Saving money/ investing (Yo Melonie!!)
I want to start a rigorous program of saving/ investing for the future. I want to have a nice stash for emergencies and another one for investing. My question is, what would be the smartest way of doing this without IRS knowing I make more money that I'm reporting? I pay my taxes and I always make a point of reporting a little more than the previous year to avoid suspicion.
Re: Saving money/ investing (Yo Melonie!!)
what would be the smartest way of doing this without IRS knowing I make more money that I'm reporting
If you transplant IRS with ATO.. you have the same thing... the tax department for the country. Regardless if it is ATO or IRS, I wouldn't recommend it.
Otherwise, speak to a competant (sp?) financial planner. Melanie isn't one she is just a smart gal. What works for her may or may not work for you.
Otherwise, you could save you cash "under your mattress" and use it as a deposit for your first IP however you would then have to acquire a 'special' (non-bank) type of loan due to having such a large sum of cash. That's one way, I guess.... once again.. I just wouldn't recommend even trying to fly under the radar.
Re: Saving money/ investing (Yo Melonie!!)
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Melanie isn't one she is just a smart gal. What works for her may or may not work for you.
Yup, that's the bottom line. While I have done a bit of reasonably successful investing myself, I am definitely NOT a CPA, Investment Advisor, Tax Attorney, or anything else who can provide you with authoritative advice (see sticky post disclaimer at the top of this board).
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My question is, what would be the smartest way of doing this without IRS knowing I make more money that I'm reporting? I pay my taxes and I always make a point of reporting a little more than the previous year to avoid suspicion.
I'll once again reiterate that with the advent of the Patriot Act's anti-money laundering laws and automatic transaction reporting requirements (which were originally meant to track undocumented terrorist cash), the IRS can now track and document every single dollar that goes into or out of a bank account, investment account, retirement account, stockbroker account etc. The IRS can also track all large (> $10k) transactions and purchases, especially car titles and real estate deeds. The IRS also has the computing power to cross check a person's cash flow through all of these various accounts, transactions, and purchases, against their tax return to see if the amount of reported income jives with the amount of money that person is saving, investing, and spending plus covering normal costs of living for the particular zip code area they live in. To be blunt, because US bank account deposits, stock and bond purchases, car and home purchases etc. ARE going to be automatically reported to the IRS, whoever is making those deposits and purchases had better have reported and paid taxes on enough income to explain to the IRS computers where the money they invested or spent actually came from. Failure to do so is almost guaranteed to get you audited, particularly if the amounts involved start to get substantial (like > $10k). Also as you live in New York like I do, the state and NYC income tax people are even more aggressive about snooping through NY based accounts and cross-checking NY reported income to find all the unpaid tax money they can to offset their huge budget deficits, and of course they share any findings with the IRS.
With that said, you don't live all that far away from the Canadian border. Canadian banks and brokerage houses are NOT part of the IRS automatic reporting system (so far at least) if the deposit/withdrawl is made in person in Canada (i.e. cross-border transfers from Canadian to US banks WILL be reported on the US side). Any US citizen (for the moment at least) is legally allowed to cross the US border carrying up to $10k in cash. I'm not recommending this, but perhaps a weekend trip to Montreal is in order every time your 'excess cash stash' starts approaching $10k ?
I'm also personally partial to buying 1 oz gold bars a couple at a time. If the transaction amount is under $3,000 no automatic IRS report will be generated regarding the purchase. IMHO gold is also a good hedge against the coming doom of the US$ exchange rate. When eventually sold at a profit, the gold bars are subject to a (typically lower) capital gains tax.
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Re: Saving money/ investing (Yo Melonie!!)
I used to be just like you. I wanted to save and invest, but didn't want to declare the money as income. After a while, I realized that the saving/investment options availible to people that only deal in cash with no paper trail are pretty limited. All that money stashed in the mattress doesn't earn a damn dime in interest or dividends. My advice, declare the money as income, take the tax hit and invest it wisely, perhaps with some professional advice. You'll likely get a better return, and you'll definitly sleep better at night.
Re: Saving money/ investing (Yo Melonie!!)
You can always open up a Bahamas Corporation - it's pretty steep to do that, about 5 grand, but it's well worth it. It's an offshore account, and if you're trading the stock market or investing in some other way, you're not liable for capital gains taxes.
Re: Saving money/ investing (Yo Melonie!!)
I'm not that knowledgable myself on this stuff, but if you put money in an IRA there are great tax benefits to it. I've been myself wondering if there is a good kind of account to set up to save for school tax free?
Re: Saving money/ investing (Yo Melonie!!)
I don't know. I mean who can I talk to about this? Should I go the investment firm that I choose and ask them for advice about how to handle my stripper funds?
Re: Saving money/ investing (Yo Melonie!!)
You MUST speak with a financial advisor about this. I am about a month away from my certification. Until then, I can't give you and official feedback.
BUT, talking about keeping money from the IRS is a BAD idea. They can use the posts made by you on this side against you in the case of an audit.
Investing your money and having to pay taxes on it still puts you ahead of the game compared to storing it under your pillow.
I suggest you get a IRA for long term invesment and a mutual funds portfolio or a margin account for access to your cash without penalty.
Many members here also suggest gold bars as a hedge against our currency taking a major dump. I also know investors who keep numismatic coins for the same reason.
Ultimately, talk to a financial advisor, and be honest! May I suggest American Express Financial Advisors........
http://finance.americanexpress.com/s...15000%2C00.asp
Re: Saving money/ investing (Yo Melonie!!)
it actually pays off to report income...
You earn more in the long run if you are investing something that can earn interest rather than "in the mattress."
but don't go in totally uneducated! People will take advantage of you. There are a bunch of books by Suze Orman that I've read that are very helpful for getting started.
Re: Saving money/ investing (Yo Melonie!!)
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I'm not that knowledgable myself on this stuff, but if you put money in an IRA there are great tax benefits to it
Well, keep in mind that there are great tax benefits AT THIS MOMENT. Like Social Security or any other gov't program, the rules are subject to being changed down the road. At the moment, traditional IRA allow the saver to postpone (not totally avoid) paying taxes on the money deposited in an IRA account, with the taxes coming due 20-30-40 years from now when that money is withdrawn to meet retirement expenses. There is no way to know what sort of tax rates will apply when that withdrawl takes place. This is one reason that I'm partial to a Roth IRA rather than a conventional IRA (which doesn't have the present day tax deferral but which is not taxable upon withdrawl 20-30-40 years down the road).
More significantly, there is also no way to know whether or not and with what effect a 'means test' might be imposed by the US gov't for future retirees. It's entirely possible that the gov't could decide in the future that people who saved their own money in an IRA do NOT need gov't checks from Social Security since they are able to finance their own retirement with their own savings. Thus this would translate into every dollar saved in an IRA account now resulting in a dollar being subtracted from potential Social Security or other gov't retirement benefits 20-30-40 years down the road (whereas other people who spent that dollar now WOULD get the dollar from Social Security or other benefit eligibility) - in effect making the only actual beneficiary of all those IRA deposits made over all of those years being the US gov't itself !
Re: Saving money/ investing (Yo Melonie!!)
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Originally Posted by Serendipity7
You can always open up a Bahamas Corporation - it's pretty steep to do that, about 5 grand, but it's well worth it. It's an offshore account, and if you're trading the stock market or investing in some other way, you're not liable for capital gains taxes.
There are actually seven countries remaining which are not signatories to the Terrorist Anti-Money laundering treaties, and the Cayman Islands (not the Bahamas) is one of these. This means that accounts can be opened in the banks of these seven countries with essentially no possibility that the account holder's identity or the types and amounts of transactions will be reported to the IRS. However, US Customs and homeland security now very closely monitor any wire transfers between US banks and the banks of these seven countries, essentially meaning that if you truly want/need to keep your identity and the types and amounts of transactions a secret you'll need to do your banking in person and in amounts of less than $10,000 a pop, or you'll need to form a foreign corporation in one of these 7 countries to front for you. Unless you're talking about millions of dollars, the expenses involved typically outweigh the benefits.
I'm also in total agreement with the other posters that declaring your income, paying taxes on it, but then being able to legally invest the after-tax money in dividend/interest/capital gains bearing investments will result in far more dollars down the road than attempting to build a huge cash stash in a mattress which does not produce dividend/interest/capital gains and which very likely will cause questions to be raised (and potential delinquent tax bills) when you eventually attempt to spend some of that cash stash in the future on anything of significant value.
Re: Saving money/ investing (Yo Melonie!!)
The simplest way is to just pay the taxes and live above ground.
The reason it is so hard to cheat the tax man is that the tax man does not want to be cheated and has dozens of ways to catch you
The odds are high (and rising) that you will sooner of later hit one of the tripwires. Even if they are minor tripwires, the fact that you touched it will add one more entry in a database and if you accumulate enough touches, some computer is going to say "look into this one".
All it takes is one person who begins to hate you (ex-lover, family member, loose-lipped relative, boss, fellow worker) caught in a squeeze themselves to turn stoolpidgeon.
I wish it was harder to hide income to avoid taxes so there would be more folks voting against taxes.
Re: Saving money/ investing (Yo Melonie!!)
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I wish it was harder to hide income to avoid taxes so there would be more folks voting against taxes.
With recent advances in computing power and communications technlology, the problem isn't actually hiding the income. The REAL problem is attempting to spend that hidden income in the future in regard to explaining where the money you are spending came from. As covered in many other posts, the IRS now has automatic reporting requirements in place on the spending side (i.e. buying a house or car or anything worth more than $10,000, paying college tuition, large retail or money order purchases etc. will instantly tell the IRS who the buyer is, how much they spent etc.).
IRS computers then kick in, looking up that person's past tax returns as well as the average cost of living in the zip code area where that person resides. The IRS computers then run a simulation of how much money that person would actually need to be earning to cover costs of living plus make the automatically reported purchases/expenditures. If the tax return declared $25,000 in income, if the taxes actually paid were $5,000, if the average cost of living is $15,000, and if the person just purchased a new Lexus, you can be sure that further information from that person's bank accounts will be requested and that an audit will soon follow.
Re: Saving money/ investing (Yo Melonie!!)
Melonie,
I just wanted to suggest that you should add a disclaimer to your IRA risk hypothesis. While you have done your homework on the possibility, it is still a controversial and debatable theory.
As of all the definate information we have now, its smarter to hedge your bets on retirement with a Roth IRA, then to speculate on the future of SS. I hope no one here under 30 actually is calculating SS pension checks into their retirement.
Re: Saving money/ investing (Yo Melonie!!)
I know my parents bought real estate because the income will be tax free when they retire...or at least the way the laws were when they bought it. I don't know if that is just for the state they live in or what. It's a long term type investment though. Rental property is a pain in the ass and of course you have to report your income.
Re: Saving money/ investing (Yo Melonie!!)
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As of all the definate information we have now, its smarter to hedge your bets on retirement with a Roth IRA, then to speculate on the future of SS. I hope no one here under 30 actually is calculating SS pension checks into their retirement.
I agree entirely, and pointed out that I prefer the Roth IRA myself as it will be the least subject to taxation/other benefit eligibility rule changes down the road. However, I am also a big believer that earning money through investments which are not tied to 'retirement rules and penalties' leaves a lot more future leeway to adapt to any future rule changes. Thus the lion's share of my investments are NOT tied up in an IRA of any form, even though theoretically an IRA would CURRENTLY provide a small tax/income advantage.
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I know my parents bought real estate because the income will be tax free when they retire...or at least the way the laws were when they bought it. I don't know if that is just for the state they live in or what.
This is another highly touted area which in fact may be subject to future rule changes. Actually, under current law, if a large real estate holding is owned by an elderly person who gets sick and generates large medical bills, conditions already exist where the gov't can claim title to the property in exchange for providing medicare/medicaid benefits for that person. This has given rise to an entire sub-industry of cpa's and attorneys who specialize in trusts, life use contracts, and a host of other loopholes to (currently) prevent the gov't from seizing such a property under such circumstances.
As to rent and royalty income, existing rules are totally subject to future changes in the IRS and state tax codes. Also, if a 'means test' is imposed on Social Security benefits in the future, your parents' SSI check may be reduced due to the fact that they own this property.
Re: Saving money/ investing (Yo Melonie!!)
Roth IRA = $150,000 maximum contribution per couple. Taxable to income upon re-distribution.
If you are < 30 and start a growth focused Roth IRA now, you can use your pension check to tip the girl on stage one time when you turn 65, assuming stripping won't be outlawed then, LOL.
Real estate investing is about to bottom out, but its always a good tax and credit benefit to own a home, assuming you PAY your mortgage on time (and I do not own a home myself yet, but will be soon, wherever I land.)
Re: Saving money/ investing (Yo Melonie!!)
Roth IRA's have a $150K max per couple? I thought the current annual max was $5K? I know that with a SEP IRA you can contribute 1/4 of your annual income or $40K a year max.
My issue is that I declared $28,000 in income last year and wanted to invest $10K. My living expenses were lower before I came up to NYC. So how can I reconcile that?
Re: Saving money/ investing (Yo Melonie!!)
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My issue is that I declared $28,000 in income last year and wanted to invest $10K. My living expenses were lower before I came up to NYC. So how can I reconcile that?
If you are now living in Manhattan, basically you really can't reconcile a $28,000 gross income (= something less than $25,000 in net income) against a $10,000 per year minimum rental cost, a $5,000 per year typical utility cost, a $5,000 per year minimum grocery bill etc. with $10,000 somehow left over for investment. If the IRS doesn't start asking questions at the federal level, odds are that the New York City income tax people will start asking questions at the local level (and won't find a local tax return for last year). Odds are that you could explain your way out of past financial issues i.e. you formerly lived in a low tax low cost of living state. However, once you have drawn their attention the first time, you have permanently increased the probability of being scrutinized again and again - particularly if they were unable to squeeze back tax money out of you after the first look but something just didn't 'smell right' to the auditor.
Again I'm no authority on the subject, but if it were me I would be tempted to wait until January 2nd 2006 before opening any brokerage/investment accounts to avoid 1099-div automatic reporting forms being issued for the 2005 tax year.
Re: Saving money/ investing (Yo Melonie!!)
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Roth IRA's have a $150K max per couple? I thought the current annual max was $5K? I know that with a SEP IRA you can contribute 1/4 of your annual income or $40K a year max.
under current laws/rules ...
Roth IRA
* Your tax filing status: single with an Adjusted Gross Income (AGI) up to $95,000 ($110,000 for partial contributions); married filing jointly with an AGI up to $150,000 ($160,000 for partial contributions).
* Federal tax-free growth
* Contributions to your Roth IRA may be withdrawn at any time without penalty or taxation.
* No mandatory distributions
* No age limit for getting started*
Traditional IRA
* No income limits
* Your assets grow tax-deferred
* Contributions may be tax-deductible
so yes, eligibility for a Roth IRA is linked to annual income caps.
more at