It’s April 16 and most of us survived another tax season. Were you happy with your refund or did you have to pay in more than you have in the past? If your refund was too big, or you had to pay in a lot, you may wish to revisit your Form W-4.
Every time you earn income, you’ll most likely owe state and federal income tax. Your Form W-4 determines how much tax is withheld from your paychecks. Your employer deducts taxes based on the number of allowances you claim on your W-4. This system works well if you’re a “standard” taxpayer who files single, has one job, and claims a standard deduction. But if you don’t fit into this category—and many of us don’t—it’s likely that you have too much or too little tax withheld.
Workers complete form W-4 when they start a job. For many people, that is the last time they pay attention to it. Has there been a change in your household – did you add a child, get married or have a divorce, change jobs or did your spouse get a job? Any of these changes may impact your tax status; that means reviewing your form W-4 is a good idea. In addition, changes in tax law may affect your ultimate tax bill; after passage of the most recent federal tax bill in late 2017, some workers consulted with the payroll office of their employer to review their allowances.
When you have too much money withheld from your paychecks, you end up giving Uncle Sam an interest-free loan (and getting a tax refund). Ask yourself if there are better ways to use that money. Why not take home more money in your weekly paycheck? Or invest the proceeds and earn interest on it? On the other hand, having too little withheld from your paycheck could mean an unexpected tax bill or even a penalty for underpayment. Either way, there’s a better way to manage your hard-earned money.
The key to having the right amount of tax withheld is to update your W-4 regularly. Do this whenever you have a major personal life change. For people who wish to avoid providing that interest free loan to the government, the goal is to file a tax return with zero refund and zero owed. While it is rare to get an actual zero as a result, these folks are generally happy if they either owe a small tax bill or receive a small tax refund. If you count on a big tax refund every year, you should also pay attention to your withholding, because how much you have withheld directly impacts your refund.
Is it time to call your employer’s payroll office?
It’s a rare person who buys a car or a refrigerator without comparing several different options, probably from several different sellers. Yet we humans have a lot of trouble shopping around and comparing our options before we hire a professional. That doesn’t make sense when you think about it — our professional advisers may have a much greater impact on our well-being than our refrigerator!
I’m guessing that maybe there are two reasons we don’t shop around for professional advisers: a) we didn’t learn how from our parents (who may have taught us how to shop around for products from groceries to vacuum cleaners); and b) we feel awkward asking a lot of questions and interviewing professionals, especially when they are the experts and we may not know very much about the topic for which we are seeking an adviser. This applies to attorneys, tax preparers, investment advisers and a wide range of other professionals. It probably applies to experts like plumbers and electricians, too.
I’m going to focus here on financial advisers, but the principles are the same for all professionals. Our financial advisers have a huge impact on our lives, so we need to get over our discomfort, and “just do it.” (forgive me for relying on a phrase made famous in commercials back in the 1970’s or 80’s). Really. This is a time to suck it up and force ourselves to take on something even if we’re nervous about it.
Here’s some good news: reputable financial professionals will understand and support our desire to choose an adviser that fits our needs. They will generally be happy to schedule an appointment (maybe 30 minutes) so we can learn more about them – how they do their work, how they are compensated, what experience they have, and how they stay current in their field. Our job will be to go in prepared with questions we want to ask. (Don’t worry — some resources are identified below!). And then our job is to finish the interview, thank them, and leave without making any decisions. That allows us to interview other individuals, check references, consider what we have learned, and follow up with additional questions before choosing the professional we trust to guide our financial future.
For ideas on what to look for and what kinds of questions to ask, I suggest you begin with information at the following links: FINRA (the Financial Industry Regulatory Authority); Investing for Your Future (national Extension system); Investor Bulletin (from the Securities and Exchange Commission).
Add your ideas here — what are YOU looking for in a financial professional?
Social Security numbers have to be correct on tax returns. At the Volunteer Income Tax Assistance sites we receive an immediate reject on the return if the name and numbers don’t match Social Security records. We also receive a reject code when a social security number has already been used on a tax return. Individuals must still file a return, but with the electronic submission blocked, it must be a mailed copy.
The IRS and Iowa Department of Revenue will send you a letter saying more than one return was filed in your name. Be sure to respond to the letter promptly. Use the internet to validate the IRS phone number and address (scam artists are now creating very good look alike letters). Call and discuss the evidence needed to support your tax return submission.
A letter will also be sent if the IRS or Iowa Department of Revenue has a record of earned income that you didn’t report on a return. It may mean your SSN was used by someone else so they could avoid paying taxes on their earnings.
Social Security numbers can be obtained through scams or by buying numbers that were stolen in a security breach. If you have been notified that someone has committed tax-related identity theft with your personal information, report it promptly. Go to identitytheft.gov to complete and send the IRS Identity Theft Affidavit. By doing this, you will also file a complaint with the Federal Trade Commission and obtain an ID Theft Recovery Plan.
After your identity is falsely used for tax purposes, the IRS will send you an annual PIN number (a new number each year). This PIN number will be added to your tax return to verify your identity to the IRS, and will prevent anyone else from continuing to use your social security number on false claims.
A couple of years ago, I shared about my experiences as an adult child with an aging parent who came to live with me. One of the first things I did when I received word that dad would be coming was to look for support or companionship for him. Early on, he was able to be left home alone during the day (as my husband and I both worked) but I didn’t want his life in my home to be a lonely existence. My neighbor was on a similar journey; her father had also come to live with her. Dad and the neighbor became friends and most days, would walk downtown together for coffee. I appreciated the fact that the neighbor could make sure Dad found his way home. How lucky I was to know of my neighbor’s similar situation and their willingness to work together in providing quality of life for our parents.
My daughter, who lives in Boise, is very tech savvy. I enjoy hearing about her use of technology to solve problems or streamline tasks. To coordinate volunteers or donations of food for school celebrations, they use an online app called SignUpGenius.com. Accounts are free and reminders can be sent from the online app. Her close-knit group of friends uses another online app called MealTrain.com. When someone from their group has a baby, surgery, death in the family or other cause for support, the delivery of meals is organized utilizing this app.
While each of these apps was designed for a specific task, creative minds have found other ways to use them. For example, one of my daughter’s friends had a parent going through chemo. The Mealtrain.com app was used to help organize rides and moral support (company during treatments).
Another app that came to my attention was called Komae.com. This app is used for community co-ops…babysitting coops or carpooling or…use your imagination. Membership in these co-ops begins with an application process to ensure new members are a good fit for the group and to clearly communicate the expectations of the group. In the case of childcare, the app records “deposits” of time you provide caring for the children of others, and makes “withdrawals” of time when your children are cared for by others. This ensures there is a balance of give and take.
What instantly came to mind for me was the growing number of adult-children-with-aging-parents in Iowa. What if adult children caring for aging parents formed a co-op where adult care could be provided for the members by the members in the co-op. Considering the huge expense associated with care for the aging, and the fact that there is a shortage of service providers, especially in rural parts of the state, this app would be very useful. Near the end of Dad’s stay with me, this app would have come in handy as I struggled finding care providers that were willing to come to my house and sit with dad. What solutions have you found addressing the issues of caring for an aging parent?
Your credit history has a great deal of impact on your life. This means you should take full advantage of the fact that the three major credit bureaus-Experian, TransUnion and Equifax-offer one free credit report each year for consumers.
Who else is checking your credit? When you check your credit report, you will find out – and you may be surprised. Have you ever received a credit card offer in the mail? Did you wonder how those credit card companies knew that you qualify for a certain credit card with a specific credit limit? It is likely that the credit card company checked your credit history before sending that offer. When someone looks at your credit history for informational or promotional purposes, this is a soft credit check, and it will appear on your credit report for your information.
Why a Soft Credit Check?
The Fair Credit Reporting Act requires the major consumer credit reporting bureaus to keep a record of all the businesses that look at your credit score. A soft credit check is when your credit is pulled for any reason other than you applying for a loan or new credit. Examples of soft inquiries include:
- Reviews of your credit score or history by an existing lender with whom you have an existing line of credit
- Reviews by potential landlords
- Reviews of your credit for insurance purposes
- Pre-approved credit offers
- When you check your own credit report or score
Typically, soft inquiries remain on your credit reports for two years to give you a clearer picture of all the institutions that have checked your credit. These soft credit checks don’t affect your credit.
What Is the Difference Between a Soft Check and a Hard Check?
A hard credit check occurs after you apply for any type of credit, such as a credit card, a mortgage, personal loan or an auto loan. Once the credit application has been submitted, the potential lender makes an inquiry into your credit score and history to see whether you qualify for the account.
If your credit report shows a large number of hard inquiries, that may negatively impact your credit score. This is because numerous hard inquiries indicate high credit risk to lenders; lenders assume that frequent applications for credit indicate that you’re having a hard time managing your finances.
No matter how many soft inquiries appear on your credit report, your credit score will not suffer in any way. The more hard inquiries you make, the more your credit score will be negatively affected by those inquiries.
We’re two months past new years… how are you doing with your goals or resolutions?
No, I’m not here to nag you! It’s your life and your money, and you should use it as you see fit. But … if there is something you really wanted to accomplish, and you haven’t made progress yet, then now is a great time to revisit the goal and come up with a strategy that will help you move forward!
One great starting place is to break down your goal into small steps so that you have something concrete you can accomplish each day or each week. An example:
Suppose your goal is to pay off an $800 hospital bill. You don’t have $800 sitting around, so it seems impossible.
To break it into small steps, you might decide to pay $100/month.
- You could break that down even further by saying that you will take $25 from each weekly paycheck.
- Or you might decide to take $70 from your paycheck the third week of the month (because you don’t have many bills due that week), and $10 from all the other paychecks.
- You might go a step further and say that the way your going to come up with $10/week is by staying away from the vending machines at work. Or perhaps you’re going to save $25/week by taking your lunch to work.
Another key to reaching a goal is to be convinced of its importance. Reaching any financial goal requires making some type of change. We humans are generally unwilling to change unless it is for a really good reason. So spend some time focusing on WHY you set that goal. Are you truly “sold” on the goal? If yes, that will make it much easier to accomplish; any time you’re inclined to stray from your plan, you can remind yourself of the “why” behind your goal.
If, on the other hand, you are not fully “sold” on the importance of the goal, you may have difficulty accomplishing it. Perhaps it is not the right goal for you. Or … if you know in your head that it’s a valuable goal, you may want to spend some time convincing your heart of its importance — outline all the reasons why your brain knows this is important, or make a list of all the good things that will result from it.
These are not the only ways to be successful in reaching a goal, but in my experience they help a lot. Set goals that are important to you, and identify small steps that will move you closer to the goal!
Best wishes with your new New Year’s resolutions!
It’s strange to hear marketing promoting the use of e-cigarettes. Legislation has restricted campaigns promoting tobacco products for many years. A frequently-used e-cig marketing approach targets smokers who feel their habit has forced them into self-imposed isolation to hide their habit or protect others from second hand exposure. Web sites declare the product is for individuals who already smoke, offering them a safer alternative.
Nicotine is an addictive substance and e-cigarette ads or commercials clearly state its presence. E-cigarette use often leads to use of tobacco products. Among individuals who smoke, nine out of ten started as teens.
A 2016 report by the Surgeon Generals Office pointed to data indicating a rapid increase in the use of e-cigarettes (also known as “vaping”) by teens and young adults. In research designed to measure whether youth understand the risks, the findings clearly indicate that teens and young adults view e-cigarettes as safe. Flavor options are attractive, and natural curiosity are reasons given to try e-cigarettes.
Tobacco product use in any form, including e-cigarettes, is unsafe for adolescents. Lifelong addiction is costly, not only in health terms, but also in financial terms. E-cigarette pods, equivalent to a pack of cigarettes, cost $4-$5. The device to use the pods is around $35. When a substance is addictive, as e-cigarettes are, users will typically increase consumption over time. This is a bonus for the companies selling the products. Even with low use (2 pods a week), the habit will cost $500 a year.
Running a calculation of what $500 a year could become if it was saved provides an argument against vaping. A modest $50 deposited monthly into an account earning 3% a year with annual compounding (I’m being intentionally conservative here…) from the age of 16 until age 65 would result in cash assets of $65,000. Unfortunately it’s hard to make this example exotic enough to hook individuals on saving instead of vaping.
On Super Bowl Sunday in my area it was so foggy you could not see your hand in front of your face. While many were preoccupied with football (or the commercials), there were others that were taking advantage of weather that easily conceals illegal activities.
On Monday morning, my colleague found that the family’s storage unit, located a few blocks from their home, had been broken into. In total, there were 4 or 5 units that had been broken into, plus it was obvious that unsuccessful attempts were made on several other units. An examination of the storage units that withstood the break-in attempts made it clear that the quality of the padlock is what made the difference in the safety of the contents. My friend was lucky because only tools and equipment were stolen — not the classic car they also had stored in the unit.
This is a common problem among rural properties. Farmers often have buildings that they only spend time in during the spring, summer and fall months. Thieves will frequently enter these building and take a few small items. Their intent is to see if you notice that the small things are missing AND to take inventory of larger, more expensive items stored in the building. They may also leave something leaned or stacked in a certain way that would topple or need to be moved if someone entered the building. These tactics inform the thief whether someone does visit this building. After several weeks, if the building still appears un-visited, they will come back and help themselves to the big-ticket items. A lot of farmers use trail cameras, (cameras used by hunters to study the activity of animals in the area) to monitor building sites or even their homestead.
With all the new and fairly inexpensive security equipment on the market – doorbells with cameras, spotlights with built-in cameras and small camera units – it is no surprise that the police are having an easier time catching thieves. It is also interesting to see the number of police and neighborhood postings on Facebook asking for help in identifying thieves that are caught on home security systems. As for my friend, it was suggested by local police to consider using a trail camera to keep an eye on their storage unit and, of course, to purchase a better lock.
Life is full of surprises and events that sometimes shatter our daily routines and our finances.
Conventional wisdom says that the money in an emergency fund would be earmarked for “unexpected expenses.” That is true. However, let’s think about what expenses actually are (and are not) unexpected.
Expenses that are not unexpected: monthly and annual bills
- Regular annual or semi-annual expenses are not unexpected: these include property taxes, car insurance premiums, annual life insurance premium, eye exams and other once-a year expenses. You can plan and prepare for these expenses by setting aside a fixed amount each month. Since you know these expenses are coming, they cannot truly be considered emergencies.
- Occasional maintenance or repairs, such as a leaky roof or a dishwasher breakdown are not fully unexpected. either. The same is true for other ordinary home repair, care repair, and moderate medical bills. You may not know exactly what expenses will come up, but if you have a body, a car or a home, you need to expect to spend money on maintaining them. Setting aside money each month will build a fund for home repair and maintenance, car repairs, and ordinary medical bills.
What expenses are truly unexpected?
An emergency fund is intended for expenses that fall outside the categories of “annual bills” or ordinary maintenance of home, car, and health. Unexpected expenses are events like losing your job or being struck by a massive, out-of-the-norm health-related bill beyond what insurance will cover. Emergency funds are designed for expenses that are highly unusual, not for common occurrences.
Bottom Line: It is possible that the savings account you were labeling as an “Emergency Fund” is actually your “Yearly Expense and Maintenance Fund.” That’s a good fund to have. But perhaps you also need an emergency fund.
In much of Iowa, our recent winter weeks have held lots of days suitable only for staying indoors. We’ve canceled or postponed many plans, and some of our dogs have missed lots of walks because some days were just too cold or windy.
So what can we do with those snow days? I have an idea!
No, it’s not binge-watching your favorite shows or movies, nor does it involve baking. You don’t need ME to suggest those!
My idea is less recreational, but much more valuable in the long term: go through your files!
Cleaning and organizing files is a task we tend to procrastinate. But in an emergency, and even in many non-emergency situations, we sure would like to turn to our files and immediately put our hands on the document(s) we need. When need arises, we’ll be glad we invested some time in getting organized.
Here’s the good news: it’s a task that can be broken up into small doses.
- If you already have a filing system, you can just go through one or two files a day, to pull out old materials that are no longer needed, and make sure the most current information is in front.
- If you do not have a filing system in place, start with a small stack of papers from wherever you’ve been storing them. Create file folders or envelopes for each category of papers you run across. For example, if the first paper you come to is about your car insurance, then create a car insurance file. Perhaps the next item will be college transcript – if so, create an education file.
Well-organized files have three characteristics: 1) they are clearly labeled; 2) the newest and most important information is in front; and 3) out-of-date and unimportant documents are removed. Determining what is important can be a challenge. Some tips for starters:
- Insurance – keep the most recent summary of coverage (declarations page). In addition, keep the full policy booklet if you have one, and any updates you receive about coverage details.
- Mutual fund accounts – keep your quarterly statements until the year-end statement arrives; that should include all activity for the year, so you can discard the quarterly statements. Keep all year-end statements, with the most recent in front. Keep the most recent prospectus. There is no need to keep annual reports.
- Monthly bills – once you get the next statement showing that your payment was received, you can safely discard the previous statement, unless you need it for tax purposes.
- Warranties and purchase records for warrantied items – keep as long as you own the item. Keep the purchase information longer if the item affects your taxes.
- Taxes – after six years, they can be discarded.
Personally, my biggest filing problem is old folders with labels that have fallen off – I need to go through and re-label files. Which filing task most needs your attention?