Author Archives: lslater

Caring For Two Generations

Time was, families were used to dealing with elderly parents, young children … and everything in between, all in one house! This is less common now, and as a result, many families are actually unprepared for how to handle it — simply because models are much less plentiful.

From what I’ve observed of adults thrust into the role of caring for their parents, the biggest struggle often comes from trying to keep their dual responsibilities segregated. They try to ensure that the needs of the aging parent don’t impact what’s going on in their children’s lives.

As an example, the adult children feel like they have to choose between making sure that Mom takes a walk for exercise, and attending a child’s piano recital. No matter what the adult parent chooses, he or she often feels like a failure at everything.

What you need to realize is that this process is not something that you can keep separated in your life. You’ll do your family a great service by viewing it as an experience to be shared with everyone in the family, and maybe even with some members of the outside community.

If you find yourself in this situation here are 3 practical tips I can offer:

1) Get the Actual Facts. You may have avoided talking with your parents about finances in the past. Whether you were taught that those things are private or “it just never came up,” now is not the time for surprises. You need to know how your parents are doing financially and whether they’ve made any provisions in case they become ill or suffer a long-term disability.

2) Ensure the Estate is Set Up Right. At this stage of your parent’s life it’s important to make sure that your parent’s legal house is in order. This can be a tricky conversation to have, but your parents absolutely need to have a financial power of attorney, advance health care directive (a healthcare power of attorney plus a living will), and a simple will. It may not be the fullest estate plan for your parents. It might not be proper Medicaid planning. However, it is the bare minimum you will need to help care for your parents.

3) Insure Against the Future. Now is the time to examine long-term-care insurance or assess whether savings will cover an extended nursing home stay, assisted-living facility costs or extended home-care services. You may be tempted to begin to liquidate your holdings or stop saving for your own benefit to help pay for the cost of your parent’s care. Big mistake.

Remember that there aren’t nearly the same kind of government programs or lending scenarios that will help you pay for your kids, or their college or fund your retirement — as there are to help support aging parents. It’s vital that you continue to save for your retirement.

What To Do After Your Return Is Filed

The monkey is now off your back and your return is filed (hopefully!). At least, of course, if you didn’t file for an extension.

But that doesn’t mean you may not still have questions. Here are some common ones we get.

“Do I need to keep a copy of my return?”

Yes, for a *minimum* of three years, but I recommend forever. There are all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home.As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

“I think there’s a mistake in my return. What should I do?”
Sometimes, you’ll find a receipt or a documentation after April 15th which really would have changed your prior year tax return. That’s, again, when you would have us file an “Amended Return”. Here are some other, common reasons to Amend…

• You neglected to report some income earned.
• You claimed deductions or credits you should not have claimed.
• You did not claim deductions or credits you could have claimed.
• You filed under one filing status, but you should have filed under another.

You might have other questions about Tax Returns in New York, which I haven’t addressed here. Let me know!

The Reverse Mortgage Landscape Has Changed

Many homeowners understandably want to remain in their homes as they age because they want to remain independent and because they have spent many years making their home everything they wanted it to be. Reverse mortgages have assisted many senior homeowners over the years to stay in their homes when their financial position changed.

A reverse mortgage is a loan for people age 62 or older. It provides money from the equity in your home through a line of credit, monthly payments or a lump sum. It does not require repayment of the loan until you move, sell the property, or pass away, and the homeowner is still responsible for property taxes and insurance.

Now, reverse mortgages were initially developed as a tool to assist individuals to remain in their homes and communities as they grow older, by allowing homeowners to tap their equity without selling their homes. All that said, however, the rules about reverse mortgages recently changed, making them harder to obtain.

And, of course, harder to sell. But that doesn’t stop the advertisements!

In August of 2013, the President signed HR 2167 — “The Reverse Mortgage Stabilization Act of 2013” ( ) — giving the Federal Housing Administration (FHA) the authority to make necessary changes to the reverse mortgage program. According to the United States Department of Housing and Urban Development (HUD), the changes “reduce their risk and make the program easier for seniors to use responsibly.” For the homeowner, the changes will make it harder to qualify for a reverse mortgage, but will provide additional protections.

Until now, getting a reverse mortgage loan required no credit history and no minimum income requirement. Due to problems with homeowners failing to maintain their property tax and home insurance payments, starting on January 13, 2014, the FHA began requiring lenders to verify that homeowners have the ability to pay their taxes and insurance and that their credit history demonstrates a commitment to paying obligations.

To qualify for a reverse mortgage, lenders now must analyze all income sources — including pensions, Social Security, IRAs and 401(k) plans — as well as credit history. They also look closely at how much money is left over after paying typical living expenses.

In my opinion, these changes are welcome and needed. Too many seniors have been sucked into financial arrangements that were NOT in their best interest.

Now, if a lender determines that you would not be able to keep up with property taxes and hazard insurance payments, they are now authorized to set aside a certain amount of funds from your loan to pay future charges. The amount of the set-aside is based on the life expectancy of the youngest borrower. If set-aside funds run out, you must continue paying property charges using whatever funds are at your disposal.

If a lender determines that you have sufficient income left over, then you don’t have to worry about having any funds set aside to pay for future tax and insurance payments.

These changes, along with the reduced benefits adopted in September of 2013 (see a helpful NYT article here: ), mean that many seniors will not qualify for a reverse mortgage to make their homes affordable.

Why the new rules?
Some seniors who obtained reverse mortgages with rather harsh terms found that they were unable to either live off the loan for long, or to pay it back entirely. The FHA’s changes to its reverse mortgage program sets out to encourage homeowners to tap their home’s equity slowly and steadily. Again, this is a good thing, in my opinion.

“What regulators are trying to do is shift behavior so that people are more thoughtful and methodical about how they draw the money,” said Peter H. Bell, president of the National Reverse Mortgage Lenders Association. “The changes are intended to put the program back on track and encourage people to take what they need and no more.”

Reverse mortgages can sometimes interfere with other programs. Keeping money in a reverse mortgage line of credit, in most states, will not count as a resource for Medicaid eligibility purposes so long as the house itself is an exempt resource — which it would be as long as the recipient is living in the home and receiving home-based Medicaid services.

However, transferring money from the reverse mortgage line of credit to a bank account and leaving it there past the end of the month would convert the exempt home equity into a “countable resource” and that would make the person lose his or her Medicaid eligibility.

This important distinction between countable resources and exempt assets is not a simple black and white issue — if you or your loved one is facing the possible need for long-term care, you should have a conversation with a professional who can help you to handle such matters properly.

Rethinking Retirement with Values

Retirement used to mean not only a complete withdrawal from the workforce but often a retreat from life. Even the word “retire” has the connotations of shuffling quietly off to bed. 

We call that traditional concept a “cliff retirement” because it is so abrupt. One day you are working full-time, and the next you are playing full-time (or slumped in your chair watching TV feeling unwanted and over the hill).

We all need meaning and significance in our lives. And close social relations are an intrinsic part of our humanness. For many people, work provides meaning, significance and social relationships.

Try this retirement planning exercise. Draw a large circle and write the names of 10 people inside the circle to whom you are genuinely close. Don’t include any relatives. To a certain extent, they have to love us, and although our connections with our families can be very nurturing, it is often friends who really help to validate us and widen our horizons.

Now cross out any of the 10 names you know through your work, which might eliminate half or more of the people you listed. Thus a cliff retirement can devastate not only your meaning and purpose but your social network as well. Retirees who no longer work at all say their close friends dwindle to an average of about nine people.

As a result of their isolation, people who opt for a cliff retirement often deteriorate quickly and die relatively young. Financial planning is easy when you die young, but we don’t recommend it.

Here are some suggestions to consider as you approach what is traditionally considered retirement age.

Consider postponing retirement. Delaying retirement until age 70 increases your Social Security benefits and also shortens the time you will be withdrawing from your portfolio. It gives you additional years to save and your portfolio more time to grow. By delaying retirement from age 65 to 70, you may have more than a 50% higher standard of living when you do stop working.

Or instead of taking a cliff retirement, think about retiring gradually. Move from full-time to 30 hours a week, and then to half-time. With this less hasty transition you can maintain contact with the people and purposes that give your life meaning and also have the time to develop goals and a network of relationships for your later years.

Envision your final years not as retirement but as financial independence. Now that you don’t need to work exclusively for money, make a list of activities where you would like to focus your energies and use your skills and experience.

Consider developing a health and fitness routine. If work kept your mind and body engaged, you will need to replace that activity with other pursuits. Again, going part-time allows you the luxury of processing the transition and adjusting to a new lifestyle.

Challenge and reexamine those stereotyped and overly rigid assumptions about retirement. Two books that may help you tailor your retirement to be a productive and satisfying time of your life are Encore: Finding Work That Matters in the Second Half of Life by Marc Freedman, and The New Retirementality: Planning Your Life and Living Your Dreams at Any Age You Want by Mitch Anthony.

Of course crunching the financial numbers is critical as you begin to contemplate retirement, or any kind of financial or tax planning. But your personal calling, support network, and health and well-being are just as important. In the end, a holistic approach to your life is always the best starting place.

Bank Card Security: Run It Debit or Credit?

One of the hidden benefits of using a credit card versus a debit card is SECURITY. And, as the Target mess showed us, the more we rely on electronic payments, the more we put our information in harm’s way.

But if you ARE going to use a debit card, there’s really only one way to do so.

Let’s say you are buying $20 worth of groceries. You swipe your debit card at the card reader and the clerk asks, “Debit or Credit?” Which should you choose? The answer could determine how safe both your money and identity are.

There are three basic steps in any transaction regardless of which method you choose. First, you are asked to provide identification. Second, your identity is verified. Third, your money is deducted. However, Debit and Credit go about those three steps very differently.

When you say Debit, the cashier or the card reader will ask you to enter your PIN. This is your means of identification. Your verified identity authorizes the system to send a request of funds to your bank. The bank then immediately transfers the $20 from your bank account to the store’s account. You now are $20 poorer. The cashier may ask you if you’d like to get “cash back,” meaning do you want to use this store as though it were an ATM and withdraw additional funds from your account. If you say yes, the store would be paid however much cash you withdrew and the store would pay you the same amount in cash.

When you say Credit, the cashier prints out a receipt and asks you to sign at the bottom. Your signature is considered your identification. Your information — location of sale, credit card number, etc. — are sent to your debit card’s sponsoring credit card company, like Visa.

Visa then takes 1-7 days to look for fraud. If any factors look suspicious, such as the location of sale seeming unlikely, the sale is reported to you as potential fraud and the $20 remains in your bank account.

If everything checks out though, and your identity is authorized, then $20 is moved from your bank account, and divided up among three locations:

1. $0.20 (1%) is given to Visa, for their service of fraud detection;

2. $0.20 (1%) is given to your bank, for their service of providing a card; and

3. $19.60 (98%) is given to the grocery store to pay for the goods

But let’s say prior to your $20 purchase, a thief had attached a device to the store’s card reader which records all of the information.

If you ran it Debit,  the thief’s recorder has access to your credit card number, name, expiration date, and PIN.He can access all of your funds and make a copy of your card. With this copy, he can run it Debit and verify his identity by entering your PIN.

Because PIN is the only verification of your identify when running a card Debit, your bank transfers the money out he asks for, sometimes regardless of how much it may look like fraud, with no questions asked. No one is watching over your Debit purchases but you. It’s only if you log on to your bank account and see that your funds are gone that you could find out that a copy has been made.

If you do catch him and cancel your debit card, the damage done in this case may be permanent. Because the PIN number is the only identification used, it is hard to prove that such purchases were actually fraud. Even if they do determine it is fraud, often no one will refund you the money. The bank, who is the only reasonable candidate who might, does not (usually) offer you such fraud coverage. That’s why Visa sponsors your card, to catch fraud. But since you didn’t run your card Credit, Visa was never given a chance to perform that role for you.

If you ran it Credit, the thief’s recorder has access to your credit card number, name, and expiration date. He notably does not have access to your PIN. With this information, he can still make a copy of your card and, with this copy, he can still try to make purchases running the card as Credit.

Running it Credit in stores will require that he forges your signature. The information of the sale is then sent to Visa for fraud checking. If Visa’s systems detect a change from your typical behavior, they will flag the transaction as fraud, and alert you.

Even if Visa doesn’t catch that it is fraud, just the process of going to Visa keeps the funds in your account for 1-7 days. That may be long enough to give you some time to see the stolen activity as pending charges, cancel your card, and report the identity theft to your bank. Doing this protects your bank account from ever having to pay for these charges.

If Visa doesn’t catch the fraud and neither do you, then the money transfers out of the account to pay the thief’s bills. However, because all the information passed under Visa’s watch, if you catch the fraud after the fact, you are protected by Visa’s fraud protection policies, which are much more likely to pay you back in the event that the fraud can be proven.

If the thief uses the stolen information to make purchases online, he will have to know your billing address, which is information he likely has not acquired.

Conclusion: Always run your cards as Credit. Protect your funds by allowing your sponsoring credit company to implement their fraud protection. Never be afraid to dispute or question charges you see pending or fulfilled. Time is important in cases of fraud, and waiting may make the process of proving fraud more difficult.


Turbo-Charged Filing Mistakes

Did you know that we tax people sometimes joke to one another about how good these online software programs (TaxSlayer, TurboTax, TaxACT, FreeFile, etc.) are for our business? First, they are not as “easy to use” as claimed, and second … they cost you an arm and a leg.

You might think they’re cheap. And on the surface, you might be right (though, in the last few years, a $1 billion class action lawsuit was filed in the federal court in Philadelphia alleging gross misstatement of fees and deceptive standards of the federal “FreeFile” program … so even on the surface, it wasn’t always cheap). But I’m not even talking about the money for the service itself.

Using those programs can end up leaving hundreds, or even thousands of your dollars in the coffers of Uncle Sam … even if you follow all of their instructions to a tee. I see it all the time — frustrated clients bringing in their prior year’s tax return, astonished at all the “hidden money” my staff and I are able to find for them.

And then there are audits. Do you remember when the former Treasury Secretary, Tim Geithner, testified about tax irregularities in his own personal returns? Do you remember what DIDN’T help him find those irregularities?

Turbo Tax. (Link to a brief clip of his testimony before the Senate: ) 

Yes, it can be seductive to “go it alone” … to trust a piece of software to point out possible deductions. To trust your work to poorly-trained preparers in a big box office. To protect against your chances of audits through online chatroom support or hourly employees.

But it can be a big trap.

Just ask Tim Geithner.

My tax time checklist

Many of you are putting together your paperwork now for your tax return. At Popular Tax, our mission is to ensure that EVERYONE saves the most possible when the IRS comes calling. Some of these may seem small, but trust me when I say that they add up.

Personal Data
Social Security Numbers (including spouse and children)
Child care provider tax I.D. or Social Security Number

Employment & Income Data
W-2 forms for this year
Tax refunds and unemployment compensation: Form 1099-G
Miscellaneous income including rent: Form 1099-MISC
Partnership and trust income
Pensions and annuities
Alimony received
Jury duty pay
Gambling and lottery winnings
Prizes and awards
Scholarships and fellowships
State and local income tax refunds
Unemployment compensation

Homeowner/Renter Data
Residential address(es) for this year
Mortgage interest: Form 1098
Sale of your home or other real estate: Form 1099-S
Second mortgage interest paid
Real estate taxes paid
Rent paid during tax year
Moving expenses

Financial Assets
Interest income statements: Form 1099-INT & 1099-OID
Dividend income statements: Form 1099-DIV
Proceeds from broker transactions: Form 1099-B
Retirement plan distribution: Form 1099-R
Capital gains or losses

Financial Liabilities
Auto loans and leases (account numbers and car value) if vehicle used for business
Student loan interest paid
Early withdrawal penalties on CDs and other fixed time deposits

Personal property tax information
Department of Motor Vehicles fees

Gifts to charity (receipts for any single donations of $250 or more)
Unreimbursed expenses related to volunteer work
Unreimbursed expenses related to your job (travel expenses, entertainment, uniforms, union dues, subscriptions)
Investment expenses
Job-hunting expenses
Education expenses (tuition and fees)
Child care expenses
Medical Savings Accounts
Adoption expenses
Alimony paid
Tax return preparation expenses and fees

Self-Employment Data
Estimated tax vouchers for the current year
Self-employment tax
Self-employment SEP plans
Self-employed health insurance
K-1s on all partnerships
Receipts or documentation for business-related expenses
Farm income

Deduction Documents
State and local income taxes
IRA, Keogh and other retirement plan contributions
Medical expenses
Casualty or theft losses
Other miscellaneous deductions