Archive for March, 2008

Tax Refund – What did you do?

“Beware of little expenses; a small leak will sink a great ship.” Benjamin Franklin



I hope many of you by this time filed your taxes some might have gotten your tax refunds. Unfortunately some of you might not be in the receiving end and owed to Uncle Sam. According to me, almost all the time you should be able to get a refund if you plan and file properly. I never paid Uncle sam, always got refund atmost break even. Anyways, that’s a different topic altogether.

Did you get a tax refund?!

Don’t think its a free money, its your money and you own it. I know its pretty exciting to get a big chunk of change at this time of year. Many already have plans for it. Whatever plans you have please make a wise decision and use it properly.

What did I do?

Let me tell you what I did. I got my refund 2 weeks ago and planned to pay part of my 0% balance transfer credit card debt. You might wonder how come I have a debt? Everybody has debt and its a good thing if you manage it well. My debt on 0% balance transfer card is about getting free money for a year and leverage it to invest on real estate or Cd’s to get a good gain from it. If you are smart, you can do the same. Don’t throw away your free 0% balance transfers offer. You won’t find them these days because of credit problem.

If you do get those deals, select a good card with $0 balance transfer and put the money either in Cd’s or invest on good vehicle like Real estate. That’s one way of getting free money without no interest. No body lend money for free these days. So I plan to use that refund to pay off my debt but I am not doing it immediately.

I opened a WAMU CD account which is going to pay 4% interest on 6 months CD until 2 days ago(not anymore). Then take it out and payoff the debt. Why did I do that? I know I still have time to payoff my credit card debt till Nov. What is the benefit I am going to get by paying it off now? SO I leveraging the time and money in my favor to gain every penny of it. Hope you got the point.

What you can do?

I would suggest you to think twice before you make a decision. Jot down your current situation and list the options you have and take the right step. These are my suggestions:

1. If you have a high credit card debt, just pay it off or reduce the amount by paying it off.

2. If you don’t have any CC debt, paying off your Auto Loan or any personal loan which might have interest rate higher than CD can yield. Don’t payoff your Home loan unless its closes off your loan.

3. If you don’t have any debts, think about short term needs. If you don’t have short term emergency savings.

Start one right now with part of the amount as CD. Then use the other part to either add to your IRA account or kids education account. If a vacation is long due, plan for it but put this money as CD for that time being.If you planning to jump to any investment vehicle and test the water. Don’t dump all the amount into it. First test the waters with small amount and once comfortable start adding it in slowly.



To conclude, Money doesn’t find us easily. If it finds its way, don’t let it go easily.

Savings made simple and easy…

Saving is a habit and not a hobby. Let me start with that note. You might have read lot on “How to Savings?” over the Internet. They always suggest some hard to follow strategies that doesn’t fit to all type of people. I am share my simple, realistic, and ideal plan which sure won’t turn you down on your thoughts about savings. So go and read on… Whether you are looking to save small for your IPOD or little bit more for a new car or bigger amount for your first home. Let me tell you first thing you should know.

Savings is hard and never comes off the cuff. Not many of you like to hear that but Sorry that’s the truth. You should first and foremost realize that fact. I always like to expose the truth/fact first so one can understand before diving deep in it. When I was kid(6th grade), my mom showed the value of real money. She taught me about how to save every paise(Indian currency equivalent of penny). I started my first savings bank account when

I was doing my 7th grade and started putting every rupee(Indian currency equivalent to dollar) I earned. That’s the foundation for my savings and spending habit. If you don’t have that Saving habit built into you, its going to be hard to start with but it was never tough act. Anything is possible under Sun and above earth if you ask me. It’s just needs your determination and to make it habitual by constant practice.

A quote by Frank Outlaw goes very well at this point.
“Watch your thoughts; they become words.
Watch your words; they become actions.
Watch your actions; they become habits.
Watch your habits; they become character.
Watch your character; it becomes your destiny.”

You need to first cultivate the thought about Savings. Then talk about it to your spouse or friends anytime you talk about money or expenses. Then act on it by following any or all of 3 methods.

Prerequisite
: Open a savings account either with Internet banks or local banks with just minimum deposit of $1. Credit unions are best for small saving accounts.
1. Start putting your change(pennies or dimes) which you gather every day or week in a piggy bank or a simple container. Every month, take the change to near by bank and deposit it to your bank account.

2. On every ATM withdrawal, take $10 out of it and put it away in the secret compartment in your wallet. Don’t ever touch that whatever comes. At the end of the month, take it all out and deposit in your savings account.

3. I call this one it Blind savings – Put away a small amount from your paycheck automatically as a Payroll deduction or auto deduction from your checking account to your CD or Savings account.

Once you start taking actions. Everything falls into picture automatically transforming yourself and the savings habit gets built slowly into you. Once you got the habit, it comes off the cuff without even thinking about like your second nature.

Don’t think its not possible. You already took your first step thinking about it on the path towards making savings a habit. So start working your next step by talking and taking action.

Uncle Sam Tax Rebate Cheque and its Caveats…

Who will say “No” to a nice bulky cheque and that’s even better without any tax deduction on it. Its even sweeter coming from IRS Uncle Sam. Yes, almost all tax payers of 2008 can expect around $600 – $1200 tax rebate cheque from IRS this summer. May be more if you have kids below age 17.

If you aren’t aware of this happy news, here is a my short preview of that story and also some caveats around it.

Why Tax Rebate cheque?

Most of you all know US economy is pretty ugly and getting worse every day. There are lot of factors but the main culprit being the Sub prime mortgage crisis which infused a big credit crunch. US government has taken some drastic measure to ease up this credit crunch and one among being Stimulus package.


On Feb 13th, 2008, President Bush signed the economic stimulus bill that provides tax rebates to most low- and middle-income Americans. The Internal Revenue Service expects to begin distributing tax rebates by direct deposit on May 1 or 2 and by mail a week later. The distribution will continue through summer.

Whats the idea behind it?




Put back some money on consumers hands, so they can spend it and at the same time infuse the money back to the economy. It’s the other way of giving tax cut on your dollars. Instead they are sending rebate cheques for lump sum amount to get some fierce effect on the down trending economy.



The logic behind it is simple. The rebates represent a 2008 tax cut. But instead of getting the tax cut next year, when you file your 2008 return, you’ll get it this year.

Important Requisition
:


If you want to get a rebate this year, you must file a 2007 federal tax return, even if you don’t owe federal income tax. Not everyone will qualify for one, however.





IRS urged people to file returns by April 15 and choose direct deposit for their refund. Those who choose direct deposit will have their rebate deposited directly into their bank account, separately from the refund.


Don’t worry!!!


If you owe tax for 2007, you can still get the rebate deposited into your bank account by providing the routing and account number – which can be found on your checks – on your 2007 tax return.




You cannot have your rebate applied to the amount you owe for 2007. However, the rebate will be diverted to pay certain delinquent debts including federal and state taxes, child support and student loans.





Who are qualified:



— Most people who paid federal income tax for 2007 will get a rebate equal to the amount they paid up to $600 (single) or $1,200 (married filing jointly).




— If you didn’t owe federal income tax for 2007, you can still get a rebate of $300 (single) or $600 (married filing jointly) if you and/or your spouse had at least $3,000 in what the IRS calls qualifying income.





People who don’t owe income tax but do qualify for a rebate still need to file a 2007 tax return, but they won’t have to fill it out completely. To help processing, the IRS wants people to write “Stimulus Payment” across the top of these modified returns, but failure to do so won’t jeopardize the rebate.



Extra $300


We all know the kids are fun but they come with extra expense but not during the tax time or when you are getting free dollars. That’s right, children are eligible to tax rebate as well.





Anyone eligible for a rebate will get an extra $300 for each qualifying child who was younger than 17 last Dec. 31.





Children 17 and older on that date won’t earn their parents a rebate. Nor will they earn a rebate based on their own income if their parents claim them – or could claim them – as dependents on their tax returns. The rules are kind of hairy, but in general, even college kids can be claimed as dependents if they are full-time students, younger than 24 and not providing more than half their support. Children in this category would not get their own rebate, even if they had substantial earnings from a job.


On the other hand, if you qualify in 2008 but did not in 2007, you can get the rebate when you file your 2008 taxes. For example, if you have a child born in 2008, you will get the $300 child rebate next year, assuming you meet the other qualifications.



Notice to Non-Resident Aliens




Rebates will not be sent to nonresident aliens (
you must have a Social Security number to get a rebate), estates, trusts or people who are or could be claimed as a dependent on someone else tax return. That means most high school and many college students won’t get a rebate even if they earn more than $3,000 or pay taxes.



To get a rebate, you – and your spouse if filing a joint return – must have a valid Social Security number. Your children also must have Social Security numbers to get the $300 child rebate. An individual taxpayer identification number will not suffice.




If you have a Social Security number but your spouse has just the taxpayer ID number, neither of you will get a rebate if you file a joint return. If the spouse with the Social Security number files separately, he or she might qualify for a rebate up to $600.





Restrictions:



If your 2007 adjusted gross income was more than $75,000 (single) or $150,000 (married filing jointly), you will lose all or some of the rebate. For every $100 you make over those limits, you lose $5 of rebate until your rebate is gone
. At what point your income disappears depends on how many children you have. But it drops off pretty steeply, Stiff said.



Q:
“Will the rebate be taxable income that we need to claim as income for 2008 on our tax returns? Will the checks be in the actual amounts quoted, or will there be taxes deducted?”


A: The rebates are not taxable. You will not have to report them as income for 2008. No taxes will be deducted from the rebates. Rebates also will not be added to income to determine whether people are eligible for federal or federally subsidized programs such as food stamps or welfare.



IRS is expected to send a letter to all Tax payer on this matter. So Don’t panic about the letter you might be getting from IRS after next week. Its about Tax rebate and nothing about your taxes.

For more details,visit IRS Tax Rebate Center

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