The worldwide acceptance of alternative lifestyles has brought with it the question of what to do about money and finances.  When does your house, become our home?  My savings and checking, joint?  Mine alone, ours together?  These are serious questions, that need serious answers.

My youngest daughter, now twenty-eight years old, just married the man of her dreams.  After much partying, honeymooning, putting the gifts away, and writing all 150 thank you notes,  life is back to “normal” and they are now working at combining their lives as husband and wife.  First came the name change…social security card, driver’s license, passport, credit cards, face book page…the list is unending.  Next, the household chores…cleaning, laundry, grocery shopping, cooking… his, hers and ours.  Now past all the trivia, they are on to the major stuff…like what do we do about our finances?

When two people are trying to combine their assets,  especially when both work and have been in charge of their own money since day one, it is not so easy.  What is that old saying, “possession is nine points of the law”?  Giving up your house, your savings, your any and every thing can convert any relationship from marital bliss to financial stress…so I say, don’t start with the past, rather begin with the present…and as you go forward the past will naturally blend into your future together.

First, start tracking your income and expenses for a month or two to determine what you have and what you spend, individually.  It is really a worthwhile exercise and you will be amazed at how much life really costs.

Next, determine what you want to share and what should be kept separate…for example the house payment and utilities versus haircuts and “girls/guys night out”.  Into a joint checking account goes the shared expenses…at the beginning of every single month so that the funds are there to pay the bills. Determining “the fair share” can be tricky, so consider an equitable split based upon earning power and ability to pay.

Next on the list…set a savings goal..money not to touched that goes into a joint savings account at the end of every single month.  Timing is everything here so that all emergencies and necessary discretionary spending has been covered before the funds get put away.

Handling pre-relationship debt can be an issue for many couples…but the answer is really quite simple…each keeps their own and is paid out of individual discretionary funds.  Easy to say, right?  But expecting to combine pre-relationship savings and debt is unrealistic in the beginning and keeping them separate is really the only answer if you want the relationship to get off to a financially healthy start.

Whatever your individual lifestyle, when a couple is under one roof, financial issues always rear their ugly head…before making any permanent decisions, make sure the time is right!

This year, the rules surrounding conversions of traditional IRA money to a Roth IRA are changing.  As the law currently stands, only individuals with a modified adjusted gross income (MAGI) of $100,000 or less can convert traditional IRS dollars to a Roth.  The 2010 change eliminates the MAGI limitations  meaning that most taxpayers will be eligible to convert their traditional IRA to a Roth. This change provides a potentially powerful new tax planning option that should be considered by all who qualify.

Keep in mind however, considering and doing are two very different things …and although you can, doesn’t necessarily mean you should…so taxpayer beware and make sure you do your homework and get a professional opinion before making any final decisions about this tempting Roth IRA conversion opportunity.

The Basics: As you probably know, the contributions to a ROTH IRA are not tax deductible, however your investments grow income tax free…and, if you keep your money in the account for a minimum of st five years and you are at least 59 1/2 years old, all of your distributions of earnings are also income tax free.  As an added bonus, distributions are also not subject to the required minimum distribution rules at the age of 70 ½ like the traditional IRA.

What’s Happening: Through 2009, a taxpayer could not convert from a traditional IRA to a Roth IRA, if your MAGI is over $100,000.  Beginning in 2010 and beyond, that limitation is abolished.  And, in addition, there is a special rule in place for 2010 only that will allow a taxpayer to recognize 100% of the

conversion income in 2010 or split it equally between the next two tax years, 2011 and 2012.

And that’s the dilemma.  Should you convert your traditional IRA to a Roth and pay the tax now,  or should you just keep it in a traditional IRA and pay the tax as you distribute the money down the road?

The answer is quite simple, actually…it depends!

Even though you have to pay current income tax on the amount you convert to a Roth, it still may make sense if:

• You think you will be in the same or a higher tax bracket when you withdraw the funds.
• You have a long time horizon, and
• You have the money to pay the tax with non-retirement funds (to eliminate paying tax on the tax) or
• You don’t need to use the money and want to leave it to your heirs income tax free as an estate or gift tax planning device.

The “rule of thumb” in our office has been, if you are a high net worth individual, concerned about the issue of estate tax, it probably makes sense to convert since you are not only eliminating the income tax burden at the time of death, but also your estate is being relieved of the “income tax” dollars you paid in terms of the gross estate calculation.

If the estate tax issue is not your concern…the 2010 conversion is not as crucial and you probably would not go wrong passing on the opportunity and  “rolling the dice”.

As always, if you need an professional opinion, you are welcome to give us a call.

Summer’s gone and fall is upon us and a great time to get your tax info in order!

September … as you change your closets over, begin cleaning out your paperwork …bank statements, invoices, checks, receipts.  We suggest to label 5 or 6 different envelopes and put the appropriate paperwork in each.  This keeps you from handing your accountant over a “box job” come January… starting now will enable you to avoid the year end rush.

October…as you prepare for the  gremlins and goblins knocking at your door please remember that your 2009 tax return final extension date is October 15…don’t even think about not filing if you want to avoid all kinds of penalties.  If you cannot afford to pay what you owe, the IRS is willing to make special arrangements so that you can make affordable payments.

November…Meet with your accountant either by phone or in person just to go over where you stand for the 2010 tax year.  If you think you may owe, it may be the time to bunch your expenses into the current year by paying off your doctors, dentists, property taxes, contribution commitments just to mention a few.    If you are overpaid, you may want to put off those same expenses into 2011 so that you can take full advantage of the deductions at a time when they may have more meaning to your tax situation.

December… finalize all tax planning transactions throughout the month.  Keep in mind that if you use a credit card, you can deduct expenses charged in 2010 in the current year.  If you have a business, you may want to put off income into 2011 by holding off on invoicing or deferring sales.  Be sure to discuss all of your strategies with your financial professional, just to make sure they work for you.

As the year end approaches it is time to think tax…here are some tips that may help you along the way:

If you have income from forgiveness of debt…if you can prove insolvency (even if you did not file bankruptcy) you may avoid the income tax consequences.  Check it out  to see if you qualify.

If you had a foreclosure or short sale, don’t walk, run to a tax professional for tax advice…there’s lots of rules and regulations that may affect your tax burden,  get in the know now so you can plan for the “then”.

Clean out those closets and basements now …there are tons of hidden tax dollars there!  If you have old clothes or retired household goods, make sure you donate them before December 31 and get a complete receipt.  Make a list, record original cost, you can usually take up to 20% as a contribution deduction.

If you have any questions or concerns, as always, you are welcome to call us for a little free advice!