Tuesday, March 8, 2011
Have you been a victim of Identity Theft? Use GCF's Identity Theft Repair Kit, which includes a helpful Resolutions Worksheet to help you keep track of the organizations you contact.
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More Tax Tips
Tax code is confusing. It may be intentionally so in order to scare honest taxpayers into skipping deductions they may truly qualify for, leaving more money in the IRS coffers. Perhaps they draft the rules to assure they're ambiguous enough to stand in a court of law when prosecuting tax evaders.
Whatever the motive, it can serve to your advantage. Here we'll clarify some common misconceptions for you to consider as we get further into filing season.
Do you know the difference between a tax deduction and a tax credit? A deduction reduces your gross income, thereby your tax burden. A credit is deducted from the tax you owe, as if you actually paid that money into the system. A tax credit yields a far greater benefit than a deduction.
One example is the American Opportunity Tax Credit, which offers up to $2,500 for higher education. It covers 100 percent of the first $2,000 in qualified expenses and 25 percent of the next $2,000. You only need to spend $4,000 to get the full credit. And as of 2009, textbooks are also considered a qualifying expense along with tuition.
A common mistake is to deduct these expenses on your Schedule A. The amount may seem larger when it's deducted from your income, but the credit actually provides a greater benefit. You can't take both tax breaks.
The alternative energy credit is another example of an often-misunderstood tax credit. Homeowners are eligible for a credit of up to 30 percent of the cost for installing alternative energy devices in their existing homes. This includes solar water heaters, geothermal heat pumps and the like.
This credit is also available to those who built a new home in 2010 with similar devices installed. Ask your builder for a cost breakdown.
Is all mortgage interest deductible? Not necessarily. The mortgage interest tax deduction is limited by the value of your home. Generally speaking, you can claim it for interest paid on mortgage indebtedness up to $1 million, plus another $100,000 of home-equity debt.
Don't overlook deducting your taxes when you prepare your Schedule A. You have the option of deducting your state and local sales taxes rather than income tax. Did you make a large purchase last year like a car or RV? The sales tax may gain you a larger deduction when added to the base amount permitted. The amount allowed varies by state.
You came home from Atlantic City broke. "It's not so bad," you tell the wife. "We can claim it as a tax deduction." Your spouse may buy that, but the IRS won't. Uncle Sam will not pay for a bad night at the slots. Gambling losses are only tax deductible as a reduction against your winnings. And you'll need to save proof of your claim to be eligible for the deduction.
Business owners have always been allowed to deduct health insurance premiums for themselves and their family from their adjusted gross income on Form 1040. For 2010, you can also deduct it from your self-employment income on line 3 of Schedule SE. The write-off is not clearly identified so look closely to assure you don't miss it.
Electronic software and e-filing has greatly reduced most common errors on returns. Transposed numbers, math errors, illegible handwriting and missing signatures are almost a thing of the past. More than two thirds of tax returns for 2009 were filed electronically according to the IRS.
It's also prime season for scammers. Most people recognize their ploys by now, but enough people still fall victim to make their efforts fruitful. The IRS will never send you an email requesting personal information. Or a link to their site where you can provide whatever they're trying to bilk you out of. Don't end up paying more than your due taxes.
Saving at the Pump
Just when you thought it was safe to get behind the wheel again, riots break out in Egypt. Libya is under siege by its own government. Insert any Middle East nation here along with a myriad of excuses.
The result is the same. Skyrocketing gasoline prices are back.
So how can the average American afford to get from Point A to Point B?
You can do a web search for gas saving tips. But beware. You'll find more myth than savings.
Myth 1: Running your auto's air conditioner burns more fuel.
Myth 2: Gas is denser in the morning when it's cool, giving you less volume when you fuel.
Myth 3: Keep your tires under-inflated to improve mileage.
Myth 4: A clean air filter will improve mileage.
Now that we've identified what won't work, here are a few tips that will.
Your driving habits play the biggest role in fuel mileage. Ever watch an auto race in any series? The difference between winning and losing often comes down to fuel mileage. The driver who can feather the pedal and maintain consistent speeds is often the one being sprayed with champagne in the winner's circle.
You don't have to be a professional race car driver to learn these tricks. Rapid acceleration and frequent braking are fuel bandits. Keep a consistent pace. If your car has a tachometer, watch that instead of the speedometer. Keep those rpm's steady.
Most vehicles burn more fuel when driven over 60 mph. And with traffic, you won't reach your destination any sooner at a higher speed. Stick to the speed limit. Use cruise control if you have it to assure consistent speeds.
If you'll be more than a minute, turn off the engine. It takes more gas to start a car than run it, but idling burns more yet.
Shed that extra weight. You'll use two percent more gas for every 100 lbs. in your vehicle. Spring is right around the corner. Soon you won't need to lug around that bag of sand in your trunk.
Keep your engine properly tuned. And use the recommended grade of motor oil. The grade indicates viscosity. Use the wrong one and you're increasing engine friction.
Plan your errands to avoid back tracking as much as possible. Choose a route with fewer traffic lights or heavy traffic whenever it's an option. The longer route may actually save you time and money.
The first gas station you see after a long stretch is usually the most expensive. Same with those whose sign you can see from the highway. Drive a bit further for better prices.
We've seen this up-and-down gas price cycle so many times that it's pretty much old news. But that doesn't make it any easier on the wallet. Use these tips to keep your wallet as full as possible.
With changing employment opportunities, some people are starting their own small businesses. Starting a successful business requires several well-oiled components. The basic ingredient is, of course, offering a product or service that others are willing to purchase. Before you spend your money to start the business, you will want to have a solid plan. A business plan includes defining the objectives, customers, marketing, costs and financing. You will want to make sure that you have planned to have enough cash flow to weather the rough beginning phases.
The government has had an agency in place, the Small Business Administration, whose goal it is to further the development of small business. The SBA offers online and local counseling and training as well as sample business plans.
Financiers are reluctant to loan to a new business without a proven track record. The SBA has several loan programs in place to help a small business obtain the funding it needs. To qualify as a small business under current law, a business must demonstrate that it has less than $15 million in tangible net worth and two years' net income after taxes of less than $5 million. From this point, various SBA programs have other requirements.
The 7(a) Loan Program is the main SBA loan program and the most flexible for a variety of general business purposes. The SBA guarantees loans under this program by participating with commercial lending institutions. Loan terms can be up to 10 years for working capital and 25 years for fixed assets. Other loan programs include 504 Loans for fixed-asset projects and Microloans for short-term working capital or other short-term needs.
Starting a business is a commitment of both time and money. Use the resources available to you! See sba.gov for information on starting a business.
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