As a general rule, I typically oppose almost all federal government spending on anything other than the responsibilities expressly outlined in our Constitution. I believe that such expenditures result in waste, corruption, debt and a limiting of the right to “life, liberty and the pursuit of happiness”. Much of government sponsored financial aid has really only served to drive up the price of a college education and increase the amount of our national debt. That said, if the government makes such money available, you should probably take advantage.

If you are considering a return to college, graduate school or have a child in college, the American Recovery and Reinvestment Act includes an additional tax break for you. It is called the American Opportunity Tax Credit. The AOTC is actually an adjustment to the existing Hope Credit that has reimbursed people for college expenses for several years now.

Who qualifies?

If your individual modified adjusted gross income is $80,000 or less or if you are married and file jointly, you can make up to $160,000 and still qualify.

When?

The tax credit only applies to tax years 2009 and 2010, however, the number of graduate years covered by this credit has been increased from two to four. To take advantage of the credit, you need to act now and if you are considering a second master’s degree . . . this is your chance to get some help.

What is covered?

In the past, the Hope Credit only covered tuition. The American Opportunity Tax Credit, which will credit 100% of a student’s first $2000 in tuition, fees, and course materials, and 25% of the next $2000. So, depending on income level, you might qualify for as much as $2,500.

What items are not covered?

Expenses such as insurance, medical expenses, room and board (with some exceptions),transportation, or similar personal, living, or family expenses.

You can read more about this tax credit here and here. Hope this saves you some cash!   - Article by Stew -

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In one of my first posts here at Gather Little by Little, I revealed that my personal finance history is not perfect. There have been some lessons that we had to learn the hard way . . . and there are certainly more lessons to come. I also said that I hoped to be honest with GLBL readers about our family financial journey. Today’s post is one such time that I thought about obscuring the truth a bit. I mean, it’s kind of embarrassing for a personal finance blogger to have a tax error, isn’t it? Here is the story:

In 2006, our family reached our financial low. A number of factors moved me to the point where I knew that I needed to do something drastic or we were going to fall off a financial precipice. We were not spendthrifts, we did not have loads of consumer debt, we were not facing a health emergency, but I could see that we were on the wrong path. I began to make some changes in our financial habits – most were good ideas – budgeting, using cash, got a better job, etc. However, a few strategies that we employed to generate extra cash resembled a “get rich quick” scheme more than “gathering money little by little” and at the end of this month, I will reap a bit of what I sowed.

Once I realized that we were headed for financial trouble, I became very proactive about our finances. I watched every penny like a hawk. I started to read personal finance blogs, most of which gave sound advice, however the first few blogs that I happened upon were “free money” blogs. Blogs that dealt with credit card bonuses, bank account bonuses and 0% balance transfer arbitrage. At the time, banks were throwing money around. Bank bonuses were everywhere and some were really large – especially when you qualify yourself for a bonus and then your wife qualifies for the same bonus and you double your money. I could go on all day about the various things that we did along these lines to generate extra cash. I’ll save the details for other posts. The bottom line is that we ended up with close to $80,000 of credit card balance transfer money in a couple of savings accounts along with approximately 35 different bank accounts and close to 40 new credit cards. We had earned close to $5,000 in free money! Looking back it sounds crazy, but at the time, I thought everyone was doing it . . .

Here was my mistake: when I filed my 2006 tax return, I claimed the Earned Income Tax Credit. The EITC is a tax credit for households who have children and earn less than a certain amount. Here are the basic rules to claim the EITC in tax year 2006:

• You have more than one qualifying child and your earned income was less than $36,348 ($38,348 if married filing jointly)
• You have one qualifying child and your earned income was less than $32,001 ($34,001 if married filing jointly)
• You do not have a qualifying child and your earned income was less than $12,120 ($14,120 if married filing jointly)

Under these rules, we qualified for the credit, but there is one more factor – our interest income had to be less than $2,800. This is where I made my mistake. Bank bonuses are considered interest income and we had also made quite a bit of money from the balance transfer arbitrage. As I read through the IRS literature, I became aware of the rule and began to add up all of our interest income from the previous year by using the 1099 forms provided by the various banks. The total that I arrived at was $2,753 which qualified us for the credit. Or so I thought.

This last May, I received an ominous looking envelope marked Internal Revenue Service. I opened it to discover that our interest income from that year was actually $2,813. I had missed $60 worth of referral bonuses from Virtual Bank. We have been given 60 days to pay what we owe, which happens to be the amount of the credit itself plus a little interest. If we pay the bill on time, we will not have to pay a penalty, thank goodness. I do not plan to contest the ruling, I made the mistake, there are no grounds for me to appeal. It just comes at a bad time for us . . . oh, well.

Here are some things that I plan to do differently going forward:

• Keep better records. I missed the bonuses in part because they were not entered in my spreadsheet.
• I also made the mistake because I added improperly – going to make sure next time.
• I doubt that I will ever chase bonuses to that extent ever again. My wife and I make sure that we get a bonus with every new account that we open, but we open the accounts because we need a new account, not because we need the bonus.
• I am going to take a little more care with my tax returns.

In case you are in a similar situation, here are the EITC interest income limits for the past few years:

• 2007   $2,900
• 2008   $2,950
• 2009   $3,100

Hopefully you never have to deal with the IRS and a tax mistake.

Photo by Stewart

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When we purchased our current home, we knew it would require some work and a few upgrades.  Namely some new paint, repairs to some of the work the owners did (but didn’t do correctly) and yard work.  The big item we knew we would have to address was the upstairs.  When the original owners built the house, they left the upstairs unfinished.  The middle area of the upstairs was finished off as an office later, but it’s very obvious the work was done by the homeowner, and unfortunately not done well at all.  Then, when the owners decided to sell, their real estate agent recommended the remainder be finished off as well.  They finished it, but did even a worse job than before and cut corners.  For example, the middle office area has drywall ceilings.  The two outer rooms have cheap suspended ceilings.

We knew when we bought that the upstairs would need to pretty much be redone.  The other major issue with the upstairs was that being originally unfinished, it has no heating or AC.  Over the past few weeks, I decided to call around to some various heating and AC companies to get quotes.  In the process, I learned about the new tax credits for up to 30% of the cost when home owners make energy efficient improvements to their homes.  These new tax credits were introduced as part of the federal government’s economic stimulus package, passed in February.  This is a one time tax credit only, and is capped at $1, 500.

The trick with all of this is focusing in on the items that are actually worth it, as in many cases the cost of the upgrade doesn’t justify the tax credit savings.  Most financial experts agree that items worth considering are:

Add Insulation

Insulation is the least expensive energy efficiency upgrade that qualifies.  Installation of new insulation can also help you save an additional 20% on your energy bill as well.   To qualify, new insulation must meet the 2009 International Energy Conservation Code (check product labeling or call the manufacturer) and carry a two-year warranty (or be expected to last five years).

Insulation is measured in R-values, which stands for thermal resistance. It should range between R-30 to R-60. Each inch of insulation is equal to three to five R-value.  R-30 insulation, by this rule, would range between six and 10 inches.

Taking a peek at the insulation installed by our homeowners upstairs made me realize this something we’ll need to replace when we refinish the upstairs area.  They didn’t use adequate insulation, and this is probably one of the many reasons my electric bills were so so high over the winter.

New Windows and Doors

Need new doors or windows?  Now’s the time.  Prior to the new tax credits, upgrades to doors and or windows would only provide a max tax credit of $200.00.  The new changes raise that to $1500.00, but as with the insulation, only if the they new doors or windows meet certain requirements.

In order to qualify, Windows, doors and skylights require a label from the National Fenestration Rating Council (NFRC) that says their U-factor is no more than 0.30.   U-Factor is the measure of how well they window or door will insulate your home from heat.  The required label must also list a Solar Heat Gain Coefficient (SHGC).  SHGC measures how much of the sun’s heat penetrates into the home.  The SHGC must be no more than 0.30.  Storm doors also qualify BUT they must be accompanied by a tax credit eligible wooden door without exceeding a combined U-factor of 0.30

New doors and windows are expensive though, so really take a hard look before jumping in and doing upgrades on these items.   But, if you’ve been putting off replacement of a few windows or need a new door, now’s a good time.

Installing Air Conditioners

This is the one that has my attention.  To qualify, central air conditioners need a Seasonal Energy Efficiency Ratio (SEER) of at least 16 and an Energy Efficiency Rating (EER) of at least 13.  SEER measures the efficiency of the unit, and EER measures how the unit operates once the outdoor temperature reaches 95 degrees.

I had two different companies come up last week.  So far I’ve received a quote from one for $8200.00 for a tax credit qualifying unit, duct work, and labor.  Less than I expected actually, and with the $1, 500 tax credit that reduces the overall cost to $6,700.  Not an expense we were going to do right away, but with a $1, 500 savings on the line, we’re seriously considering it.

Some things to consider

There are a few things you to consider/be aware of.  Determining if the various products meet the requirements is tricky, so do your homework.  Dealers for these products are very quick to mention that tax credits and use that as a selling point.  They won’t guarantee they qualify though.  So you’ll really need to make sure you research the product yourself.  For example, just because an item is “Energy Star” compliant, doesn’t mean it qualifies.

Also, don’t forget it’s not an immediate savings, and you won’t see the savings until you file your 2009 taxes.   It is a tax credit, so you’ll receive the full $1500.00 (assuming you’ve spent enough in upgrades).

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As part of the 2009 stimulus package, President Obama made sure that everyone was included.  For people that work they receive tax credits, for people who don’t and receive Social Security, he included a one-time $250.00 stimulus check.   Stimulus payments are slated to go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran’s benefits. The total to be distributed?  Over 13 million dollars.  The 52 million eligible recipients started receiving their stimulus checks in May 7 of this year (2009).

One catch that many of you may not be aware of is that checks will be distributed to some that are both receiving social security benefits AND working jobs that provide taxable income.  In this case people you will receive both a $250 stimulus check and the tax credits via your paycheck.  But here’s the catch, you can’t keep both.  If you receive both the stimulus check and the tax credits, you’ll be required to deduct it from your tax credit next year when you file your returns for the 2009 tax year.

In cases like I just described, the stimulus check you may receive isn’t a “gift” as you might think think, but in fact a loan that you’ll have to payback at tax time next year.

When will I receive my stimulus check?

If you are in fact entitled to a $250.00 stimulus check, there is nothing you need to do to “apply”.  Checks will be automatically sent to qualified citizens.  If you haven’t received your check by June 4th, 2009 and you are confident you qualify, contact Social Security.  Be aware that you will receive your payment the same way you currently receive your Social Security or Supplemental Security Income (SSI) benefit. If your monthly benefit is by check, Social Security will deliver your one-time payment by check. If you receive your benefits via direct deposit or Direct Express debit card, you will receive your one-time payment the same way.

Wait!  I have more questions

I’m sure some of you are in unique situations and may have very specific questions.  If so, please visit the Social Security Administration FAQ page.  They have provided answers to many unique situations.

Wishing you could get these types of payments more often?

Instead of relying on the government to provide you with an economic stimulus, consider creating your own economic stimulus check.  Here’s how:

• Get paid to read email by signing up for MyPoints.  MyPoints is really easy.  You receive a few emails each day and by clicking through on the emails or by completing the survey’s sent to you you are given points.  Points can be exchanged for gift cards from places like Gap, Amazon.com, Best Buy, Overstock, Barnes & Noble and a ton of other retailers.  Read more about how to earn points with MyPoints in my saving money with points article.
• Earn points by completing surveys on MySurvey.com.  Points can later be redeemed for cash or merchandise.  Read about my experience with getting paid to take surveys.
• Get paid to complete offers by using CashCrate.  Simply complete free offers and get paid, simple as that.

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The IRS recently announced the payment schedule for the economic stimulus payment schedule. So for those of you wondering when you’ll be receiving your checks, wonder no more. Payments will start being sent out on May 2. If you filed early and elected to receive direct deposit, you’ll be one of the first to receive your rebate check.

Here’s the full schedule from the IRS:

Direct Deposit

Paper Check

What if I file after April 15th?

If you file after April 15th, you’ll still receive your rebate check but 2 weeks later than the schedule above shows. Warning though, in order to receive a check this year, you must file before October 15th.

Also, a small amount of returns require extra processing and the rebates associated with these returns may not be able to meet the schedules above.

Want to know more about the stimulus package or have specific questions? The IRS has a great resource center that will hopefully provide the answer you need. Wondering the package is just a loan or if it’s going to just decrease your 2008 tax return? Read my article that answers whether the rebate payment is a loan or not.

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My wife is involved in a few “mommies” forums on the internet and ran across a discussion about the upcoming economic stimulus package. Many of the ladies were saying it was a loan and not really a rebate at all. I had read/heard similar things while browsing the internet as well. Before I answer the question, let’s understand a little more about the package and it’s intent:

What is the economic stimulus package and why are we getting it?

The economic stimulus package is a tax rebate that more than 130 million households will receive starting in May. The tax rebate is not taxable, and it won’t reduce your 2007 or 2008 refund. It also won’t increase the amount you owe when you file your 2008 return.

The purpose of the stimulus package is to encourage consumer spending in order to boost the economy. The US Government is hoping that people will use the funds to purchase items and thus raising consumer spending and sales.

How much will I receive and when will I get it?

Payments will begin in May with all payments to be mailed out by the beginning of July. In order to receive the rebate, you must be eligible. You are eligible if you meet the following requirements:

• Have a valid Social Security Number (SSN)
• Show a qualifying income of at least $3,000 on your 2007 federal income tax return.
• If married filing jointly, both people listed must have valid SSNs. If one doesn’t, you are not eligible

How much you will receive depends on a few factors including: Your income, whether you file individually or jointly and the number of children you have.

For individuals you will receive between $300.00 – $600.00. Those filing jointly will receive between $600.00 and $1,200.00. Those who have children will receive $300.00 for each eligible child. Eligible children include those eligible under the Child Tax Credit and those having valid SSNs.

Be aware, the rebate payments are reduced at higher levels of income. Those with higher incomes may receive a reduced payment or no payment at all. You can read more about this here.

Is the economic stimulus package a loan or not?

No, the economic is not a loan. Think about it, a loan would defeat the purpose of the package. If it was a loan, people wouldn’t spend it as they know they would need to pay it back soon. There are a number of people on the internet saying otherwise, but it isn’t true. The money is begin given to you so you’ll spend it. This is straight from the IRS FAQ:

Q. Will the payment I receive in 2008 reduce my 2008 refund or increase the amount I owe for 2008?

A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 return.

Since it is a 2008 stimulus package, you are getting the money early. The actual amount of your final rebate will be calculated based on your 2008 tax return. If you are due more money than you received in your early rebate payment, than that will be included in your 2008 taxes, if however you received too much, you will not have to pay it back.

Additional resources:

• IRS Basic Information on the Stimulus Payments
• IRS Economic Stimulus FAQ
• 2008 Economic Stimulus Package Explained at Cash Money Life
• What To Do With The Fed Economic Stimulus Package Tax Rebate? at Moolanomy
• Congress to Pass Stimulus Package While the Band Plays On at The Dough Roller
• Will the Economic Stimulus Package Really Stimulate? at Credit Withdrawal

What are your thoughts on the package? Think it will make a difference? Where is the money coming from? Add your thoughts in a comment!

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