Make Plans Now for Next Year’s Tax Return

From IRS Tax Tips:
Most people stop thinking about taxes after they file their tax return. But there’s no better time to start tax planning than right now. And it’s never too early to set up a smart recordkeeping system. Here are six IRS tips to help you start to plan for this year’s taxes:

1. Take action when life changes occur.  Some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay. To do that, you must file a new Form W-4, Employee's Withholding Allowance Certificate, with your employer. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form. If you receive advance payments of the premium tax credit it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace.

2. Keep records safe.  Put your 2013 tax return and supporting records in a safe place. That way if you ever need to refer to your return, you’ll know where to find it. For example, you may need a copy of your return if you apply for a home loan or financial aid. You can also use it as a guide when you do next year's tax return.

3. Stay organized.  Make sure your family puts tax records in the same place during the year. This will avoid a search for misplaced records come tax time next year.

4. Shop for a tax preparer.  If you want to hire a tax preparer to help you with tax planning, start your search now. Choose a tax preparer wisely. You are responsible for the accuracy of your tax return no matter who prepares it. Find tips for choosing a preparer at IRS.gov.

5. Think about itemizing.  If you usually claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. A donation to charity could mean some tax savings. See the instructions for Schedule A, Itemized Deductions, for a list of deductions.

6. Keep up with changes.  Subscribe to IRS Tax Tips to get emails about tax law changes, how to save money and much more. You can also get Tips on IRS.gov or IRS2Go, the IRS’s mobile app. The IRS issues tips each weekday in the tax filing season and three days a week in summer.

Remember, a little planning now can pay off big at tax time next year.

Pew Study Finds Half of Banks Still ‘Reorder’ Checks in Overdrafts.

From CBS News:

Nearly half of banks still "reorder" checking account transactions – a practice that can dramatically increase overdraft fees by processing larger withdrawals first, leaving smaller transactions to pile up the fees – one of a number of findings in a new survey by Pew Charitable Trusts. The survey of 44 major banks looked at their checking account practices, including their efforts to increase transparency and make banking more consumer-friendly. Of the 44 banks only one – Ally Bank – came out with a perfect score. The study also found that an increasing number of banks are imposing new limits on consumer rights when resolving disputes, and, while progress is being made with disclosures, one-third of big banks surveyed have yet to adopt summary disclosure graphics that cut through confusing checking account agreements, which average 44 pages in length, to highlight the key terms.

Are Prepaid Cards a Good Solution?

Prepaid cards can be a solution for many people who don't need the hassle of opening accounts and the costs of big banks.  Prepaid cards don't allow your account to go negative, so there are built in safeguards against overdrafts and other fees.  Historically, prepaid cards had a fee schedule that could be costly depending on your usage.  Great news is that these fees are beginning to improve for consumers.

Prepaid cards may be a great way to manage your montly expenses, but may not be your best option for building savings that will keep you from crisis in the future.  As with any product, know the costs and the benefits before signing up!  Here is an article we thought you would like.
 Bankrate Study: Prepaid Card Fees Improving, But Still Vary Considerably. Bankrate surveyed 30 widely-held prepaid cards and found that while all charge fees, their fee structures vary greatly. The survey finds half of pre-paid cards available on the U.S. market either have no monthly fee or will waive it down, and that 10% have no activation fee if the card is purchased online or by phone.

Big banks and financial services companies are introducing cards with one flat fee, rather than several ancillary charges, and allow for free bank branch and ATM access. Bankrate finds bill payment fees are not charged by any of the cards it surveyed, which is down from last year’s 8% that did charge fees.

Inactivity fees are charged by only 17% of the cards surveyed, down from 29% last year. More than three in four (77%) do not charge for declined transactions under any circumstances, while 10% charge either $1 or $2 for transactions declined at an ATM.

Paying for College

Every Bank On participant knows that education = opportunity.  As you increase your knowledge and skills, you have more flexibility in your employment options and greater access to higher salaries.  While we all want to gain access to higher income, we also need to be smart about how we pay for that education. 

In the Commonwealth of Virginia, the average cost for a state-run University degree over the course of 4 years is right around $44,000.  That is a heap of dough to dish out for tuition, books, fees etc.  If you finance the cost of this education using a Stafford loan, you are likely paying 6.8% interest (with interest rates expected to rise in 2014).  You can expect to repay $506 monthly over 10 years to finance that education and pay approximately $17,000 in interest!  That is an equalivalent of reducing your annual salary by $1,676 per year just to pay the interest or $6,076 to make payments annually!

The picture gets much worse if I roll in the housing expenses to the total cost of education.  You would have to increase your salary over $10,000 annually to pay for the costs. 

Finance	Borrowed Amount	Payment	Total Payments	Total Interest	Ann. Salary Equivalent for Interest
4 Yr University	$             44,000	$              506	$        60,763	$        16,763	$           (1,676)
2 yrs Comm College then 2 yr University	$             30,000	$              345	$        41,429	$        11,429	$           (1,143)
Rolling in Housing Expenses	$           100,000	$          1,151	$     139,097	$        38,097	$           (3,809)

Paying for college doesn't need to be this painful.  With some wise planning, you can make college or other higher education pay off.  Too many students are sold on the need for education without having a solid plan for the costs.  To help you build your career without all the debt, consider some of these strategies:

1. Qualify for Grants and Scholarships:  Grants allow you to reduce the cost of education.  Grants do not need to be repaid and can be a great resource.  Check out the Education Opportunity Center to meet with a counselor who can get you started.  EOC will help you complete your FASFA application and has career counselors who can match you up with an education plan that is in demand assuring your employment after graduation.  You can reach the EOC at 757-683-2312.

2.  Living at home:  As long as your parents will allow, live at home and save the cost of room and board at the university.  As you can see, financing these costs can more than double the cost of your degree.

3.  Work as you go:  Paying for education as you are working can reduce the amount you need to borrow.  Having employment allows you to gain experience, thus building your resume demonstrating you have what it takes to be a long term employee after you graduate.

4.  Career laddering:  Consider layering certifications, diplomas and degrees.  For instance, if you are interested in a career in the medical field, consider getting certification in pharmacy or emergency medical technician allowing you to work in your field.  As you pursue your education, look for ways to layer certificates and 2 year degrees to allow you to grow your income even as you are working toward a 4 year, Masters or even Doctorate degree. 

5. Virginia Individual Development Accounts:  IDA's pay you $2 for ever $1 you save.  Over the course of 2 years, you can save up to $2,000 and get a $4,000 match to help you reduce the cost of education.  Consider if you can use VIDA along with grants, and some work as you go, you could get through your 4 years of education with very little debt at all.

We are always looking for ideas on ways to acheive education goals.  Do you have a strategy that works for you?  Write us and tell us about it.  bankonvb@vbgov.com

Tax season is over. Now what?

With our tax return supplying a nice refund we were finally able to pay off our truck loan.  Now what?  My first thought is that summer is around the corner and the kids and I could use a new wardrobe.  Then it hits me, this is the same thinking that filled my closet with clothes and emptied my savings account.  This bad habit it trying to re-enter my life!  Habits are hard to break so I must protect my thoughts to change my behavior.  Instead of going on a shopping spree I am increasing my savings contributions.  Rather that shop I will clean out my closet and sell the items I don't wear; then I will use the money I make to buy summer clothes at the thrift store for my kids and I.  I may even splurge on a new blouse, when the kids aren't around. 

How Many Hours Do You Work?

You work hard for your money!  Our paycheck funds our life, but have you ever considered how long you have to work for the things you use each month?  Our Bank On Virginia Beach investigator has created a chart we can use to give us a sense for how long we need to work for our things.

We all know that if your hourly wage is less, you take less home.  But if your hourly wage is less, you also have to invest more labor to purchase the things you enjoy.  For instance, if you buy a 20 gallon tank of gas for your car, you would have to work 10.9 hours for that tank if you earn $8.00 an hour before tax, but if you earn $18.00 per hour, you would only have to work 4.9 hours for the same tank of gas.

Would you be willing to work 1/2 hour for a cup of premium coffee?  People do it every day.  Likewise would you be willing to work almost 1/2 a week to have coffee every day?  People do it all the time.  When we take time to consider how long we have to work to earn the things we enjoy, our choices take on new life.

Note: Assumes 20% tax rate for federal and state taxes.

 

 

 

 

	HOURS WORKED
Before Tax Hourly Pay	$5 Cup of Coffee	Coffee for a Month	20 Gallons of Gas at $3.50	$350 Car Payment	$1200 Tuition	$10,000 Loan at 7% Interest
$8.00	0.8	23.4	10.9	54.7	187.5	1,856.3
$12.00	0.5	15.6	7.3	36.5	125.0	1,237.5
$18.00	0.3	10.4	4.9	24.3	83.3	825.0
$25.00	0.3	7.5	3.5	17.5	60.0	594.0