As metioned a few months ago, I've been invited to speak at the Annual Conference on Financial Education. I'll be making a presentation called, Soldiers, Sailors and Their Taxes
. You can check out the speaker line-up here
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Financial StrategiesPlanning Techniques, Procedures and Guidance for Military Professionals
Happy March! Spring Break is just around the corner and I'm looking forward to getting my son Zachary home from college for a little bit. I always look forward to having family home.
This issue of Financial Strategies has a retirement and aging focus. Can't say that I planned it that way, it just sort of happened.
My Feature to the left is a brag, admittedly. But, I am very proud to be on the speaker line-up at the Annual Conference on Financial Education in April. It is a national conference and looks to be interesting.
The main article talks about Long-Term Care Insurance. While the article won't tell you what to do, it will help you understand the terms. By the way, if you are Active Duty make sure you keep your ear to the ground for "Open Season" for the Federal Long-Term Care Insurance Program. It allows you to enroll with reduced underwriting requirements.
My Quick Comment talks about a scam on Veterans to "qualify" them for a Veteran's Pension.
The next article talks about surviving an audit. O.K. not retirement related, but it IS tax season.
I wrap up with two articles from the Financial Presses. The first covers the benefits of working with a Financial Advisor. Obviously, I'm biased, but the article lists some research findings on those who use advisors. The last article lists some considerations on selecting your final retirement home.
Just a reminder, but I am offering tax preparation services and Active Duty military earn a 15% discount (military retirees receive a 10% discount).
Happy March and Easter (which is coming up really fast).
Curtis L. Sheldon, EA
C.L. Sheldon & Company, LLC
(703) 542-400 or (800) 928-1820
A Long-Term Care Insurance PrimerLong-Term Care Planning is one of the most challenging things I discuss with clients. First of all, Long-Term Care Insurance (LTCI) is expensive. Second, the risk seems far off. Third, you may never use LTCI, but if you need it, you NEED it. All valid concerns. But, before you can have any discussions about Long-Term Care Insurance, you need to understand it. So, let's' take look at some key terms and concepts for LTCI.
Triggering Event. With most LTCI policies and all qualified LTCI policies, the benefits go into effect when you can no longer accomplish 2 of 5 Activities of Daily Living (ADL) or if you have cognitive impairment. The ADLs are:
Transferring (essentially walking)
When a medical practitioner of the insurance company's choosing certifies that you can no longer accomplish two of the above list without assistance, your insurance coverage is triggered.
Covered Services. LTCI can cover Nursing Home Care, Assisted Living and Home Care, depending on the exact details of the policy.
Elimination Period. Just like an Auto Insurance Policy has a deductible, LTCI has one too. However, instead of a dollar amount, LTCI deductibles are measured in days and the deductible is called an elimination period. Common elimination periods for LTCI are 20, 60, 90, 180 and 365 days. The lower the number of days, the higher the premium you pay. The higher the number of days, the more you pay out of pocket before coverage starts.
Maximum Daily Benefit. This is the maximum amount that the insurance company will pay for one day of covered services. If you select a lower daily benefit your premiums will be lower. A higher daily benefit results in higher premiums. This is one area where you may not want to economize. I'll explain later, but it is better to underspend your Daily Benefit than to overspend it.
Benefit Period. This is the amount of time that the insurance will pay benefits. Common Benefit Periods include 3 years, 5 years or for life. Just like above, a shorter coverage period will have a lower premium. Some stats to consider when making this decision
The average nursing home stay lasts about 2.5 years
Men have a 5% chance of staying in a nursing home for more than five years
Women have a 13% chance of staying in a nursing home for more than five years
Total Benefit. While not always called a Total Benefit, most LTCI policies state a maximum to be paid out under the policy (Daily Rate x Benefit Period X 365 days). Because of this, it is often better to select a higher daily amount and a shorter Benefit Period. This is because if you don't spend the maximum daily amount, you in effect extend the Benefit Period until such point as your Total Benefit is paid out.
Inflation Protection. This "rider" increases your Maximum Daily Benefit (and a a result your Total Benefit) by some amount. 5% is common. I rarely say "always", but if you do purchase LTCI, I can't think of a scenario where you wouldn't want Inflation Protection
Those are some of the big things to understand when talking about and making the LTCI decision. Here are some other things to consider.
MEDICARE and TRICARE do not cover long-term custodial care. Medicare has a limited benefit for Skilled Nursing Care which is only effective after a hospital stay and lasts for a short time.
For those who are Military Retirees, MEDICAID is not an option. Your military retirement will almost certainly make you ineligible for MEDICAID. This is also true for many others covered by some sort of Pension. For those of you who aren't covered by a pension then to qualify for MEDICAID support for Long-Term Care, you essentially have to spend down your assets first, before you qualify for coverage.
Rates for LTCI go up significantly after age 60
For those who are Military Retirees, you have access to the Federal Long-Term Care Insurance Program by virtue of your retiree status.
There are other options to LTCI, Depending on you level of assets, you may be able to self-insure. There are also hybrid Life Insurance Policies and Annuities that provide for Long-Term Care coverage. Some Disability Insurance Policies also have Long-Term Care Coverage as well (not everyone in custodial care is old). These policies are even more complicated and difficult to understand. They must be evaluated on a case-by-case basis.
Watch out for "Pension" scams targeting Veterans. Most of you won't have to worry about this, but you may know someone who will (either in your generation or your parents' generation). There are people out there that convince Veterans that they can "get" a VA pension if they hide their assets through trusts or annuities. While not technically illegal, the promises often don't come true and may even disqualify Veterans from receiving future government benefits (MEDICAID as one example). Like they always say, if a deal sounds too good to be true, it probably is.|
Will You Be in the 1%?
Surving an IRS AuditThe IRS audited approximately 1.6 million individual tax returns filed in 2011.1 That amounts to just over 1.1% of 141 million individual returns filed that year. However, just over one-quarter of those audits involved face-to-face meetings with IRS auditors. The rest were conducted through the mail.
Filers earning less than $100,000 had a 1% chance of being audited. Among filers with income exceeding $200,000, the audit rate was 3.93%; for those earning more than $1 million, it climbed to 12.5%. Self-employed taxpayers who filed a Schedule C and reported gross receipts of at least $100,000 were audited at a 4% rate.
What Triggers an Audit
1. The following are some of the red flags that could alert the IRS, aside from earning a lot of money:
2. Running a cash business
3. Claiming the home-office deduction
5. Deducting business meals, travel, and entertainment
6. Failing to report all taxable income
7. Claiming 100% business use of a vehicle
8. Making large charitable contributions
9. Claiming a rental loss
10. Taking larger than usual deductions
What the IRS Looks For
Whether the IRS requests a face-to-face meeting or chooses to conduct its audit through correspondence, the following issues may arise:
· Unreported income -- The IRS will assess taxes on any "missing" amount plus interest and penalty charges -- regardless of whether the omission was accidental or intentional. A finding of significant fraud could even result in criminal prosecution and jail time.
· Personal expenses vs. business expenses -- Be prepared to prove that expenses you've claimed for business purposes were not actually personal expenses. Auditors pay particular attention to deductions related to entertainment, meals, travel, and transportation. If you own a business, keep all receipts and be ready to answer questions about the connection between each expense and your business.
· Industry insights -- Business owners should also keep in mind that the IRS has a Market Segment Specialization Program (MSSP) designed to train its employees about the intricacies of dozens of specific business niches, ranging from Alaskan commercial fishing to car washes and the scrap metal industry. Fortunately, the MSSPs Audit Technique Guides are available online (www.irs.gov; look under the "Businesses" heading), so you can check to see whether your industry is included in the program. If it is, studying the relevant guide might help you get inside the head of your auditor, so to speak.
Even if you don't expect the worst during your audit, there are several reasons it's still a good idea to enlist the services of an experienced tax professional to help you navigate the process. For example, a professional is probably more familiar with the complexities of ever-changing tax laws than you, and is also less likely to let emotions cloud his or her judgment. In addition, letting a pro speak on your behalf reduces the chance that you will accidentally volunteer information that could hurt your case.
This communication is not intended to provide tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your tax professional to discuss your personal situation.
1Source: IRS, March 2012.
Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.
© 2013 S&P Capital IQ Financial Communications. All rights reserved.
From the Financial Presses
The Benefits of Working With an Advisor
People who work with a financial advisor are far more likely to understand the situation they will face after they retire, according to a recent survey by Franklin Templeton Investments...(Read more Here
Two Important Choices for Retirement Living
Choosing a town to live in after you retire and deciding whether you want to be completely independent or to live in a retirement community are both crucial parts of planning for your life after work. But there are also other factors to weigh, and two of the most important may be the proximity of medical care and how far you'll be from your children, grandchildren, and other members of your family....(Read More Here)
|Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC 's current written disclosure statement discussing our advisory services and fees is available for review upon request.
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