Category Archives: Personal Finance

How Much Is Too Much Debt?

Although recent numbers out of Statistics Canada reported a drop in the ratio of household debt to personal disposable income, most experts agree that Canadians are still sitting on a dangerously high percentage of consumer debt. The truth is we live in an inflated economy. An excellent example of which can be found in our real estate market where our desire to own a home, despite the all-time-high price tag, is keeping mortgages accountable for 65% of credit market debt. Continue reading

Money Help for Gen Y: Get a Financial Planner

saving-piggy-bank-money

Lise Andreana understands that not all young people are properly taught how to handle their finances. Little or no money education usually translates to 20-somethings with low-paying jobs, no insurance, student loans, and a lot of dinners consisting of mac ‘n’ cheese. There are finance basics that every young person should learn, including how to do a proper budget; how to save money and pay off debt; and what “good debt” and “bad debt” are. But how does one find trustworthy, straightforward financial advice on the basics and beyond?` Continue reading

How to Keep Money in a Divorce

 

divorce

Many people going through divorce get to a point where they wonder how their finances are going to hold up. Splitting up can sometimes mean splitting a salary between two entirely separate households, and if other child support, maintenance, and/or alimony issues are involved, things can become even tougher. Moving can also mean needing to purchase entirely new household staples such as sets of dishes or a couch, if your ex got to keep the ones you had before. Continue reading

Are Tax Havens Illegal for Canadians?

 

When I first heard the words “tax haven,” like many Canadians my immediate reaction was, “aren’t those illegal?” Certainly, the connotation seems to be that tax havens are places that enable you to hide money from the government and therefore from taxation, so they must be shady operations. Actual laws and rules surrounding tax havens aren’t always common knowledge, and the unknown can be worrisome.

Hiding money from Canada Revenue Agency is against the law, although tax havens themselves are not illegal, if you follow certain rules carefully. Like many things in life, tax havens are a “use at your own risk” proposition that you should research fully before attempting.

What Is a Tax Haven?

A tax haven is a country and place where money can be sheltered so that the owner of the money can avoid paying taxes on it in his or her home country (i.e., Canada). Many tax havens are countries with low taxation rates, that don’t share information effectively with other countries. However, any country can be a tax haven, even one you wouldn’t necessarily suspect, such as the US.

Under Canada’s taxation laws, residents are required to declare worldwide income. Canada Revenue Agency seems to discourage the use of tax havens because of their use for complete tax avoidance or evasion (which, of course, is illegal).

Author and cross-border financial advisor Robert Keats of KeatsConnelly explains in his book A Canadian’s Best Tax Haven: The US, that as long as a taxpayer is not lying about income and the location of it, tax havens are not illegal, and can in fact save you on taxes legally if you follow the rules and know how to use the system to your advantage.

Where Should You Look for Tax Advice and Tax Haven Assistance?

Protect yourself and your hard-earned money by doing your research. Beware of any tax haven arrangements requiring secrecy or the concealing of income, or that promise unusual benefits or huge returns on investment. As with any financial dealings, there are people who are out to take advantage of those with little knowledge of tax havens and investments.

Tax information for Canadian residents can be found on CRA’s website at www.cra-arc.gc.ca; CRA recommends that those looking for tax haven help get independent advice from a tax professional who is not connected to the tax haven scheme or promoter with which they are considering investing.

For more information about tax havens for Canadians, see A Canadian’s Best Tax Haven: The US , a Cross-Border Series title by Robert Keats, internationally renowned cross-border finance expert from KeatsConnelly. 

Do You Need an Investment Advisor?

 

If you have considered saving and investing for a certain goal, such as a house, a child’s education, or your own retirement, you’ve undoubtedly wondered the best way to go about it, and whether or not an investment advisor would be worth the, ahem, investment.

What Is an Investment Advisor?

An investment advisor is a person who invests other people’s money (or suggests investments for others’ money) for a living.

An investment advisor is different from a financial advisor in that an investment advisor is only going to advise on investments, not on the rest of your financial situation. If you need an overall look at your finances, perhaps a financial advisor would be a good place to start, followed by an appointment with an investment advisor. One person can be both, but an investment advisor will specialize in investments, whereas perhaps a financial advisor will generalize in a lot of areas.

What Can You Do Yourself?

You can dive right into doing a lot of learning about investments on your own, and you can do much investing online or otherwise, without help. Or, you could hire an advisor with the knowledge who could steer you in the direction you need to go to achieve your desired outcome, knowing that you will be paying this person for his or her advice, but that theoretically he or she will save you much of the time it would take you to get over any learning curve, and potential upkeep of knowledge over time.

Always Question How Advisors Make Money and Their Certifications

All financial and investment advisors need to make money somehow. Some will charge flat fees, or percentages on what they handle. Many, however, will also get kickbacks based on certain products they sell; for example, a 10 percent fee each time they sell a certain investment. This can undoubtedly make someone biased, encouraging them to sell you something that may or may not be the best option for you and your particular situation; that is why it is essential you question how your advisor gets paid and whether he or she receives kickbacks or bonuses on certain products.

According to Dale Walters, CEO of KeatsConnelly, people like that are salespeople, but in the US, registered investment advisors do have regulatory oversight by the Securities and Exchange Commission (SEC) and are required to act as a fiduciary, meaning your needs are to come before the advisor’s personal wishes.

Always ask about your potential advisor’s certifications and who oversees them. In Canada and the US, the Certified Financial Planner (CFP®) designation is used to denote someone who has been certified by the Financial Planning Standards Council, or CFP Board, not-for-profit organizations that develop, promote, and enforce professional standards in the industry.

Where Can You Find a Good Investment Advisor?

Ask family and friends if they have any trusted investment advisors and know that you can “interview” them before you hire them to handle your investments.Don’t sign over your money if you aren’t sure about a person. Take your time and find someone you can trust.

For more about personal finances and investments, see Self-Counsel Press’ personal finance titles

Should You Declare Bankruptcy in Canada?

 

Bankruptcy is an involved process in Canada, and though you don’t lose literally everything at the time of declaring it, it can take months of dealing with a bankruptcy trustee, selling things off, and living on the bare minimum to be in the clear and get that fresh start. If you are considering bankruptcy, there are a few things you should bear in mind before signing everything over to cover your debts.

Do Your Research First

Before going straight into bankruptcy, read about your options and learn what bankruptcy would actually entail for you in your area.

Bankruptcy involves signing over your assets in trust to a trustee in bankruptcy or a lawyer, who will help you to value them and then will sell them to pay off your debts. Generally, you will get to keep very few things such as a limited amount of clothing and your wedding rings, but maybe not your car if it’s worth more than a certain amount; it all depends on your province. See what provincial exemptions there are in your province.

Industry Canada’s Superintendent of Bankruptcy sets “Superintendent’s Standards” for how much income a person can live on and how much should be put toward paying off debts in bankruptcy. The Standards for 2014 can be seen on Industry Canada’s website; these are updated annually.

You can speak to a trustee or lawyer before declaring bankruptcy to make sure it is what you want to do before you actually do it. It is also wise to find out how it will affect your spouse or children and how much you will have to live on while going through the process.

For a first-time bankrupt, bankruptcy can mean nine months between declaring bankruptcy and getting out of it, and that can feel like a very long time.

Don’t Ditch Assets to Try to Hide Them

If you are considering bankruptcy, don’t think that putting the house in your spouse’s name will help you. Sometimes, a bankrupt person will have “gifted” something, such as a vehicle, to someone, such as a child, before declaring bankruptcy, thinking that will mean he or she won’t actually have to give up the asset fully. However, if the asset was given away for less than fair market value within a certain amount of time before bankruptcy is declared, creditors can actually go after it and sue to get it back from the child, to sell and cover the debtor’s debts.

A Proposal to Creditors

Sometimes, all it takes to clear off your debt is a proposal to creditors. Essentially, a proposal is just that; you ask creditors if they are willing to work out a payment plan with you so that they will get paid, just not all at once, for example. This can be done informally or formally, with help from a trustee or lawyer.

Sometimes, creditors are willing to work with you, because they know that if you declare bankruptcy, it could become even more complicated for them. A proposal may mean they’ll make their money back, perhaps on a payment schedule instead of in a lump sum.

Talk to a Trustee in Bankruptcy, or a Bankruptcy Lawyer

To work out a proposal to creditors or to declare bankruptcy, you will need to see a trustee in bankruptcy or a bankruptcy lawyer (keep in mind that not all lawyers deal with bankruptcy often, so ask around). He or she can advise you on the steps to take, whichever direction you choose.

For more information on creating a proposal to creditors or the steps into and out of bankruptcy, see the recently released Consumer Bankruptcy: A Practical Guide for Canadians, a book by lawyer Frank Bennett. It explains consumer proposals and bankruptcy in detail, and is a good read before you make any drastic decisions, or while you are going through bankruptcy proceedings.

Ten 2014 Tax Tips For Newlyweds – Part 2

Our US Tax author Scott M. Estill celebrates Americans finding their life partner with ten ways to maximize your financial union at tax time. This is part 2, to find his first five tips, see Part 1.

6. Conscious Coupling

It may be easier for you and your spouse to itemize tax deductions after marriage given that you both can combine your deductions if you file a joint tax return. These deductions include charitable donations, state and local taxes, mortgage interest, investment expenses, unreimbursed employee business expenses and many other possible expense deductions.

7. How marriage could increase your salary

It is important to review your income tax withholdings at your W-2 job. In some instances, it may be beneficial to claim an extra exemption for income tax withholding purposes (for your new spouse), resulting in less taxes being withheld and a pay increase to you! You should use this strategy only if you anticipate a tax refund at the end of the year. If you owe taxes, you may be liable for additional interest and/or penalties if you are under-withheld in the tax department.

8. How marriage could increase your savings

You should also review retirement the plan options for both spouses, as in some instances contributions to a Roth IRA or other tax-favored plan may now be available to newly-married couples.

9. Home sweeter home

For couples who each owned a personal residence before the marriage, there may be some tax breaks available when selling one of the homes. For instance, if a home is sold as a result of combining two households, newlyweds may be able to exclude some or all of the capital gains. If the seller owned and used the home as a main residence for at least two of the past five years before selling it, he or she can exclude $250,000 of capital gains. Once married, the amount doubles to $500,000 if the couple files jointly and meets certain ownership and use tests. This is one area in which a small amount of tax planning can reap very large financial rewards via tax savings.

10. Move it or lose it

If one or both spouses change addresses following the marriage, it is important to file a change of address (Form 8822) with the IRS so that you are kept aware of any notices, refund checks or other tax matters.

Scott M. Estill is the author of TAX THIS! An insider’s Guide To Standing Up to the IRS. He is a tax attorney and former IRS Senior Trial Attorney who operates out of Denver. Follow Scott on twitter at @TaxThis.

Ten 2014 Tax Tips For Newlyweds – Part 1

Our US Tax author Scott Estill celebrates Americans finding their life partner with ten ways to maximize your financial union at tax time.

  1. When to do your I do’s

For tax purposes, your marital status is determined as of December 31, 2014. As such, it is possible to time the marriage to produce the lowest possible tax results (i.e. should we marry in 2014 or 2015).

  1. What’s in a name change?

If either spouse changed his/her name as a result of the marriage, make sure the name(s) has been changed at the Social Security Administration (Form SS-5) and the name matches the name used on your first tax return as a married person.

  1. To do or not too do (your taxes together)?

Married couples are permitted to file their taxes one of two ways: married filing jointly or married filing separately. While a joint filing status is usually best of most couples in that it will result in the least amount of taxes being paid, it doesn’t hurt to compute the taxes with each filing status to see which produces the lowest tax bill in your particular situation. You are permitted to change your filing status in the future so any decisions for 2014 are not binding on future tax years.

  1. What’s mine is yours, unless…

If either spouse has a current tax issue pending from prior to the marriage, the couple should consider filing separately, especially if tax refunds are at issue and one spouse has no legal liability for the debts of the other spouse.

  1. Same sex, different taxes?

For same-sex couples, the IRS will view you as legally married for federal tax purposes. Thus, a joint or separate filing status will need to be determined for federal tax purposes. However, there is still uncertainty for same-sex married couples who live in a state that does not recognize their marriage. If this is the case, it may be necessary to file as married at the federal level and single at the state level.

Click here for Part 2.

Scott Estill is the author of TAX THIS! An insider’s Guide To Standing Up to the IRS. He is a tax attorney and former IRS Senior Trial Attorney who operates out of Denver. Follow Scott on twitter at @TaxThis

Five Tax Reasons For Considering Divorce in 2014

Our US Tax author Scott M. Estill walks Americans through five ways that being divorced will improve your tax outlook in 2014. If your conscious uncoupling is getting closer to finalizing, you can take these tips all the way to the bank this year.

Timing is everything

You can wait until December 31, 2014, to determine your tax filing status for 2014. As such, a divorce finalized on New Year’s Eve will have the same effect as one filed on New Year’s Day (for tax purposes). You may thus be able to determine the approximate tax liabilities late in 2014 to consider what the financial differences truly are for being married or single come December 31.

More money, more problems

You may escape the “marriage penalty” with respect to your overall taxes. The tax brackets for married couples are exactly double the amounts for single taxpayers for the 10% and 15% tax brackets. However, once you move up to the 25% bracket (and all tax brackets above this, up to and including the 39.6% bracket), the amounts are nowhere near double for married couples. For instance, two single individuals earning $85,000 each would fall into the 25% tax bracket, but if they were married their combined income ($170,000) would push them both into the 28% tax bracket. There are numerous other examples of the marriage penalty in the current tax laws.

Single file, please

You may pay less in taxes due to the avoidance of the Alternative Minimum Tax (AMT). For instance, a single person gets an exemption of $51,900 for AMT (income not subject to the AMT), while a married couple receives $80,800. Two single taxpayers thus get a combined exemption of $103,800, or $23,000 more than the same couple would obtain if legally married. Similarly, the top AMT tax rate begins at $179,500 for either single or married taxpayers, thus providing another incentive to return to the single life.

All in the family

Alimony/spousal maintenance is tax deductible to the ex-spouse making the payments and is taxable to the ex-spouse receiving the payments. With proper planning, it may be possible to shift income taxes to a person in a lower tax bracket (person receiving the alimony/maintenance) and gain a tax deduction for someone in a higher tax bracket (person making the payments). Please note that payments for child support are not tax deductible and also do not represent taxable income.

Invest in yourself

You (as a couple) have a high amount of investment income. If this is the case and your total income is more than $250,000, you will be facing higher taxes to fund the Affordable Care Act. This includes a 3.8% surtax (in addition to income taxes) on investment income that kicks in at $200,000 for single taxpayers and $250,000 for married taxpayers (another example of the “marriage penalty”). In addition, the highest capital gains taxes are paid by single taxpayers when the income reaches $406,750 and for married couples at $457,600. By way of example, two single individuals could each have $390,000 of income and not be subject to the highest capital gains taxes, while if they were married the combined income of $780,000 would subject them to the highest capital gains tax rates (20% for federal taxes), along with the health care surtax of 3.8% (along with any taxes that may be owed to the state).

Scott M. Estill is the author of TAX THIS! An insider’s Guide To Standing Up to the IRS. He is a tax attorney and former IRS Senior Trial Attorney who operates out of Denver. Follow Scott on twitter at @TaxThis

Tax This!

 

 

 

What To Do When You Retire?

Most people plan for their financial health in retirement, but neglect to address the non-financial aspects of no longer working: What will they do with to make the most of their time?


Have You Considered the Non-Financials?

A Consumer Reports survey conducted in 2010 showed that only 19 percent of those surveyed were highly satisfied with their retirement planning. Presumably, retirees would like to enjoy retirement, which of course means ensuring their finances are in order. Beyond that, though, how does one go about planning this phase in life which can be relaxing and enjoyable, or stressful and full of doubt?

“Many people hope that their retired years will be the best in their lives; they say they want to ‘finish well’ and not just give up or fade away,” say authors Dr. Ronald W. Richardson and Lois A. Richardson in their retirement planner Creating a Happy Retirement, A Workbook for Planning the Life You Want.

The Richardsons penned their planner as a way of addressing these questions retirees have about planning for a successful retirement, beyond the financial questions. While some of the advice is common sense, it could all be helpful to someone who is unsure of what the future holds for him or her in retirement.

Said the authors in the book, “In one survey, 50% of retired people said that they had not spent enough time thinking about their life in retirement. In another survey, 70% of retiring people said they had made no plans for this new phase of life. In our case, we knew that if we entered retirement with no plan, we would not do many of the things we had said over the years that we wanted to do when we had the time.”

The planner asks the reader to consider what makes him or her happy, and delves into whether his or her life trajectory is on a suitable path to achieve this happiness in retirement. Where the reader has been is as important as where he or she is going in determining what is right for each individual, and if an individual is part of a couple, then different considerations come into play. The planner is not a way to write a “bucket list,” (unless that is how the reader wishes to approach retirement — it’s up to each person).

Perhaps most useful to a reader considering the questions posed are the exercises and forms offered in the planner. Every person will no doubt answer differently, leading to what is hopefully the right outcome for him or her.

“It would be too bad to have spent years putting away money for your retirement, planning your financial goals and executing those plans, and then not know what to do with the time you have when the day arrives,” said the Richardsons.

About For more information about planning the retirement you want, see Creating a Happy Retirement, A Workbook for Planning the Life You Want by authors Dr. Ronald W. Richardson and Lois A. Richardson.

The book available in our web store in a print edition

and in an ebook (EPUB format) edition.