PROFESSIONAL FREEDOM TAX SERVICE
Tax Service Blog
Tax Service Blog
|Posted on April 5, 2014 at 2:52 PM||comments (34)|
Money can be a tough subject. In some families it is taboo. Other times it is just too abstract. Here, Kate Ashford outlines a few fun and concrete ways to talk about finances with your children.
As parents, we pass a lot of wisdom on to our children, but we seem to be leaving money know-how up to chance.
I recently realized that my oldest daughter, who just turned five, doesn’t know a penny from a quarter. That may not seem significant, but part of the problem with financial literacy today is that money isn’t tangible anymore. Americans are using plastic for about three-quarters of all point-of-sale purchases, according to a report by Javelin Strategy & Research. That means kids aren’t seeing money exchanged, and they aren’t handling it or seeing their parents handle it very often.
Here are a few strategies for upping your kids’ financial games:
If you are primarily a credit card user—and most of us are—your children see you use a piece of plastic to magically buy things. They have no idea that you must then pay for the charges on that piece of plastic with the money you have earned. The more you can show your children that you must pay cash for the things that you buy, the more concretely they will understand how money works.
Try this: Consider a piggy bank with compartments, such as the Money Savvy Pig, which allows your child to watch change pile up for saving, spending, donating and investing
Give them hands-on practice.
You wouldn’t send your child out the door with the keys to your car without a few test drives, would you? (If you would, there are different things you should be reading right now.) The only way your children will ever learn to manage money is by doing just that—managing it. An allowance is a great learning tool, and you can start when children are very young. Many experts recommend one dollar per week per year of age (so, $5 a week for a 5-year-old) but you can play that by ear. As they get older, you can make them responsible for an increasing amount of their own expenses. If they have to shell out their own cash for those expensive shoes, they might reconsider it.
Try this: Offer younger children the ability to make extra cash by doing odd jobs around the house, such as weeding the garden, watering plants or washing the car.
If you give your children money, they will spend it. Promote savings—and teach the power of compound interest—by matching your kids’ long-term savings with your own money. That might include saving for a car or college. Just be prepared—if you make the offer, they may save more than you anticipated.
Try this: Steer your children toward the Compound Interest Calculator on Investor.gov so they can see how much money they can amass over time. Real numbers can be more persuasive than a parent nattering on about interest and savings rates.
Teach them the ways of plastic.
For the love of Mastercard, please do not send your kids to college without understanding how credit cards work. You don’t have to get them one; you can start with a debit card linked to a savings account—preferably theirs—at a local bank. Show them how to track their balance and consider letting them bounce a transaction or two so they realize that going over budget has consequences.
Try this: If you use a credit card, have your children sit next to you while you pay the bill each month. Show them the interest rate and explain what would happen if you didn’t pay the balance in full each month. The goal: That your child won’t be a college student who graduates with $3,000 in credit card debt, which was the average for the Class of 2013.
|Posted on March 13, 2014 at 3:05 PM||comments (146)|
Ed Note:When you lose a job, you lose more than just a paycheck. You also lose any employer-paid health insurance benefits. Fortunately, you have lots of options for keeping or replacing your current health insurance policy.
Getting laid off will make you feel bad enough, but realizing that you now have to figure out what to do about your health insurance can fill you with absolute dread. While we can’t get you a new job, we can help you sort out the options you have when you lose employer-paid health insurance.
As long as your employer has 20 or more workers, you can keep the health insurance coverage you got from your job for up to 18 months thanks to COBRA. The catch? You have to pay for it — and the average employer-paid family health insurance policy costs about $1,400 a month.
Fortunately, you get 60 days to decide whether you want to continue the policy and then another 45 days to pay your first premium.
Since you have two months to decide, don’t say yes or no to COBRA right away. Instead, work the system to your advantage. If you have significant medical bills during the 60-day window, you can sign up at any point during those 60 days and get retroactive coverage.
Meanwhile, ask Human Resources for a list of all the health insurance plans your company offers. If your former employer offers a lower-cost policy, you may be able to switch into it if you end up unemployed for more than 60 days.
Also ask if your employer-provided coverage will go through the end of the month. If it does, get your prescriptions refilled and doctor visits in before you lose coverage.
The Health Insurance Marketplace
During the 60-day COBRA window, check out your other options, starting with the Health Insurance Marketplace which is an online source of information about state and federal health care exchanges and coverage options.
Filling out the online Marketplace forms can be tedious.
Nevertheless, at this website you'll find out:
Avoid the temptation of going with the lowest monthly premium. Check out all the costs of the plans, including co-pays, deductibles and the total amount you’d have to pay if you rack up high medical bills.
In the current economy, about one-third of jobless workers remain unemployed for more than six months. If you know you can’t afford COBRA coverage that long, you may need to move to a lower-cost marketplace insurance policy within 60 days of losing your job.
There are enrollment windows for the marketplace policies. In 2014, the open-enrollment period ends March 31. The 2015 enrollment window is Nov. 15, 2014 to Jan. 15, 2015. If you lose your job or your income changes, you can enroll even if you’re outside the enrollment window. However, your ability to enroll outside the enrollment period lasts only for 60 days — starting on the date you lost your job or your income changed.
As Income Drops, Health Insurance Choices Grow
Medicaid covers low-income Americans and people with disabilities. Some states have expanded Medicare coverage to individuals with income above the federal poverty line so you should check if your state is among them. The Children’s Health Insurance Program covers children and sometimes pregnant women.
Options When You Can’t Afford Coverage
Don’t like the options you’re seeing? Here are some other sources to try:
Tax Penalties for the Uninsured
Being without health insurance could cost you at tax time. The Affordable Care Act penalizes Americans who have no health coverage. For 2014, the penalty is 1 percent of your annual income or $95, whichever is more. You’ll also pay a $47.50 penalty for each uninsured child, up to a family maximum of $285. The penalties can be a bit complicated to decipher, so read up on the specifics and check out the exact equation.
|Posted on March 10, 2014 at 1:15 PM||comments (33)|
While the vast majority of Americans say cheating on taxes is unacceptable, a good amount think it's perfectly fine to under-report income, claim bogus deductions and inflate credits.
When asked how acceptable it is to cheat on taxes, if at all, 12% of respondents answered "a little here and there" or "as much as possible," according to a survey from the IRS Oversight Board that polled 1,000 people.
That's up slightly from 11% in 2012 and up from a low of 9% in 2008.
Corresponding with that increase, the survey found that opinions about the IRS have grown more negative, with an increasing number of people saying the agency devotes too many resources to enforcement instead of consumer services.
A record-low 39% of taxpayers feel the IRS "maintains a proper balance between its enforcement and service programs." And while most respondents said they support extra funding for the IRS, that percentage slipped from 67% in 2012 to 59% in 2013.
Bad financial situations may also drive some people to cheat, as they feel less able to afford an extra check to the government. Instead, they're putting their money toward financial necessities like medical bills, said Valrie Chambers, a professor of accounting at Texas A&M University at Corpus Christi.
"They justify not paying because they are paying all they can for something more important," said Chambers. "These are sad cases to see, and are probably more prevalent since the recession of 2008."
Others feel they have been cheated by the U.S. government and therefore want to "even the score" by cheating on their taxes, while still others oppose how the government would spend their money, said Chambers.
No matter how you justify cheating on your taxes, be ready to cough up a big fine if you're caught.
If you underpaid, you'll need to first pay the IRS what you owe. You'll also incur significant extra penalties and, depending on the case, you could even face prison time.
On the other hand, you could collect a hefty ransom if you're willing to rat someone else out for cheating on their taxes. The IRS will pay 15% to 30% of any amount exceeding $2 million that it collects from the tax cheat you turn in. For less than $2 million, you get a maximum award of 15%.
The good news, however, is that the majority of Americans aren't cheaters -- at least that's what they say. About 86% of respondents said it's "not at all" acceptable to cheat on taxes. Most said that honestly reporting their taxes is a matter of integrity, followed by fears of being audited or because they know the IRS receives information from third parties. Others say they are honest because they believe their friends and neighbors are.
|Posted on March 8, 2014 at 5:06 PM||comments (47)|
Ed note: There’s a lot to understand about the new Affordable Care Act, but the issue that has many people very confused is the penalty. The Tax Institute’s lead tax research analyst Lindsey Buchholz explains when and how the penalty could affect you.
If you are required to have minimum essential health care insurance in 2014, you need to act quickly if you have not enrolled. The deadline for open enrollment in a Marketplace health insurance plan will close on March 31, 2014.
If you don’t enroll before March 31, and are not eligible for an exemption, you will likely be charged the penalty on your 2014 tax return you file in 2015. After open enrollment closes, you cannot enroll in a Marketplace plan unless you have a qualifying life event that allows you to enroll in coverage outside of open enrollment. A qualifying life event includes moving to a new area with different coverage, loss of other health coverage, marriage, divorce and having a baby.
What’s the penalty?
For 2014, the penalty is 1% of your yearly household income less your filing threshold or $95 per person without coverage ($47.50 for each child under 18), up to a maximum of $285. Whichever number is greater will be used.
Remember: if you decide to pay the penalty instead of purchasing health insurance, you will have to pay for any medical expenses fully out-of-pocket.
The penalty is figured monthly and there are exemptions for a short gap in coverage. If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. However, if you’re uninsured for a continuous period of less than 3 months, you are exempt from the penalty for those months.
There are several other types of exemptions from the penalty, visit healthcare.gov for more information.
|Posted on March 3, 2014 at 2:57 PM||comments (92)|
The ranks of the world’s billionaires continue to scale new heights–and stretch to new corners of the world. Our global wealth team found 1,645 billionaires with an aggregate net worth of $6.4 trillion, up from $5.4 trillion a year ago. We unearthed 268 new ten-figure fortunes, including a record 42 new women billionaires. In total, there are 172 women on the list, more than ever before and up from 138 last year.
Bill Gates is back on top after a four-year hiatus, reclaiming the title of world’s richest person from telecom mogul Carlos Slim Helu of Mexico, who ranked No. 1 for the past four years. Gates, whose fortune rose by $9 billion in the past year, has held the top spot for 15 of the past 20 years. Spanish clothing retailer Amancio Ortega (best known for the Zara fashion chain) retains the No. 3 spot for the second year in a row, extending his lead over Warren Buffett, who is again No. 4. American gambling tycoon Sheldon Adelson, who added $11.5 billion to his pile, makes it back into the top ten for the first time since 2007. Another first: A record net worth of $31 billion was needed to make the top 20, up from $23 billion last year.
For bios on all 1,645 billionaires, go to www.forbes.com/billionaires.
1. Bill Gates
$76 billion (UP)
Source: Microsoft, investments
Residence: Medina, Wash.
He's back. Helped by a bounce in shares of Microsoft, Bill Gates returns to the top of our annual Billionaires List this year after a four year hiatus. He is worth $9 billion more than a year ago, and has now been the world’s richest person for 15 out of the past 20 years. The Microsoft cofounder, who stepped down as chairman in February, has agreed to spend more time helping the software company’s product managers work on innovations. Meanwhile, Gates, who has given away more than $28 billion in his lifetime, remains focused on his foundation's efforts to eradicate polio (he secured $335 million in pledges to the cause from billionaire comrades, including $100 million each from Mexico's Carlos Slim and former New York City Mayor Michael Bloomberg) and getting fellow billionaires more involved with philanthropy. ]
2. Carlos Slim & Family
$72 billion (DOWN)
His four-year run as world’s richest person has come to an end, primarily because shares of Minera Frisco, his mining company, have fallen more than 50% in the past year as the price of gold and copper plummeted. That plus a dip in the value of his largest asset, pan-Latin American telecom firm America Movil, combined to knock $1 billion off his net worth, making him the only billionaire among the world’s 10 richest to get poorer in the past year. America Movil has come under pressure in Mexico after the passage of a new anti-monopoly telecom and media law. America Movil has 70% or more market share of both the landline and mobile markets in Mexico. Slim also holds a controlling interest in industrial conglomerate Grupo Carso, financial venture Grupo Financiero Inbursa, real estate enterprise Inmuebles Carso and infrastructure development and operating company Impulsora del Desarrollo y el Empleo en América Latina, or Ideal. He continues to hold minority stakes in U.S. companies Saks Fifth Avenue and The New York Times Co.
3. Amancio Ortega
$64 billion (UP)
Residence: La Coruna, Spain
World’s richest retailer Ortega added $7 billion to his fortune this past year, expanding the gap between him and number four, Warren Buffett. He is up a total of $26.5 billion in the past two years. Though he stepped down as chairman of Inditex (best known for its Zara brand) in 2011, he still owns nearly 60% of its shares. He also has a growing real estate portfolio, estimated to be worth nearly $4 billion, much of it acquired at bargain prices during the financial downturn. Among his properties: the iconic Torre Picasso, a 43-story skyscraper in Madrid (Google is a tenant). In the past year, he’s bought four new buildings in Madrid, New York and London for around $830 million, taking the number of buildings he owns to 26. A railway worker's son, he started as a gofer in a shirt store. With then-wife Rosalia Mera, now deceased, he started making dressing gowns and lingerie in their living room. They had a daughter Sandra, and a son, Marcos. Ortega is now married to Flora Perez Marcote, with whom he had another daughter, Marta.
4. Warren Buffett
Dave Weaver/AP Images for Dairy Queen
$58.2 billion (UP)
Source: Berkshire Hathaway
Residence: Omaha, Neb.
Now in his ninth decade, Buffett is still doing huge deals. Last year he teamed up with 3G Capital to pick up iconic ketchup maker H.J. Heinz for $23.2 billion, invested nearly $4 billion in ExxonMobil and a Berkshire Hathaway subsidiary bought Nevada's NV Energy for $5.6 billion. All of this helped boost his fortune by $4.7 billion despite his gift of $2 billion in Berkshire stock to the Gates Foundation in July, bringing his lifetime giving to $20 billion. Secret to his success? In his investment letter in 2014, he told Berkshire Hathaway shareholders his best investment wasn't a stock or business, it was buying Benjamin Graham's book "The Intelligent Investor" in 1949. The book’s simple, logically sound approach changed his financial life, he said. As for his advice to investors today, the Oracle of Omaha said in February, as the S&P 500 again touched record levels, to steer clear of market euphoria and focus on the potential for profits over time.
5. Larry Ellison
$48 billion (UP)
Residence: Woodside, Calif.
CEO of Oracle, Ellison is worth $5 billion more in 2014, thanks to rising value of his software company’s shares. In September his Oracle Team USA pulled off a stunning comeback from a seven-race deficit to win its second consecutive America’s Cup sailing race. Ever the competitor, the Oracle cofounder said in an August interview that Apple's best days are behind it since the death of close friend Steve Jobs and that Google's alleged infringement on Oracle's patents in its Android software was "absolutely evil." Ellison collects houses on Malibu's Carbon Beach and also owns of 98% of Hawaii's Lana’i Island. A recently launched website for the island reveals his larger plans, including a 2015 film festival on the island. His daughter Megan is a growing Hollywood powerhouse and has financed a string of critical successes including "American Hustle" and "Zero Dark Thirty."
6. Charles Koch — tied
$40 billion (UP)
Residence: Wichita, Kans.
Inherited & Growing
Chairman and CEO of Koch Industries, the country’s second largest private company with sales of $115 billion, a post he’s held since 1967. He is worth $6 billion more than a year ago as Koch Industries steadily expands, buying electronics-components maker Molex for $7.2 billion and cellulose fibers producer Buckeye Technologies for $1.5 billion. He and his brother David, with whom he owns 84% of Koch, are funneling a chunk of their money to try and win the Senate for Republicans in the 2014 midterm elections, prompting Sen. Harry Reid to accuse them in January of "actually trying to buy the country." A Koch spokesman said Reid's comment was "disrespectful and beneath the office he holds."
6. David Koch — tied
$40 billion (UP)
Residence: New York City
Inherited & growing
New York City’s richest resident is $6 billion richer than a year ago. He and his brother Charles, with whom he shares the fortune, own 84% of $115 billion (sales) Koch Industries, America’s second largest private company with interests in oil pipelines, refineries, building materials, paper towels and even Dixie cups. David was a top donor to the Republican Governors Association in 2013, giving $1.25 million to the cause.
8. Sheldon Adelson
$38 billion (UP)
Residence: Las Vegas
Adelson made an average of $45 million a day in 2013, vaulting him into the top 10 richest for the first time since 2007. Shares of his Las Vegas Sands, worth more than all other U.S. casino companies combined, continued climbing thanks to booming business in Asia, where he plans to keep expanding. After several months of talks and negotiations, in December Adelson dropped plans to develop a $30 billion megaproject in Madrid's suburbs. Investors didn't blink -- the stock rose more than 3% the next month. He spent $100 million trying to get a Republican in the White House in 2012. He’s now using his vast fortune to fight Internet gambling in America, pitting himself against some of the biggest names in finance, private equity and gambling. He told FORBES he is willing to "spend whatever it takes" to win.
9. Christy Walton & Family
$36.7 billion (UP)
Residence: Jackson, Wyoming
Walton is the richest woman in the world once again, taking back the spot from L’Oreal heiress Liliane Bettencourt. Walton has now held that title for 4 out of the last 5 years. She inherited her wealth when husband John Walton - a former Green Beret, Vietnam war medic and son of Wal-Mart’s founder - died in an airplane crash in 2005. John's side investment in First Solar had boosted Christy's net worth well above the rest of her family, but the stock sank in 2011, narrowing her lead. First Solar stock has since revived, up 47% in past year, boosting her net worth by $466 million. The bulk of her holdings are in Wal-Mart, the massive retailer founded by her father-in-law Sam Walton and his brother James in 1962. The shares of the retailer are up 6% in past year. Christy received $460 million in Wal-Mart dividends after taxes in 2013.
10. Jim Walton
Jim Walton (left), Alice Walton and Robson Walton (AP Photo/April L. Brown)
$34.7 billion (UP)
Residence: Bentonville, Arkansas
The youngest son of retail visionary Sam Walton saw a nice bump in his wealth last year thanks to a 6% rise in Wal-Mart’s share price. Mr. Sam's store remains a powerhouse worldwide, with 2013 sales of nearly $470 billion and 2.2 million employees in 11,000 stores. Jim took in more than $475 million in dividends after taxes in 2013. He is also the CEO of the Walton family's Arvest Bank, which has branches in Arkansas, Kansas, Oklahoma and Missouri. The bank is worth about $1.8 billion, with net profits of nearly $100 million in 2012.
|Posted on March 3, 2014 at 1:31 PM||comments (19)|
An income tax refund can never come at a bad time! The only hard thing about getting "free" money is deciding how to spend it. You could always blow it on some gadget you'll forget about in a month. Or, you can spend your tax refund on something that will benefit you in the long run - like, your finances. If you're due a refund, here are some smart ways to spend it that will improve your credit and reduce your debt.
Putting your refund away for a rainy day is a wise decision. It keeps you from having to use your credit card when you face a financial emergency. Since so many debt situations stem from unexpected expenses, starting an emergency fund will give you some of the protection you need to ward off debt. Without a lump sum to jumpstart your emergency fund, it could take you months to set aside enough money for your emergency fund.
Tired of late notices and debt collector phone calls? Avoiding them doesn't make them go away; it simply prolongs the collection process and damages your credit in the process. Use your tax refund to take care of those late bills. Your credit score will thank you and you'll thank yourself for finally getting rid of annoying collectors.
What do you do when you have an emergency fund and you're current on all your bills? Bring your debt level down by paying off your credit cards. You'll likely see an increase in your credit score and relief in your wallet.
4. Pay off a cash advance or payday loan.
Many people who borrow payday loans can't afford to repay the loan from their regular bi-weekly or monthly pay. Instead of rolling the loan over and paying more fees, get rid of it once and for all with your tax refund. If there's money leftover, start that emergency fund so you don't have to borrow a payday loan again.
5. Make an extra loan payment.
If you have a mortgage or auto loan, each extra payment you make reduces the life of the loan and the amount you pay in interest. Overall, you'll end up paying less than if you hadn't made any extra payments. Make sure you indicate that the extra payment is for the principle on the loan. Otherwise, the payment would be applied to your future payment, reducing both the principle and interest and accelerating your payment due date.
6.Take care of a collection account.Unpaid collections are one of the worst things for your credit score. As long as your collection remains unpaid, you'll have a hard time getting approved for new credit cards and loans. A paid collection won't necessarily boost your credit score, but it will make it easier to get new applications approved.
7. Treat yourself, but don't overdo it.
How fun would life be if you only spent your money on bills? It's ok to spend money leisurely, but remember, there's a balance. The key is to take care of your responsibilities first, then enjoy your money second. Before you spend a dime of your tax refund, make a plan for how you're going to spend the money. For example, you might put 80% of it toward your debt and other finances and spend 20% on yourself.
|Posted on March 1, 2014 at 3:38 PM||comments (21)|
Ed note: Your credit score may just seem like another ordinary number, but there is actually quite a lot to learn from your credit report. Meg Favreau of Wise Bread looks at some of the most revealing things you’ll find....
Your credit report is one of the most powerful financial tools you have access to, and checking your report regularly can help you do everything from buy a house to catch a criminal. If you’ve never checked your credit report before, you might wonder why you need to now — after all, you’ve gotten along fine without it. But read on for reasons why you need to check your credit report, plus information on how to do it and how to resolve errors.
Your credit report is more than just a glimpse of your financial health– it’s a way to see how other people see you. Financially speaking, do you look like someone a landlord would want to rent an apartment to? Someone who banks would want to give a loan to? If not, it’s time to make some financial changes, including paying all your bills and debts on time and in full every month. It’s difficult to give an exact number to shoot for, since different lenders can use different scoring systems. But credit rating agency Experian notes that “a score above 700 usually suggests good credit management.”
You Need to Make Sure Your Identity Hasn’t Been Stolen
Often, when we think of identity theft, we think of someone stealing our credit card numbers. But people can also open new credit cards in your name, which might be more difficult to find out about. When you look at your report, make note of any accounts you don’t remember opening.
You Need to Check If You Missed Any Loan Payments
If you missed a payment on a loan and didn’t realize it, this will show up on your credit report – alerting you that you need to start paying again.
You Need to Look for Errors
Occasionally, you may have an error on your credit report — it does happen, and you want to catch errors before they seriously damage your credit. Make sure all of your information is correct and up to date, that your payment history is accurate, and that any accounts you’ve closed aren’t still marked as open.
How to Get Your Credit Report
You can get your credit report for free once a year from the three federally authorized credit reporting agencies. If you want to really keep an eye on your financial health throughout the year, get your report from one of the agencies now, the next one in four months and the third four months after that.
What to Do If There’s a Problem With Your Credit Report
If something seems wrong, contact both the agency that you got your credit report from and the creditor in question. If you run into problems, you can also file a credit reporting complaint with the Consumer Federal Protection Bureau.
|Posted on November 22, 2013 at 12:53 PM||comments (27)|
Starting a new business on your own can be both intimidating and rewarding at the same time. Hopefully; with a solid business plan and proper guidance those stepping-out on their own will be successful. To make this process a little easier, here are some basic tax considerations a new business owner should take into account.
Choosing Your Type of Business Entity
One of the first decisions that you will have to make is to choose the type of entity that you wish your business to operate as. Your choice plays a factor in your personal liability for the business’ activities and how taxes are imposed on the business and yourself as the owner. The most common forms of business are the
Each form of business has its own advantages and drawbacks; so consulting a tax professional as to which is best for you is always advisable.
Many individuals choose to operate their businesses as a limited liability company (LLC). The IRS will by default treat an LLC as either a sole-proprietorship or partnership, depending upon the number owners of the business. Alternatively, an LLC can elect to be taxed as a corporation or S corporation.
If you form a partnership or corporation, or plan on having employees, you will be required to obtain an employer identification number (EIN) from the IRS. Applying for an EIN is free and easily done via the IRS website. The IRS also provides an interactive tool that can help you determine whether your business will be required to obtain an EIN. Even if you are not required to have an EIN, getting one may be advantageous for your business if you would prefer to not give out your personal social security number to customers or vendors.
One of the most important steps in starting a business is to establish a solid recordkeeping policy. Not only is good record keeping required in order to prove items of income and expense reported on your business’ tax return, but they also are crucial for monitoring the progress of your business.
Quality records can show whether your business is improving, which items are selling, or what changes you need to make. With any business, quality records can increase the likelihood of business success.
With most new businesses the old saying “you gotta spend money, to make money” will apply, and how expenses you incur before bringing in revenue is treated depends upon the type of expense.
In addition to eligible start-up costs, corporations and partnerships are allowed to deduct up to $5,000 of organizational costs in their first year of activity. These include legal fees, filing fees, and other costs directly related to the formation of partnership or corporation business entity.
|Posted on October 14, 2013 at 10:34 AM||comments (18)|
|Posted on June 28, 2013 at 12:07 PM||comments (102)|