Money Management

Loans are terribly hard to come by in 2010 because banks have tightened their standards, people are short on savings and income due to the lingering impact of a severe recession, and credit scores need to be higher than before in order to secure a reasonable loan. So many American taxpayers are eager to get any IRS tax refunds that are owed to them because they or their employers overpaid into the IRS fund that takes out estimated taxes on a regular basis. If that estimate was too high – and people paid in more than was necessary to meet their tax obligations – then the IRS does everything in its power to promptly refund the difference owed to the taxpayer. But many tax preparation businesses or other short-term money lenders also offer to give people their refunds ahead of time, in exchange for an added cost, so that taxpayers can essentially enjoy a cash advance on their upcoming IRS refund.

These short term loans are also called “tax refund anticipation loans,” and they are making a big comeback in 2010 because so many people are short on cash and want to use the tax refund loans to get their refund money early. They are convenient loans, but the downside to them is that the interest charged on them can run as high as 500 percent for a $300 loan over a 10-day repayment period, according to the study from the National Consumer Law Center and the Consumer Federation of America. Another way of looking at these loans is that they carry effective interest rates of 77 percent to 140 percent for a refund loan of $3,000 – which is the average amount of most of these loans.

That may be justifiable if you have a dire emergency and must use a tax refund anticipation loan to cover your expenses in 2010. But otherwise there are many other ways to borrow money at a much cheaper rate, and consumers and taxpayers are advised to first exhaust their more affordable and user-friendly loan options before resorting to a tax refund loan.

The demographic population of senior citizens is the fastest growing one in the USA, and as that segment of the population ages there is more and more need to shop for retirement homes and senior care facilities. Here are some ideas to keep in mind while looking and doing retirement planning:

• Plan for the an Unexpected Future

Perhaps the biggest mistake that people make when paying for membership in a retirement community or assisting living facility is that they fail to ensure a continuum of care. If you live in a great senior community, for example, it might serve you well right now but if you later get sick or disabled it could be no longer appropriate for your needs. Try to buy into facilities that offer a continuum of care that includes independent living, assisted living, nursing care, advanced nursing care, and an Alzheimer’s care component. Otherwise you might have to move later and that be costly – both in financial terms and in terms of your emotional attachment to a particular home.

• Consider the Location

Seniors often become isolated from others like friends and family as those other people get older, die, or move away from home to other places. Try to anticipate this kind of migration away from the senior and locate their home in a place where they will still be surrounded by a close-knit community of people who care about them and can give them the kind of social interaction that every healthy person craves.

• Check References and Financial Information

Since this kind of living arrangement is expected to go on for years into the future, it is critical that the facility you invest in has a solid financial base and excellent client references. Otherwise you could find yourself belonging to a facility that goes bankrupt or sells out to a larger or more impersonal company, and that could be a game changer.

So whether you are a senior looking for this kind of living arrangement for yourself or you are a younger person who is helping a parent or grandparent look around for the best kind of senior living situation, you will do well to keep these points in mind.

Nothing is harder during tough economic times than to set aside money for some future date that may be years and years away, and that is why everyone should establish a system that automatically saves for their retirement. Once you get some money into your account or hands, you have to decide what to do with it, and that usually means that you will spend it on whatever bills or purchases happen to be staring you in the face at that particular moment in time. Retirement seems far away and less important, but before you know it you will be facing a retirement without an adequate nest egg to fund you after you stop working. To avoid that scenario, just set up an automatic system of retirement saving that requires no thinking or deciding.

The easiest way to do this is to open some kind of individual retirement account, and if you don’t have one at work you can easily set up a ROTH IRA – which is a user-friendly type of retirement savings account that grows over time without future tax implications. You fill out a little paperwork and submit it to the company where the account is held, and then every month you designate that a fixed amount of money gets swept from your bank account into this retirement account. It happens before you ever see the money, automatically, so you save every month without having to do anything extra. If you can’t afford much, for instance, you can have $50 or so moved to your retirement fund at the top of each month. If you can afford more, then all you have to do is just designate a higher amount.

Because the savings happens before you have a chance to handle the cash – since it is skimmed off the top as soon as your paycheck goes into the bank – you will probably not notice it or miss it. Soon the habit will grow into a substantial savings, too, because even if you only put in $50 a month that works out to $600 a year. In a retirement account that gains a meager five percent per year that $600 will grow into more than $1,000 over ten years. But since you’re putting in $600 each year – not just for one single year – you’ll have many times more than that within a few years, and a huge chunk of cash to enjoy when you hit retirement age.

Each year we read tax tips about how to legally pay less in taxes. But another thing to stay informed about if you want to avoid trouble with the IRS is red flags or warning signs that might potentially trigger closer looks from the tax authority and even an IRS audit. Here are some ways you can help ensure that you stay beneath the IRS radar.

• Don’t be a Loser

The IRS expects that during difficult economic times many people with file negative returns or returns that show that they either broke even on the year or lost money, instead of making money. But if you remain in that status year after year, the IRS will start to get suspicious that you are just saying you lost money in order to avoid paying taxes on your earned income.

• Don’t Take Ridiculous Deductions

Maybe you gave to charity last year, or maybe you had some business expenses. You might have done some travel for your business or taken some extra continuing education classes and the tuition will qualify as a tax deduction. That’s great, and you deserve deductions. But when you start filing deductions that are preposterous – like saying you gave $30,000 to charity but you only made a gross income of $50,000 – then the IRS is probably going to take a closer look at your accounts.

• Don’t Forget Your Marriage or Divorce

There can be tax advantages for filing as a single person, and in other situations it can be financially beneficial to file as a married person. But you need to file based on your actual marital status according to the rules and guidelines of the IRS. If you conveniently forget whether you are married, single, or divorced just to save some money on your taxes, the IRS will probably notice and give you a rude reminder.

Another red flag is to fail to acknowledge income that you have. The IRS will see your income information because it will be sent to them by banks, brokerage firms, employees, and others who paid you. So just because you don’t mention it does not mean that the IRS does not know you earned it and owe taxes on it.

Now that the tax year 2009 is over and the new year is here, many Americans are starting to make plans for tax preparation and filing of IRS form. Soon the April 15th deadline will be here and many people – despite their best efforts to get organized in time – will be faced with a deadline they cannot meet. But if you find yourself in that situation, don’t panic. There is a legitimate system for dealing with delayed tax filing, and every year thousands of taxpayers take an automatic extension on filing their taxes – a step that is perfectly legal and okay with the IRS.

 

You cannot simply skip the deadline without notifying the IRS, however, and if you do that you can expect to pay stiff penalties. You might even get audited if you forget to pay on time or miss the deadline due to your procrastination. But filing later is permitted, as long as you follow the rules.

What you want to do if you are going to need more time to prepare your tax returns is to file a form that the IRS provides for an automatic extension. You can get an automatic six-month tax extension – so that instead of filing in April you file six months later – by filling out and submitting an IRS Form 4868. You must file this Application for Automatic Extension of Time to File U.S. Individual Income Tax Return on or before April 15th in order to avoid the late filing tax penalty. After completing the form you should then mail it to the IRS Service Center where you normally send your tax returns.

Filing late – or getting the automatic extension – does not permit you to avoid paying your estimated taxes. You need to go ahead and pay those on time, otherwise you will be charged interest for any unpaid taxes, and that interest will be calculated from the April deadline, not the extended October deadline. For details and more information about how to qualify for the extension and file properly, just contact your local IRS office.

During the recent economic recession many investors watched as the stock markets crashed, wiping out many of their gains and erasing profits from the stock and mutual fund portfolios. But there is a silver lining to the cloud, because those who have lost money on stocks can often offset those losses somewhat by using them to reduce the amount of taxes they have to pay to the IRS.

Although the rules and regulations are somewhat complex and are often changed through new legislation, tax guidelines generally allow you to deduct losses incurred in the stock market. If you bought some shares of a stock at $100 a share, for example, and held them for a year only to discover that the share price dropped to only $10 a share, you have a loss of $90 – not counting stock broker fees. In most cases you can deduct that $90 loss from your annual gross income. By doing so you reduce the amount of income you have to pay taxes on, and that can translate into a significant savings.

Another way to approach tax time in relation to stock investments is to pair whatever losses you have experienced with gains. That way the amount of taxes you are required to pay on your capital gains can be lessened due to the losses. Let’s say that you made a profit of $500 on one smart investment. You’ll be expected to pay taxes on that profit. But if within the same tax filing year you also sell some other stocks for a $500 loss, the two calculations will essentially cancel each other out and you’ll have to pay no taxes on those stock transactions.

In order to qualify for tax losses you have to sell before the end of the tax year, and there are other details and guidelines that apply – depending upon your particular situation. So, as with any tax matter, it is a good idea to consult a qualified tax specialist or financial planner before making assumptions about savings or taking steps to sell assets like stocks. But most tax professionals can help you leverage those terrible stock market losses into savings at tax time. Especially if you plan ahead and sell strategically while keeping track of gains and losses by holding on to important stock transaction documents, stock market disappointments can often be transformed into tax time benefits.

Fees for real estate brokers can be a substantial portion of overall costs, and especially during a buyer’s market like the one we’re in now, homeowners should weigh their options regarding For Sale By Owner – nicknamed FSBO and pronounced “fizz-bo” as a cost-cutting alternative.
But before choosing which way to go, it always helps to consider these four  practical points.

#1 There is More Value at Stake Beyond the Commission
Selling yourself means a commitment of time and energy, and time is money. So decide ahead of time whether you are prepared to sacrifice your valuable time – and whether it is worth it compared to what you would pay a Realtor to set appointment, deal with clients, and field phone calls about your listing.

#2 You May Still Have to Pay a Partial Fee
As a FSBO, if a Realtor brings a qualified buyer and a successful purchase offer you will still need to pay a finder’s fee. The cost could be approximately 3 percent of the sales price, and that should be figured into your preliminary calculations before you decide whether to do a FSBO or hire a pro. Of course you can refuse to work with Realtors, but you may be handicapping your marketing efforts since they have access to most of the qualified and eager homebuyers.

#3 Negotiators are Worth their Fees
Negotiating is one of the most compelling reasons to hire a Realtor. The value of a professional negotiator is underscored by the fact that many experienced and highly trained real estate professionals still hire other Realtors to represent them when they sell their own homes. Third party negotiations are generally more successful, more objective, and more readily accepted by buyers – which means they accomplish better results in terms of higher prices and more favorable terms.

#4 Going the FSBO Route Doesn’t Mean You Have to Go it Alone
You can pay a small fee to include your listing in the Realtor MLS database, for example, and you can also cooperate with professional real estate agents and pay them a finder’s fee for helping sell your home. You can even hire a staging company to set up your listing so it shows like a model home, and there are even services to help you manage your appointments and marketing campaigns.

Whether you go it alone or avail yourself of the services of a professional property broker will depend on your particular circumstances as well as your own level of experience. Remember that you can always change your mind and go FSBO after trying a Realtor – or hire a Realtor after experimenting with the do-it-yourself approach.

In today’s real estate market there are thousands of great foreclosure properties for sale, and many of them are once-in-a-lifetime bargains. But before rushing out to bid on or buy a foreclosed home, it is important to first understand that foreclosed real estate can be a minefield of hidden risk and liability. Without knowing those disguised risks it is possible to purchase nothing but problems, but if you are aware of some of the pitfalls associated with foreclosures you can work to avoid them and take advantage of some legitimate bargains and values.

Many homes are foreclosed on because the owners owe considerable debt not just to the mortgage company that is doing the foreclosing but to others such as contractors or the IRS. If you accept ownership of that kind of home you also accept legal responsibility for those other debts. Many people buy foreclosures, for example, and then find that they owe the government tens of thousands of dollars in back taxes that the previous owner did not pay. To avoid buying into this kind of financial trouble it is important to do a title search and check the records at the courthouse to determine whether or not the home is being sold free of debts and liens.

Another common problem with foreclosures is that they may have serious structural problems that require expensive repairs. In order to evaluate a house for this kind of issue it is necessary to hire a licensed home inspector who can study the property and give you a full report on its current condition. But usually it is not possible to inspect a foreclosure before you buy it.

One safer alternative is to wait and buy foreclosures after they have become what are known as REO properties – which stands for “Real Estate Owned.” These are homes that went to foreclosure auctions but did not attract a high enough bid so the mortgage company didn’t sell them but kept them in its own portfolio. When that happens the lender will hire a Realtor who specializes in REO properties and the Realtor will market them just like a regular real estate listing – except that they usually sell at a deep discount.

REO properties can be inspected, they can have a complete title search done, and you can buy them with a standard mortgage – instead of having to pay cash like you do at a foreclosure auction. So you can invest in a foreclosure without the added risk if you shop for REO properties instead of full-fledged foreclosures, and for the novice investor that is usually a less risky way to participate in today’s attractive foreclosure markets.

Almost anyone who knows about real estate also knows that springtime is the peak time to sell a house – because the weather is warm, buyers are out looking at houses, and houses also look their best with flowers blooming in the yard. But one of the smartest buying tips – and one that nobody ever tells you about when you are in the market to buy a house – is to buy in winter. That is perfectly logical if you think about it, because if spring is the season that is best for sellers, the opposite season will naturally be the best one for buyers.

Many houses for sale in the cold months are still on the market because they could not attract a buyer over the summer. Homeowners in winter usually have to pay more money for utilities to keep them warm, and the longer they hold on to unsold property the more eager they are to accept an offer. Negotiate reasonably, but push for discount prices and you may get a great deal on a home that would sell for a lot more in a warmer time of year.

Not only do winter real estate shoppers get the benefit of looking when there is less competition from other buyers, but they also buy a house at a time when sellers are the most desperate and willing to offer discount prices. Realtors are also experiencing their slowest time of the year in terms of business, so they are more apt to give you their full attention. Wait until warm weather and many real estate agents – at least the really successful ones – may be too busy to show you houses. The same is true for other people who work in the real estate industry, such as mortgage brokers, appraisers, and home inspectors.

The one exception to this rule is Florida, of course, because that is where everyone goes to escape cold during the winter months. But you may save yourself enough cash by buying in the middle of a frigid winter that you can then afford to take off and fly south to Miami for a celebratory vacation.

Although very few people take advantage of it, one of the fastest paths to significant tuition savings is to buy rental property. That’s because the biggest cost in terms of tuition is out-of-state tuition, which is typically as much as 10 times higher than discounted in-state tuition. But many students do not want to go to a university close to home, and to pay for going to a college in another state they have to pay an extraordinary amount of money.

In order to qualify for in-state or local tuition discounts, you have to be a resident of the same state where the college campus is located. The way that most states verify residency is that they require that you can either prove that you have lived in the state for at least a year – by showing them things like utility bills or tax returns. But many states also allow residency status to people who own real estate in their state. Owning real estate means you have to pay local taxes, and it is those taxes that fund or subsidize tuitions to make them more affordable.

So you can buy a home – even if it is just a small condo – in a college town. Your kid who is going off to college can live there and share the rent with another student to help generate some rental income to pay the mortgage. Buy a house and you may be able to rent to several students and even make a profit on your college town rental property. If owning the home qualifies you for in-state tuition discounts, the money saved on a college tuition over several years is probably enough to cover the whole down payment.

Owning rental property also allows you some tax deductions for landlord-related expenses like trips to go check on your property, so you may be able to deduct the cost of visiting your child while they are away from home by combining the visits with your landlord responsibilities. Once your child graduates you can either sell off the real estate or keep it as rental property if it is a profitable venture.