Think Your Way to Wealth

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I guess I was lucky, I received my economic stimulus rebate via direct deposit right on schedule. But many people, thinking they should have received it via direct deposit according to the IRS economic stimulus rebate schedule, did not. All direct deposit rebates for taxpayers who filed before April 15th were due to taxpayers by May 16th, according to the schedule. If you believe you should have gotten your stimulus rebate via direct deposit but did not, here are several reasons you may not have received it  (or a paper check) yet or may be getting a paper check in the mail as opposed to direct deposit.

Didn’t get a tax refund- If you didn’t get a tax refund (that is, you owed taxes) you may not be getting your economic stimulus rebate via direct deposit. To have qualified for direct deposit, you would have to have provided the IRS with your banking information (routing number and account number) which many people likely would not have done. Some people who did provide the IRS with that information have still reported not receiving it via direct deposit.

Didn’t file soon enough before deadline- If your tax return was not processed by the April 15th deadline- meaning you mailed it only a few days ahead of time- your refund may be delayed. If you filed after April 15th, it may take up to 6 weeks. If you are getting an income tax refund, the IRS will send you that refund first. Normally, your stimulus payment will follow one to two weeks later. You may still get it via direct deposit.

Split your tax refund between two accounts- If you had your tax refund split between two accounts- that is, a portion deposited into two different bank accounts, the IRS will mail your refund to you by check.

Paid for preparation fees out of refund- If you paid H &R Block, or some other tax preparer your filing or preparation fees out of your refund instead of separately, you will not receive your stimulus rebate via direct deposit, it will be mailed to you.

Received a refund anticipation loan- If you received a refund anticipation loan from your tax preparer, you will receive a paper check.

Closed your bank account- If the IRS tried to send you your refund via direct deposit but your bank account was closed, it would have been rejected. The IRS will then mail you a check to the address on your tax return.

If you moved- You should file a Form 8822 with the IRS and a change of address notice with the U.S. Postal Service. This will ensure your check is sent to your new address. Without your current address, the check could be returned to the IRS as undeliverable.

Filed under: Taxes by RC - 2 Comments →

Did you get a large tax refund last year?

Did you like getting a tax refund if you did?

While it was probably nice to receive a “windfall”, if you are still in debt or not saving enough for retirement, wouldn’t you rather have next year’s money now, to pay off debt at a high interest rate or to save for retirement by opening a Roth IRA, or save it in a high interest savings account? More than two-thirds of tax filers get a refund every year, with an average refund of over $2000. That’s almost $200/month that could be in your pocket now, if your refund was about average. I got a tax refund this past year, and although it was nice, I am changing my tax withholding to minimize the size of the refund I get next year. Look at it this way: If you have credit card debt at 15%, not only are you paying the credit card interest rate on that money when you could be paying off the amount this year , but you are losing an additional few percent to inflation.

If you do owe credit card debt or don’t have the money to open a Roth IRA, or just want to be in control of your own money, you should really consider changing your tax withholding by increasing the number of exemptions on your W-4 . Estimate the number of exemptions you should have on your W-4 by using the IRS Withholding Calculator on the IRS website.
Tips For Using The Program

• Have your most recent pay stubs handy.
• Have your most recent income tax return handy.
• Fill in all information that applies to your situation.
• Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.
• Consult the information links embedded in the program whenever you have a question.
• Print out the final screen that summarizes your input and the results, then use it to complete a new Form W-4 (if necessary), and keep it for your records.

While it’s easy to look at getting a substantial tax refund every year as forced savings, I am sure you can come up with better uses for that money now. If not, change your withholding anyway, set up a direct debit from an online savings account such as ingdirect, and force yourself to save.

Filed under: Debt Reduction, Taxes by RC - No Comments →

 I recently got an email from a co-worker listing the dates of an upcoming tax-free holiday here in Louisiana for the purchase of hurricane preparedness items, and after doing a little research on the internet I came across a list of tax-free holidays in 2008 for quite a few different states. Here is a list of the states, along with the dates, what items are eligible, and the maximum purchase amount for each transaction, I believe.  For additional details, I would recommend visiting each state’s individual tax department website listed, also listed below. I hope this helps you plan ahead for any purchases you may be making this year.

Alabama
3 Days-August 1-3 
http://www.ador.state.al.us/salestax/SalesTaxHol.htm
clothing - $100   
computers - $750    
school supplies - $50    
Books - $30

Connecticut
7 Days- August 17-23
http://www.ct.gov/
clothing and footwear - $300  
    
District of Columbia
9 Days-August 2-10
http://otr.cfo.dc.gov/otr/
clothing - $100   
school supplies -  $100 
17 Days-Nov. 21 - Dec. 7
clothing - $100 

Iowa 
2 Days-August 1-2 
http://www.iowaccess.org/tax/
clothing - $100 
  

Louisiana
2 Days-August 1-2 
all TPP - $2,500   
http://www.rev.state.la.us/
2 Days-May 24-25
hurricane preparedness items - $1,500

  
Missouri 
3 Days- August 1-3 
http://www.dor.mo.gov/tax/
clothing - $100  
computers - $3500    
school supplies - $50 

   
New Mexico
3 Days-August 1-3
http://www.state.nm.us/tax/ 
clothing - $100  
computers - $1,000    
school supplies - $15 
   
North Carolina 
3 Days-August 1-3
http://www.dor.state.nc.us/
clothing - $100  
school supplies - $100    
computers - $3,500    
other comp. - $250    
sports equip - $50
    
Oklahoma
3 Days-August 1-3
http://www.tax.ok.gov/
clothing - $100 
 
South Carolina 
3 Days-August 1-3 
http://www.sctax.org/ 
clothing
school supplies  
 computers    
 other 

 Tennessee
3 Days-April 25-27
http://tn.gov/revenue/
clothing - $100  
school supplies - $100    
computers - $1,500 
3  Days-August 1-3
clothing - $100  
school supplies - $100    
computers - $1,500 
   
Texas 
http://www.window.state.tx.us/
3 Days-August 15-17 
clothing and backpacks - $100  
3 Days-May 24-26  
energy star products   
air conditioners - $6,000; other - $2,000
    
Virginia 
7 Days-May 25-31
hurricane preparedness items - $60
 http://www.tax.virginia.gov/
3 Days-August 1-3
clothing - $100  
school supplies - $20    
4 Days October 10-13 
energy efficient products - $2,500
  
West Virginia 
7 Days-September 1-7
http://www.state.wv.us/taxdiv/
energy efficient products - $2,500  
   

Filed under: Spending Money, Taxes by RC - 1 Comment →

Update 4/27/08- Direct deposit of stimulus rebates will start appx. 5 days earlier that shown on the schedule, starting tomorrow 4/28. Paper checks, which will be mailed, will start appx. 1 week earlier than the schedule below, starting 5/9. Based on the original schedule, you should receive your rebate no later than on the original schedule, and possibly earlier. If you should have received your payment, you can check the status at the IRS site Where’s My Stimulus Payment? To get to your Stimulus Payment information, be ready to enter your:

Social Security Number
Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow
Number of Exemptions shown on your 2007 tax return

As tax filing day approaches, many are looking ahead to the economic stimulus rebates to be issued by the IRS for the federal government. Below are the scheduled dates that you can expect your economic stimulus rebate check, based on information from the IRS website. If you opt for direct deposit of your 2007 tax refund, your economic stimulus rebate will be deposited to your bank account of record sooner than if you get your refund mailed, as they will mail the check to you and the mailings will start later, May 16th. So, there is an additional incentive for having your tax refund transmitted to you via direct deposit.

Economic stimulus payments will be issued according to the last two-digits of the main filer’s Social Security number. People who use direct deposit also will be among the first to receive the payments starting May 2. Paper checks will be put in the mail starting May 16.

DIRECT DEPOSIT

Last two SSN digits: Payment will be transmitted:
00 through 20 May 2
21 through 75 May 9
76 through 99 May 16

PAPER CHECK

Last two SSN digits: Payments will be mailed by:
00 through 09 May 16
10 through 18 May 23
19 through 25 May 30
26 through 38 June 6
39 through 51 June 13
52 through 63 June 20
64 through 75 June 27
76 through 87 July 4
88 through 99 July 11
People who file a return after April 15 will receive their economic stimulus payment, but probably about two weeks later than the schedule shows. A return must be filed by October 15 in order to receive a stimulus payment this year. See the online calculator for an estimate of the amount you will receive.

Dont know what you are going to do with your rebate? Check out my article on spending your tax refund or economic stimulus rebate wisely.

Filed under: Taxes by RC - 12 Comments →

 Below are a couple of tax deductions, one new and one increased, that you want to make sure you take advantage of if you are eligible: 

 Private Mortgage Insurance or PMI, is deductible if you purchased a home or refinanced and paid for PMI in 2007, the first year this has been the case.  In the past this was not deductible. PMI is mortgage insurance paid by the borrower if you take out a loan for more than 80% of the property’s value or sale price.  This deduction is only available to taxpayers with an AGI less than $100,000, and a partial credit is available for incomes between $100k and $109k. You are not eligible if your AGI is $110k or above.  This law was originally passed for 2007 only, and originally applied to mortgages or refinances completed in 2007 only, but President Bush extended it for three more years , through 2010, this past December.

Mileage Rate- If you are able to deduct your car mileage for work usage (if you are self-employed, including a side business), you can deduct either your actual costs or 48.5 cents per mile, up from 44.5 cents per mile for tax year 2006.

(Wait, didn’t gas prices go up about 30% this year?)

Filed under: Saving Money, Taxes by RC - 1 Comment →

Many people will be getting money from the U.S. Government over the next few months. Some will be getting a tax refund, while others will get the economic stimulus rebate (Remember you need to file your taxes for 2007 1st in order to get the rebate!), or both. While most people get excited at what could be considered a “windfall” of sorts (although the refund is really an interest-free loan you provided the government over the last year), take some time to think before you spend. Below are several ways to “spend” or use your tax refund or economic stimulus rebate wisely.

Start or add to an Emergency Fund-If you don’t have an emergency fund, you need one now.  Start with some amount, $250, $500, $1000, based on whatever you are getting back from Uncle Sam, or a part of it, and park it in a online interest bearing savings account such as ING Direct. (if you use a link from my ING referral page and deposit $250, you will get $25 free, and I will get $10). If you are just starting an emergency fund, continue to add something to it out of every paycheck until you reach an amount that you feel comfortable with.

Pay off Debt-This is a no-brainer. If you are in debt, this is a great way to knock down a significant amount that you may not have been able to do otherwise.  If you have an emergency fund, and are still in debt, especially higher interest debt like credit cards, use your rebate or refund here.

Open or fund a Roth IRA-If you have a tax refund, you can fund a Roth IRA for 2008.  A trick you can use to fund a Roth IRA for 2007 (must be funded before April 15th), if you have a well-funded emergency fund and are getting a tax refund, is to borrow it from your emergency fund after you calculate what your refund will be. You then file electronically, and you will likely get your refund within about 2 weeks, after which you can replenish the amount back to your emergency fund.  (Don’t forget to put it back!)  You could possibly do this with your economic stimulus rebate, but you will have to wait until the check arrives, so you will have to take a little more risk until you can put the money back in your emergency fund.

Open a College Savings Fund- Open or add to a 529 account for your child(ren).

If you do spend it, spend it wisely- Don’t use it to add a recurring expense to your life, especially a depreciating asset. Even if you aren’t in any debt, and want to get into the “boost the economy spirit”, use the money wisely. For example, don’t go out a buy a new car because you now have a down payment. Instead, place it in a high interest savings account and save for a new car. If you buy a new (or used) car and finance the remainder, you are only adding to your monthly expenses over the next few years. You windfall has created a recurring liability that you will have to pay for out of your own money for the length of the financing agreement. In fact, even buying a new LCD TV could add a recurring expense to your bottom line. You may decide to add an HD package to your or additional cable channels to your cable or satellite package, thereby adding $20 or more to your regular monthly expenses.  Whatever you do spend it on, try not to purchase something that will increase your monthly expenses.

Filed under: Spending Money, Taxes by RC - 1 Comment →

Is now a good time to invest in I Bonds?  With the recent cut in interest rates by the Federal Reserve bank in the last month or so, many online banks, such as ING Direct , have lowered their interest rates, most under 3.5%.  While this is better than 0.2% in a regular local bank savings account, people looking for the most out of their money are always on the lookout for better returns.  Well, the I bond currently pays 4.28%.  I Bonds, a type of savings bond issued by the U.S. Treasury, pay a composite or total rate, which is a combination of an inflation component and a fixed component. Below is a table of I Bond rates for the past 2+ years. With I bond, the fixed rate remains the same for the life of the bond, while the inflation rate “resets” every six months, for a new composite or total rate. Underneath the table is an explanation of how the composite rate is calculated.

DATE            INFLATION                 FIXED             COMPOSITE
                       RATES*                  RATE               (TOTAL)RATE
1-Nov-07        1.53%     1-Nov-07       1.20%              4.27836%
1-May-07       1.21%      1-May-07      1.30%              3.73573%
1-Nov-06       1.55%      1-Nov-06       1.40%             4.52170%
1-May-06      0.50%      1-May-06      1.40%             2.40700%
1-Nov-05       2.85%      1-Nov-05       1.00%            6.72850%
1-May-05      1.79%       1-May-05      1.20%            4.80148%

Here’s how the composite rate for I bonds issued Nov. 2007 - Apr. 2008 was set:

Fixed rate = 1.20%
Semiannual inflation rate = 1.53%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0120 + (2 x 0.0153) + (0.0120 x 0.0153)]
Composite rate = [0.0120 + 0.0306 + 0.0001836]
Composite rate = [0.0427836]
Composite rate = 0.0428
Composite rate = 4.28%

Historical Averages: 2 Year average 4.41%, 10 Year average 4.65%

I bond Pros and Cons:

Pros:

• I bonds are currently returning 4.28%, a pretty good rate considering ING, for example, is returning 3.40%
• The interest on I bonds can be taxed deferred, meaning they do not have to be reported on a yearly basis (as savings account interest would be)
• The interest from I bonds are tax free if used for education.

Cons:

• I bonds cannot be cashed in for 1 year. So if you have any idea that you may need the money in that time frame, this is not an option for you.
• If you cash I bonds in before 5 years, there is a penalty of 3 months interest. (i.e., you lose 3 months worth of interest.)
• I bond rates change twice a year, the next rate change will take place May 1st (The rates are usually released a few weeks earlier) So that 4.28% could (and may) go down, leaving you locked in at a lower rate for at least six months. Although the historical averarage over the last 10 years is over 4.5%.

If you have money you will not need for at least a year, I bonds may be an option to look in to. If you cash them in before 5 years you will lose 3 months interest. If you will not need the money for 5 plus years, they could end up being pretty good. Using them as part of education savings make them quite attractive-especially with the low risk.
Since you can purchase any amount starting with $25.00, adding them to your investment portfolio in small increments may be something to consider. By starting with small increments, and adding them on a monthy basis, you can create a “ladder” of I bonds, and after 60 months, each one will become “cashable” with full interest.

Filed under: Investing, Saving Money, Taxes by RC - 4 Comments →

 Note, I didn’t say prepare and file your taxes. But, I have already prepared and filed my taxes. Why? Well, I filed because I am getting a refund.  Which I really don’t like - because I  gave the government an interest-free loan over the last year.  But I like to do a “dry run” of my tax preparation, to determine where I stand, as early as possible, when I have received all of the financial documents from my employer (W-2), savings accounts (1099’s), etc. I like to do this early, for two reasons:

1.) If I am getting a refund, I file right away, because I like to get it back from Uncle Sam as quickly as possible, instead of waiting till April 15th,  and put it to work for me, instead of the government.  It also gives me an  opportunity to decrease my withholdings for this year now, so I don’t lend Uncle Sam as much money this year.

2.) If I owe taxes, it allows me to figure out what I owe now.  If the amount is significant, it allows me to budget the money over the next 2 1/2 months, so I am not surprised a couple of days before the April 15th deadline. Also, it allow me to increase my withholdings (assuming I  am going to be in a similar financial situation next year) if necessary, to minimize the amount of my tax liability next year.

As for me, I am going to take my refund and pay down debt. If you are looking for ideas on what to do with your refund, check out Single Guy Money’s 4 Part series, Suggestions for your tax refund.

Filed under: Debt Reduction, Taxes by RC - 1 Comment →