February 27, 2014
With tax season in full swing, let’s take a look at some of the most common pitfalls that people make while preparing their own tax returns and how you can avoid falling in to them.
Most websites will start their list of tax preparation errors by pointing out that you can deduct some medical expenses, but you should stop before you get that far. Before you start poring over receipts and charitable contributions, make sure you’re not leaving money on the table with the “standard deduction.” The standard deduction is the IRS’s baseline for what an average person spends on deductible expenses. This amount is $6,100 for a single person, $8,950 for a head of household, and $12,200 for a married couple that’s filing jointly.
The IRS has a form to help you determine if you should itemize or take the standard deduction. There are six categories on it: medical expenses, taxes, interest, gifts to charity, casualty and theft losses, and work expenses. Before you start itemizing, take a moment and make a ballpark estimation. None of these expenses can include costs that someone paid for you, like insurance in the case of medical expenses or employer reimbursement in the case of work expenses. Take a look at your expenses in these categories for December and multiply that by twelve. Are the items you’re trying to deduct likely to be greater than your standard deduction amount? If not, you can save yourself a ton of time and hassle, and probably even a little money, by taking the standard deduction.
2. Not proofreading
The easiest place for the IRS to detect fraud is by comparing names and Social Security numbers. Make sure every person you list on your return is listed by the same name that’s on their Social Security information, and that each of those names is spelled identically. While these errors aren’t difficult to correct, they can significantly delay the processing of your return. If you recently changed your name, make sure the name change has been processed with the Social Security Administration.
While small math errors will be automatically corrected by the IRS, another place to check your errors is in rounding. If you’re rounding to the nearest dollar, that’s fine. But if you’re regularly putting in items that end in 5 or 0, that’s a signal to the IRS that you’re working from memory, not from receipts. Make sure you check the amounts that you’re listing against the paperwork you have on hand. Resist the impulse to estimate or “fudge” your income even a little bit; all of the income statements you get are copied to the IRS, and rounding, addition, or data entry errors are sure to trigger red flags from investigators.
3. Being too aggressive (in predictable ways)
If you’ve been looking for tax advice online, you’ve probably heard the sage advice that you should be as aggressive as you can be in preparing your return. If you’ve got a deduction that you think you might qualify for, you should claim it. The IRS will only investigate if it thinks it likely that the amount of money it could recover from that investigation will justify the cost. That’s true, but the IRS is an increasingly adaptable organization. They’ve caught on to the most common places where people exaggerate their deductions and can quickly identify these as ways that may trigger an investigation.
The three most common places people exaggerate their deductions are in a home office, work-related expenses, and charitable contributions. A home office must be a defined space in your home which is used exclusively and regularly for work functions. An office where you meet clients and work on your business is deductible. A den where you read your newspaper and also occasionally do a few hours of work is not. Your car is a deductible business expense when it’s used only for your business, not if it’s a family car that you also occasionally use to run business errands. If you’re going to itemize your charitable contributions, make sure you have records of the value of items you donate. Charitable contributions in excess of 5% of your income are easy places for the IRS to call for proof.
4. Making financial decisions for their tax implications
With a few exceptions, most tax incentives aren’t enough in and of themselves, to make any particular financial decision worthwhile. It’s very unlikely, for example, that you can make a charitable contribution that’s large enough to save you money on your taxes. Making your financial decisions based on the tax implications is a lot like letting the tail wag the dog.
While the IRS says that anyone with knowledge of high school mathematics (and an afternoon to kill) can do their own taxes, the hurdles to filling out a tax form are many. Luckily it only comes due once a year so it’s best to grin, bear it, and file it right the first time.
January 31, 2014
While most people were safely home for the holidays, the Department of Education released a terrifying new report: The estimated cost of college education in America is $62.6 billion. That seems like a staggering number until it's compared to how much the federal government spends on making college education affordable. The total of the grants, tax benefits, work-study opportunities, and loan subsidies provided by the federal government is $69 billion.
The news of this finding is making waves in Congress, where some lawmakers looking at that $69 billion as a safe place to make easy cuts. This could mean a serious threat to your plans to save for your own or your child's college education.
With our Spring College Planning webinar coming up, on February 18 (click here to sign up) we'll take a look at some of the most common concerns about college savings.
Q: That's a lot of money. Is a college education worth it?
A: That's a complicated question, and it really depends upon what college gets you. For people who are perusing professional degrees to become doctors, lawyers, engineers, architects, or researchers in the hard sciences, a 4-year degree is definitely worth the investment. These careers are relatively recession-proof and have very high earnings potential. For people who are interested in technical degrees, some colleges are worthwhile, too. Getting a 2-year degree in medical technology, vehicle maintenance, or any other practical trade is relatively low cost and provides an excellent possibility of work after graduation. For these people, who are interested in studying business, English, philosophy, or communication another valid option is to earn their degree more slowly while working and building a resume that gains practical job experience for the student.
Q: How much should I save for college?
A: The short answer is that you can never save too much. College education is expensive and is continually getting more expensive. If you were planning on using federally subsidized loans, scholarships, or work-study programs, know that these programs are always on the chopping block, even more so after the recent Department of Education report.
The cost of just one year at a public university rises by about 6% annually, so by the year 2030 it will cost your child $44,000 a year to attend school. Multiply that by 4 years, and you can safely assume that tuition will run in the neighborhood of $176,000. Add in room and board, books, and transportation, and $200,000 is a realistic expectation.
Q: What can I do to secure a brighter educational future for me and my children?
A: Even if you or your children don't end up going to college, putting money away into a tax-deferred savings program can still be a wise idea. A 529 savings plan, available from your credit union, is a tax-deferred college savings plan. You invest up to $300,000 (or have automatic deductions from your pay check). You pay no income tax on the interest, and if it's used for school, you never do. If you or your child receives significant scholarship money, you can withdraw the excess funding, frequently with no penalty. If you or your child decides not to go to college, you only pay a 10% penalty on the earnings, and must pay taxes on the interest that has accrued in the account as well.
That $200,000 you had budgeted for college would put a young entrepreneur in a better position with start-up funding, enable you or your child to buy a house, or allow the benefactor of the fund to start saving or investing for retirement. Saving now for college can pay great dividends, even if you never set foot in one.
The MHV Investment & Retirement Center* can walk you through the steps of setting up a 529 savings plan or Coverdell Educational Savings Account (ESA). It's a fairly straightforward process that involves little risk and can offer significant tax benefits over a savings account or a privately managed investment fund. Set up an appointment to meet with a representative today.
Also, be sure to sign up for our College Planning webinar on February 18!
*Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members.Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.
CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
January 2, 2014
Except for Veterans Administration loans, it still generally takes some cash up front to get into a home. How much cash you'll be required to have up front depends on the type of mortgage (whether FHA or conventional) and your personal financial situation. The better your credit, though, the lower the down payment the lender will typically expect.
How much will you need to save? If you are applying for an FHA loan and your FICO score is between 500 and 579, plan on a 10 percent down payment or more. If your score is 580 or better, you may be able to qualify for a 3.5 percent down mortgage.
Conventional mortgages tend to have somewhat higher down-payment requirements. You begin to become competitive for a 5 percent down mortgage when you have a FICO score of around 660, though lenders vary widely in practice. However, to save on private mortgage insurance costs (PMI), you may want to go with a VA loan, if you qualify or save up 20 percent.
So what's the best way to go about saving that money? Here are the factors to keep in mind:
Safety. Unless you are planning to wait years to buy your home, you don't want to take a lot of risk with this money. Hopefully, you will have your down payment saved up within a year or two. It doesn't make sense to risk a large market loss and throw your dream of home ownership off schedule.
Liquidity. You don't want to lock this money up for years. You want to be able to access your money quickly and cheaply.
Returns. You want to get a reasonable return, or yield, on your money. But don't sacrifice safety for yield if it means risking your goal of home ownership.
A Guarantee. Investments carry risk. But some financial vehicles come with an in-writing guarantee. Examples include balances in checking and savings accounts and share savings certificates at credit unions, which come with a guarantee of up to $250,000 in the event the credit union becomes insolvent. Banks have a typical arrangement via the Federal Deposit Insurance Corporation.
So where should you put your money? Here are some common options that have stood the test of time – along with the advantages and disadvantages of each.
Cash. You can stuff cash in a mattress or coffee can. This is convenient, but not very secure. Your money is subject to the hazards of theft, flood, fire or loss. It also generates no return whatsoever.
Checking or Savings Accounts. These generally produce a small return, but at least it's something. They are, however, very convenient, if you are disciplined about not spending the money that's earmarked for your down payment. If your savings is very small, it may make sense to keep it here instead of paying fees to maintain a low balance account. These are guaranteed against bank failures up to $250,000 per account holder, either from FDIC (for banks) or the National Credit Union Share Insurance Fund, or NCUSIF. Because credit unions are mutually-owned by depositors just like you, you can frequently get a better deal in the long run by using a credit union.
Certificates of Deposit (AKA "Share Savings Certificates" at Credit Unions). These typically pay a higher yield than checking or savings accounts, and also qualify for federal insurance coverage. However, they do require you to commit your money for a specific period of time. The penalty for early withdrawals is usually the equivalent of six months of interest.
Money Markets. This is a type of mutual fund that's made up of low-risk, short-term bonds and commercial paper designed to maintain a stable per-share price of $1 per day. By and large, they have been able to do so, historically, though there are no guarantees. They may offer higher yields than guaranteed accounts, and do not require a time commitment. However, there is a possibility that your money market will lose money. Some financial institutions do offer insured money markets.
Permanent Life Insurance. If you own a permanent life insurance policy, such as a whole life policy, it accumulates cash value over time. Whole life and well-funded universal-life insurance policies can be effective tools for savers – especially since whole life insurance cash value receives a guaranteed crediting rating and is guaranteed never to decline in value as long as you pay premiums as scheduled.
Individual Retirement Arrangements. You can withdraw up to $10,000 from your IRA to put a down payment on a home with no penalty. For traditional IRAs, you will need to pay income taxes on any such withdrawals.
Thrift Savings Program. If you are a federal employee or member of the United States military, the Thrift Savings Program, or TSP, allows you to borrow money to make your down payment on a home on advantageous terms. For more information, visit www.tsp.gov.
401(k) Loans. Some employers allow you to borrow from your 401(k). Typically, you will need to repay the loan within five years or face taxes and penalties on any remaining balance. However, if you leave your employer, you will have to repay the loan immediately or face taxes and penalties on what you've withdrawn. This makes using 401(k) loans tricky for longer terms – especially where employment prospects are not certain.
Whatever vehicles you choose to utilize in accumulating your savings, your credit union is ready to assist. Come in and speak with one of our Lending or MHV Investment & Retirement representatives for a no-obligation consultation, or simply some advice on how to get started.
December 2, 2013
Even if you have enough money to celebrate the holidays as usual this year, think of all of the people who don't. Consider some of these ideas to bring joy to yourself and your loved ones without breaking the bank. In fact, all of these ideas are pretty much free!
Give yourself permission to enjoy life without spending money. It's a great exercise in attitude, (even if you do have money to spend) and, provided you really do go about it joyously, it's a wonderful lesson to your children. Share the ideas here with friends and family, and come up with some of your own! It may be comforting to those who can't spend the way they did in previous years to see that even those who can are being careful. Try some (or all!) of the following:
1. Start a new family tradition. Whether it's building a fire in the rarely-used fireplace, having all the young cousins over for a pre-holiday family overnight (they can camp out in the living room in sleeping bags!) or just a quiet day to yourself spent reading and reflecting on the past year. Start a tradition that belongs to your family alone. It may not mean much this year (although if you do something fun, it probably will mean a lot) but as all traditions, it will increase in value as the years go by.
2. Get out and enjoy the outdoors, alone or with your loved ones. Even if it's bitterly cold, there's nothing a warm coat, gloves, and a scarf can't handle. Go for a walk in the park or on the beach. Enjoy each other's company and share memories of bygone holidays.
3. Buy a notebook for each member of the family, and have all other family members sign it with a special message. This can be done with just the immediate family or even for an entire extended family. Use a theme such as "I love you because. . ." or "I admire you for. . ." or even "I can't imagine our family without you because. . .". This is a very, very personal gift, and one that will be treasured for years. Okay, this one isn't free. It's about $1 per participant if you pick up pretty blank journals at the dollar store.
4. Agree to spend less on gifts, and put more thought and love into each one. There are plenty of ideas for low cost gifts and with a little creativity; you'll be able to give each person on your list something that is meaningful and valuable beyond the price tag.
5. Give to others. Whether it's volunteering at a soup kitchen or finding a family in your community that has less than you do and sending them a holiday basket, giving to others creates a good feeling all around, spreads the joy, and helps you realize how much you truly have to be thankful for.
October 29, 2013
Building a strong credit score is one of the best things you can do you for your financial future. As the primary way banks and credit card companies assess your overall financial risk, your credit score determines whether you qualify for everything from a credit card to a home mortgage loan, as well as the rate you'll be offered. If you're young or just haven't given much thought to it, you may not see the need to worry about your score, but building credit is essential to long-term financial wellbeing. Waiting until you actually need a loan or card could end up costing you a lot more money. Start building credit today with these five simple tips.
Pay On Time
If you're a chronically late person don't let this trait define your financial habits. Paying credit card balances, student loans, leases and even utility bills late can negatively reflect on your credit score. Some people think that missing payment of minor bills or monthly rent won't show up on their credit score. Many consumers don't realize that non-payments are often sent to collection agencies, which, in turn, report your personal information to credit agencies. Once this cat is out of the bag your credit score can drop like a lead balloon.
Control Your Output
Shopping with credit cards can feel like you're not really spending money, leading many consumers to spend beyond their means and get caught off guard when the credit card bill is due. This pitfall is one of the easiest ways to increase your debt and decrease your credit score. Stick to purchasing items within your budget and pay them off by the payment due date. Maintaining at least one credit card and making timely payments will greatly help build your credit score.
Set and Stick to Payoff Goals
You may wonder, "Should I pay off debt or save money first?" It's virtually always better to pay off debt first, and that's especially true when you're interested in building credit. Set personal goals for paying off each outstanding source of debt, starting with the debt with the highest interest rate. As you do so you'll steadily drive your debt down and bring your credit up. As long as you make your payments on time you'll eventually be rewarded with an excellent credit score.
Maintain Stable Employment
Every credit report includes a section called "Identifying Information" which shows if you have a stable employment history. Lenders see this as a sign of low risk and an ability to pay back your loan. If you have the opportunity to contribute to a company run 401(k) at your job, try to save as much as possible. Putting money into a 401(k) positively affects your credit score as it helps to demonstrate fiscal responsibility.
Choose Your Credit Limit Carefully
Never ask to lower your credit limit. Some people think this is a good tactic to reduce the temptation of impulsive purchasing. Instead, the percentage of what you owe increases if the credit limit is reduced, sending a message to lenders that you're a high fiscal risk. As a result, your credit score goes down.
If you ask to increase your credit limit this reduces the percentage of what you owe, showing that you are able to maintain a low balance yet still make payments responsibly. Be careful with this maneuver – decide first whether you'd have a hard time fighting the temptation to max out a higher limit.
These simple ways to build credit can start you on your way to a healthy financial future. Exercise patience and take things one step at a time – building good credit doesn't happen overnight. In the long run these efforts will reward you with low interest loans, mortgages and leases that you otherwise would have had trouble obtaining.
Sara Collins is a writer for NerdWallet.com, a personal finance site dedicated to helping consumers stay informed about subjects like the tax benefits of 529 plans.
September 27, 2013
The Federal Reserve Board has annouced the redesign of the $100 note and will begin circulating the new bill on October 8, 2013. The redesign includes two new security features that help prevent fraud: a blue 3-D Security Ribbon and a color-shifting Bell in the Inkwell.
You can’t miss the blue 3-D Security Ribbon on the front of the redesigned $100 note. The ribbon appears three-dimensional with bells and numeral 100s appearing to float or glide above the ribbon as you move the note.
A second new security feature on the redesigned $100 note, also on the front of the note, is the Bell in the Inkwell. At first, the bell blends with the inkwell because they are the same copper color, but when you tilt the note, the bell changes color to green. This color shift makes the bell seem to appear and disappear within the inkwell.
In addition to these new security features, the government also retained three highly effective security features from the old $100 note design, including:
• Portrait Watermark – Hold the note to light to see a faint image of Benjamin Franklin in the blank space to the right of the large portrait. It is visible from either side of the note.
• Security Thread – Hold the note to light to see an embedded thread that runs vertically to the left of the portrait. The letters USA and the numeral 100 appear in an alternating pattern and can be seen from both sides of the note. The thread glows pink when illuminated by ultraviolet light.
• Color-Shifting 100 – Tilt the note to see the numeral 100 in the lower right corner of the front of the note change from copper to green.
Law enforcement officials warn that counterfeiters look for opportunities to take advantage of uninformed businesses and consumers when a new currency design is issued. They are encouraging everyone who handles cash to know the security features of the redesigned $100 note before it begins circulating. Any business or consumer that accepts a counterfeit note will suffer a financial loss because fakes cannot be traded in for real notes.
What To Do If You Suspect a Fake
If you suspect you’ve been passed a counterfeit note, the U.S. Secret Service wants you to be aware of a few tips. First, try to note the characteristics of the person who tried to pass the fake note and any companions. If possible, write down a description of any vehicle he or she drove as well as the license plate number.
Next, immediately contact your local police department or U.S. Secret Service field office. These contact numbers can be found in U.S. telephone books or on the law enforcement interactive map on www.newmoney.gov. Finally, make sure that you write your initials and the date in the border of the suspect note. Remember to limit the handling of the note and protect it by putting it in an envelope. Only turn the note over to a police officer or a U.S. Secret Service agent. If the note is genuine, it will be returned to you. If the note is counterfeit, you will not be reimbursed. You cannot trade in a counterfeit note for a real one, and it is against the law to knowingly try to pass a counterfeit along to someone else.
For more information on the redesigned $100 note and illustrations on spotting a counterfeit note quickly and easily, visit www.newmoney.gov.
August 27, 2013
The vast majority of car loans are just that: loans. The bank, credit union, or consumer lender makes the loan in good faith, and you are expected to pay back the money on schedule – regardless of the condition of the vehicle. But if the vehicle is disabled while you still owe money on it, you may find yourself in a bind. Here are some things you can do to lessen your exposure.
Keep your insurance current. This is a big help, because if you lose the use of your car due to theft, or – if you carry collision insurance – accident, then your insurance company will reimburse you to pay off your loan. This will theoretically help you qualify for a new loan for another car. The only thing you are out is your deductible – so make sure whatever your deductible is, it's an amount you can afford to lose. Many car loans require insurance as a condition of the loan, so check the fine print on your loan agreement.
Note: Collision insurance is expensive. Many people choose to go without collision insurance, especially on older cars. That can lower your monthly premiums by quite a bit and make it that much easier to save money.
Don't Skimp on Maintenance. Many breakdowns are preventable – or they can be delayed until after you've paid the car off. But don't neglect routine maintenance to help keep it running well. Check the oil. Change your oil and filter as scheduled. Use the correct transmission fluid, brake fluid and coolant. Keep your tires balanced. Monitor their wear. Rotate them. Don't neglect the spare. Pay special attention to your tires as you transition from one season to another. Bad tires cause accidents.
Invest in 'Gap' Coverage. Unless you come up with a large down payment, chances are you will, at some point, owe more on the loan than the car is worth. If you crash your car, your insurance company will reimburse you only up to the insured value of the car. But if you own "gap" coverage, your insurance company will reimburse you enough after an insurable event to pay off the loan. To inquire about 'Gap' Coverage for your MHV Auto Loan, call us at 800.451.8373.
Consider the Warranty. If you are financing a used card, think about purchasing the warranty from the dealership, if one is available. If a major engine, transmission or drive train issue is a risk you can't afford to bear, then you might need to consider buying the warranty. Otherwise you run the risk of owing money on a car you can't even drive. Don't take risks you can't afford to lose.
Most working families need to borrow money to finance a vehicle just to get to work or school. If the car breaks down, you're still on the hook for the loan. It's a tough situation but making these smart moves now may save you a lot of stress over the life of your vehicle.
July 29, 2013
The good news is that today’s interest rates are very close to historic lows. For people with good credit, it’s not unusual to see mortgage rates at 4 percent or lower. That’s half of what they were a generation ago!
However, even with low interest rates, it has been difficult to qualify for a refinance. That’s partly because the average credit score that it takes to qualify for a loan has been on the rise in recent years. On the other hand, home prices have begun to recover from the housing crash of 2008-2011 and it is now much easier to qualify for a loan given the general increase in equity.
That should be great news. In fact, according to the White House, the average homeowner still paying a mortgage could save up to $3,000 per year simply by refinancing at today’s low interest rates.
Additionally, interest on refinance mortgages secured by your primary residence is still generally tax-deductible.
The bottom line is that this may be the right time for you to refinance. However, before you do, here are some things to consider:
Am I still upside-down? If you are upside down in your home – meaning you owe more on your mortgage than your home is worth, it may be difficult to refinance. You could potentially use other forms of collateral, if you have it available. But that might mean the interest on the loan is not tax deductible. In some cases, you might need to wait until your home’s value recovers sufficiently so there’s enough equity for you to refinance.
Will I have to pay PMI? Generally, you must pay PMI if your loan-to-value ratio is 80 percent or higher. However, with the increase in home prices, it might make sense to get your home appraised as part of the application for a new loan or refinance. You might not have to pay PMI any longer.
How’s my credit? While it doesn’t have to be perfect, the best interest rates assume your credit is good. Since an inquiry for a mortgage refinance does not count against your FICO score, come talk to our loan officers and find out what your rate will be based on your credit.
Will I be staying in the home for a while? If you are paying fees or closing costs for a refinance, you’ll want to have at least a couple of years in the home so your lower payment or faster buildup of equity will offset the cost of refinancing. Every refinance has a “break-even point,” at which time you will have recovered your costs of refinancing. Everything beyond that point is gravy for you.
It is true that refinancing can help you pay off your loan faster, significantly reduce your monthly expenses, or both. But you do have to take the first steps. Call us at 800.451.8373, apply online at mhvfcu.com/mortgage or come into one of our 11 branch locations for more information.