Archives for February 2011

Education Tax Credits Can Help Pay For College Costs

A lot of people aren't aware that there are education tax credits available to help you offset the costs of paying for a college education for you or your dependents. So if you're paying college costs, please keep reading as we'll be talking about the American Opportunity Credit and the Lifetime Learning Credit, and how to take advantage of it.

Education Tax Credit Eligibility

There are eligibility requirements that you must meet for both of the tax credits. For either credit you must pay post-secondary tuition and fees for yourself, your significant other or your dependent to be eligible. The credit may be claimed by the parent or the student, but not by both, so don't even try. If the student was claimed as a dependent by their parents, the student cannot file for the credit automatically.

For each student, you can choose to claim only one of the credits in a single tax year, but not both. For example, you cannot claim the American Opportunity Credit to pay for your child's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of their school costs. However, if you pay college costs for 2 or more students in the same tax year, you can choose to take both credits, one for each student, each year. So, if you had 2 sons, you could claim the American Opportunity Credit for one and the Lifetime Learning Credit for the other.

The American Opportunity Tax Credit

The American Opportunity Credit can be for up to $2,500 for an eligible student, and is available for the first 4 years of post-secondary education. Other guidelines for the tax credit, and stipulations you must meet – from the IRS:

Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
The student must be pursuing an undergraduate degree or other recognized educational credential.
The student must be enrolled at least half time for at least one academic period.
Qualified expenses include tuition and fees, coursed related books supplies and equipment.
The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.

Lifetime Learning Tax Credit

The Lifetime Learning Tax Credit can be for up to $2,000 for an eligible student, and is available for all years of post-secondary education – and for courses to acquire or improve job skills. Other guidelines for the tax credit, and stipulations you must meet – from the IRS:

The maximum credited is limited to the amount of tax you must pay on your return.
The student does not need to be pursuing a degree or other recognized education credential.
Qualified expenses include tuition and fees, course related books, supplies and equipment.
The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.

You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

For more information about these credits see IRS Publication 970.

Have you claimed either fo these tax credits for your education costs? How much were you able to claim?

7 Creative Ways To Save Money On Your Vacation

By Contributor 4 Comments

In today’s economy, it’s already hard to enough to scrounge up enough spare funds to take a trip. Then to make matters worse, higher oil prices have sent the cost of airline tickets into the stratosphere and of course driving is no longer an affordable alternative, either. However if you get creative, you still might be able to afford a trip once in a while. Here are 7 ways to save money on vacations – some common while others you might not have thought of!

#1. Skip the restaurants and head for the grocery store
It’s been drilled into our minds that vacations = eating out. But is that really necessary? Even if your hotel doesn’t have a kitchenette, you can still save money by hitting up Trader Joes or a cheap supermarket for some premade dishes – or better yet – bring food with you from home packed in a cooler (if you’re driving). Even if you only do this for half the meals during your trip, you will be saving a tremendous amount of money.

#2. Venture where others don’t want to go
With all the violence in Mexico, package deals for traveling there are looking mighty good these days. Of course, there is a risk/reward thing here, but many claim as long as you stay at the resort you should be pretty safe. If that works for you, then it might be a lot cheaper than traveling to one of those hot Caribbean tourist destinations.

#3. Discounts for students, seniors, military, etc.
If you’re going to a touristy area in the United States – such as Orlando – there’s a good chance that many of the amusement parks, transportation services, and even some restaurants accept discounts for various groups like senior citizens, military, students, AAA members and so forth. So make sure you bring all your cards with you!

#4. Milking a credit card signup promotion
First of all, I would like to say that anyone who has a tendency to get into credit card debt should avoid this tip! That being said, if you can use a credit card without raking up a balance, then there are tons of offers out there for airline and hotel credit cards that might save you some money. For example, the Hyatt credit card is offering 2 free nights at any Hyatt hotel with no restrictions whatsoever. Their rooms can easily run $300 to $500 a night, so the dollar value of the Hyatt credit card offer is significant. For a complete comparison of offers, check out Smart On Money's credit cards page!

#5. Group travel deals
We all know sites like Groupon, LivingSocial and Moolala are all the rage right now for buying restaurant gift certificates and the like. These group buying sites now offer travel packages too, but I must warn you, they are a hit or miss. Sometimes what’s offered truly is a good deal, while other times it’s only a discount on an inflated price that no one pays anyway. Regardless, they are definitely worth checking out. In addition, you can also snag some great deals through more traditional group travel venues, like Apple Vacations (over the years I have personally got a couple amazing offers through them that were not found on any of the travel websites).

#6. Home/apartment swapping
Even the cheap hotels cost a lot these days (in my opinion at least) so why not consider a house or apartment swapping arrangement? There are a number of websites available where you can arrange to either rent someone’s unused room/apartment/house – or – you can do a trade arrangement where both parties will literally switch homes for a week or so. As far as the latter option, I’m not sure I would feel comfortable having strangers in my own apartment, but I wouldn’t mind paying to rent someone else’s if it was cheaper than staying at a hotel!

#7. Avoid souvenirs and shopping!
When I was a kid, we would go on a family trip once every couple years and I would always buy a bunch of junk wherever we went. Do I have any of that stuff now? Nope! Just goes to show what a huge waste of money it was. But fortunately, it taught me early on what a waste it is to spend money on trinkets and other crap that you don’t need (and really has little to do with your vacation spot since it’s probably made in China). The best souvenirs are memories and if that’s not good enough for you, then take a bunch of pics using your digital camera!

This post was written by Michael from CreditCardForum.com, which is a forum and blog for all things credit, including reviews of the best travel rewards credit cards.

When A Roth IRA Will Cost You

By Miranda Marquit 2 Comments

One of the big reasons (aside from the tax advantages) that so many personal finance writers like the Roth IRA is due to the fact it is possible to withdraw money early from the account without penalty. It is true that you have to meet certain conditions in order to make a penalty-free withdrawal, but the option is still there. The temptation to withdraw from a Roth to fund a college education or put a down payment on a house is tempting, so it is important to make sure you are meeting the Roth IRA withdrawal rules. Otherwise, your Roth IRA could cost you.

Early Withdrawal Fees and Penalties

The age at which you can begin making withdrawals is 59.5. If you withdraw from your Roth IRA before them, without meeting one of the exceptions, it is going to cost you a 10% early withdrawal penalty. On top of that, you will have to pay taxes on your earnings if your withdrawal is non-qualified. This amount will be taxed at your income rate. Finally, your plan holder/manager might impose its own fee for early withdrawals. All of that starts to add up.

Of course, it is worth noting that you can withdraw your own contributions to your Roth IRA at any time. Withdrawing your original contributions is usually not a problem — unless your original contribution is part of a conversion from a Traditional IRA to a Roth IRA.

Roth IRA Conversions

One of the popular retirement planning moves lately has been converting to a Roth from a Traditional IRA. Last year, anyone could convert. That policy has been extended, and it is possible to continue converting a Traditional IRA to a Roth IRA. However, it is important to note that converting to a Roth IRA will cost you. Since Traditional IRA contributions are made before taxes, you will have to pay taxes on the conversion amount. Those who made the conversion in 2010 can spread out their tax payments over two years, but those making conversions starting in tax year 2011 will have to pay taxes the year of the conversion. The cost of taxes is an important consideration when deciding whether or not to convert.

Five-Year Rule

It is also important to remember the five-year rule when considering the Roth IRA. If you don't follow this rule, you could find yourself paying penalties for taking unqualified, early distributions. You are not to take distributions from the earnings (your original contribution is another matter) in your Roth IRA account until five years have passed. The good news is that the five years starts on January 1 of the year of your first Roth IRA contribution, so periodic contributions made later don't start the clock over again.

If you convert, though, each conversion you make has its own five-year requirement. You have to have the assets sitting in the Roth IRA for five years, or until you turn 59.5 (whichever happens first). If you are older than 59.5 when you make the conversion from a Traditional IRA to a Roth IRA, you can access your original contribution at any time. The earnings, though, have to wait five years — or you are subject to a penalty.

Before withdrawing money from a Roth IRA, it is a good idea to consult with a tax professional or financial planning professional to get a better of idea of how you can avoid the costs related to a Roth IRA.

Have you ever made a withdrawal from your Roth IRA,and did you follow all the rules?

Stricter Auto Lending Standards Means Deals For Some, Not For Others

By Contributor Leave a Comment

In 2008, when the government announced plans to bail out the auto industry, many Americans were surprised to learn that the industry has reached such a low point. At the time the big American auto companies were all ailing from economic woes, and faced all out bankruptcy. The reasons? Non-unionized competition from overseas, huge pension costs, and the inability to fund jobs and benefits. Thanks in no small part to the economic stimulus, the American automotive industry has come back from the grave, streamlined their business, and cut excess costs. They're now coming back with what will hopefully be stronger strategic plans.

Good Time To Buy A Car?

Now that the big 3 manufacturers are slowly coming back, many are encouraging Americans to buy back into the auto industry by buying new car. MSN reports that if you have a relatively good credit history, then you can probably receive a pretty low rate on a car loan.

Folks with untarnished credit will find good rates, eager lenders and some amazing deals as increasingly desperate car manufacturers try to revive sagging sales.

With many lenders eager to work with consumers and a car industry highly motivated to keep sales alive for American-made products, you can get some great savings towards the purchase of a new car.

On the other hand, people with low credit scores are having a hard time getting the same kinds of deals as those with stellar credit histories. While these customers can still receives loans to buys cars, the rates are much higher, which puts the customer at risks for not being able to make the monthly payments.

Folks with troubled credit will find higher rates, increased scrutiny and warier lenders, but they won't face anything like the trouble they'd experience if they were shopping for a mortgage.

Lending standards from the automakers have been made much stricter since the crash as they now know the inherent risks in lending to those with big credit risks, and they didn't want auto lending to become the next sub-prime lending crisis, as it did in housing.

Finding A Better Deal On Your Loan And Insurance

In order to stave off this concern lenders are currently more likely to work with consumers who have a positive burrowing history. If you’re concerned about your loan application, check your credit score and consider talking to a lender about finding a better rate, and options for cash rebates or savings. Also consider finding a loan through a credit union or other bank before going to the dealership, and ask the dealership to beat the best rate that you find.

Control the things that you can, like improving your credit history. Pay off all installment loans on time, dispute incorrect statements on your credit, ask companies to remove things from your credit file, and pay off debts that you may have.

When it comes time to actually purchase your car, also make sure to get and research free insurance quotes online to get the best deal on insurance as well. Don't forget to look up ways to get a reduction in your insurance rate, like multi-car discounts, and companies that give discounts for good drivers.

Conclusion

While the automotive industry is back on it's legs, things aren't completely back to where they were before. Lending standards are now stricter, and if you've got a dent in your credit, you may not find it as easy as before to find a deal. The key is to do what you can to improve your credit, shop around for the best deals on cars and insurance, and in the end you'll find what you're looking for.

Have you found recently that buying a car was a bit tougher? Tell us about it.

Early Savers Eyeing The Roth IRA

By Contributor 2 Comments

Saving money is popular once again. While many consumers never veered from the path of sound money management, quite a few got lost along the way in the past few decades. Prior to credit cards, most of our grandparents and ancestors before that focused on saving money to prepare for any type of financial emergency. Somewhere along the line, saving became less of a priority and for some households eventually faded from financial planning altogether.

Today, more and more young people entering the workforce want to avoid the financial hardships they have seen their family and friends experience in recent years. A renewed interest in savings has been noticed and many of these early savers are paying close attention to the Roth IRA. Here we look at some of the benefits early savers can expect when opening a Roth IRA.

Savings And Investment Vehicle

No one will argue that the Roth IRA, like most other retirement plans is geared toward long term savings for retirement. This makes Roth IRAs ideal for young savers. Unlike most other savings plans, the Roth IRA allows some flexibility in when funds may be withdrawn. This means young savers who may want to tap into their retirement fund to buy a home or pay for additional education later in life, may be able to do so without risking hefty penalties associated with other accounts. This is made possible by the way in which Roth IRA contributions are taxed.

Unlike traditional IRAs or 401k accounts, contributions to the Roth IRA are taxed in the year in which the contribution was made. While this takes away from the immediate tax benefit, this allows for account owners to withdrawal contributions at any time without fear of penalty or taxation. Earning from the account must be qualified to avoid penalties, however access to contributions makes this type of account ideal for young savers who may find themselves in a position where getting their hands on the money before retirement is necessary. In addition to the flexible nature of the account, early savers will benefit by the long term growth potential when savings remain in the account until retirement.

Smart Retirement Planning

It is important for young investors to become familiar with all of the retirement accounts available to them. The Roth IRA offers considerable benefits, even beyond that of the tax benefits noted previously. If you qualify for other savings plans, it is important to compare each option and learn which will be better for your own financial situation. For some savers, the Roth IRA will be the way to go. Others may benefit more by taking advantage of employer matches or military savings plans. The key to maximizing your savings is to understand how each plan works to include the advantages and drawbacks associated with each. In some cases, savers can contribute to more than one account, thereby taking advantage of multiple savings plans to maximize their savings.

Trisha Wagner is a writer for RothIRA.com, a site which strives to educate it's readers on the pros and cons of Roth IRA products.

If You Itemize On Your Taxes You Can File And Have Returns Accepted As Of February 14th, 2011

By Mr. Money 2 Comments

In December of 2010 the Congress and the Obama administration put in place a tax cut package that would allow the current tax rates to continue for 2 more years, in addition to passing a 2011 payroll tax holiday, extending $1000 child tax credit and the estate tax.

While I was happy for an extension of the current tax rates, no matter how temporary, I was dismayed to find out that the millions of people who itemize on their taxes, myself included, would have to wait until mid-February to file their taxes. Due to the tax filing delays a lot of people won't be getting their tax refunds as soon as they might like. Thankfully, that delay is now over, and itemizers can file their taxes as of today, February 14th, 2011.

Tax Filing Delays For Those Who Itemize Ends Feb 14th

Because of how late in the year the tax bill was passed (December 17th, 2010), the IRS announced that the estimated 50 million taxpayers who itemize their deductions would not be able to file taxes until the IRS had a chance to update their software to account for the tax package. Sometime in late January the IRS announced that February 14th would be the first day that itemizers could file their taxes and have it accepted.

While the delay applied to an estimated 50 million taxpayers who itemize their taxes, of those only about 9 million would have actually filed in January in February anyway.

Tax Filing Deadline – For Procrastinators

If you don't plan on filing your taxes until the last moment, the tax filing deadline has been pushed back this year because of a government holiday on the 15th of April. Tax day will now be on Monday the 18th of April.

Remember, even if you can't pay your entire tax bill, you need to file!

Use Online Tax Software To E-File To Get A Faster Refund

Many or most of the tax filing software have been updated for the new tax law since the beginning of the year, and if you want to get your refund the fastest, I'd suggest e-filing your return through one of those online tax software packages. I usually file mine using TurboTax because I like it's ease of use, and how it tends to find me all the applicable tax deductions. There are a ton of other software out there as well, however, and any of them will probably work well.

Check out our article about filing your taxes for free for links to several popular tax software packages.

Checking The Status Of Your Refund

If you filed your taxes already, or if you itemize and you'll be filing this week, here's a post from a couple of weeks ago telling you where you can check the status of your refund, both for federal and for each of the states.

Are you itemizing your taxes this year, and will you be filing right away now that you can to get a refund?

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