What Medicare Doesn't Cover

Many people think medicare covers all medical expenses once you turn 65. Unfortunately, there are some very large costs that are not covered at all like nursing home care after 100 days. Also medicare does not cover hearing aids, dental care, eyeglasses,  routine foot care, and 35% of outpatient mental health care.  One thing that medicare does pay 100% for is hospice care for as long as the doctor certifies that it is necessary for the terminally ill.

IRS Installment Agreement

If you can't pay your Federal taxes, you have an option of requesting an installment agreement by filing form 9465. On the form, you promise to pay a fixed amount on a certain day each month. The IRS prefers that you set up a direct debit to your bank account each month and encourage you to do so by discounting the regular one time user fee of $105 to $52 if you choose the direct debit option. Interest of 3%(current Federal rate) and late payment penalties of .5% (25% max) continue to apply until the taxes are paid. I usually encourage clients in this situation to pay as much as they can when they can to maintain more flexibility and not be tied down to a fixed payment.

The Best Kind of Income: Nontaxable

Other than free coffee provided by your employer, what are some other nontaxable items out there? Some of the most common include: municipal bond interest, non cash gifts from your employer of small value like a holiday turkey, gifts from family, inheritances in most states, life insurance proceeds,  lawsuit awards for physical injury or sickness, and up to $5,250 of qualified educational assistance from your employer.  Inheritances are all tax free from Federal taxes but some states tax inheritances above a certain amount.

What Type of Business Entity Should I Choose?

You want to work for yourself and you have a great idea for a business. The next step is to determine what type of entity to be; proprietorship, limited liability company (LLC), S corporation, partnership, or C corporation. The order of the 5 entities goes from simple to complex with the C corporation the most complex and the proprietorship the easiest to set up and operate. I prefer the proprietorship for most small one owner companies but there are advantages and disadvantages to each of the entities and expert advice should be sought to find the best fit for your new business.

Simplified Employee Pensions (SEPs)

In my opinion, SEPs are the best way to put aside funds for retirement for the self employed with no employees. You can contribute up to 20% of your net self employment income to a maximum of $51,000 in 2013 to your SEP by the extended due date of the tax return. This contribution is tax deductible and grows tax free. There is also no reporting requirement like there is for other more complex retirement plans like 401k plans. You don't even have to establish a plan until the extended return due date.  If you have employees, then you have to make the same percentage contributions for all eligible employees.

Mortgage Interest on Three Homes

Mortgage interest paid on your first and second home is deductible if generally the combined debt is less than $1,100,000. What if you have a third home? If it is not considered investment property, then the interest is nondeductible personal interest. If the third home is held for investment, then the interest is investment interest which is only deductible to the extent of investment income each year.

Social Security Benefit

For 2013, the most social security you can receive is $40,200. You have to start getting benefits at age 70 to get the maximum. The average social security benefit is $14,760. Benefits are based on the age you start receiving benefits and earned income for your best 35 years of work.