Archive for the ‘Financial’ Category
6 Tax Terrors and How to Overcome Them
by Kay Bell
Source: Yahoo Finance
Admit it. You’re afraid of your 1040. That’s OK. A lot of us are. And our tax fears, sometimes irrational, sometimes warranted, cause us to do a lot of dumb things when it comes to our annual returns.
Some people put off filing, some don’t file at all. Neither of those choices is a wise tax move.
But fear doesn’t have to paralyze you. Here are six common tax terrors. Some are real. Some aren’t nearly as terrifying as you might think.
Regardless, you’ll find out just how you can conquer your tax terrors, get your returns done in a timely manner and possibly save a few bucks once you’ve overcome your filing fears.
1. Afraid I can’t do my taxes myself
This fear, unfortunately, is too often true, in large part because of the ever-expanding tax code. Tax law publisher CCH Inc. notes that in 1919, it took 400 pages in the company’s Standard Federal Tax Reporter to discuss the legislative, administrative and judicial aspects of the tax laws. The 2011 edition covers more than 72,000 pages.
With numbers like that, it’s no wonder that the average taxpayer feels overwhelmed. And speaking of numbers, Robert Simon, partner at Eisner & Lubin in New York, notes that “many people aren’t good with numbers. Then once a year they wind up trying to deal with numbers.”
The remedy: Don’t be afraid to ask for help. Most of us already do. The IRS says around 80 percent of us rely on tax software or tax professionals to get our tax job done.
You have lots of preparer options, from a personal accountant who can fill out your return and help you plan throughout the year to franchise operations that gear up between Jan. 1 and mid-April. If your tax situation is not overly complicated, computer software might be enough to help you file with a bit more confidence. Take a look at your tax needs, then find the tax assistance that best meets them.
2. Afraid I’ll overlook a tax break
Even folks who are brave enough to tackle their taxes on their own often face this fear. Again, it’s not an unreasonable one. And once again, those folks in Washington, D.C., feed this fear.
Take, for example, the various tax laws created in response to the recent economic crisis. The first-time homebuyer credit was changed three times in less than two years. Definitions such as who qualifies as a first-time purchaser, would make Merriam-Webster editors scream. And there are all sorts of limits and demands for various homebuying situations.
The remedy: Accept that tax filing is going to take some homework. Before you start your return, check out the countless publications — including Bankrate’s tax channel and annual tax guide.
3. Afraid I’ll make a mistake that will cost me money
This is a close relative of fear No. 2. But here, the fear is not of omission, but commission.
This includes things as simple as filing the wrong tax form. It happens. In trying to get through filing as quickly as possible, some folks opt for the easy way out, in this case, the 1040EZ, and end up cheating themselves. Or they choose the incorrect filing status, such as single when they’re eligible to file as the more tax-advantageous head of household. Those are just a couple of the many mistakes that filers make every year.
The remedy: Slow down. You still have plenty of time to do it right. Read the instructions. If you’re using software, don’t skip steps just to finish. Answer all your tax pro’s questions. If he or she says to provide more information, then provide it. A little extra work and attention to detail could cut your tax bill or get you a bigger refund.
4. Afraid that my tax adviser is incompetent or a crook
You know you need help, but you’re afraid that the person you turn to could be more of a hindrance. Unfortunately, sometimes this fear is well-founded. A few years ago, a Government Accountability Office look into commercial tax prep chains in major metropolitan areas produced the alarming finding that all the returns completed in those offices were wrong to some degree.
The Department of Justice’s Tax Division regularly shuts down tax preparation offices across the United States when it finds the operators have allegedly filed bogus returns for clients. And yes, even big name, high-dollar help sometimes produces unexpected tax costs for clients.
The remedy: The IRS is hoping to reduce such mistakes with new regulations on paid preparers. Until then, it’s up to you.
To make sure you don’t end up paying for your tax preparer’s mistakes, start with the hiring process. Investigate several potential preparers and thoroughly check out each before you hand over your personal tax documents. Once you’re a client, don’t take every recommendation at face value. Ask questions and make sure you understand the answers. Most of all, remember the adage “if it sounds too good to be true, it probably is.”
5. Afraid I’ll get audited
Everyone dreads facing a tax examiner. But audit fears tend to be much greater than audit realities. The overall risk of audit remains small. In recent years, IRS data show that its audit rate hovers around 1 percent for individuals earning less than $100,000. The agency also has admitted that it is now going after wealthier taxpayers since any filing mistakes there tend to produce a larger return on the audit effort.
The remedy: Statistics don’t matter if you’re one of the relatively few audited. If that happens, make sure you can show an IRS examiner why you filed as you did. “If you’re really doing stupid things on your tax return, expect to get audited. Deservedly so,” says Eva Rosenberg, an enrolled agent based in Southern California and the Internet’s Tax Mama. “But if you’re afraid to use a legitimate tax break because you’re afraid you’re going to be audited, stop it! Stand up for your rights. There’s no reason to be afraid.”
Keep good records. If you can prove the tax break was valid, you’ll be OK. People who work for themselves and file Schedule C do tend to get scrutinized a bit more, so your business record keeping needs to be precise.
6. Afraid to file because I can’t pay
The only thing scarier than filing taxes is what could happen if you don’t file. The IRS penalty for not filing is actually worse than if you file but don’t pay your tax bill in full. It’ll cost you 5 percent a month on any unpaid tax if you haven’t sent in a 1040. Send in the return but no money, and you’ll only be charged one-half of 1 percent of the tax owed for each month.
The remedy: File! And file on time. Then make arrangements to pay. That way you’ll avoid taking that hardest tax penalty hit, which could reach a cumulative 25 percent maximum penalty.
If you can’t afford to pay your full tax bill, send Uncle Sam at least a down payment. As for coming up with the rest of the tax bill, consider using a credit card; just use the card that has the lowest interest rate. The IRS also has payment plans. Though these add interest charges to your tax bill, rates right now are low. And at least you can be assured that you’re meeting your filing and payment obligations.
Feed a Family of 4 on $10 a Day
by Sarah Lorge Butler
Source: CBS MoneyWatch.com
When I was growing up, my mother would serve something she called “economy dinner.” Pasta, sauce, maybe a quarter-pound of hamburger meat mixed in and a little cheese sprinkled on top, baked together in the oven. We didn’t understand the name, but we loved the dish.
I was thinking I need to find my own “economy dinner,” as I had yet another supermarket freak-out while watching my grocery receipt print out and curl down two feet behind the register. At home with the receipt in front of me, I decided to crunch some numbers to see if I could feed my family of four for less than $100 a week.
Would it be possible to do 84 meals for less than $100? With room to spare, it turns out. According to my calculations, we could do it on $72.38. We’d be crying of boredom after Day 2. But we wouldn’t be hungry.
If we ate cereal and milk for breakfast, a PB&J and an apple for lunch, and protein-enriched pasta with store-brand marinara and a couple of carrots sticks and broccoli or green beans for dinner, we could get by on $10.34 per day.
I won’t bore you with the math, but this meal plan cuts out all the extras. No snacks, no OJ, no organic milk at $5.99 per gallon, no Parmesan cheese sprinkled on top of that pasta, no frozen yogurt at night in front of DWTS. The husband brown bags it to the office. I’ll admit I included my coffee, at $2.15 per week, because I consider it essential, along with milk for the kids at every meal.
This exercise has been an eye-opener for me. Now that I know our family’s bargain-basement dinner costs $3.40, I see the foods I thought were cheap (like a large pizza for $10) are pricey in comparison. And the foods I knew were expensive, such as a $10 steak, fish that’s $14 per pound, or deli meat at $8.99 per pound, now seem top dollar.
Some of the splurges, like the organic milk, I’d opt to add back in. But that package of Pepperidge Farm Nantuckets does more to the bottom line (both bottom lines, really) than I’ve cared, up until now, to realize.
To get out of our pasta rut, I consulted with Leslie Bonci, a dietician at University of Pittsburgh Medical Center, about other nutrient-rich foods that pack a lot of bang for the buck. Here’s what she suggested:
• Eggs: 99 cents per dozen, can be breakfast, lunch, dinner or hard-boiled for snacks.
• Canned beans, like kidneys or chick peas: 79 cents for a 16-ounce can.
• A five-pound roasting chicken ($5) could yield two dinners. For the first meal, roast with potatoes and carrots and eat half of the chicken. For the second meal, make a stir-fry with the leftover chicken and a bag of frozen mixed veggies ($1.29 for a 16-ounce bag) and serve over brown rice (99 cents for a 16-ounce bag).
• Oatmeal costs $3.69 for a 42-ounce canister and has 30 servings. That could replace at least $7 worth of boxed cereal, and the oatmeal is more filling.
• Bananas, at 49 cents a pound, cost less than most fruits, especially those “select” peaches and nectarines at $1.99 per pound. Bananas are definitely cheaper and healthier than the sugary granola bars I send in my daughter’s lunch.
• Texturized Veggie Protein, a lean meat substitute that’s a lot like ground beef and can be added to pasta sauce or tacos, is $2.69 for 10 ounces.
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