Life Events Financial Guide from McLan Accounting
Life is complicated. When you are trying to make smart financial choices, it can become even more complicated. Fortunately, there are ways that you can save money, reduce taxes, and bring on many other benefits when going through major life events. This is why we have written this important guide for our clients and other visitors to this site. We have tried to answer as many of the most important financial questions related to life events as possible. If you still have any questions, please don’t hesitate to contact us at 718-871-8250 to speak with an accountant.
Should You Buy or Lease Your Next Vehicle
Getting a new vehicle is a big decision, and one that will cost you quite a lot of money. Deciding whether you should buy or lease is one of the most important things to consider when going through this life event. There is no one-size-fits-all answer to the buy vs lease question. It will depend on a number of factors including what deals are available from the dealerships, how many miles you expect to put on the vehicle, how you feel about dealing with auto repairs, and more. It is also important to consider the beginning costs, ongoing expenses, the total cost of ownership (including maintenance), potential tax deductions for business use, and any personal benefits of car ownership. Once you have weighed all the pros and cons, you will want to do everything you can to get the best deal whether buying or leasing.
How to Get the Best Deal on a Vehicle
Whenever shopping for a new vehicle, you will want to start by narrowing down your search to a small number of makes and models. In addition, make a list of all the features you must have as well as the features you would like to have. You can use this list to make sure you are happy with your purchase, and as a negotiating tool when the time comes.
When ready, look up how much the dealer pays for the vehicles you are interested in. This will give you an idea of how much profit they make on each sale so you can negotiate properly. While you’re not going to get any dealership to lose money, or break even, you can certainly have them knock off some of their profit to sweeten the deal. This information is available online with some simple Internet searches.
Negotiation Tips for Buying a New Car
Once you have all your research done, you can go to a dealership to begin the negotiating process. Depending on what area you are in, you can likely visit more than one dealership that will have the vehicles you want without any inconvenience. Doing this will often allow you to get the two dealerships to try to outbid each other, which will help you to save a lot of money.
Some negotiation points to bring up while talking with the sales person include the following:
• Know What You Want – Make sure the salesmen knows that you know exactly what you want so they won’t try to push you into something else, which is just a waste of time.
• Shopping Around – Don’t hesitate to let them know that you are going to be talking to a variety of different dealerships in the area to get the best deal.
• Don’t Talk Financing – Don’t get caught up talking about financing until the salesmen has made you an offer on the sale itself. Dealerships often try to base their prices on financing rates, which only benefits the dealership.
• Don’t Talk Trade-Ins – If you have a vehicle to trade-in, don’t discuss it at all until you have come to an agreement on the price of your new car. You can then negotiate the trade-in price, which should be taken directly off your purchase price.
• Know the Price – Don’t hide the fact that you know how much the dealership pays for the vehicle, and use that as a strong bargaining chip.
Is Negotiating the Same for a Lease and a Purchase
If you decide that leasing is a better option for you, it is still a good idea to negotiate to get the best deal. While the dealerships often don’t want to admit it, a lease is quite similar to a purchase in that you are buying a vehicle for a set amount of time. When leasing a car, make sure you know whether you plan on purchasing the vehicle at the end of the lease or not. If you don’t, you’ll want to focus on keeping your down payment and monthly payments as low as possible. If you do want to purchase it at the end, paying a higher monthly price or down payment can help to make it easier to buy when the lease is over.
How Does Leasing a Vehicle Work
There are two different types of leases. The first is an open-end or finance lease, and the other is a walk-away lease. The open-end option puts the risk of the depreciated value on the consumer. When starting this type of lease, the customer accepts that the vehicle will be worth a set amount at the end of the lease. This can lower the monthly payment, but if its value depreciates more than expected, you will be responsible for paying the difference.
With a closed-end lease, you will simply turn the vehicle back in to the dealership when the lease is over and you are done, regardless of the value of the vehicle. This option will have higher monthly payments, but the risk of depreciation is left with the dealership, which many people prefer.
What Questions Should I Ask When Leasing a Car
If you are leasing a car, you want to make sure you have all the relevant information available before signing anything. The following are some of the key questions you should get answered by the dealership:
• What Options Are Available for Leasing This Car
• What Will the Total Upfront Cost of the Lease Be
• What are the Exact Monthly Payments
• How Will a Trade-In Impact These Costs
• What (if any) Mileage Limitations Are There
• What are the Penalties for Going Over the Mileage Limits
• Can I Purchase the Vehicle at the End of the Lease
• What Are My Options for Early Termination of the Lease
• Can I Sublease the Vehicle if I Want
• What Happens if I Fall Behind on Payments
Why is a Security Deposit Necessary when Leasing a Car
Many dealerships or leasing companies will require that you provide them with a security deposit when leasing the vehicle. This is typically used to cover any damage to the vehicle when it is returned, cover the costs of excess mileage, and to pay for a missed payment if that happens. If the money is not used for any of these things, the dealership will have to give that money back to you at the end of the lease.
What Fees Will There Be at the End of a Lease
The dealership will collect certain fees at the end of a lease in many cases. Some of the fees will be clearly listed in the agreement, such as the amount of money for each mile you go over the listed number. If you have an open-ended lease, you may have to pay up to three times your monthly payment to cover any reduction in its value from the predicted value.
What Does a Dealer Have to Disclose About Ongoing Lease Items
When asked about an ongoing lease, the dealership has to disclose the total number of payments as well as the amount of those payments. In addition, a schedule of payments and the amount of each payment that has been made. This is all in accordance with the Consumer Leasing Act. The dealership also needs to let you know what, if any, penalties there are for late payments.
What Exactly is a Maintenance Lease
In a maintenance lease, the dealership will assume the expenses associated with regular maintenance of the vehicle. You will be responsible for scheduling the maintenance, and it will typically need to be done either at the dealership itself or an approved third party. The included maintenance typically covers regular oil changes, tire rotations, and any other manufacturer recommended tasks.
Is a Lease-Purchase a Good Option
Most leases will come with the option to purchase the vehicle at the end of the lease terms. The price you have to pay may be set up front, or it may be determined by the current market value, depending on the type of lease you have. Whether it is a good option or not will depend largely on whether you like the vehicle, it’s current market value, and any potential fees that you would have to pay if you didn’t purchase it. For example, if you are way over on the mileage limits, it may be best to purchase the vehicle.
How Can I Terminate a Lease Early
Leases should generally be honored for the full terms outlined in the contract, but there are options for early termination in most cases. You will typically have to pay a set fee, which will be included in the contract, to be able to exit the lease early. Many auto leasing contracts will state that you must keep the vehicle for a minimum of 12 months before you can engage in an early termination.
What Does Capitalized Cost Reduction Mean
Capitalized cost reduction is quite similar to a down payment. It is money that you pay up front to reduce the monthly payments, or cover other expenses. Paying more up front can also make it easier to purchase the vehicle at the end of the lease, if that is your preference.
Advice When Getting Married
Getting married is a huge decision, and while it shouldn’t be based around finances, it will certainly have a big impact on your money. If you are preparing for marriage, you should start looking closely at your finances as a couple. Many people can benefit from going through some type of financial counseling together to make sure you are both on the same page. A large percentage of marital fights, and even divorces, are as a result of money fights. So, getting things in order as soon as possible can be a huge help.
What Legal Differences Are There Between Married & Unmarried Couples
Getting married is going to impact your legal abilities in many different ways. For example, once your married, most, or even all, of your material assets will automatically go to your spouse in the event of your death, unless there is something written up specifically saying otherwise. In addition, married couples are able to speak for each other in medical situations, even if there isn’t a Power of Attorney in place. Most importantly for this guide, married couples can also handle each other’s finances in most situations.
What Can Married Couples Do to Protect Their Assets
As a married couple you will want to do everything you can to protect your assets as a couple. This will help ensure your spouse is protected even if something should happen to you. Some good steps you can take include the following:
• Make Wills – All married couples should each at least have a will in place. A joint will is possible, but having individual wills is much more effective.
• Names on Titles – If you own any real estate, vehicles, or other items together, it is a good idea to have both names on the title. This will make it much easier should one person pass away.
• Power of Attorney – While in most cases a spouse can make medical, legal, and financial decisions for you if you are unable, having a durable Power of Attorney in place can make it much easier.
• Talk About End of Life Care – In many situations, your spouse will be the one making decisions about your medical care. Having conversations about what you want to happen can make this process easier for everyone involved.
Should Married Couples Have Increased Insurance
Anytime you have another person who is relying on you for financial stability, you will want to make sure you have the right life insurance policy to ensure they are provided for should you die. Most married couples should have some level of life insurance policy in place to ensure the surviving spouse is not left destitute. Even if both spouses work and can support themselves, a modest life insurance policy can help to cover final expenses. If you have children, you’ll want even more insurance in place to ensure they are properly taken care of until they are adults.
What Needs to Happen when a Spouse Changes Their Name Due to Marriage
In most cases when a couple gets married, the wife changes her last name to match that of her husband. There are also cases where the husband changes his name, or even when they both change their name to something entirely new. Whatever your situation, if anyone is changing their last name, make sure to notify the following people and groups:
• Insurance Agents
• Update Your Passport
• Update Subscriptions
• Update Retirement Accounts
• Update Credit Cards & Personal Loans
• Notify the School Alumni Offices
• Update Your Voter’s Registration Office
• Update Your Information with Your Employer
• Update Your Bank Account Information
• Notify the DMV and Get Your Driver’s License Updated
• Notify the Social Security Administration
Is Updating a Will After Marriage a Good Idea
Absolutely. A marriage is a huge event in your life personally, but also legally. Having your will updated as soon as possible after your marriage is very important.
What Tax Implications Are There to Marriage
Getting married is going to have a variety of different tax implications that you need to be aware of. First, you are now going to be entitled to file a joint income tax return. This can make the whole process quite a bit simpler for you and your spouse. Just make sure to take note of your overall tax bill because in some situations, filing jointly will actually cause your tax burden to go up. The best way to determine what your ideal tax filing status will be is to speak with an experienced tax advisor.
Can Married Couples Jointly Own Property
Yes – Married couples often jointly own property. The most common example of this is purchasing a home that is in both of their names. This can offer a variety of benefits including the fact that the lender will use the income and credit score of both parties when determining approval, interest rate, and other factors. You can also jointly own vehicles, vacation homes, and just about anything else that you can imagine. In addition to making it easier to qualify for the loans, jointly held assets also allow the ownership to transfer easier upon the death of one of the spouses.
How a Divorce Can Impact Your Finances
Marriage can certainly have a big impact on your finances, but divorce can be an even bigger deal. Getting divorced is going to require that you divide up all your debts and assets, and then try to handle them all separately. For the first year or two after a divorce, there are a lot of major changes that you’ll need to get used to.
Tips for Preparing Financially for a Divorce
If you are aware that your marriage is coming to an end, or that it will likely come to an end in the near future, there are quite a few things you can do to start preparing for it financially. The following are some great places to start:
• List Debts & Assets – Start off by listing all your debts and assets that you have as a married couple. While some items may legally belong to just one party, most things will be considered marital assets so they should be listed. Don’t worry about who will get what at this point, you’re just making the list.
• Start Separating Financial Accounts – In the months leading up to a divorce, it is a good idea to start trying to manage finances separately. This can help to ease the transition from being completely intertwined to entirely separated. If you still get along with your spouse, working together can make this a lot easier and less expensive.
• Try to Work Together – Going through an uncontested divorce is a lot cheaper than a contested divorce. If you can put your fights aside while working on the actual divorce, you can end up saving a lot of money.
What Happens to Credit Card Debt During a Divorce
Just like assets from a marriage need to be split up, your debts will to. If you have credit cards that are jointly held, you’re likely going to have to cancel them out and each open new ones in your own names. The balance that is due will typically be split up evenly between the two parties, unless you agree to some other arrangement. Keep in mind, however, that as long as the account has your name on it, your credit will be impacted by the card. Getting the debt paid off or out of your name as quickly as possible is important.
What if My Ex’s Bad Credit Hurts My Rating
There are times when a spouse will open up credit cards and rack up debt as a marriage is coming to an end just to be vindictive. If they don’t pay the balance on this, it could really cause you a lot of problems on your credit report. If this has happened to you, make sure to talk to your attorney to have them demand that the balance be put entirely in your spouses name so the damage can be reversed. In most cases, you can have the dings on your credit reversed fairly quickly by working with either the credit card company or the credit reporting agency.
How Does a Divorce Impact My Credit History
Even if your ex didn’t actively try to harm your credit, there are a lot of changes that will take place very quickly. Having accounts closed and new ones opened, for example, can cause your credit score to drop. Most people have to pay for at least part of their divorce using credit as well, which will have an impact on your credit score. During your divorce, and in the months following, make sure to track your credit score closely and take steps to counteract any negative items that appear.
What Legal Issues Must Be Handled During a Divorce
Going through a divorce is a huge legal event that you’ll need to take care of. The following are some of the most important legal issues that you need to handle:
• Division of Property
• Child Custody
• Child Support
• Alimony (Spousal Support)
Depending on your specific situation, there may be many other things that you need to work through during this time. From a tax perspective, you’ll need to prepare for filing your returns separately. Looking at who will claim the children on their taxes, for example, is very important.
What are the Tax Implications of a Divorce
Divorce will have a significant impact on your taxes. Specifically, if you are paying or receiving child support or alimony, you will need to make sure that is handled correctly. In your property settlements from the divorce, you may have a big influx of value, which could be taxes. Even if you don’t normally use an accountant for your taxes, it is a good idea to have one help you at least for the first couple years after a divorce. Mclan Accounting Services LLC is well experienced in helping our clients handle their financials during divorce situations.
Are Retirement Plans Split Up in a Divorce
In most cases, retirement accounts will be split up between the two parties. If done correctly, you can keep the money tax free, but only if it is left in a qualifying retirement account such as an IRA. So, if the husband has a 401(k) at work, and half of it is going to the wife, she should put it directly into a qualifying IRA to avoid tax penalties.
Can Divorce Expenses Be Deducted
Most divorce expenses aren’t going to able to be deducted on your taxes.
Will I Get the Dependency Exemption for My Child After a Divorce
If one parent has the child for significantly more time than the other then they will typically get the dependency exemption. If both parents have equal parenting time, the deduction may alternate from year to year. There are many ways that this can be done, and in the end it will have to either be agreed upon by both parties, or a judge will determine how it will go.
The Death of a Loved One
The death of a loved one is a devastating experience. To make matters worse, it is also going to have a major impact on your taxes, finances, and other aspects of your life. Understanding what to expect and how to react won’t take away the pain, but it can make it easier to work through during this difficult time.
What is Needed when a Family Member Passes Away
After a family member passes away, you are going to need to gather all the following documents together:
• Any Insurance Policy Information
• Marriage Certificate
• Copies of the Death Certificate (You’ll want at least 10 copies as they will be needed for a variety of things)
• Birth Certificates of Dependent Children
• Social Security Number of the Deceased and any Living Children
• Military Discharge Information (If Applicable)
• Complete List of Property (including real estate, vehicles, bank accounts, investments, etc)
• Complete List of Debts
• Any Estate Planning Documents Such As a Will
What Should Be Done with the Assets of the Deceased
If it is your spouse who died, you can typically continue using the assets without any trouble. Some things may still have to go through probate, however, so make sure to keep everything in good working order and don’t sell anything until that process has been completed. If it is another loved one who died, you can’t just start taking the items that you want. Their Will or other estate planning documents will have to be reviewed and their wishes followed.
How to Avoid Paying Too Much for a Funeral
Funeral can get extremely expensive, but there are things you can do to help keep the costs down. The best way to reduce the costs of a funeral is by paying for it in advance. If that isn’t an option in your situation, make sure you talk with the funeral provider about all your options. While you are going through a terrible loss, this is a business to them and they are in it to make money. They may try to sell you things that you don’t want or need.
For example, the cost of a casket can be dramatically different based on the materials and other factors. If you and your loved ones don’t have a strong opinion on what to get, the less expensive models are often a great way to go. You can also save money by opting for cremation, which is inexpensive and also saves money on the large funeral plot. If there will be a luncheon or other event before or after the funeral, shop around for an inexpensive option to cater it. You can have a beautiful ceremony for your loved one without going broke.
Am I Entitled to the Social Security Benefits of a Deceased Family Member
In many cases, you will be entitled to some of the Social Security benefits of a deceased family member. This really only applies if they had paid into the system for at least 10 years. If you are eligible, you will either get a one-time death benefit or survivor benefits. The survivor benefits are only for the spouse or for children who are still under the age of 18. The easiest way to determine what you are entitled to is to talk with someone at the Social Security office as they deal with this type of thing every day.
What Exactly is Probate
Probate is a legal process where an estate is settled after someone’s death. During this process, the estate will be itemized and the value of everything will be determined. Any outstanding debts, taxes, and other obligations will be paid out by the estate and then any remaining assets will be distributed to the heirs of the deceased according to their will or other estate planning documents.
What Taxes Will Be Due When a Family Member Dies
When a family member dies, their estate may still be responsible for a number of different types of taxes. First, income taxes for the year that they passed away will need to be filed. For larger estates, an estate tax may be necessary. Talking with a tax advisor will help you to understand the exact obligations so you can get them taken care of right away.
Can I Refuse Inherited Property to Enjoy Reduced Taxes
Yes, if you are left property or other assets, you do not have to accept them. You can make use of a disclaimer that allows the inheritance to pass directly from the deceased to the next in line. Many people will do this to help reduce the total tax burden. For example, if the person who is first in line is elderly or sick, they may use the disclaimer so it goes to one of their children who will likely live much longer. This makes it so final taxes only need to be paid once.
Can I Still File a Joint Tax Return the Year My Spouse Dies
Yes. As long as the surviving spouse hasn’t remarried before the end of the tax year it is completely acceptable to file a joint tax return.
Do I Have to Pay Taxes on Life Insurance Profits
In most cases you will not have to pay taxes on the life insurance money that you make.
Is the Money Distributed from the Retirement of a Deceased Spouse Taxable
For most traditional retirement accounts, yes, taxes will need to be paid if money is distributed to you from your deceased loved one. If the retirement account is a Roth style option, however, the taxes will have already been paid up front so no new taxes will be required.
Other Major Life Events
There are many other major life events that can have a serious impact on your finances. Here are a few important ones to be aware of.
How Can I Reduce Bank Fees
There are hundreds of banks in business, and most cities have at least dozens to choose from. The best way to reduce the fees that you are going to have to pay is to shop around for a bank that offers accounts tailored to your needs. For example, if you never use an ATM, then an account that offers free ATM transactions isn’t important. If you are always using the ATM, however, having ATM fees refunded can really add up. There are many websites that offer tips on what options each bank offers so you can do your research quickly and easily.
How to Save Money on an Insurance Policy
The easiest way to save money on life insurance is to find an insurance broker who sells policies for many different companies. They will be able to find you the best deal based on your specific situation.
How Can I Reduce My Utility Costs
Look into subsidizing programs in your area that can help you cover your utility expenses. Even if they won’t pay the bill directly, there are many energy reduction subsidies out there that can help you to use less water, energy, gas, or other things. This will help to reduce your bill significantly.
How Can I Reduce My Phone Bill
Shop around to all the different carriers that have good service in your area. Due to advancements on most networks, the coverage is generally quite similar across all carriers, so finding the best price is much more important. You can also typically get by with lower data speeds, and even phones that are a year or two old, without sacrificing any essential services. When done properly, you can save a large amount of money on your monthly bill.
Is There Anything I Can Do to Reduce the Cost of a Mortgage
Refinancing a mortgage can save you a lot of money if you are going to be staying in your home for at least five more years. Of course, you have to have good credit and be able to lower your interest by at least 2% in most cases to make it worth it. Another way that anyone can save money on a mortgage is to pay extra each month. Making a payment directly to the principal balance each month can end up saving you thousands in interest over the life of the loan.