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Tuesday’s need-to-know money news

November 24, 2015 By Liz Weston

Today’s top story: How being behind on your taxes could affect your travel plans. Also in the news: How to determine who you can claim as a dependent, financial steps to take when you’re on your own, and how to avoid costly credit card traps.

Haven’t Paid Your Taxes? You May Need to Cancel Your Travel Plans
Your passport could be in jeopardy.

This IRS Tool Tells You If You Can Claim a Dependent
Finding your tax breaks.

7 Financial Steps to Take Once You’re on Your Own
It’s a whole new world out there.

How to Avoid 5 Costly Credit Card Traps
Don’t fall in.

A game plan for grads struggling with new loan payments

October 28, 2015 By Liz Weston

An improved economy and lower unemployment should reduce the number of recent college graduates who default on the federal student loans they are supposed to start repaying when their six-month grace periods expire – as soon as November for May graduates.

Inevitably, though, some will fall behind even though there is no good reason to do so. Their credit scores will be crippled and they will risk the government garnishing their wages and seizing their tax refunds.

In my latest for Reuters, how new graduates can handle their new loan payments and protect their credit.

At MoneyWatch, the five things you should know about disaster insurance, and the IRS retirement plan contribution limits for 2016.

How you pay your bills may affect your credit

October 23, 2015 By Liz Weston

Lenders are no longer just interested in whether you pay your bills or not. Increasingly, they are looking at how you pay those bills to determine whether they want you as a customer.

Credit reports now show if you regularly pay your credit cards in full every month – making you a low-risk “transactor” – or if you are a higher-risk “revolver” who carries a balance.

Some lenders use the information to determine what types of credit cards and loans to market to people, while others are starting to use the distinctions in decisions about whether to grant credit at all, as well as what rates and terms to offer.

In my latest for Reuters, a look a how lenders determine what type of risk category you fall under.

As the strongest-ever hurricane barrels toward Mexico and its remnants are forecast to bring more rain to an already flood-weary Texas, homeowners and renters should take a moment to review their coverage against the damages Mother Nature can inflict. In my latest for Moneywatch, the five things you need to know about disaster insurance.

Also in Moneywatch, the IRS has announced the retirement plan contribution limits for 2016.

Finally, in my latest for BankRate, a look at when it’s worth it to refinance a mortgage.

Q&A: IRS direct pay

June 29, 2015 By Liz Weston

Dear Liz: Regarding the reader whose tax payment never made it to the IRS: I agree that electronic payments are the best and safest, but you might want to emphasize that the payments should be done directly through the IRS website.

I made the mistake of scheduling a couple of payments through my online banking, and a month later I received a notification from the IRS that I was in arrears, although the bank statement indicated that the payment has been debited.

It took several months of correspondence before the IRS acknowledged that the money was received. Luckily, the penalties and interest were only about $20, so I didn’t have to go through the additional hassle and filling out forms to reclaim it. The IRS website is very easy to use, and I haven’t experienced any problems since.

Answer: The IRS’ Electronic Tax Payment System, which was designed primarily for businesses, has been around for nearly two decades, but the agency only recently added a “Direct Pay” option expressly for individuals to make estimated tax payments and pay bills.

These methods and others, including electronic funds withdrawal when you e-file your return, are explained at http://www.irs.gov/payments.

Q&A: Lost tax payment

June 15, 2015 By Liz Weston

Dear Liz: I just received a letter from the IRS informing me that I missed a quarterly tax payment last September with several resulting penalties. I made that payment with a check from a securities trust account that I don’t closely monitor, so I didn’t realize the check hadn’t been cashed. The check was placed in a pre-addressed envelope with the IRS payment notice, stamped and deposited at the post office and has never been seen since. Do I have any recourse, and should all payments to the IRS be sent by certified mail with receipt required?

Answer: Electronic payments are typically the best and safest method for getting money to the IRS. Electronic payments generate a digital trail that shows the money leaving your account and landing at the IRS.

If you insist on paying with checks, use certified mail, return receipt requested. This paper trail isn’t a sure way of proving your case — after all, you could have mailed an empty envelope — but at least you’d have something to show the IRS.

Still, you shouldn’t give up hope of getting the penalties waived, said tax pro Eva Rosenberg, an enrolled agent who publishes the Tax Mama site. You can request a penalty abatement based on “reasonable cause,” Rosenberg said. According to the IRS site, “Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations.”

The IRS may say that you didn’t exercise “ordinary business care and prudence” since you didn’t use certified mail. But you can make the counter-argument that you’ve consistently made previous estimated tax payments this way without incident and this is the first time you’ve encountered a problem.

Rosenberg said the key to prevailing is to keep trying. The IRS may reject your first and second attempts to get a penalty waived but acquiesce on the third, she said.

“Don’t give up after the first two rejections,” Rosenberg said.

One more thing: Given the high rates of identity theft and database breaches, closely monitor all your financial accounts. That means checking them at least monthly, if not weekly. If you have more accounts than you can adequately monitor, consider consolidating accounts.