Taxes

Hi There!  I'm glad you're still here.  It seems like forever since I sat down to post.  We had a little boy's birthday party that consumed some time last week and sports have started.  We have 2 playing soccer and 1 playing tee-ball.  Need I say more?? :)

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I "met" a new girlfriend this past week via FB.  How did that happen, you wonder?  Well, we both belong to a military spouse group of financial counselors and we were sharing information.  She has a great financial resource blog at http://kaffenate.com/  She even has a fancy-schmancy logo that I am coveting.  Sorry, I digress.  She posted a great tip on saving money with online ordering and coupons and I saved some money too.

We actually had almost the same scenario.  Both of our kids wear Crocs.  (the beauty of homeschooling is that my kids can wear Crocs ALL the time hehehe)  She needed to replace the rivets in her son's shoes and I needed to do it for one of the girls.  The rivets are only .99 online, but there was shipping involved.  She posted a fantastic website RetailMeKnot that led me to coupons and discounts and FREE shipping.  Love it!



Another tidbit I learned was to sign up for an account before purchasing anything and Crocs will send a 20% coupon to your email. I used that on a new pair of Crocs for the little guy.  Free shipping and a discount!!  Woo-Hoo!!  Thanks Kristiann!

Got a savings tidbit you want to share, please post in the comments. I would love to hear from you.

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Tax season is upon us and we have less than a month to either file our taxes or an extension. Remember that an extension is only for the filing of taxes not an extension on paying your taxes.  If you owe taxes you still need to pay them on time or risk repercussions from the IRS in the form of penalties.

I was going to write about your personal taxes and small business taxes, but one of my girlfriends (okay "she" is actually a "he") forwarded me this article he found on CNN.  http://edition.cnn.com/2012/03/20/us/tax-refund-scam/index.html?hpt=hp_c1

This is about one of the latest tax refund scams out there.  Essentially the thieves steal  your social security number (or buy it from an insider) from businesses that require you to provide it for services.  The thieves then file a bogus tax return in your name and have the refund deposited onto a debit card they purchased.

How can they do this without your W-2 you ask?  Well, they fake one and the IRS doesn't catch on until after refund is issued because they don't verify information until after the fact.  Nice, huh?

There are a few things you can do to try to protect yourself:

1. call the IRS at 1-800-829-1040 to find out if a return has been filed in your name
2. file your taxes early
3. and start saying NO to giving out your social security number

I know, I sound naive about #3, but I have started saying No and at the very least I insist on knowing WHY?  What does my social security number have to do with a visit to the veterinarian?  Seriously.  And WE collectively, as a society, just give information whenever it is asked for.  It is okay to say NO.  We were fed that information in the 80s...Just Say NO!  hehehe 

In all seriousness, if you have to give out that kind of information then be vigilant about monitoring your credit report.  Clearly this particular tax refund scam isn't about your credit information.  

I think the thing that chaps my hide about identity theft is the insult to injury a victim endures by having to prove they are innocent.  WTH??  I have been very, very fortunate not to have ever been a victim so far, but the horror stories of past clients have been sobering.

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On another note, my Lenten challenge is still going strong.  The first couple of weeks were difficult, but now I have my "groove" on and am not feeling too bad about not shopping.  Anyone else want to share if they are following along?

All about 529 plans

I have a good friend who knows I don't fund college savings, but is in need of more information on 529 plans so this blog is for her.

As I just mentioned 529 plans are designed for college savings.  They even have a legal name (who knew?).  They are "qualified tuition plans" (QTP) according to the U.S Securities and Exchange Commission.  They get their name because they are authorized by Section 529 of the IRS code.  Good to know information in case I am playing Jeopardy someday.

An account holder opens a 529 plan and designates a beneficiary.  For example Mom & Dad open a 529 account for Junior.  Junior is the beneficiary.  Mom & Dad hope that this funding will pay for college expenses.   Junior can use this 529 plan in any state at any accredited institution.  That may not be the case with the states' prepaid tuition plan, which is different than a 529 plan.  Grandparents can even open an account for Junior and contribute.

One of the beautiful things about 529 plans is that the money belongs to the account holder.  They can re-designate the money to a new beneficiary whenever they choose.  For example, Junior has decided to take some time to "find himself" before beginning his college journey.  The account holder can then designate the money to Janie, Junior's sister.

Or let say you get lucky and your kids get full ride scholarships, decide not to go to college, enlist in the military, or join the seminary or convent, then the account holder can use that money for their own higher education.  If the money is NOT used for higher education then it is taxed and the account holder gets hit with a 10% penalty.  This is the part of the 529 plan that I don't like.

You can have 529 plans in different states also. There is no restriction.  You can live in Maine and open up an account in New Mexico and your beneficiary goes to college in Florida.  And anyone can contribute to a 529 plan.  The amount contributed is not deductible on your federal return but some states may allow for deductions for contributions.

• According to the IRS:  "Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified higher education expenses of the beneficiary."

529 plans grow tax-free as long as the money is used for qualified higher education costs, which include tuition, room, board, fees, books, and supplies.

Here is an example I borrowed from SavingForCollege.com of what will happen when it comes time to fill out the FAFSA (Free Application for Federal Student Aid):

Here is a simplified example of how this all works:

You file the FAFSA aid application when your child is a senior in high school. Let's say you have a 529 savings account with $20,000 in it, of which $10,000 represents your original contribution and $10,000 is earnings.

Year 1: Your child's eligibility for federal financial aid this year will decrease by no more than 5.64% of the account value, or $1,128 ($20,000 x 5.64%). Assume there is no further appreciation in the account and you withdraw $5,000 in the fall to pay for the first semester college bills.

Year 2: You have $15,000 left in the account when your child applies for aid for sophomore year, and it will again be assessed up to 5.64% of the account value or $846 ($15,000 x 5.64%). The $5,000 withdrawal brought $2,500 of excluded earnings with it, but as indicated above, none of the withdrawal is counted as financial aid income.

The federal aid formula is more complicated than what is described here, but this gives you a general idea of how to calculate impact.

Be Prepared!

Sound complicated? It is. And we are only talking about the federal financial aid rules here -- each school can (and most will) set its own rules when handing out its own need-based scholarships, and many schools are starting to adjust awards when they discover 529 accounts in the family. Also consider that the federal financial aid rules are subject to frequent change. Finally, remember that most financial aid comes in the form of loans, not grants, and so you end up paying it back anyway.

Sometimes I feel like we are penalized for doing the right thing by saving for college.  That is one of the reasons we are not interested any longer. We have done this before with our oldest.  She never qualified for even a subsidized student loan because of the income and the savings.  

• A subsidized student loan is when you aren't charged interest while you are in school at least at least half time.
• A subsidized student loan means the clock starts ticking for interest accrual when payment is made to the school.

I hope this has helped a bit.  The request was vague on 529 plans, but if there is something more indepth that is needed leave me a comment and I will do my best to accommodate.

I have my "own" money...now what?

I have a girlfriend who is embarking on a new and exciting business.  She is starting to make money and asked my opinion on what to do with it.  She isn't interested in adding it to the household budget at the moment because she doesn't want to become dependent on it and she isn't interested in adding it to their regular savings.  My suggestion would be to open up a separate savings account for it.

The other thing to think about when starting a small business is keeping your personal and business accounts separate.  It is much easier to track income and expenses when you have a separate account.  And it simplifies life at tax time.  Start a file with all work related items tossed in there.  Be sure to have invoices tracking the sales and income.  Now this doesn't have to be complicated.  As you get busier then you can add a computer program to track all money transactions, print invoices, and other reports.  In the beginning Keep It Simple.  As you move along in this fashion you will find what you need the most help with and then can decide on the software that meets that need.

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I can truly appreciate not wanting to depend on the income from a new venture.  We never depend on my income in our daily lives.  That is our "fun" money.  We don't depend on my income for a few reasons.  One of them is that we move frequently so my income becomes fleeting.  And another is if push came to shove and one of us HAD to stay home to care for the kids or an ailing parent some day then we could make that decision easier.

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Here's an update on my Lenten challenge...as of today we have "saved" almost $400.  I am calculating that based on the credit card statement ending balance last month and the one this month.  We are pretty happy with the results so far.  Even the littles are getting in on the challenge.  As we drove by Mellow Mushroom today, one of them mentioned that we haven't been there lately.  The other responded that it is non-essential spending LOL  Then she proceeded to critique my spending lately...even funnier!

What should I do about derogatory information on my credit report?

One of my trade-mentors posted a video on his FB page from TED.  It was a very inspirational video by Shawn Achor called The happy secret to better work.  It is 12 mins long but well worth your time.

As I was perusing the site to find out more about TED I came across a video that ALL my girlfriends need to watch.  It is about saving.  It is about starting small and starting tomorrow.  This is a concept that I have discussed time and again with some of you....take a piece of that pay increase every year and start savings.  If you start with just 3% of your salary in year one, then in 4 years you will be over 12%.  And here is the best part, you won't have to take from your current standard of living.  So you CAN save and increase the savings.  Here's the link:  Saving more tomorrow.  It is a 17 min video.  You will get a lot out of it.

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Here's another question from one of my girlfriends:  I have some derogatory information on my credit report and heard that it can be removed.  Is that true?


The answer is Yes, But.  If there is information on your credit report that is not yours then you have the right to contact the credit reporting agency asking them to correct the information.  We, consumers,  are protected by the federal Fair Credit Reporting Act (FCRA) which "promotes the accuracy and privacy of information in the files of the nation’s credit reporting companies."  (quoted from www.ftc.gov)


The 1st thing you need to do is put in writing the information you believe is inaccurate.  Include copies of any documentation that would further strengthen your position.  Be sure to send the letter return receipt to confirm that it was received.  The credit reporting agency has 30 days to investigate your claim.  If there is no response or the company can't prove the information isn't accurate then the credit reporting agency MUST remove the derogatory information from your report.  On the other hand, if the information is disputed by the company, the information will stay on your report for 7 years from the time it was reported as derogatory (when a company starts their "aging" clock will vary so this is an estimation).  The further away from the original date the less the derogatory information will affect your report.


Here is a link to a sample letter on the FTC website:  Sample Letter


As I just mentioned, derogatory information will fall off your report after 7 years, but that doesn't mean it will necessarily "go away."  If that information is believed valid by the original creditor and it is an outstanding bill, it will have probably have been sent to a collection agency.  The collection agency will have paid a small fee for your outstanding debt to the originial creditor.  For example you owed XYZ $1000.  You defaulted on said debt in 2002.  XYZ finally got tired of calling you and sold the debt to ABC Collections for $200.  ABC Collections will attempt to collect the $1000 but will negotiate with you.  


There is a statute of limitations on collecting debt and it varies by state.  Here's a good map Statutes of Limitations by State.  As a caution, though, debt collectors can still attempt to collect "time-barred debts."  It is up to the consumer to be vigilant.  If a debt collector calls and you know the statute of limitations has run out do NOT have a discussion acknowledging said debt.  This will RESTART the clock.  Yep, that is right, the old debt will have a new date.  This is called "re-aging."  Should you be contacted by a debt collector always ask for them to send you information in writing.  This will give you time to research the debt and the statute of limitations.


The other very salient point I must make is OPEN YOUR MAIL!!  All of it.  Read it.  Don't bury it because it is bad news.  You can be sued by a creditor and your ignorance of said lawsuit is no excuse.


Back to our example... You live in Indiana.  It is now 2005 and ABC Collections is calling.  They have the right to continue to attempt to collect the debt.  You have the right to ask them to send you more information on the debt and/or stop contacting you.  They may even sue you.  It is their right.  Let's say they do nothing and 4 years go by.  Since it is 7 years since the debt was reported as derogatory it has past it's statute of limitations in Indiana.  


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Things happen in life.  Having poor credit is not the end of the world and it can be fixed.  Trust me on this. I had horrible credit 20 years ago.  I was sued and had a judgement against me.  With vigilance I was able to pull myself out of that mess.  I am determined to never be in that position again.  The worst part of poor credit, to me, was the shame that goes along with it.  And yes, poor credit will affect your ability to get a job, an apartment, a mortgage loan, etc.  It is truly in your best interest to know what is on your report.  I know I put this in a previous post, but it is worth noting again Annual Credit Report is the best link to access the 3 credit reporting agencies.  


Good luck!

Pay off debt with mutual fund?

I am honored that so many of you having been reading my ramblings.  I am even more honored when you contact me with questions for advice or just in general on a topic.  I am going to start including some of the questions minus any identifying information.  The questions range from basic debt questions to more complex insurance concerns.  And yes, I will get to 529s...you know who you are hehehehe  I just want to make sure I am a bit more up to date on any changes.

So the one question I had recently concerned paying off debt with a mutual fund.  Should this couple take their underperforming mutual fund and pay off a car payment and some credit card debt.  This would free up between $400-$500 per month.  I had to think about this for a bit.  I am not Suze Orman, afterall.  I asked some more questions...how long on the car payment?  What are the plans for the "freed" up dollars.

Here was my response:  Sorry it has taken me so long to get back to you. I think I would keep the mutual fund. If you need the extra cash then stop funding it and take the extra $100 and put it to the CC debt.

Here's why: The mutual fund was bought by with dollar cost averaging...you bought high and low. I wouldn't want you to "lose" money by selling when it is low.

The other reason is that the truck payment is already budgeted in. Yeah, I know things are tight with the credit card payment, but this is temporary. If you sell the mutual fund then you don't have that money for a true emergency. This period of time is uncomfortable, not an emergency. Plus, I am unclear as to what you would do with all the "extra" monthly cash. 

A couple of things I want to point out...first, this is just MY opinion, second, someone else may have a totally different opinion and that is okay.  

I think the thing I got from this question was how uncomfortable this girlfriend was with her debt level.  I can appreciate that.  If this was a true emergency, medical bills, no job, heading to bankruptcy, etc. I might have answered differently.  Instead this was just about a "comfort" level and emotions can be managed.

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I have a Lenten challenge update....it is going great!!  Seriously.  I am so happy that I will not have to "borrow" money from our savings to pay the credit card bill.  Paying the credit card bill off every month is non-negotiable for us.  We implemented that rule years ago and no matter how painful it is we accomplish it.  And yes, we use a credit card.  Our credit card gives us points.  We can either "buy" things with our rewards or we can have Bank of America cut us a check when we earn a certain number of points.  We like getting the cash.

Which leads me to interest rates on credit cards...do you know what yours is/are?  And if you pay off your credit card every month, does it matter?  I think our BoA credit card is 9.99%, but I don't know.  It doesn't matter to me since I don't pay interest.  We received something from Lowe's the other day regarding policy changes and I was floored to see the interest rate over 24%.  Holy Hannah!!  I can't remember the last time we used that card.  If we ever use it in the future it will be for a 0% deal.  We only do that if we know we can pay it off when the date arrives.  That is another non-negotiable.

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Now I must tell you, I do NOT sit in judgement of my girlfriends when they spend money.  Truly.  It is your money.  Please do not be uncomfortable around me and money.  I am hardly perfect.  I love to peruse the $1 bin at Target as much as the next girl...just not this Lenten season LOL.  I am happy though that this blog has gotten so many of you more in tune to your finances.  I love the conversation.  I could talk money and finances all day, but that would bore you all so this is a perfect venue.

I do have a favor though...I need comments on here.  Someday I would like to make money off this (of course....duh!).  Not from you all, per se, but from putting ads on here.  I am not there yet, but having "comment" traffic would help so "comment" away!  Thanks!