Taxes – Provident Planning http://www.providentplan.com Personal Finance for Life in the Kingdom Mon, 24 Apr 2017 02:39:29 +0000 en-US hourly 1 https://wordpress.org/?v=4.4.10 Why Hiring a Tax Professional Could Work in Your Favor http://www.providentplan.com/4777/why-hiring-a-tax-professional-could-work-in-your-favor/ Wed, 15 Feb 2017 01:54:24 +0000 http://www.providentplan.com/?p=4777 It is tax season again and you may be asking yourself, “Should I invest in a tax professional this year?” Depending on your life circumstances and the complexity of your taxes, the answer is probably yes. While we may like to cling to our tax software that allows us quick access and less face-to-face communication, sometimes there is nothing like the real thing. A tax professional can help you with a myriad of issues regarding marriage, divorce, new children, small businesses, deductions, and so much more. If you are still unsure as to whether you should hire a tax professional, here are the reasons why hiring a professional could work in your favor.

Save Money in the Long Run

In the beginning, it may seem not worth it—why pay money for something you can do yourself? The difference between you and a tax professional, however, is that they have spent many years studying the subject of tax law and refining his or her accounting skills. You may have to pay a $250 fee, but the deductions they can find will add up over time to create a much bigger refund in the end that far outweighs the cost.

Save Time

Let’s face it, in your busy life, you simply do not have the time to invest in your taxes. Or rather, you may have the time, but why do it yourself anyway? If you are an especially busy person obligated to your job, your family, or other priorities, you may be spread too thin to possibly take on one more task. Not only is doing your taxes actually taxing (no pun intended), but you are likely to make more errors if you are under additional stress.

Reduce Errors

As mentioned above, there is always a chance you will make an error. In all likelihood, however, a tax professional will be more adept at finding potential errors and either preventing them or fixing them. This will reduce the chance that the IRS contacts you with a discrepancy or that you suffer a penalty for some unintended reason.

Get Expert Advice

There are tax professionals, such as financial analysts and certified public accountants, who are more than qualified to give you his or her expert advice. This is something that tax software can’t do—put a human touch on the finance experience. Form a business relationship with a tax professional so that you can consult them in regard to you financial future. Whether you wish to fine-tune the finances of your business, ensure the financial security of your family, or plan your next vacation, there are many ways a tax professional can put you on the right path in order for you to achieve your goals.

Representation During an Audit

If you ever have a reason to be represented before the IRS, many tax professionals are qualified to do so. Attorneys, enrolled agents, and certified public accountants are all certified by the IRS to have unlimited rights to represent the tax payer before the IRS. Whether you received an undo penalty, an audit, or a Notice of Intent to Levy, a tax professional can ease your troubled mind by putting in the muscle-work for you. Their dedication to supporting you will prove to be instrumental as you navigate those times. In addition, audits have increased. You are more likely to get audited more frequently now than in the past. Therefore, you will want someone on your side who can gather all of your records or and represent for you. If you are having issues regarding your taxes, a professional can help you by helping you benefit from the IRS fresh start initiative.

Peace of Mind

At the end of the day, it just feels better to know that you are in good hands. A competent and ethical tax professional will work to give you the best out of your refund while remaining in the bounds of tax law. You can be confident that your trusted tax professional will look out for you and your financial wellbeing.

 

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Would Jesus Support the Buffet Tax Law? http://www.providentplan.com/3869/would-jesus-support-the-buffet-tax-law/ http://www.providentplan.com/3869/would-jesus-support-the-buffet-tax-law/#comments Mon, 14 May 2012 10:00:58 +0000 http://www.providentplan.com/?p=3869 A few weeks ago, the Senate rejected a new tax initiative to tax the wealthy of the United States. The senate’s rejection on what is being called the Warren Buffet Tax law is stirring up some debate about tax initiatives. The law was inspired by Warren Buffet’s declaration that wealthy individuals are paying lower effective tax rates than the middle and lower classes. With a tax structure that is already designed to tax the wealthy at higher rates, many individuals are asking whether it is fair or right to tax the wealthy more.

Influence of Politics

If not already obvious, one’s perspective on this tax law (or any tax law in general) is largely shaped by one’s political stance. There are many reasons why it is opposed. Many individuals believe that taxing the wealthy more would reverse this sense of capitalism which fuels our economy. In other words, it would encourage them not to earn more money and therefore stimulate the economy. Perhaps even more convincing, many suggest that taxing the wealthy would limit their ability to provide more jobs and/or business for the economy. If the government took more money, they would cause greater expense to them and limit the money they are able to invest in growing sustainable commerce.

On the other perspective of things, it is the wealthy who live comfortably. Despite the recent economic recession, the wealthy were not burdened with the worry about making ends meet as much as the middle and lower class. In the same way that the Widow’s offering. Where, as we learn in the bible, she gave out of her poverty. While the importance of that story is to emphasize that it’s the sacrifice that matters, it also reminds us that it is much more difficult for those with less money to give. Those in favor of the tax bill are also fueled by the fact that Mitt Romney had an effective tax rate of 13.9% on his some 20+ million dollar income in 2010.

Would Jesus Support Higher Taxes on the Wealthy?

In light of the recent debate, I felt it would be interesting to investigate Jesus’ response to the situation. What would Jesus do? I am sure many of you recall the popular WWJD bracelets from the 90’s. They were a popular fad. Many of my friends in high school had them and wore them proudly. Despite the good intentions behind this product, these became more about proclaiming one’s identity as a Christian than asking a genuine question to follow in Jesus’ footsteps.

While I don’t want to carry over the negative connotations with these bracelets that many people have in their minds, I do want to ask the question of what Jesus’ response would be – as this will help inform what a Christian response might be. Despite my initial assumption, I have actually come to understand that it isn’t as clear as we would like. Life is never that simple, is it?

Paying the Tax to Caesar

One of the first passages that came to mind when preparing this post was Matthew 22:15-22 – the challenge to Jesus about paying taxes. It reads:

15 Then the Pharisees went out and laid plans to trap him in his words. 16 They sent their disciples to him along with the Herodians. “Teacher,” they said, “we know that you are a man of integrity and that you teach the way of God in accordance with the truth. You aren’t swayed by others, because you pay no attention to who they are. 17 Tell us then, what is your opinion? Is it right to pay the imperial tax[a] to Caesar or not?”

18 But Jesus, knowing their evil intent, said, “You hypocrites, why are you trying to trap me?19 Show me the coin used for paying the tax.” They brought him a denarius, 20 and he asked them, “Whose image is this? And whose inscription?”

21 “Caesar’s,” they replied.

   Then he said to them, “So give back to Caesar what is Caesar’s, and to God what is God’s.”

 22 When they heard this, they were amazed. So they left him and went away.

The first thing to point out about this passage is that the people posing this question, according to Matthew, were trying to trick Jesus. They wanted to limit him to a simple “yes,” or “no,” as they often do in the gospels. Jesus saw through their scheme and does something quite remarkable.  Here’s a brief video by Shaine Claiborne, explaining his understanding of this passage.

In other words, Jesus’s response is not trying to place emphasis on making sure to pay your taxes. Instead, he is dismissing their simplistic question by saying taxes don’t matter. In other words, he finds a nice balance between the two extreme positions.

While it may be a healthy question to ask whether Jesus would support this law, we shouldn’t limit Jesus into picking one of two extreme positions. Doing so would greatly limit Jesus’ radical beliefs and actions. Jesus’ primary concern seems to present a way of live that is full of love and lacking mistreatment, injustice, etc. I would suggest that both positions are flawed and we have to use our best judgment to decide between the two options. This is another reason why financial rules of thumb are inadequate.

Do YOU think Jesus would support increasing taxes on the wealthy?

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Tax Tip: Combine a Traditional IRA Deduction with the Retirement Savings Contribution Credit http://www.providentplan.com/3141/tax-tip-combine-a-traditional-ira-deduction-with-the-retirement-savings-contribution-credit/ http://www.providentplan.com/3141/tax-tip-combine-a-traditional-ira-deduction-with-the-retirement-savings-contribution-credit/#comments Mon, 10 Jan 2011 11:00:28 +0000 http://www.providentplan.com/?p=3141 Uncle Sam says,        With tax time fast approaching, I thought it might be a good idea to share a tax tip with you all that I’ve found useful for my clients. By combining a Traditional IRA deduction with the Retirement Savings Contribution Credit (sometimes called the Retirement Saver’s Credit), you can reduce your taxes by quite a bit after the tax year has ended because you don’t have to make IRA contributions until April 15. You may be able to reduce your taxes (and increase your refund) by up to $2,000 with this tip.

This tip works because the size of the credit increases as you reduce your adjusted gross income (AGI). Making a deductible Traditional IRA contribution lowers your AGI. Depending on your income, you can make yourself eligible for the Retirement Savings Contribution Credit or increase the amount of your credit. Here’s what you need to know.

The Drawbacks

This tip won’t work if you’re under 18, a full-time student, or can be claimed as a dependent on someone else’s tax return. Those are basic requirements for the Retirement Savings Contribution Credit. If any one of those apply to you, this won’t work.

Additionally, this tip only works at lower incomes (and it works best at very low incomes). The problem here is that people with low incomes often have a more difficult time contributing to retirement accounts. Here are the adjusted gross income limits for 2010 before counting the IRA deduction:

  • Single or Qualifying Widow(er) – $32,750 ($33,750 if you’re 50 or older)
  • Head of Household – $46,625 ($47,625 if you’re 50 or older)
  • Married Filing Jointly – $65,500 (up to $67,500 if you’re both 50 or older, $66,500 if only one of you is 50 or older)

This tax move doesn’t work if your filing status is married filing separately because the phaseout range for a deductible IRA contribution is so small.

Finally, the Retirement Savings Contribution Credit is not a refundable tax credit. This means it will only reduce your tax liability to $0 – beyond that it won’t get you any extra money. That doesn’t mean it’s useless though. If you have other refundable tax credits, this tax tip could increase the refund you get back from those credits because it reduces your tax first.

How to Do It

Assuming you meet the requirements, your income isn’t too high, and you have some tax due, the next thing you’d want to figure out is how much you should contribute to an IRA to get the most benefit from the Retirement Savings Contribution Credit. You’re going to need to do a little math to figure this out, including considering ira rates. Alternatively, you can just do your tax return several times using different IRA contributions to see how things work out.

If you’re going to figure it out manually, you’ll need to first look at your tax due to figure out how big of a credit you need. On Form 1040, you’ll find your tax due on line 60. As I said before, the Retirement Savings Contribution Credit isn’t refundable, so you only need a credit as large as your tax due. Any more than that is useless.

Once you know the maximum amount you’d need from your credit, you’ll want to figure out how much of a credit you can get. There are two things you need to keep in mind. First, the Retirement Savings Contribution Credit is calculated as a percentage of your retirement contributions. But the credit is only calculated on up to $2,000 in contributions (or $4,000 if you’re married filing jointly – $2,000 for each of you). Second, the percentage depends on your adjusted gross income (after your IRA deduction) according to the table below. You can also find this information on Form 8880 – Retirement Savings Contribution Credit.

Filing Status 50% Credit 20% Credit 10% Credit
Single or Qualifying Widow(er) up to $16,750 $16,751 to $18,000 $18,001 to $27,750
Head of Household up to $25,125 $25,126 to $27,000 $27,001 to $41,625
Married Filing Jointly up to $33,500 $33,501 to $36,000 $36,001 to $55,500

So let’s say you’re single and your AGI is $30,000. You wouldn’t qualify for the Retirement Savings Contribution Credit unless you make a deductible IRA contribution of at least $2,250 to bring your AGI down to $27,750. That would get you down to the 10% credit range. Your credit would then be $200 (10% of $2,000). It doesn’t matter that you contributed $2,250. The credit is only calculated on the first $2,000 of your retirement contributions. But you might have to contribute more than $2,000 to make yourself eligible.

Want to see a more exciting example? Let’s say you’re married filing a joint return and your AGI is $37,500. As you stand now, you’d be eligible for the 10% credit on any retirement contributions you’ve made (this credit includes 401(k) plan contributions and similar accounts). But by making two deductible IRA contributions – $2,000 for you and $2,000 for your spouse – you can bring your AGI down to $33,500. This makes you eligible for the 50% credit and would lower your taxes by $2,000 ($4,000 * 50%). You just made a $4,000 contribution to your retirement accounts at a net cost of $2,000! I’d say that’s a good deal.

I like this tax tip because I’ve seen it work for myself and many others quite well. There are a few other aspects of this tip that I didn’t cover here, but I’ve given you enough info to get started on it. It’s a great way to boost your retirement savings while reducing your taxes – sometimes by quite a bit!

Want More Tax Tips?

If you want more tax tips that will help you keep more money in your pocket, make sure you’ve signed up for free updates to Provident Planning!

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Is Renting Throwing Away Money? http://www.providentplan.com/3087/is-renting-throwing-away-money/ http://www.providentplan.com/3087/is-renting-throwing-away-money/#comments Mon, 20 Dec 2010 11:00:46 +0000 http://www.providentplan.com/?p=3087 Rent or Buy - Your Choice!       I recently had a friend comment that renting is “throwing away money”. This is a common misconception because home ownership has been touted as the best path to building wealth and a great decision for everyone. But the truth is that renting isn’t really as bad as some would have you think. In fact, it can be the best choice for many people – it all depends on your situation.

       But specifically, I want to look at the idea that paying rent is just throwing away money. The unspoken assumption in that idea is that once you buy a home you’re no longer throwing away money. This simply isn’t true. Here are five ways you throw away money when you buy a home.

1. Mortgage Interest

       Assuming you get a mortgage when you buy a house, like most everybody does, you’re going to have mortgage payments to make. Part of those payments will go toward the principal (what you paid for the house minus your down payment) and part will go toward interest.

       The part of your mortgage payment that goes toward interest is just as much “throwing away money” as rent payments are. It’s money you’ll never get back and does nothing to improve your net worth. And on an average 30 year mortgage, it’s going to take you about 16 years before you’re paying more toward your principal than you are toward interest.

       Granted, this isn’t as big of an issue later in your mortgage and it doesn’t matter at all once it’s paid off. But don’t underestimate just how much money you’re going to be throwing away on mortgage interest – especially at the beginning.

       And while we’re on the topic of mortgage interest, let me just add that the mortgage interest tax deduction isn’t as good as you think

2. Homeowner’s Insurance

       Homeowner’s insurance can cost anywhere from about $600 a year to $1,200 a year or more. By comparison, my renter’s insurance policy costs about $110 per year and it’s some pretty good coverage. So you’re looking at an additional $500 to $1,100 or more in insurance premiums because you’re covering the entire value of the home. (Renter’s insurance is mostly just for liability and contents of the home.)

       Part of the money that’s “thrown away” in rent goes toward the insurance coverage the landlord buys for the home. So make sure you take this into account when comparing the difference between renting and owning.

3. Property Taxes

       Own a home? Be ready for your property taxes, which can be anywhere from 0.25% of the value of your home up to 3% or more. The national average was around 1% the last time I looked. So for a $150,000 to $200,000 home, you’re talking $1,500 to $2,000 a year in property taxes.

       Renters don’t pay separate property taxes on the home they’re renting. Those taxes come out of the rent they pay, but renters never see a separate bill for property taxes owed.

       And no, you can’t refuse to pay your property taxes. Do so and you can say goodbye to your home.

4. Home Maintenance and Repairs

       As a homeowner, you’re completely responsible for all maintenance and repairs on your home. These costs are going to vary quite a bit based on each situation, but I’d say a reasonable estimate would be about 1-2% of your home’s value each year. So for our $150,000 to $200,000 home, we’re talking about another $1,500 to $4,000 a year in costs. Maybe you could get away with less, but you’re looking at a minimum of $500 to $1,000 per year.

       Renters? Yeah, they don’t have to deal with these costs. They’re the responsibility of the landlord. And while you could have a landlord that doesn’t take care of the property, it’s pretty easy to move somewhere else. Which brings me to…

5. Higher Costs for Moving

       Moving tends to be much more of a hassle for homeowners than renters. It can take some time to sell a home – time you may or may not have before you need to move or start paying on your next mortgage. On top of that, you’ve got costs associated with selling that come out of your final price (commissions, inspections, and sometimes closing costs if you’re in a real hurry). Some of these costs can be reduced by doing it yourself (for sell by owner) but then you’re looking at more time and effort on your part (and you’ll still want to get a real estate attorney).

       Renters have it pretty easy here. Assuming you’re at the end of your lease, it’s no big deal to find another place and move. And if you’re not at the end of your lease, it’s probably going to cost you less to break the lease than it would cost a homeowner to sell their house.

Repeat after me: “Renting is not always throwing away money.”

       It should be clear that there are plenty of ways to throw away money if you own a home – enough ways to make it worse than renting. That’s the case for me, at least, and that’s why I plan to rent for quite a while longer. I’d need a phenomenal deal to make buying a better choice than renting at this point. And it may be the case for you as well. The least you could do is take some time to play with a rent vs. buy calculator and see how the numbers work out for you.

       I should add that I didn’t even discuss the fact that many people tend to overbuy when they become homeowners. And did I mention the desire to remodel, upgrade, paint, redecorate, landscape, and on and on and on? Home ownership isn’t quite the great financial asset many make it out to be.

(photo credit: Phil Sexton on Flickr)

This post was included in the Carnival of Personal Finance.

This post was included in the Festival of Frugality.

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The Hobby Loss Rule: What It Is and Why You Don’t Want to Break It http://www.providentplan.com/3093/the-hobby-loss-rule-what-it-is-and-why-you-dont-want-to-break-it/ http://www.providentplan.com/3093/the-hobby-loss-rule-what-it-is-and-why-you-dont-want-to-break-it/#comments Fri, 17 Dec 2010 11:00:07 +0000 http://www.providentplan.com/?p=3093 Death and Taxes - The only sure things!       Some people think starting a “business” so they can put losses on their tax return is a good way to reduce their taxes. The idea is that you’ll reduce your taxable income, which in turn reduces your taxes and can make you eligible for some credits or deductions that you couldn’t get before. Others think it can be a good way to write off personal expenses as “business” expenses and save some taxes that way.

       But the IRS caught on to this idea a long time ago and there are specific regulations in the Internal Revenue Code to prevent this kind of abuse. Specifically, section 183 of the code limits the deductions that can be taken when an activity is not being carried on to generate a profit. If the IRS determines that your activity is not being engaged in for a profit, then your allowable deductions will be limited to your gross income from the activity – thus eliminating the opportunity to offset your other income with losses.

       This section of the law, called the “hobby loss rule,” can throw a wrench in your business plans if you’re not careful. However, a little knowledge will go a long way in protecting you from breaking this rule accidentally and suffering the tax consequences. Here’s what you need to know.

What Is the Hobby Loss Rule?

       If you’re carrying on an activity that isn’t for profit, you cannot use losses from that activity to offset other income you might have. Basically, the IRS will limit the allowable deductions you take against your income from the questionable activity so that you can’t claim a loss.

What’s So Bad about Breaking the Hobby Loss Rule?

       If your business is found to be a hobby rather than a legitimate business, several bad things happen. First, your gross income from the business is included as “Hobby Income” which goes above the line and increases your adjusted gross income (AGI). This can have several unfortunate effects like making you ineligible for certain tax credits or phasing out some deductions. It also makes it more difficult to take deductions for your hobby expenses because…

       Second, your “business expenses” will not be allowed as business expenses. Since your business is considered a hobby, you have to take the expenses on Schedule A as an itemized deduction just like any other hobby expenses. These are considered miscellaneous deductions, which are subject to a floor of 2% of your AGI. This means you only get to start including the deductions after they exceed 2% of your AGI. Remember how you had to add your gross income above the line? Yeah, this is where it can hurt. Even worse, if your itemized deductions (these hobby expenses plus your other deductions like medical, taxes, charitable, etc.) aren’t more than your standard deduction, then you don’t get any benefit from your expenses at all.

       Finally, you’re not allowed to take a loss from your hobby activities. You can only offset all your income. Once you’ve done that, the rest of your hobby expenses are disallowed and cannot be used in future (or past) years. Tough luck.

Who Is Subject to the Hobby Loss Rule?

       Nearly every single type of business is subject to the hobby loss rule. If your business is structured as a sole proprietorship (individual using Schedule C), partnership, S corporation, an LLC taxed as any of those, or an estate or trust, then you need to be thinking about the hobby loss rule. The only business structures not subject to the rule are C corporations and LLCs that have elected to be taxed as a C corporation.

       So if you’ve started a little informal business on the side to earn some extra income, you need to be aware of the hobby loss rule and how to avoid breaking it.

How Can You Prove That You’re Running the Business to Make a Profit?

       There are two ways to prove that your business activity is actually for profit. First, there’s the presumption rule. If your business shows a profit for three out of five consecutive years, the IRS is required to presume that your business is for profit and not just designed to generate losses.

       So you can have losses for two years out of five and not have to worry about the hobby loss rule. If the IRS wants to make the case that your business is not for profit even though you meet this presumption rule, then the burden of proof is on them – not you. (And just to complicate things a bit…if your business primarily involves breeding, showing, training or racing horses, then you only need to show a profit in two out of seven years to meet the presumption rule.)

       I should add here that it is illegal to manipulate your income or expenses to try to meet the presumption rule. You are required to report all income and all eligible expenses for your business activities. This is something auditors will look for if you are audited and have reported business income on your tax returns. The reason you are required to report everything is because some people falsely report business income in an effort to manipulate their tax refunds (for things like the Earned Income Credit). The IRS doesn’t like this (because it’s illegal!) and specifically looks for people who might try that sort of thing…so just don’t do it. OK? :)

       The second way you can show your business is being run to make a profit is to prove it by the facts and circumstances. This comes in handy if you are honestly trying to make a profit but still end up showing losses in more than two years out of five. Here are the factors the IRS considers when determining whether you’re engaged in the business to make a profit:
 

  1. Are you running the business in a way that’s focused on making a profit? If you’re generating losses, have you been trying new methods to make a profit?
  2. Do you have the knowledge needed to make a profit in this business, or are you working with advisers who have that knowledge?
  3. Does the time and effort you’re putting into the activity show that you intend to make a profit?
  4. Do you have assets used in the business that can be expected to increase in value?
  5. Have you had success at making a profit in similar activities in the past?
  6. What does the history of your profits and losses look like for this business? Could it be considered suspicious or is it typical for this type of activity? Are the losses from the start-up phase? Are the losses due to circumstances beyond your control?
  7. Have you made a profit from the activity in some years?
  8. Do you depend on income from this activity for your finances?
  9. Is this activity purely for personal pleasure or recreation?

 
       No single factor controls whether your activity is for profit or not. The IRS has to weigh all the objective facts in making a determination, and they can’t make assumptions just because the number of factors showing your activity is not for profit outweighs the number showing it is for profit.

       It all comes down to the facts at hand, so the more you can do to show that it’s a legitimate business the less you have to worry about. Things like having a separate bank account, keeping good business records, advertising your business, tweaking your business to improve profitability, and spending a significant amount of time working on the business will all work to your advantage.

Public Service Announcement

       If you think you’re getting crafty with the IRS, don’t be so sure of yourself. I can assure you that they’ve seen just about everything by now, and their job is to make sure people are paying all their taxes according to the law. They’re not “out to get you,” but they aren’t going to let you cheat on your taxes either. Don’t try anything fishy, and you don’t need to worry.

       And if you’re trying to be honest and just didn’t realize these laws applied, then you might want to consider hiring someone to help you with your taxes. At the very least, you need to sit down with someone knowledgeable in this area so they can help you understand what you should know. The IRS doesn’t take “I didn’t know.” as an excuse. You’re responsible for understanding which tax rules you’re subject to and making sure you pay the taxes you owe. Failing to due so is known as negligence and doesn’t exempt you from penalties and fees.

       If you have any questions, let me know in the comments below and I’ll try to help you!

(photo credit: lucyfrench123 on Flickr)

This article was included in the Carnival of Personal Finance.

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Free Spreadsheet to Track Business Expenses for Schedule C http://www.providentplan.com/3072/free-spreadsheet-to-track-business-expenses-for-schedule-c/ http://www.providentplan.com/3072/free-spreadsheet-to-track-business-expenses-for-schedule-c/#comments Fri, 10 Dec 2010 11:00:17 +0000 http://www.providentplan.com/?p=3072 Crunching Numbers for Your Small Business       Recently, I had a client ask me for a spreadsheet to help her track her business expenses. I put together an Excel spreadsheet with columns for all the information you need to track business expenses for Schedule C. I also put together a guide to help her know which categories to choose for each item so it’ll correspond to the tax return. I made all of this general enough so I can use it with other clients, and I thought some of you might find it useful for your own businesses.

       Before I get into explaining the spreadsheet, let me just add that you’ll still need to have records like receipts and bank statements to back up the expenses you claim. If you want to learn more about recordkeeping requirements, I’d recommend reading IRS Publication 583 and Publication 463.

Free Spreadsheet for Tracking Your Business Expenses

       To use the spreadsheet, you’ll need to have Microsoft Excel, Microsoft Office, or Open Office (which is free!). I thought about uploading it to ZohoSheets, but I’m not sure if the conditional formatting will work on there.

       You can download my free spreadsheet for tracking your business expenses by clicking here or on the picture below. (Try right clicking and selecting “Save as…” if it tries to open inside your browser.)
 

Free Spreadsheet to Track Income and Expenses for Schedule C

 
       You’ll see three tabs. Ignore the “Categories” tab. I used it simply for formatting the drop down list on the “Income and Expenses” tab. The other two tabs are pretty straightforward. “Income and Expenses” is for tracking…income and expenses. “Mileage” is for mileage.

       There are 365 rows in each of the tabs you’ll be using. If you want to add more on the “Income and Expenses” tab, simply highlight the entire last empty row and hit Ctrl+c. Then highlight the rows you’d like to copy it to. From the ‘Edit’ menu select ‘Paste Special’. Be sure ‘All’ is selected, then click ‘OK’. The reason you need to do it this way is so the conditional formatting will be copied over.

Income & Expenses

       To track your income and expenses, list each item/transaction separately on the “Income and Expenses” tab. If you buy several different things at a store, group them by category rather than lumping them together. Put the date in column A. Choose a category for each item in column B (according to the definitions below).

       If you choose “Other Expenses”, then column C will change from black to white. You’ll then want to type in a subcategory for that item in column C. Try to use the same subcategories for similar items as much as possible and don’t make them too specific (just enough to make it clear what it is) – it will make tax time easier. You can use the other categories as an example for how broad/narrow to make your subcategories.

       In column D, enter a more detailed description of the item so you will be able to match it up to a bank statement or receipt if necessary. Finally, enter the total in column E if it’s income or column F if it’s an expense. The final column will update automatically.

       Here are descriptions of how you should use each category. It’s long, but it will help you track your expenses in a way that will fit right into your tax return. That will save you time and money, so take a little time to understand these categories.
 

  • Income – Assign this category to all sources of income. Although there are some types of income that would be considered “other income” on Schedule C, you’re likely going to need help from a professional if that’s an issue for you. I’d recommend reading through the instructions for Schedule C (particularly page 4) for more information. Actually, you should read through it anyway.
  •  

  • Advertising – Include advertising and promotional costs like print or media ads, business cards, mailers, brochures, signs, pens, and give-away items with the company name, samples, or freebies to promote your business in this category. Also, include any sponsorships like buying an ad in a high school sports program to promote your business.
  •  

  • Car & Truck Expenses – You can deduct actual costs for operating your car or truck in your business, or you can take the standard mileage rate ($0.50/mile in 2010). If you choose to take the standard mileage right (and you’re eligible to do that), then the only thing you’ll include here are your parking fees and tolls. If you want to deduct actual costs, then include the cost of gas, oil, repairs, insurance, depreciation, or your tags here. For most people, it’s simpler and better to just go with the standard mileage rate.
  •  

  • Commissions & Fees – If you pay any commissions or fees to non-employees, include them here. Things like sales commissions or finder’s fees would be most typical.
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  • Contract Labor – If you hire a contractor to handle something for your business, put the cost in this category. The key is that they can’t be considered an employee. This depends on the nature of your relationship with the person and relative control over their work. Get advice if you’re not sure how to handle this.
  •  

  • Depletion – This probably won’t apply to many people. It relates to using natural resources within your business (like timber or minerals).
  •  

  • Depreciation & Section 179 Expense Deduction – If you buy a major item for your business, you can write off some of the cost each year (depreciation) or write it off all at once (Section 179) with limitations. Keep good records of what you buy and how much business use it gets. This area can also get tricky, so read those instructions for Schedule C and get help if you need it.
  •  

  • Employee Benefits – This only applies if you hire employees. In that case, you’d include things like health, life, or accident insurance premiums here. You’d also include dependent care, education assistance, adoption assistance, employee rewards, and any other benefits you pay your employees. It would not include benefits for yourself.
  •  

  • Insurance – This covers insurance for your business and for the operation of your business – not your personal insurance. Examples would be liability, fire, theft, robbery, flood, hail, volcano, etc. Also, note that it doesn’t include your health insurance as that goes under adjustments to income if you’re eligible.
  •  

  • Interest (Mortgage or Other) – This includes interest on loans to finance your business, credit card interest and fee charges for business expenses, and interest on a loan for property used in your business. Separate it out depending on whether it’s mortgage interest or other (anything else).
  •  

  • Legal & Professional Services – Fees for tax advice, tax preparation, legal advice, and so on go here. But for tax prep you can only include the cost of preparing the Schedule C, C-EZ, SE, 4562, 8829, and accompanying worksheets because they are directly rated to your business. Your tax preparer can help you figure this out if you use one.
  •  

  • Office Expenses – This covers office supplies for your business: ink, paper, toner, pens, staplers and staples, paper clips, folders, postage, and so on.
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  • Pensions & Profit-sharing Plans – This will only apply if you have employees and offer these benefits. If you do, then you should already know what’s required. If not, you need to hire a professional.
  •  

  • Rent or Lease – You have two choices here. One is for leasing a “vehicle, machinery, equipment” and an option for “other” (like payments for an office rental, rental of other spaces for storage, and anything else that doesn’t fit in the first choice). These can get complicated depending on what you’re renting or leasing. Be sure you know the rules or get help.
  •  

  • Repairs & Maintenance – This one refers to cost of labor, supplies, and any other items that do not increase the value or life of your business property (stuff you use in the business). So you’d included the cost of fixing something that broke or the costs of maintaining it. If you did it yourself, you cannot pay yourself and then deduct the labor. If you replaced whatever broke with something new, you need to put that under a new purchase – depreciation/section 179 for a big item, office expenses or supplies for a small item.
  •  

  • Supplies – Use this to cover other small items you use in the business that don’t fit in office expenses. If it’s a higher ticket item or something you’ll use for more than a year, it will need to go in the depreciation/section 179 category.
  •  

  • Taxes & Licenses – This category includes certain sales taxes, real estate and personal property taxes on business assets, licenses and regulatory fees for your business, the employer’s share of Social Security and Medicare taxes for your employees, federal unemployment taxes, federal highway use taxes, and state unemployment or disability taxes. This can also get complicated so be sure to check on the rules if this applies to your business.
  •  

  • Travel OR Meals & Entertainment – Travel means you were away for business purposes at least overnight. it could apply to something like a convention, seminar, or visiting a client as long as it’s business related. It can even include cruises if they meet certain requirements (still has to be business related like a conference or something). Meals and Entertainment must have a business related purpose, and entertainment can only count if you’re actually able to get some business done with the client (it can’t be so distracting as to make doing business impossible). There are some other specifics you need to understand before claiming any of these, so definitely read up on the rules here.
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  • Utilities – You can only deduct utilities directly related to your business. The full cost of a cell phone for business use only or the portion of your cell phone bill attributable to business use would go under this category. Any other utility expenses would also go here (gas, electric, oil, etc.).
  •  

  • Wages – If you have employees, you’ll put their salaries and wages in this category. Do not include your own wages/salary here. Also, you have to reduce this amount by any employment credits you claim. If you’re going to hire employees, you better know what you’re doing or be ready to hire a professional to help you.
  •  

  • Other Expenses – Anything that doesn’t fit in one of the above categories goes here. Assign a subcategory that is not too broad or too specific (see any of the others for examples). Items here have to be spent for your business, and they need to be things that are ordinary and necessary (useful) in your particular business. As long as it’s reasonable, you don’t need to worry too much about it. But if you’re going to push the envelope, then make sure you can prove its business use or seek help from a tax professional for verification.

 
       Got all that?! You’ll probably need to read over it a couple times and think about your situation to see what you need to remember the most. If you really get stuck, don’t be afraid to hire a good tax professional for help. It’ll be more than worth the penalties you could face if you’re wrong!

Mileage

       Tracking your mileage is a little more straightforward. Enter the starting mileage on your car in cell C1 at the beginning of the year. At the end of the year, you’ll enter the ending mileages. If you use two different cars, keep track of the starting and ending mileages for each car.

       Record each trip separately. You can combine round trips into a single entry if you like – just make it clear in the description. Enter the date in column A. Enter the total mileage driven for business purposes in column B. Enter your destination in column C and make it specific enough that you can recalculate the mileage in the future if needed. It’s a good idea to enter the starting point and destination to make this easy.

       If you make multiple stops in one trip, I’d separate out each leg of the trip. For instance, you go from your home (where you run your business) to Bob’s house, then from Bob’s house to Susie’s house, and then from Susie’s house back to your home. Assuming Bob and Susie are both clients/customers, I’d do three separate entries:
 

  1. Mileage from my home to Bob’s house
  2. Mileage from Bob’s house to Susie’s house
  3. Mileage from Susie’s house to my home

 
       It might seem silly, but it will be a better set of records than a single entry that says “home, Bob’s, Susie’s, home”.

       Finally, include the business purpose of the trip in column D. It doesn’t need to be extremely detailed, but it needs to be clear enough to show that it’s business related. This will vary depending on your particular business, but it should be pretty simple to figure out. Don’t forget to include trips to pick up supplies for your business. You don’t have to be earning income to count the trip.

Using This Spreadsheet for Your Taxes

       By using this spreadsheet to track your income and expenses by category, you’ll make tax time a lot easier (for you or your tax preparer). Easier means less errors, less time, and less money to spend. With a little Excel know-how, you can easily sort your income and expenses by category and quickly come up with the grand totals needed for your tax return (using a copy of your original file, of course…). Keep this spreadsheet along with copies of your bank statements, receipts, and invoices, and you should have easy access to your records if you ever need them.

Business Use of Your Home (Home Office Expenses)

       I didn’t cover the expenses you can deduct for the business use of your home (home office expenses) or include it in my spreadsheet. The reason is that this can get complicated and the rules are very specific. In fact, unless the area you use for your business is exclusively used for business, you don’t need to be thinking about taking this deduction. You won’t qualify. If you can take this deduction, you’ll need to read up on Form 8829 and the requirements elsewhere.

Complicated Businesses

       If your business is complicated, this free spreadsheet probably won’t work well for you. If you keep an inventory and sell stuff you produce, you’ll need to track cost of goods sold as well. I didn’t include that here because that adds even more complications. It’s not a difficult concept to grasp or item to track, but I just didn’t include it here. You can easily add another tab to track that if you need to.

       But honestly, if your business is more than slightly complex, you can really benefit from hiring a tax professional to help you out – at least for the first couple of years. Study your tax returns, read the laws and rules, and you might be able to handle everything yourself. But be sure you really understand it because the penalties can be severe if you try something fishy.

Questions?

       If you’ve got any questions, leave them here in the comments and I’ll try to help you. If it’s an insanely complex question, don’t be surprised if I tell you to go hire a professional. And finally, please remember that this is all general advice. Your particular situation could require a different approach and I can’t know that without having all the relevant information.

(photo credit: Crispin Semmens on Flickr)

This article was included in the Best of Money Carnival.

This article was also included in the Festival of Frugality.

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Did You Host a Sales Party or Product Party? Don’t File a Negligent Tax Return! http://www.providentplan.com/2794/did-you-host-a-sales-party-like-pampered-chef-tupperware-etc-dont-file-a-negligent-tax-return/ http://www.providentplan.com/2794/did-you-host-a-sales-party-like-pampered-chef-tupperware-etc-dont-file-a-negligent-tax-return/#comments Wed, 27 Oct 2010 10:00:06 +0000 http://www.providentplan.com/?p=2794 Is this the face of a tax evader?       So I was studying for my enrolled agent exam the other day and came across an interesting bit of information that I doubt many people know. If you host a sales party or product party (the kind that Pampered Chef, Tupperware, and others like them depend on), then you’re legally required to include any gift or gratuity you receive in your income. Here’s what the IRS says:

       If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. You must report this item as income at its fair market value.

       Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party.

From the Other Income section of IRS Publication 17

       I have a feeling the IRS is missing out on tons of revenue due to all the under-reporting that happens as a result of these parties!

What Happens If You Don’t Tell the IRS?

       Now, obviously, the IRS isn’t going to lock you up if you forget to include this income on your tax return. But if you are audited and the IRS agent can somehow figure out that you hosted such a party and received cash or items for hosting, then you will have to increase your income, pay additional taxes, and possibly pay a 20% tax penalty.

       But now you have a problem. You know about this tax rule and you should follow it. That’s going to sound ridiculous to some people, and I’m not saying our current tax system is great or makes sense. But as Christians, we must follow the laws of the government that is over us unless those laws would force us to act contrary the laws of God. This is a matter of conscience and our witness to the world – not an issue of whether the law is stupid.

       I doubt income tax laws will ever cause us to violate God’s commandments, so our aversion to an admittedly silly law is mostly because we don’t want to do it. And that’s not a very good excuse (and not one the IRS will accept either!). So as crazy as it sounds, we ought to follow these laws and report our income accurately as the IRS requires.

What Do You Think?

       I know most of you will think this is a dumb rule. I agree with you. But it’s still a dumb rule we ought to follow. My question is this: Now that you know, are you going to report this income on your tax return? Let me know in the comments below!

P.S. I’m not going to report you to the IRS either way…I just thought it would be interesting to discuss!

photo credit: (Athenamama on Flickr)

This post was included in the Carnival of Financial Planning.

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What Is an Enrolled Agent (EA)? http://www.providentplan.com/2755/what-is-an-enrolled-agent-ea/ http://www.providentplan.com/2755/what-is-an-enrolled-agent-ea/#comments Mon, 18 Oct 2010 10:00:51 +0000 http://www.providentplan.com/?p=2755 What Is an Enrolled Agent (EA)?       After hemmin’ and hawin’ about it for a while, I finally signed up to take the exams to become an Enrolled Agent. I’m excited about it (and a bit nervous), but I’m guessing most of you have no idea what I’m talking about. That’s because I didn’t even know what an Enrolled Agent was until I had a couple years of experience doing taxes and working as a financial planner. So here’s a basic overview of what an Enrolled Agent is and why I decided to become one.

What Is an Enrolled Agent (EA)?

       An Enrolled Agent is a person who has been authorized to represent taxpayers (without the taxpayer’s presence) before all administrative levels of the Internal Revenue Service (IRS) for audits, collections, and appeals. They aren’t restricted on which taxpayers they can represent and what types of tax matters they can handle.

How Is an Enrolled Agent Different from Other Tax Preparers?

       Until 2011, Enrolled Agents are the only tax preparers required to demonstrate their competence in tax matters to the IRS. (This is changing – see my note in the section below on why I decided to become an EA.) Attorneys and CPAs may or may not specialize in taxes, but all EAs specialize in taxation. They’re also required to fulfill continuing education requirements by law – at least 72 hours every three years. While CPAs have continuing education requirements for their license, the courses EAs take must be related to Federal tax laws. CPAs often take courses on a variety of topics not related to taxes.

       Unlike other tax preparers, Enrolled Agents (along with CPAs and attorneys) can represent taxpayers before the IRS even if they didn’t prepare their return. This is important because these other tax preparers can’t represent a taxpayer before appeals officers, revenue officers, or IRS Counsel. A tax preparer must be an Enrolled Agent, CPA, or attorney to do that. Also, an unenrolled tax preparer cannot execute claims for refund, receive refund checks, execute consents to extend the statutory period for assessment or collection, execute closing agreements, or execute waivers of restriction on assessment or collection of a deficiency in tax.

How Do You Become an Enrolled Agent?

       There are two ways to become an Enrolled Agent. You can pass a three part exam (called the SEE or Special Enrollment Examination). The three parts cover individual taxes, business & other entity taxes, and representation, practices, and procedures. Each part of the exam contains 100 questions. It’s a very comprehensive and difficult exam. Here’s a list of the documents the IRS recommends reviewing before taking the exam.

       The other way to become an Enrolled Agent is to work for the IRS for five years in a position that regularly required you to interpret and apply the tax code and its regulations. Regardless of which method you choose (exam or IRS work experience), you have to undergo a thorough background check on both your criminal history and your personal tax filing history. You can be sure you’ll be denied if you didn’t file, didn’t pay your taxes, or filed a fraudulent return. (You’d think they would have run this kind of check on Timothy Geithner before Obama nominated him to become the Secretary of the Treasury!)

Why I Decided to Become an Enrolled Agent

       I have three main reasons I decided to become an EA. Here they are:

  1. Provide Better, Higher Quality Service – I didn’t want to be in a position where I couldn’t represent my tax clients if they had an issue with the IRS that involved appeals or collections. Becoming an EA ensures that I can help my clients no matter what tax issue comes up. (Except for going to court – you need an attorney for that.)
  2.  

  3. Strengthen My Tax Knowledge – Taking the Enrolled Agent exams requires you to carefully study all aspects of Federal taxes. I’m familiar with most individual tax issues and some business, trust, and estate issues, but there’s still quite a bit that I’m not 100% comfortable with. Passing the exam won’t magically make me an expert, but it, along with the continuing education requirements, will ensure that I have a more complete and deeper knowledge of Federal taxes.
  4.  

  5. Upcoming IRS Requirements for Tax Preparers – Starting in 2011, the IRS is going to require all paid tax preparers (except EAs, CPAs, and attorneys) to register, pass a knowledge examination, and complete continuing education. The test likely won’t be as difficult as the EA exam, and the continuing education requirements aren’t as stringent either. But these tax preparers will still be limited in which taxpayers and tax matters they can represent before the IRS. It seemed to me that it would be better to just become an EA in the long run.

       Obviously, I’m not doing it for the marketing advantage as I’ll probably spend the rest of my professional life explaining what an EA is. But that’s OK with me because I know it’s valuable and will help my clients.

       Well, now you know what an EA is. What do you think? Sound like it was a good thing for me to pursue?

photo credit: (Alan Cleaver on Flickr)

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Carnival of Personal Finance #271 – The Secret to a Successful Budget eBook Edition http://www.providentplan.com/2473/carnival-of-personal-finance-271-the-secret-to-successful-budgeting-ebook-edition/ http://www.providentplan.com/2473/carnival-of-personal-finance-271-the-secret-to-successful-budgeting-ebook-edition/#comments Mon, 23 Aug 2010 10:00:33 +0000 http://www.providentplan.com/?p=2473 The Secret to a Successful Budget eBook
 
       Welcome to the Carnival of Personal Finance #271 – The Secret to a Successful Budget eBook Edition! My friend Craig Ford at Money Help for Christians is launching a new eBook today. It’s designed to help you discover the secrets to successful budgeting.

       I think it’s a great resource for anyone who’s ever struggled with budgeting, so I’ve included some quotes from his eBook throughout this carnival. You can get the book for 30% off if you buy before midnight (EDT) August 31st, 2010. Be sure to read through to the end of this carnival because I’ll be giving away two FREE copies to two lucky winners!

Editor’s Choice

       Here are my top picks from the submissions this week:

  • Mike Piper from Oblivious Investor presents Dealing with Investment Confusion, and says, “What’s the best approach to dealing with the confusion that comes from being a new investor?” – [Mike shares some good advice for people who are confused about investing. It won’t immediately cure your confusion, but applying this strategy over and over will help you make informed decisions you can stick to.]
  • Briana Ford from Go Banking Rates presents Why Americans Can’t Afford to Die [Infographic], and says, “If you never thought about this problem before, take a look at how expensive funerals really are. You may discover you, like many Americans, simply can’t afford to die.” – [What can I say? I’m a sucker for infographics.]
  • Len from Len Penzo dot Com presents A Simple Trick to Get Your Credit Card Interest Charges Waived. – [I wish more people realized the power of Len’s simple trick!]
  • Lauren from Richly Reasonable presents 4 Bad Deals, and says, “The term “Bad Deal” is relative. Not only is Necessity the mother of Invention, she is also the mother of many a Bad Deal. Necessity has a TON of children.” – [Funny, smart, and witty – and likely to open a few eyes at least!]
  • Jacob A. Irwin from My Personal Finance Journey presents Adjusting My Monthly Budget to Account for Home Ownership, and says, “A look at the steps I have recently taken to adjust my personal budget to account for the various elements of home ownership.” – [At our current rent rate owning a home just doesn’t make sense. Just look at all the costs involved!]

       Congratulations to the editor’s choice picks! Here are the rest of the articles from this week’s submissions.

Money Management

  • MD from Studenomics presents Quick College Students Guide To Personal Finance.
  • Jason from One Money Design presents How Do You Live Well on Less Pay?, and says, “There are plenty of people that don’t make a lot of money and have trouble covering basic expenses each month. There are 5 essential tips to follow to live well on less pay.”
  • Revanche from A Gai Shan Life presents Shopping for the single life .
  • ispf from Grad Money Matters presents The American Dream of Home Ownership: 10 Things You Can Do as a Student.
  • Jim from Wanderlust Journey presents Royal Caribbean Cruise Lines Shareholder Benefits.
  • Jason from Live Real, Now presents Check Your Bills, and says, “Can you automate your finances too far?”
  • Elle from Couple Money presents Financial Tips for College Success, and says, “Many college students are surprised to see how easy it is to build a financial foundation for themselves. Learn how to set up bank accounts, pay your bills, and start a graduation fund.”
  • DE(a)BTh from Murder Your Debt presents Your Wasted Life, and says, “You thought financing a house and a fast car meant freedom. That an expensive education would lead you to a rewarding career where you could earn lots of money. You were wrong, weren’t you? You hate your career but you’re stuck. You’re stuck because you swallowed the lies you were sold. The lies that material possessions bring success. The lies that more money means more happiness. And now what? You’ve got it all; the cars, the house with the huge yard, the sexy outfits and shiny shoes. But you’re STILL not happy!”
  • vh from Funny about Money presents Social Security’s Bizarre Rules, and says, “Social Security’s restrictive rules make it impossible to get out of poverty when unemployment forces one into early retirement and stock-market losses militate against retirement fund drawdowns.”
  • J. Money from Budgets Are Sexy presents What would you do with an extra $1,000?, and says, “Montel Williams wants to know ;)”
  • Bob from Christian Finances presents How to spend unexpected income: 3 questions to ask, and says, “It can be tough to know what to do when you receive a large sum of cash – this article will give you some questions to help you figure out what to do with it…”
  • Mr. GoTo from Go To Retirement presents How Much Long Term Care Insurance Should You Have?, and says, “Insuring against a long term care event is part of personal risk management. Estimating the amount of long term care coverage to obtain requires careful consideration of several factors.”

If you are working 40 or more hours a week to earn your money, don’t you think it is worth an hour or two to set up a budget?

Isn’t it worth spending about an hour every week to manage the money you work so hard to earn? It is always better to manage what you have than to work yourself crazy trying to get more money.

– from page 21 of The Secret to a Successful Budget by Craig Ford

Finance

Investing

  • Dividend Growth Investor from Dividend Growth Investor presents 33 Dividend Champions to Consider, and says, “Dividend investor David Fish has created a list of dividend stocks which have raised distributions for 25 consecutive years and has named it the dividend champions list. His list includes 100 companies, which is more than twice the size of the Dividend Aristocrats. I ran a screen on the list in order to identify stocks for further research.”
  • Mike from The Financial Blogger presents Use the Loonie’s Strength to Invest in the Eagle Market, and says, “Canadian dollar is strong compared to the US dollar at this time. Use this as an opportunity to invest in US stocks.”
  • Div Guy from The Dividend Guy Blog presents Dividend Investing with Less Than $1,000 Part 3: How to Pick Your ETFs and/or Dividend Funds, and says, “Starting to invest is quite motivating but as a young investor, you must put greed and hype aside and start by looking for sound investments.”
  • Squirrelers presents Small Stocks = High Return and High Volatility, and says, “Small stocks, particularly those in the lowest deciles, have performed very well over the long-term. They can be an important part of your asset allocation, provided you can stomach the associated risks.”
  • D4L from Dividends Value presents My Top 6 Performing Dividend Stocks Just Might Surprise You, and says, “As I have stated many times, my goal is to create an ever growing income stream from dividend stocks. Secondarily, it is my desire to beat the S&P 500 over time. With that said, I rarely look at the capital performance of individual stocks. However, I recently sorted my portfolio by Total Gain % (total gain/basis) and was mildly surprised at the top performers.”
  • ElizabethG (Modern Gal) from Modern Gal presents Investing for Inflation in 2010.
  • DSO from High Dividend Stocks presents Big GE and it’s big dividend, and says, “One of America’s oldest and most prestigious companies has become an accidental high yielder.”

Budgeting in and of itself is useless.

Budgeting is part of a larger financial plan.

– from page 9 of The Secret to a Successful Budget by Craig Ford

Budgeting

Saving

Frugality

You need to focus your finances on accomplishing one major task at a time.

If you don’t, the danger is that every dollar will be diluted to a point that it makes little impact helping you reach your goals.

– from page 9 of The Secret to a Successful Budget by Craig Ford

Debt

Credit

The goal of the budget is to help you spend less than you earn.

Therefore, this becomes the single criteria for an effective budget – does it help you spend less than you earn?

– from page 12 of The Secret to a Successful Budget by Craig Ford

Reviews

  • PT from PT Money presents Free Prepaid Credit Cards, and says, “A thorough, original review of the best free prepaid credit cards, including those that are free of activation and monthly fees. These cards are great for those who need to avoid debt, or those that can’t get a traditional bank account.”
  • Silicon Valley Blogger from The Digerati Life presents Citi Dividend Platinum Select MasterCard Review, and says, “Here’s a review of a credit card I actually like.”

Real Estate

  • FMF from Free Money Finance presents How to Hire a Home Inspector, and says, “When you buy a home, you need to be sure you hire a good home inspector to identify any potential problems. This post gives tips on how to do this.”
  • Jeff Rose from Good Financial Cents presents Should You Upgrade to a Larger Home”, and says, ”
    In many markets, home owners are looking at homes in the next price range up as good buys, since foreclosures and a slow market are resulting in good deals. But, as tempting as it is to upgrade to a larger home, is it really a good idea? Here are some things to consider before upgrading to a larger home.”
  • Rob from Two Wise Acres presents 3 Things to Avoid When Buying a Home, and says, “When buying a home, it’s critical that you avoid these three credit mistakes.”
  • ctreit from Money Obedience presents Do renters really save money in the end?.

Taxes

  • pkamp3 from Don’t Quit Your Day Job… presents Tax Incidence, and says, “Who really pays for a tax when it is enacted? If the government enacts a new tax on washing machines, is the entire tax on Maytag? The consumer? Cameron Daniels breaks down the details.”

A budget lets your spouse see your values and priorities in a tangible way.

A budget forces you to communicate not just about your life goals, but also about your daily financial preferences.

– from page 16 of The Secret to a Successful Budget by Craig Ford

Career

  • Kristina from Dinks Finance presents A DINK in The Office, and says, “As a married or unmarried employee with no children, are you treated differently than your colleagues with kids?”
  • Nicole from Nicole and Maggie: Grumpy Rumblings presents Why did you go to graduate school?, and says, “Nicole and Maggie discuss reasons for graduate school and how sometimes we’re directed into a career for the right reasons and sometimes we fall into it for the wrong reasons. But it turns out OK anyway (or maybe it doesn’t, but you can always change your mind).”

Economy

  • Bret from Hope to Prosper presents Trillion Dollar Public Pension Shortfall, and says, “An article in the New York Times stated that there is a $1 Trillion dollar public pension shortfall. Despite repeated denials from PERS and public employee unions, public pensions are in big trouble.”
  • JLP from AllFinancialMatters.com presents Democrats, Republicans, and the Federal Debt Since 1979, and says, “Though the title may suggest it, this is not a “political” post.”

Budgeting is a process, not an event.

You won’t wake up tomorrow with an effective budget. Instead, you will start with a decent budget that later becomes a good budget. Eventually, it is a great budget.

– from page 16 of The Secret to a Successful Budget by Craig Ford

Other

The Secret to a Successful Budget eBook Giveaway!

       As promised, I’m giving away two free copies of The Secret to a Successful Budget courtesy of Craig. To enter, all you need to do is leave a comment on this post telling me how budgeting has helped you OR your biggest struggle with budgeting. I’ll use random.org to select two winners tomorrow evening (August 24, 2010) at 5:00 PM EDT so be sure to enter by then!!! I’ll update this post to announce the winners, but use a valid email address when you comment so I can reach you if you win. Good luck!

[Update: Laura has won a free copy of The Secret to a Successful Budget! Congratulations!!!]

The Secret to a Successful Budget eBook

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Can’t Pay Taxes Owed? How to Settle or Resolve Taxes Due http://www.providentplan.com/2437/cant-pay-taxes-owed-how-to-settle-or-resolve-taxes-due/ http://www.providentplan.com/2437/cant-pay-taxes-owed-how-to-settle-or-resolve-taxes-due/#comments Mon, 16 Aug 2010 10:00:09 +0000 http://www.providentplan.com/?p=2437        This guest post was provided by Ashley from TaxDebtHelp.com.

       There are few things worse than knowing you owe the government a huge chunk of money and one of those things is knowing you do not have the money to pay what you owe. No one wants to be indebted to Uncle Sam because the IRS is a powerful collection agency and typically supersedes other creditors. When the tax bill comes due and you can’t afford it, you can be fined or penalized, have your assets frozen, find a lien placed on your property, or potentially have your property levied. Levies may come in the form of the IRS taking money out of your bank or taking money out of your paycheck (IRS wage garnishment).

       So what do you do? The IRS is reasonable in understanding that not all taxpayers are capable of settling their debts in one lump sum but still want to do the right thing. There are resolutions that the IRS offers to help consumers catch a break and settle their debts in full.

How to Get Help with a Back Tax Bill

       The first thing any taxpayer should do is realize where their current financial situation stands. They need to be clear about the reality of their finances so they will be able to better negotiate the process of getting help. The IRS has several programs that assist people who do not have the immediate resources to pay off their tax debts. If you are in a great financial place, you shouldn’t have too much trouble paying the debt in full.

       If you have a decent financial situation where you can’t pay the taxes in full but do have reliable income and some cash left over after paying living expenses, you should be able to set aside cash from each check to make payments on your tax balance. Options for people who are doing OK financially include:

1. IRS Installment Agreements

       A common method to help consumers pay their taxes is the installment agreement. The IRS will allow reasonable payments to be made on a monthly basis until the balance is paid in full. If you do not owe more than $25,000, you have a good chance of being approved for an installment agreement without much paperwork provided you can satisfy the debt within a 3-5 year time period.

2. Partial Payment Installment Agreement

       For those who can afford some payments but who are unable to qualify for a normal installment agreement, a Partial Payment Installment Agreement may be set up. The taxpayer will be able to make monthly payments towards their tax bill, but with a PPIA part of your debt will exceed the statute of limitations on debt collection. In essence, you end up paying less than you owed. You must provide financial documents to prove your financial status and get the IRS to agree to approving this option.

3. Take a Loan

       If you feel you would be successful approaching family or friends for a loan on the amount you owe, it may be an option to avoid fees and IRS paperwork to borrow the cash you need and satisfy the debt in full. Only exercise this option if you are comfortable dealing with family and money and be sure to pay back the loan amount within a reasonable period of time.

       If you have poor finances, meaning you can not pay the taxes you owe and there is nothing left after basic needs have met, you may find the IRS can offer a resolution to paying owed taxes.

4. Offer in Compromise

       This option will allow a taxpayer to settle the tax amount due for a sum less than is owed. Many taxpayers hope to get approved for this option but few will because the IRS ensures only those who really need the assistance get accepted for an Offer in Compromise. If the IRS is assured they will never be able to collect the amount owed, they will likely approved the offer from the taxpayer.

5. Currently Not Collectible Status

       In a situation where the IRS is sure that collection of a tax debt would be unfair due to payments resulting in the loss of basic necessities, they will declare a taxpayer’s debt to be currently not collectible. The IRS will not release the debt but will essentially offer a forgiveness for a period of time usually up to 18 months. They will check in for updates on financial status until they deem the amount collectible. The good thing is normally the statute of limitations on your debt (time the IRS has to collect) continues to tick. However, penalties and interest can still accrue.

6. Bankruptcy

       Bankruptcy should be a last resort to resolve debt issues but it is a serious matter and should not be used just because you can’t afford to pay taxes. Bankruptcy will negatively affect credit for ten years to come, and it may be in a taxpayer’s best interest to seek the assistance of the IRS for better options on settling a back tax debt. Additionally, bankruptcy is never a guarantee. In the end, a taxpayer may not even be approved for a tax debt dismissal.

       Whatever method works for both the taxpayer and the IRS should be considered and action needs to be taken to resolve the matter of an outstanding debt. Avoiding the situation will only make the debt larger and the legal consequences more severe.

       This guest post was provided by Ashley from TaxDebtHelp.com. If you are looking for more self-help details on IRS tax debt payment plans, or if you are looking for ways to resolve IRS tax levies like IRS Wage Garnishment, visit their site today.

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