Income Tax Season: Learn How to Get Most of Your Money Back from the Government

The New Year has started with lots of hopes, promises, expectations and planning. April is right around the corner, so it’s high time to start thinking about tax season 2012. Plan ahead of time and don’t miss any chance to get maximum income tax refund. Learn to handle your taxes so that you can save hundreds of dollars this tax season.

Start the Preparation Early

Starting the preparation early helps you avoid stress and financial problems of the eleventh hour. If you wait till the last moment, you might be vulnerable to making some big blunders. Worse, in case you fail to pay the taxes by April 15, there could be penalty that would unnecessarily lower your refund.

Taking early steps will give you a clear understanding of your current financial situation as you flip through various bills and documents.

Check the Latest News and Laws

Tax laws change from year to year. Be sure to keep yourself updated with them. Maybe this year IRS has entitled you with more deductions than it was last year. Refer to the IRS Publication 17 to know about the latest tax changes. It also helps you prepare taxes by offering the rules and instructions to be followed.

You can also find valuable information and updates on Internet as well.

Organize the Documents

In order to properly organize the paperwork, you should read the forms and directions thoroughly in the first place. Now place the documents into different files, each containing papers on similar issues. For example, put all the sales tax related papers in one folder, the documents related to vehicles purchased during the year should be in another folder.

Once organized, review the documents to make sure you haven’t missed anything.

Double Check Every Piece of Information

Give a thorough look into all the folders to check if you have collected all the documents, bills and other papers necessary. Re-check the calculations and correct the mistakes right away, if you find any. Even a small error in calculation can make you lose a lot of money.

Don’t Forget the Deductions

You should never miss any deduction that you are eligible for. The Internal Revenue Service offers on its website a list of itemized tax deductions that can be used as a reference to calculate the expenses that you can deduct.

To get the maximum refunds, it is highly recommended to save all the bills. For months they may seem like garbage, but very useful when the tax season arrives. Keeping a record of all the daily expenses takes no more than a few minutes of your day, but avoids tons of stress when filing taxes.

Though tax deductions are the right of every taxable citizen, many of us miss some of the important tax deductions.

State Sales or Income Tax

In all the states of America, people are allowed sales or income tax deductions. Though many people usually prefer the income tax deduction, you should compare your state income tax deduction to the sales tax, especially when you have purchased expensive things like a boat or car. In these cases, sales tax deduction can save you more money.

Charitable Donations

This is where you get the double benefit. You feel great by helping poor, at the same time getting tax deductions from Uncle Sam. Since IRS has made the policies tougher, you should collect all the paperwork from the qualified charitable trust at the time of making donations, rather than waiting for the tax season.

For deducting the charitable donations, you are required to file Form 1040 and Schedule A (Itemize Deductions).

Capital Losses

If you have sold stocks or bonds at loss, you are entitled to receive tax benefits for capital losses up to $3000. In case you lost more than $3000, say $6000, the remaining amount is carried forward to the next year for deduction.

You have to file Schedule D of Form 1040 for deducting the capital losses.

Self-employment Health Insurance Deduction

Self-employed citizens always whine that they don’t get employer-sponsored health insurance. But the good thing is that you do get tax deductions for the health insurance of your family (yourself, spouse and dependents).

Medical Expenses

You have the right to deduct the money spent on healthcare including prescription drugs, mileage to/from treatments, drug store and health check-ups if the total medical expenses are higher than 7.5% of your adjusted gross income (AGI).

This type of deduction is particularly beneficial for people suffering from chronic diseases like diabetes, cancer, etc.

Job Search Expenses

With unemployment rates at record high, job search expenses could be a major deductions for many of you this year. You can deduct the expenses related to transportation, printing resume, staying at hotels and other costs directly related to job hunting. IRS shall not entertain the expenses that has already been covered by the employer.

Office Supplies

If you work from a home office, you can deduct the rent and in case you own the house, don’t forget to deduct the home depreciation. The cost of items you need to run the office such as laptop, faxing and making copies can also to included for deduction.

Education Expenses

You can get a large benefit by tuition fee deduction, no matter whether or not you qualify for the American Opportunity Credit or Lifetime Learning Credit. You only have to prove that the course you are pursuing will improve your skills.

In case your parents pay for student loans to support your education and they don’t consider you a dependent, here too you can deduct anything up to $2500.

Selling a House

IRS allows you to deduct any expenses related to selling a house, such as posting the home listings, closing costs and realtor fees.

Also, if you have unfortunately faced any disaster or theft, you can deduct the costs not covered by the insurance company.

Final Words

Once you have made all the deductions, it’s time to get them checked by an experienced tax preparer, not the novice ones whose only aim is to make most of their annual income between January and April by sucking your blood.

In order to get maximum tax returns, you should keep all the documents and bills to help you at the end of the year. Though tax preparation was earlier considered a tough task, availability of various tax software programs has made it fairly easy.

Empower – Educate – Take Action

H & I Credit Solutions

Don’t Fall a Victim to Identity Theft

What if you wake up one morning to find that someone has intruded into your e-mail account and sent phishing mails to all your contacts? Or, you get a phone call from your banker that the whole money in your account is wiped out? Or worse, what if somebody steals your social security number and opens many financial accounts and grabs heavy loans under your name?

These are all the types of identity theft. It is a criminal activity when someone steals your personal information, such as credit card number, bank ID and password, Social Security Number, to commit fraud or other crime at your expense. Many a times, months or years pass before people realize that they have fallen victims to identity theft.

It’s simply your routine habits that make you more vulnerable to identity theft. If you shop online, use mobile banking, social networking sites, hand off your credit card at a hotel or discard sensitive documents carelessly, the thieves have enough opportunities to grab your personal information and damage your whole life or put you in trouble. Weird it may sound, but this is how we consumers are suffering.

You can avoid the risk of identity theft if you are well aware of the common and advanced ways the thieves use to commit the felony .

Workplace Scams

Many people generally overlook this issue. A dishonest co-worker of yours can easily slip your records from the company database. Sometimes the thieves bribe a company employee who has direct access to employees records.

The modern day criminals use social engineering tools to gain entry into a company’s internal network. Social engineering is when a criminal tricks you to give them your password. A common example is someone calls you to convince that they are from technical support and they need password to correct a network problem. They may give you false assurance that your password is in safe hands.

Solution

Never ever give your password to anybody, not even your friends, especially over the telephone. Many of us feel proud and glad giving password to a stranger because we think we are helping the organization or a co-worker.

Stealing the Wallet and Mails

A quite old-fashioned method used by criminals is to steal your wallet. It may contain important documents like the Social Security Card, insurance card or driver’s license.

Sometimes they steal mails directly from your mailbox to acquire your personal information. You shouldn’t dump your sensitive documents without shredding, because you think those documents are useless, others don’t.

Solution

You are recommended not to carry Social Security Card in your wallet. Shred all the papers containing your personal and financial information before throwing them in the garbage. To make things more secure, consider keeping track of your credit report because any financial transaction from your accounts will reflect in credit score.

Your Dear Ones

It’s sad but true that even your family members, relatives, friends, household workers or spouse willing to divorce can perpetrate identity theft if they have a grudge. They can obtain your social security number, driver’s license number or any other personal document because they have direct access into your life.

Solution

Since these people are too close to ignore, simply keep your documents away from anybody you doubt or someone who has conflict with you.

Shoulder Surfing

Beware the next time you go to ATM and find someone standing a little closer than they should be. They can be looking at the sensitive information. Worse, sometimes they stealthily take an image of your debit/credit card or record a video in their mobile when you are entering the ATM pin number. If you must use an ATM where there is a long queue behind you, just block others’ view with your body.

Hacking

The advanced technology has made criminals lazy and you more worried. Now they can steal your information without ever leaving their comfort zone. There are several ways your personal information can be hacked or stolen using Internet.

• There are websites that sell your personal information including Social Security Number for as little as $20. Therefore do not give your personal information over Internet until absolutely necessary.
• Hackers can access into the database of a merchant website to obtain your information. So, it’s wise to deal only with the reputed websites and not give your credit card number to purchase something from just any sales page.
• Sometimes the hackers put a ‘mirror’ website, which appears exactly similar to a merchant website. They gain your credit card number along with the password when you try to log in or  place an order. To avoid such incidences, always enter the original website by typing the web address manually.
• If your computer system doesn’t have a firewall, you are more vulnerable to hacking. Get a firewall.

Spyware

Corporations spend hundreds of thousands of dollar to identify and understand the spending habits of the consumers as a part of market research. These companies generally install spyware software in your system in exchange for a free software tool. It gives them easy access to all that you surf or purchase, including the personal information.

Once installed, the spywares automatically change the internet setting on your computer by bringing in their own drivers.

First, don’t ever install any program that comes with a spyware. And if you have already installed, run a spyware removal program several times to remove it from the computer.

Telephone Scams

You pick up a phone and someone surprises you by announcing that you have won a big fat prize. You simply need to make a small payment as shipping fee through your credit card. Do not ever give your financial information to any such person. If you are really a winner, you never have to pay anything to get your prize.

Get your phone number registered to the ‘National Do Not Call Registry‘ (1-888-382-1222).

Phishing

Our favorite official as well as unofficial mode of communication is e-mail. You may get a fake e-mail that looks exactly similar to a real merchant website’s (say PayPal) e-mail. It contains a direct link to the website that is also fake, but looks like the real one. The e-mail will persuade you to log in and take some action. If you click on the link to log in, the criminal will obtain you ID and password for the real merchant.

Make sure that you never click on any link mentioned in an e-mail, especially when it asks for your personal information. Always enter the web address manually to visit that website.

Synthetic Identity Theft

It’s an advanced technique that has gained immense popularity among thieves in the past few years. We know that the first three digits of Social Security Number refers to the birthplace of a person, next two digits are assigned based on the time of birth, and the last four digits can be guessed using advanced statistical techniques.

Problem arises when the SSN decoded by thieves happen to be yours. They can then match up a new but fake name with your SSN to create a new ID. He can then borrow as much money as possible under your SSN with a different name.

The credit rating agencies give creditors your main file with the original name, so it doesn’t display any alternate name associated with your SSN. But the debt collectors generally search a person using Social Security Number, regardless of the name. That’s when you will be in trouble. There could be a heavy debt connected with your SSN, though not with your name. But the debt collectors are likely to force you to pay the debt under your SSN, which you are not responsible for.

You have to be vigilant that your SSN isn’t connected with any other name, so check your credit score exclusively using your SSN.

Trojans

Trojans are the malicious programs that can make a deceptive way into your computer system. Once installed, they open a back door for hackers and all your files and personal information stored in the computer are now at the mercy of hackers.

They can also track whatever you are typing on the keyboard to obtain your password and account numbers. You should use specifically designed tools to protect you from Trojans.

Skimming

How confidently and willingly we hand over our credit/debit cards at restaurants or other shopping places without having any idea of that employee’s character. The ill-minded employees can either memorize the card number or take a photo of the card. We then sign the credit card receipt without giving a second thought that we have already given them our signature and credit card number.

Always try to hand over the credit card directly in the hands of cashier to make payments. Another way is to keep a disposable credit card having a limited spending amount. It is useful only till you reach the limit. Once the limit is over, it’s useless. This method prevents the thieves from gaining access to your credit or back accounts.

Empower – Educate – Take Action

H & I Credit Solutions

Financing your dream home has become way too expensive these days. Adding to that, lenders have tightened the underwriting standards, making home loans unaffordable for most Americans. Be wise in picking up the right mortgage plan, so that you don’t have to regret it later.

When you analyze your financial position, income and contingencies, oftentimes it becomes quite confusing to select a mortgage suitable to your needs. Comparing the three most popular home loans should help you better assess your expectations, budget and choose the right home loan.

Conventional Loans

Conventional loan is one of the most popular mortgage types in the US. You have to pay the principal loan and interest in fixed monthly installments over an agreed period of time, usually 30 years. The government neither makes nor insures conventional loans, instead they fall into the guidelines of government sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac.

A good thing about conventional loan is that you have to pay a fixed amount of money every month from the beginning to the end, irrespective of future economic scenario. It is best suited for those willing to stay in the house for a long time. You can obtain the conventional mortgage loan from a bank,  a credit union, a savings and loan or even through a mortgage broker. Loan-to-value ratio and the term of the loan are two very crucial points. Loan-to-value (LTV) ratio shows what percentage of the total house value will the financer be putting. For example, if a cost of a house is $100,000. Let’s say, you pay $5000 upfront and ask the bank to pay $95,000 over 30 years, then the LTV ratio is 95%.

Interest rates vary depending upon your credit score. Though the average American FICO score is 620, the higher the score the lower your interest rate. To keep the transactions on safer side, ensure than all your monthly mortgage expenses (the principal and interest, insurance and property taxes) should not be higher than a specified percentage of your monthly income (usually 28% ratio).

Pros

Since conventional loans require a higher down payment, you have the opportunity to build up home loan equity pretty fast. On the other hand, there is always a stability because you very well know what your monthly mortgage payments will be for years to come. So you can plan your finances accordingly.

Cons

If you want the best interest rates, you’ll have to have a great credit score. Otherwise the interest rates would be high making it difficult to afford the payments every month for thirty years.

Who Should Go for Conventional Loans?

It is best suited for people with excellent credit score and able to put 5 percent or more in down payments.

Interest-Only Mortgages

The homeowners’ addiction to anxiously look for new and better ways of purchasing a home gave rise to interest-only home loans. For the first few years, your monthly payments will consist of only the interest, and no payment of the principal is made. For example, if you take out a 10/20-year interest-only mortgage, for the first 10 years you’ll be paying a small amount consisting of only interest. From 11^th year the payment of principal sum begins which would obviously be higher.

Of course, you do have the right to pay more than the interest during initial years if you want to. You are likely to qualify for a bigger home loan because of the lower monthly payments.

Benefits

People are attracted to interest-only mortgages because they can buy more than one house or an expensive one at relatively lower monthly payments. It gives you the opportunity to  invest the free up money for better returns. As lenders expect you to pay only the interest, you can pay the principal whenever convenient to lessen the burden in future.

Pitfalls of Interest-only Mortgages

Though they seem pretty attractive, there are certain pitfalls of interest-only loans that you should be aware of.

v  There is always an uncertainty whether your income will increase enough to make increased monthly payments for the principal amount.

v  You can’t be sure that the free up money invested in some other property or financial market would fetch superior returns.

v  Since you pay only interest for the first few years, you don’t actually reduce the loan. If unfortunately the value of home falls over the years, you’ll still owe the principal amount to the bank. When you sell such a house at decreased price, you have to pay the difference from your pocket, apart from the interest you paid for years. For example, you purchase a home for $200,000 where the lender pays 80% (160,000) of this value. If the price of this home comes down to $150,000 after ten years, you have to pay the difference ($10,000) from your own pocket to the bank when selling the house, no matter you paid interest on this money for a decade.

Who Should Take out an Interest-only Mortgage?

The first time homebuyers are highly encouraged to go for this type of loan. New homeowners generally struggle to make monthly payments because they are not accustomed to paying mortgage which is slightly higher than renting a house. A lower monthly payment scheme helps them adapt to the situation.

Investors prefer this over other mortgages to increase their property by paying the minimum possible installments.

Adjustable Rate Mortgages (ARM)

As the name itself suggests, ARM is the loan in which interest rate becomes adjustable after a specified period of time. In the beginning, the interest rate is fixed for certain period like 2, 3, 5, 7 or 10 years. At the end of this term, the mortgage rate is adjusted up or down based on the changes in economic index over time.

Though the interest rate changes periodically, the time span established to pay off the complete loan is not altered.

Basic Terminologies You Must Know

Index

It is an interest rate derived from a number of averaged returns. They are generally published in various newspapers and lenders use them to adjust the borrowing rates monthly, quarterly, half-yearly or annually. The four most common indices are:

1. Monthly Treasury Average
2. Cost of Savings Index
3. London InterBank Offered Rate (LIBOR)
4. 11^th District Cost of Funds

Ask the lenders to show how each of these indices has performed over the years. You are encouraged to choose an ARM in which the index used has been closest to stable over the years.

Margin

It is the percentage point added to index to determine the actual interest rate you have to pay. In simple terms, margin indicates the lender’s cost of doing business and the profit he will make in the transaction. It always remains the same for entire life of your mortgage loan.

Interest Rate = Index + Margin

Adjustment Period

It’s the time period for which interest rate remains unchanged and the changes will take place only after that period is over. For example, you might have noticed that ARMs are generally attached with figures like 5-2 ARM mortgage. Here the first figure (5 in this case) tells that the initial interest rate will remain unchanged for five years from the day you signed the mortgage loan.

The second digit (2) refers to how frequently the interest rates will be adjusted after the initial period is over. In the above example, the mortgage rate will be adjusted every two years after the initial period of 5 years.

Adjustment Cap

An adjustment cap is a limit of percentage points by which your monthly payments can either increase or decrease at each adjustment period.

ARM is easily affordable, especially at a time when the interest rates and housing prices are skyrocketing. But there are a few problems associated with it. First, people find is hard to understand how the index works because there are many variables considered to calculate the monthly payments. Second, unlike conventional payments, there always looms uncertainly over what the future payments would be.

Don’t hesitate to acquire information from lenders on each of home loans to compare and choose the right mortgage type for you.