Money Crashers » Taxes

Look For The Make Work Pay Tax Credit In Your Paychecks

Erik Folgate — Sat, 04 Apr 2009 22:51:52 +0000

President Obama asked employers to start making adjustments to federal withholdings starting April 1st for the Make Work Pay Tax Credit. This was a stimulus-based tax credit that passed in the recent economic stimulus legislation passed in February. Last year’s stimulus plan sent lump-sum checks to individuals and couples with the hopes of these individuals putting the money back into the economy. This year’s plan will systematically distribute the tax credit in your paychecks.

Who Is Eligible?

Basically, anyone who has earned income. If you make less than $75,000 as a single filer or $150,000 as a married couple, you will receive the full amount. After that, there is a sliding scale of how much of the credit you will receive. The earned income amounts are based on your modified adjusted gross income, which is basically the same as your adjusted gross income. It adds back in income earned in foreign countries, Puerto Rico, or American Somoa.

If you are a very low income earner that does not qualify to pay any federal taxes, the credit is refundable, which means you would get the lump sum at the time you filed your 2009 taxes.

How Much Will I Receive?

It all depends on your marital status, how much you make, and the number of exemptions you claim on your W-4 form. Typically, individuals will get an extra $10 to $15 per week, and married couples who file jointly will see an extra $15 to $20 per paycheck. Single filers will receive up to $400 per year for the rest of 2009 and part of 2010, and married and filing jointly couples will receive up to $800.

Who Is Not Eligible?

Anyone who is claimed as a dependent on someone elses tax return is not eligible for the credit. Also, adults that received social security or veteran’s affairs benefits are not eligible for the benefits, but instead, you will receive a one-time $250 payment by sometime in late June of this year.

How Does Is It Work?

It modifies the tax withholdings tables, so employers will take less from your federal tax withholdings out of your paycheck. Again, low income earners who don’t have federal withholdings taken from their paychecks can claim the entire credit on their 2009 taxes when they file them in early 2010.

What Should I Watch Out For?

An article on Yahoo Finance courtesy of CNN Money has a good list of things to look out for:

The IRS has a calculator online that you can use to figure out how many allowances you should take if you’re eligible to receive the credit and don’t want to be overpaid — or to put it another way, don’t want to have too little tax withheld.

Those most likely to be overpaid are:

Anyone who holds more than one job. You will get paid the Making Work Pay Credit twice, up to $400 ($800 for a joint filer) from your first employer and up to $400 ($800 for a joint filer) from your second employer.

Joint filers whose spouses work. Each spouse will end up being paid the credit for married couples by each of their employers.

There’s a twist, too. Because of the way the withholding tables were set up, each working spouse may be paid up to $600 this year — instead of up to the $800, Mezistrano said.

In other words, the husband would receive $600 at his job and the wife $600 at her job, for a total of $1,200. Since they’re only entitled to $800 total as a couple, that means they would have to pay $400 back to the IRS — or see their refund reduced by that amount.

Anyone who receives income from a rental property or investment, such as interest and dividends. Your employer only knows about the income you earn at the company. If you receive other income that increases your modified adjusted gross income — or even pushes you past the income limits for the credit — you may end up owing the IRS some or all of the credit you received in your paycheck.

Anyone who started receiving their credit at the end of Febuary or anytime in March. The withholding tables are structured so that payments starting in April will add up to $400 for single filers and $800 for joint filers by year end. If payments start sooner than that a tax filer may actually receive a bit more than he’s due by Dec. 31.

Conversely, if your employer doesn’t start your payments until the end of April or in May — there’s no penalty if an employer doesn’t meet the April 1 deadline — you may end up getting a little less of a credit than you’re entitled to, in which case you can claim the rest when you file your 2009 tax return.

As many of you know, I am not a big fan of these “economic stimulus” plans. I don’t believe in spending our way out of a recession. If the government would start spending less money than they take in, the economy would be better off in the long-run. The biggest problem is that the government is spending someone else’s money, OUR money. It’s not coming out of their own pockets, so they don’t mind spending more and more money in an effort to restore the economy. Personally, if they are going to hand out money, I would rather receive it in a lump sum like we did last year. Then, I have more control over the money, and I can allocate it as I see fit. I doubt that I will notice an extra $50 spread out over two paychecks per month.

Will this extra money help you?
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Look For The Make Work Pay Tax Credit In Your Paychecks is a post from: Money Crashers

Organize Your Savings With The ING Direct Orange Savings Account

Erik Folgate — Thu, 02 Apr 2009 00:12:53 +0000

Many other bloggers have written about how to set up sub-savings accounts with ING Direct’s Orange savings account, so I won’t go into a huge tutorial about how to do it. Recently, I decided it would be a good idea for us to start categorizing our short-term savings. Lately, we have simply thrown money into the account, and used it for whatever short-term savings goals we had. However, I know there were some times that we used it for things that we didn’t plan on using it for a few months prior. ING Direct has a cool feature in their Orange savings accounts. You can set up as many sub savings accounts as you want. Here’s a quick run-down on how to do it:

How To Set Up Sub Savings Accounts With ING Direct Orange savings account

Log in to your account.
Click on the “open an account” link at the left hand side of the screen.
Click on the drop-down box and click on the orange savings account. You can choose whether or not to make it a single or joint account depending on if you are married or not.
Choose the funding source to be either your checking account or your main savings account. Then, choose the nick name for your account. Choose a name related to your savings goal such as “New Car” or “Vacation Fund”.
Agree to the terms of service for the account, and you are done!

A lot of people get confused about opening sub accounts, because intuitively, it feels like you are opening up a whole new savings account. Since you already have a savings account, you can open up limitless amounts of sub accounts, because you can move money from one account to another instantaneously.

My Sub Accounts

Emergency Fund
Car Maintenance/Savings
Clothing (don’t want to bother keeping it in an envelope anymore)
Vacations
House Maintenance

How To Access Your Money Instantly

I have always worried about the time where I needed money in my emergency fund, but I didn’t have it, because it takes two days to transfer the money to my checking account. Then, it dawned on me to open up an ING Electric Orange checking account. They will send you a debit card, and you can instantaneously fund the checking account from your savings account. I have an iPhone now, so if I need money loaded on the debit card right away, I can log onto the website from my phone, transfer money to the checking account, and use the debit card right away.

Use Specific Short-Term Savings Goals

Creating sub accounts will help you organize your short-term savings and specify your savings goals. Let’s say you want to save up $1,000 specifically for remodeling your bathroom. You can set up a sub account in ING and set up a separate automatic investment to go from your checking account to your “bathroom remodel” savings account. Catch my drift? Try it out, and let me know how it goes. Also, if you are already doing this, share your success or failure stories with us.

Last Minute Tax Tips and Information

Erik Folgate — Tue, 31 Mar 2009 02:54:52 +0000

I just finished my taxes, and we will be receiving a nice refund due to two tax credits. Have you completed your taxes yet? If not, you need to get on it! This is really late for me. I usually have them finished by the end of February, but I was a procrastinator this year. Going through my taxes gave me a ton of information to pass along to you all that could be helpful for you if you have not filed yet. Here are some tips and information for all of your last-minute tax filers.

The Tax Software I Used

I used Tax Act Online to prepare and e-file my taxes. If you have never e-filed your taxes, you need to step into the 21st century. It is the best, quickest, and most accurate way to file. I paid the extra $10 to use the premium version of Tax Act’s web program, and it is worth it. The program gives you a wealth of tax information categorized by life events that you may have experienced throughout the year such as marriage, having a baby, moving due to a job change, and going back to college.

Why We Received A Refund

Actually, our tax liability and tax withheld were almost identical. We would have owed nothing and received nothing, but we qualified for two tax credits this year. The first one was the higher education credit that we have received for the past two years. My wife was in graduate school, and the Life Time Learning Credit gives us a 20% credit for every dollar we spent on tuition in 2008. If you went back to college or took any courses for licensing or certification, make sure you claim this credit! We also received a $600 tax credit from the 2008 Economic Stimulus Rebates, because we only received $600 back in April, and we were supposed to receive $1,200. If you felt like you were short changed last spring when all of the stimulus payments were getting sent out, go to the IRS website to verify how much you received. The software will determine if you are still owed money from the tax credit.

Other Credits and Deductions to Look For:

Moving Expenses Tax Deduction. If you moved to another city for a job change, you could qualify for a tax deduction for your moving expenses.
Retirement savings contributions
Real estate property tax deduction. I did not know this, but this year they are allowing you to claim your real estate property taxes as a separate deduction from itemization. In other words, if you take the standard tax deduction, you can claim your property taxes as a completely separate deduction.
Student Loan Interest

How I Will Receive My Refund

I elected to receive my refund by direct deposit into my checking account. Tax Act offers the ability to spread out the refund into up to three different accounts. In retrospect, I should have put some of the money straight into our short-term savings account, but hopefully I will be disciplined enough to deposit into our ING savings account once it gets deposited into our checking account. PLEASE do not go for these rip-off refund loans or debit cards. Wait the 10 to 14 days that it takes to get the money and do direct deposit so the check doesn’t get lost in the mail. Refund loans are the equivalent to check-cashing loans, yet normal people who would never think of getting a payday loan will end up getting duped into a refund loan by a savvy salesman at H&R Block or Jackson Hewitt. Don’t do this, the APR on these loans is ridiculous.

Frequently Asked Questions About Investing During A Recession

Erik Folgate — Thu, 26 Mar 2009 03:16:06 +0000

Here are some questions that I frequently get emails about and questions I hear from friends and family.

Should I cash out my 401(k)?

This depends on your age. If you are in your 20’s, 30’s, or 40’s, there’s no reason to jump ship on your 401(k) or IRA. You have plenty of time to recover from the losses. If you are in your 50’s or early 60’s, you may want to consider going to a very conservative position with your investments such as bond exchange traded funds or mutual funds.

Should I invest in gold right now?

Let’s be clear, gold has a bad long-term track record. However, it’s a good hedge against inflation, and it typically increases in value when the stock market performs poorly. Don’t trade in all of your stocks for gold coins, turning in about 10% of your stocks for gold wouldn’t be such a bad thing right now.

Should I re-allocate the investments in my retirement account?

Again, if you’re in your 20’s or 30’s, keep a growth stock allocation strategy with a little bit of bonds and dividend appreciation type funds. If you’re older, it’s a good idea to re-evaluate how risky your investments are right now. Start looking at a more balanced asset allocation that seeks boring, steady growth.

When will the economy and the stock market recover?

Obviously, no one knows this or they’d be on television making a lot of money telling you when it’s going to recover. As a citizen and someone who is investing in the United States economy, you need to ask yourself this one question: Do you believe in America? If you believe in America, then take this economic downturn as an opportunity to buy up a bunch of undervalued investments. If you believe this is the beginning of the end for the United States, then invest or don’t invest accordingly. Personally, I believe Americans are resilient. I don’t like some of the things President Obama is doing to revive the economy because it involves massive amounts of debt, and I hate debt. But, one single president cannot bring this country down. We recovered from the 1929 great depression where every other person was out of work and there were lines around the block to get food. I just checked my email on my iPhone and watched a recorded television show. I think we’re good. Don’t let the media freak you out. They are sensationalists. They only want to capture your attention.

Ask yourself that one question, and the rest of your investment questions will fall into place.

The Stimulus Package Passed: Should You Factor In An Extra $10,000 to Your Debt Snowball?

Erik Folgate — Fri, 13 Feb 2009 20:49:58 +0000

According to the House Minority Leader in Congress, the American people will be taking on an average of $10,000 in debt per person due to this stimulus package that just passed.

“With a price tag of more than $1 trillion when you factor in interest, it costs every family almost $10,000 in added debt. This is an act of generational theft that our children and grandchildren will be paying for far into the future.”

This was a completely partisan quote by a Republican that did not agree with the economic recovery bill that just passed in the House of Representatives, but if you divide the cost of this bill by the amount of taxpaying Americans in the United States, his numbers are roughly correct about the debt that is being passed onto us. I know, the title to this post was a little silly, but not really when you sit down and think about it.

For those of us working very hard to eliminate our personal debt, the government has just handed each of us an extra $10,000 in debt to add on to the total we already have in our own personal debt. Sure, we won’t get monthly loan coupons in the mail from China, the U.S. Treasury, or whoever we borrow this money from, but we will pay this money back in the form of tax increases and/or increasing our spending to stimulate the economy. In a perfect world, this package will generate enough income tax from job creations, but if it doesn’t generate enough money to repay the money we are spending for this plan, the only way for the local, state, and federal government to recover the money is to increase income, capital gains, property, and sales taxes.

Maybe I will put an extra $10,000 in my debt snowball with an asterisk next to it. Great, now my debt snowball is going to look like baseball’s statistic for the homerun leader.
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The Stimulus Package Passed: Should You Factor In An Extra $10,000 to Your Debt Snowball? is a post from: Money Crashers

5 Steps To Getting Your Tax Refund Faster

Erik Folgate — Mon, 19 Jan 2009 16:00:31 +0000

Yes, tax season is here. Stop avoiding it. Start thinking about it. For many of us, we overestimate our taxes and give the government a free loan, but we like the fact that we get money back that we forgot about. So, if you want to get your refund as quickly as possible, follow these five steps.

Get up, and get started.

Procrastination is an epidemic during tax season. So many people put it off until April and they panic, whine, complain, and have a horrible time getting them done. But, the solution is simple. Start preparing NOW, and file them as quickly as possible.

Accumulate the Data

January is the data accumulation month. By federal law, employers and financial institutions should have all tax forms sent to you by January 31st. Make sure everyone has your correct address, especially if you moved during the year. Sift through your mail carefully. You’ll be receiving important W-2’s, 1099’s, and 1098’s from employers, banks, universities, and other financial institutions such as your mortgage company.

Take advantage of e-File

Over 73 million Americans are taking advantage of filing their taxes onlne. It’s free for Americans who make less than $54,000 in adjusted gross income, and most companies that allow you to e-file are boasting a turnaround time of 8 to 10 days to receive your refund.

Carefully Analyze the Numbers

Just make sure the numbers are right before you make them permanent on your return. Errors can cause a big problem and delay your return.

Make an Appointment with Your CPA ASAP

If your taxes are too complicated to do yourself, make sure you call your CPA today to schedule an appointment. Their weeks fill up quickly, and you want to meet with him or her as quickly as possible once you have all of the required documents and information.
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5 Steps To Getting Your Tax Refund Faster is a post from: Money Crashers

H&R Block Offering Free Tax Advice For Two Weeks

Erik Folgate — Thu, 15 Jan 2009 02:17:45 +0000

I received an email from a representative of H&R Block letting me know about a promotion they will be running from January 15th through the 31st. They normally charge $19.95 for a tax question, but during that period, they will offer free advice for general tax questions. Remember, H&R Block is a business, and they make money by selling tax services, so don’t be surprised if they try to sell you a premium service while you are there. But, if you have a simple question about something tax related, this is a great promotion to get your answer for free from a group of tax professionals. There are over 500 changes to the completely unnecessary, complicated tax code, so I am sure you will have some questions this year. Here is the who, what, why, where, and when:

Who: H&R BlockÃ¢â‚¬â„¢s leading 110,000 tax professionals will be answering your tax questions

What: In celebration of National Tax Advice Day, H&R Block educates taxpayers on a range of tax topics including the recovery rebate credit, first-time homebuyer credit, foreclosures, stock market losses, the tax implications of losing a job and much more.

When: January 15 Ã¢â‚¬â€œ 31, 2009

Where: Log on to www.hrblock.com and/or www.digits.hrblock.com and click on Ã¢â‚¬ËœAsk a Tax AdvisorÃ¢â‚¬â„¢ to get all your tax questions answeredRelated Posts:

H&R Block Offering Free Tax Advice For Two Weeks is a post from: Money Crashers

Highlights of President-Elect Barack Obama’s Tax Plan

Erik Folgate — Thu, 06 Nov 2008 21:48:39 +0000

Congratulations to Barack Obama for winning the office of the most important and powerful person in the world. He wasn’t who I voted for, but it is truly a historic time to be alive to see the first African-American president of the United States. I know that one issue many are concerned about when it comes to Obama is his tax plan. Here is a good snapshot from Kiplinger’s magazine about what he plans to do with taxes.

Tax-Plan Highlights

Income Tax
Maintain current tax rates of 10% to 28% for most Americans. Reinstate top tax rates of 36% and 39.6% on joint income of more than $250,000 ($200,000 for individuals).

Capital Gains/Dividends
Maintain maximum rate of 15% for most taxpayers. Boost top rate to 20% for investors with income of more than $250,000. Under current law, taxpayers in the two lowest income-tax brackets pay zero capital gains in 2008, 2009 and 2010. Eliminate capital-gains taxes on start-ups and small businesses to encourage innovation.

Retirement Accounts
Suspend mandatory distributions for those 70 and older. Permit taxpayers to withdraw up to $10,000 from retirement accounts penalty-free; withdrawals would still be subject to income taxes.

New Tax Cuts
Tax credit of up $1,000 to offset Social Security taxes for low-wage earners. Eliminate income tax for seniors making less than $50,000. Double the tax credit for college expenses to $4,000. Create a 10% mortgage tax credit for those who don’t itemize. Provide a $1,000 rebate funded by a windfall-profits tax on oil companies to offset high energy costs.

AMT
Maintain current exemption and index to inflation.

Estate Tax
Set exclusion at $3.5 million per person ($7 million per couple); keep rate at 45%.

Social Security
Maintain current wage base of $106,800, indexed for inflation. Impose additional tax of 2% to 4% paid by employers and employees on earnings exceeding $250,000 — but delay implementation for at least ten years.

Corporate Tax
Keep top rate at 35%; close corporate loopholes.

I am a little concerned that his plan to raise taxes on people making over $250k a year is that it will affect small business owners. Also, I am conceld rned that he might raise taxes on corporations, which would force them to pass that tax increase on to the consumer. But, he does have a good plan to help senior citizens and protect lower income earners, which will give them a chance to improve their financial status. However, remember that a $1,000 handout does nothing for you if you don’t use it wisely. If you continue to consume rather than invest and pay off debt, you will never get ahead with your finances. We need to remember that a new president won’t solve all of our problems. If you want to get ahead with your finances, it starts with you. Take the personal responsibility to make yourself a better person and better your financial life. Obama won’t make you wealthy, only you can make you wealthy.Related Posts:

Highlights of President-Elect Barack Obama’s Tax Plan is a post from: Money Crashers

Never Co-Sign A Car Loan For Anyone

Erik Folgate — Sat, 21 Jun 2008 02:26:04 +0000

Recently, I was listening to the Dave Ramsey Show, and there was one story that struck a chord with me. I love to hear all of the different stories people have to tell. They range anywhere from a mom that stole her son’s identity to success stories about people paying of $60,000 in two years. This particular story was a man who called in to tell about how he helped a friend from church get a loan on a car by co-signing for the loan. He never thought that a really close friend from church would stop paying the payments, so he went ahead and signed on the dotted line. About a year later, he realized that she hadn’t been paying the payment, and the car was repossessed. Now, the bank is going after him for the money still owed on the loan. It’s a common story told on Dave Ramsey, and it’s a life lesson that is usually learned the hard way.

Life lesson: Never co-sign a loan for anyone under any circumstance.

Problems with co-signing a loan

You want to help a friend or family member out by co-signing for a loan. This is a dangerous trap. You think you’re doing a good thing for someone by co-signing on the loan, but you really aren’t helping them. If the bank thought they should have this loan, they wouldn’t be asking you to co-sign for it.
You’ll always end up paying off the loan. From every had story I’ve heard about co-signing loans, the co-signer always ends up paying the loan. Again, if the bank thought that that the borrower could actually pay off the loan, they wouldn’t require a co-signer!
By the time you realize that the borrower isn’t paying the loan, it’s too late. Usually, the borrower is too ashamed to tell you that they can’t afford to pay the loan anymore, so they let it default. Then, the car ends of getting repossessed and you have a repossession on your credit. You would have much rather had them tell you that they stopped paying the payment, so you could start paying it and sell the thing. Oh by the way, the bank has no obligation to notify the co-signer that the loan is past due. Isn’t that nice?

The bottom line is, stay away from it. If you’re poor mother needs a car, buy her a $2,000 beater. Don’t co-sign a car loan under any circumstance. You’ll save your credit history and save yourself a big hassle.
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Never Co-Sign A Car Loan For Anyone is a post from: Money Crashers

Florida Government Cuts Tax Holiday For Hurricane Supplies

Erik Folgate — Thu, 29 May 2008 21:28:16 +0000

Just four years ago, Florida was ravaged with four major hurricanes in the span of 10 weeks. Then, in 2005, two more major hurricanes hit Florida, making it one of the worst consecutive hurricane seasons in U.S. history. Yet, for some reason, Florida’s government has forgotten about those years. June 1st marks the first official day of hurricane season and for Florida residents, it’s not a date they like to mark on their calendar. Florida’s state government decided this week that they would do away with the tax holiday that typically begins on June 1st for hurricane related supplies such as batteries, generators, lanterns, and first aid kits. Given the lull in the economy lately, they felt that this was one of the areas where they could save money by taking away this tax break from Florida’s residents. It will supposedly save the state up to $12 million dollars in tax revenue.

This is just another example of a government penalizing the taxpayers, rather than owning up to the real problem. Yes, there is a slow down in many of the economies around the country. I am sure that Florida has seen better days, because tourism is a big part of this state, and less people have the disposable income to travel down here for vacation. But, the wasteful spending that goes on in the state and federal level is ridiculous. If Florida’s government wanted to save money, they should have taken away all of the ear marks and pork barrel spending that passes through its legislature every year. Cut out some of the fringe benefits of the government officials or cut out some of the civil programs that aren’t in dire need of being completed. Why would you take away $12 million dollars from us, when you could have tightened up your own spending?

The tax holiday would only be a few dollars here and there of savings to the residents of Florida, but that’s not the point. The point is that they’re first resort when the economy slows down is to hurt us, not them. If you live in Florida, call or email your Congress representative and let them know that you’re disappointed about this.