Category Archives: Finance

Learn More About Home Sweet Homeowner Tax Breaks

With the housing market improving in some regions of the country, many people are becoming new homeowners.

If you’re among the new property owners, congratulations. You’ve just taken another step up the American-dream ladder and are a homeowner. Along with the joy of painting, plumbing and yardwork, you now have some new tax considerations.

The good news is you can deduct many home-related expenses. These tax breaks are available for any abode — mobile home, single-family residence, town house, condominium or cooperative apartment.

And most homeowners enjoy tax breaks even when they sell their residence.

The bad news is, to take full tax advantage of your home, your taxes will likely get more complicated. In most cases, homeowners itemize. That means you’re not living on “EZ” street anymore; you’ve moved to Form 1040 and Schedule A, where you’ll have to detail your tax-deductible expenses.

For many homeowners, the effort of itemizing is well worth it at tax time. Some, however, might find that claiming the standard deduction remains their best move.

 

If you do find that itemizing is best for your tax situation, here’s a look at homeowner expenses you can deduct on Schedule A, ones you can’t and some tips to get the most tax advantages out of your new property-owning status.

Mortgage interest

Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. And all that interest is deductible, unless your loan is more than $1 million. If you’re the proud owner of a multimillion-dollar mortgaged mansion, the IRS will limit your deductible interest.

Interest tax breaks don’t end with your home’s first mortgage. Did you pull out extra cash through refinancing? Or did you decide instead to get a home equity loan or line of credit? Generally, equity debts of $100,000 or less are fully deductible.

What if you’re the proud owner of multiple properties? Mortgage interest on a second home also is fully deductible. In fact, your additional property doesn’t have to strictly be a house. It could be a boat or RV, as long as it has cooking, sleeping and bathroom facilities. You can even rent out your second property for part of the year and still take full advantage of the mortgage interest tax deduction as long as you also spend some time there.

But be careful. If you don’t vacation at least 14 days at your second property, or more than 10% of the number of days that you do rent it out (whichever is longer), the IRS could consider the place a residential rental property and ax your interest deduction.

Points

Did you pay points to get a better rate on any of your various home loans? They offer a tax break, too. The only issue is exactly when you get to claim them.

The IRS lets you deduct points in the year you paid them if, among other things, the loan is to purchase or build your main home, payment of points is an established business practice in your area and the points were within the usual range. Make sure your loan meets all the qualification requirements so that you can deduct points all at once.

A homeowner who pays points on a refinanced loan is also eligible for this tax break, but in most cases the points must be deducted over the life of the loan. So if you paid $2,000 in points to refinance your mortgage for 30 years, you can deduct $5.56 per monthly payment, or a total of $66.72 if you made 12 payments in one year on the new loan.

The same rule applies to home equity loans or lines of credit. When the loan money is used for work on the house securing the loan, the points are deductible in the year the loan is taken out. But if you use the extra cash for something else, such as buying a car, the point deductions must be parceled out over the equity loan’s term.

And points paid on a loan secured by a second home or vacation residence, regardless of how the cash is used, must be amortized over the life of the loan.

 

Some Overlooked Tax Breaks

It’s a tax tug-of-war. The IRS wants to make sure you pay your share of taxes. And of course, you want to keep as much of your money as you can. To succeed, be sure to take every tax deduction, credit or income adjustment to which you’re entitled to prevent overpaying your share.

Here are 10 tax breaks — some for itemizers only, others that any filer can claim — that often get overlooked but could save you some tax dollars.

1. Additional charitable gifts

Everyone remembers to count the monetary gifts they make to their favorite charities. But expenses incurred while doing charitable work often aren’t counted on tax returns.

You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible as an itemized charitable donation. Similarly, if you wear a uniform in doing your good deeds — for example, as a hospital volunteer or youth group leader — the costs of that apparel and any cleaning bills also can be counted as charitable donations.

So can the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking the Boy Scouts or Girl Scouts troop on an outing. The IRS will let you deduct that travel at 14 cents per mile.

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2. Moving expenses

Most taxpayers know they can write off many moving expenses when they relocate to take another job. But what about your first job? Yes, the IRS allows this write-off then, too. A recent college graduate who gets a first job at a distance from where he or she has been living is eligible for this tax break. This tax break is found in the adjustments to income section at the bottom of Form 1040.

3. Job-hunting costs

While college students can’t deduct the costs of hunting for that new job across the country, already-employed workers can. Costs associated with looking for a new job in your present occupation, including fees for résumé preparation and employment of outplacement agencies, are deductible as long as you itemize. The one downside here is that these costs, along with other miscellaneous itemized expenses, must exceed 2 percent of your adjusted gross income (or AGI) before they produce any tax savings. But the phone calls, employment agency fees and other costs might be enough to get you over that income threshold.

4. Military reservists’ travel expenses

Members of the military reserve forces and National Guard who travel more than 100 miles and stay overnight for the training exercises can deduct related expenses. This includes the cost of lodging and half the cost of meals. If you drive to the training, be sure to track your miles. You can deduct them on your 2016 return at 54 cents per mile, along with any parking or toll fees for driving your own car. You get this deduction whether or not you itemize; it’s one of the above-the-line deductions found directly on Form 1040. But you will have to fill out Form 2106.

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5. Child care credit, and more

Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school day care while mom and dad work. But some parents overlook claiming the tax credit for child care costs during the summer. This tax break also applies to summer day camp costs. The key here is that the camp is a day-only getaway that supervises the child while the parents work. You can’t claim overnight camp costs.

Remember, too, the dual nature of the credit’s name: child and dependent. If you have an adult dependent who needs care so that you can work, those expenses can be claimed under this tax credit.

6. Mortgage refinance points

When you buy a house, you get to deduct the points paid on the loan on your tax return for that year of purchase. But if you refinance your home loan, you might be able to deduct those points, too, as long as you use refinanced mortgage proceeds to improve your principal residence.

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7. Many medical costs

Taxpayers who itemize deductions know how difficult it often is to reach the AGI threshold required before you can claim any itemized medical expenses on Schedule A. It might be easier to clear that earnings hurdle if you look at miscellaneous medical costs. Some of these include travel expenses to and from medical treatments, insurance premiums you pay for from already-taxed income and even alcohol- or drug-abuse treatments.

Keep good records of all your medical-related expenses. They could help you clear this tax deduction hurdle. Changes made with the enactment of the Affordable Care Act mean that taxpayers age 65 or younger must have qualifying medical expenses in excess of 10 percent of AGI in order to deduct them.

And self-employed taxpayers take note. If you are not covered by any other employer-paid plan, for example, one carried by a spouse, you can deduct 100 percent of health insurance premiums as an adjustment to income in the section at the bottom of Page 1 of Form 1040.

8. Retirement tax savings

The retirement savings contribution credit was created to give moderate- and low-income taxpayers an incentive to save. When you contribute to a retirement account, either an individual retirement account (traditional or Roth) or a workplace plan, you can get a tax savings for up to 50 percent of the first $2,000 you put into such accounts. This means you get a $1,000 tax credit, which is a tax break that directly reduces dollar for dollar any tax you owe.

9. Educational expenses

The Internal Revenue Code offers many tax-saving options for individuals who want to further their education. The tuition and fees deduction can help you take up to $4,000 off your taxable income and is available without having to itemize.

The lifetime learning credit could provide some students (or their parents) up to a $2,000 credit.

Don’t forget the American opportunity tax credit, which offers a dollar-for-dollar tax break of up to $2,500. This education tax break was created as part of the 2009 stimulus package as a short-term replacement for the Hope tax credit, and was made permanent in December 2015 with passage of the Protecting Americans from Tax Hikes, or PATH, Act of 2015.

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10. Energy-efficient home improvements

Tax breaks for some relatively easy energy-efficient home improvements are available under the Nonbusiness Energy Property Credit. If you haven’t claimed this credit in its prior tax year incarnations (it was first available in 2005) and have made energy upgrades in 2016, it could be worth up to $500 in tax savings.

To claim this credit, found on part two of Form 5695, you must pay attention to specific spending limits, such as $150 for high-efficiency furnaces and boilers, and $200 for replacement windows.

Yes, this tax break does require record keeping and filling out some worksheets. But if you qualify, it is a tax credit, giving you a dollar-for-dollar reduction of your tax bill. And when it comes to taxes, every dollar saved helps

Some Tips for Financial Planning Together

When you and your partner are busy balancing everything in your lives, sometimes financial planning can fall to the wayside. Following are 10 quick tips about financial planning together for when life gets hectic.
Set priorities and specific goals. Don’t assume you both have the same goals without discussing them.
Discuss values. Sometimes differing values make agreement on goals difficult. When one person wants to spend now and one wants to save for later, it can be a source of friction. The same is true when one spouse tends to be less risk oriented than the other about investments.
Plan in five year units. When planning for five year blocks, you can set both intermediate and long-range goals without feeling you’re being deprived forever.
Budget together. Set up a manageable system for your cash flow together.
Know where your money is going. Keep records of your spending.
Don’t assume that because you’re both working that you have a lot more to spend.
Save regularly so you aren’t locked into that second income.
Who handles the actual paperwork can be a matter of personal preference, although both of you should practice at it.
Don’t confuse the task of doing paperwork with the act of financial decision making.
Sit down together and discuss finances at least once a month.

Best Credit Card Tips For 2017

The No. 1 rule for savvy credit card use: Always pay your bills on time. But smart credit card use also means protecting yourself from fraud, using rewards to your benefit and allowing your plastic to help build your credit score.

Here are 10 tips to help you accomplish all of these goals in 2017.

1. Have patience with the chip card rollout

There is good news on the horizon for anxious credit card shoppers: In 2017, you won’t have to ask as often, “Do I dip or do I swipe?”

Fewer than half of all retail merchants today are able to process chip-based credit and debit cards, as the rollout of chip-enabled payment terminals has been much slower than anticipated. That’s why you’re still using the magnetic stripe on the back of your card to pay at many retailers.

But global payments consulting firm The Strawhecker Group says you’ll be dipping at 62 percent of all retailers by March 2017; acceptance of EMV (or Europay, MasterCard and Visa) chip cards throughout the year will gradually climb to 90 percent.

This is all in the name of fraud protection. Chip-based credit cards make it much harder for the bad guys to use your credit card information for in-store fraud.

So have a little patience during this continued transition.

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2. Be wary at the gas pump

While in-store fraud should fall as a result of the EMV switch, that’s not the case at gas stations, which largely haven’t converted to chip-enabled terminals. Gas stations were supposed to make the switch in 2017, but in December, the major card processors pushed the deadline to 2020, citing the cost and complexity of the switchover for fuel merchants.

That means swiping at the pump will remain risky for some time, as gas stations throughout the country have been victimized by crooks who place difficult-to-detect skimmers on top of existing credit card readers to capture customers’ card information.

Here’s how to protect yourself:

  • Use pumps that are closer to the gas station convenience store. Criminals tend to install skimmers on out-of-the-way pumps.
  • Pay inside rather than at the pump.
  • If you must use the card reader at the pump, use a credit card and not a debit card. If the credit card is skimmed, you’ll face no liability with the card company — and you won’t risk having money stolen from your bank account.

3. Check statements and your credit report

Even if you avoid risks — like swiping at the pump — you should remain vigilant against fraud. That means checking your monthly credit card statements and regularly looking at your credit reports.

Your statement will reveal signs of fraud, such as whether a criminal took your existing credit card number and used it to make illicit purchases. If you find an unusual charge, contact your credit card company immediately.

Your credit reports will reveal whether someone used your personal information to open new accounts in your name. If you find a credit card, mortgage or other account on your credit report that doesn’t belong to you, contact the creditor immediately.

You are entitled to a free credit report from each of the three major credit bureaus once a year. You can get the report at AnnualCreditReport.com. Stagger the requests so that you’re looking at a new credit report once every four months.

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4. Set up mobile alerts

If you’re not the type of person who is disciplined enough to regularly check your credit card account, you can automate the fraud detection process. Many large issuers now will let you set up mobile alerts that will alert you:

  • When you’re approaching your credit limit.
  • If the card company detects unusual activity, like spending that doesn’t fit your usual pattern, or transactions in unusual or unfamiliar locations.
  • When your card has been used. You can set this for large purchases, all purchases or anything in between.

5. Freeze your credit

In other countries that have adopted EMV credit cards, in-store fraud lessened, but application fraud increased. Expect that in the U.S., too.

Thwarted from using stolen credit card numbers to commit crimes, thieves will turn to using personal information stolen in other breaches to open new credit accounts in your name.

You can catch this type of fraud by regularly checking your credit reports. But that will only identify fraud that has already occurred.

You can prevent new-account fraud by freezing your credit. When you order a credit or security freeze, you tell the major credit bureaus that you don’t want anyone looking at your credit file. Most reputable lenders won’t open an account without first pulling your credit, so this should prevent most application fraud.

It means the bad guys can’t open a credit card in your name. Of course, neither can you without a temporary or permanent thawing of your file.

6. Pay off high-interest debt

After you’ve thoroughly protected yourself from fraud, it’s time to start looking at how you actually use your credit cards.

Do you frequently carry a balance? Now’s the time to get that under control.

The Federal Reserve just raised interest rates for the second time since 2006. It has indicated it could raise short-term rates three more times in 2017.

That will impact what you’ll pay to finance credit card debt, as credit card companies are likely to raise rates in tandem with the Fed’s actions.

The credit bureau TransUnion recently calculated that after the Fed boosted rates by a quarter percentage point, 82 percent of consumers with a variable-rate credit account will see their monthly payments increase by less than $10. A much smaller percentage of consumers will see monthly payments increase by $50 or more.

Further rate hikes would increase monthly minimums, causing “payment shock” for some, according to TransUnion.

The lesson: Start paying down credit card debt now before a rate hike takes a bite.

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7. Get a rewards card now

Credit card companies are engaging in a fierce battle for your loyalty, meaning it’s a good time to take advantage of sign-up bonuses.

In October, JPMorgan Chase reported a 35 percent increase in new credit card accounts for the quarter. No doubt, the popularity of the Chase Sapphire Reserve card helped drive that growth.

New cardholders can snag a 100,000-point bonus and generous travel rewards, including an annual $300 travel credit. The card comes with a hefty $450 annual fee, but that has done little to turn off consumers, who flocked to grab the card.

It’s unclear, though, how long this bonanza can last, as Chase reported the rewards payout cut profits by up to $300 million.

If you spot a deal that’s right for you, snag it now.

8. Use the right card

Rewards are only good if you use them. If you don’t travel much, the Sapphire Reserve card is probably not a good fit.

Consumers leave millions of rewards points and miles unused every year. A recent survey found that 58 percent of Americans say using a card to earn travel rewards is smart, but just 15 percent have ever paid for all or part of a trip using rewards points.

If this is you, consider a rewards credit card that pays you cash-back instead.

And if you carry a balance — as about half of Americans do at least occasionally — a rewards card may not be the right fit at all, since they tend to have higher interest rates.

In that case, you should seek a credit card with the lowest interest rate possible.

9. Mind your credit score

If you regularly carry a balance, that could have a negative impact on your credit score, even if you make on-time payments every month.

That’s because your credit utilization — how much credit you use versus how much total credit you have available — counts for about 30 percent of your FICO credit score.

The lower the utilization the better, but if you regularly carry a balance — especially one that puts you at or near your credit limit — that could damage your score.

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10. Ask for a higher credit limit

If your credit score could use some help, here’s a simple way to boost it: Ask your credit card company to raise your credit limit.

A recent Bankrate survey found that 8 in 10 U.S. credit card holders who asked for a credit-limit increase were approved. But just 28 percent of cardholders had ever bothered to ask.

A higher limit could help your score because it would boost your available credit, lowering your utilization in the process

 

Simple Tips For Saving Money In 2017

Doing some spring cleaning this year? Don’t forget to tidy up your savings, too.

Follow these top savings tips to get your financial house in order.

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No. 1: Set a savings goal

Start by setting a savings goal. It should be measurable, achievable, realistic and timely. You might feel ambitious and set a super-high savings goal, but you’ll also be setting yourself up for failure.

When deciding on a savings goal, think of a specific purchase or benchmark you could realistically reach in 12 months. The goal should require self-discipline and a little sacrifice when it comes to spending (it is a goal after all), but you shouldn’t overreach.

Then, find a friend or family member who can hold you accountable, or write the goal down in a place where you’ll see it every day, like your planner.

No. 2: Choose a savings account thoughtfully

Be picky about where you keep your savings. Savings accounts vary widely when it comes to interest, fees and minimum balances, so do your research and find the one that’s perfect for you. Consider extra charges like monthly service and ATM fees.

While the interest rate might sound minimal at first, it adds up. And every little bit counts when you’re saving toward a specific goal. Check out online banks too; online savings accounts sometimes have higher interest rates.

Compare savings accounts to find the right one for you.

No. 3: Make saving automatic

You might not have the self-discipline to set aside a portion of your paycheck every month for savings. So, make your contributions automatic. Banks often offer free services that will transfer a fixed amount of money from your checking to your savings account every month.

Or, ask your HR department if you can direct deposit a percentage of your paycheck every month into a savings account.

No. 4: Establish an emergency fund

While your savings account might double as a rainy-day fund, if you’re super savvy about saving you’ll have a fund dedicated solely to emergencies. Your savings account might be for big purchases — like for a down payment on a house or car — but you should not touch the money in your emergency fund unless there’s an actual emergency. If you lose your job or have to go the hospital, you’ll have something to fall back on without having to sacrifice that big purchase you’ve been saving for.

Typically, an emergency fund should have enough to cover four to seven months’ worth of expenses. Experts recommend starting your fund with small goals — such as saving $1,000 — and then working your way up.

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No. 5: Monitor your monthly expenses

For one month, track every single purchase down to the cent. You’ll know exactly where your paycheck is going and which areas you’re overspending on. You’ll feel more in control of your money, and it’s a key step toward forming a realistic budget.

You might realize, for example, that you’re spending an obscene amount on coffee every week. Once you’re aware of that, you can limit your coffee-shop stops to three times a week and put the rest of that money into savings.

No. 6: Then set a budget

Once you know your spending habits, you can draw up a realistic budget. Budgeting will help you save by helping you cut out frivolous spending. It might be a bit of a trial-and-error process at first; you have to figure out what works best for your lifestyle.

You don’t have to cut out all of the fun stuff, but you do need to pay your bills on time and eventually meet your savings goal.

No. 7: Be smarter with shopping

Be a savvy shopper. A few ideas:

  • Rack up rewards by signing up for loyalty programs at your go-to stores.
  • Sign up for a warehouse club and buy in bulk.
  • Clip coupons when you can.
  • Plan your shopping trips around sales and daily deals.

When shopping online, check out price-comparison websites or use browser plugins to make sure you’re getting the best deal. Just because something is advertised as being discounted doesn’t necessarily mean it’s a good deal.

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No. 8: Take advantage of apps

Whether you want to order a car to come pick you up or just want to socialize with your friends, there’s an app for that. So why not use that technology to become a better saver?

There are many apps that help you budget, find the best local deals, and sell your old junk. This year, find one or two apps that will help you save and use them on a regular basis.

No. 9: Consider a flexible spending account

Explore signing up for a flexible spending account where you work. FSAs are often offered by employers as part of a benefits package, and they can save you money on health care costs not covered by insurance, including copays and deductibles.

After enrolling, you decide how much you want to contribute for the year. That amount is then deducted from your salary over time, before income tax. You withdraw money from the account to pay for certain eligible medical expenses, which are effectively discounted thanks to your tax savings. But you must use up all of the funds within your benefits year.

No. 10: Check your progress

In order to save effectively, you need to know exactly where you stand with your finances each week. Make a “money date” with yourself every Sunday and go through your transactions to ensure you’re on track with your budget. If you fall off track (maybe you spent too much one week or didn’t sock away a single penny from your paycheck), don’t give up! Get back on t8rack.

When you hit savings goals, celebrate and reward yourself a bit. Saving is all about moderation, but not completely cutting out shopping and spending.