investments, so only a portion of your porfolio has currency risk as part of the risk profile.

Investment risk
This is the risk that you invest in something, and something else has a higher return for the same amount of risk taken.

The way to deal with this risk is two fold
1) track performance of your investments, so you know how good or bad your performance is, then compare your own performance to similar investments you do not own.
2) Divide your investments among many different categories. Domestic stocks, foreign stocks... domestic bonds, foreign bonds, large companies, small companies, real estate and commodities.

How you divide the assets up is less important than just making sure you own some of the most popular types of investments (own some stocks, some bonds, some domestic, some foreign).

Geo-political risk-
This is risk that you buy foreign investments, and the country you invest in has their economy overturned by revolt or war. For example investing in Iran, Iraq or other middle eastern countries carries this risk more than buying a stock from a canadian company for example.

Information risk-
This is the risk that you do not have all the information needed to make a decision. Could be education on your part, could be that you are a more passive person and do not wish to spend countless hours every week, month or year tracking various economic information.

If you want a passive investment approach, look for good passive investments. Might be index funds, target date retirement funds, or couch potato portfolios which tell you what to buy.

Sector risk- this is the risk you overweight a specific sector, and that decision negative impacts performance because either
a) that sector did really bad
b) another sector you did not include did really really well.

Sector is the term used to describe companies which are similar- health care companies, energy companies, real estate companies, financial companies, technology companies, emerging markets, and more.

You can use a tool like morning star xray to example specific mutual funds and get an idea of what sectors you are invested in.

If you use managed mutual funds, it is very likely what the fund manager is trying to do will be to overweight one sector or another to gain an edge on the market. If you use indexed mutual funds, more than likely the index is divided into most sectors of importance. You should still check, but most popular indexed (Wilshire 5000 and S&P 500) are diversified into most sectors.

Liquidity risk- Liquidity means the ability to sell something quickly and get money for it.

A house is not liquid, a stock is kind of liquid, and money in a savings account is completely liquid.

If you know you need money soon, it is best to put it in liquid investments. If you know you have to pay for your kids education in 5 years, you want most of the 1st year's tuition in a liquid investment so you have access to 100% of the money you need for that expense.

Inflation risk- inflation is how investors measure the increase in prices. If you buy a car for $20,000 today, and that same car costs $25,000 next year, the $5000 price increase is considered inflation.

The most important aspect of inflation risk is that the longer term you need the money (like for retirement), the more likely inflation risk is among the biggest risks you have. For short term financial goals (like buying a house in 2 years) the less inflation plays a part in the costs for the item. If you were buying a house in 2 years, the cost of the house would be more subject to market pressures, suppliers costs (cost of materials), labor costs variability and other (and not inflation).

The most common method to combat inflation risk is to invest in assets with a high historical average yearly return (stocks). Most other investments (bonds, real estate, commodities, cash) might have a higher 1 year return than stocks (sometimes), 5 year returns (happens once in a while), 10 year returns (happens very very rarely), but over 20 and 30 year time periods, stocks have a higher return than most other investments available to common investors. Higher return means it combats inflation risk the best.

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Risk summary
No investment is risk free. If anyone tells you they have a risk free investment, run away from them as fast as you can.

Investing is about managing risks. There might be some risks I did not mention here unique to you... the best thing you can do is educate yourself on what each risk is and be comfortable with the amount of each risk you take.

Examples

Person A invests in the following:
80% stocks 5% bonds 15% cash

Person B invests in the following
80% stocks 15% bonds and 5% cash

Person C invest in the following
80% stocks and 20% bonds


What do we know about each of the above?
Person A has more liquidity- why?
Person C has the least liquidity- why?


Let's add some information to each person now...
Person A invests in the following:
80% stocks 5% bonds 15% cash

40% domestic large cap
10% domestic small cap
20% foreign large cap
10% foreign emerging markets
5% high yield bond
15% cash

Person B invests in the following
80% stocks 15% bonds and 5% cash

20% domestic large cap
20% domestic small cap
20% foreign large cap
20% foreign emerging markets
5% high yield bond
5% foreign bonds
5% domestic government bonds
5% cash


Person C invest in the following
80% stocks and 20% bonds

40% health care stocks
40% japanease stocks
20% emerging markets bonds


questions:
1) which person is taking on the most currency risk?
2) which person is taking on the least currency risk
3) which person is taking on the most interest rate risk?
4) Which person has the most sector risks?
5) which person here in your opinion is taking on the most risks and why?
6) which person in your opinion will have the highest return

Hopefully 5 and 6 are the same person- if you take on more risks, you expect to have a higher return.

This list of questions is something I want so I can copy/paste to forum posts when people ask about retirement savings.

The goal of the questions is to give someone new to retirement saving something to think about.

The goal of the questions is to eventually make you self sufficient when doing retirement planning.

1) Do you have a budget? At minimum the monthly and yearly budget should show:
a) annual expenses (total)
b) annual income (total)
c) monthly expenses (total)
d) monthly income (total)

List the amounts for each

2) Do you spend less than you earn?
If you do, 1b should be higher than 1a and 1d should be higher than 1c.

If you spend more than you earn, redo the budget above until it balances.

3) For retirement planning purposes, take your annual expenses (1a) and multiply by 25. This is your "retirement target".

For example if you spend $40,000 per year, and multiply that by 25, you get $1,000,000. Meaning to retire on 40k per year, you need to save around $1,000,000.

This number is a target, it is not exact science... if you plan to retire in 30 years, the 40k you spend now might change depending on paying for kids college, paying off a mortgage, moving to a state with higher (or lower) taxes. The purpose of the target is to establish sticker shock only. Because of taxes, social security, pensions, inheritances, selling of a business and many other factors, the sticker shock can be reduced when you are within 5-10 years of retirement.


INVESTMENT RISKS
4) Nothing is risk free. Nothing. There are many types of risks. Do you know what the following risks are?
a) market risk
b) principal risk
c) interest rate risk
d) currency risk
e) investment risk
f) geo political risks
g) information risk
h) sector risk

If you do not know what a risk is, ask.

5) Which is better- a large sum of money earning a small interest rate/ rate of return, or a small sum of money earning a higher interest rate or rate of return?

example:
Is it better to have $50,000 earning 2% interest or $5,000 earning 8% interest?

There is not "one" correct answer- the purpose of that question is make decisions based on information and risk.

6) If someone tells you the expected return of a given investment is 9% with a standard deviation of 15, do you know what this means?

standard deviation is the expected return variances, meaning if 9% is the average return, with a deviation of 15, that means that investment returns -6% as often as it returns 24%. 9-15=-6 and 9+15=24.

6a) what is an acceptable standard deviation for investments you choose?

7) Do you know what asset allocation is?

8) Do you know what the following terms mean?
a) stock
b) bond
c) cash
d) money market
e) mutual fund
f) commodity

9) what is the difference between something labeled domestic and something labeled foreign?

For example foreign stock vs domestic stock or a foreign bond vs domestic bond.

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TAXES. This next section is to see how much you know about taxes and tax rates as it pertains to personal finance and investing.

10) What will be higher, taxes for you now or taxes for you in future? Consider future as both what you earn next year, and what you will also pay 30-60 years from now.

11) Do you know what tax bracket you are currently in for federal level? Hint, answers are
a) 10%
b) 15%
c) 25%
d) 28%
e) 33%
f) 35%

12) Does your state have an income tax?

13) Which federal tax bracket are 66% (most) of US tax payers in?

14) If you move from one tax bracket to another, does all of your income get taxed at the higher income tax rate?

14a) Do you know what determines what tax bracket you are in (federal tax bracket)?

15) What is a tax deduction (as it pertains to filing your income tax return)?

15a) What is a tax credit (as it pertains to filing your income tax return)?

16) Is the goal of saving to
a) pay less taxes
b) make money you have available work most efficiently
c) maximize income regardless of taxes
d) pay no taxes
e) maximize deductions and tax credits

**In general there is not one correct answer to above**

Example questionaire:
Use these examples to see how you would respond to certain financial planning situations.

Example A: Asset Allocation examples with deviations.

portfolio 1
93% equities
7% bonds and cash
70% domestic
23% foreign
7% bonds and cash is mostly cash
expected return 10.5%
expected deviation 15%
range of returns -4.5% as likely as +25.5%

portfolio 2
79% equities 21% bonds
62% domestic
27% foreign
21% bonds or cash with some foreign bonds
expected return 10%
expected deviation 14.3%
range of returns -4.3% as likely as +24.3%

portfolio 3
55% equities 45% bonds
41% domestic
14% foreign
45% bonds and cash. Cash is higher than above; more domestic bonds than above, about same amount of foreign holdings as above.
expected return 8.5%
expected deviation 9.9%
range of returns -1.4% as likely as +18.4%

portfolio 4
40% equities 60% bonds
20% domestic
20% foreign
60% bonds and cash. Cash, bonds and foreign holds all higher than above.
expected return 7.5%
expected deviation 7.1
range of returns .4% as likely as 14.6%.


Example 2: Porfolio philosophy
There are 5 phases a portfolio goes through as you progress through life.

They are:
1) starting out
means your deposits are higher than account balance, or your deposits are a significant (at least 5%) of your account balance.
2) accumulation.
means your deposits are higher than annual return (for example a $5000 annual Roth IRA deposit is higher in dollar amount than the annual return of your portfolio)
3) growth
means your deposits are a small fraction of your portfolio value. For example if you have $500,000 already invested and that money earns 5% ($25000) in one year, that $25,000 is worth more than the $5000 annual IRA deposit.
4) stability
means the growth of the porfolio is worth more than the income you have from a job. If you earn $40,000 per year and have $500,000 earning 9%, the portfolio is stable because it earned $45,000 while you earned $40,000.
5) draw down
means you have to sell shares because the stable portfolio does not provide enough income to you through annual gains. If you need $50,000 and your porfolio of $50,000 earning 9% only generates you $45,000, you need to sell shares so you have $50,000 in income for the year. The following year you only have $495,000 earning 9% and you will need to sell more each year to meet income needs.

17) Which portfolio allocation is best when you are accumlating assets? There is not one single correct answer.

18) Which porfolio allocation is best when you are retired? There is not once single correct answer.

19) How do you decide when porfolio goes from one phase to another?

20) How do you decide how paying off a mortgage fits into the plan?

21) How do you decide how paying for kids college education fits into the plan?

22) Which of the following best describes how comfortable you are with money and life?
a) You prefer to be debt free and are willing to work 10-20 years longer because you have no debt, and no debt means no stress.
b) You prefer to have your net worth be as high as humanly possible. Means you will be smart with money, look for decent returns with money, and knowing the returns of a given decision drives most financial matters.
c) You want to stop working as soon as humanly possible because you prefer to spend time with family, friends and lead a richer, more fulfilling life.
d) You want to be financially independent as soon as possible, so you can make decisions about debt, retirement, work and other life matters without regards to money.

My preferred retirement calculator is

http://www.flexibleretirementplanner.com/java/LaunchFRPWeb.h...

Here are inputs I use (and how I interpret them):

Current age, retirement age and life expectancy. Mostly self explanatory. Always make sure you have a 30 year retirement for best planning (better to die with money than to die destitute).
In my example I am entering 35 for current age and 53 for retirement age.

Inflation- 3.5% I use default then will adjust upward some once I see core numbers with 3.5%. Use default for example.

Investment tax rate- 15% is current long term capital gains rate. This has impact to point where you have taxable accounts. If you have state taxes, you need to add that to the 15% (for example if state rate is 4.5% and fed is 15%, total is 19.5%. Use 20% for example.

Income tax rate is federal+state income tax rate. If you are married making more than 70k taxable income this is 25% federal+ whatever your state bracket is. Use 30% for best planning (this is worst case- I think- for most people). Use 30% for example.

Taxable portfolio- enter present value of taxable accounts. I would NOT include EF in this.
In my example I am using $1000.

Tax deferred portfolio- enter current value of 401ks, rollovers and money you have NOT paid tax on yet. Use 92000 for the example.

Tax free portfolios. Enter current value of roth accounts here. Use 27000 for example.

Min 401k/IRA withdraw age- enter age you will begin withdraws from 401k/IRA. Use 53 for the example.

Taxable annual savings- Enter amount you put into taxable accounts on a yearly basis. Enter 6000 for example ($500/mo).

Tax deferred annual savings. Enter amount you contribute to 401ks, traditional IRAs or similar. Use 24000 for the example.

Tax free annual savings. Enter amounts you contribute to ROTH accounts. In example use 10500 ($5000 for me, $5000 for wife in IRA, plus wife contributes 1% of gross to a Roth 401k).

Investing style- choose aggressive. Note it gives %stocks-%bonds-%international (70-7-23). Also note it gives avg return and standard deviation (10.5% and 15.8).
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write down the following
moderate risk is 41-45-14
with returns of 8.5% and std deviation of 9.9%.

below avg risk is 30-60-10 with returns of 7.5% and std deviation of 7.1%.
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Annual retirement income- enter income from a job you will WORK at once retired. Leave at 0 for example.

Retirement income starts at age what? List age for new job. does not matter if income is blank for the example.

Annual retirement spending. Enter your annual expenses you will need in retirement. Enter 60k for the example.

In upper right corner there is an "additional inputs", click that button.

set 3 different portfolio return criteria:

1) start of plan to end at age 45; rate ot 10.5%, std deviation of 15.8 (this is the aggressive choice). Click add.

**this is because I plan to be aggressive in investing style until age 45. 8 years from retirement the plan is to tone this down some.**

2) age 46 to retirement year, use a rate of 8.5 and a std deviation of 9.9. Click add.
**this is a move to a 60-40 type portfolio while working but before retirement**

3) retirement year to end of plan, use a rate of 7.5% with a std deviation of 7.1%. Click add.
**This is a 40-60 portfolio which is quite moderate (and should yield more than 4%).**

At bottom of this same window, add SS.

cashflow type: SS
start year age 62
end year (end of plan)
annual amount: $12000 (this is less than one half my projected benefit- I plan to take SS early at age 62).
Taxable percent: 85 (this is because if gross income+ 1/2 of SS is over 44k, SS gets taxed).

click add

add in SS for spouse. I want my wife to get her full benefit. She'll probably live longer, so this is "worst case".

start:Age 71
end: end of plan
annual amount: 24000 (full benefit in todays dollars)
taxable percent: 85

click add
click done

at top of screen there is a "run simulation" button.

Click run simulation.
You see a probability of success of 84.7%. That works for me. I make note a few numbers:
Starting withdraw rate is 4.2% (goal is for 4%).
Portfolio value at retirement $1.4 M (goal is $1.5 M).

Now tweak some settings- note how the Roth account is depleted (green bars).

There is a spending config button in lower right of inputs.
Click config.

At bottom of form click the following
"take withdraws from taxable, then tax deferred, then tax free"
**this means tap the Roth accounts last (let them grow for as long as possible)**

click run simulation again.

Note the roth account has a higher balance in 2069 (age 96 for me).

There are some finanical planning things this calculator does not take into account, care to discuss?

I put a date on my retirement in 2008 (2026) and had not ran thru retirement calculators with it.

T Rowe Price would not let me retire that early on their calculator.

Firecalc suggested I have 100 percent success with 27k of annual contributions (need to find a way to keep that up).

There is another calculator I am linked to on a bookmark which suggests I have a 90+ percent chance of retiring in 2026.

My wife told me her new years resolution was no hospital stays which last for more than 6 months of the year.

She pointed out that in 2008 half of our year was spent in the hospital. Because it was Jan-June I kind of forgot how tough 2008 was.

Wife was in hospital from late january thru March 30, kids were born March 27 and DS2 came home in late June.

I told her to choose a goal she has control over. I don't want to spend ANY time in 2009 in a hospital, but if I have to spend it, it's not like I can control whether I get admitted or not- if I have to go, I have to go.

I have made it 2 days and have made it through my goals (listed previously) including #4. LOL.

There was a thread in forums which discussed 529 plans and I want to detail my stance here.

My plan includes the following (done in order listed):

1) Have a budget which is 15/5.
Meaning 15 percent to retirement plans
Meaning 5 percent to short term financial goals (pay down mortgage, vacations, new cars, house improvements or other).

2) Making sure retirement accounts (401k and Roth) are maxed for each spouse. This is important early in process.

3) Having mortgage paid off.

4) considering 529 plans once mortgage is paid off. Logic being that if a person earns around 80k or less per year, the above objectives make more sense than 529 plans.
This plan has a lower federal tax bill than reversing the order.
This plan makes sure the parents are stable financially (now and in future).

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Some people with 13 year old see this and think "I cannot pay off my mortgage in 4-9 years before my child goes to college".

That is my point... if a person cannot aggressively find the money for making a higher mortgage payment now (to pay it off early), what makes them think they can afford the price tag of a college which is 14k-40k per YEAR for 4 years?

Pay 40k per year on your mortgage now and that proves you can foot the bill on a 40k education price tag.
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To accomplish the mortgage payoff over a 4-6 year timeframe, a person or family should look at my doubles table.

For example, want to retire at 63, current age of 48.

assume 8 percent annual returns
Age 63 need 25X expenses
age 54 need 12X expenses
age 45 need 6X expenses

This tells me if person did not have 6X already, paying for college and retiring at 63 are out of the question. One of the goals has to give (retirement at 72, pay for college or no college and MAYBE retire at 63).

If the person/family already had 12X expenses, they are ahead (remember current age is 48, they don't need 12X until 54.

I would then take 401k down to point of match, then either fund a 529 or pay down the mortgage (for college). Some of this deals with taxes, some with other considerations.

The main point is to get ahead of retirement checkpoints before starting college funds. Saves on taxes early in life, which puts more money to work early in life.

I've added some milestones to the author bio. The top money numbers have been there for a while, the bottom are the details I need to fulfil to make that happen.

Here are some details:

If I get a 3 percent raise, I can increase my 401k by 2 percent and not see take home pay drop. In 3-6 years that will have the 401k maxed (the plan is to save 1 percent less than the raise percent- this means take home never decreases). Get a 4 percent raise, add 3 percent to 401k type method.

For wife it will take about 7-10 years to max on the same plan. Once my 401k is maxed, I have a spreadsheet which shows us how to take my raise and save it to her 401k (3 percent raise for me is 6 percent increase in her 401k for example).

Our EF was depleted in 2008. We have 1 months expenses now spread out in 6 cds maturing every 16 days. We will be adding $340/month to those starting Jan 31, and $600/mo by years end as some loans get paid off.

The taxable account gets the $600/mo once the EF has 3 months and will take 3-6 years to reach that goal.

College accounts will not be opened until 401ks are maxed.

The dividend income goal is probably not reached until the year I retire or close to it (need some good investment performance to reach that).

Other goals:
1) finance wife's next car for 3 years or less (2009). Once car is paid off we bank the payment for a car fund.
2) pay off 2nd mortgage within 6 years. We currently "round up" a $39x.yz payment to $400. Our cc rebate also pays 1 percent of all purchases to the 2nd mortgage, and when my truck is paid off in 2010 we will pay $700/mo extra. We owe about 49k at 7.6 percent.
3) pay off 1st mortgage before kids start college. Some of the $1100 for 2nd mortgage can be used to pay down the first. Some of this pay down money might actually get invested. 280k is what we owe now.
4) Get $375k invested by age 37 (2010). We are $170k short right now. This gets retirement plan on track.

We added a new investment to our mix over last several months. Wife's Roth IRA was completely revamped with many new holdings, which included one mutual fund only a few months old.

Here are the new holdings (starting from Sep 2008):

T.ROWE PRICE GLOBAL TECHNOLOGY PRGTX
T.ROWE PRICE AFRICA & MIDDLE EAST TRAMX
T. ROWE PRICE EMERGING MARKETS PRMSX
T. ROWE PRICE FINANCIAL SERVICE PRISX
T.ROWE PRICE GLOBAL REAL ESTATE TRGRX
T. ROWE PRICE GROWTH STOCK FD PRGFX
T. ROWE PRICE HEALTH SCIENCES F PRHSX
T. ROWE PRICE NEW ERA FD PRNEX
T. ROWE PRICE SCIENCE AND TECHN PRSCX
T. ROWE PRICE VALUE FUND, INC. TRVLX

These investments are about 5-10% of our total portfolio (10k value of a portfolio valued at 120k). The porfolio gets 25% of our contributions (we contribute about 20k per year to retirement accounts, this account gets 5k).

The Global tech fund is her rollover. The rest are in her Roth (about 3k). The Africa and Middle East fund had the 2007 Roth and pre-September contribtions (about 1.3k).

We contribute $500/month to the Roth. The 8 funds get $50 each month. We then apply the other $100/mo to whichever we think outperform over next 3-5 years. For example we are contributing an extra $100 to both financial services and to the Global Real estate fund- expecting both funds to outperform soon. Once a fund appears to be appreciating we shift the overweight to a new fund.

The Global Real Estate fund is where most money gets rebalanced too. If any fund here returns in excess of 9%, the excess % gets sold into shares of Global Real Estate.

By my calculations all of these funds should have around 2k in them within 3 years ($600/year*3 years=$1800). At that point the overweight will be much more substantial (one fund might get all 5k for that year).

Based on my past investing experience, I can see when things are appreciating... so I know to buy something else when that happens (I remember seeing tech bubble in 1999 and wanting a health care fund for when tech "popped").

I am limited to the sectors T Rowe has funds in, but I am happy with every holding and would only look to add a transportation fund, a small cap/concentrated fund or a leisure fund.

Goal is to amplify returns by buying only what is low. Financials right now, real estate right now.

Ultimately the goal is 1/3 of income coming from my Roth through dividends, 1/3 of income from wife's Roth coming from real estate fund, and other 1/3 of income coming from cash and bonds in traditional IRAs and taxable accounts.

I am reading through many other people's goals for 2008 or 2009. Most of my goals are long term, and I just make sure I do certain things towards the goals each year.

goal 1: 15% retirement contribution (my 401k, wife's 401k, my Roth, her Roth). If all adds up (current plan) it will be ~20% for 2009.
5k to my Roth
5k to wife's Roth
8k to my 401k
3k to wife's 401k

goal 2: get EF back to 12k by end of 2009. We tapped into it in October of 2008 and by my calculations it should be close to 12k by end of year (it is 3k now, gets $300/mo, plus tax return, plus $300 should increase to about $500 by october). HR block income might go to EF as well.

goal 3- take 3 vacations. We are camping Memorial day weekend at Letchworth state park (NY) with my cousins. Also considering a weekend to either NYC or Chicago around thanksgiving, and maybe a Vegas trip too.

goal 4 (this one is the most important one)- make sure I do not kill anyone anytime soon.

goal 5- I would like to get 4-10 clients for my financial planning business as well.

I had Thursday-Monday off.

Thursday was a sick day because both boys had outpatient surgery. DS1 had hypospadius repaired (that means he can now write his name in the snow without a slant to it when he is older if you know what I mean). DS2 had a bilateral hernia repaired.

My parents came into town mid day Thursday and watched the boys while wife and I got the house ready for a party on Saturday (it was DW's mother's 60th birthday).

Saturday was the party and my MIL was shocked. We had 60+ people in our house and it was not crowded at all (good thing). That was first time we ever had that many people.

Sunday my wife made saurbraten for dinner and we cleaned up. Actually I took a nap and my wife and parents cleaned up.

DS1 was being fussy on and off all weekend. Never slept thru night at all- side effect of surgery is he has a stint (tube) up his penis, so I guess I don't blame him for being uncomfortable. I took Monday off from work so wife could work all day and I spent day consoling my son.

Wife balanced the checkbook and the $2500 cc bill which included the party on it could be paid in full.

My kids also got to open 5 gifts from people. They now have some toys to play with- they light up, make noise and keep them entertained. The best gift is a Buffalo Bills bean bag which they take naps in now and can climb on.

Both boys also ate their first meal from a high chair yesterday.

Here is one of the photos MIL got as a gift on her 60th B-day. Picure taken when boys were ~7 months old, they are almost 9 months old now.

Our santa gifts are all wrapped and under the tree.

The boys will be getting 5 gifts from Santa.

They will share a big thing my wife wanted to get them. It is a multifunctional thing. It has this cool thing which blows plastic balls in the air, lets kid fetch it, then put it in this thing which spirals it around and shoots it out again.

My cousin had one for her girls and I played with it for hours.

That gift passes daddy's criteria (I can play with it too).

We got them each a small toy which makes noise and lights up. At 9 months they are really into things like that.

They are each getting their own train set too. Before they were even born I told my wife they were getting train sets for xmas. When my parents came to visit, my father and I went out to get the sets.

Again, the gift passes my criteria (daddy can play with it too).

Know what boobs and trains have in common? Read on for the answer.

I am sure Grandma (wife's mom) and my parents are going to spoil these two with even more presents (trumping the 5 from santa -wife and me).

Any over unders on how many toys each of them get? 2 grandma's, 2 aunts, 3 cousins (on mom's side) and 10 cousins (draw names) on my side?

Answer-
both are for little boys, but daddy's like to play with them too.

I use a free internet radio station called pandora. If you listen to music on a PC, pandora will do a good job of two things:

Playing the artists you like
Finding other music similar to the artists

Here is a url

http://www.pandora.com/

I hope that works. I have been listening to pandora for more than 2 years.

You can customize the stations to play what you want. Tell it which songs you like or dislike as it plays them and it adjusts what it plays. For example last xmas I created a few holiday stations and around 40% of the songs I did not like. This year when it is playing those stations I like most of the songs it is playing based on my feedback.

FREE!

I went to my first HR block employee orientation on Saturday.

Interesting...

Part of the claim HR block makes is the following (paraphrased- I do not have the article in front of me)-

"We are in a unique position to offer lower and middle-class people financial advice".

I agree the ability to get objective financial advice at any income level is tough to come by, and tougher for poor and middle-class people.

My issue is HR block is presenting people with products which might charge a 100% interest rate (annualized) to get this advice. Not really objective, huh?

For example if a family making 30k comes to get a tax return of 3k-5k because of EIC and child credits, it probably cost them around $180 to get the return prepared.

If they choose to get a refund anticipation loan, a co-worker and I calculated the loan to rival that of a payday check cashing place (interest might be more than the amount borrowed) on an annualized basis.

I have decided to start my own financial planning business.

For now I am going to concentrate on 4 areas:
1) Taxes
2) Retirement saving
3) college planning
4) budget/spending

I am going to work on obtaining an enrolled agent status with IRS. I am also planning on taking my series 6 this summer (to provide advice picking specific securities, I need a series 6).

Others have advised getting an LAH to sell insurance as well- anyone here have that?

I passed my tax course with an 85% overall. I think my final exam score was a 4.2/4.4. I only glanced at the final exam score once I saw that I passed.

The final was WAY WAY too easy. I could have passed it 5 weeks ago with what was taught (hint- if you have not taken the course, know EIC, filing status and dependants, and you will be able to get around 66%).

What are you thankful for?

I am thankful that my twins are home and healthy. That above all else makes this thanksgiving truly the best ever.

I am thankful my wife still tolerates me, loves me and takes care of my kids when I am not around.

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What types of income are subject to mandatory federal income tax withholding?

2 What types of income may be subject to voluntary withholding?

3 What form does an employee use to tell his employer how much tax to withhold from his wages?

4 What is the difference between a witholding allowance and an exemption?

5 If the employee wishes to have additional tax withheld, how may he adjust his W-4?

6 What additional is option is available for married employees?

7 Under what circumstances may an employee claim exemption from withholding?

8 What is the purpose of estimated tax rules?

9 Taxpayers with taxable income from which there is no withholding usually must pay an estimated tax. What are examples of this type of income?

10 Under what circumstances is a taxpayer generally required to pay estimated tax for 2008?

11 A single self employed taxpayer estimates that his 2008 tax will be $7500. Hos 2007 tax was $7000. How much must he pre-pay in 2008 to avoid an underpayment penalty?

12 Describe the exception to the 100% rule for higher income taxpayers.

13 Another single self employed taxpayer estimates that his 2008 tax will be $63,000. His 2007 AGI was $160,000, and his tax was $51,000. How much must he pre-pay for 2008 to avoid an underpayment penalty?

14 On what dates are estimated payments normally required to me made?

15 If a taxpayer is unsure of how much income he will have next year, or if he wishes to pay as little estimated tax as possible and still be sure to avoid penalty, what option is available to him?

16 What are indications that estimated tax payments may be required?

17 What is the purpose of form 2210?

18 Who will complete part 1 of the form?

19 Who may use Part III, the short method, for determining the penalty?

20 Who should use part IV on the third page of the form?

21 Why would you prepare a form 1040X

22 Is there a time limit for filing amended returns?

23 A taxpayer wishes to amend his 2005 tax return. He filed it April 16, 2006. The return was examined by the IRS on January 9, 2008 and $280 additional tax was paid on that date. What is the latest date an amended return may be filed?

24 What are the rules for changing filing status after the due date of the return?

25 For what reasons other than filing status could a return be amended?

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What is the full retirement age for taxpayers born before 1938? 1938? 1939? 1940? 1941?

2 On what form are social security benefits reported to the recipient?

3 What is the maximum amount of SS that is subject to tax?

4 Can form 1040A ve filed for a taxpayer whose benefits are taxable?

5 How is modified AGI computed for purposed of taxable social security benefits?

6 Under what circumstances might SS benefits be taxable if the taxpayer had no other source of income?

7 Are supplemental security income (SSI) payments taxable?

8 Are benefits received for a child ever taxable to the parent?

9 What form is used to report pension income to the recipient?

10 What pensions are fully taxable?

11 Under what circumstances would a pension be partly taxable?

12 What does recovery of cost mean?

13 See illustration 9.5. Did Harry contrubute after tax money to his pension?

14 What does a 7 in box 7 mean?

15 What would code 1 mean?

16 Where is pension income reported on the tax return?

17 If the taxpayer is 63 and the spouse is 56 at pension start date, over how many anticipated payments will they recover the cost of the pension?

18 What if both taxpayer and spouse are 65?

19 What if taxpayer is 69 and spouse is 72?

20 If the taxpayer is 62 at starting date, over how many anticipated payments will he recover his cost?

21 What if taxpayer is 68?

22 What do these numbers mean?

23 What traditional IRA distributions are fully taxable?

24 When would a traditional IRA distribution be fully taxable?

25 When is a Roth distribution exempt from taxation?

26 What form is required to determine if the taxable portion of a traditional or Roth IRA distribution?

27 Where are fully taxable IRA distributions reported on the tax return?

28 Where is income tax withheld from a pension or IRA distribution reported on the tax return?

29 In general terms, what is passive activity?

30 What other types of activity is arbitrarily classified as passive?

31 Name 3 sub categories of non passive income.

32 Give some examples of personal service income.

33 What are some examples of portfolio income?

34 What are some other types of non passive income?

35 What is rental income?

36 What amounts are included in gross rent received?

37 What types of expenses are deductable?

38 How does a landlord deduct improvements to the rental property?

39 Is the value of an owner's labor or unpaid labor of friends deductable?

40 What is the MACRS recovery period for residential real estate property?

41 What property, in addition to the building, are you likely to find on the depreciation worksheet for rental real estate?

42 What is the recovery period for carpets, applicances and furniture used in a rental house?

43 When may pre-paid expenses be deducted?

44 What are the two most common prepapid expenses for rental properties?

45 How are deductable property expenses determined if part is strictly rental and part is strictly personal?

46 What happens to the personal portion of expenses?

47 Under what circumstances do the vacation home rules apply?

48 How are deductable expenses determined under the vacation home rules?

49 What special rule applies if a residence is used as a residence and is rented for fewer than 15 days?

50 What are royalties?

51 On what form are royalty payments usually reported to the taxpayer and the IRS?

52 What is depletion?

53 What are the two methods of depletion?

54 What is the difference between the two methods?

55 What form does an estate or trust file with the IRS?

56 What kind of taxpayer will receive schedule K-1?

57 How is an estate or trust taxed?

58 How is a partnership taxed?

59 What form does the partnership file with the IRS?

60 What kind of taxpayer will receive this type of K-1?

61 What is a limited partner?

62 What is a limited liability company member?

63 How is an S-corp taxed?

64 A shareholder in a subchapeter S-corp should receive what information document from the business?

65 What are passive income and losses?

66 What form is received by a taxpayer who holds interest in a limited partnership or a limited liability company?

67 In its simplest terms, what is the passive loss rule?

68 How about an oridinary taxpayer with losses from a rental property?

69 How is modified AGI determined for purposed of the passive loss limitations?

70 If a taxpayer has a passive loss that cannot be deducted in full in the current year, is the deduction lost forever?

71 Are working interest in oil and gas properties subject to the passive loss rules?

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What does the term non refundable credit mean?

2 What does the term refundable credit mean?

3 What requirements must be met for a taxpayer to be able to claim a credit for dependant care expenses?

4 Who are qualifying persons?

5 Generally, the taxpayer must be able to claim the child as a dependant to claim the child care credit. What is the exception to this rule?

6 What is earned income?

7 What are the exceptions to the rule that, if married, both spouses must have earned income?

8 What is the earned income of the unemployed spouse considered to be?

9 Why is it necessary that the unemployed spouse be considered to have earned income?

10 A taxpayer paid $500 of a taxpayer's $2000 child care expenses. How will the employer's assistance affect the child care credit?

11 Where does the employer report the amount of assistance to the taxpayer?

12 Is the credit refundable or non refundable?

13 What is the purpose of schedule H?

14 What are some examples of household employees?

15 How do we determine if employers of household help must pay SS and medicare tax on wages to household employees?

16 What is the maximum amount for the adoption credit and exclusion for 2007?

17 In what year will the credit be claimed?

18 What types of expenses qualify for the adoption credit?

19 What types of expenses do not qualify?

20 Name the two education credits.

21 For whose qualified educational expenses may these credits be claimed?

22 Can a dependant claim these credits?

23 Can the taxpayer claim both credits for the same student for the same year?

24 What expenses generally qualify?

25 What effect does a non taxable scholarship or grant have on the credits?

26 At what levels are the education credits phased out?

27 Which students are eligible for the hope credit?

**Jade graduated from her HS in the spring of 2007. She began attending State U on a full time basic in the fall of 2007.

28 for which years may Jade claim the hope credit for qualified educational expenses?

29 My she claim the hope credit in all of those years?

30 How is the hope credit calculated?

31 Is the hope credit always more advantagous than the lifetime learning credit?

32 Which students are eligible for the lifetime learning credit?

33 How is the credit calculated for 2007?

34 Consider Jade from previous example. Could she claim the lifetime learning credit for all 5 years in which she attends State U?

35 Which form is used to compute the educational credits?

36 Which taxpayers are not entitled to claim a retirement savings contribution credit?

37 Which contributions qualify for the savers credit?

38 What types of distributions will reduce the amount eligible for the saver's credit?

39 What is the maximum amount of contributions on which the saver's credit may be based?

40 What are the rates for the saver's credit?

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What types of income should be reported on schedule C?

2 What income reporting form will an independant contractor sometimes receive from the person which paid him for his services?

3 Line F of Sch C asks for the accounting method used in the business. What ios the difference between accrual and cash methods?

4 What accounting method must generally be used for inventory?

5 If a proprietor uses the accrual method for accounting for his inventory and the cash method for his operating expenses, what is this called?

6 What does it mean if a proprietor "materially participates" in the business?

7 Why is it important to know whether a proprietor materially participates?

8 What must be done if the income here is reported on a W-2?

9 What are returns and allowances?

10 How is cost of goods sold determined?

11 Does every business have a cost of goods sold?

12 How is gross profit determined?

13 If the client has contract labor, what should you remind the client that they should do?

14 How can we determine the difference between materials and supplies used in figuring the cost of goods sold and supplies that go to line 22?

15 If a schedule C filer has deductable home office expenses, where are they deducted on schedule C?

16 The amount on line 31, schedule C represents a net profit or loss. To what two places is this figure carried after schedule C completes?

17 What is the purpose of self employment tax?

18 What amounts does a proprietor have at risk?

19 What difference does it make if the proprietor is at risk or not?

20 What impact will a net operating loss (NOL) have on either a prior year's return or a future return?

21 In what way is a clergy member's compensation treated differently than compensation for other employees?

22 What non taxable benefit do many clergy members receive?

23 How is the FMV of a parsonage or a minister's housing allowance treated on a tax return?

24 How can you tell if a taxpayer is a statutory employee?

25 What are some taxpayer occupations which might be statutory employees?

26 Are social security and medicare taxes withheld from statutory employees?

27 Is income tax withheld from statutory employees?

28 Where should you report the income of a statutory employee?

29 What special treatment is available to self employed taxpayers with regard to health insurance premiums they pay?

30 How is the deduction limited?

31 A married taxpayer has income from self employment, and his spouse is employed. His spouse's employer offers health insurance, but the couple chooses not to participate in the plan offered by the company. Instead they purchase their own insurance. May they take the deduction for self employed health insurance?

32 What happens to any portion of the premiums that cannot be deducted as an adjustment to income?

33 What is SEP?

34 May an employee contribute to his SEP IRA or seperate IRA ub addition to his employer's contribution?

35 Are employer's contributions to an employee's SEP-IRA reported on his tax return?

36 What is the 3 year of profit test?

37 What are the 9 profit factors?

38 What form and schedule will a taxpayer with farming income file?

39 What activities are considered farming activities?

40 Matthew breeds cocker spaniels for sale as pets. What schedule will Matthew use?

41 Where would amounts from the following forms be entered on 1040:
a) Line 31 Sch C
b) Line 5 Sch SE
c) Line 6 Sch SE

42 When should these amounts be entered on form 1040?

43 How would you report the income of a taxpayer who has W-2 income and 2 or more seperate businesses?

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 How does one determine the taxable income of taxpayers who itemize deductions?
2 Who may itemize?
3 The cost of most legal medical and dental procedures is deductable, but there is an exception. What is it?
4 What kinds of medicines and drugs may be claimed as itemized deductions?
5 Although the cost of non perscription medicines is not deductable, there is a tax break available regarding them. What is it?
6 Is the cost of a weight loss program or weight loss surgery deductable?
7 If a taxpayer drives his own car to the doctor or to buy perscription medication, what expenses, in addition to the doctor bill or cost of medicine may he deduct?
8 A man paid $2500 to have a hot tub installed in his home because his doctor perscribed it for the man's back problems, The hot tub increased the value of the home by $2000 and cost $300 to run during the year. How much may be deducted as a medical expense?
9 Is the deduction for medical expenses limited?
10 What types of taxes are deductable?
11 Where is federal income tax withheld reported?
12 Where are social security and medicare taxes withheld reported?
13 Where are state and local income taxes withheld reported?
14 What is a general sales tax?
15 A taxpayer makes his final 2006 state estimated payment on Jan 15, 2007. Should he report this item?
16 A taxpayer has a 2006 state balance due, which she paid when she filed her return on April 8 2007. Where should she report this item?
17 A taxpayer has a 2006 local income tax balance due, which she paid in full when she filed on April 8, 2007. Where should she report this item?
18 A taxpayer has a 2006 local estimated tax payment, which he made on the 15th of April, June and September, and on Jan 15, 2007. Where should he report these items?
19 For income tax purposes, we divide interest a taxpayer paid into several categories. What are the categories?
20 Why is it important to distinguish between qualified home mortgage interest from personal interest?
21 On how many homes may a taxpayer deduct home mortgage interest?
22 There are two categories of home mortgage interest, what are they?
23 What is acquisition debt?
24 What is home equity debt?
25 Generally what is the limit on acquisition debt for which interest paid may be deducted in full?
26 What is the comperable limit for home equity debt?
27 What are points?
28 When are points deductable?
29 If paid by the buyer, are points deductable?
30 Suppose points are paid by the seller, what happens then?
31 Under what circumstances may points be deducted ratably over the life of the loan (as opposed to using OID rules)?
32 What is investment interest?
33 To what extent is investment interest deductable?
34 Is interest paid to purchase non taxable investments, such as municipal bonds, deductable?
35 What is personal interest?
36 Is personal interest deductable?
37 What are qualified charitable organizations?
38 Which of the following outlays are deductable as charitable contributions:
a) church
b) a worthy individual
c) school for scholarship fund
d) school for tickets to alumni banquet
e) donation to boy scouts
f) scout camp fee for child
g) ymca membership dues
h) ymca building fund
39 Is the cost of items purchased to benefit a charitable organization deductable? For example ballet tickets to raise money for a non profit hospital?
40 What is the general deduction limit for charitable organizations?
41 What can be deducted by volunteer workers?
42 What can be claimed in lieu of actual gas and oil expenses?
43 May a volunteer claim a deduction for the value of his time?
44 What is the allowable deduction for permitting a charitable organization to use property without charge?
45 A taxpayer wrote a check for a $500 donation to his mosque. Is his cancelled check sufficient to support his deduction?
46 What charactoristics must an event have to qualify as a casulaty or theft?
47 What types of damage or destruction qualify as casualties or thefts?
48 Name some types of losses that would not qualify as a casualty or theft?
49 By what amounts must all casualty and theft losses of personal use property be reduced?
50 May a taxpayer claim a casualty loss for uninsured damages to his dependant teenagers car if the car is registered in the dependant's name?
51 What if the car was registered jointly in the taxpayer's and dependant's name?
52 What information must you obtain to determine the amount of a casualty or theft loss?
53 What can be used as a measure of the decrease in fair market value?
54 What is the allowable loss?
55 In what year is the casualty or theft loss deducted?
56 What are the general types of itemized deductions which are subject to the 2% AGI floor?
57 Which expenses are reported on line 20?
58 Under what circumstances may unreimbursed employee expenses be reported directly on schedule A line 20, rather than on form 2106 or 2106EZ and then on line 20?
59 What are deductable transportation expenses?
60 What is commuting?
61 Describe the optional method of deducting transportation expenses.
62 What conditions must be met to qualify to use the optional method?
63 What education expenses may be deducted by an employee on schedule A?
64 What other tax options are available for employees taking job related education?
65 What is the primary requirement to deduct job seeking expenses?
66 What are some employee expenses that can be claimed directly on line 20 without using form 2106 or 2106EZ?
67 What expenses are reported on line 21?
68 Are bank fees for products, such as refund anticipation loans, deductable?
69 What expenses are on line 22?
70 Name some deductable investment expenses.
71 What is the limitation on deductions of hobby expenses?
72 What are some miscellaneous itemized deductions which are NOT subject to the 2% AGI limitation?
73 Where are such expenses deducted?
74 What limitation must we keep in mind when deducting gambling losses?
75 What type of information should be retained by the taxpayer if he wishes to deduct gambling losses?
76 At what AGI might a taxpayers itemized deductions be limited?
77 If the AGI is greater than the limited, by what percent might the deductions be limited?
78 What is the most common taxable recovery?
79 Under what circumstances is the refund of state income tax generally taxable?
80 Name two other types of recoveries that may be taxable if the taxpayer itemized.

Answers will be posted in responses section in about 1 day.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income?
2 Who is an eligible educator?
3 Which expenses qualify for this deduction?
4 Do homeschooling expenses qualify for this deduction?
5 Where is the educator expense deduction reported?
6 What happens to any expenses which exceed the $250 limit?
7 What two general requirements must be met before moving expenses can be deducted?
8 Explain the requirements to the distance test.
9 What are the requirements to the work time test?
10 What additional requirements related to work time must self employed persons meet?
11 What is meant by closely related to start of work?
12 What directly related moving expenses are deductable?
13 Where are moving expenses deducted on form 1040
14 Who may deduct student loan interest?
15 Who may not claim a student loan interest deduction?
16 What is a qualified student loan?
17 In addition to those expenses that qualify for the education credits, what expenses are qualified expenses for student loan interest deduction?
18 What is the deduction limit?
19 Is there an income limit for the deduction also?
20 Where is student loan interest deducted on the tax return?
21 In general terms what is the difference between a deduction and a credit?
22 What is the main advantage of the tuition and fees deduction over the education credits?
23 What is the maximum tuition and fees deduction?
24 Does the tuition and fees deduction phase out?
25 Can a taxpayer claim both an education credit and tuition and fees deduction for the same student in the same year?
26 Can a dependant claim a tuition and fees deduction?
27 How is the tuition and fees deduction taken?
28 What is an HSA?
29 What are the three requirements to be eligible to contribute to an HSA?
30 What is a high deductable health plan?
31 What are qualified medical expenses with regards to an HSA?
32 What form is used to report HSA contributions and determine any allowable deduction?
33 What happens if a taxpayer receives a non qualified distribution from an HSA?
34 What does IRA stand for?
35 In tax terms, what is it called when a person puts money into an IRA?
36 In tax terms, what is it called when a person takes money out of an IRA?
37 What is it called if a person takes money out of one IRA and puts it into another (and all requirements are met)
38 What are the advantages of a traditional IRA?
39 Who is eligible to establish a traditional IRA?
40 What is compensation for IRA purposes?
41 What effect does a net loss from self employment have on total compensation?
42 What is the last date of which a contribution may be made and qualify as a contribution for a given year?
43 What is the IRA contribution limitations for 2007?
44 What are the contribution limitations for a spousal IRA?
45 Why is it improtant to distinguish between taxpayers who are active participants in an employer maintained plan and those who are not?
46 A single taxpayer is receiving pension benefits from previous employment. Is he considered an active participant because of this?
47 What is the easiest way to determine if a taxpayer is an active participant in his employers qualified retirement plan?
48 Under what circumstances would an active participant's deduction be limited?
49 What about a non participant whose spouse is an active participant? Under what circumstances would his deduction be limited?
50 How is modified AGI determined for traditional IRA purposes?
51 What are the main differences between traditional IRAs and Roth IRAs?
52 Under what circumstances would a taxpayer's Roth IRA contributions be limited?
53 How is modified AGI computed for Roth IRA purposes?
54 A single taxpayer has AGI of $80,000. He is an active participant in an employer maintained pension plan. Why should he choose to contribute to a Roth rather than a traditional IRA?

Answers will be posted in responses section in about 1 week.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 where is taxable interest income reported on a tax return?
2 at what amount must interest income be reported on form 1040 schedule B or form 1040A schedule 1?
3 What other situation requires the completion of schedule B or Schedule 1?
4 Where is a penalty for early withdraw of savings reported on the form 1099-INT?
5 Is interest received on US treasury obligations taxable on state and/or local returns?
6 A taxpayer received $1800 taxable interest and $200 municipal bond interest. He received a 1099-INT for the municipal bond interest. What procedure would you follow for the municipal bond interest?
7 A taxpayer received a form 1099-DIV showing $200 of ordinary dividends in box 1a and $100 in box 1b. Where is the box 1a amount entered on the tax return?
8 How about the amount on 1b?
9 How do qualified dividends differ from ordinary dividends?
10 Suppose the taxpayer's form 1099-DIV also showed $80 capital gains distributions in box 2a. Where is this amount entered on the tax return?
11 Where are non taxable distributions, shown on box 3 of form 1099-DIV, reported?
12 What types of taxpayers will require the qualified dividends and capital gains tax worksheet line 44?
13 Refer to the Dasen example on page 4.16. How much did Sven and Ingred Dasen save in tax and why?
14 What are the two types of property?
15 What are the two classifications of personal type property?
16 What are the 4 ways in which property can be used?
17 Give some examples of business use tangible personal property.
18 Give some examples of business use real property.
19 What are capital assets?
20 What difference does it make if an asset is a capital asset?
21 What qualifies as long term?
22 Define basis.
23 What is the basis of purchased property?
24 When a taxpayer buys a new home, certain closing costs may be added to the basis. What are some of them?
25 The cost of restoration after a casualty minus "something" can be added to the basis to find the adjusted basis. What is the "something" that must be substracted from the cost of restoration?
26 Where are sales and exchanges of capital assets reported if held
a) short term
b) long term
27 How is the holding period measured for property acquired by inheritance?
28 How is a gain or loss computed?
29 A taxpayer who otherwise qualifies for the EITC recognizes $3000 in net capital gains. What effect does this have on the EITC?
30 The top marginal tax rate for 2007 is 35%. For most capital assets sold in 2007, what is the maximum rate for long term capital gains?
31 A taxpayer purchased a capital asset (not a collectable) on May 26, 2006. If he sold the asset at a gain on May 26 2007, and sold no others during the year, at what rate would his capital gain be taxed? His marginal rate is 33%.
32 If he sold the asset on May 27, 2007, at what rate would his capital gain be taxed?
33 Now suppose the taxpayer is in the 15% tax bracket. What is his maximum long term capital gains tax rate now?
34 Put the taxpayer back in the 33% tax brakcet. The asset is now a rare swiss coin. What is the maximum long term capital gains tax rate for this asset?
35 Gains are taxable regardless of the use of the property. Are losses deductable regardless of property use?
36 What is the one kind of loss on personal use property which is allowed?
37 What is the maximum net capital loss that a taxpayer may deduct in one year?
38 What happens if a taxpayer has more capital losses than he can claim in one year?
39 How are sales of stock usually reported to a taxpayer?
40 What does a recognized exchange call the date the proceeds are received? The date of purchase? Date of sale?
41 How do sales commissions affect the sales of stock?
42 On what form are certain real estate transactions reported to the taxpayer?
43 Will every real estate transaction result in a 1099-S being issued?
44 Are scholarships and fellowships taxable?
45 Are taxable scholarships and fellowships not reported on form W-2 considered to be earned income?
46 A student received $5000 in scholarships which is not reported on a W-2. She spent $3000 of the money for tuition and $2000 for room and board at her college where she is a degree candidate. What are the tax consequences?
47 Under what circumstances are gross gambling winnings taxable?
48 On which line of form 1040 are gambling winnings reported?
49 May form 1040A be used to report gambling winnings?
50 Are gambling losses deductable anywhere?
51 Aside from those already mentioned, name some types of miscellaneous taxable income.
52 Name some types of non taxable income.

Answers will be posted in responses section in about 1 day.

This is for my own review and organization of class notes for a tax course I am taking right now.

1 What is the amount that may be subtracted from a taxpayers taxable income for each exemption claimed?
2 What 4 requirements myst every individual meet to be claimed as a dependant?
3 What are the 4 tests for a qualifying child?
4 How is the relationship test met?
5 define eligible foster child
6 how is the residency test met?
7 how is the age test met?
8 define full time student for purposes of this test.
9 what special provision regarding the age test exists for disabled dependants?
10 how is the support test met?
11 what are the 4 conditions that must be met to claim an dependency exemption for a qualifying relative?
12 how can the gross income test be satisfied?
13 what is gross income?
14 how can the test be satisified?
15 what are some items which count as support?
16 under what circumstances might you have to determine who paid more than 50% of a qualifying relative's support?
17 how can you determine who paid more than half of the person's support?
18 when computing support how do you determine the value of lodging?
19 what if the dependant owns the home?
20 name some items which are not included in support?
21 under what circumstances would education expenses not be included in support?
22 is there a similar rule for medical and dental expenses?
23 how can the funds available for support from sources other than the taxpayer be reduced?
24 what is the tax purpose of investing these funds by the dependant?
25 what is the purpose of form 2120 multiple support declaration?
26 what requirements must be satisified to use form 2120?
27 what happens if the parties do not agree on who will be allowed to claim the exemption?
28 what happens when more than one taxpayer actually claims the same qualifying child?
29 to whom do the rules for divorced and seperated parents apply?
30 do these rules apply to parents which were never married?
31 in general which parents gets to claim the qualifying child?
32 what is the exception to this rule?
33 what happens if an individual is a qualifying child of more than one taxpayer?
34 Joyce has two sons- Joe (25) and Steve (17), both lived with her all year. Who may claim steve as their qualifying child?
35 what filing statuses are available to taxpayers who are unmarried for tax purposes?
36 Under what circumstance would an unmarried taxpayer use the single filing status?
37 How may a married taxpayer qualify as unmarried for tax purposes?
38 Why would a married taxpayer want to be considered unmarried for tax purposes?
39 under what cicumcstances do you need to determine whether a taxpayer paid over half the cost of maintaining his home?
40 what are some of the costs of maintaining a home?
41 Is the principal portion of a home mortgage payment considered part of the cost of maintainance?
42 Under what circumstance do you need to actually compute the costs of maintaining a home?
43 What requirements must be met for a taxpayer to qualify for head of household?
44 What requirements must be met for a taxpayer to use the qualifying widower status?
45 Fred's wife dies on Feb 6 2007. Fred had a dependant son (age 10) which lived with him all year in a home Fred maintained. What is the most advantagous filing status for Fred for his 2007 tax year.
46 Assuming Fred does not remarry and continues to maintain the home in which he and his dependant son both live, what will be his most advantagous filing status doe 2008? 2009? 2010?
47 How much is the child tax credit worth?
48 What additional requiremewnts must be met by a qualifying child for purposes of this credit?
49 At what income level is the allowable credit phased out for higher income tax payers?
50 Is this credit refundable or non refundable?
51 What are the 4 qualifications specific to taxpayers without qualifying children (for Earned Income tax credit)?
52 What are the 3 qualifications for EITC specific to taxpayers with qualifying children?
53 What are the 6 qualifications which apply to all taxpayers for EITC?
54 Kris (26) has an earned income of AGI of $9,256. He has not other income. He lived in the US all year and is no one's dependant. He has a valid SSN and is filing as single. He is a US Citizen. Does he qualify for EITC?
55 Marla (29) has an earned income of $20,200. She received $2000 in interest and $915 in dividend income. She had no other income. She has no adjustements to income. Her daughter Kayla (6) lived with her all year. No one else lived with them during 2007. They both have valid SSNs and Marla will file with head of household. Both are US citizens and lived in the US all year. Does Marla qualify for EITC?
56 What is the exception to the rule which requires that a taxpayer live in the US (for EITC)?
57 who may qualify for the additional child tax credit?
58 How is the credit computed?
59 What form is used to compute the additional child tax credit?
60 what are the 4 requirements of EITC due diligence?
61 What is the possible penalty for failing to comply with the EITC due diligence rules?

Answers will be posted in responses section in about 1 day.

This is for my own review and organization of class notes for a tax course I am taking right now.

#1 what information do you need to know if a return is to be filed?
#2 for tax purposes, when is a person's marital status determined?
#3 when is the marital status of a deceased taxpayer determined?
#4 what is a common law marriage?
#5 for general tax purposes, when is a taxpayers age determined?
#6 what is the main difference between a seperate property state and a community property state?
#7 what are the nine community property states?
#8 what is the standard deduction?
#9 what two amounts combine to make up the gross income filing requirement for most taxpayers?
#10 how much is the 2007 standard deduction for most taxpayers?
#11 how much is added to the standard deduction if the taxpayer is age 65 or older or blind?
#12 how much is the standard deduction for a taxpayer who is being claimed as a dependant by another taxpayer?
#13 does a dependant filing his own return qualify to get the additional standard deduction for age and blindness?
#14 what is the exemption amount for 2007?
#15 may a dependant claim his own personal exemption?
#16 under what circumstances might a taxpayer who does not meet the filing requirements want to file a return anyway?
#17 what are the filing statuses available to taxpayers who are married for tax purposes?
#18 A taxpayers spouse died during 2007, and the taxpayer did not remarry. May the spouse file a joint return with his deceased spouse?
#19 Assume the surviving spouse did remarry. May the surviving spouse file a joint return with the deceased spouse? How about with new spouse? What is the filing status of the deceased spouse?
#20 if one spouse refuses to file a joint return, can the other spouse do anything about it?
#21 what do the figures in box 3 and 5 represent?
#22 what is the social security tax rate for 2007? medicare rate for 2007?
#23 what does code D in box 12 signify? Code J?
#24 what does it mean if the retirement plan box in box 13 of form W-2 is checked?
#25 where are state and local income taxes withheld entered?
#26 If a taxpayer does not receive his form W-2 by Feb 15, what should he do?
#27 if a taxpayer thinks his form W-2 is not correct, what should he do?
Under what circumstances will a taxpayer have excess SS tax withheld?
#28 what is the maximum amount of SS tax a taxpayer must pay for 2007?
#29 where is excess SS tax entered on form 1040?
#30 Frank earned $99,000 from one employer in 2007. The employer withheld $6,138 of SS tax. What should frank do?
#31 is tip income taxable?
#32 under what circumstances are tips not subject to SS and medicare taxes?
#33 where should you report tip income which was not reported to the employer?
#34 Under what circumstances are tips required to be reported to the employer?
#35 under what circumstances is form 4137 prepared?
#36 must a taxpayer always report allocated tips on his return?
#37 if a taxpayer has an amount shown in box 8 of form W-2 and does not possess sufficient records to demonstrate he did not actually receive the money, how should the box 8 amount be handled?
#38 Marcus works for techRus who provide him with a 2006 Chevvy HHR with the company logo on it. He only uses it for company business, making house calls to repair computer equipment. Will techiesRus report this in Marcus' income?
#39 what 3 pieces of information must you know to determine if a nondependant taxpayer must file a federal return?
#40 what is gross income?
#41 if a taxpayer is eligible to be claimed as a dependant on another person's return, how does this effect his personal exemption and standard deduction on his own return?
#42 what are the two requirements that must be satisfied before an individual could have excess SS tax withheld?
#43 Are tips always subject to income tax? SS and medicare taxes?
#44

As some of you know, I am taking a tax course right now. Final exam is Nov 22 and once I finish I will be preparing tax returns this winter for some extra income.

I will post the questions here and the answers around a day later in the response section.

#1 what is gross income?
#2 what are the two types of gross income?
#3 what are the 3 types of individual income tax forms?
#4 how should dollar amounts be rounded on the tax return?
#5 how should percentages be rounded?
#6 how would you round $999.51?
#7 how would you round 30.493%?
#8 what form is used by an employer to report wage and tax information to an employee?
#9 where are total wages entered on form 1040? 1040A? 1040EZ?
#10 What does code D in box 12 signify?
#11 What does it mean if the retirement plan in box 13 of the W-2 is checked?
#12 where are state and local income taxes withheld entered?
#13 if the employee thinks his form W-2 is not correct, what should he do?
#14 where can the regular standard deduction amounts be found?
#15 what is the exemption amount for 2007?
#16 under what circumstances must a tax payer use the tax table to determine tax liability?
#17 what steps must be taken to compute taxable income?

I will get back to posting some tax things as I prepare to take my tax final next week. In the mean time, here is pooh and tigger.

My boys were born 3 months early in March. The first 4 months were tough mentally and the kids did not have it easy either. The boys are now 7 months old.

DS1 crawls (4 months adjusted age) but he keeps his stomach on floor when he does it.
DS2 rolls across room, has not figured out how to push with legs.

DS1 has thighs like a football player- he will do squats if I hold his hands. His thighs are solid- more muscle mass than me or his mother I think.

Here are some recent photos:

ND Fans I hope


One of my favorates


A good one

I am about to start moonlighting as a tax preparer. Curious how much everyone out there pays for preparing their tax return?

http://abcnews.go.com/Politics/MatchoMatic/fullpage?id=55421...

Which candidate did you choose on the test? Was it same one you intend to vote for?