Tuesday, November 9, 2010

Tax Questions for 2010

Like Christmas time, tax season seems to start earlier every year. I just received a note from the PR folks at Intuit (TurboTax) letting me know that they are once again offering to answer personal tax questions for free. I guess it is time to start thinking about 2010 taxes. I have been using computer tax software to prepare my taxes since 1996, and I plan to do so again this year. Once again, the two main contenders are TurboTax and H&R Block At Home (formerly known as TaxCut). I have not yet decided which of these software products I will use.

Anyway, the point of this post is that TurboTax is again offering to answer personal tax questions for free. They have IRS-Enrolled Agents and tax preparers available to help you with your tax question. To get started, you need to submit your question through their website: www.freetaxquestion.com. A tax advisor will research your question and give you a phone call to discuss your tax issue. Questions about this offer should be directed to TurboTax Support.

There are a couple of catches to the offer. First, it appears that their hours of operation are 8am to 5pm PST, Monday to Friday. Second, this free offer is only valid through January 31, 2011. So, you need to be organized enough to know what tax question you want to ask before then. My criticism here is that the average person doesn't even get started with their taxes until February or March. By that time, it will be too late to take advantage of this free service. After January 31, TurboTax will charge $39.95 for this advice. In the past, H&R Block had a similar free offer, but I have not heard if they will be offering that service again this tax year

Getting back to tax preparation software, last year (tax year 2009) both TurboTax and H&R Block provided me with evaluation copies of their tax software. So, I prepared my taxes twice: once using H&R Block At Home, and again using TurboTax. Without going into a lot of detail, the end result of using either programs was identical. My recommendation is if you have used TurboTax in the past and were happy with the end result, you should probably stick with that choice. On the other hand, if you used H&R Block At Home (or other tax software) and found that to be satisfactory, you probably won't gain much in switching to TurboTax. I have found that TurboTax usually ends up costing a little bit more than the equivalent competitive tax software.

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Friday, November 5, 2010

Money Market Rates 11/10

Here are the latest money market interest rates of the banks that I've been tracking on my blog. Note that these rates are sorted by APY, and represent institutions that I have accounts at, or have otherwise mentioned in my blog:

1.25% Discover Bank Online Savings
1.20% Ally Bank Online Savings
1.20% Shorebank Direct Online Savings**
1.10% HSBC Advance Online Savings
1.10% ING Direct Orange Savings
0.65% Citibank Ultimate Savings
0.65% Western FCU Money Market
0.40% Chase Plus Savings
0.30% E*TRADE Complete Savings
0.14% PayPal Money Market*

NOTES: *The PayPal Money Market fund is NOT FDIC insured.
**On August 20, 2010, ShoreBank was closed by regulators, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. Accounts were transferred to Urban Partnership Bank of Chicago. The FDIC has issued a press release regarding this matter.

Rates are believed to be accurate as of 11/4/10. I did not include banks that had special, or introductory rates in the list because they are not ongoing interest rates. I am also not including non-liquid accounts such as CD's in the list. By a small margin, Discover Bank has the highest interest rate of the banks that I'm tracking.

I want to acknowledge that Barbara Friedberg recently mentioned my post Pay The Early Withdrawal Penalty on her blog. In this post, I discuss the strategy of opening a long-term, 5-year CD with a low early withdrawal penalty as an alternative to keeping your cash in a money market account. If you are searching for a higher savings rate that might be something to consider.

So, that is the latest list of money market rates. Please let me know if you know of any higher interest rates.


Thursday, November 4, 2010

Guest Post: A Graceful Exit-How to Sell an Investment Property

While is usually considered wise to hold on to an investment property for as long as possible, there are certain instances when it is a good idea to sell. Here are some of the cases where selling might be a good idea.

1. Capital Growth
If capital growth hasn't been considerably higher than inflation for at least five years then the asset is no longer worth it and should be sold.

2. Decline in housing demands
If there has been a long-term decline in the demand for housing in the area, selling would be your best choice. There is a good chance that your yield on rental income and capital growth could remain negative for a long time. This would mean that the rise in vacancy rates would mean you would have to service a property loan and it would not be possible to make a claim for any tax deductions.

3. Near retirement
Another time when it would be a good idea to sell an investment property would be when you are getting close to retirement and want an income stream that is ongoing, consistent and also unencumbered. In this case it would be a good idea to go through your portfolio and keep any consistent income performers.

The cost of trading property
It can cost a lot of money to do property trading. Transaction costs can be as high as 10% and you will also have to pay the tax for capital gains. The amount of time that you have been in the real estate market should be maximized whenever possible so that a compound effect can take place.

You should never sell a property when the LVR (Loan to Value Ratio) is under 60% because once it reaches that level you will start to see a positive or neutral cash flow. From that point on, you will be able to enjoy the true income benefits that come with an investment property.

Even if the property value has doubled, it does not necessarily mean that the value will not continue to rise. This is the point where some investors choose to sell and this is usually not the best decision since the rise in value may continue for some time.

Selling because of need
There are certain things to avoid so that you don't end up having to sell due to poor management. Here are a few things you can put in place right at the beginning to make sure that everything goes smoothly down the road.

1. Always have the right insurance
You will need to have landlord insurance and if you have high gearing then you could also get some insurance for income protection. By having the proper insurance put into place you won't have to sell out if anything goes wrong.

2. Always have a plan B
Figure out what would be the worst thing that could happen and plan for it. An example of this would be a vacancy for an extended amount of time. If you plan ahead and know how to handle any problems before they happen you'll be well armed and will not be put in the position where you need to sell in a panic.

3. Look into the future.
What is your cash flow going to be in the future? You should consider future capital gain along with the rental returns you are receiving today, and always create a buffer. Figure in all of the costs that you will have to pay for the five years that follow and have a buffer put in place so that you don't end up selling if you don't really need to.

Having an exit strategy in place should be a key part of investing in the property in the first place. As long as you have created enough buffer and have planned for any shortfalls, you will be able to sell when you want to, not because you need to.

About the Author
This article was written by William. William writes about saving money, property investment and real estate for a home loan comparison service.