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MONTHLY TAX NEWSLETTER - JUNE 2002

An index and links to our previous months' newsletters can be found at oldnews.html


Interact with our CPAs every day at the MDTAXES Message Board, or the first Wednesday every month, at 9 pm Eastern Time, during our Live Tax Chat 


THE BASICS OF LIFE INSURANCE

How much life insurance do you really need? Before answering this question, remember that you'll be looking to your life insurance to provide liquidity for the following:

  • Pay off your debts, such as mortgages and equity loans, auto loans, student loans, credit cards, and other personal loans.

  • Pay for your final expenses, such as funeral expenses, unpaid medical bills and estate taxes.

  • Set up an emergency fund to cover unexpected bills.

  • Set aside money that will be earmarked for your children's education and your spouse's retirement.

  • Provide a nest egg to generate enough income each year to enable your family to maintain its current standard of living.

How Much is Needed to Fund Your Family's Nest Egg?

Figuring out how much life insurance you'll need to pay off your debts is easy.  Simply make a list of how much you owe to each of your creditors, and calculate the total of that list.

Determining how much of a nest egg to leave your family is much more complicated. Here's what you need to do:

  1. First, determine how much income your family will need each year to maintain its current standard of living.

  2. Next, take a look at the interest rates that your family can earn by investing in safe investments such as a Certificate of Deposit issued by a bank or a United States Treasury Note issued by the federal government.

  3. Finally, divide the annual income you'd like to provide to your family by the interest rate you could earn with a safe investment.

For example, let's say that you'd like to provide your family with $50,000 of income per year, and you can earn 5% per year by investing in either a Certificate of Deposit or a U.S. Treasury note.  Believe it or not, you'd need to have $1,000,000 invested, earning 5% per year, to provide your family with $50,000 of income annually.

If you have any questions about life or disability insurance, feel free to e-mail our in-house insurance specialist at cpa@mdtaxes.com.


LIFE INSURANCE DEFINITIONS

Annual Renewable Term

A life insurance policy that automatically renews each year. Premiums increase each year, while the amount of life insurance coverage remains the same.

Decreasing Term

While the amount of life insurance coverage decreases each year, the premiums remain level for the duration of the policy. Commonly used for mortgage protection.

Level Term

Both the amount of life insurance coverage and the annual premium remain the same over the policy period. Usually purchased for 10-30 years. The longer the duration, the more expensive the premium.

Whole Life

Both the amount of life insurance coverage and the annual premium remain constant for your "whole life". Policy builds "cash value", which is available to you to be used for other purposes.

Universal Life

The amount of life insurance coverage and the annual premium increase or decrease depending upon your current needs. Policy builds cash value if the premiums paid exceed the cost of the life insurance.

Variable Life

Similar to whole life insurance except cash values are invested in mutual fund-like accounts. With these policies, the amount of life insurance coverage remains constant for life of policy

Variable Universal Life

The amount of life insurance coverage and the annual premium increase or decrease depending upon your current needs. Additional premiums are invested into mutual fund-like accounts.


NEED SOME HELP WITH YOUR TAX PLANNING?

Check out our Directory of Affiliated Offices to find a CPA near you who specializes in the tax planning and preparation for young health care professionals.



TAX AND FINANCIAL PLANNING
CALENDAR FOR JUNE, 2002

Month

Income Taxes

Saving and Investing

June

  • 2nd quarter estimates due 6/15/02

  • Income tax returns for Ex-Patriots due 6/15/02

  • Determine if you are on track to meet the savings and debt reduction goals you set back in January

 


 

THE LONGEST DAY OF THE YEAR COMES IN JUNE.  WHY NOT USE SOME OF THAT DAYLIGHT TO WORK THROUGH YOUR PERSONAL FINANCES?

If you're married, and you and your spouse need some guidance, check out

NewlywedFinances.com.

(Brought to You By Your Friends at MDTAXES.COM)

 


2000 & 2001 TAX FACTS

  • For 2001, the standard deduction for a single individual is $4,550 and for a married couple is $7,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. For 2002, the standard deduction has increased to $4,700 for single individuals and to $7,850 for married couples.

  • For 2001, the personal exemption is $2,900. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.  For 2002, the personal exemption has increased to $3,000.
  • The maximum earnings subject to social security taxes has been increased to $84,900 in 2002 from $80,400 in 2001.
  • The standard mileage rate has been increased to $.365 per mile in 2002 from $.345 per mile during 2001.
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan has been increased to $11,000 for 2002 from $10,500 in 2001.  And if you'll be 50 or older by December 31, 2002, you can contribute an extra $1,000 into your 401(k) or 403(b) account this year.


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