There's a substantial gap between what we know and what we do. Want to be a tip-top money manager? Give yourself plenty of time. Americans with razor-sharp financial skills have been around the block a few times. Knowledge, it has been said, is power. When it comes to money management, it also can be peace of mind. Even better, good money management can save you money. In real dollars, money management translates into bigger bank accounts.
How To Deposit An Unsigned Check
Write or type the word "over" on the line where the signature would normally appear. On the back, type "lack of signature guaranteed"... and add your company's name, and your name and title. Then sign. This guarantees your bank that you'll take back the check as a charge against your account if it isn't honored. Most banks will then process the check and remit the funds. This saves you the trouble of returning the check to your customer for signature.
Source: Credit & Financial Management, 475 Park Ave. S., New York, NY 10016.
Gambling Trap
Never accept a check to cover a gambling debt. If the check bounces, the amount is not collectible in a court of law. This is true even in states where gambling is legal.
Jerry L. Patterson, author of Casino Gambling
How To Spot Bad Checks
About 90% of cleared bad checks are numbered 101 to 150, indicating a new account.
Spotting forged checks. Legitimate checks have at least one perforated edge. Most forgeries are cutouts. Another difference: Hold a suspicious check up to the light. If the print is shiny, the check is a forgery.
When a check is too old to cash. Checks dated more than six months ago are usually not cashable, no matter how much money the issuer has in the bank. (Exception: US Treasury checks are valid indefinitely.)
If the amounts differ. If the amount written on a check in words is different from the amount written in numbers, the bank will pay the sum shown in words.
Undated checks. When you receive a check with the date missing, it's legal to fill in a date reasonably close to when it was mailed. Invalid: To predate or postdate it by several weeks. Such action might constitute a criminal act.
Stopping a certified check. Normally, this check cannot be the subject of a stop-payment order. Exception: If the bank is informed by the person who wrote the check that fraud was involved in the transaction, the bank may stop payment. But it does not have to.
Source: Lincoln Secs. v. Morgan Guarantee Trust Co., 8 UCC Rep. 215.
Credit-card Trap
Low-rate credit cards cost more than high-rate ones when cards lack the traditional 25-day grace period for payment. Some issuers charge no fee for cards, but begin finance charges the day a purchase is made. Result: Finance charges every month the card is used.
Self-defense: Read credit-card solicitations and rules very carefully. If you pay bills promptly, look for no-fee cards that also offer a grace period before charging interest.
Source: Gerri Detweiler, Bankcard Holders of America, 560 Herndon Pkwy., Herndon, VA 22070.
Better Mortgage Payments
In the first year of a 30-year mortgage, pay an extra $10 per month toward principal. Then pay $500 of any IRS refund that you receive to reduce principal further. In the second year, increase the monthly prepayment to $20 and again pay $500 after tax time. In the third year, increase principal prepayment to $30 a month—and so on, year after year. Surprising result: This will pay off a 30-year mortgage in about 151/2 years—at a huge saving in interest costs.
Source: Money: How to Get It, Keep It, Make It Grow by certified financial planner Tama McAleese, The Career Press, 180 Fifth Ave., Box 34, Hawthorne, NJ 07507. $9.95.
What Banks Don't Tell You
Be careful when endorsing checks. To prevent loss of money when sending checks by mail for deposit, write "For Deposit Only" above your signature on the back. That limits the endorsement. An endorsed check with nothing but a signature is the same as cash and can be used by anybody if it's lost or stolen.
Important Credit-card Rights
You may withhold payment for unsatisfactory credit-card purchases if:
You've already tried to settle the dispute with the merchant and failed.
You notify the credit-card issuer of nonpayment.
The charge is over $50.
The purchase was made in your home state or within 100 miles of your mailing address.
Amount and distance restrictions are dropped if:
The goods were purchased from the card issuer. Example: Charges on a Macy's card at any Macy's store.
The merchant has a corporate connection with the card issuer. Example: Mobil owns Montgomery Ward, so limitations are void for Mobil services charged to a Montgomery Ward card.
The goods or services disputed were solicited through the credit card's mailings.
When it's too late to complain: After the bill's been paid —you can't demand a refund.
Source: Sarah Hughes, senior adviser, Credit Practices division, Federal Trade Commission, Washington, DC 20580.
Frequently Overlooked Loan Sources
Executives can borrow funds from their vested accounts in a qualified company retirement plan. Requirements:
The plan must specifically provide that such loans are available to all plan participants.
The loans must be genuine and bear a reasonable rate of interest.
Loans may not exceed the lesser of $50,000, or the greater of $10,000, or one-half accrued benefits.
Loans must be repaid within 5 years (except for loans to finance a personal residence). (The $50,000 limit on plan loans is reduced by the participant's highest outstanding loan balance during the prior 12 months.)
Broker loans. Instead of selling stock, consider using it as collateral for a broker's loan. Since brokers borrow at wholesale from banks, you'll probably get money closer to the prime. And there are no compensating balances.
Certificate of Deposit (CD) loan. You need money, but your CD isn't due yet. Instead of cashing it in, use it as collateral for a loan. The interest charge is usually 2 percentage points above the rate paid by the certificate. These 2 points, divided by a short period of time, don't amount to much.
When Paying A Tax Bill
Always designate the specific tax liability toward which your payment is made. Write it on the check. Trap: The IRS may apply an undesignated payment to any tax liability—including those you may not yet be aware of—which could leave you incurring nonpayment penalties on a tax bill you thought you had paid.
Source: Billy C. Morton, ND Tex., No. CA 3-89-2869-R.
You're Always Safe Taking The Standard Deduction, Right? Wrong!
Self-employed people are likely to have their returns audited if they take the standard deduction instead of itemizing personal nonbusiness deductions, especially if their business shows a high gross and a low net. The IRS will suspect that personal deductions have been charged to the business.
Keeping Two Sets Of Books — Legally!
It's legal as long as each set conforms to reasonable accounting principles. A US Tax Court ruling rebuffed the position of the IRS that companies can use different methods for tax and financial purposes only when the Tax Code requires it. It's up to management how to keep its books, the decision says.
Source: Fidelity Associates v. Commssioner, TC Memo 1992-142.
IRS Informants
Informants get cash awards based on the value of the information they furnish. Here are the IRS guidelines for making awards:
If the information was specific enough to get the investigation started, and it led to a recovery, the informant gets 10% of the first $75,000, 5% of the next $25,000, and 1% of the remainder.
If the information triggered the investigation and was helpful, though not specific, in determining liability, the award is 5% of the first $75,000, 2.5% of the next $25,000, and 5% of the rest.
For information that triggered an investigation but did not help to establish liability, the award is 1% of the first $75,000 recovered and 0.5% of the rest.
Maximum award in any case: $50,000. Note: These awards are taxable.
Hide Assets From The IRS — Legally
Many people keep assets in a safe-deposit box thinking that no one will ever find out about it. But the name of the renter of a safe-deposit box isn't kept secret. It doesn't help to rent a box in your own name— there's an organization that, for less than $100, will run a search of every bank in the country to see if you are a safe-deposit box customer. And the IRS, if it's looking for assets of yours, will do a bank search for safe- deposit boxes held in your name. (It's especially easy for the IRS to track down boxes that you pay for with a personal check...it simply goes through your canceled checks.)
To conceal the existence of a safe-deposit box:
Ask your lawyer to set up a nominee corporation—a corporation that has no other function but to stand in your place for the purposes you designate, such as to rent a safe-deposit box.
Rent a box in the name of the corporation and pay for it in cash. Your name and signature will be on the bank signature card, but the corporation, not you, will be listed as the box's owner on the bank's records. And because you paid cash, there will be nothing in your records to connect the box with you.
You can, if you would like to, name another person as signatory in addition to yourself. Then if something happens to you, that person will be able to get into the box.
Additional protection: Having a safe-deposit box in a corporation's name permits the box to be opened by your survivors without the state's or the bank's being notified of your death and having the box sealed. Otherwise, the survivor must get to the box before the funeral to look for a will and to find whatever else may be there.
Source: Edward Mendlowitz, partner, Mendlowitz Weitsen, CPAs, 2 Pennsylvania Plaza, New York, NY 10121.
Tax Boon For Retiring Executives
Retiring key executives often make arrangements to work for their former company on some informal basis. Problem: Every dollar the executive earns above a certain amount cuts into Social Security benefits.
Practical new way around that: Use a standby consulting agreement. Advantage: Amounts received in exchange for an agreement to be available to do consulting work do not count toward the earnings limit. So if the individual is available to do work, but doesn't actually do any, he/she won't lose any benefits. Note: Any payments received for a period in which the executive does work will count toward the limit.
Buying Parents' Home
When retired parents need extra cash, a child can buy their home from them on the installment basis and then lease it back to them at fair market rent. The parents' gain will probably be at least partly sheltered from tax by the $125,000 exclusion for home-sale profits available to persons age 55 and over.
The installment payment can be fixed to be larger than the rental payments the parents make, giving them extra cash income each month. The child can afford to funnel the extra money to the parents because of the possible tax benefits he/she receives from the property.
Bonus: The parents' estate-tax liability is cut because the house is removed from the estate.
Alternative strategy: Parents give the house to the child in trust while retaining the right to live in it. This can possibly be done at a low gift-tax cost, and it removes the house and any future appreciation on it from the parents' taxable estate.
Source: Martin Nissenbaum, partner, and John T. Ablamsky, senior tax manager, Ernst & Young, 277 Park Ave., New York, NY 10172.
