February 2010 - Posts - Dollar Stretcher Guest Bloggers
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February 2010 - Posts

  • Let’s Talk Taxes

    contributed by A New Horizon Credit Counseling Services

    With tax time here, now is the time to consider how you want to claim: the standard deduction or file an itemized income tax return. Why should you do this? It’s simple. Often overlooked deductions can make a huge difference in lowering your tax bill if you decide to itemize.

    The standard deductions are fine for those who have an uncomplicated tax situation. But the amount of your mortgage interest payments, state taxes, property taxes, charitable contributions and hurricane losses, if any, could be more than the standard deduction that is given. What does this mean? If you do not itemize, you may not save as much as you are entitled to. With this in mind, you should take a look over the following list of often missed credits and reductions before you start the process of completing your 2009 tax return:

    1. Education Expenses: There are many education related deductions and credits available to you if you are making tuition payments, paying off your college degree or student loan interest, or just saving for your child’s education. You then owe it to yourself to check out the explanation of education tax benefits available on the IRS website at www.irs.gov

    2. Deductions for Home Office:  Are you self employed? Is your home office your principal place of work? Is your gross income more than your related deductions? You should then be able to claim this deduction. Are you employed by a company? If so you can deduct the home office only if it is for your employer’s convenience. You must also pass the “exclusive use” rule to qualify for deducting a portion of your home’s expenses, including mortgage interest, real estate taxes or rent, utilities, property maintenance (mowing, snow removal) or even repairs. Caution, this is a RED HOT issue for the IRS so be certain you pass the “exclusive use rule." If you don’t have an office in your home, you may still deduct your mortgage interest and real estate taxes on both your main residence and any second home.

    3. Deductions for Charity: You can deduct all that you have given to charity, especially if you have given cash gifts, or in-kind donations of clothing, toiletries, food or appliances that you can then deduct at fair market value. You should go through your receipts and your credit card statements to make sure you don’t forget all that you have given. Only donations to 501 (c)3 organizations qualify. If you donate items other than cash and the amount is over $500, you must have a receipt from the organization who received your donation. Also remember that the IRS will want to see proof of cash donations, such as checks, stubs or statements from the charity.

    4. Miscellaneous Expenses: Did you know that gambling losses, job search expenses, safe deposit fees, subscription to investment publications and even tax return preparation expenses could be claimed as tax deductions? Also, unreimbursed business expenses may be eligible to be claimed as a deduction. Your total miscellaneous expenses, however, must exceed 2% of your adjusted gross income to qualify.

    5. Don't pay in cash: Cash may be convenient but it's also practically guaranteed to be forgotten come tax time, unless you're one of those folks who's great at writing down every single purchase. In some cases, if you do not get a receipt when you pay in cash, you will be unable to make a deduction. When you can, write out a check or use your debit card so you can prove the purchases for the doctor visit, charitable donations and business expenses; the IRS considers a canceled check or credit card/debit card receipt to be appropriate for purposes of record-keeping. 

    6. Other itemized deductions: Florida doesn’t have an income tax, so for the year 2009 Form 1040, you may deduct sales taxes you pay. You can either use your actual sales taxes paid or use the IRS table. If you don’t itemize, and use the IRS table, then you can also deduct the sales tax you paid on big ticket items, such as cars, furniture, and household items like a new kitchen. Also, if you are a teacher, you may deduct up $250 for any school supplies you purchase. This year the energy tax credit has been extended, so if you purchased a new water heater, air conditioner, solar device or impact windows, you might be entitled to a $1500 tax credit.

    7. Capital Losses: With the market downturn in 2009, you can deduct up to $3000 in net losses on investments. Any losses in excess of that may be carried over to 2010.

    8. Earned Income Credit: Those taxpayers whose income is below a certain level and who have dependents may also qualify for additional tax credits. If the credit results in a refund, the IRS will mail it to you.

    9. Education and Child Care Credits:  Depending on your circumstances, you may be eligible for tuition payments for your dependents’ college expenses. For those of you who have children in daycare, there is also a credit for the amount you pay to your daycare provider. You must have a receipt from the provider listing their name, address, amount you paid and their Tax Identification Number.

    10. Medical Deductions:  Be sure to include your payments for medical insurance if you receive Medicare. You may also be able to deduct medical insurance premiums, co-pays, other out-of-pocket expenses, hospital, doctor, dentists and any other medical visits. Remember that there is a 7 ½% take away before you can itemize.

    11. LASTLY: Be sure to include all of your W2s, Form 1099s and any other documents which report income to you, such as bank or brokerage statements.

    Tax Deduction Checklist

    The best tax deductions checklists are found in three places:

    1. Your past years' tax returns
    2. With your tax professional
    3. Through an online tax website

    The IRS website provides plenty of useful information on tax filing, which could end up saving you a lot of money on this year’s tax return. Take a few minutes to go over all the information you have on taxes so you can save yourself the most in the end.

    CHOOSE YOUR TAX FILING METHOD! You may wish to hire a tax professional if you have had any major changes to your income such as an inheritance, lottery winnings, an investment windfall, or the like, or simply feel overwhelmed at the thought of the task. On the other hand, if your goal is to prepare your own tax return, there are great software programs for help with tax preparation, such as TurboTax, Quicken, or TaxAct. These programs are inexpensive and will walk you through your tax return with a series of questions that make it a relatively painless process.

    INFORMATION PROVIDED ABOVE MAY NOT BE OF USE TO YOU AND THEREFORE YOU SHOULD CONSULT A TAX PROFESSIONAL CONCERNING YOUR ELIGIBILTY TO USE A DEDUCTION.  EVERY PERSON’S SITUATION IS UNIQUE.

    A New Horizon has been providing Credit Counseling Services since 1978 including Debt Management and Financial Literacy  Celebrating over 14 years as A Non-profit Organization  ISO-9001:2000 Certified  Operating Nationwide & in Puerto Rico  Headquartered in Ft. Lauderdale, Florida.

    Stuart Lieberman, Internet Marketing Account Manager slieberman@anewhorizon.org  954.545.6160 Ext.1126

     
  • Major Changes Ahead for Student Credit Cards

    by Bill Hardekopf

    The Credit CARD Act will take effect on Feb 22 and one of the major provisions is the restriction on marketing credit cards to young adults under 21.

    Right now, it is easier for a college student to get a credit card than to get up for class. College students use credit cards to pay for everything, just like their parents. Once this new law takes effect, many college students will have difficulty getting a credit card.

    Beginning February 22, issuers are not able to offer free merchandise to lure students to sign up for a credit card on college campuses, at college sponsored events (like sporting events) or within 1,000 feet of the campus. In addition, the CARD Act bans credit cards to people under 21 unless there is an adult co-signer or the young adult can show proof they have the income to pay the debt.

    The regulations leave "sufficient income" open to interpretation. Some issuers will just want to know that your monthly income is more than your minimum payment due. However, students need to assess their own situation. If you are struggling to pay for your own food, housing, transportation and education bills, you can't afford to carry a balance on a credit card.

    Credit lines will also start out low. If there is no co-signer, credit lines will be $500 or 20 percent of the student's annual income. If the student has more than one card, the credit line from all credit cards will be up to 30 percent of the annual income.

    College is a good time for students to learn how to correctly use credit cards and build up their credit score. However, many students are unprepared for the responsibility.

    A 2009 Sallie Mae study showed that college students used credit cards more than ever before. 84% of college students have at least one credit card, up from 76% in 2004. The average amount of debt carried by college cardholders is $3,173, which represents a 46% increase over the 2004 figure of $2,169. The average student has 4.6 credit cards.

    Only 17% of college students pay off their entire balance each month and 1% had parents or other family members paying the whole balance. The remaining 82% carried balances and paid finance charges each month.

    Parents must educate their students about using a credit card. One-third of students rarely or never discussed credit card use with parents, and nearly all undergraduates would like more information on financial management topics.

    Parents can make the co-signing for a credit card a very teachable moment. Tell your student how to deal with credit cards and the pitfalls that exist. Explain how to read the monthly bill and how important it is to pay the balance in full at the end of each month. Give them real-life examples of the credit card mistakes you have made so they can avoid making the same mistakes.

    Options for Credit for College Students

    1. Co-Sign.

    The student can apply for a card with an adult co-signer. If the student is unable to pay off the account, the credit card issuer will demand that you pay off that debt in full.

    The loan will be reported on the student's credit report. If it is paid on time and more than the minimum, it will help increase credit scores. However, adding your name to someone else's debt is a very serious financial step because this mixes your credit record to your child's. If either the student or parent defaults, mistakes become community property and everyone suffers because the co-signer has committed to make good on this account. Delinquencies will show up on both credit reports. The only way to get your name off of the loan is to pay off the loan.

    As a cosigner, your liability for the loan may keep you from getting other credit because creditors will consider the cosigned loan as one of your obligations.

    2. Authorized User

    This is almost like an apprenticeship to teach your student how to use a credit card. You give your student authorized permission to use your credit card by adding him/her to the account. The student can receive and use a card with his/her name on it without being legally responsible for repaying the credit card balance.

    The account is considered the same for credit scoring as if it were owned by the authorized user. If you have a good credit score, your student will benefit from that. However, if you have a couple of late payments or get into trouble, this will also affect the authorized user. Authorized users can be removed with a letter or phone call to your issuer.

    3. Open a Checking Account with a Debit Card.

    A checking account with a debit card is a good first step toward learning how to manage credit. While debit cards have their own fees and downfalls, college students can get into far less trouble paying a $30 overdraft fee than running up a significant credit card balance and it does not pull down your credit score.

    4. Prepaid Cards

    Opening a prepaid card may be the easiest option for students, but their fees are higher. Make sure the card reports payment activity to credit bureaus (many secured and prepaid cards do not). AccountNow prepaid Visa reports to all three agencies. The processing fee is $19.95, the monthly fee is $4.95 and there is a $0.50 transaction fee per transaction.

    Prohibiting promotional offers and marketing on campus will be help reduce impulse applications. If your student is qualified to apply for a credit card, help them research credit card offers to find the best card with the lowest rate. Use the Terms and Conditions to compare cards and to explain the fine print.

    Bill Hardekopf is CEO of LowCards.com, a site dedicated to simplifying the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

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