Today’s top story: The one form that could be the root of all your tax woes. Also in the news: Income-driven student loan repayments, 4 credit score horror stories that could happen to anyone, and understanding the difference between a hobby and a side hustle.
This One Form Could Be the Root of All Your Tax Woes
The innocent looking W-4.
Income-Driven Repayment: Is It Right for You?
What to do when you can’t afford your student loan payments.
4 credit score horror stories that could happen to anyone
Tiny mistakes that could trash your credit.
Before You Do Your Taxes, Understand the Difference Between a Hobby and a Side Hustle
When your hobby becomes a job.
Your 401(k) just got more valuable
If your tax refund this year was disappointing, you may be able to do something about it: Contribute more to a retirement fund.
Tax-deductible contributions to 401(k)s, IRAs and other retirement accounts are among the few remaining ways to reduce taxable income if you don’t itemize deductions. And few of us do these days: Only about 1 in 10 taxpayers
As a result, many of the traditional tips and tricks for reducing tax bills either no longer work or are of limited help. In my latest for the Associated Press, how to use your 401(k) to reduce your taxable income.
Monday’s need-to-know money news
Today’s top story: What students can learn from the days before college loans. Also in the news: How one couple paid off over $120,000 in debt in three years, which 1.5% cash-back credit card you should choose, and how millennials racking up credit card points could backfire.
What Students Can Learn From the Days Before College Loans
Community college as a money-saver.
How I Ditched Debt: Kicking Frugality Into High Gear
How one couple paid off over $120,000 in three years.
Which 1.5% Cash-Back Credit Card Should You Choose?
Finding the perfect fit.
Millennials are racking up credit card points—here’s how that could backfire
When chasing points puts you in debt.
Q&A: Figuring home-sale taxes
Dear Liz: My husband and I bought a home in Los Angeles in 1976 for $200,000. He died in 1992. The value of the house was at that time about $850,000. (I had it appraised.)
I want to sell the house now. The value is about $2 million. How much would be the stepped-up base for capital gain tax when I sell it?
Answer: In most states, only your husband’s half of the home would have gotten a new tax basis at his death. (A tax basis is used to determine potentially taxable profit.) In community property states such as California, however, both halves of a property get the step up in basis when one spouse dies.
You can add to your basis any commissions or fees paid to purchase the property and the cost of any additions or improvements. What you spent on maintenance and repairs doesn’t count. The improvement must add to the value of your home, prolong its useful life or adapt it to new uses to qualify, according to the IRS.
To figure your taxable profit, you’ll take the net amount you receive from the sale — the sale price minus any commissions or fees paid to sell the home — and subtract your basis from that. You can exempt up to $250,000 of the home sale profit, but you would pay long-term capital gains rates on the rest.
Let’s say you invested $150,000 in improvements over the years. That would be added to your $850,000 basis for a total adjusted basis of $1 million. Let’s also assume you pay $100,000 in commissions to sell your home, netting $1.9 million. Your $1 million basis would be subtracted from the $1.9 million, leaving you with a $900,000 home sale profit. Because $250,000 of that would be exempt, you would owe long-term capital gains tax on $650,000.
Q&A: When student loan payments overwhelm, here’s a pathway out
Dear Liz: I went to college in 2004. I did it the American way with student loans. Well, my son had a bad seizure that put him on life support for three weeks. I had to quit college to take care of him. So now I’m in hock with no degree. He is on disability but that doesn’t cover much.
The federal government is now taking my tax refund. I used to get money back that helped him and me. So now what? I still don’t make enough and never will to pay back the loans.
Answer: Because these are federal student loans, you have some options to get out of default and get a payment plan you can afford. Otherwise, the government will continue taking your refunds until the debt is paid back. (The feds can even take a chunk of people’s Social Security checks, which are protected from other creditors.)
Since you can’t pay the debt in full, the fastest way out of default would be to make three full, on-time monthly payments and then consolidate the loans into a new Direct Consolidation Loan. (It’s important to know these terms, because the private companies that service federal loans don’t always give complete or accurate information.)
Once you have a Direct Consolidation Loan, you can qualify for an income-driven repayment plan. Your payments would be 10% of your discretionary income, defined as the difference between your total income and 150% of the poverty guideline for your family size and state of residence. Your payments can be reduced to zero if your income is low enough.
Another option is to “rehabilitate” your loan, which would require you to make nine monthly loan payments within 10 consecutive months. You can’t be more than 20 days late on any payment. Your new monthly payment will be 15% of your discretionary income as defined above. You also may request a lower amount.
You can find more information about getting out of federal student loan default at the Education Department’s student aid website StudentAid.ed.gov.
Friday’s need-to-know money news
Today’s top story: Credit basics you need to know. Also in the news: How a new homeowner bought a house in Vegas, 11 cheap date ideas, and what to do if your tax preparer can’t file your taxes by April 15th.
More Than Your Score: Credit Basics You Need to Know
You’re more than just a number.
How I Bought a Home in Las Vegas
One new homeowner’s story.
11 Cheap Date Ideas
Spend less without feeling like a cheapskate.
What to Do If Your Tax Preparer Can’t File Your Taxes by April 15
A look at extensions.