Budgeting

Savings Vs Debt

When we or anyone else talks about budgeting, it’s with the main idea of making sure you can pay all your bills and, hopefully, have something extra so that you’re not always living check to check. This is all well and good, but it’s possible that maybe you’re not paying enough towards your bills or putting enough away for your future. And with those as your only two choices (spending every dollar you make is NOT a choice for now), which is better to deal with first?

Last year the federal government passed a law stating that your credit card vendors must supply you with not only bills 21 days before their due to be paid but estimates of how much you would need to pay monthly, without using your cards again, to get rid of that particular debt. For some people that number might seem impossible to deal with on a tight budget and they might decide to try to put some money away instead. Let’s look at some real numbers.

The first is interest rates. The overwhelming majority of credit card interest rates come in between 14% and 23%. At your best the rate you’ll earn on any type of investing or savings might be 10%, and that won’t be every year (if it is you might want to hire a consultant to see if you’re getting the Madoff runaround). If you have time, it’s probably better to put more money towards your debt, even if you can’t pay it off in 3 years, because it’s growing faster than you can grow your money.

However, what if you can’t stop spending or using your credit cards? Some people just can’t stop themselves and it’s understandable. There are wants and needs that come up, and sometimes the credit card just seems so handy. Even though it wouldn’t be recommended overall as a first choice, in this case it might be better if you can put some of your money away towards savings or investment because it might help to spur you to stop using your cards at some point and actually pay down your bills with the extra cash you might see.

The “might” is important to see because it depends on the type of savings or earnings you’re hoping to try. Traditional savings accounts don’t earn anything these days except maybe some peace of mind. CDs might pay 2-3%, while most mutual funds could, as the economy improves, grow by 5% in a year, which can be compounded if you add to the investment amount on some sort of monthly basis. Of course you have to know that there’s risk if you’re shooting for a 5% growth, so you could just as easily lose that much on your investment each month, even with adding money all the time. If you’re risk averse, paying down debt once again becomes the better option.

It’s always better not to get into overwhelming debt, but remember that every day is another opportunity to get a handle on it, and there’s always someone who can help you overcome it.
 

Health Care

What To Know About Taxes & Health Insurance For 2014

The Affordable Care Act mandate that everyone needs to have health insurance or pay a penalty starts in 2014. The requirement is that individuals must be covered for at least 9 months of the year to avoid having to pay a penalty. In actual costs, if you’re single or married with spouse and no kids you’ll have to pay either $95 or 1% of your total income, whichever is higher, and if you’re a family of 3 or more the cost is around $380 or 1% once again. Those are the actual dollars; it’s not much but it’s still money out of your pocket, and it goes up in 2015.

Here are a few more things you should know about what’s going on, including what’s happening in New York:

1. New York state is broken into multiple coverage areas, and each area offers something different, although some insurance companies cover multiple areas. Without a discount, plan costs seem to be running between $400 and $1,800, with the major differences being deductible and pharmaceutical costs. The lowest level plans, known as bronze level, don’t offer anything for pharmaceuticals, while the costliest plans don’t have a deductible that you must reach. Start thinking of health insurance like car insurance if you have to purchase one of these plans.

2. The range for qualifying for a discount on health insurance is pretty vast. For single or self + spouse the dollar amount is around $49,000, for larger families it goes all the way up to around $94,000. It’s nice to qualify for a discount but it comes with a warning that most people don’t know about. If you get a discount but the next year your income takes you above that level by a certain percentage (which hasn’t been released yet), you not only lose the discount but you might be required to pay back whatever discount you received beforehand. That doesn’t seem quite fair but it’s in one of those pieces of paper that experts have read so be warned about it.

3. Experts have gone back and forth as to whether consumers or small businesses will be able to deduct the cost of premiums in 2014. Supposedly if you’re getting a discount you won’t be eligible but if you’re not… still a bone of contention. The recommendation is to keep all receipts for those services that are presently allowed to be deducted if their cost is high enough which includes physician visits, dental visits, medical equipment and vision care; sorry but no sunglasses unless they’re prescription.

Unfortunately even now there are lots of questions yet to be answered, but as with most other things it’s important to keep all your receipts and share them with your accountant. At some point we will have all the answers we need.
 

Health Care

5 Things You Should Know About Health Insurance

In a few months, it’s going to become mandatory for people who have no insurance coverage to either purchase something for themselves and their families or pay a penalty, what the federal government calls a surcharge and what the Supreme Court calls a tax. Either way, something’s coming, and I feel you should know some truths about it all. Here’s 5 things you should definitely know.

1. Yes, you will owe something to the federal government if you don’t buy health insurance, but just how much? It’s not as bad as you might believe. Confirmed with the office of Senator Charles Schumer on New York, if you’re single it will cost you around $90 a year. If you’re married or filing as a family the amount is less than $300. To put both of those in perspective, you’ll pay more in taxes because of your cellphone and cable TV.

2. A major benefit of the health care plan is that you can’t be turned down for pre-existing conditions anymore. This is probably the biggest benefit of the health care plan because it was prohibitive against pregnant women and anyone who might have even a relatively simple disease like diabetes from switching jobs because they might lose coverage for upwards of 6 to 12 months, or a horrible disease like cancer that a family member might have and automatically be disqualified if you changed jobs.

3. How it’s going to work is that insurance companies already in your area will put together plans based on federal guidelines that will give you basic coverage for emergency services and inpatient coverage. There will be multiple levels, anywhere from 2 to 5 different plans for most insurances, so you can somewhat tailor what you want.

4. There’s nothing saying you have to purchase a federally backed health plan. If you’re a small business you should look into coverage through a local chamber of commerce as they often can provide lower group rates and more covered services based on having multiple participants in the plan.

5. If you buy your own health insurance, you actually get to write it off your taxes. That and any other medical expenses, as long as you keep all of your receipts. That means you just lowered your out of pocket costs for what is a very important investment in yours and your family’s health protection.
 

Tax Preparation

Working With The IRS On Tax Liabilities

Do you owe the IRS tax money? Is it kind of high? Are you scared and worried because you’re unsure how you’re going to pay them because you already have so many other bills?

You’re not alone, but here’s a reality. Most of us think of the IRS as this almighty bully looking to take us down. Like most governmental agencies though, they’re not really like that. As a matter of fact, the majority of people you talk to at the IRS are willing to work with you, no matter what your situation is, to help you pay your bills. That is, if you’ve at least filed your tax return, whether you actually paid them or not.

Of course your first step is to make sure everything’s correct. You should either run your taxes through an accountant, a tax service, or a tax attorney. On that last one, only go to an attorney if you think you’re going to owe $10,000 or more; otherwise it’s not really worth it.

You’ve probably received a letter in the mail from the IRS, registered or not, to get the process started. Your first step is to pick up the phone and call them. Have your courage ready; not that you necessarily need it but what happens sometimes is you could be on hold for longer than 30 minutes. Many people will find a way to talk themselves out of staying on the line and waiting for someone; that’s fear talking and you have to shut it out. If you call again, the process starts all over.

Once you get someone on the phone you’ll have to confirm the amount you owe. If you believe your balance should be different they will put a hold on your account of 14 to 30 days and do a full review. If you have any extra information for them they’ll ask you to send it to them.

If you know you actually owe the amount requested they’ll ask you if you want to set up a payment arrangement with them. If you have circumstances that make it hard for you to make big payments they’ll work with you on smaller payments.

The caveat here is twofold.

One, they’ll tell you that you have to make sure you pay all the taxes for the previous year so that you don’t have the same thing happen the next year. You might find that hard to do but try to keep up. They will work with you again, but they won’t tell you that initially. As long as your overall outstanding balance stays below $25,000, you’ll probably be okay as long as you prove you’re trying.

Two, you’ll continue building up interests and penalties. Both are actually much lower than any credit cards you’d ever have, but it’ll make them set up a payment so that you’re actually paying down the balance instead of allowing it to increase. Still, don’t make an agreement for an amount that you know you can’t pay; that’ll look bad on your record if you miss a later payment.

As with most things, the fear goes away when you make that first call. People do have jobs to do but most of them understand that people have financial struggles. It’s always better to face these types of things upfront.
 

Tax Preparation

Why Business Write-Offs Help You When It Comes To Taxes

In our last post on business tax write-offs, we gave 5 examples of things you can write off, along with providing links to other things you can write off. As cool as this might seem, you might wonder why it’s of benefit to do such a thing, and whether it can help anyone else who might not officially be a business.

It’s acknowledged by the federal government that businesses have expenses they have to deal with. From office supplies to office equipment to even purchasing vehicles in some cases, it can be fairly expensive to run a business.

We all hope to run our business as some kind of profit, but that’s not always the case. There are times when your expenses outweigh what you made, or times when you didn’t make enough to have to make a tax payment.

However, if you reported something like $10,000 as income, you’d have to pay something on that unless you could show that you had to pay something to try to keep the business going. So you have things like mileage, depreciation on office equipment, advertising costs, and even buying new stuff here and there that counts as write offs, as long as they impacted your business in some fashion.

Much of it counts as a one-to-one event. So if you paid $500 for a computer, you get to write off $500 on your taxes. That’s a great benefit because the government is trying to encourage you to do anything you can to improve your business. Everything doesn’t go that way though. Meal costs, whether you’re entertaining or are eating meals while out of town on business, only get you a 50% discount. Still, it all adds up.

Of course, not everything will be counted at 100%, even though I pulled out meals. If you have a home office you only get to write off a portion of that for business based on the square footage of your home and your office. If you pay for maid service or for someone to cut your lawn, the same type of thing applies.

It can get really complicated, and most people have no real idea of all the types of things they can write off to bring their tax liability down. That’s why it’s a good thing to have a tax accountant to help you figure it all out.

By the way, there’s no shame in having your business being run at a loss; that’s how many large corporations end up getting refunds every year, even those making billions. It’s all in keeping great records and finding ways to build up the expenses at the same time you’re increasing your revenue. A good accountant will help you do all of that.
 

Accounting & Financial Advice from the Syracuse NY area