Friday, January 30, 2015

Refund Expectation Management: 3 Reasons Your Refund Might Not Be As Big As You're Expecting



Everyone tells you not to plan on having a tax refund. If you're living paycheck-to-paycheck, though, you know where every dollar is going. You might be counting on that money to give you the breathing space you need.

Even if you're a little further ahead than that, you may still have made plans for your tax refund. You might be planning to pay off a credit card from the holidays or hoping to put a down payment on a car. You might just be hoping to take a little vacation over spring break!

Whatever your plans for the money, it's a good idea to temper your expectations. Unfortunately, you can't count on the same tax refund you got last year. Here's why.

1.) Student loan garnishments

If you're behind on your student loans, you might not see much of your refund. If you don't have much of an income, it's easy to get behind and it's hard to catch up. One of the reasons lenders love these loans is that they're very difficult to get rid of. If you're in default or declare bankruptcy, those lenders are still trying to get their money.

Student loan companies know that, for people with minimal income, tax refunds are a source of a big chunk of money. Also, since it's not a regular source of income, the rules regarding garnishment are more lenient. Ordinarily, creditors are only allowed to take 15% of your discretionary income if you have one loan, or 25% if you have multiple loans. For a tax refund, the Department of Education can instruct the IRS to apply the full amount of any tax refund you're due to the balance of your loan.

Even if you're paid off in full, it might be wise to check with your spouse. This process can also apply to your refund for his or her defaulted student loans. As far as the IRS is concerned, you're one taxpayer with one set of obligations.

This process can apply to federal student loans, federally subsidized loans and some private loans. You'll receive a notice of proposed offset from the IRS. You have 65 days from receipt of the notice to object to the offset. Deferments can be provided for up to 3 years for economic hardship and unemployment. They may be provided indefinitely for individuals seeking an advanced degree or for people with disabilities.

It's also possible the "loan" may just be a paperwork error. If you've unenrolled from classes but haven't yet received a repayment from the school, for instance, you might get your refund back with a short letter. The notice of referral will provide you instructions to request a review.

2.) You made more money

Usually, getting a raise is something to celebrate. If you got one this year, that's good news for your career future. It's less good news for your refund.

The refund is the difference between what you paid in taxes and what you ended up owing. Your taxes are withheld from your paychecks assuming they stay the same all year. If you got a raise in June, then you were effectively under-withholding for the first half of the year.

Beyond the difference in payment, you may find your raise puts you just above the threshold for credit programs. Credits like the Earned Income Tax Credit (EITC) have income eligibility requirements. If you made more money this year than you did last year, you may not qualify. The same is true for subsidized insurance premiums through the Affordable Care Act (Obamacare). If your income changed after you obtained coverage, you may have to hand back a part of that subsidy.

The EITC is fairly significant, particularly if you have kids. It may be worth your time to look for other deductions you can take to get your gross income under the threshold. Consider working with a professional tax preparer, too.

3.) You were the victim of identity theft

The past few years have seen an increase in tax returns filed fraudulently on behalf of victims of identity theft. A crook uses your Social Security number and fabricates financial information to get a hefty tax refund, then cashes the check. You're not only out your tax refund, but also may be facing criminal charges for the phony info on "your" return.

With cuts to the IRS budget this year, its enforcement and investigation of these crimes has dropped. You should contact the IRS immediately if you receive notice that more than one tax return was filed using your Social Security number or if you are issued a W-2 (an income statement report from your employer) by an employer you don't recognize. These are red flags that someone is fraudulently using your identity.

The FTC recommends you contact the IRS's Specialized Protection Unit at 1-800-908-4490.  You should also prepare proof of your identity, like a copy of your drivers' license, Social Security card, or passport. The IRS has a form, IRS ID Theft Affidavit Form 14039, that will start the investigative process. Recovering from this crime will take time, but you will get the refund you're due.

If you plan to do your own taxes, TurboTax is an option that can guide you through the process more easily.  The good news is that Destinations Credit Union members can get a discount on TurboTax!

SOURCES:

Tuesday, January 27, 2015

The 4 Hidden Dangers Of Membership Club Shopping

If you're feeding an army or just a hungry family, you've probably been considering the benefits of membership in a shopping club like Sam's Club, Costco or BJ's Wholesale. On the surface, the membership decision seems like a very simple calculus. You take your projected savings from buying in bulk and subtract from that the cost of a yearly membership ($45 for Sam's Club, $50 for BJ's, and $55 for Costco). If that works out to be positive number, you should sign up.

This simple math, though, overlooks some of the more serious hidden dangers in signing up for a club membership. The availability of bulk goods can encourage different spending habits that may not be in your financial best interest. Before you sign up, remember these hidden costs.

1.) The extra cost of impulses

One of the most tempting Costco items is a drum-sized container of peanut-butter pretzel bites. In most stores, this might be an impulse item. It would be the kind of snack you'd pick up because you're a little hungry or because you might have company later in the week. At ordinary snack food quantities, this indulgence will cost you a dollar or so. Because you're buying in bulk, though, this splurge could easily run you $5. It's a savings if it's something you need, but for extra items, it's just extra cost. Add up those extra costs over a whole shopping trip and ordinary impulse buys could eat a significant part of your grocery bill.

If you're not used to shopping with a list, the extra costs involved in ordinary impulse spending can add up quickly. More than in other stores, you need to make a list and be a diligent, informed shopper before you set foot in a wholesale store. Do your research, make a plan and stick to it.

2.) The extra cost of cheap goods

Most people wouldn't buy a big-screen TV on impulse. Something changes in the brain, though, when one appears on an end cap for a bit cheaper than they are at a conventional retailer. After an entire shopping trip of saying no, the willpower gives up and the credit card comes out. Suddenly, there's a TV in the car.

The wholesale club model is to get people in the door with savings on everyday goods, wear down their resolve with an incredible array of goods, and finally hit them with high-margin goods like clothes or electronics. It works surprisingly well, even on smaller-ticket items like giant candy bars and holiday decorations. It's a technique psychologists call "confuse and reframe." It works quite simply.

The confuse part of the operation is the volume and price of goods. Most people have no idea how to adequately value a 20-pound jar of mayonnaise or a pack of 35 frozen steaks. Nor do most people have easy ways to categorize the thousands of products available at these stores. The brain's natural response to this confusion is to look for shortcuts and the store provides them: price tags offer comparisons to other brands, shops, and products, showing the considerable savings available if the shopper buys now. That's the reframe part of the operation. Having convinced the shopper that the appropriate frame is amount saved, that becomes the decision-making procedure.

It's easy to say that those tactics won't work on you, but studies say differently. These companies have spent lots of money designing a retail experience that gets you to spend big. They wouldn't keep doing it if it didn't work.

3.) The cost of missed sales

It can be easy to see an item advertised in one of these stores and assume it's the best price you will ever find for the item. It's frustrating, then, to go back the next week and see the product on sale for $25 cheaper. Yet this is very common, particularly with seasonal goods that need to be sold by a certain date.

In many cases, these stores will be happy to honor the sale price and refund the difference -- but only if you ask for it. Because all transactions are linked to a membership card, it's far easier for the store to see that you purchased an item and issue a refund. They're counting on the bulk effect to create less frequent trips so customers won't see these new sale prices. Shopping at a conventional retailer means more chances to price-check goods.

4.) The cost of waste

If you're trying to encourage your family to try new things, you know there are going to be some foods they just don't like. If you're shopping at a conventional retailer, you might waste a half-pound of asparagus when it turns out your youngest just can't stand it. If you tried that same experiment while buying from a wholesale store, though, you might end up throwing out several pounds of fresh produce.

Even when buying tried and tested staples, beware the perishable item. If you're buying something that can spoil in bulk, you're taking the risk that you'll have something to do with it before it goes bad. You can minimize this risk by having a plan in place to deal with the surplus. This plan can be as simple as putting it in the freezer or sharing excess with neighbors, friends, and family members.

You can also focus your stock-up efforts on non-perishable goods. Buying things like medications, spices and paper goods in bulk can let you take advantage of the economy of scale without worrying about spoilage. Many of these goods also offer the deepest discounts.

Wholesale stores offer the chance for incredible value, but they also invite some risk. Whether membership is worth it to you or not depends on the kind of shopper you are. If you're a diligent planner and a seasoned researcher, you can save a lot on things you need. If you tend to make impulse buys, then let the buyer beware.

SOURCES:

http://finance.yahoo.com/news/6-rules-shopping-warehouse-stores-152550021.html

Monday, January 19, 2015

Buyer Beware: 4 Tips For Shopping At Going-Out-Of-Business Sales



It seems the mighty have fallen. Big-name retailers like Sears and Kmart are closing doors around the country, and niche shops like Delia's are shutting down entirely. That means the newspapers will soon be littered with "going-out-of-business" ads. New products are going to be available at deep discounts!



The prime season for going-out-of-business sales is coming up. Struggling retailers will try to keep themselves afloat through the holiday season. Come January, they'll be facing down a new set of bills without a major spending season until at least April. That'll be the time they start shutting their doors and liquidating their merchandise.



It may seem like these sales represent a golden opportunity. Retailers have bills to pay and are desperate for cash. Meanwhile, consumers can buy stuff they need at a serious savings!



But it's not that simple. The owner of a store that's shutting its doors is still going to be responsible for the bills they owe. They're trying to minimize their losses by selling goods as fast as possible. They're also not counting on a lot of repeat customers, so they have little incentive to be truthful or honest. Watch out for the following tricks:



1.) 'As-is' merchandise



One of the first things most retailers do when they begin a liquidation sale is change their return policy. They're trying to get inventory out the door, and having it come back in prevents them from doing so. They won't take returns for any reason.



This little change can free them up to sell damaged, broken or otherwise defective merchandise at retail. Under ordinary circumstances, they'd never put the item on the shelf. Now, though, there's no reason to keep it in the back.



If you're buying fragile goods, like electronics or dinnerware, ask if you can open the box to make sure everything's there. If a store employee seems unwilling, think twice. You might be on the verge of buying a lemon.



Beyond damaged goods, retailers may attempt to do the same thing with mislabeled products. At clothing sales, stores may counting on impulse decisions to drive volume. Since the price is so steeply discounted, many people will be tempted to purchase without trying on first. This is a great way to end up with a dress that doesn't fit.



Also, don't count on a warranty. Manufacturers will try to direct you to your retailer to honor your warranty. They'll use this blame-shifting tactic to get out of paying for new merchandise. Expect the product you buy at a liquidation sale to receive no support.



2.) Discount gimmicks



There's so much money to be made from going-out-of-business sales that a new kind of company has emerged. So-called professional liquidators run these sales on behalf of companies. The first thing they'll do is mark up the prices of every item in the store by 20-30%.



Because of that, when you see "10% off everything in the store," you should really be reading "5% increase on everything in the store." The first weeks of a liquidation sale are an exercise in manipulative consumer psychology. The advertised discounts and the appearance of scarcity will drive consumer spending.



What keeps stores from running these kind of "mark-up/mark-down" sales all the time is reputation. When a store is going out of business, though, those concerns are the first thing out the door. "Everything must go" includes the brand and any integrity they've established with their customers.



While the discounts will come, they'll come much later in the sale. They'll also be on a much more limited selection of goods. Most of these firms increase their discounts weekly. By the second or third week of the sale, prices may be below retail.



3.) Buy now!



Liquidation sales rely on scarcity to create a sense of urgency. The limited time frame and small quantity of desirable goods can lead to impulsive decision-making. You can pay more for goods you don't really need if you're not careful.



Businesses may be desperate, but not quite in the way they're portrayed. They're desperate to make money now. The owners of these businesses have bills piling up and need cash. They're not afraid to make long-shot claims about the features or effectiveness of their products.



This sense of urgency is most palpable during the first week or so of the sale. This is when most firms plan to make the most of their money. Holding off will mean less selection, but it will also mean less pushiness from salespeople.



4.) How you pay matters



Obviously, if you have gift cards, use them or lose them. Competitors aren't going to honor those. Laws also provide little protection for gift card holders. Bankruptcy law treats them as creditors, meaning you'll have to fight for repayment with credit card companies and other lenders. In general, once the merchandise is gone, the card is worthless.



Paying cash for large-ticket items to a desperate business can also be a poor choice. If you're not leaving the store with your purchase, a cash deposit can leave you out of luck if they close before delivering your goods. You can sue, but the company doesn't have assets to pay your damages.



Your best bet is to pay with a credit or debit card. These instruments frequently have refund policies that exist independent of retailers. If the goods never show up, you can get your deposit back by calling your issuer. Leave as small a deposit as the retailer will allow to protect yourself as much as possible.



Shop liquidation sales like you shop everything else: cautiously. Consider your options and shop around to find the best prices and make sure you actually need something before you buy it. Liquidation sales can be a great way to score some savings, but be cautious on the way.



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Thursday, January 15, 2015

How To Choose A Tax Preparer (And Why You Might Need To)


After the confetti has been swept up on New Year's Day, another festival requiring reams and reams of paper begins. That's right, it's tax time. As you're gathering your pay stubs and receipts in preparation for your annual headache, it might be worth considering whether you need professional help this year. A few things have changed.
          
First, the IRS is losing funding. If you were counting on getting help with the forms from the IRS, you might be in for record wait times. The IRS budget has fallen by 10% in the last five years, while costs have increased. Staff reductions of around 8% have mostly affected customer service and fraud protection, while training budgets have been cut down to almost nothing. Even if you do get through, the person you're talking to will  be less likely to help you. One taxpayer watchdog group claims 47% of calls going to the IRS this year won't get answered. Those who do will have to wait an average of 34 minutes to talk to a human.
          
The IRS maintains a "priority" line for tax professionals, which is the first reason you should consider hiring one. While the wait times there will be just as long, it won't be you who has to do the waiting.
          
Second, this will be the first year the IRS has had to implement the tax credits and penalties of the Affordable Care Act. There will also be new rules for foreign taxpayers thanks to the Foreign Account Compliance Act. This will be the most complicated tax return many consumers have ever filed, according to Charles McCabe, president of Peoples Tax Income.
          
Third, the IRS will have less ability to enforce and investigate tax returns. This means you can be a little bolder in claiming a deduction or credit you might be entitled to, but it also means you need to streamline your return for easy processing. A tax professional will be able to help you accomplish both those goals.
          
The problem, though, is that tax returns have become an increasingly common target for fraud. Criminals file bogus returns on behalf of identity theft victims. Unscrupulous tax preparers may also file negligent returns designed to get big refunds deposited into their own accounts. This can leave you robbed of your return and facing serious IRS penalties.
          
When you choose a professional, you need to be sure you're getting someone who will keep your best interests at heart. You need to do your homework and only entrust your financial information to a certified professional.

Here are three steps to help you find one.
           
1.) Do it by the numbers
              
For the first time, the IRS doesn't have the authority to regulate tax preparers. In 2014, all professional preparers were required to obtain a PTIN (preparer tax identification number) which meant they were regulated. A recent federal court decision, though, ruled that the program overstepped the IRS's authority.
          
The IRS Return Preparer's Office came out with a compromise program. While preparers are no longer required to have PTINs, those who are serious about being transparent can complete a voluntary continuing education program to receive one. If you're going to sit down with someone and reveal all your financial secrets, make sure they've gone through the program.

2.) Get references

In the same way you'd ask your friends to refer you to a hair stylist or a contractor, you should ask around to see who uses a tax preparer. Hiring help with tax returns is done by 60% of Americans; so the odds are good you know someone who does. If all of your friends file their own taxes, consider asking the owner of a local business you frequent. Small business tax preparation is incredibly complicated, but a good preparer can save a small business owner good money. They may be willing to refer you to their preparer.
          
You can work backward, too. Before you sit down with a preparer, ask him or her for the names of happy clients. If you don't get any, think twice. Tax professionals work on the same reputation-based advertising that drives other service professionals. Someone who's not willing to talk about success stories may not have any.
           
3.) Go big
           
If all else fails, you can know you won't get ripped off going to a big corporate preparer. H&R Block and others like them have been around forever and they don't stay in business by robbing customers. Their size and stability can provide some safety.
          
That size, though, can also create problems for them. Their training programs are not as rigorous as the education that independent preparers usually have been through. They also tend not to retain employees for very long, leading to a lot of inexperienced preparers. Be sure you ask critical questions about the moves they're making.

4.) Self-Directed Tax Preparation

If you are fairly confident in your ability to produce the taxes on your own, you may find a self-directed program like TurboTax online to be of benefit. This online program asks easy to follow questions and guides you every step of the way.  You can even request the help of a professional to review it if you choose to do so.  Destinations Credit Union members can get a discount when using TurboTax online.

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