Weekend Tax Tips

Your federal tax return isn’t due until April 15th this year but it’s time to start thinking about gathering together all your tax forms and figuring out what you owe or how much your tax refund will be.  If you use TurboTax to file make sure to enter the contest for free turbo tax that ends tomorrow night!

A big thanks to the folks at Intuit who are providing the prize!  It came out of the interview I did with Bob Meighan from Intuit and the resulting posts about the TurboTax product:

Here are some other tax posts we’ve published over the last few weeks to help jog your memory about tax forms, deadlines, tax brackets, capital gains, and tax prep software:

Below are some tax articles from last year that are still relevant for you as you prepare your tax return this year:

We have more tax goodies lined up in the coming weeks; such as how to file your taxes online, how you might be able to file taxes for free, 2010 tax brackets, and some of the tax credits you’ll want to check out this year.

Posted on February 7th, 2010 in Taxes | Comments Off on Weekend Tax Tips

Written by Ben Edwards · Filed Under Taxes 

Do Kids Inherit Frugality?

Our son has been making me proud lately with his unexpected frugal remarks.  The first one came as he browsed the toy aisle in a CVS pharmacy while we waited for a prescription to be filled.  As he played with the trucks he said:

“we won’t get these… they’re too expensive”

Then the next night when I went to take out the garbage I left the door open a crack.  He jumped up from across the room and yelled:

“Dad, close the door you’re letting out all the warm air”

Just last night he was running around the house turning off the lights.  He told me:

“we don’t leave the lights on, they might burn out”

Understanding Scarcity?

Of course, I’m sure he’s heard me say similar things before but I think it’s cool he’s making the connection between the frugal action and the reason behind it.  He knows the reason that we don’t buy randomly buy toys in the store is because they’re too expensive (or a rip-off as I sometimes say). 

He doesn’t really know what expensive means but he knows it’s a good reason NOT to do something.  He doesn’t understand that it costs money to create warm air in the winter or electricity for lights; but he does know that you don’t want to waste the air or the light bulbs.

I can tell he doesn’t get the overall concept of conserving your resources because of little things; like tonight he used 8 sheets of toilet paper to dry up a little spot on the floor.  He also likes to flush the toilet multiple times just so he can watch the water go down.  So far he’s only picked up on specific behaviors, not the idea as a whole.

Frugality Genes

So all this seems behavioral, stuff he’s learned from watching and listening to my wife and I. We learned it from our parents, and they learned those behaviors from theirs. What I wonder is whether any of these tendencies are inherited rather than learned.  Are there genetic characteristics that lend themselves to conserving what you have and not wasting your resources?

I doubt there is a “frugality gene” but what about the cavemen that were hunting and gathering ages ago?  Were there some families that were a little more lavish with their food and belongings or were they all “frugal” with their resources?  We often think of survival of the fittest as the strongest and fastest but maybe it was also the most frugal?  Did the family that could make the woolly mammoth meat last an extra few weeks survive while the others perished?

Maybe nature was too harsh at that point in our history and every person knew to conserve as much as possible or die.  However, as society evolved I can’t help but think frugal tendencies emerged as commerce started to develop.

The Cheap Inherit the Earth

I know there’s a Biblical passage something along the lines of the meek shall inherit the Earth.  Well maybe for the time being it will be the cheap who inherit the Earth. When the foolish spenders fall into foreclosure and bankruptcy and the stock market plunges, those with frugal genes can tap into their long accumulated rainy day funds and buy stock and property at a big discount.  Maybe as they’re bargain shopping they should be thanking their ancestors for passing on frugal genes?

What do you think?

Posted on February 5th, 2010 in Frugality, Personal Finance | 13 Comments

Written by Ben Edwards · Filed Under Frugality, Personal Finance 

Turbo Tax Free Trial!

A free trial of Turbo Tax?  If you visit the TurboTax site you’ll notice buttons that say “Start for Free”.  You can actually do more than start, you can complete your whole tax return for free without even creating an account with any version of TurboTax online.

You don’t have to pay until you e-file or print out your return.  I think it’s a good idea, people can see if they like the tax prep software and see how their tax return looks before they decide whether they want to buy it.  Since it’s using TurboTax online they don’t have to pay to ship you a CD so it doesn’t cost them much to let you try it out and see how you like it.

Try before you buy works to the consumers advantage with most everything else so why not tax software?  What I like is that Intuit doesn’t require you to enter a credit card number or even an email address to start working on your return.  You just click the “Try It First” button an you’re off and running on your tax return.

Of course, you might not even have to pay for filing if you can win the free turbo tax contest that’s running on Money Smart Life right now!  In case you missed it, I’m giving away three coupon codes for TurboTax Premier online edition.  Visit the turbo tax contest page to see how you can enter.

There are several other places you can go win access to TurboTax, check out the sites below for more chances to win a free tax filing this year.

  • Clever Dude
  • Moolanomy
  • Bible Money Matters
  • MapGirl
  • Free From Broke
  • Budgets Are Sexy
  • My Next Buck

  • Good luck!

    Posted on February 4th, 2010 in Taxes | 6 Comments

    Written by Ben Edwards · Filed Under Taxes 

    High Deductible Health Insurance Plans Not for Everyone

    High deductible health insurance plans have lower premiums, much higher deductibles, and are often tied into a Health Savings Account where you can accumulate money pre-tax year after year; as long as you don’t spend it all on health care costs.

    Of course if you have very high medical costs and/or don’t put much money into a Health Savings Account then a high deductible health plan may not work in your favor.  A recent letter from our doctor’s office is a good example of this, stating that 25% of their patients using high deductible health insurance plans can’t/don’t pay their medical bills.

    Dear Patient:

    Over the last five years, many of our patients have changed their health insurance coverage to a high deductible health plan.  It may be a Preferred Provider Organization or a Health Savings Account.  Many of these plans no longer have a copay with an office visit. They either have a co-insurance of 20% of the cost or 100% of the cost of the office visit goes to the deductible until it is met.

    Twenty-five per cent of our patients who have these plans are not able to pay for their services after the insurance processes the claim.  Because of this, our medical group has changed the financial policy regarding the care of patients with high deductible health plans.

    At the time of service, if you have a high deductible health plan, you will be asked to pre-authorize payment on a credit card for the services you receive that day.  It will be a one-time charge to your credit card for those services only.   After the claim is processed by the insurance company and you are notified of the amount of payment, you will be given ten days notice to make other arrangements to pay your balance.  If we do not hear from you after 10 days, we will charge your credit card for the service.  We will destroy credit card information after the payment transaction is complete.

    High deductible insurance plans may sound good during Open Enrollment when you’re eyeing the reductions in monthly premiums compared to regular insurance plans but they can be rather unpleasant when you have a several thousand dollar medical bill you have to pay because you haven’t met your high deductible yet.

    If you save hundreds a month on insurance premiums with a high deductible insurance plan but end up having to pay interest on hundreds or thousands of dollars of medical costs you charge on credit cards then this type of plan doesn’t really make sense for you.

    We’ve never been on a high deductible health plan, partly because my new employer doesn’t offer one and also because our kids delivery & care costs over the last 4 years would have eaten through any savings in premiums we would have realized.  Because I’ve never used one I don’t know how much education is offered to people signing up for a high deductible health plan but I hope that people are being informed of and considering the potential financial liabilities that come along with the plan.

    Posted on February 2nd, 2010 in Health, Insurance | 10 Comments

    Written by Ben Edwards · Filed Under Health, Insurance 

    New Roth IRA Rules

    The Roth IRA was introduced as a retirement investment option back in 2007. The New Year, 2010, has brought changes to the Roth IRA rules that are making this retirement investment vehicle better for some investors than ever before. In order to fully understand how a Roth IRA can be more beneficial than a traditional IRA you first have to understand the logistics of each retirement account option.

    Traditional IRAs

    Traditional IRAs allow account holders to deposit up to $6,000 per year if you’re over 50 years old and up to $5,000 per year for those younger than 50. Whether or not the contributions you make to a traditional IRA are tax deductible depends on the amount of your income and if you have another retirement account such as a 401(k) through an employer.

    If you withdraw money from a traditional IRA account before you turn 59½ you are typically charged a 10% early withdrawal fee. Otherwise, you can begin taking distributions from the account when you turn 70½ and pay income tax on the amount of the withdrawal at your current tax rate.

    The good news for retirement account holders that are 70 or older is the federal government is offering a temporary reprieve. Minimum distributions from tax-deferred retirement accounts (IRAs, employer sponsored retirement plans, inherited IRAs and inherited Roth IRAs) are not required this year, which helps to offset some of the major losses these accounts saw because of the floundering economy.

    Roth IRAs

    A Roth IRA works a little differently than a traditional IRA. The first difference is that you pay income taxes at your current income tax rate when you make your contributions to the account. The other difference is that you are not taxed again when you make your withdrawals. You are also not required to start making your withdrawals at the age of 70½ as you are with a traditional IRA. If you make early withdrawals, as long as you are at least 59½, you do not pay a tax penalty for early withdrawals.

    The downside of a Roth IRA was that if you have a 401(k) or IRA Rollover and your annual income exceeds $100,000 per year, then you are not eligible for a Roth IRA.

    As of January 1st 2010 this changes. Households converting an existing traditional IRA to a Roth IRA account can do so because there is no longer an income restriction. The minor setback of the conversion is that you pay income taxes on the amount of money you convert at your current income tax rate.

    Roth IRA conversions that take place in 2010 allows you to deduct half of the income when you file your 2011 tax returns and the other half of the income when you file your 2012 tax returns.

    Questions to Answer to See if a Roth IRA is Right for You

    • Will my tax rate change in the future? If you expect your tax rate to decrease then paying to convert to a Roth IRA may not make sense when you can pay less money on your income later in life. This is especially true as you near retirement and withdrawal age.

    On the other hand, if you have significant assets, it may be worth paying for the conversion because financial experts predict tax rates will increase in the future.

    • Do I have the money to pay for the tax conversion? If you do not have the cash to pay for the Roth conversion, then it doesn’t make sense to do so. If you have to use the money in your retirement account to pay for the conversion, you will be penalized the 10% early withdrawal fee and lose the tax-free growth status on the money in the account.

    You can convert a portion of the money into a Roth IRA, which should be the portion you can afford to pay the taxes on, and convert the rest into a Roth IRA in the future when you can afford to pay the taxes on this amount.

    According to the results of a recent survey conducted by USAA, only nine percent of those surveyed with household incomes of more than $100,000 and 27 percent of all those surveyed (who own an IRA) plan on turning their tax-deferred savings into tax-free retirement income. This means for the most part that the new Roth conversion rules may go to waste for investors that would benefit most.

    Posted on February 1st, 2010 in Investing, Retirement | 5 Comments

    Written by Kristie · Filed Under Investing, Retirement 

    9 Mistakes People Make with their IRA

    People make a lot of mistakes when it comes to IRA and 401(k)-related decisions. And I can’t blame them. The tax code is obscenely complex. That said, there’s no need for you to make these mistakes.

    1. Converting to a Roth when it makes no sense Just because you can convert your traditional IRA to a Roth IRA doesn’t necessarily mean you should do it. Generally speaking, if you expect your tax bracket in retirement to be lower than your current tax bracket, converting isn’t a good idea.

    2. Thinking tax rates won’t change between now and 2040 Of course, if you won’t be retiring any time in the next few decades, it’s nothing short of impossible to say what your retirement tax bracket will be. Tax brackets change as a function of both economic and political circumstances. Since we cannot easily predict what tax rates will look like 20 or 30 years in the future, it may be a good idea to tax diversify. That is, put some of your retirement savings in tax-free accounts (like a Roth IRA) and some in tax-deferred accounts (like a 401(k) or traditional IRA).

    3. Not understanding how a Roth IRA works Sometimes, people neglect to make an IRA contribution because they don’t want to tie up the money until they’re 59½. What many investors don’t know is that contributions to a Roth IRA can be withdrawn at any time–free from tax and free from penalty. It’s only for distributions of earnings (and amounts converted from a tax-deferred account) that the various Roth IRA withdrawal rules have to be met.

    4. Missing out on the Retirement Savings Contribution Credit It doesn’t get much press, but the Retirement Savings Contribution Credit can be a real boon for middle-class investors. In short, if your Adjusted Gross Income is below a certain level ($55,500 for married couples in 2009), you may qualify for a tax credit equal to a percentage of contributions you made to a retirement account. Tip: Investors who are just barely ineligible for the credit may be able to contribute to a traditional IRA, thereby reducing their income to the point where they’d qualify.

    5. Funding your IRA just before the deadline every year You have until April 15, 2011 to make your 2010 IRA contribution. Of course, if you make your contribution as early as possible rather than as late as possible, you give your money more time to grow. Giving each of your contributions an extra 15.5 months of growth can make a startlingly large difference in your account balance when you finally retire.

    6. Missing out on your catch-up contribution Once you reach age 50, you’re allowed to make an additional “catch-up contribution” to your IRA. It’s all too easy to forget about this for the first year or two that you’re eligible–especially if you make your IRA contributions via automatic monthly deposits.

    7. Thinking you can’t contribute because only your spouse is employed Many one-income families think that they can only contribute to an IRA for the working spouse. That’s not true. In most cases, as long as one spouse is working and earns more than double the current IRA contribution limit, each spouse can contribute to an IRA. (Note: Reductions in contribution limits for high-income taxpayers still apply.)

    8. Forgetting to take advantage of your self-employment income Between the popularity of blogging and other online businesses, it seems like everybody has a “side hustle” these days. What many people overlook is that their self-employment income qualifies them for additional types of retirement accounts. By opening a SEP IRA, SIMPLE IRA, or solo 401(k), you may be able to significantly increase the maximum amount you can contribute to retirement accounts this year.

    9. Having your previous significant other listed as your IRA beneficiary No explanation needed–though you’d be surprised how often this happens.

    What mistakes have you made (or avoided)? It’s always good to learn from mistakes. Especially when they’re somebody else’s. Have you made any IRA or 401(k) mistakes that you’d be kind enough to warn the rest of us about?

    About the Author: Mike Piper is the author of Investing Made Simple. He also blogs at The Oblivious Investor.

    Posted on January 29th, 2010 in Investing, Retirement | 13 Comments

    Written by Ben Edwards · Filed Under Investing, Retirement 

    The Cost of Sick Kids

    Our family has spent most of the last two weeks with some form of head cold or stomach bug.  It all seems to start at daycare when our son gets sneezed on by another kid or our baby girl chews on a toy after a sick baby.

    One of them brings home the germs and before you know it we have two sick kids.  We’ve been through winters with a sick kid before but in the past it was just our son.  Now that we have two kids, the sickness usually hits both of them.  This of course means the germs stick around our house even longer, making it more likely that my wife or I get sick as well.

    The Costs of Sick Kids

    Sick Day / Vacation Day

    My wife doesn’t work every day of the week but it seems like every time our kids get sick its on some of the days that she works.  Of course this means that I usually have to use a sick day or vacation day so I can stay home since they can’t go to daycare with a cold, fever, or upset stomach.

    What this means is that if you have or will be having little kids, you want to save up your vacation and sick days because it’s easy to burn through them during flu season.

    Lost Daycare Money

    Not every daycare works the same but many will charge you for a certain number of days a week even if your kid is sick some of those days and doesn’t come in.  I understand the reason our baby sitter does this, she depends on the income to pay her bills so she writes this rule into her contract to make sure she know how much money she’ll make each year. 

    If you’re paid hourly, like my wife, when you stay home with sick kids you’re not only missing out on income but you’re also paying daycare costs that you’re not covering with earnings.  Typically the cost of daycare is offset by the money we earn at work

    Doctors Bills

    I’ve probably been in the doctors office with my kids more in the last year than I was the previous 20 years of my life.  Of course they weren’t sick all of those times but the bottom line is that little kids = many doctors visits.

    Each time we go to the doctor there’s a co-pay and until we’ve met our deductible for each kid there’s also coinsurance to pay as well.

    Medicine Costs

    Our latest prescription from the doctor only cost around $10 for some amoxicillin for our son’s double ear infection but sometimes it can be much more expensive.  I don’t what the medicine is called but when my kids catch a certain kind of contagious eye infection the tiny little bottle of drops runs $50 a pop.

    The doctors visits and medicine costs makes me glad we fund our flexible spending account so at least all the money we spend is pre-tax.

    Sick Parents

    As I mentioned above, it seems that if one kid gets sick then the other one will as well.  This means the germs are hanging out in your house even longer which makes it more likely that one or both of the parents will get sick as well.  Of course this means more sick days, more medicine, and maybe even more doctors visits.

    So what can we do?  We did get flu shots for both kids. We try and keep their fingers out of their mouths and keep their hands washed when we’re around them. However, there’s not much we can do to prevent them catching something at daycare.  There’s no doubt about it, kids are expensive!  Maybe we can get the government to consider increasing the child tax credit 🙂

    Posted on January 28th, 2010 in Personal Finance | 6 Comments

    Written by Ben Edwards · Filed Under Personal Finance 

    Mike Piper at ObliviousInvestor.com

    Mike is a twenty-something guy who writes about investing over at Oblivious Investor.  Oblivious Investor is the term he uses to describe people who block out all the noise surrounding investing and focus on the things which are important. It’s Mike’s belief that most of what the media tells people about investing is irrelevant. I think he has some valid points, it’s easy to get caught up in the latest news and make emotional investing decisions rather than ones based on logic and fundamental analysis.

    The thing I like about the Oblivious Investor site is that it’s like an all you can eat investing site.  Since the end of 2008 he’s focused pretty much solely on investing topics and offers regular analysis and perspective in areas such as 401ks, mutual funds, IRAs, index funds, and ETFs.  You can follow him on Twitter and subscribe to his site here for his investing updates.

    About Mike Piper

    Mike worked for a year as a financial advisor right out of college and now focuses on providing investing information through the Oblivious Investor. Mike has also published two books on investing, Investing Made Simple: Investing in Index Funds Explained in 100 Pages or Less and  Oblivious Investing: Building Wealth by Ignoring the Noise.

    Some of Mike’s recent posts:

    Other posts from around the personal finance web:

    Credit Cards

    Budgeting & Frugality

    Taxes


    Insurance

    Reviews

    Posted on January 26th, 2010 in Personal Finance | 1 Comment

    Written by Ben Edwards · Filed Under Personal Finance 

    TurboTax Online Edition

    Did you know TurboTax online editions offer the same functionality that the desktop versions of the tax software provide?  I wasn’t aware of this until my recent chat with Bob Meighan, chief customer advocate for Turbo Tax. 

    Last time I covered our conversation on the benefits of tax preparation software, who TurboTax is for and who it isn’t, and when people file their taxes.  This final section looks at what Bob and I discussed regarding new developments in TurboTax this year and information about TurboTax online.

    What’s new in TurboTax this year?

    A major focus of the team at TurboTax is making the software and the process of preparing your taxes as easy as possible.  The easier the software is to use, the more likely you and I will be to go through all the steps and enter in all our information without error.

    TurboTax made several additions this year to make it simpler to use. The first example Bob gave was adding progress icons throughout the program to let people know where they are in the process and help them navigate around.  They also added the ability to bookmark a certain question so that you can come back to it later.

    One other thing TurboTax is doing this year is giving people the ability to buy US savings bonds with their refund.  Intuit doesn’t make any commissions on the savings bonds; it’s just an effort to help people save more money.  With an average refund of $2,750 last year some people could benefit from saving a portion of that refund.

    How do updates work during tax season?

    If you’re using a desktop based version of TurboTax and you do your taxes at the end of January, what happens when tax rules change before April 16th?  As I mentioned in the first round of questions for Bob, the TurboTax team is constantly updating the software throughout tax season.

    Every time you open up the desktop version TurboTax prompts you to check for updates.  In addition right before you file, the program checks for updates to make sure you have the most recent rules before printing out your return or e-filing.  Of course, if you use the online version you don’t have to worry about updating your desktop software.

    How can you get a TurboTax online free trial?

    When I was preparing for my Q&A with Bob I was looking over the TurboTax main page and noticed that each version of the software said that you could start your return for free and not pay until you were satisfied.

    I asked Bob what this was all about and he explained that you can start filing your taxes online for free with any of the versions of TurboTax.   You can actually do your whole return for no charge without even creating an account.  You don’t have to pay until you go to e-file or print out your return; so if you don’t like the way your return came out you can decide not to use TurboTax without being out a single cent.

    What’s different between TurboTax online and the desktop software?

    The online desktop versions of TurboTax are pretty much the same; the one difference is that online version doesn’t allow you to view/edit the actual tax forms.  If you’ve never used TurboTax before, it basically does an “interview” where it asks you questions and then uses your answers to populate all the data on your tax forms.  In the desktop version you can open up the underlying tax forms, like your 1040, and edit them outside the interview process.

    About 90% of people follow the interview format when using TurboTax.  The other 10% might not want to use the online versions because right now they don’t allow you to open and edit the underlying tax forms.

    Bob explained that this is because the tax forms can be big files and customers with slow internet connection speeds wouldn’t have the best experience trying open these file.  He did think that as connections continue to get faster that they might add the underlying tax forms to the online edition in the future.

    TurboTax Online Questions

    Here are a few short answer questions I had for Bob about the online versions:

    – If you’re in the middle of doing taxes and need a higher version, can you upgrade to the next one online?  Yes

    – How many people use the online edition of TurboTax? Around 60% (About 12 million people)

    – Can you upload your file from desktop version into the online version? Yes

    – Can you download your file from the online version for local backup? Yes. Note that Intuit saves it as well.

    – Can you print your return from the online edition for your own copy? Yes

    – How many people that use TurboTax online will e-file? About 95%

    I hope this interview with Bob gave you some insight into the world of tax preparation software and answered any questions you have about the TurboTax product.

    Posted on January 25th, 2010 in Taxes | 8 Comments

    Written by Ben Edwards · Filed Under Taxes 

    TurboTax Software vs Manual Income Tax Returns

    TurboTax vice president, Bob Meighan is back again today to talk about the benefits of tax preparation, who TurboTax is and isn’t for, and when people tend to do their income tax return. In the first segment we covered Bob’s role as consumer advocate for TurboTax and what types of tax questions are troubling customers this year. As I mentioned before, I’ll be paraphrasing Bob’s answers since we covered a lot and I couldn’t scribble it all down verbatim.

    Is tax preparation software for everyone? My sister doesn’t have a complicated financial situation and does her taxes by hand. Is there any reason she should use software?

    Bob’s initial response to my question was to share an IRS statistic; tax forms that are prepared with software and filed electronically are 20 times more accurate then manually prepared tax returns.

    One benefit of using a program, whether it’s online tax software or desktop software, is that your information is saved from year to year. Since you don’t have to manually enter your data it cuts down on the chances of errors, plus it saves time as well.

    Of course one obvious downside to using tax prep software is that you have to pay for it. However Bob raised the point that people with a simple federal income tax scenario can actually complete and file their taxes for free online, with tools like the TurboTax Free Edition Online.

    The last benefit he mentioned is for people who are getting a tax refund. If you’re getting money back and you file electronically and use direct deposit you can get your refund within 10 days, compared to 4-6 weeks when manually filing. I asked Bob if more people use direct deposit or opt for a paper check and he said that more customers go with direct deposit not only so they can get their money back faster, but also because it’s more convenient.

    Do customers outgrow TurboTax?

    Bob didn’t say that customers outgrow it but he did say that people with extremely complex financial situations who hire CPAs to prepare their taxes aren’t the people that Intuit aims to help with TurboTax.

    He did say that they have customers who are currently paying someone to do their taxes who decide to try out TurboTax to see if it meets their federal income tax filing needs. Some of these first time customers are currently using an accountant and others use services like H&R Block or Jackson Hewitt.

    Often time they’ll take the completed TurboTax tax return to their accountant to double check and make sure nothing was overlooked. Then after that first year they remain customers and continue to use tax prep software in the future.

    When do most people file their taxes?

    Bob has seen some people file at the very beginning of January. Typically these early birds are getting a refund and are anxious to get their hands on the money.

    The first big wave of people filing their taxes is at the end of January and beginning of February when W-2’s arrive in the mailbox. Then things slow down a little until the middle of April. From April 13 – 15 everyone that’s been putting off their taxes realizes the deadline is near and rushes out to file their taxes.

    For the last section of the Q&A series with Bob we’ll talk about what’s new in TurboTax and take a look at the TurboTax online edition.

    Posted on January 22nd, 2010 in Taxes | 8 Comments

    Written by Ben Edwards · Filed Under Taxes 


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