A Small Financial Victory

For the past year or so, I’ve been encouraging my girlfriend to participate in her employer’s 401(k) plan. I’m honestly quite jealous the plan they offer because it is managed by Vanguard and the employer match is fantastic. Much better than mine.

Well, I think the pestering finally paid off. She went to the 401(k) orientation meeting that Vanguard presents every few months at her workplace and decided to sign up. She finally realized that not contributing is like throwing away free money. Plus, she will realize great tax benefits next year too.

This makes me feel good. Not only for her, but for us. Our financial futures will be that much more secure.

Automotive Milestone & Crossroad

My 1992 Honda Accord has reached both a milestone and a crossroad. I purchased it in 2004 from a good friend for a very reasonable price. Before he owned it, it belonged to his grandmother, so I knew the car was very well maintained. Other than having more than my fair share of flat tires, my three years with the car have been relatively trouble free, at least in a maintenance and repair sense.

In March, the odometer hit 200,000 miles. It felt great to drive a car that has been so dependable. I assumed, perhaps naively, that I could squeeze another 50K or even 100K out of it.

About a week ago, I noticed the oil was really low so I decided I might as well change the oil and filters. I try to do the majority of the maintenance and upkeep myself to save a few bucks. (Plus, I am really tired of the shops constantly trying to upsell on stuff your car doesn’t need.) Following the oil change, it was brought to my attention that I had left oil spots up and down the street, wherever I drove. I tightened the plug and the oil filter (which was already covered in oil just a few minutes later) and saw that the dripping had ceased. All well and good I thought.

I thought wrong. when I got home later that night, I noticed a trail of oil leading all the way back to my parking spot. (In fact, my property manager was very quick to assess a $25 fine for it.) Naturally, I didn’t want to assume the worst, so I was thinking that I either had a leaky oil filter or oil pan. I took it to a garage across the street from my apartment to have it checked out.

That’s when I got the news that every car owner fears. It’s much worse than you think and the cost of repairs are going through the roof. The mechanic informs me that there are three major sources for the leak. The cost for repairs will be in excess of $500.

Normally, I’d just go ahead and pay for repairs. But there are a few factors that have left me incapable of making a decision, like a deer in the headlights. First, the car has 200K+ miles on it. It’s reasonable to think that even if I do pay for repairs, something else could go wrong immediately, the transmission for instance. Second, the car recently failed smog. I was in the process of doing a few inexpensive things to improve my chances for passing the retest when this occurred. But let’s say that in order to pass I’ll need hundreds of dollars more worth of repairs. At that point, I could make a decent down payment on another car for what I’ve paid in repairs. Third, there is a possibility that I could get a car for free but it is very iffy at best. My girlfriend’s mom may be moving out of the country and therefore wouldn’t need her car anymore. She is willing to give it to me if she goes. But this is a big “if.”

So for now, my car sits in limbo awaiting a decision. Should I bite the bullet and get it repaired? Should I try a sell it for a few hundred bucks to somebody who is willing to repair it? Or should I just donate it to one of those charities and get the write-off? Stay tuned.

Have a Cone on Ben & Jerry!

After you’re done standing in line at the post office, why not cool off at your local Ben & Jerry’s with a free scoop of ice cream?

And for those of you who filed early, what better way to reward your productivity and save all that money you got back in your refund?

The offer is good for today only, from 12 to 8pm. Just head on over to Ben & Jerry’s website and enter your zip code in to find local shops that participate in Free Cone Day!

No Need to Stress If You’re Entitled to a Refund

Five Cent Nickel brings up an excellent point that I’ve forgotten to mention in my previous posts.

If you qualify for a refund this year, you don’t have to file by today’s deadline. In fact, you have up to three years to file your return and still receive all that you’re entitled to.

Why you would want to wait so long for money you overpaid is beyond me. But the option is there.

So You Can’t Pay Your Taxes. Now What?

You’ve finally done your taxes. Then the cold reality hits you. It’s every taxpayer’s worst nightmare; a massive tax bill that you can’t afford to pay. What do you do now?

Don’t panic. You have options.

The most important thing to keep in mind is that ignoring your taxes won’t make them go away. Make sure to file that tax return on time, regardless of your ability to pay. The penalties for failing to file are far worse than failing to pay your taxes in full.

The IRS offers various installment plans: automatic debits from your bank account, payroll deductions, and regular installments by check or money order. To request approval for a payment plan, you must fill out Form 9465 or use the Online Payment Agreement page on the IRS website. If approved, the IRS charges a one time setup fee on top of the interest and penalties, $103 for regular installment plans and $52 for automatic debit. Also, if you decide to go with a payroll deduction, your employer must complete Form 2159. If you feel like you can’t even make payments at this time, call the IRS at (800) 829-1040. You may be able to arrange a deferment until your financial situation improves.

If you feel you are simply unable to pay your total tax bill and your situation won’t change in the immediate future, you may be eligible to file an Offer in Compromise. An OIC is an arrangement between the taxpayer and the IRS that reduces the amount owed. The IRS obviously considers this a last resort and will not easily approve such an offer until it is absolutely sure that you cannot pay the full tax liability. To apply for an Offer in Compromise, you must file Form 656. Within this form is a worksheet that will calculate the compromise amount. Along with the form, you must pay a percentage of the compromise amount as well as a $150 fee.

You will want to explore other options to pay your tax bill in full before making arrangements with the IRS. While they won’t haul you off to jail, they will slam you with some pretty harsh penalties. In any of the scenarios described above, you will owe interest on your balance, as well as monthly and quarterly penalties, even if you make your payments on time. You may even face a federal tax lien. If you can, borrow from family members, get a cash advance from your credit card or even take out a line of credit to pay your tax bill in full. In most situations, the fees and interest you pay will be much better than an arrangement with the IRS.

Getting Taxes Done

Anyone familiar with the phenomenon of Getting Things Done knows that you cannot “do your taxes.” Filing your taxes is a project that requires multiple steps and action items before it can be considered done. The lack of clarity when it comes to approaching the various steps leads to stress. This stress can cause people to avoid filing their taxes until the last minute, or worse yet, not file at all. Applying some of the methods from GTD during tax time can provide a clear path to getting them done and alleviate some of the anxiety associated with this annual process.

Begin by collecting all of your “stuff” related to taxes; any paperwork or information in your possession that is critical or helpful. Don’t concentrate on organizing this stuff yet. Just make sure you capture absolutely everything you have regarding your income taxes.

Once you’ve gathered all the paperwork you have, take a few moments to take mental stock, brainstorm or do some research to answer a few questions: Do you have all of your income statements? What IRS and state tax forms do you need? What is your filing status? What sort of deductions are you entitled to? Will you e-file or mail your return? Do you need any tax software? Should you hire a tax professional? Is there anything you need that is not physically represented in your pile of “stuff”? Answering these questions will likely lead to other questions that are more relevant to your situation. Being able to address these issue during the planning stage will save a lot of time and trouble later on during the process.

At this point, it will be helpful to process and organize your paperwork. Go through each item and determine whether it is actionable, such as a form that needs to be filled out or a statement that contains critical information, or if if serves as a reference, such as instructions on how to e-file. You don’t need a real elaborate organizational setup, just something that allows you to easily find the documents you need.

Now comes the real substantial part of doing your taxes; crunching the numbers and filling in the forms to determine your tax refund/liability. The steps you’ve taken to this point should greatly ease the process. Be sure to take your time. Rushing only leads to mistakes that can increase the likelihood of an audit. Review your numbers, make sure you enter your social security number correctly, and remember to sign and date your return. If possible, have a fresh set of eyes review your return to help catch any obvious errors.

By now you should know what your tax refund or liability is. If you are getting a refund, seriously consider using direct deposit. You will get your money in a matter of days and it means less work and hassle for you. If you owe money, make your check payable to the “United States Treasury” and include your social security number. If you cannot pay your tax bill, don’t panic. There are options. Just be sure to file your return and send whatever you can towards what you owe. I will cover this issue more in depth in an upcoming post.

E-filing is definitely the way to go when you submit your tax return. It is quick and hassle free. Plus it’s cheap, if not free. If you decide not to e-file, call the Post Office (800-ASK-USPS) or go to their website to find out the hours of the post offices in your area. Certain locations will be open until midnight on tax day for you “down to the wire” filers. Be sure to purchase certified mail and proof of delivery when sending your return, the added cost will be worth the peace of mind.

As of this post, you have roughly 30 hours to file your tax return. If you don’t feel like you have enough time, you can file for a one time six month extension using Form 4868. This form does not grant an extension to pay any taxes owed, so you must still send in payment for your estimated tax liability.

Good luck late filers! I hope this little slice of GTD helped or motivated you to file in time. May your calculators stay true and the wind be in your sails all the way to the post office.

Find The Sweet Spot, Adjust Your Withholdings

How do you feel about tax refunds? Some say it serves as a great forced savings plan that can give us a nice lump sum in the middle of year. Other decry it as an interest free loan to the treasury. Either way your slice it, it is important to review your payroll withholdings so that you achieve the desired results when tax time rolls around. This is especially true when we have major life changes, such as changing jobs, getting married, buying a home or having children.

The IRS provides this handy calculator that will help you determine the right amount of withholdings to reach your goals at tax time. Be sure to have your last paystub within reach as you’ll need to enter how much tax has been withheld year to date.

Remember, you can adjust your W-4 as many times as you like, so your withholdings can change along with your goals.

The End is Nigh…

Only seven more days to file your taxes. Are you ready?

Here are some online resources to help kickstart the process and avoid trouble with the IRS.

MSN Money has some fantastic guidelines for filing your taxes and finding those deductions you may not have known about. You’ll also find information on upcoming changes to the tax code as well as ways to reduce your tax liabilities; a little late for this year but keep them in mind as you prepare for your taxes next year.

Yahoo Finance is a great place to go for tax advice and has some detailed “how-to” guides that cover everything from withholding income to the finding a professional tax preparer that’s right for you. You’ll also find some neat and useful tax calculators.

Believe it or not, the AARP is a great place to turn to when it comes to taxes. Regardless of your age you can use the website to find a local IRS trained volunteer to provide one-on-one counseling and tax preparation assistance, free of charge. You don’t even need to be a member of the AARP to use this service.

1040.com is a very simple site where you can find any Federal and State tax form, all available for download as a PDF.

I’ve used FreeTaxUSA.com to prepare and file my taxes for the last few years. The website is easy to use and there is no software to download. You can probably have your tax forms prepared and filed in under 30 minutes. Their customer service is excellent too. It’s free to file your federal taxes in most states using this site and state taxes can be filed for as little as $9.95.

Finally, the official IRS website is incredibly useful, and unlike most government websites, it’s fairly easy to navigate. Right on the homepage you’ll find links to the most popular forms and a drop down menu that will help you find information on the most basic tax issues. You won’t find much in the way of tax advice on the site (other than to pay them, not evade them) but there are a wide range of tax related topics covered here that most people will find informative.

The Greatest Free Open Source Apps. Did I Mention They’re Free?!

What is Open Source Software?

Open Source Software is software whose source code is available to the public. The advantage over proprietary software is that anyone can copy, modify and redistribute the software without paying any licensing fees.

Why Open Source Software?

Open Source software leverages the power of community contributions and peer review to create fantastic applications that are equivalent, and often superior, to their proprietary alternatives. Best of all, they’re free!

Here are my five favorite open source apps.

5. KeePass: So many passwords, so little time. Keep them out of your head, and off your Post-It notes with KeePass. KeePass stores and encrypts all your passwords. It also has some neat features, like a timer you can set to remind you to change passwords at regular intervals, a random password generator, and in some cases, it can even launch the application/website and enter in your password automatically. There are multiple encryption options and you can even protect your KeePass database with multiple layers of security

4. Gimp: Forget about that leather clad freak in Pulp Fiction; Gimp is a great photo/image editing program. It retains much of the functionality of it’s pricey alternative, Photoshop. While it can be a little unwieldy for beginning users, there are many fantastic resources and tutorials on the web that will help users get the most out of this powerful program. You can even download Gimp Portable, a version optimized to run off a USB thumbdrive.

3. OpenOffice.org: OpenOffice has everything you would expect from a commercial office suite and then some. You can be confident when making the switch to OpenOffice because it is fully compatible with every Microsoft Office format. Plus it has a few features you won’t find in other suites, like the ability to export a document as a PDF or a presentation as a flash movie file.

2. VLC Media Player: Confused about codecs? Frustrated because that funny video your friend sent you won’t play on your computer? Well, those days are over because of VLC. This little program plays just about every audio and video format under the sun, even DVDs. It’s incredibly easy to use and it won’t bog down your system like other media players.

1. Mozilla Firefox: Firefox is the 800 pound gorilla of open source software. In the span of a few short years this web browser has gone from being an obscure project from those “Netscape guys” to a household name. Usability, stability, and security have been high priorities during the development of Firefox and it shows. It’s one of the most innovative software applications out there and it’s functionality grows on a daily basis with some fantastic user created addons.

Taking The Fringe Out of Fringe Banking

The payday loan industry has exploded in the last decade. According to a report by the Center for Responsible Lending, the industry now exceeds $28 billion a year. Of course, traditional brick and mortar banks are looking for a piece of that pie as well.

Wells Fargo offers a payday service called Direct Deposit Advance. They will ”advance” you up to $500 and upon your next direct deposit, they will deduct the principle plus the fee of $2 for every $20 borrowed from your checking account. That’s a really nice way of saying this loan has an APR of 120%. Assuming a bank patron used this “service” bi-weekly for an entire year, it would cost them $1300 in fees. I don’t need to tell you what you could do with that money had you saved it and not spent it on fees.

The requirements to use Direct Deposit Advance are a little steeper than your typical strip mall check cashing joint, but not by much. To qualify, you must have a Wells checking account with a direct deposit $100 or more every 35 days and the account must be in good standing. If you meet these qualifications, it’s as easy as a mouse click or ATM visit away. Convenient and easy-to-use bank services are usually a big plus, but in this case, it makes it all too easy to fall into a payday loan trap.

In the end, Wells Fargo would much better serve themselves and the community at large by steering these folks toward bank products that encourage financial responsibility. Perhaps they could require that every customer who uses this service open a savings account and then refund some of that interest into the account, like the North Carolina Employee’s Credit Union did. At the very least, mandate that customers who want to use this service must attend some sort of orientation or counseling session at their local branch to go over the fine print and the pitfalls of payday loans.

The purpose of this post was not to single out Wells Fargo as the only major bank using this questionable lending tactic. I am sure there are many other banks out there that do this in one form or another. But I can speak from experience as I spent over $500 in fees last year towards this very service. Thankfully, I have finally broken myself of this destructive habit.