Checklists for Life

15

Your Money

Financial expert Jane Bryant Quinn sums up her advice for handling money in three sentences: “Use common sense. The simplest choices are the best ones. Impulse is your enemy, time your friend.” That doesn’t sound complicated, but following this advice is easier said than done. The lists in this section will give you the information you need to follow Quinn’s tips on using common sense and making good choices, but you’ll have to bring your own resources to the job of resisting impulses!

 How to Choose a Bank

Choosing a bank is like shopping for most things. First you decide what features are important to you, then start comparison shopping. Pick up brochures listing services and fees from a few banks and carefully compare them against one another. Keep your eye on the following:

1.	Ask about balance requirements. What’s the minimum balance you must maintain to avoid paying fees and to earn interest? Customers who don’t regularly maintain high checking account balances can wind up paying hefty fees for the privilege of letting the bank hold their money.
2.	Weigh the fees against freebies. Never mind the toasters. Which free or low-cost services are most important to you? If you use ATMs regularly, look for banks that allow free unlimited ATM use. Pay attention to charges for using ATMs at other banks. Does the bank you’re considering impose a fee on top of the one the other bank charges? Does the bank offer low-cost overdraft protection? Does it charge its customers for traveler’s checks? If the pamphlets don’t answer these questions, jot them down so you can ask when you go to the bank.
3.	Look out for your interest. Don’t be too quickly seduced by banks paying higher interest rates on checking accounts. Compare the banks’ methods of calculating interest. The fairest method is to pay compound interest on your daily balance. This means you earn interest—including the previously accumulated interest—every day. Watch banks that pay:
	• Interest on your balance only after your deposit checks have cleared.
	• Interest on your lowest balance, so that if you have $3,000 in for twenty-nine days and withdraw all but $100 on the thirtieth day, you’d receive interest only on $100.
	• What appear to be generous interest rates, but on closer inspection turn out to be calculated in the bank’s favor (for example, on your lowest balance). These “high” rates won’t be as good a deal as a lower rate paid on your daily balance.
4.	Watch for service charges. You could wind up losing money each month if you earn $1.70 in interest but pay $10 in ATM transactions and service charges.
5.	Don’t limit your search. Since many transactions can be handled long-distance through ATMs and on-line banking, your choice of banks needn’t be limited to those in your immediate area. If you aren’t happy with the offerings of neighborhood banks, feel free to look farther afield.
6.	Forgo the frills. Some banks offer lower-cost “no frills” checking accounts designed for customers who keep a low balance and don’t write many checks. If you fit that profile, find a bank that offers this option. Usually, a no-frills account allows you to write a certain number of checks (ten to fifteen) for free, charging you by the item as you go above that number.
7.	Ask for ways to save money. Will the bank reduce fees or service charges for checking accounts for customers who maintain a savings account, purchase a CD, or take out a loan with the bank? Ask if you can reduce your monthly service charge by opting not to receive your cancelled checks with your statement, or by banking exclusively on-line or with the ATM.
8.	Customer service counts. Higher interest rates are attractive, but the few extra dollars you earn on an account may not be as valuable in the long run if they come at the expense of friendly, personalized service when you need assistance.
9.	Visit in person. Once you’ve narrowed your choice of banks, make an appointment with the new accounts clerk. This is your opportunity to gauge the bank’s level of customer service and the helpfulness of its staff. To avoid unpleasant surprises, ask for a detailed list of charges you might have to pay with the account. If the person you’re meeting with can’t provide one, or gives vague or unclear information, move on.

 How to Balance Your Checkbook

Don’t be intimidated: balancing your checkbook does not require a degree in advanced bookkeeping! Balancing your account involves nothing more than comparing your checking balance with the bank’s balance and making sure they both reflect the same transactions. Take it one step at a time and it won’t hurt a bit.

1.	Go through your check register and make a list of the checks you wrote that have not yet cleared. These are called “outstanding checks.”
2.	Add up the dollar amounts of all the outstanding checks.
3.	Make a list of any deposits you made that are not yet shown on the bank statement.
4.	Add up all the fees and charges against your account, including any ATM withdrawals and charges and automatic withdrawals (house payment, gym membership, etc.) that you hadn’t entered. Subtract these amounts from your register balance.
5.	Add interest to your register balance, plus any other credits shown on your statement but not yet written in your checkbook. This is your up-to-date checking account balance.
6.	Update the bank’s balance shown on your bank statement by adding any deposits you’ve made that the bank has not yet posted.
7.	Subtract the total amount of outstanding checks from the statement balance. The bank’s balance should now match the one you arrived at after adding interest and subtracting fees from your checkbook register.
8.	If they don’t match:
	• Check the math in your check register (this is the most frequent culprit) when accounts don’t balance.
	• Check to see if the amount of each check and deposit matches the amount the bank actually subtracted from or added to your account. (You may have entered the amount incorrectly in your check register, or the bank may have misread your writing.)
	• Look over your deposits to verify that they’re properly credited to your account.
	• Compare the checks listed on your bank statement with your checkbook to see if you forgot to enter a check.
	• If your account still doesn’t balance, notify the bank in writing immediately.

 Questions to Ask Before You Choose an Accountant

If your income is high enough and your tax needs complex, you may want to hire an accountant to help you with your tax preparation, as well as tax planning, budgeting, and advice on major decisions that could affect your tax standing. To find the person who best fits your needs, ask the questions on this checklist before you make your final choice.

1.	How much do you push the envelope? Question candidates about their philosophy regarding deductions. Ask if they’re likely to be proactive on your behalf, or whether they tend to be conservative. (At the same time, ask yourself which style makes you most comfortable.)
2.	What’s your fee structure? When you take your taxes to a CPA firm, your work may be handled by a variety of people and charged at different levels. Simple portions of your return may be given to staff members whose work is billed at a much lower rate. Expect to pay the CPA from $150 to $250 an hour, depending on where you live and how big a firm you’re dealing with. Ask how much preparation of your return will cost and find out how each level of service will be charged.
3.	Can we talk? Will your accountant answer questions over the telephone during the year? Some professionals will hit you with a per-hour charge for these calls; some consider the occasional call to be part of the ongoing relationship.
4.	What’s your background? As with any professional you hire, you’ll want to find out how long this person has practiced, where she’s worked, and what kind of training she’s had. Ask about her special areas of expertise to find out whether they match your needs.
5.	Are you selling anything? The only thing you want your accountant to sell you is expert tax preparation and advice. Walk away from accountants who also sell investments for which they earn commissions.
6.	Will you be there if I’m audited? Don’t assume that your accountant will stay by your side if the IRS decides to audit your tax return. Ask your candidates directly whether they can and will represent you. Expect to pay extra for their time if they do.

If your tax return is a bit complex, but you don’t want to hire an accountant, consider hiring an “enrolled agent.” These highly trained individuals will cost less than a CPA, but can give you tax advice and are licensed to represent you with the IRS in case of an audit. Many are former IRS agents. For a local referral, call the National Association of Enrolled Agents at 800-424-4339.

 Questions to Ask Before You Choose a Financial Planner

Begin the process of selecting a financial planner by asking yourself what you want this person to accomplish for you. Are you looking for answers about cash management and budgeting? About choosing a retirement plan or making other specific investments? Or do you want advice on your overall financial picture, including tax and estate planning, insurance needs, and a review of your financial goals? When you know what you want, you’ll be better able to evaluate a prospective planner’s ability to respond to your needs.

Ask friends or colleagues for names of planners they’ve found helpful. Your accountant or attorney may also be excellent sources. Call some of the lists below for names of qualified advisers in your area. Pose these questions to candidates before making a final decision.

1.	How are you compensated? Financial planners generally make their money in one of two ways. Commission-based planners profit only when they sell you financial products. Fee-only planners are paid for the advice they give you, not on any products they may advise you to purchase. Many experts, including personal finance guru Jane Bryant Quinn, warn against commission-based planners who may do less planning and more selling and are likely to recommend the highest-commission products going.
	Some planners work on a combined fee-commission plan, but this arrangement can still present a conflict of interest since they will make money through their sales commission whether or not you make money through the investment. Make sure you understand exactly how the planner’s fees will be calculated and whether you will make a one-time payment or will be charged periodically.
2.	Do you have a resume or printed handout describing your professional background? You should review this carefully to make sure the planner is really a planner and not an insurance agent trying to sell you a policy or a stockbroker looking for commissions on sales.
3.	What are your professional credentials? There is no such thing as a license to practice financial planning, and no credential guarantees competence or special talent for investing. But certain letters after a planner’s name ensure that he or she has met specific standards (see below). Also find out where the person went to school and what she majored in. You don’t have to rule out English or biology majors, but a background in accounting, finance, business, or law might be more reassuring.
4.	Are you registered with the SEC? Every planner must be registered as an investment adviser with the Securities and Exchange Commission. A yes to this question is a basic requirement.
5.	May I have your CRD number? The Central Registration Depository is maintained by the National Association of Securities Dealers (NASD). When you have the CRD number, call NASD to request a free report on the planner’s licensing and employment background and possible disciplinary history. The number is 1-800-289-9999. Or review this history yourself at www.nasdr.com.
6.	How long have you been in business? Your money and your future are on the line. Don’t put them in the hands of anyone who’s new to the business. Hire a planner with at least ten years’ experience. This increases the likelihood that you’ll be working with a seasoned professional who has seen the stock market go through a few cycles. You can double-check these answers through the NASD (see above).
7.	What is your investment philosophy? You want to know how this person makes investment decisions: What is her idea of a balanced portfolio? Does she lean more toward certain instruments—stocks, mutual funds, real estate, etc.? What does she think are the most significant factors in assembling successful portfolios (market timing? luck? past performance?)? If you don’t understand this answer completely, ask for clarification. If you still don’t understand, this adviser’s not for you.
8.	How do you choose the products you recommend? Does the planner personally research everything he recommends? Does he require a certain track record for an investment before he recommends it?
9.	Do you specialize in certain professions? Some planners focus their practice on entrepreneurs, physicians, teachers, upper-income families, and so on. Depending on your profession, you may be better off with someone who has experience working with people like you.
10.	May I have names and numbers of five clients with whom you’ve worked for at least three years? When you phone the references, ask what the planner has done for them and whether results lived up to their expectations. Compare their experiences to the claims the planner has made to you. Do not even consider a planner who can’t or won’t give you references of current clients.
11.	Will you base your planning for me on my personal circumstances? You shouldn’t settle for a generic financial blueprint. You want someone who will gather complete information about your financial situation, spending habits, and long- and short-term goals. These details are critical to obtaining a plan you can live with.
12.	How often will we meet to discuss my financial situation? There is no correct answer, but if the planner is overseeing your entire portfolio, quarterly progress meetings are a must.
13.	And ask yourself: Is this person easy to talk to? A good listener? The planner you choose will be learning some fairly personal things about you. Not only will she know your annual income, your net worth, your dreams for your children, and your plans for retirement, she may also become familiar with your spending habits, your (and your spouse’s) attitude about money, and other potentially emotional topics.

WHERE TO GO FOR MORE INFORMATION

•	NAPFA, the National Association of Personal Financial Advisors, is composed of fee-only planners. Members of this organization have complied with all state and federal regulations, most have considerable education and experience in their field, and all participate in continuing education. NAPFA will send you a list of fee-only planners in your area (888-333-6659).
•	The Institute of Certified Financial Planners (ICFP) issues and regulates certified financial planners. This Denver-based institute requires a comprehensive certification exam, continuing education classes, three to five years’ experience in the field, and adherence to the Board’s Code of Ethics. The ICFP includes both fee-only and commission-based planners. Call for names of CFPs in your area (800-282-7526).
•	The American Institute of Certified Public Accountants (AICPA) has a program for training CPAs to do financial planning. They’ll send you a list of people in your area who have the Accredited Personal Financial Specialist (APFS or PFS) designation. (Call 212-596-6200, or write to them at 1211 Avenue of the Americas, New York, NY 10036.)
•	The Association for Investment Management and Research (AIMR) regulates chartered financial analysts. Members of this group (CFAs) are highly regarded for their considerable experience in investment decision making. They must adhere to strict rules and codes of conduct set by the AIMR and have passed three rigorous board examinations. This credential is often held by mutual fund portfolio managers and other institutional investment portfolio managers (804-980-3668).
•	The American College in Bryn Mawr, Pennsylvania, issues the Chartered Financial Consultant designation (ChFC). This is an insurance industry designation, which signals you that these planners will focus first on selling insurance investment products. The designation requires rigorous coursework, adherence to a code of ethics, and a minimum of three years’ related experience in one of several financial fields (610-526-1000).

 Choosing a Method for Stock Trading

The explosive growth of on-line trading has brought major changes to the brokerage business over the last few years. There are now well over a hundred on-line trading firms, including both the scrappy new Internet companies and the offspring of Wall Street’s oldest and best-known houses, offering the investor more choices than ever in selecting a way to trade stock. Whether you choose a traditional brokerage or an on-line version, put your potential broker through the same careful screening you would when hiring any expert. A few things to remember as you choose:

1.	Don’t confuse brokers with financial planners. Although full-service brokerage houses provide information along with their advice, they may not tell you whether buying any stock is the wisest use of your money. Remember that all brokers are in business to make money for themselves first, and you second—maybe. This is not to say they’re dishonest; it’s just the way the game is played
2.	Know what you’re paying for. Full-service brokerage firms like Merrill Lynch, Shearson Lehman, and Prudential cost more per trade than discount and on-line brokerages. The higher fee buys you information about market trends, suggestions about what to buy when, and general advising and hand-holding through the investment process. There’s no guarantee that trading through a full-service broker will net a larger return on your investment, but it does spare you the trouble of following the market yourself. Of course, you must still pay close attention to how the broker is handling your money and whether you’re satisfied with the results.
3.	Not all discount brokers are the same. Jane Bryant Quinn classifies discount brokers as either “business class or coach.” “Business class” discount brokers are known as the Big Three: Charles Schwab & Co., Fidelity, and Quick and Reilly. The Big Three offer essentially the same products and services as the full-service firms, but don’t give advice on what to buy. The “coach” firms offer the deepest discounts (they charge an average of 73 percent below the full-service firms and 41 percent less than the Big Three) but they only execute trades and don’t offer other services. They are mainly used by seasoned stock investors who know exactly what they want and require only the transaction itself.
4.	Look at e-trading. Placing buy and sell orders over the Internet is a very popular way to trade stocks and may become the primary way to execute such transactions. On-line trading doesn’t entirely eliminate the “middle man,” because you still must open a brokerage account before you can begin trading, and you pay a fee for transactions. But it could be your least expensive, most flexible trading option. When evaluating on-line trading firms pay special attention to:
	• How swiftly the firm executes trades.
	• The level of advice that’s offered (if any).
	• Whether the firm’s research and information match your investing preferences.
	• The firm’s track record for outages. This is still the Achilles’ heel of the Internet. What methods does the firm use to shore up its reliability when on-line service is interrupted?
5.	Scrutinize service quality. Before choosing any firm, be sure to investigate the level of customer service provided. Even if you want no help at all with your investment decisions, you still require a basic level of customer support. Ask people who use the firm how satisfied they are in these areas:
	• Hours of operation and telephone accessibility. An inexpensive brokerage that’s not open when you want to make a trade is hardly a bargain. The same is true for telephone service—low trading fees aren’t worth the risk of busy signals and lost opportunities to trade at the price you want.
	• How swiftly trades are executed. Once you’ve put in your order, how fast can the firm come up with enough buyers or sellers?
	• Real-time quotes. If you plan to do daily or rapid-fire trading, will this firm give the exact price of the stock at the moment you call (or log on)? What is the charge for this service?
	• Easy-to-understand statements. Ask a prospective firm to send you a sample statement. You would be unhappy to find you need the Rosetta Stone to decipher the year-end account statement.
6.	Don’t sacrifice stability. Make sure any brokerage you sign with is insured by the government-sponsored Securities Investor Protection Corporation. Don’t entrust your money to a trading firm without SIPC coverage.
7.	Ask about a minimum. Some brokerage firms require a minimum investment to open an account. Determine how much money you want to invest, and find out if you’re playing in the right league before you launch into any other questions.
8.	Request an information packet. Ask each prospective brokerage to send you a packet listing all their fees and charges. This is the only way to know if the rock-bottom commission fee that’s advertised is a true bargain, or only the tip of the financial iceberg.

 Choosing a Credit Card

Don’t leave home with just any credit card. Most lending institutions will be only too happy to fill your wallet with plastic—no matter what your ability to pay or credit history may be. This checklist will assist you with your real challenge: to sort through the array of tempting offers and choose a card that best suits your financial situation.

1.	Consider the APR. The APR, or annual percentage rate, is the actual cost of the card over the span of a year. It includes the interest rate, annual fee, and other service charges. Comparing APRs among cards is a quick way to see which may cost you less. But you’ll need to weigh other factors in your decision.
2.	Decide how you’ll pay off the card. If you plan to carry a balance from month to month (not a great idea, by the way, because there are cheaper ways to finance purchases), choose a card with low interest rates. If you know you’ll pay your balance in full each month, the interest rate is less relevant, and you can focus on other features a card might offer.
3.	Ask what your card can do for you. Some cards give you a little something in return for your business. Many offer frequent-flyer miles for the money you spend. Some, like Discover Card and Ameritech Complete MasterCard, offer cash rebates. Others allow you to accumulate credits toward the purchase of a new car, or to support your favorite charity or your alma mater with each purchase. You’re likely to pay a higher annual fee for these cards, so whether the benefits are worth the expense is a decision that only you can make.
4.	Look at annual fees. These can run anywhere from $35 to $90 a year. If you plan to pay your balance in full each month, and aren’t interested in frequent flyer miles or other extras, you should have no trouble finding a card with no annual fee. Occasionally, an annual fee may be waived for new customers or for longtime card holders. If you have an excellent credit history, or do significant business with the lender, it couldn’t hurt to ask about a fee waiver.
5.	Search for grace. Now here’s a reason to read (or at least scan) the fine print. You’re looking for the words “grace period,” which translate as the number of days before a lender starts the interest meter ticking on your purchase. On a card with no grace period you’ll owe interest from the day you make a purchase, even if you pay the bill promptly. Look for a card with a twenty-five-day grace period.
6.	What’s your interest? You’ll sometimes have a choice between two types of interest rates: variable and fixed. Variable, or floating rates, tend to be lower than fixed; they’re usually tied to the bank’s prime rate or the recent cost of Treasury bills. As the name suggests, you can’t know from month to month how much interest you’ll be paying. Fixed rates aren’t exactly carved in stone either. Banks change them every year or so at will, and with no warning.
7.	Beware of introductions. Low introductory rates are a frequent credit card marketing device. These seductively low introductory rates eventually (and sometimes quickly) zoom upward, becoming anything but a bargain. If you do take advantage of such a rate, make sure the lender doesn’t take advantage of you. Keep your eye on the expiration of the low rate and switch cards when the time comes.
8.	Watch for other fees. Some card issuers charge a fee when you go over your credit limit. Some charge a late payment fee—in addition to the extra finance charges. And many lenders charge a transaction fee for cash advances on your card, over and above the interest rate for this quick and easy, but pricey loan.
9.	Less is more. Contrary to what many people assume, the fewer credit cards you own, the more impressive your credit rating looks. Prospective lenders tend to interpret multiple credit cards as multiple opportunities to get into debt. Find one or two cards that work well with your spending and payment patterns and keep your credit file attractively slim.

 Choosing a Charity

The best-intentioned people sometimes shy from donating money to charities because they’re uncertain about which ones to support. Equally well-intentioned people sometimes give more than is prudent—or choose unworthy causes—for the same reason. Charitable giving should be approached the same way you make other financial decisions. Here are some suggestions to keep in mind.

1.	Resist pressure. Never give just because a solicitor makes you feel embarrassed or guilty. In fact, be suspicious of any charities that use high pressure or highly emotional appeals on prospective donors.
2.	Don’t hand it over. Avoid giving money during a face-to-face solicitation at your front door or in a public place. If you think the cause is worth supporting, request literature and give yourself time to check the organization’s legitimacy and consider the amount you’ll donate.
3.	Watch out for $20 candy bars. Be very cautious about charities that telephone or come to your door asking you to purchase common items—from pencils or candy to household goods and first aid kits—at inflated prices.
4.	Go with those you know. Choosing a cause you’re familiar with helps you feel good about making the donation and also increases the likelihood that your money will be spent in the way you intend.
5.	Be alert to questionable charities. Some “charities” are little more than operations with sound-alike names to help them skim away money from legitimate causes. Don’t assume a charity is worthy because its name sounds good. Get the exact name in writing before you contribute.
6.	Get a dollar breakdown. Find out how much of every dollar you give is used for charitable purposes (as opposed to salaries and overhead). The National Charities Information Bureau’s standards require that a minimum of sixty cents out of each dollar spent is dedicated to charitable use. NCIB and the Better Business Bureau publish reports evaluating individual charities. You can research the charity you’re considering by going to either Web site (www.ncib.org and www.bbb.org).
7.	Stick to a budget. Make your decisions about charitable giving at one time each year, deciding how much and where to donate your money. Planning ahead will enable you to achieve your philanthropic and tax goals and protect yourself from hasty decisions based on emotional appeals.

 End-of-the-Year Tax Strategies

Here are some smart tax-saving tips recommended by seasoned certified public accountant Sue Miller of McLean, Virginia. Following this list can help boost your deductions and defer as much end-of-the-year income as possible.

1.	Clean out and donate. Organize your closet (see chapter 2) and donate clothes that no longer fit to your local charity. Box up old toys your children don’t play with any more and donate them to a charity.
2.	Review your charitable contributions. If the total is lower than you’d like, make more. Before the end of the year is a good time to do this because contributions are still tax deductible.
3.	Consider donating appreciated stock. You can give stock to your favorite charity and take a deduction for the fair market value. This way, your out-of-pocket cost will only be what you originally paid for the stock.
4.	Consider taking stock losses. Selling stocks that are losers can offset capital gains you may have realized during the year.
5.	Pay state tax early. If you anticipate owing taxes, pay your state income tax on December 31, rather than waiting for the January 15 due date for the fourth-quarter estimated payment.
6.	Visit your dentist. To obtain a deduction for medical expenses, your out-of-pocket medical expenses must exceed 7.5 percent of your adjusted gross income. If you are close to this amount, fit that extra orthodontist visit or that new pair of eyeglasses in before the end of the year.
7.	Pay your mortgage early. Consider making your January mortgage payment in December. This will give you an extra interest deduction on your return.
8.	Delay invoicing. If you are a cash-basis, self-employed taxpayer, delay sending out those December invoices to your customers to defer income into the following year.
9.	Consider retirement. If you are self-employed, consider setting up a pension plan for your business. A Keogh must be set up by December 31. If you miss this deadline, a SEP can be set up by the due date of your tax return.
10.	Call your accountant. Find out what’s new in deductions for the year so you don’t miss a chance to save money.

 Frequently Overlooked Tax Deductions

You don’t want to be rash when listing deductions on your annual income tax form. But neither do you want to overlook those to which you may be legally entitled. Check this list for any you might be neglecting to claim.

1.	Points. A one-time mortgage-closing fee is expressed in “points,” or a percentage of the mortgage charged by the lender for making a loan. (For example, a charge of three points on a $100,000 mortgage means the borrower pays $3,000.) The dollar amount of these points is deductible from your federal income tax the year that a loan is made for the purpose of buying a home, or a loan is taken out to pay for major remodeling on a principal residence. When a home is refinanced, the points paid are prorated over the life of the loan; they cannot be deducted all in one tax year.
2.	Publications related to tax and finance. This includes books, magazines, and newsletters on financial or tax matters. You may also deduct money spent for daily publications such as The Wall Street Journal, Investors Daily, and The New York Times.
3.	Charitable service expenses. When you donate your professional services or personal time to a tax-deductible charitable institution, you are entitled to deduct any out-of-pocket expenses you incur. You may also deduct per mile auto usage, parking, and tolls.
4.	Health insurance. If you are self-employed—and only if you are self-employed—you may deduct a portion of the premium you pay for your own insurance.
5.	December deductibles. Deductions can be taken on items you charged in December even if you don’t pay for them until January of the new year (as long as they were deductible in the first place).
6.	Unreimbursed business expenses are deductible when they exceed 2 percent of your adjusted taxable income. For example, if your taxable income is $100,000 and you spend $2,001 on business expenses for which you weren’t compensated by your employer, the single dollar (the amount in excess of 2 percent of $100,000) would be deductible. For some taxpayers, they can add up fast. Some examples:
	• Use of your automobile and cost of local transportation for business purposes, exclusive of going to and from work.
	• Business use of home phone, cellular phone, and pay phone.
	• Stationery, office supplies, photocopies, etc., purchased for work.
	• Continuing education, including expenses related to seminars attended for business purposes, registration fees, travel, lodging, and 50 percent of the cost of meals.
	• Lodging and living expenses on a business trip, including valet services and tips to doormen, bellhops, etc.
	• Half the cost of food and drink when on a business trip.
	• Gifts to business associates (up to $25 per person per year).
	• Cost of sprucing up or decorating office, including fresh flowers.
	• Half the cost of entertaining business associates.
	• Half the cost of entertaining business associates at home when business is the primary purpose of the gathering.
7.	Personal property taxes on cars and trucks when they are based on the fair market value of the vehicle.
8.	Additional amount of state taxes you pay at the beginning of a new year for the previous tax year is deductible in the year paid.

TIPS ON KEEPING INCOME TAX RECORDS

•	Keep anything related to your tax return, including receipts and canceled checks for deductible items, along with W-2 and 1099 forms for at least three years, the IRS’s statute of limitations on auditing most returns. Just to be safe, however, hold on to records for at least six years; the IRS has that amount of time to audit anyone it suspects of underreporting income by 25 percent or more. There is no statute of limitations on fraud.
•	Keep track of any money you spend on home improvements. This amount won’t be deductible on your annual income taxes, but it can reduce the taxable gain when your home is sold.
•	If you have a business at home, keep business expenses and records separate from personal expenses. If possible, have a credit card, checking account, and telephone line devoted exclusively to your business activities. If it isn’t possible to do so, and you use some items (such as your car, telephone line, or computer) for both purposes, faithfully keep a log of these expenses. The IRS has a fairly keen sense for expense journals that have been composed hastily the night before an audit.

 How to Buy Homeowner’s Insurance

You absolutely, positively cannot do without homeowner’s insurance if you own your own home. It covers you against most types of damage to your home and loss or theft of its contents. It also protects you financially if anyone is injured on your property. But how do you choose the right policy?

1.	Buy enough coverage. All mortgage lenders require homeowner’s coverage for at least the amount of the loan. But don’t assume that’s all you need. Your policy should cover 80 to 85 percent of the cost to rebuild or replace your home from the foundation up—which will be more than your mortgage or the resale value of your home. Ask your insurer or check with a contractor or professional appraiser to determine this amount.
2.	Balance risks and coverage cost. Standard policies do not cover earthquakes and floods. If you live in an area prone to either, look into the cost of adding this coverage. But be prepared to forgo it if the price of the policy and the size of the deductible make this coverage too expensive.
3.	Know what you’re not getting. Depending on the type of policy you choose, you will usually be covered for about a dozen risks, including fire and theft. But if you want broader coverage in case of damage due to burst pipes or defective wiring, you may need to spend more.
4.	Find out how the policy figures losses. Actual cash value may sound good, but it means, for example, that you’d receive replacement cost of your household goods—minus the value they’ve lost over the years you’ve owned them (depreciation). Loss of a television set you bought for $600 five years ago might bring you half the amount you paid—not quite enough to purchase the same item today. Replacement coverage, on the other hand, gives you the money you’d need to go out today and replace the items you lost, regardless of their value after depreciation. Replacement coverage typically costs 10 or 15 percent more than actual cash value, but you can offset the higher premium by taking a higher deductible.
5.	Consider special coverage. Standard policies limit coverage on certain rare or expensive personal belongings like antiques, jewelry, furs, and art. If you own any of these, talk to your agent about a separate policy (known as a floater) or an addition to your current policy (an endorsement or rider) to cover them specifically.
6.	Reduce your premium. Ask your insurance agent about discounts for homeowners who install deadbolt locks, smoke alarms, fire extinguishers, and security systems. You can also opt for a higher deductible (the amount out of your pocket before the insurance company pays on a claim) to reduce the premium. You may also be eligible for lower premiums by purchasing all your insurance policies (auto, homeowners, etc.) from the same company.

 How to Do a Home Inventory

No matter how carefully you select your homeowner’s insurance policy, you can’t collect money for items you fail to report stolen or damaged because you forgot about them. Taking a home inventory may not be the most enjoyable way to spend a day, but it’s the only sure way to know what you’ve got and to protect it.

1.	Photograph everything. Use a video or still camera to document your belongings. If you use a video camera, talk about each item as you go.
	• Shoot an overview of each room to show what’s in it.
	• Open every closet, cabinet, drawer, and cupboard and shoot close enough to show contents.
	• Don’t forget to photograph clothing and shoes, taking note of especially costly items.
	• Take close-ups of small valuable items to show detail.
	• Don’t forget to inventory attics, cellars, storerooms, and laundry hampers.
2.	Make a descriptive list. Pictures alone aren’t enough. Write a description of each item and include serial numbers and brand names.
3.	Save receipts for every item of value you purchase. Circle the price and date of purchase and keep the receipts with the inventory.
4.	Have special items appraised. Antiques, oriental rugs, art, stamp or coin collections, silverware, jewelry, furs, and other valuables should be appraised and carefully described. Photograph them so it’s clear they’re in your home (not at an antique store or in a museum!).
5.	Don’t overlook the humble items. It’s not necessary to write elaborate descriptions of each article you own, but if you lost everything, you’d want help remembering the cookie sheets, clocks, bookends, houseplants, and dog bed.
6.	Go outside. Don’t neglect outdoor improvements like decks and landscaping and items such as tool sheds, patio furniture, and gardening tools.
7.	Include seasonal items. If you make the inventory in the spring, search out your winter supplies and record snow shovels, snow blowers, winter clothing, and so forth.
8.	Keep the inventory safe. Now that you’ve gone to all this trouble, put copies of the inventory where they’ll be protected in the event of a fire or other calamity at your home. One copy with receipts, appraisals, descriptions, and photos should go in your safe deposit box. You might want to leave another copy with a close friend or relative, or ask your insurance agent if he’d be willing to store one for you.
9.	Keep inventory current. Whenever you purchase something new, clip the receipt to a photo and description of the item, and add these to the inventory in your safe deposit box the next time you’re at the bank.

One way to ease the burden of creating a home inventory is to make it a household project. If your children are old enough, consider assigning different rooms to each family member. Load up on disposable cameras, pads, and pens for everyone.