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2015
Wednesday, February 25, 2015
Page 2
Finance/Insurance Progress
Wednesday, February 25, 2015
Affordable Care Act changes tax filings
COLORADO—The Affordable Care Act also known as Obamacare, is the biggest tax law change this year. In fact, it’s the largest single change to the tax code in 20 years. For those without the minimum required health insurance in 2014, the penalty for not carrying health insurance rises this year. According to Healthcare.gov, “If you didn’t have coverage in 2014, you’ll pay the higher of these two amounts when you file your 2014 federal tax return: one percent of your yearly household income… or $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.” If you had coverage for part of the year, you pay an equal proportion of the fee. For example, if you had coverage for six months, you would pay 50 percent of the penalty. If you are in any doubt about whether or not your insurance met the minimum requirements or if you’re not sure about how much of the year you were enrolled, gather your documents and discuss it with a professional tax preparer. Employers with more than 50 full-time equivalent employees face a tax penalty if they fail to provide affordable essential health coverage to their employees. Individuals who fail to purchase coverage may also be subject to a penalty. Adults could be facing a fine of $95, while the penalty for uninsured children will be $47.50. This fine will increase annually and, by 2016, will be $695 per adult or 2.5 percent of the total household’s taxable income, whichever is greater. On the flip side of the penalty are new tax credits and subsidies. Employers with fewer than 50 full-time employees and non-profit organizations could be eligible for tax credits if they meet the minimum coverage requirements. Individuals will not receive tax credits but could be eligible for subsidies that help them purchase coverage through state or federal health insurance exchanges. Itemize or not? The tax code is designed to accommodate inflation. Although many Americans are
extremely wary of inflation, this adjustment can actually help taxpayers save. Adjustments ensure that filers are in the appropriate tax bracket, but they also affect tax breaks such as exemptions and standard deductions. These adjustments could save middleincome married couples as much as $200. Single filers will see savings, as well. Personal exemptions will also be adjusted for inflation, and limits for IRA contributions, education credits and similar benefits will increase. Some taxpayers could still benefit from itemizing their deductions; anyone interested in doing so should discuss options and scenarios with a licensed tax professional.
Flex Spend Health Flexible Spending Accounts (FSAs) are traditionally use-it-or-lose-it plans. You can save pre-tax dollars to pay for health care expenses, but they must be used within a plan year. However, one now is allowed to roll over $500 from an FSA into the next plan year. But there’s a catch. If $500 was carried over, the taxpayer becomes ineligible to participate in a Health Savings Account (HSA) in 2015. Yes, the entire year. This only applies to general purpose FSAs, not ones for specific uses like dependent care or dental expenses. Kevin Martin, a tax attorney at The Tax Institute at H&R Block points out, “If you really want to set up an HSA for 2015, it may be best not to carry forward those unused FSA amounts, even if it means that you will lose them.” Unemployment Being without a job is stressful, mentally and financially. For many job seekers, unemployment benefits provide a valuable bridge between their current situation and a new position. The bad news is that these benefits are taxable income. A Form W-2 and/or Form 1099-G will be issued with the amount of benefits reported. Use this information to file your tax return. Additionally, a recent U.S. Supreme Court
Consumers: beware of fake debt collectors
DENVER–The Colorado Attorney General’s Office is warning people to beware of a debt collection scam in which people pose as law enforcement officials or government agencies. Consumer complaints to the Attorney General reveal a sharp increase in Coloradans receiving threatening phone calls and emails from this particular fraudulent debt collector scam. By using personally identifiable information, including Social Security Numbers, the caller attempts to collect on alleged payday loan debt. Complaints about this scam have increased by 1350 percent between 2013 and 2014. Fictitious payday lender names being invoked include ACS Inc., ACS Legal Group, Ace Cash Services, Ace Cash Advance, Advance Cash Service and American Cash Advance. The familiarity of these names, along with strong-arm language like “you are in violation of federal banking regulations,” and use of official sounding agencies such as “United States of attorney”
and “state investigation department,” are the most common elements found in the complaints. “These scam artists pretend to be from companies with familiar-sounding names and use high-pressure demands to get people to pay using prepaid money cards,” explained Colorado Attorney General John Suthers. “The caller threatens to report you to the FBI, FTC and even to your employer if you don’t immediately pay up, however, law enforcement and government agencies do not threaten to arrest or prosecute people for their unpaid debt and do not send arrest warrants via email,” warned Colorado Attorney General John Suthers. The following signs will help consumers spot this debt collection scam: • Threats of arrest or prosecution • Claims of being law enforcement or a government agency • Strong allegation language: “Collateral Please see SCAM on Page 3
decision clarified that any supplemental unemployment compensation -- not tied to state unemployment benefits -- paid by a former employer to a laid-off employee will be taxable as wages, and therefore social security taxes will need to be withheld from them. Last year, many filers noticed a startling increase in their taxes thanks to FICA tax hikes. FICA, or the Federal Insurance Contribution Act, includes both Social Security and Medicare taxes. The current FICA tax rate is 7.65 percent. Higher-income earners might be facing an additional 0.9 percent tax, which results in an effective tax rate of 2.35 percent for single taxpayers who earn more than $200,000 and joint filers who earn more than $250,000 a year. Self-employed taxpayers pay 15.3 percent in FICA taxes, because they don’t have an employer with which to share the cost. These increases were due in part to the projected cost of Social Security growing faster than its income. While there will be no tax increase this year related to FICA, the wage base is slated to increase. The wage base is the maximum amount of income that can be taxed for Social Security purposes. In 2013, the wage base was $113,700; this year, the wage base is predicted to increase to $115,500. Other changes have also been proposed.
One proposal that is estimated to reduce the deficit by $44 billion over the next decade would repeal tax preferences for oil, gas and coal producers. New jobs and wage increases could offer a temporary 10 percent tax credit, and investing in advanced energy manufacturing would also merit new tax credits. Additional proposals have been made to create small-employer tax credits, expand the child and dependent care tax credit, and reform the low-income housing tax credits. The federal tax on tobacco products and cigarettes may be increased as well. Many of the tax law changes on the horizon would be beneficial to a large percentage of taxpayers. Both refundable and non-refundable tax credits could significantly decrease the tax burden of individuals or couples. However, it is important that wage earners discuss their unique situations with a tax professional. The standard deduction amounts have also increased a bit. Single or married filing separately is now $6,200. Head of household is $9,100, a $150 increase. Married filing jointly or qualifying widow(er) is $12,400, a $200 increase. These will be higher if you are over 65 years old, or if you are blind. Each exemption claimed in 2014 is $3,950, a $50 increase.
Wednesday, February 25, 2015
Finance/Insurance Progress
Page 3
IRS completes the ‘Dirty Dozen’
WASHINGTON — The Internal Revenue Service wrapped up the 2015 “Dirty Dozen” list of tax scams with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year’s filing season. The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS. Phone scams and email phishing schemes are among the “Dirty Dozen” tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on IRS.gov highlighting these 12 schemes for taxpayers. “We are doing everything we can to help taxpayers avoid scams as the tax season continues,” said IRS Commissioner John Koskinen. “Whether it’s a phone scam or scheme to steal a taxpayer’s identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit IRS.gov for more information and to be wary of these dozen tax scams.” Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax returns even if it is prepared by someone else. Make sure the preparer you hire is up to the task. For more see the Choosing a Tax Professional page.
sionals to prepare their returns. (IR-2015-8) • Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09) • Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR2015-12) • Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16) • Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is Continued from Page 2 on their returns regardless of who prepares the Check Fraud,” “Theft by Deception” Visit StopFraudColorado.gov to report fraud, returns. (IR-2015-18) • Typos and grammatical errors: “Court or to learn more about fair debt collection visit • Abusive Tax Shelters: Taxpayers should House,” “law suit,” “United Stetes of America” www.coloradoattorneygeneral.gov/ca. avoid using abusive tax structures to avoid • Requests amount owed be paid via prepaid card or money transfer • Requests for personally identifiable information • Refusal to provide a mailing address • Refusal to mail proof of debt, referred to as a “validation notice”
SCAM
Consumers are encouraged to follow these tips to stay safe: • Ask the collector for his/her name, company, address, and phone number. (Legitimate debt collectors are required to provide their contact information and the nature of the debt owed.) • Refuse to discuss any debt owed until a written “validation notice” is received. (Within five days after you are first contacted, a collection agency is required to send you a written notice. A proper “validation notice” will include the amount of debt, the name of the creditor, and information regarding your rights under the Colorado Fair Debt Collection Practices Act (CFDCPA.) • Do not give out any personal information. (Fake debt collectors can use your sensitive information to commit identity theft.) • Ask for the original creditor information. (If you believe you may owe a debt, contact your original creditor directly to find out what debt collector, if any, has purchased or may be authorized to collect the debt.) • Keep good records. (Retain proof of any debt you may have paid off including documents and correspondence between you and any debt collector as well as record dates and times of conversations.) • Do not ignore a court order. (If you do receive a court order to appear, independently verify that order by contacting the court directly and consider consulting with an attorney.) • Verify that the debt collector is licensed to collect in Colorado by searching the Licensed Collection Agencies List. Under the CFDCPA, Coloradans have rights that prevent debt collectors from harassing, oppressing or abusing them or any person in connection with the collection of the debt, nor can debt collectors make false or misleading statements.
For the first time, here is a recap of this year’s “Dirty Dozen” scams: • Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season. (IR-2015-5) • Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6) • Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7) • Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax profes-
paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19) • Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20) • Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21) • Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23) Additional information about tax scams is available on IRS social media sites, including YouTube http://www.youtube.com/irsvideos and Tumblr http://internalrevenueservice.tumblr.com, where people can search “scam” to find all the scam-related posts.
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Finance/Insurance Progress
Wednesday, February 25, 2015
Help for seniors plagued by money scams
By Teresa L. Benns
DEL NORTE — An address made by former Attorney General John Suthers to seniors in Alamosa and Del Norte several years ago still is pertinent advice for today and characterizes Suthers as a crusader for seniors during his time in office. Suthers warned that being too friendly with phone solicitors and responding to offers that arrive in the mail can cost seniors thousands, even hundreds of thousands of dollars. He said the problem is that once fraud is committed, it is next to impossible to recover the funds lost. This leaves prevention as the primary tool to fight scammers. An estimated $40 billion each year is lost to con artists and scam experts and $15 billion or over a third of this money is lost by seniors. “It’s not unusual for seniors to get 75 pieces of mail a day,” Suthers said. Some seniors even rent post office boxes and enjoy going through their junk mail. One Coloradoan lost $500,000 in funds by responding to such mail offers and another individual lost $200,000. One popular scam still making the rounds is the “grandson in trouble” scheme, where a call comes in to seniors from a young person asking for money to get home, bail them out of jail, pay a debt and so forth. Scammers usually have some personal information, often gleaned from obituaries to offer during the calls to lend credibility to what they are saying. Check to see if any family members have made the call, and do not send any money, Suthers warned. Then report the incident to local authorities. Recently scammers claiming to be from the IRS have been harassing citizens, threatening that unless fines and/or back taxes are paid those receiving the calls will be arrested or prosecuted. These scams are most prevalent at tax time. Repair persons who follow disasters and storms soliciting repair work, such as roofers and framers, engage in another popular scheme. “If you give them up front money you never see it again,” Suthers explained. Such crews either do a shoddy job or leave before the job is scheduled to begin, once they have the money. Colorado ranks fifth in the nation in identity theft frequency with 10 million victims nationwide each year. Methamphetamine addicts commit much of the identity theft that law enforcement is seeing these days, he said. Identity theft often occurs when mail disappears from the mailbox. “It even happened to the AG,” Suthers confirmed. Locked mail boxes easily foil these thieves, he noted. Seniors still can order identity repair kits from the attorney general’s office. Debt management offers over the phone cost those who subscribe hundreds of dollars and more. Suthers advised seniors to call organizations such as Catholic charities and
File photo by Teresa Benns
Former attorney General John Suthers, who frequently warned seniors about how to avoid scammers, speaks here with a Rio Grande County official during a visit to the Valley. social services offices to receive help with debt, rather than sign on for something that will siphon even more money from already depleted funds. Charitable organizations are another possible source of fraud, with some organizations that recruit fundraisers receiving as little as 10 to 15 percent of the funds collected. Typically these charities receive less than half the funds
collected, Suthers explained. He told seniors to be sure and ask callers for charities how much of the money they collect is actually going to the charity. Finally, seniors should carry as little identification as possible on their person and should be very wary of giving any kind of personal information to anyone. They also should add their names to a no-call list, or purchase a
device for their phones that automatically screens pitch callers.
For valuable information on protecting seniors from fraud, download the former Attorney General’s brochure on avoiding the many scams currently being run at: https://www. coloradoattorneygeneral.gov/sites/default/ files/SeniorBrochure_LgPrint.pdf
Earned Income Tax Credit; do I qualify?
COLORADO—The Earned Income Tax Credit (EITC) is a financial boost for people working hard to make ends meet. Millions of workers may qualify for the first time this year due to changes in their marital, parental or financial status. The IRS urges workers who work for someone else or own or run their own business or farm and earned $52,427 or less in 2014 to see if they qualify by using the EITC Assistant on IRS.gov. To get the EITC, workers need to file a return and specifically claim the credit even if they aren’t required to file. The EITC is a refundable tax credit. This means workers may get money back, even if they have no tax withheld. Nationwide last year almost 28 million eligible individuals and families received more than $66 billion in EITC. The IRS encourages all those who earned less than $53,000 to use the EITC Assistant on IRS.gov even if workers have someone else prepare their tax return. The EITC is complex and many special rules apply and taxpayers want to make sure they have all the informa-
tion needed to claim the credit. The agency also encourages all workers eligible for EITC to seek out free tax help through the IRS Free File program, or at a local Volunteer Income Tax Assistant (VITA) site staffed by IRS-trained community volunteers. EITC and other benefit programs Refunds received from the EITC or any other tax credit are not used to determine eligibility for any federal or federally funded public benefit program such as Medicaid, Supplemental Security Income (SSI), supplemental nutrition assistance program (food stamps), low-income housing or most Temporary Assistance for Needy Families (TANF) payments. Those who save their tax credit for more than 30 days should contact their state, tribal or local government benefit coordinator to find out if their benefits count as assets. Unemployment benefits are not earned income and can’t be used to claim the EITC. But they are taxable income and may affect the amount of EITC a person may get. Credit limits for tax-year 2014
The amount of EITC varies based on income, filing status and family size. Those who qualify for EITC for tax year 2014 can get a credit from: $2 to $496 with no qualifying children. $9 to $3,305 with one qualifying child. $10 to $5,460 with two qualifying children. $11 to $6,143 with three or more qualifying children. Not everyone qualifies for the maximum credit. Last year, the average credit was $2,407. Refunds Like last year, the IRS expects to issue more than nine out of 10 refunds in less than 21 days. Again, the fastest way to get a refund is to e-file and choose direct deposit. It takes longer to process paper returns and in light of IRS budget cuts resulting in a smaller staff, it will likely take an additional week or more to process paper returns. This means that the IRS expects to issue refunds from paper returns seven weeks or more after receiving the return. Taxpayers can track the status of their refund with the “Where’s My Refund?” tool available
on IRS.gov or on the smartphone app IRS2Go. Eligibility for EITC To qualify for EITC, workers must have earned income and adjusted gross income within certain limits; and meet certain basic rules. After meeting the basic rules, the worker must meet additional rules for those without a qualifying child or have a child that meets all the qualifying child rules for the worker or the worker’s spouse, if filing a joint return. Also, there are special rules for those in the military, those with certain types of disability income and members of the clergy. The IRS recommends using the EITC Assistant to help workers navigate through the following rules. Rules for every worker Must have earned income, such as payment from a job, tips or the income from running a business or farm. Most other types of income, such as retirement pensions and unemployment benefits, do not count as earned income. Must have a Social Security number that is Please see EITC on Page 6
Wednesday, February 25, 2015
Finance/Insurance Progress
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Keep online banking safe and secure
By Lyndsie Ferrell
SAN LUIS VALLEY— In this day and age it is more important than ever to keep personal information as secure as possible. Computer hackers around the world search for ways to procure any type of information they can. Thankfully, with the rising number of people becoming victims of identity theft, there is also a rise in ways to be safe while handling affairs, such as banking online. Websites dedicated to safe procedures are available on all banking websites. In the mean time, here are some tips that can be used universally whenever using the convenient services offered by online banking. The FDIC has one of the best resources for safety tips of online banking. As the major insurance carrier for most financial institutions, they offer a search that people can use to research the integrity of any financial institution. This is very important to do before choosing a bank for personal or business services. Some companies have been known to choose similar names as the financial institution to lure people in and trick them into providing personal information. The FDIC has created a database of real and fraudulent institutions for anyone looking into a potential bank. For most, WiFi internet is the way to go, being both convenient and available almost anywhere. When using banking services on an open network, such as WiFi, it is important to have up to date Spyware on any device. Most technological devices are sold with new age spy protection already installed. Be sure to check the device being used and get familiar with how the protection program works. Most Spyware protection programs notify device users immediately when a potential threat becomes apparent. Others will simply eliminate the threat and notify device owners through
messages only retrievable online. Either way, if open WiFi connections are being used, protect personal information and devices as much as possible. Individual banks offer safety tips on their websites. Legitimate financial institutions will aid clients in any way they can to ensure
personal safety. Services offered online are usually placed under scrutiny and watched closely by both the FDIC and the chosen institution. Always second guess anything that seems suspicious and close the page immediately if something unusual occurs. Only use personal devises and not ones belonging to someone
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else. Common sense can go a long way when using banking services online. Once a routine of safe procedures has been used, the convenience and benefits of online services can be extremely rewarding. For more information or to research a financial institution, go to www.FDIC.gov
Tax refund option helps families save for college
COLORADO— CollegeInvest, Colorado’s state sponsored 529-college savings program, announced the addition of a new direct deposit option on this year’s tax form, allowing Colorado taxpayers to automatically send state income tax refunds to their CollegeInvest savings account. The Direct Deposit Tax Refund Option will make saving for college even easier for families who have already opened CollegeInvest 529 savings accounts. And, for families who have not previously had the financial resources to start saving, this program cre-
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ates a great opportunity to open an account with their refund. “We know that by the year 2020, 74 percent of all jobs in Colorado will require education or training beyond high school,” said CollegeInvest CEO Angela Baier. “Whether saving for college or a career and technical education program, this direct deposit option is another effective tool we have in Colorado to help break down the financial barriers to attaining the education and training for economic sustainability.” Funds deposited in CollegeInvest 529
savings accounts are deductible against Colorado state income tax returns, and deposits made through the Tax Refund Direct Deposit program this year will also be deductible against 2015 state taxes. The practice of reinvesting tax refunds for tax-advantaged college savings creates a cycle of savings that, over time, can greatly impact a families’ ability to help pay for college. Faced with the rising costs of a post secondary education in recent years, an increasing majority of students and their parents have turned to student loans to fill the finan-
cial gap, with the middle class accumulating student loan debt in greater numbers than other segments of the population. Instead of borrowing, CollegeInvest can help families essentially cut the cost of a college education by almost half simply by implementing the principle of earning interest instead of paying interest. Money saved in a CollegeInvest 529 savings plan can be used at any public or private college, university, community college or career and technical education program, anywhere in the country.
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EITC
Finance/Insurance Progress
Continued from Page 4
valid for employment for self, spouse and any qualifying children. Must have zero or a small amount of investment income, such as interest from a bank account. The amount of investment income must be $3,350 or less. Must have a filing status of single, head of household, married filing jointly or qualifying widow or widower. A taxpayer who files as married filing separately cannot get the credit. Generally, must be either a U.S. citizen or resident alien. Cannot be a qualifying child of another person. Cannot file Form 2555 or Form 2555-EZ. These forms are used to claim the foreign earned income exclusion. Must have earned income of at least $1 and earned income and adjusted gross income must each be less than the amounts in the following chart. Who is a Qualifying Child People who claim the credit, based on having one or more qualifying children, must meet the relationship, age, residency and joint return tests for each child. Relationship test. The child must be the taxpayer’s: • son or daughter, including an adopted child or child placed for adoption. • stepchild. • foster child placed by an authorized placement agency or court. • brother, sister, stepbrother, stepsister, half brother, half sister or • descendant, such as grandchild, niece or nephew. Age test. At the end of 2014, the child was: • Younger than the worker (or the worker’s spouse if filing a joint return) and • under 19 or • under 24 and a full-time student • Any age if permanently and totally disabled. Residency test. The child lived with the worker (or the worker’s spouse if filing a joint return) in the U.S. for more than half of 2014. Joint return test. A qualifying child who files a joint return can only do so to claim a refund with neither the child nor child’s spouse being required to file. Only one person can claim the same qualifying child. If a child meets the rules to be a qualifying child of more than one person, only one person can use that child to claim the EITC. Also, if the child qualifies for both a parent and another person, the other person can only get the credit if he or she has a higher Adjusted Gross Income (AGI) than the parent. Workers without a qualifying child must meet three additional tests To qualify for the EITC without a qualifying child, a worker: Must have lived in the U.S. for more than half of 2014. Must be at least age 25, but under age 65 at the end of 2014. Cannot qualify as the dependent of another person. Special rule for combat pay. Combat pay received by members of the military serving in Afghanistan, Iraq and other combat zone localities is usually exempt from tax. But under a special rule, the member of the military can choose to count all of the combat pay as taxable income. Many times claiming the combat pay as taxable income increases the amount of the EITC. It’s their choice. IRS recommends using the EITC Assistant to figure out which way results in a larger credit and/or less tax owed. Avoid errors and seek accuracy Even if someone else prepares the tax return, taxpayers are still responsible for the accuracy of their own return. Because the EITC is complex, many people claiming it make mistakes. Workers should get help if they are not sure whether they qualify. Common errors include: Claiming a child who does not meet all four of the tests for a qualifying child, age, residency, relationship and joint return. Filing as single or head of household when married. Reporting incorrect income or expense amounts. Missing or incorrect Social Security numbers for self, spouse or qualifying children.
Claiming the EITC in error can have lasting impact You are responsible for what’s on your return even when someone else prepares it for you. Filing a tax return with an error on your EITC claim can: Delay the EITC part of your refund until we correct the error. The delay can take up to several months. Cause us to deny all or part of your EITC. If we deny all or a part of EITC: You must pay back the amount of EITC paid in error plus interest. You may need to file the Form 8862, Information to Claim Earned Income Credit after Disallowance, to claim the EITC again. If the error is because of reckless or intentional disregard of the rules, we could ban you from claiming EITC for the next two years. If the error is because of fraud, we could ban you from claiming EITC for the next ten years. Workers should help preparers file a return correctly If you pay someone to prepare your return, that person and the firm the person works for has some additional responsibility to make sure your return is correct. Expect your preparer, whether you pay or it’s free, to ask you many questions to make sure your return is correct. You can help your preparer by answering all questions asked and by bringing all the documents your preparer needs to get the return correct. Find out what documents to bring to your preparer on irs.gov/eitc. Letter from the IRS If a taxpayer receives an IRS letter requesting additional information, an immediate response is the best practice to avoid further delaying a refund. If help is needed, the taxpayer should call the phone number on the letter or call the IRS Teletax line at 800-829-4477, to listen to the pre-recorded Topic 654, Understanding Your CP 75 Notice. How to claim EITC To claim the EITC, taxpayers need to file a Form 1040, 1040A or 1040EZ. If a taxpayer is claiming the EITC with a qualifying child, the Schedule EIC must be completed and attached to the tax return. Schedule EIC provides the IRS with information about the qualifying child or children, including their names, ages, SSNs, relationship to the taxpayer and the amount of time they lived with the taxpayer during the year. How to get tax help Taxpayers can see if they qualify by using the improved EITC Assistant tool on the IRS website, available in English and Spanish. Find information on who qualifies for, how to claim and more about EITC on irs.gov/eitc. Those who qualify for EITC should consider free tax preparation services. Many community and nonprofit organizations provide free tax return preparation for low-income and elderly taxpayers at thousands of volunteer sites nationwide. The Volunteer Income Tax Assistance program offers free tax preparation for low-to moderate-income taxpayers. To find a nearby VITA site, visit IRS.gov and type the word VITA in the search box and click on “Free tax return preparation for you by volunteers” or call the IRS at 800-906-9887. Tax Counseling for the Elderly offers priority assistance to people who are 60 years of age and older. To find a TCE site, visit the AARP locator web page. Active duty military members and their families can receive free tax preparation assistance at VITA sites within their installations. The volunteers are trained and equipped to address military specific tax issues. EITC-eligible workers can also seek free assistance using other IRS options such as IRS Free File, the free tax preparation and electronic filing program, available only at IRS. gov/freefile and provided by software companies. Free File, is a public-private partnership that provides a free way to do your federal tax returns either by using brand-name software or online fillable forms. Free File software is available now to more than 100 million individuals and families that earn $60,000 or less, which is 70 percent of taxpayers. Some software companies are now also offering free state filing to those who are eligible for state EITC. Many e-file software providers and tax professionals also provide free services for low income taxpayers.
Wednesday, February 25, 2015
For better or worse: should couples combine finances?
COLORADO— To combine finances or not to combine finances? It’s a question most couples consider as their relationships get more serious. The answer; however, is not so simple. “In the not-too-distant past, couples didn’t think much about combining their finances. After marriage, they would open joint bank accounts, take out a mortgage and share all the income and expenses,” said Mike Sullivan, director of education for Take Charge America, a national nonprofit credit counseling and debt management agency. “Yet things have changed. Today, it’s more common for both partners to earn incomes and to bring debts and assets to a relationship, making the process much more complicated.” For couples considering combining finances, Sullivan suggests eight issues that should be a part of an open dialogue: Communication: Money is consistently cited as a primary source of conflict between partners, so it’s best to establish open communication early on. Set aside a block of time that works with each person’s schedule, and establish ground rules for effective communication. Review the numbers: With a foundation of trust and honesty, take stock of your financial situation. Discuss your income, savings, retirement accounts, student loans, credit card debt, credit scores and history, and other assets and expenses. Compare spending habits: Take a close look at your spending habits before you combine your money. Is she a spender or a saver? Does he use cash only, or does he
tend to buy on credit? This can be a real eye-opener, particularly if you grew up in families with dramatically different financial philosophies. Create shared goals: Sharing a life together means aligning the goals for your relationship – including finances. Determine long-term financial aims for your relationship – whether or not you want to buy a new house, travel, invest, etc. It’s also important to set goals for paying off debt, building your emergency fund and saving for retirement. Write it all down: Create a comprehensive monthly budget that includes your income and all household expenses, including your mortgage or rent, utilities, car payments, insurance, food, savings and entertainment. Make sure you agree on how the funds should be allocated. Decide who pays for what: Many couples enter a relationship with two very different incomes. Whether or not you merge finances, agreeing on how you will divide up the household expenses can head off a lot of resentment, arguments and mistrust. Think twice before cosigning: Carefully consider whether or not you should share debt such as student loans, auto loans or credit cards. If the relationship ends, you’ll be equally responsible. Agree to discuss big expenses: You can avoid a lot of relationship headaches by agreeing to make big financial decisions together. Discuss any purchases that exceed a set amount – $100 or $1,000, for example – to make sure you agree it’s worthwhile to purchase. For more financial tips, visit www.takechargeamerica.org.
Wednesday, February 25, 2015
Finance/Insurance Progress
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Rebounding from a late start to retirement savings
Some people do not have the ability to begin saving for retirement early on. Others may have brushed retirement savings aside for so long that they are now worried that it’s too late to begin socking away money for retirement. While it’s best to start saving for retirement as early as possible, the good news is that it’s never too late to start planning for retirement. If your 40th birthday has long passed and you’re finally thinking ahead to retirement, consider these catch-up strategies. • Research tax-advantageous retirement savings plans. A financial planner can point you in the right direction, or consult with your employer about employee programs. Deposit money into a 401(k) or 403(b) plan or another retirement vehicle. Jump on any opportunities when your employer matches invested funds. Investigate an IRA and find out if there are any government incentives. Depending on your age, you may be able to deposit more money into such accounts than other investors. • Cut back on expenses. Cutting back on unnecessary expenses is a great way to save more money for retirement. Figure out where you can save some money you can then allocate to retirement savings. Maybe you can reduce insurance coverage on an older car or raise your deductible? Downsize cable packages or skip that costly cup of coffee on the way to work. Perhaps it’s time to look for a smaller, less expensive home or a compact car instead of an SUV. Any money saved now will benefit you when the time comes time
to bid farewell to the workforce. • Delay your retirement. Many people who retire find themselves bored and looking for ways to fill their time, and as a result more and more people are delaying their retirement, which also gives them more time to save for that day when they do call it quits. If you want to work less, discuss and negotiate a phased retirement with your bosses that allows you to stick with your employer but gradually work fewer hours until you retire completely. You may be able to work parttime for several years and retire when you’re most comfortable. • Consider more aggressive funds. Even if you are 50 you still have a few decades before retirement, which leaves lots of time to grow your retirement savings. But you may want to consider more aggressive funds that can help you catch up more quickly than less aggressive investments. Just know that aggressive funds may also leave you susceptible to substantial losses. • Don’t amass debt. If you’re saving for retirement but only paying minimum balances on your credit cards, then you’re not really saving. Pay down credit card debt before you begin to set aside money for retirement. Delaying retirement planning may mean you have to work a little harder to build up a solid reserve. But by following some financial tips and persevering, you can still enjoy retirement with security. LP153969
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How to live as a one-income family
Many couples wonder about the secret to surviving on one income when it seems like they’re just making ends meet with two incomes. Dual-income households, which in the United States are now more common than single-income households, have become the norm. With the rising cost of living, it may seem necessary for families to generate two incomes. However, many families still find a way to thrive on just one income. Doing so often requires a careful examination of family finances and a commitment to making changes to ensure one income is enough for a family to thrive. • Examine your spending habits. Having a clear picture of what is being spent each month will give you a better picture of which things are necessities and which are luxuries. Households that dine out a lot can likely save a considerable amount of money by eating more meals at home. Knowing how your money is being spent will help you reestablish your priorities and map out a plan to live on one income. • Stay disciplined and organized. Some people grow accustomed to taking out the credit card anytime they want to make a purchase, oblivious to what they’re actually spending until the bill arrives. If you are such a person but you want to successfully transition to a single income household, you will likely need to rein in such spending habits. Determine exactly what is needed to cover bills each month. Once you understand what’s needed for the home, figure out how much you have left over. Divide that as necessary for savings and extra spending money. Knowing what you have to spend makes it much easier to avoid overspending. • Keep an emergency stash. Many financial experts recommend having enough in a savings account to cover six months’ worth of living expenses. This affords the household
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breadwinner enough time to find a new source of income in case of layoff and enough security to pay bills in case of injury. • Prepare ahead of time, if possible. If you are currently living with two incomes, try living with one income for several months to a year and bank the other salary entirely. This will give you an accurate idea of whether you can afford a one-income lifestyle. This also helps to establish a sizeable nest egg as a safety net once you begin living on just a single income. • Speak with a tax professional. In many cases, moving to one income will put you in a lower tax bracket. This alone can make it worthwhile to explore a one-income lifestyle. An accountant can give you a clearer view of potential savings. • Trim the extras. If you look at expenses, you may find a number of trivial things that can be cut from your budget. Find out if you can save on cable costs by cutting down on the number of channels you carry on your plan. And you may be able to save by bundling certain products, such as insurance policies. After making a few adjustments, many families find that they can successfully live on just one income. CB14A572
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Finance/Insurance Progress
Wednesday, February 25, 2015
Find the best bank for you
Some people may not give much thought to where they do their banking, but much like no two account holders are the same, no two banks are the same, either. That reality only highlights the importance men and women must place on finding a bank that best suits their particular needs. In banking, what’s good for the goose is not necessarily good for the gander. Individuals hoping to find the best bank for their needs can consider a host of factors before deciding just where it is they will be depositing their money in the years to come. • Accessibility: Accessibility is many individuals’ biggest priority when it comes to finding a bank. Large banks tend to have more local branches and ATMs, and such banks tend to be in more regions of the country as well. Men and women who travel for business or even young people who go to school away from home may want to find a bank with a more national presence, as that can make it easier to deposit and withdraw money. If you don’t travel much and only seem to withdraw money within your community, then a smaller, local bank, which should be able to offer the same direct deposit services as its larger competitors, may be what you’re looking for. • Capability: Some people prefer to have
all of their financial needs catered to by the same bank. This means a bank that can manage your investments, provide a line of credit and secure home, vehicle or education loans. Larger banks tend to offer the widest array of services, and such banks also may have more advanced technology that makes it easier to manage all of your accounts. Smaller banks may be just as versatile with regard to their capabilities, so don’t judge a book by its cover. • Balances: Banks typically require account holders maintain a minimum balance on both their checking and savings accounts. If you think it may be difficult for you to maintain a higher balance, find a bank that offers accounts with a low minimum balance so you don’t end up paying penalties just to spend your own money. • Fees: Even accounts that are advertised as “free” tend to come with fees that are listed in the fine print. For example, a “free” checking account may only be free if account holders maintain a minimum balance of $1,000 or more. Should that balance dip below the predetermined minimum, account holders are then subject to costly fees. Overdraft fees, in which account holders are charged a substantial fee if they do not have enough money in their accounts to cover their pur-
chases, are another potentially costly problem for men and women who are not accustomed to monitoring their balances closely. Before opening an account, learn if there are any fees associated with it, and what’s the best way to avoid paying those fees, such as using only
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ATMs affiliated with your bank or purchasing overdraft protection that covers you in the case of an overdraft. Choosing a bank is an important decision, and identifying your needs is a great way to make the best decision possible. MM14C732
Is bankruptcy the best option for you? The decision to file for bankruptcy is never easy. A last resort for people struggling financially, bankruptcy is an option for certain people who are unable to pay their outstanding debts. The decision of whether or not to file for bankruptcy is more complicated than some people may know. Bankruptcy won’t wipe your financial slate clean, and it can have a lasting impact on your credit rating that can make it difficult to get back on your financial feet down the road. So before filing for bankruptcy, it’s best that men and women consider the following factors so they make the most informed decision possible. • Eligibility: There are rules regarding eligibility to file for bankruptcy. Simply being in debt does not make a personal eligible to file for bankruptcy. Income is one of the factors that determines bankruptcy eligibility. People who have sufficient income to pay their debts often do not qualify for Chapter 7
bankruptcy, which is the type of bankruptcy wherein a trustee can cancel an individual’s debts. Past history is also considered when determining eligibility, as men and women
who have received a bankruptcy discharge in their recent past are typically ineligible to file again. • Financial outlook: The impact of filing for bankruptcy is anything but temporary. Bankruptcy stays on your credit report for years, which can make it difficult to rent a new apartment or secure a bank loan for a new home or automobile. Even if you are able to secure such loans, expect the interest rate to be significantly higher if you have a bankruptcy in your recent past. So before filing for bankruptcy, consider your financial outlook for the years ahead. For example, if you are on the cusp of graduating college or landing a more lucrative job, then you may want to be patient and persevere through your current financial struggles rather than make a decision that will have a negative impact on your finances for years to come. • Types of debt: Even if a judge discharges your debt, that does not necessarily mean you
won’t still have debts to pay. Bankruptcy only discharges unsecured debt, which includes credit card balances and medical bills. Secured debt, such as student loans and child support that is an arrears, must still be paid even after bankruptcy has been discharged. If secured debt is the albatross hanging over your head, then you will need to find another way aside from bankruptcy to solve your financial problems. • Guilt: Though it may sound silly to people buried in financial debt, some men and women who file for bankruptcy are ashamed when their bankruptcy is discharged. Guilt about not paying your bills is a very really thing, so don’t be quick to discount the emotional toll that filing for bankruptcy can take on you. Filing for bankruptcy can help men and women who are struggling financially get back on the right track. But bankruptcy is not the best solution for everyone. MM14C731