Friday Gathering: BCS National Championship Edition

Congratulations to Alabama! I’m not really a fan of the Tide, but Ron is. Here are some articles that I found interesting this week and I hope you can find some useful tips:

Being Frugal found 101 Ways to Cut Your Spending This Year! I need to go through this list again.

Amateur Asset Allocator posted an article that might help me out: 401k Hardship Withdrawal Rules since I cashed out an IRA account this last year. I hope to qualify under the “money to pay your mortgage in an attempt to avoid foreclosure” exception.

Frugal Dad warns us that Delaying Roth IRA Contributions One Year Could Cost You $74,000. Yikes!

Another warning (I’m starting to sound like Mom) comes from Mighty Bargain Hunter: not tracking your spending can have repercussions. Yep.

Did you know that life insurance benefits are not taxed? (:whisper: Don’t tell the Democrats) I assumed they were taxable at least under the estate tax. Jim at Bargaineering compares life insurance benefits to car insurance benefits – not taxable. Life Insurance dividends might be taxable. Check out his post for more details.

Christian PF commends the giving spirit that is still alive and well in the United States. I think that Americans would give even more if taxed less . . .

Hope your first week of the new year was a good one! Have a great weekend and do not just spend money, spend time with family. The Stew household went sledding today. It was a blast!

Article by Stew

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6 Tips to Save on Filing Your Taxes & Preventing Penalties

The following is a guest post from Manuel Davis. Manuel is a tax accountant and writer who has helps individuals resolve various problems relating to unpaid taxes.


6 Tips to Save on Filing Your Taxes  Preventing Penalties

It is very common for taxpayers to end up paying more in fees and penalties on their annual taxes than they should. Below are 6 tips that can help you avoid unnecessary expenses and penalties that many taxpayers incur each year.

  1. File Your Own Taxes:

    If you do not have a complex tax return you can save quite a bit of money by filing your tax return on your own. There are many computer programs and online solutions that can make filing taxes extremely easy, even if you know very little about taxes. If you made less than $56,000 (amount could change slightly, updated on IRS site January 15th) in 2009 then you can file for free using the IRS’s FreeFile. The Free File program allows free federal income tax preparation and electronic filings through a partnership between the IRS and the Free File Alliance LLC. If you made over $56,000 you can use various other programs that are similar to FreeFile but will charge a fee (which is typically much less than if you went to a tax professional). Some of the most common programs are TurboTax, H&R Block, and TaxACT.

  2. Find a Good Tax Professional:

    If you do have a complex return (you own stocks, bonds, mutual funds, rental properties, a home) then it is a good idea to hire a good tax professional to help you prepare your return. Even though these tax professionals can sometimes be a bit pricey, you will likely save money overall because of the additional deductions they will likely find that you may not have thought of. When finding a tax professional it is a good idea to be weary of the storefront tax professionals. Sometimes the storefront tax professionals are just seasonal tax preparers and they are doing tax returns for extra money (sometimes they can be good, just generally not as good as year round tax professionals).

  3. Do Not Efile Unless It Is Free:

    Many programs like FreeFile
    from the IRS as well as others will allow you to efile your taxes for
    free. However, where many software programs like TurboTax and others
    make additional revenue by efiling your state tax filing. Unless you
    need your refund ASAP, you can save $35 to $50 dollars easily by just
    printing out your state tax return and mailing it in instead of efiling
    it.

  4. Prepare Taxes Early & Take Your Time:

    If you gather your documents and plan on doing your taxes well before the April 15th filing deadline then it is much more likely for errors to be avoided. Waiting until the last week does cause pressure to rush and it is much more likely to miss deductions or make simple mistakes that can mean hundreds or thousands of dollars. Even if you plan on going to a tax professional it is a good idea to get started early because they too see a rush of clients in April and are more likely to make mistakes.

  5. File Your Taxes On Time:

    Not filing your taxes on time is the most important thing you can do to prevent unnecessary penalties. Most people that do not file their taxes usually do not file because they know they cannot pay what is owed. Not filing because you cannot pay is the worst thing you can do. In fact, the penalty for not paying is much less when compared to the failure to file penalty. The failure to file penalty is 5% a month of the total amount of taxes owed. This penalty will be charged until it becomes 25% of the tax amount owed. Even if you forecast that you will not owe taxes, not filing will prevent you from receiving any type of refund. Moreover, if you fail to file after 3 years, your refund can be relinquished and the IRS in many cases may file a “substitute of return” for you which will not include all deductions and possible credits (often times leading to a tax liability).

  6. Pay Your Taxes On Time:

    The penalty for not paying your taxes on time is a half of a percent for each month that the tax remains unpaid. If you cannot pay your taxes on time or in full it is important to work with the IRS in order to prevent penalties from adding up. If your balance remains unpaid the IRS can place a lien on your assets and they will eventually levy (seize) assets as well. The IRS does have many options available to those taxpayers that cannot pay their taxes. The most common way for individuals to pay their taxes if they cannot pay in full is by setting up an IRS Installment Agreement. An Installment Agreement will allow you to pay back taxes in monthly payments until the entire balance is paid off. With an installment agreement you will still have to pay interest on the outstanding taxes owed but the failure to pay penalty is lower (50% less) than what you would pay if you did not setup an agreement like this.

Being aware of the common pitfalls that many Americans fall into each year with filing their taxes can better help you avoid them. The best thing you can do in order to prevent unnecessary charges and penalties is to start your taxes early and if any problems arise be proactive about finding a solution for them. The IRS is much more accommodating to problems than most people realize and it is likely they will work with you to find the best solution.

image source: alancleaver_2000

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Success and Failure from 2009

What went well:

0% APR Balance Transfers: Believe it or not, I did several 0% APR balance transfers throughout the year to help us over the rough patches. So far, with no problems. This is really a risky strategy, I do not recommend it, but it has worked for us in a pinch. Unfortunately, these credit card balance transfers do not come free anymore. I had to pay a 3% balance transfer fee for all three that I took out.

Blogging: I have been a blogger in one sense or another since 2006 and 2009 was the first year that I earned regular income from this “hobby”. I hope to continue this trend.

Health: Poor health may have been the “straw that broke the camel’s back” for the Stew household in 2009, but fortunately, we had very few expenses in this area.

Child care: This was a lot of work for Mrs. Stew, but we would not have made it through the year without her hard work taking in children during the week.

Selling our house: The house was on the market for 16 months and the realtor only showed it three times in that time and it sold on the third showing. I am glad that we continued to stay current with our payments even though it was extremely difficult.

What didn’t go so well:

Budgeting: Spending did not go out of control for us in 2009, but we fell out of the habit of keeping track of our financial picture through the use of a written budget. To a certain extent, this was because just before we sold our house, the picture had become so bleak that I avoided looking at it.

Cashing out my SIMPLE IRA: I wish I had not done it, but faced with the same scenario, I probably would have been forced to make the same choice. Tough call, but we needed the money . . . still waiting to find out the exact tax ramifications of this decision. Of course, the market rebounded significantly since I shut down the account. Figures.

Ya’ win some and ya’ lose some.

Article by Stew

Photo by gluemoon

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Budget for 2010: 4 Moves to Achieve your Financial Goals

I think it is important to review your personal finances at least once a year. At the beginning of each year, I sit down at my kitchen table and talk about finance with my wife. We update our balance sheet to determine our net worth, we look at our previous year’s balance sheet to see how it went and make sure that we have increased our net worth year over year. In order to make it grow, you can only change to 2 things:

#1 Increase the worth of your assets

#2 Decrease the amount of debt

Then, it’s only a matter of priorities to know if you should use money from your budget to buy assets (a house, condo, investments or to create a company) or improve existing assets (do home renovations, review your investment allocation, invest in your own company).

You can also decide to pay off debt. While going through your budget, you can move money from one expense category towards one of your debts and apply the snowballing effect to become debt free faster.

But before playing around with your budget, you must know if you have followed it throughout last year. So here are the 4 moves I make when looking at my budget for 2010:

#1 Review my budget

I actually log all my expenses in Microsoft Money in order to track them and see if I was able to stay within my budget constraints. From my personal experience, I have learned that setting a budget on excel with my thoughts on how much I spend per month vs cross referencing my “real” expenses on a monthly basis is worlds apart. Unfortunately, I am spending a lot more money on dining out than I thought I was… And I have a tendency to spend more for my children on less useful stuff than I would like to (sometimes the sparkle in their eyes distracts me from my budget!). While I really like Microsoft Money, some of you might prefer other software to track your expenses and create your budget. Here are a few resources:

Microsoft Money

You Need A Budget Review

Quicken

Mint


#2 Establish my Budget Priorities for 2010

Depending where you are in your financial life, you might decide to improve your retirement savings plan contributions or pay down your debt. In order to establish if I should press on the accelerator to increase  my assets or hit the brakes to reduce my debts, I ask myself 2 questions:

A) Do I make more money by investing in my assets than what I save by paying down my debts?

Since my mortgage rate is pretty low, I have decided to keep my payment as is and invest more money in my online company and the stock market. While I am paying 1.125% (this is a major advantage to work for my bank…) on my mortgage, I am fairly confident in my ability to invest and make a better yield over the long run. I would actually determine a 6% interest rate as a deal breaker in my decision. If I have any of my debt on credit cards, I would either start paying it off as fast as I can or use a 0% transfer balance credit card in the meantime if I have a great investment opportunities. So if you have high interest debts, you should prioritize paying them off before allocating more resources to improve assets in your budget.

B) Do I have important debts that could prevent me from doing other projects (creating assets)?

If you are looking to buy a house or contracting a loan to invest in a project, you might want to get rid of your other debts first. Sometimes, credit card balances or lines of credit can increase your total debt service ratio (debt payments divided by income) and banks won’t allow you more credit for other projects. While I don’t have any outstanding debt on my credit cards, I owe my parents $31,000 (that is due in November 2010). This is why I will organize my budget in order to allocate more money towards paying this debt off. I certainly don’t want to go on vacation or renovate my house before paying my parents back!

#3 Review your budget tool

Once you have looked at your budget to see if you are on track with your lifestyle and what you thought you were spending and that you have selected your budget priorities, it is time to make sure that you are using the right budget tool. Your budget can be as simple as an Excel spreadsheet or you can use online software to help you manage your expenses. Here are qualities a good budget must have:

-         being flexible

-         being simple and user friendly

-         offering the possibility to break down your expenses

I have listed a few resources for you to try:

- My homemade Excel Budget spread sheet (simple and user friendly)

- Mint (free)

- You Need a Budget (fees)

#4 Pay Yourself First

This is probably the most important part of your budget for 2010: apply your budget and pay yourself first. No matter what your budget priority is for 2010, you must put this on the very first line of your budget and try to maximize the amount allocated to it. Most of the time, this is where people fail. They do a nice budget, review it and setup their priorities. But then, you must be able to sacrifice a few expenses and stick to your budget.

So this year I have made my 2010 budget priorities:

#1 Pay back the loan from my parents

#2 Invest in my online company

#3 Renovate my living room

What about you?

I would be curious to know what are your 2010 budget priorities?

Author: Mike.

Image source: image8.com, net_efekt, James Cridland, fotographix.ca, Mathieu B.

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Financial Goals for 2010

This is kind of a traditional post for this time of year, you know, with new year’s resolutions and all. My philosophy is that most life changes work best when they are started at any point during the year. For spiritual, physical, relationship resolutions there is no better time than the present. One time I got a bad report from my doctor and as I walked to my car, I committed myself to a healthier lifestyle. And I made up my mind to start right after I had one last Spicy Chicken sandwich value meal from Wendy’s . . . that particular decision never stuck . . . When it comes to changes in financial goals, the start of a new calendar year provides a nice clean slate.

Here are the financial habits and goals that I hope will characterize the 2010 financial year in the Stew household:

  • Continue to limit the amount of money that I spend on going out to eat for lunch. I think that it is reasonable for me to spend $10 one day a week. Another way to take care of our out-to-eat money is for me to help Mrs. Stew around the kitchen a little more. Sometimes we go out to eat in order to give her a break, but maybe I could be better about giving her a break by working a little harder in the kitchen myself.
  • Pay off my college loans. I have around $1,600 remaining on my school loans, I hope to use our federal tax refund for that purpose. This will save us the $70 payment every month. Then we can turn our attention to Mrs. Stew’s college loans.
  • Put a big hurt on our car loan. We have around $11,000 remaining on this loan, but currently the APR is around 9%. Since selling our house, our credit score has soared and our income to debt ratio has improved a great deal. I hope to refinance at a significantly lower rate, but still make the same payment that we have been making for the last three years.
  • Start saving for retirement again. I do not know where the money will come from, but I hope that by the end of the summer, I can find a way to contribute to my company’s 401K match.
  • Set up a regular allowance for my children. I do not have a lot of money to give them, but I need to teach them good financial habits and they cannot learn without some kind of regular income.
  • Fine tune our budget. It has been some time since we have gone over our budget with purpose and I know there is $50 or $100 in there that can be taken from the spending side and placed on the saving side.

What are your financial goals for 2010?

Article by Stew

Photo by nDeviltv

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