Monday’s need-to-know money news

refinancingToday’s top story: What you need to know before refinancing your mortgage. Also in the news: Signs you’re about to make a bad financial decision, how to detect a less than stellar 401(k) program, and how to limit your risk of tax identity theft.

4 Big Refinancing Questions Answered
What you need to know before refinancing.

5 Signs You’re About to Make a Bad Financial Decision
Pay attention to the warning signs.

7 Clues That Your 401(k) Plan Sucks
How to detect a less than stellar plan.

Protect yourself from tax identity theft
How to limit your risk.

Q&A: Investment property

Dear Liz: Eight years ago, we bought a fixer-upper in an up-and-coming neighborhood. Now it’s mostly fixed up, and property values have soared. We would like to borrow against the equity to buy a beach house we could use and also rent out. This would be a long-term investment. We already own one rental property that is turning a small profit. Managing it allows me to bring in much-needed extra income while staying home with my children. I want to increase that income with a beach house we can also enjoy. Is this a smart use of home equity?

Answer: It may be. You’ve got some experience as a landlord, so you understand what’s involved in maintaining and repairing a rental property and dealing with tenants. A property that’s split between personal use and rental is somewhat different, since you won’t be able to deduct all the expenses as you could with a full-time rental. The expenses have to be divided proportionately, and you can’t deduct rental expenses in excess of the rental income you get. IRS Publication 527, Residential Rental Property, offers more details, or you can talk to a tax pro (which you should have, given that landlords can face some complicated tax situations).

Your first task is to ensure the beach house is in an area that allows short-term rentals on the scale you’re anticipating. Not all communities do. Some don’t allow “vacation rentals” at all, while others limit the amount of time that the property can be rented. Those that allow short-term use may require annual licenses and assess taxes or fees on the rentals, which are costs you’ll want to factor in before you buy.

Your next step, if your goal is to generate income, is to find a property that is “cash flow positive” from the start, with expected rents more than covering expected costs. Obviously, though, you can’t predict everything, which is why it’s essential to have a fat emergency fund for unexpected repairs or greater-than-anticipated vacancies.

Another smart move would be to lock in your interest rate if you don’t expect to pay back what you borrowed against your house within a few years. That means a home equity loan with fixed rates rather than a line of credit with variable rates. You put your home at risk when you borrow against it, so be conservative and lock in predictable payments.

Q&A: Tax credit for Roth IRA contributions

Dear Liz: You told a reader that “contributions to a Roth are never deductible.” This statement is a common misconception and is not correct. You can get a tax credit for Roth IRA contributions as long as you fall under the income limits and itemize on your taxes. The credit phases out at $30,000 for singles and $60,000 for married couples.

Answer: A credit is different from a deduction, but thank you for pointing out a tax benefit that many people don’t know exists.

This non-refundable credit, sometimes called a Saver’s Credit, can slice up to $1,000 per person off the tax bill of eligible taxpayers. The credit is available to people 18 and older who aren’t students or claimed as a dependent on someone else’s return. The lowest income taxpayers — those with adjusted gross incomes under $36,000 for marrieds filing jointly or $18,000 for singles in 2014 — can get a tax credit of 50% of up to $2,000 per person ($4,000 for married couples) contributed to retirement plans. Those plans can include traditional or Roth IRAs, 401(k)s or 403(b)s, 457(b)s and SIMPLE IRAs, among others. The credit drops to 20% and then 10% before phasing out. The average amount saved isn’t spectacular: The IRS said credits averaged $205 for joint filers in 2012 and $127 for single filers, but every bit helps.

One of the problems with this tax break, besides so few people knowing about it, is that many low-income people don’t owe income taxes, so they have nothing to offset with this credit. Another issue is that taxpayers need to file a 1040 or 1040A and use Form 8880 to claim it. Low-income taxpayers often use the 1040EZ form, which doesn’t allow them to claim the credit or alert them that it exists.

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: The most common mistakes tax filers make. Also in the news: The terms every student loan borrower should know, how to handle early-year medical expenses, and six apps that’ll help manage your money.

The 8 Most Common Mistakes When Filing Annual Taxes
How to avoid making them.

5 Student Loan Terms Every Borrower Should Know
Know what you’re getting into.

5 tips for handling early-year medical expenses
Understanding your coverage.

6 Great Financial Apps That Will Make Managing Your Money Easier
A little help from your smartphone.

How Getting a Car Loan Affects Your Credit Report
What those new wheels mean for your credit.

Thursday’s need-to-know money news

taxesToday’s top story: Should you do your own taxes or hire a professional? Also in the news: How to be a frugal foodie, why you should check all three of your credit reports, and what to expect if you get audited.

Tax Preparer Vs. Software: How To Choose
Deciding whether to get help or go it alone.

8 Ways to Be a More Frugal Foodie
Eating well doesn’t have to cost a fortune.

Checking All 3 Credit Reports Pays Off
Don’t assume they’re all the same.

What to Expect if Your Tax Return Gets Audited
First, don’t panic.

3 Terrifying Things Cybercriminals Can Hack
It goes way beyond your computer.

Wednesday’s need-to-know money news

bigstock-U-s-Income-Tax-Return-Form-28476797-e1390508229663Today’s top story: Things to think about before paying your taxes with a credit card. Also in the news: How to collect a bad debt, the essentials for getting a good car deal, and the special tax challenges facing Americans living abroad.

4 Things To Think About Before Paying Your Taxes With A Credit Card
Look out for fees and interest.

5 Simple, Escalating Steps to Collect a Bad Debt
How to get what you’re owed.

5 Essentials for Getting a Good Car Deal
Be prepared to negotiate.

Living Abroad? Expat Taxpayers Face Special Challenges
Taxes are even more complicated for Americans living overseas.

A Guide To The Financial Drawbacks Of Aging
What to expect as you get older.

Tuesday’s need-to-know money news

200150236-001Today’s top story: The increasing threat of medical identity theft. Also in the news: the student loan time bomb, how to gain an edge when selling your home, and how to fix a high electric bill.

A Dangerous Form of Identity Theft Is Growing Fast
Medical identity theft is on the rise.

Student Loan Time Bomb Is Ticking Louder
The delinquency rate is skyrocketing.

5 Ways Spring Home Sellers Can Gain an Edge
How to make your home stand out.

How to fix that high electric bill
The vampires of standby mode.

Are you missing a W-2?

IRS 1040 Tax Form Being Filled OutAn incorrect W-2, or employer’s failure to send you a W-2 at all, doesn’t get you off the hook with the IRS–you’re still expected to file your tax return on time. Even if you file an extension, you’re required to estimate and pay what you owe by April 15.

The good news is that you can get the IRS on your side if your employer isn’t being responsive, according to the National Association of Enrolled Agents. “Letters from the IRS tend to get noticed, even if your similar entreaties have been ignored,” the organization of tax pros said in a recent press release.

The bad news is that you have to reach the IRS by phone at 800.829.1040, and that won’t be easy. The agency is expected to answer only about half its calls this tax season and wait times for those who get through may exceed 30 minutes. So you need patience, plus the following:

  • Your name, address, Social Security number and phone number;
  • Your employer’s name, address and phone number;
  • The dates you worked for the employer; and
  • An estimate of your wages and federal income tax withheld in 2014 (from your final pay stub).

The best days to call are Wednesday and Thursday. The call options are a little confusing, so here’s how to navigate them:

  1. Press 1 for English.
  2. Press 2 for help with personal taxes.
  3. Press 2 for help with filing a form.
  4. Press 3 to report a missing W-2.

If you’re missing other tax documents, such as a bank or mortgage interest statement, you may be able to get those from the financial institutions and other providers online.

 

 

Monday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to live without credit cards. Also in the news: The sad state of American’s emergency funds, what the proposed net neutrality law could mean for your internet, and what you need to know about taxes if you work from home.

4 Tips for Living Without Credit Cards
How to get in touch with exactly what you’re spending.

The Sorry State of Emergency Funds in America
Three out of eight Americans are on the brink of financial disaster.

How Proposed Net Neutrality Law Could Affect You
The access you’ve been paying for could soon be regulated.

Five Things You Need to Know About Taxes If You Work from Home
Finding your wake through the work from home tax maze.

Q&A: Surviving on Social Security Disability

Dear Liz: I’ve been on disability for over 10 years, and I currently receive $1,527 a month in Social Security Disability Insurance. My rent starting in March will be $1,400. I’m not opposed to moving, but after checking literally thousands of listings, I found that what I’m paying is not unusual for my area. I’m living on savings now. I’d like to have a job but am hard-pressed to find work. What should I do?

Answer: You don’t have to do anything if you have enough savings to last the rest of your life. Assuming that’s not the case, you need to do something to dramatically lower your cost of living.

You may qualify for housing assistance. You can use federal government sites such as Benefits.gov or HUD.gov to explore your options, or search for the name of your community and “rental assistance programs.”

You may discover that your low income is still too high for the available programs or that there’s a massive waiting list. If that’s the case, you still have options.
If your disabilities allow, you could earn low or even free rent by working as an apartment manager, a companion to an elderly person, a babysitter for a family with young children or a caretaker for a home or estate.

If your apartment is in a desirable area, you may be able to rent it out a few days a month on Airbnb, Homeaway or another vacation rental site to offset your cost. (Check with your landlord first.)

You could look for a roommate or other shared housing in your community, or consider moving to a less expensive area. You may need to move only a few miles to find a more affordable place, or you may have to consider transferring to a different city or state.

If you’re willing to be truly mobile, you could do what some retirees on limited incomes do and live full-time in a recreational vehicle. Some get jobs as camp hosts or other campground workers in exchange for a free site.

In general, you shouldn’t pay more than about 30% of your gross income for housing. Limiting your rent to 25% is even better, since it will give you more wiggle room to afford the rest of your life.