Category Archives: Taxes

Retirement Planning Guide For 401k’s and IRA’s

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Below is a guide we put together for you to use in assessing the tax implications of different retirement plans, along with the benefits and negatives of each………

401K’S Benefits:

  • Employer matching
  • Higher contribution levels ($18,000 for under 50…$24k for over 50)
  • Contributions are pre-tax (or “tax deferred”)…lower taxable income
  • No income limits for contributions other than earned income must be greater than contribution



  • Normal distributions taxed as income
  • Forced distributions at 70 ½
  • Limited to employer fund availability


Traditional IRA’s Benefits:

  • Contributions are pre-tax (or “tax deferred”)…lower taxable income
  • You can pick the funds (not limited by employer’s fund managers)
  • No income limits for contributions other than earned income must be greater than contribution



  • Normal distributions taxed as income
  • Forced distributions at 70 ½
  • Contribution limited to $5,500 for under 50…$6,500 over 50 (earned income must be > contribution)
  • Contributions may be limited by other contributions (ie-401k)
  • No employer matching


Roth IRA’s Benefits:

  • Normal distributions tax-free (contributions & growth)…provides hedge against higher future tax rates
  • No forced distribution at 70 ½
  • You can pick the funds (not limited by employer’s fund managers)



  • Contributions are made post-tax so no upfront tax benefit
  • Contribution limited to $5,500 for under 50…$6,500 over 50 (earned income must be > contribution)
  • Income limitations (AGI) of $116-131k for Single and $183-193k for MFJ
  • Contributions may be limited by other contributions (ie-401k)
  • No employer matching


Strategy: 401k/Roth IRA Contributions

  • Contribute to your 401k up to employer match amount; and then contribute to a Roth IRA.
  • Always have 6-12 month Safety Fund before contributing to retirement plans
  • Need to plan for unexpected expenses (car maintenance, house repairs, etc.)
  • Need to be able to access penalty-free cash at drop of hat for job loss, health problems, etc.


Do you agree with the strategies mentioned regarding 401k/Roth IRA Contributions? Please leave your comments below. We would love your input!

CA Property Tax Assessments Explained


The information below outlines the procedure California uses to determine the amount of property taxes you pay on your home:
In 1978, California adopted Proposition 13, which defined how your property taxes are calculated.
Annual Taxable Value
The annual taxable value of a home is determined by calculating which of the following amounts is lower:

  • Market Value (of the home on January 1)
  • or, Factored Base Year Value (FBYV)

Market Value
Every January, homes are assessed by your county to determine their market value (using comparable home sales during that time). This figure is then compared against the FBYV to determine the basis for your taxes.
Factored Base Year Value (FBYV)
The FBYV in year one of ownership starts out as the market value of a home when the property was transferred (applies to properties acquired after 3/1/75). So a home purchased for $300,000 would have a starting FBYV of $300,000.
The FBYV of properties that have not changed ownership since the prior January 1 is calculated by taking the FBYV from the prior year and adding 2% per year.
So ultimately your property taxes can increase a maximum of 2% per year from the original FBYV. However, there are times when a home can increase more than 2% in one year. This would occur if your property experienced any of the following:

  • A Change In Ownership
  • New Construction
  • Temporary reduction(s) in taxable value in prior tax year(s)

For Example:
Let’s assume you are trying to calculate your 2015-2016 taxes on a home that had a market value of $300,000 on January 1, 2015. Your first step would be to look at your previous year’s FBYV (taken from the prior year’s property tax bill). You would add 2% to this figure and compare it to the $300,000 market value figure. The lower amount is your taxable value for that year. You then pay taxes on the amount that results from multiplying your tax rate times that taxable value.
So if you purchased the above home last year for $200,000; this year’s FBYV would be $204,000 ($200,000 + 2% for year 1). This means your taxable value would be $204,000; since that figure is lower than the $300,000 market value.
The following year, the FBYV of this home would be $208,080 ($204,000 + 2% for year 2). So that following year’s taxable value would be determined by comparing that $208,080 FBYV to the market value in that year.
NOTE: The FBYV does not change with the refinance of a home; it only changes with ownership transfers or certain other situations (like when permitted construction is performed).
Feel free to contact us if you have questions about determining the taxes on your CA home…we’re here to help!
Information gathered from

Easier Loan Qualifying for Self-Employed Homebuyers

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The days of “Stated Income” loans for self-employed homebuyers are a thing of the past. Government rules now require borrowers to prove their ability to repay loans by way of an income source.


This can make things very difficult for self-employed borrowers who take heavy deductions on their tax returns, resulting in lower net business profits used for qualifying income.


However, there are common-sense lenders who understand certain business deductions don’t really affect a self-employed buyer’s “bottom line”. Among the most common deduction of this type are those for business mileage driven and use of home offices.


So it’s important for self-employed homebuyers to know they have many options when it comes to qualifying. There are lenders who can qualify self-employed borrowers based on their income prior to taking the above two deductions.


Sample Scenario
You are self-employed and have $76,000 in gross business income. After deducting $40,000 in business expenses, your tax return shows a net business income of $36,000 ($3,000 per month).

Of the above $40,000 in business expenses, $12,000 are from mileage and home office deductions.
With a lender that will add these two deductions back to the net business income number, the $12,000 in mileage and home office deductions won’t affect your income qualifications. After making this $12,000 adjustment, you would be given credit for an income of $48,000 ($4,000 per month).

So while many lenders would qualify you using an income of $3,000/month, there are lenders that would use an income of $4,000/month. That’s 33% more qualifying income!


Feel free to contact us if you have questions regarding self-employed buyer qualifying. We have access to lenders who can help!

6 Reasons To Get A Living Trust

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Even though we know the mortality rate is 100%, we don’t want to deal with the topic of death while we’re alive. Because of this, many people disregard prudent financial moves that will make life much easier on their surviving beneficiaries.


Among the most neglected is Living Trusts. Here are 6 reasons you’ll want to consider a Living Trust for your family:


  1. Avoid Probate
  2. Protect Property for Beneficiaries
  3. Protect Privacy of Estate
  4. Avoid a Will Contest
  5. Reduce or Eliminate Estate Taxes
  6. Manage Property Upon Incapacitation


Take the time to protect your family. It’s more important than planning that summer vacation; and may not take any more time or money!


What are your thoughts on Living Trusts? Why or why haven’t you secured a Living Trust for your family? Let us know your thoughts!

The Myth About Taxation of Work Bonuses
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Many believe work bonuses are taxed at a higher rate than ordinary earned income. The truth is that bonuses are actually taxed the same as any other income.


If this is true, then why does your withholding not reflect that fact?


While bonuses may be taxed just like regular wages, payroll companies often calculate withholdings at a different rate for bonuses than that of your other earned income. The withholding rate hinges on the method used for your withholdings. Some companies use the “Percentage Method”; while others use the “Aggregate Method”.

Percentage Method
This method calls for a flat “supplemental rate” of 25% to be withheld for taxes. So if you receive a $1,000 bonus, the percentage method would dictate that $250 (25% of $1,000) go straight to the IRS. Employers often choose this method because of its simplicity.

Aggregate Method
This method requires your employer to combine the amount of your bonus with your most recent paycheck. Then, the withholdings are calculated based on the total amount necessary for that particular paycheck. Because withholdings are calculated based on year-end earnings as if you were earning this amount every paycheck, you’re likely to see excessive withholdings for any pay period that includes a bonus. This is especially true if your bonuses are a large percentage of your income.
Sample Scenario
Let’s say you get paid $3,000 per month ($36,000 per year) and get a year-end bonus of $6,000. Under the Aggregate Method, your withholdings for that year-end paycheck will be computed as if you receive $9,000 per month in pay. For payroll calculations, that $9,000 is assumed to be 1/12th of your annual salary. Therefore, your paycheck would be withheld as though you make $108,000 for the year instead of the more accurate $42,000 ($36,000 salary + $6,000 bonus). Because the U.S. is on a progressive tax system, the tax rate increases on higher levels of income. So you would see higher withholdings for this paycheck than you will actually face in taxes, since you aren’t receiving this bonus every paycheck.

How To Avoid Over-Withholding
If you know a bonus check is coming and you feel the withholdings will be too high, you can request a decrease in withholdings** for this pay period. This will allow you to keep more of the money now, rather than having to wait until tax time to recoup the over-withholding. Or you can just keep your withholdings at current levels, knowing you can expect an adjustment when your tax returns are prepared.

** Just be careful you don’t swing too far the other way and have your bonus under-withheld. We suggest checking with your tax preparer to ensure you do this correctly.
*** If you change withholdings, be sure to change them back to normal levels after your bonus check.