When thinking about sources of funding for your children’s college education, you may assume your family earns too much to qualify for federal grants, loans, and workstudy assistance. In fact, even families with higher incomes are frequently eligible to receive some form of financial aid from the government.

The U.S. Department of Education uses a formula for calculating financial aid eligibility that takes into account a range of factors in addition to income and assets, including family size and other financial obligations. When assessing a family’s ability to pay for college, the federal government treats only a small percentage of parents’ assets as potential contributions, while certain types of assets, including home equity and savings in IRAs and 401(k) plans, do not figure at all in the qualification formula.

Even if you expect to cover your child’s college costs through sources other than federal aid, it is usually worthwhile to complete the Free Application for Federal Student Aid (FAFSA). In addition to determining your family’s eligibility for federal assistance, the FAFSA is the primary qualifying form used by many college, state, local, and private financial assistance programs.

The first step in applying for financial aid is filling out the FAFSA, which is distributed and processed by Federal Student Aid, an office of the Department of Education. Hard copies of the FAFSA are often available at high school guidance offices, libraries, or post offices, or by calling the Federal Student Aid office. The simplest way to complete the FAFSA is by going to the office’s website, www.fafsa.ed.gov. Filling out the form online will alert you to mistakes or omissions; it can also speed up the processing time by one to two weeks.

Assuming you are a parent requesting aid for your dependent child’s education, the documents you will need to complete the FAFSA include your federal income tax return and W-2 forms from the previous year, current bank statements, records of untaxed income such as Social Security or veterans benefits, current business and investment mortgage information, and investment records. If you are divorced and are the child’s custodial parent, only information about your own household’s income and assets, including any child support and alimony, are required by the FAFSA. While some colleges take into account the financial resources of the non-custodial parent in determining the student’s need, the federal government does not.

When filling out the FAFSA, you may request that your financial information be sent to up to six colleges. If your child intends to start college in the fall, it is usually advisable to file the FAFSA as soon as possible after January 1 of that year, as deadlines for submitting FAFSA information may be early in the year for some colleges and state awards programs.

Within a few days to a month after it is filed, you should receive by post or e-mail a form known as the Student Aid Report (SAR). On the SAR, you will find the Expected Family Contribution (EFC), an estimate of the amount your family should be able to contribute toward the student’s college expenses for the year. The colleges you listed on the FAFSA will use this figure as a basis for determining the size and composition of any financial aid awards.

If need is demonstrated, the schools that admit your child as a student will prepare a financial aid package covering all or part of the difference between your family’s EFC and the cost of attending the college. Depending upon your family’s income and the resources of the institution, some colleges will offer more or less aid than the gap between the EFC and the actual cost of attending.

The type of federal aid your child receives is largely based on family income. Lower income students may be awarded grants that do not need to be repaid, such as the Pell Grant or the Federal Supplemental Educational Opportunity Grant (FSEOG), and assistance may be available in the form of a federal workstudy job.

Beyond these awards, students may be eligible for subsidized federal loans, such as the Perkins Loan or the Stafford Loan. These loans must be repaid by the student, but the government pays the interest while the student is in school and during grace and deferment periods.

In addition, your family may be offered an unsubsidized Stafford Loan, which must be repaid by the student, or a PLUS Loan, which is in the name of the parents. Interest accrues on these unsubsidized loans from the time the funds are disbursed, though payments may be deferred until after graduation.

When loans offered by federal programs prove insufficient to cover the actual costs of your student’s education, you can apply for a private education loan. These loans tend to have higher interest rates than government loans, but they are often less expensive than other debt sources. $

Automobile leasing is more popular than ever, but many people still hesitate to enter into a lease. This may be because there are so many factors to consider that it seems easier to buy. Under the right circumstances, leasing an auto can save you considerable money, and even taxes. No one can tell you which option is better without knowing your particular situation, but these factors may impact your decision.

When you lease an automobile, you only pay for the portion of it that you use, or the amount by which it depreciates. Many people hesitate because at the end of the lease, they don’t own anything. But that’s exactly why lease payments are lower than loan payments. You’re not buying the leftover value in the car—you’re buying only what you use.

A lease payment consists of a depreciation charge and a finance charge. The finance charge is much like the interest you would pay on a car loan. The depreciation charge is determined by dividing the value of the car that you use by the number of months in the lease. Without considering the tax effects, the short term cost of leasing compared to buying is about the same. This assumes that you sell your car after the loan is paid off for its full market value. But as you well know, this is often not the case, especially if the car is used as a trade in. If you are apt to keep your car for 10 years, then buying will always be your best option. What about the tax effects? Ultimately, the tax cost of leasing versus buying should be about the same. However, the timing of when you get the deductions can be greatly impacted by your decision.

Because you do not own a car you lease, you are not allowed to depreciate it. You can, however, deduct at least some of the cost of operating a car leased primarily for business purposes. Keep in mind that you are only allowed to deduct the business portion of the costs of a lease if the car is also used for personal purposes, such as commuting.

You have two options for figuring your deductible expense on a business vehicle that is leased for more than 30 days: the standard mileage rate allowance or actual expenses method. The standard mileage rate allowance is easier to calculate, but it may provide less tax relief than the actual expenses method if you do not drive a large number of miles or if your car is relatively expensive.

The standard mileage allowance is a cents per-mile allowance that takes the place of deductions for lease payments; vehicle registration fees; and the expenditures on gas, oil, insurance, maintenance, and repairs. The standard mileage allowance rate for business use of a car—leased or owned—is 50.5 cents a mile in 2008. To figure out your deduction, you simply multiply the rate by the number of miles driven.

The actual expenses method generally allows you to deduct all out-of-pocket expenses for operating your car for business, from lease payments to repair costs. If the car you have leased has fair market value in excess of the luxury vehicle threshold set by the IRS, your deduction is reduced by a so-called “inclusion amount,” which is added to your gross income. This additional sum brings your deduction roughly in line with the depreciation you would have been able to claim as the car’s owner.

Inclusion amount tables in IRS Publication 463 will help you determine the inclusion amount that applies in your case. Because the inclusion amounts increase from year to year in the course of a lease, you may want to consider taking out a lease with a term of no more than two years.

Any advance payments on the lease must be deducted over the entire lease period. If you take out a lease with an option to buy, you can deduct the payments if the arrangement is set up as a lease. If, however, the arrangement amounts to a purchase agreement, the payments are not deductible.

Despite the limits on deductions for luxury vehicles, the available tax breaks for business owners are generous enough to make leasing an attractive alternative to buying—especially if you want to change cars frequently. But before you sign on the dotted line for a business or personal lease, consider the potential pitfalls involved in leasing:

While law changes in recent years require dealers to disclose more information on leases, key information can be buried in the fine print or omitted completely, like the interest rate that you are being charged. Be sure you completely understand the terms before signing on the dotted line. Leasing your next automobile can make a lot of sense. It also can be a big mistake. Your tax professional can help you consider all factors and make the right choice.

Innovation. Perseverance. Accomplishment. Every business owner committed to success starts with an idea, works hard to make it happen, and believes in the potential for great things. That doesn’t make the journey easy, just possible!

As an entrepreneur, your responsibilities double, for you must manage the success of your business, as well as focus on your own personal wealth accumulation and preservation. Building financial freedom is an ongoing process begun in a business’s infancy and continued throughout its growth and maturity. Depending on the stage of your business, you will have different needs and priorities. For example, startups often must raise capital or secure financing, while owners of more established businesses may be focused on developing exit strategies and retirement. Let’s take a look at some of the important considerations and opportunities at the various life stages of your business.

While most young companies ride into existence on a wave of energy and enthusiasm, it is challenging to survive infancy. This phase of growth is usually the toughest to weather financially. Oftentimes, startup entrepreneurs funnel their own personal savings into the company and use their assets as collateral for loans. All this, and the business may not be generating profits. But this is the risk business owners take on, because success tastes so sweet. Like most of the uncomfortable phases we experience growing up, this too will pass, and most easily with a solid business plan.

A great complement to your business plan is a fine-tuned marketing strategy. In order to promote your company and generate business, you must make your product or services known. Then, when the money comes in, cash flow management becomes paramount. Even profitable businesses will flounder if they fail to have cash on hand to meet their financial obligations. If you need more incentive, know that wise cash flow management will be very attractive to potential lenders and investors. Success in these areas will help you achieve a measure of stability and get you on track for the next phase: growth.

With a growing client base, steady income, and profitability at hand, the successful business owner faces a whole new set of decisions. Should you offer new products and services? What role should investors play in the company? Do you need to hire more staff? What benefits are best? Don’t feel overwhelmed. All of these questions have answers, and the right choice for you will depend on your specific situation.

During these teenage years, it’s important to manage the ways in which you reinvest in your business capital with an eye on your own financial future. One area of concern is asset protection. Businesses often start out as sole proprietorships or partnerships, but it may be in your best interest from both a tax and liability perspective to consider structuring your business as an S corporation or a limited liability company (LLC).

In the early stages, benefits can be a significant cost burden, but they play an important role in your company’s success and your own financial security. In addition to providing you with the resources you need personally, attractive benefit plans will help you attract and retain qualified employees. Three areas to consider are health, retirement, and insurance.

Health insurance is a key benefit for both you and your employees. There are a number of different types of health insurance plans available, including Fee-for-Service Plans, Preferred Provider Organizations (PPOs), Point of Service (POS) Plans, and Health Maintenance Organizations (HMOs). A newer, cost-effective solution is the Health Savings Account (HSA), which allows employers and employees to set money aside on a tax-favored basis when coupled with a high-deductible health plan (HDHP).

Qualified retirement plans offer tax advantaged opportunities for both your business and participating employees. There are many options, including Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for employees (SIMPLEs), which are relatively cost effective and easy to administer; more flexible plans that allow you to save more annually are 401(k)s (variations include Safe Harbor and Solo-Ks), profit sharing plans, and defined benefit plans. To enhance benefits for key employees, consider nonqualified plans such as deferred compensation or executive bonus plans, which can help you selectively reward and retain your best and brightest.

As you accumulate wealth, protecting your earnings and way of life is paramount. Planning for life’s uncertainties with proper insurance coverage will help minimize your risk of loss. Life insurance offers financial protection for your family after your death, and disability income insurance provides income replacement should you suffer a catastrophic or chronic illness. If you are in your 40s or older, now may be the time to consider long-term care insurance, which can help pay for medical expenses should you need long-term care. In all three areas, group coverage is available for your employees.

If you have key employees or business partners, you should also weigh the benefits of key person life insurance and key person disability to protect your business. To cover business expenses such as salary or benefit costs while you or a partner is sidelined with a disability, consider business overhead expense insurance.

As your business matures, it may be time to shift your focus from wealth accumulation to wealth preservation. Two areas of focus are key: business succession and estate planning. With the appropriate strategies, you can minimize estate taxes and maximize the amount passed to your heirs.

A well-developed exit strategy can help you smoothly transfer or sell your company. If you wish to keep ownership and control of your business within your family, assess the interest and qualifications of interested parties and develop a transition plan. If you plan on selling your business, it is important to properly valuate your business and plan for the sale. With both scenarios, your strategies should help ensure your assets are sufficient to generate enough income for your retirement.

At every developmental stage, professional guidance can help you survive the growing pains and make the most of your opportunities. Be sure to consult your legal, tax, and financial professionals. $

If a mountain getaway or an ocean view has become your American dream, then perhaps you should know that a vacation home can offer some federal tax savings that may help pay for your hideaway. The tax laws differ depending on whether you use the home solely for enjoyment or mix business with pleasure by renting the property part-time.

As long as the combined debt secured by the vacation home and your principal residence does not exceed $1 million, you can deduct all of the interest paid on a mortgage used to buy a second home. This advantage is restricted to two homes. If you purchase a third, interest on that mortgage is not deductible. However, no matter how many homes you have, you may be able to deduct all the property tax you pay.

One break enjoyed by homeowners—the right to immediately deduct points paid on a mortgage—applies only to a principal residence. Points paid on a loan for a vacation home must be deducted gradually as you pay off the mortgage.

Your vacation home counts as a personal residence even if you rent it for up to 14 days a year. In that case, you get to retain the rent tax free and don’t jeopardize your mortgage interest and tax deductions. However, you may not deduct any rental-related expenses. If you rent out the house on a continual basis, things may become more complicated. Different rules apply depending on the breakdown between personal and rental use.

First, if you buy primarily for pleasure but rent for 15 days or more, the rent you receive is taxable. Because the house is still considered a personal residence, you get to deduct all the interest and property tax. You may also be able to deduct other rental-related expenses, including the cost of utilities, repairs, and insurance attributable to the time the house is rented. In some cases, you might even get to deduct depreciation. When the house is considered a personal residence, rental deductions cannot exceed the amount of rental income you report. In other words, your second home cannot produce a tax loss to shelter other income. In most cases, the interest and taxes assigned to the rental use of the house, plus the operating expenses, more than offset rental income, limiting your ability to write off depreciation.

Now consider your tax situation if you buy a property primarily as an investment and limit your personal use of the property to 14 days a year (or 10% of the number of rental days if that allows you more than 14). Because the house is a rental property in the eyes of the Internal Revenue Service (IRS), your deductions can exceed the amount of rental income you receive.

If your rental income does not cover the cost of renting the house, you may be able to claim a taxable loss. Rental losses are classified as passive and can be deducted only against passive income such as another rental property that realizes a gain. If you do not have passive income to shelter, the losses have no immediate value (unused losses can be used in future years when you have passive income).

There’s an exception to this rule, however, that permits taxpayers with adjusted gross income (AGI) under $100,000 to deduct up to $25,000 of passive losses against other kinds of income including salaries. To qualify, you have to actively manage the property. The $25,000 allowance is gradually phased out as AGI rises between $100,000 and $150,000.

When your vacation home is considered a rental property, the mortgage interest attributable to the time the premises are rented is a business deduction. The rest, though, cannot be deducted as home mortgage interest since the house doesn’t qualify as a personal residence.

The tax laws discussed here also apply to homes other than houses, such as apartments, condominiums, mobile homes, or boats with basic living accommodations. Generally, these include a sleeping space, bathroom, and cooking facilities. Hotels, motels, and inns are treated differently. For more information, contact your tax professional.

Although you may not own a castle, do you know which of your “treasures” will be included in your estate? Federal estate taxes can take a large chunk out of the assets you hope to leave your heirs—as much as 45% in some cases. Federal estate taxes will generally be due if the sum of your net taxable estate at your death exceeds your individual estate tax exemption ($2,000,000 in 2008). While the federal estate tax will have a one-year reprieve in 2010, it will be reinstated on January 1, 2011 with higher tax rates and a lower exemption, unless Congress acts to the contrary.

Regulations relating to the taxation of property owned at death contain a catch-all definition stating that the “gross estate of a decedent who was a citizen or resident of the United States at the time of his death includes the value of all property—whether real or personal, tangible or intangible, and wherever situated— beneficially owned by the decedent at the time of his death.” What does this mean? The first step in understanding the potential implications of the federal estate tax is to understand some of the major items that may comprise your estate:

Most people who have looked into the matter are aware that their personal property, savings, real estate, and retirement plans, as well as the proceeds of any life insurance policies they own, are included in their estates.

What may be less well known is that rights to future income, such as rights to payments under a deferred compensation agreement or partnership income continuation plan, may be includable in your estate. These rights are commonly referred to as “income in respect of a decedent (IRD)” and may be includable at their present commuted value.

Likewise, interests in any business you own at death, whether as a proprietor, a partner, or a corporate shareholder, may be includable in your gross estate.

The value of Social Security survivor benefits received as either a lump sum or a monthly annuity is not includable in your gross estate.

Estate planning can help minimize estate taxes and maximize the amount you transfer to your heirs. It is important to accurately inventory your estate to project your potential liabilities and then to perform periodic reviews to make sure your plan is up to date. By developing strategies early on, you can make the most of your tax-saving opportunities and help ensure that your beneficiaries receive your assets according to your wishes.

Identity theft—using another person’s personal information to commit unlawful activity—has become a crime epidemic in recent years. The Federal Trade Commission (FTC, 2007) reported that their complaint database, Consumer Sentinel, received over 670,000 complaints of fraud and ID theft in 2006. Identity theft can be emotionally and financially devastating. If you fall victim, it could cost you thousands of dollars out of pocket to rectify any damage caused by this crime.

Before you become a victim, consider the following steps you can take to help keep your good name—and good credit—protected:

Even after taking precautions, you may still be susceptible to this damaging crime. If you have become the victim of identity theft, here are some ways you can help ensure the process of clearing your name moves smoothly:

Depending on the type of fraud that has been committed, you may need to take some additional steps. For example, if your Social Security number was used under false pretenses, contact your local Social Security office. Or, if an identity thief created a cellular phone account with your billing information, contact the Federal Communications Commission (FCC).

Educating yourself on how to avoid becoming a victim and how to react should you become a victim of identity theft are the first steps in the battle to stop this crime. Visit the Federal Trade Commission online at www.ftc.gov to learn more about identity theft and ways to protect yourself. $