Don't Panic

With all the demands on your money—the needs of your kids and those of your parents, not to mention your own ambitions—it often seems like there’s not enough cash to go around. The solution: Set priorities that are flexible, but not too flexible.
By George Mannes

The economy has taken recent and multiple nosedives, so family and friends may be giving you all sorts of unsolicited financial advice: Uncle Joe touting the benefits of gold, PTA moms declaring that they're cashing in all their investments. Are these words of wisdom? No, says Eleanor Blayney, a consumer advocate for the Certified Financial Planner Board of Standards. During these tough, unpredictable times, bear in mind these smart money don'ts.

DON'T get caught up in the gold rush.

Buying commodities (cotton, oil and-- the big one these days-- gold) may earn you good returns in moments of economic uncertainty. But the potential profit comes with a lot of added risk. Prices for raw materials tend to move in cycles, so by the time casual investors catch on, it's usually too late to benefit much-- and you may be just in time to lose your savings, says Jack Plunkett, chief executive of Plunkett Research, a market-research firm in Houston. A more measured approach? Consider looking for mutual funds that will benefit if a particular commodity goes up. (If you want to invest in oil, say, buy shares in a mutual fund that emphasizes energy companies.)

DON'T borrow from your 401(k).

Raiding your account is easier than sweet-talking a bank. But this is one of the last places you should borrow money from, especially in precarious times, says Sheryl Garrett, founder of the Garrett Planning Network, an organization of fee-based financial advisers in Shawnee Mission, Kans. If you lose or quit your job, the loan will come due immediately. And if you're 59 1/2 or younger and can't repay the balance, you will owe taxes and a 10% penalty for early withdrawal.

And, above all, DON'T cash in your mutual funds.

"This is one of the worst panic moves you can make"; says Blayney. If you sell when the market is down, you miss out on the chance to potentially recoup that money when stocks rebound.

Contact Naperville Tax Advisor, Susan S. Lewis Ltd., for additional information, her mantra is to help you keep more of what you earn.

From the August 2010 issue of Money
© 2011 Time Inc.

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Be Sure to Make a Will

If you have a family and a home, you need a Will. Wills are your chance to say who gets what in your estate when you pass away—including your house and possibly the assets in your retirement plan in absence of a valid designation of beneficiary form. Without a Will, state law will determine how your assets are distributed and who will take care of your children. And those decisions may not be what you want. A Will can be drawn up quickly and easily by a lawyer, which will typically cost between $200 and $750.

Put Someone in Charge
First, decide who you want to be the executor (or executrix, if a woman) of your estate. He/she is the one who will be responsible for filing your Will in probate court. The executor is often a spouse or partner, but you can—and should—name an alternate, in case he or she dies before you or can't handle the responsibility for some reason.

Protect Your Kids
Second, name a guardian for your children if they are under 18. This is important because if you and your spouse were to perish at the same time—unlikely as that may seem—a judge would decide who will take care of them if you have no Will. Consider naming an alternate guardian as well.

Distribute Your Assets
Next, decide how you want your assets to be distributed to your loved ones and make sure your specific desires are stated clearly.

Keep it Current
Finally, once you have a Will, remember to update it whenever there is a significant change in your family's circumstances—like a birth, a death or a marriage. Although making a Will may seem like a chore now, it will help your loved ones tremendously down the road.

The information contained herein represents the opinions of a third party and does not necessarily represent the opinions of Naperville Accounting Services Firm of Susan S. Lewis Ltd or Naperville Financial Services team, Platinum Financial and are unaffiliated with any of the entities referenced above.

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Hot and Dry: The Potential Impact of the 2012 Drought

July 2012 was the warmest month in the contiguous United States since national weather statistics were first kept in 1895. The seven-month and 12-month periods ending in July also set heat records, and precipitation has been lower than normal, especially in the central part of the country. By the end of July, these hot and dry conditions had driven a rapid expansion of drought across 63% of the nation, devastating crops and livestock from the Great Plains to the Midwest.¹

The corn crop has been hit hardest, with the U.S. Department of Agriculture (USDA) forecasting a drop in production of almost 17% over previous projections.² Soybean production is also projected to decline sharply.³ In addition to its effect on farming, the drought has created dangerous conditions for wildfires, and shipping on the Mississippi River has been disrupted by low water levels.^4–5

Although the severity and full effect of the drought might not become clear for some time, it may be helpful to examine its potential implications for consumers and the U.S. and global economies.

Corn Conditions

For many Americans, corn on the cob is a staple of summer meals, and cornflakes might begin the day. However, corn for human consumption accounted for only about 12% of domestic usage in 2011. The rest was split between livestock feed and ethanol production.⁶

Corn prices have skyrocketed about 60% this summer, forcing some farmers and ranchers to slaughter livestock, which has created a short-term glut of meat products that may briefly lower prices.^7–8 In the longer term, consumers should expect higher prices for meat, poultry, dairy, and corn products beginning this fall and rising further next year.⁹

The USDA currently forecasts a 3% to 4% increase in food costs in 2013, but that may be raised as the severity of the drought becomes clearer.¹⁰ Even so, serious price spikes or shortages are unlikely. The farm price of corn is a relatively small percentage of supermarket prices, and there are sufficient stockpiles of other foods including wheat and rice, the two most important grains for human consumption.^11–12

Global Impact

The United States is the world’s largest supplier of staple grains, and about 20% of its annual corn crop is exported.^13–14 Due in part to the U.S. drought, world food prices rose 6% in July.¹⁵ Hot, dry conditions have damaged crops in Russia, India, and Australia, while heavy rains have reduced sugar output in Brazil, the world’s largest sugar producer.¹⁶

Drought and high food prices have already caused a food crisis in the Sahel region of west and central Africa. Other poor countries, which typically do not produce enough food domestically, face the greatest risk if prices continue to rise.¹⁷

The Ethanol Mandate

In 2007, the federal government mandated that the nation’s total gasoline supplies include an increasing percentage of ethanol over a five-year period (9% in 2012) .¹⁸Since 2010, more corn has been earmarked for ethanol production than for livestock feed, although almost a third of this is recycled as feed-enhancing by-products.¹⁹

The high price of corn could increase gasoline prices, while the diversion of corn to ethanol has contributed to rising global food costs. In August, the UN’s Food and Agricultural Organization asked for an “immediate, temporary suspension” of the ethanol mandate, and there is increasing pressure from within the U.S. as well. However, the mandate also has strong proponents, so timely change seems unlikely.²⁰

Farmers and Ranchers

Although a prolonged drought could devastate the agricultural economy, crop insurance — funded in large part by the federal government — may help mitigate the short-term impact, and high prices could make corn and soybeans more profitable for some farmers.²¹

Ranchers, who do not have crop insurance and are losing grass and hay on top of paying high feed corn prices, face more imminent losses. Federal disaster relief for ranchers has been stalled by the congressional recess and debate over the farm bill.²²

Wildfires and River Levels

Fed by dry vegetation and drought, wildfires burned more than 7 million acres across the country (as of August 21) , the most on record at this point in the fire season.²³ In addition to the human cost and loss of timber resources, firefighting expenses are stretching already thin state budgets throughout the West.²⁴

Low water levels on the Mississippi River have narrowed channels and forced shipping companies to run barges with lighter loads. Similar conditions in 1988 cost the inland water transportation industry about $1 billion, with additional costs passed down to consumers.²⁵

The longer the drought lasts, the greater the potential for serious economic consequences. For now, the wisest course may be to monitor continuing developments and hope for more rain.

1)  National Oceanic and Atmospheric Administration, 2012
2) The Wall Street Journal, August 10, 2012
3, 6, 9–10, 14, 19)  U.S. Dept. of Agriculture, 2012
4, 23)  usatoday.com, August 21, 2012
5, 25)  time.com, July 30, 2012
7, 11, 13, 21)  CNN.com, August 13, 2012
8, 22)  businessweek.com, August 19, 2012
12)  CNN.com, August 20, 2012
15–17)  BBC News, August 9, 2012
18, 20)  Reuters, August 10, 2012
24)  Associated Press, August 23, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Its Retirement Time

In a 2012 survey, 50% of current retirees said they retired earlier than they had planned, up from 45% in 2011.¹

Many retirees reported reasons that were beyond their control, such as health problems or disability, company downsizing or closure, changes in the skills required for their jobs, or having to care for a spouse or family member. Yet some said they retired early by choice — because they could afford to or because they wanted to do something different.²

Retirement (Photo credit: 401(K) 2012)

If you’re nearing the end of your working years, you probably have a retirement timetable in mind. It may be as specific as a particular date or as general as a range of years. Regardless of your timetable, circumstances could change — as the experience of current retirees demonstrates — and retirement might come sooner than you think.

Addressing some key issues now might ease your transition and give you more choices in how you retire.

Calculate Your Income Stream

If you had to retire early, would you be able to maintain your standard of living? It might be helpful to calculate your projected income based on your preferred retirement timetable and an earlier date.

Of course, the sooner you retire, the less time there will be for your investments to pursue potential growth, so accelerating your savings now could make a big difference in how much you might accumulate. If you retire on schedule (or later), having a potentially larger savings balance could give you more flexibility in your retirement lifestyle.

Also keep in mind that Social Security benefits typically will be reduced if you retire before your “full retirement age,” which ranges from 65 to 67, depending on year of birth.

Reduce Your Debt

Eliminating or reducing outstanding credit-card balances as soon as possible could be a great step toward getting on track for retirement. Paying off auto loans could also free up more income.

Although retirement strategies in the past were typically based on the assumption that retirees would have no mortgage debt, that has changed. About a third of homeowners aged 65 and older still have mortgages.³ If you foresee your mortgage being an issue in your retirement years, you may want to examine options to pay it off early, reduce payments, or otherwise modify the terms.

Consider Your Health

Your health and the health of your spouse could be among the most important factors in determining when you will retire. Ask yourself the following questions:

• Is your retirement timetable realistic based on your current health status?
• Would you be prepared if your health were to change?
• Have you factored the full cost of health care into your retirement strategy?

A married couple who retired in 2011 (with median expenses for prescription drugs) would need an estimated $287,000 to have a 90% chance of paying their health-care costs throughout retirement. Costs for future retirees may be much higher.⁴

Surprises can be fun in many situations, but not when it comes to retirement. Preparing now could help ease you into a more comfortable retirement lifestyle.

1–2) Employee Benefit Research Institute, 2012
3) U.S. Census Bureau, 2012
4) Employee Benefit Research Institute, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Asset Management Advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Tax Ramifications due to Distribution from 401K Account

How much will I pay in taxes when I take a distribution from my account?

When you take a distribution from your account, you'll pay ordinary income tax plus a 10%
penalty if you're younger than 59½. In fact, cashing out a $10,000 401(k) account could leave you with $7,000 or less due to taxes and penalties. In addition, you are losing out on compounding potential. So think twice before taking a distribution, it could cost more than you think.

The cost of lost time
If you cash out your 401(k)'s $10,000 balance with 30 years to go before you retire, you are potentially missing out on $100,627 for your retirement, assuming an 8% before-tax average annual rate of return. It does not reflect the return of any investment, which will fluctuate.
Regular investing does not ensure a profit or protect against a loss in a declining market.

Talk to your Naperville Tax Accountant, Susan S. Lewis for advice.

How Does Inflation Affect Your Taxes?

Nobel prize-winning economist Milton Friedman once said that “Inflation is taxation without legislation.”¹ You’re probably aware of how taxes reduce your earnings, but have you thought about the effect of inflation?

Over the last 50 years, U.S. inflation (as measured by changes in the consumer price index or CPI) has averaged a little more than 4% a year.² A hypothetical investment earning a 5% average annual return during this period would have returned only about 1% after inflation. The rate of return would have been further reduced by income taxes.³

Inflation, which was near zero in 2008 during the depths of the recession, reached almost 3% in 2011.⁴ If you want to help protect your investment dollars from future inflation, you might consider Treasury Inflation-Protected Securities (TIPS). Not only do TIPS have similar earnings potential to other Treasury bonds, but they are adjusted for inflation. If the CPI rises, the principal value of TIPS increases. If the CPI falls, the principal value falls. TIPS pay interest twice a year, and the investor receives either the original or the inflation-adjusted principal (whichever is greater) when they mature.

The principal value of TIPS fluctuates with market conditions. As the principal amount grows, so do the interest payments, which means that the income generated has the potential to increase over time. However, unless you own TIPS in a tax-deferred account, you have to pay federal income tax on the income plus any increase in principal, even though you won’t receive the accrued principal until the bond matures.

U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. If not held to maturity, they may be worth more or less than their original value.

1) brainyquote.com, 2012
2, 4) Thomson Reuters, 2012 (CPI for the period 12/31/1961 to 12/31/2011)
3) This hypothetical example is used for illustrative purposes and does not represent the performance of any specific investment. Actual results will vary.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Accounting Firm or advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Social Security Statements Now Available Online

Seal of the United States Social Security Administration. It appears on Social Security cards. (Photo credit: Wikipedia)

An important part of planning for retirement is knowing how much you can expect from Social Security. Once you know that, you can determine the amount you'll need to provide through personal investments and other sources to make up the difference between your Social Security payments and your anticipated income needs.

Now, you can access information about your estimated Social Security benefits more easily than ever. As of May 1, 2012, workers age 18 and older can view their personalized statements electronically through the Social Security Administration's website at www.ssa.gov.

The online statement provides a complete earnings history; the total Social Security and Medicare taxes you paid during your working career; and estimates of your retirement benefits at age 62, your full retirement age, and age 70, as well as estimates of your disability and survivor benefits.

This is the same information that had been included in the paper statements that were previously mailed once a year to all workers age 25 and older. The Social Security Administration suspended these mailings in April 2011 to save money. The online data will be updated annually, so it might be a good idea to get in the habit of checking your statement each year.

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Becoming a More Rational Investor

Studies by the Investment Company Institute and the Federal Reserve Board indicate that investors’ willingness to assume risk tends to rise and fall with the stock market.¹ Of course, it’s not surprising that people are more likely to pour money into stocks when the market is trending upward and to retreat when the market trends downward.

To become a rational investor, the more important issue may be your perception of investment risk and how much you are willing to assume to pursue your long-term goals.

Behavioral Traits
The field of behavioral finance seeks to understand how and why investors react to different outcomes and events. One study indicates that people tend to have a subjective “reference point” for considering whether an investment is a success or a failure, and they may have different reference points for different investments.²

Investors also tend to react more emotionally to losses than to gains. They feel rewarded when an investment reaches a specific reference point, but when it doesn’t their negative feelings about not reaching it are much stronger.³ Fear and anxiety may lead investors to sell when the market falls steeply, as it did in 2008 and early 2009, which could result in their incurring a loss on their original investment and missing out on potential gains when the market begins to recover, as it did in late 2009 and in 2010.

If you relate to having some of these emotional reactions, you may want to examine your risk tolerance and consider whether your reference points are reasonable.

Is It All in the Brain?
Neuroscientists are discovering that many emotions and behaviors are “hard-wired” in the brain. Sensory input reaches a section of the brain called the amygdala first and can trigger a “fight or flight” response. The amygdala is essentially the brain’s “fear center.” In a study at the California Institute of Technology, patients with damaged amygdalas not only were more willing to take financial risks than the control group but demonstrated no fear of monetary loss. By contrast, people with healthy amygdalas exercised a level of caution toward risk taking.⁴

French researchers found that another area of the brain called the ventral striatum responds to the potential for reward and drives other responses to try to achieve it. In their tests, an increase in the dollar value of the potential reward created increased activity in the ventral striatum, which led to increased efforts to achieve the reward.⁵

The fact that your emotions may be influenced by specific areas of the brain does not mean they are out of your control. But research does suggest that a variety of psychological and physical factors could affect your decision making and might guide you in the wrong direction. Although you should be aware of these factors, it’s important to make investment decisions based on a rational analysis of your time horizon, risk tolerance, goals, and personal circumstances.

1) Investment Company Institute, 2011
2–3) advisorone.com, February 23, 2012
4) California Institute of Technology, 2010
5) sciencedaily.com, February 22, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville investment advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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6 Steps to Improve Your Credit Score

What goes into your FICO rating?

By Ismat Sarah Mangla
Ready to embark on the quest for an 800 credit score?

You’ll have to start by getting your exact score by shelling out $16 at Myfico.com. (The best free scoring tool, the report card at Credit.com, gives you only a letter grade and a range your score probably falls into.)

FICO logo (Photo credit: Wikipedia)

You actually have three credit scores, one for each of the three major credit bureaus: Equifax, Experian, and TransUnion. Mortgage lenders pull all three.

Though based on the same model, these scores can differ—typically by no more than 15 to 20 points, says FICO spokesman Craig Watts—depending on how lenders report to the bureaus and how the bureaus include that information in the report.

At Myfico.com you have the option of buying only your Equifax or TransUnion score; Experian doesn’t sell its FICO score to consumers. If you’re shopping for a home loan, get the two available to you.

Scores change whenever your creditors report new information—like your credit-card balance—so if you’re in the market for a big loan, start monitoring your number six to 12 months beforehand.

You might also find it useful to sign up for a tool like Equifax’s Score Watch, which for $13 a month will alert you when your score shifts. For those who aren’t loan shopping, there’s no need to check your number more than twice a year, says Wayne Sanford, owner of credit consulting firm New Start Financial Corp.

And if you find out you’re not in the promised land? Don’t worry. You don’t need to be fanatical to get to 780. Those in the know say these moves matter most:

1. Stay on top of your credit reports. You’re entitled to one free copy per year from each bureau. Get them at AnnualCreditReport.com, and look for misreported delinquencies, over reported loan amounts and under reported credit limits. Request corrections from the bureau in writing.

2. Pay bills within the grace period. Lenders report tardiness to the bureaus once you’re 30 days past due; if your score started at 780, it can go down to 680 after just one delinquency, says Watts. So set up payment reminders or have payments automatically deducted by a certain date.

3. Focus on paying off credit cards vs. other debt. Whittling down revolving debt will do a lot more for your score than erasing installment loans. Paying off a $250,000 mortgage when your score is already high will boost it by only five or 10 points, says Watts. But wiping away a few thousand bucks on plastic can add 100 points.

4. Stay under the magic 10%. Just paying off credit-card balances every cycle does not mean you have a 0% utilization; issuers report to the bureaus the total amount you charge each month. That suggests you should use credit cards sparingly, says Watts. Aim to spend no more than $2,000 on a $20,000 line; and put cards on ice a few months before applying for a loan.

5. Have a favorite credit card. The FICO model penalizes you for having multiple balances, so limit the bulk of your spending to one card. That said, issuers are closing inactive lines, which can hurt your utilization ratio. So make small charges to your other cards every three months or so.

6. Ask FICO what else will work for you. FICO offers a free Score Simulator tool to those who buy scores on Myfico.com, and this allows you to see how your score would respond to certain actions, such as paying down debt or even taking on new loans.

From an Aug. 26, 2010 article on CNNMoney.com. © 2011 Time Inc. All rights reserved.

Contact Susan S. Lewis or Platinum Financial for additional Naperville Debt Counseling.

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How Much Life Insurance Do You Need?

In a recent study, 40% of consumers responded that they don’t have enough life insurance to meet their families’ long-term needs.¹ This concern raises an obvious question: How much life insurance is enough? What might be appropriate for a family with two young children and a stay-at-home spouse could be significantly different from the needs of a working couple whose children are grown.

Do the Math

Rather than using the oft-recommended formula of replacing eight to ten times your annual income, a better tactic might be to calculate the life insurance benefit amount that could provide the income to meet your family’s long-term needs and goals.

In the hypothetical example below, the family’s living expenses were $70,000 and the surviving spouse would have access to $40,000 of income, leaving $30,000 of annual income to replace. The next step is to determine the life insurance death benefit that could replace this annual income.

In order to do this, you estimate an average annual rate of return that might be achieved if the death benefit amount were invested in income-producing financial vehicles, without reducing the principal. For this example, a 5% rate of return is used. Of course, this rate of return is not representative of any specific investment; actual circumstances and results will vary.

Dividing $30,000 by 5% (.05) equals $600,000. A $600,000 life insurance benefit earning a 5% average annual rate of return could yield a $30,000 annual income.

Although this worksheet is a good starting point, for a more accurate result you should include all the potential expenses that might enable your family to live the way you want them to live. For example, you could include funds for your child’s college education. If health insurance is paid for by your employer, your family may need replacement coverage. And don’t forget final expenses such as funeral and burial costs.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. If a policy is surrendered prematurely, there may be surrender charges and income tax implications.

Life insurance could be a key step toward providing security for your loved ones. It’s important to review your coverage regularly to make sure you have sufficient protection for your family’s situation.

1) financial-planning.com, September 26, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek Naperville Accounting and Naperville Insurance advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Go Back to School without Going Broke

How to finance your education so you can land a better job and bank higher earnings.
By Pallavi Gogoi 

Going back to school can quickly take your career to the next level. And you need not go into serious debt to make it happen. Read on to find out what aid is available and how to get started. 

University of Oregon (Photo credit: jjorogen)

Money From the School
Most schools offer their own scholarships and work-study programs, along with guidance about other local sources of aid. Key information. Be sure to share any special circumstances you face (like high medical bills or job loss). Schools might offer you more money. First steps. Contact a financial aid officer at the schools you are interested in at the beginning of fall, most financial aid deadlines arrive before January. 

Money From the Federal Government
From a Pell grant to work-study to student loans, the U.S. government offers a variety of funding options. If you have a low income, are a single mom or are simply an adult returning to school, you likely will get some aid. You can also receive funding for help with child care, housing, insurance and food. Visit benefits.gov and fill out the online questionnaire to see whats available to you. Key information. Apply as early in the year as you can, after you have filed taxes (the closer to January, the better). List colleges you are eyeing on your aid application, as federal aid is distributed through the school. First steps. Go to fafsa.ed.gov to fill out the Free Application for Federal Student Aid (FAFSA) so you can be considered for all sources available. 

Money From Your State
States set aside funds for scholarships, including those for nursing, teaching, law enforcement and other critical-need areas. Key information. Most funds run out, so apply early! First steps.View your states list of programs at collegescholarships.org/scholarships/states.htm. 

Money From Your Community
Local affiliates of Rotary International, the YWCA, religious institutions and other nonprofits often offer scholarships. Key information. Volunteering and being involved in community activities make you a likely pick for funds. First steps. Ask your chamber of commerce about service organizations that offer scholarships. 

Money From Your Employer
Many companies, especially large ones, have scholarship funds for employees who attend school part-time. Key information. Involved citizens find more funding. First steps. Check with your employer. Even a small scholarship can help with the cost of books. 

Money to Become a Teacher
A Teach Grant offers $8,000 for two years of grad school. Key information. You must teach in a low-income-area school for four years after graduating. First steps. At studentaid.ed.gov, search Teach Grant. 

Money From the Military
Hundreds of scholarships exist for current military personnel and veterans, as well as their spouses and children. Key information. Involved citizens find more funding. First steps. At careeronestop.org/militarytransition, click Plan Education and Training. 

Money From Professional Organizations
If you are a member of a networking or career-based group, check if it offers or knows of scholarships. Key information. Become an active member to increase your chances of winning a scholarship. First steps. Visit the organizations Website for scholarships, or search a scholarship database by field. 

Other Sources
For a more specialized approach, search scholarship Websites that seek applicants who meet your criteria woman, single mom, ethnicity, income level and many more at CollegeFunds.net,Fastaid.com, Fastweb.com and ScholarshipExperts.com. 

For more Naperville education planning ideas, please contact us at Susan S. Lewis, Ltd or Platinum Financial.

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Taming Taxes

Small-business owners and independent contractors may be more likely than other taxpayers to benefit from the home-office tax deduction, which has an average value of more than $2,600.¹ But some taxpayers may be hesitant to claim this potential tax benefit on their personal tax returns, fearing that it could trigger an IRS audit.

Their worries are not entirely unfounded. Taxpayers who claim home offices often don’t meet the requirements, or they calculate the deductible amount incorrectly. This checkered past may explain why the government tends to take a closer look at returns that include this deduction.

Even so, business owners who operate out of a home office and are legitimately entitled to claim the deduction should consider taking advantage of this valuable tax break.

Calculating the Benefit

Eligible taxpayers can write off a percentage of home expenses such as depreciation, rent, property taxes, insurance, utilities, maintenance, and repairs. The percentage is based on the square footage of the office space relative to the total size of the home.

Passing the Test

To qualify for a write-off, a home office must be used in a trade or business activity — not to manage personal investments or pursue a hobby. It must also be used regularly and exclusively for business. If part of your home is used to provide day care or to store products, you may not have to meet the exclusivity test. In addition, your office must meet at least one of the following three criteria:

• It is the place where you normally meet with patients, clients, or customers.
• It is your principal place of business, meaning there is no other fixed location where you work on a regular basis.
• It is a separate structure that is used exclusively for trade or business. If the office space is not attached to the dwelling, it does not have to be the principal place of business.

If you take the deduction, make sure to keep good records, including pictures that show how your home office is used. You may want to ask a tax professional to help determine your eligibility and evaluate whether the potential tax savings may be worth the added IRS scrutiny.

1) businessweek.com, February 21, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek Naperville Tax Services advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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The ABCs of Business Structure A small business can adopt a number of business structures for tax and legal purposes. Each has its own advantages and disadvantages. Sole proprietorships, partnerships, and limited liability companies (LLCs) are fairly basic forms of ownership, whereas corporations are significantly more complex. There are two primary types of corporations in the United States. C and S corporations may provide broader legal protections, but usually must meet more demanding legal requirements. Some states also recognize benefit corporations, a new legal structure that tends to appeal to “social entrepreneurs.”1 A corporation is a separate legal entity from its owners, a distinction that explains why shareholders generally cannot be held liable for a corporation’s debts. Tried and True Introduced in 1958, S corporations were originally intended to offer tax relief to small, privately held companies.2 S corps share many of the formal corporate requirements as C corps, including articles of incorporation (and other document filings), a board of directors, an annual meeting, corporate minutes, and shareholder votes on major decisions. S corps are limited to one class of stock and a total of 100 shareholders. The primary difference between C and S corporations has to do with taxation. C corps may be subject to corporate income tax at both the federal and state levels, and any earnings distributed to shareholders as dividends are taxed again at personal income tax rates. S corp profits and losses are “passed through” to shareholders, who are taxed at individual income tax rates. Both types of businesses must file annual tax returns. An Idealistic Newcomer Seven states have passed benefit corporation laws in the last two years, and at least four others are considering them.3 Normally, corporations are legally required to act in such a way as to ensure the greatest profitability for shareholders, which can result in legal or ethical challenges for some socially conscious firms. A benefit corporation’s status may compel the board of directors to consider the social and/or environmental implications of some decisions. When choosing an ownership structure for your new or growing business, it’s important to weigh the potential costs and benefits of the various options and consult with your tax or legal professionals. Your firm’s unique needs and characteristics may also influence your decision. 1, 3) The Wall Street Journal, January 19, 2012 2) Small Business Administration, 2012 The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek Naperville Small Business Planning advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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• LLC vs S Corp vs C Corp vs Not Incorporating at All (bizsugar.com)