Saving Money

Cheap Gift Tags

2008-10-21T21:19:00.000-07:00

Have a fistful of paint swatches left over from your recent bathroom redo? Or maybe you splurged on a roll of nice wrapping paper but can't find matching gift tags. A simple fix: Cut out round tags from those colorful paint chips (if you need more than a few, ask the store for cards with discontinued shades.) Punch a hole in your tag; tie on with embroidery floss or thin ribbon.

How to Afford the Big Stuff

2008-10-19T00:58:00.000-07:00

By Mary Hunt Posted July 08, 2008 from Woman's Day

Define the goal

The first, most important step is to figure out what your next big money decision will be. You may not be aware you have any, but the truth is you have several to choose from. Do you think big medical expenses could arise in the next several months? Is your car beginning to show its age? Let’s say, for example, your refrigerator is slowing down. At 12 years old, you anticipate it has about three years left. Knowing this gives you something valuable: time to start researching and saving. What style and size do you need? About how much will it cost? Are there options you should consider? Brands you should avoid? Look into it now.

Identify the terms

If you start saving for the refrigerator right now, you'll have about 36 months. Let's say you determine that it'll cost about $1,600. Divide that amount by the term of 36 months. The result is about $44. You'll need to save $44 each month, starting now, so you'll be able to replace your refrigerator in three years.

Make it smaller

Cut your goal into pieces—smaller payments are psychologically easier to handle. So instead of 36 months, divide the cost of the refrigerator by 156—the number of weeks in the term. With this slight change in terms, you only need to save $10.26 each week to reach your goal.

…and predictable

View this as a new, regular bill you must make each month. It'll soon become as ordinary and predictable as your mortgage or car payment.

Set up an account

Don't keep this stash in a drawer or even in your regular savings account—it puts the money within easy reach and makes it too available for you to borrow for some other purpose. Open an interest-bearing account specifically for the item you want to buy instead.

...and make it automatic

Set up an automatic savings plan to regularly transfer money from your other account.

Visualize the goal

Stay focused by finding a picture of the item. Post it where you'll see it often, like on the fridge. This will go a long way in motivating you. Get creative and draw a grid over the picture with a pen and ruler so you have the same number of squares as payments you'll make. After each payment, fill in a space on the grid with a highlighter.

Pay a little more now and then

Look for new ways and frugal choices that will result in money you can put toward reaching your goal even faster. The money you saved on groceries this week? Use it as an extra payment. The loose change in a jar on your dresser? Use that, too.

One goal at a time

About now you're probably thinking about several savings goals you want to work on simultaneously. I understand your enthusiasm, but I know from experience that it's best to start slowly. If you have additional funds, use them to reach this goal before starting on another. In time, as you become adept with managing big money decisions, you'll be able to handle several at once.

Pay Off Your Mortgage Early

2008-10-19T00:33:00.000-07:00

By Woman's Day Staff Posted July 08, 2008 from Woman's Day

Start Off Right

Make the first payment count
When you buy a home, many lenders require one month’s interest to be prepaid as part of the closing costs, with the first payment due in the second month after closing. If you choose to make your first payment in the initial month, that entire amount will go to reducing the principal. Making this one payment at the start lops off $7,394 in interest and six months from a $200,000 30-year mortgage at 6.5 percent interest.

Less is more
Let’s say you qualify to buy a $250,000 home with a $200,000 mortgage at 6.5 percent interest for 30 years, payable at $1,264 per month. A better strategy would be to buy a $150,000 house with a 30-year $100,000 mortgage at 6.5 percent ($636 payments). By paying the larger amount each month ($1,264), you’ll pay this mortgage off in 8.5 years. Sell and upgrade to a $250,000 home, use the entire $150,000 as a down payment and repeat.

Get fixed
Even though interest rates are creeping upward, if you have a primary mortgage and home equity loan with variable rates of interest, refinancing both into a fixed-rate mortgage may be a wise move. With a fixed rate you always know what to expect. Caution: As tempting as it is to cash out some of your equity (the current market value minus what you owe on your mortgage) as you refinance, leave all of your equity alone so it can appreciate.

Pay It Down Faster

Biweekly is good
Paying half of your monthly payment every two weeks (26 half-payments each year) turns out to be 13 full monthly payments in a year. That extra payment is the secret behind the power of the biweekly payment schedule. But unless you join a biweekly program that charges steep fees and locks you into that schedule, your mortgage company is not likely to accept half-payments.

You can do the very same thing yourself. Each month when you make your regular mortgage payment, write a second check for one-twelfth of one payment and designate it for “Principal Prepayment Only.” Send the two checks together. Do this every month and in one year you will have made the equivalent of 13 monthly payments—with no fees, no obligations and no lender approval required. This strategy will drop about seven years from your payback term (depending on the other terms) and save you thousands of dollars in interest.

Don’t cash out
The equity in your home is a precious commodity because it is an appreciating asset, providing the housing market keeps going up in your area. Taking out cash through home equity loans widens your debt and increases your monthly payment. You risk owing the lender more than the home is worth. If that equity is money you really need for some other purpose, consider selling your home now and downsizing to a cheaper area. Your goal is to achieve 100 percent equity before you retire. If you keep taking out cash to pay off credit cards or pay for college, you’ll never pay off that mortgage.

Get fixed
Even though interest rates are creeping upward, if you have a primary mortgage and home equity loan with variable rates of interest, refinancing both into a fixed-rate mortgage may be a wise move. With a fixed rate you always know what to expect. Caution: As tempting as it is to cash out some of your equity (the current market value minus what you owe on your mortgage) as you refinance, leave all of your equity alone so it can appreciate.

Expand Your Profit

Widen the gap
You need to maintain a healthy gap between the amount your home is worth and the amount you owe—never less than 20 percent is my advice. Concentrate on widening that gap by paying off your mortgage early and you’ll sail through any market downturn.

Spruce up
While you have no control over housing market values, you can keep your home at the top of your neighborhood’s value by performing routine repairs and maintenance. Even in a down market your home will be more likely to stay at the top of its class when it reflects your pride of ownership.

Keep paying it down
It doesn’t matter if you plan to be in your home for two years or for 20. No matter when you sell this house, your goal should be to come out with your original down payment, plus lots of equity for the next down payment. You want to use all of that money to make the largest down payment you can and take out the smallest mortgage possible. And you want to do that every time you buy. That’s the way to build wealth on an ordinary income.

You can buy and sell a dozen times in your home ownership career, and if you’re careful to move your equity into the next home—just as you move your furniture and other possessions—you should be able to own the last one free and clear, in time for retirement.

Cut Cell Phone Charges

2008-10-18T23:59:00.000-07:00

Get a tuneup:
Instead of purchasing a plan and then forgetting about it, comparison-shop every few months to see if you're paying too much. If you find a better deal, contact your phone company and try to negotiate a more affordable plan.

Dispute the charges:
If there's a fee on your bill you don't understand, call and question it. Be prepared and polite, but be persistant. Take names and lots of notes. If the rep says no, speak with a supervisor. Keep moving up the ranks until you hear a "yes".

Go prepaid:
Got a chatterbox in the family? Switch to a prepaid cell phone, which has a set number of minutes. When you go over, the phone goes dark until the next fill-up.

Buy refurbished:
Did your cell phone get run over or dropped in the toilet? Rather than buying a pricey new one, consider a refurbished phone. Also known as "buyer's remorse phones," these are the cell phones that consumers bought and returned within their 30-day trial period. AT&T offers them for up to 75 percent off popular-model phones.

It's Too Good A Deal to Pass Up

2008-10-18T23:46:00.000-07:00

The truth:
We've all been there-loath to walk away from a 40% off; buy-one-get-one-free; or $10 each, three for $25 specials. But these promotions and others like them (including a discount on your entire purchase if you open up a store credit card and charge the purchase to your new account) almost always entice us to buy things we wouldn't have bought in the first place, or to purchase more than we really need.

What to do instead:
Remind yourself that stores run sales to improve their bottom line-not yours. Always jot a list before you shop, and only go down aisles or into departments that have those things. Ignore markdowns unless you genuinely need the featured item (and if you are required to buy multiples to get the lower price, make sure you'll use them all). Lastly, even if you have a generous coupon to redeem if you use your store card, don't charge more than you can pay when the bill comes-the sky-high interest rates of store cards negate any savings.

This Mortgage Seems Like a Lot Now, But We'll Be Able to Afford it When We Get Decent Raises

2008-10-18T23:39:00.000-07:00

The truth:
Locking yourself into a mortgage that you can't comfortably pay for on your current income can spell trouble in a number of ways. In today's economic climate, sizable jumps in salary are generally hard to come by, and job security isn't guaranteed. You have to realize that you could lose your house if your salaries don't increase like you think they will. And if you're a first-time homeowner, your income may not go as far as you think due to higher utility bills, maintenance expenses and emergency repairs. Stretching yourself too thin also doesn't leave you any leeway if one of you wants to, say, start a business or go back to school, or if unexpected medical expenses crop up.

What to do instead:
Opt for a mortgage you can afford based on present earnings. Limit mortgage payments, including taxes and insurance, to 25% of your gross monthly income-less than the 33% many lenders recommend.

There's No Harm in Borrowing From My 401k and Paying Myself Back

2008-10-18T23:31:00.000-07:00

The truth:
If you borrow from your emploer-sponsored retirement plan, you do not benefit from the tax-deffered growth you would have enjoyed had you left the money in your account. In addition, the cash you use to repay the loan comes from aftertax dollars, which means when you retire and withdraw your money, you will pay taxes on it again. If you can't pay back the loan within five years, you have to fork over a 10% early-distribution fee and pay taxes on the borrowed amount.

What to do instead:
Exhaust every other option-sell off personal belongings, refinance or downsize your home, or borrow from relatives (make a written repayment plan). Tapping your 401(k) should be a last resort.

I'd Love to Save More, but After Expenses There's Just Nothing Left

2008-10-18T23:12:00.000-07:00

The truth:
If you have cash for little extras like gourmet coffee and DVD rentals, you can afford to save if it's truly a priority. Even seemingly insignificant amounts can grow into substantial sums. For exanple, if you save just $15 a week for a year and put it into a mutual fund account that averages a 10% return annually and compounds the interest, you'd have more than $5,000 in five years, over $14,000 in 10 and over $54,000 in 20 years.

What to do instead:
For the next month track everything you spend on incidentals. The fingure out ways to cut back that won't make you feel deprived. For instance, could you borrow DVDs from the library instead of renting? Still go for mani-peds, but little less frequently? Forgo 400 channels and choose a cheaper cable package? Have the amount that you save siphoned automatically from your checking account and deposited into the investment account.

Once I Pay Off My Credit Cards With this Home Equity Loan, I'll Cut Them Up

2008-10-18T22:59:00.000-07:00

The truth:
This is a smart move if-and only if-you have the self-discipline to follow through. Unfortunately, many people don't change their spending habits and run up their cards all over again. Then, in addition to credit card debt, they have a loan to pay off, and now their home is on the line.

What to do instead:
Try to pay off your credit cards on your own by scrutinizing your budget and cutting all nonessential spending. To save on interest, move your debt to a card with a zero-interest transfer rate (scout no-fee offers at websites like bankrate.com and webcard.com). If you ultimately decide to still go the home equity route, vow not to use your credit cards again until the loan is completely paid off.

I'll Mail Out the Bills Tomorrow-One More Day Won't Make A Difference

2008-10-18T22:50:00.000-07:00

The truth:
If one day bcomes two or three-as can easily happen during a busy week-you can end up with late fees as high as $39. And thanks to universal default clauses built into many credit card agreements, just one late payment can earn you a default penalty rate as high as 35% on that account-and allow other creditors to raise your interest rate as well, costing you more in interest every month that you carry a balance.

What to do instead:
If you still pay the old-fashioned way-with paper checks-then you must mail them at least seven days ahead, no exceptions. Online banking is simple, safe and saves time, and even if you're truly against it, register with your bank's online bill-pay anyway, at least you'll have that option if you can't get checks in the mail on time for some reason.

I'll Be Fine as Long as I Keep Making the Minimum Monthly Payment on my Credit Card

2008-10-18T22:42:00.000-07:00

The truth:
Sending just that small amount will end up costing you thousands of dollars in interest and plunge you deeper into debt as time goes on. If you charge $5,000 a year on a card with an 18% APR and pay only the minimum each month, which is 2% of the balance, in 30 years you will have paid $280,000 in interest and still have a balance of $74,000.

What to do instead:
Stop running up additional charges and aim to pay at least twice the minimum amount due. If you need more inspiration to up your credit card payment, consider this: Doubling the minimum will slash the time it takes you to pay off your balance by more than two-thirds.

How to Spot a Scam

2008-10-18T22:26:00.000-07:00

It's just too good to be true:
A free car just for taking a survey? A laptop computer for a single mouse click? No way.

You're a winner....but:
You have to pay a fee to claim your prize.

It's free with shipping and handling:
If it's five or six bucks, fine. But make sure it's not $59.95!

The website offers nothing but free stuff:
It's probably an e-mail collection site for spammers.

There's a lot of fine print:
And you have to agree to accept all the terms.

You have to make a purchase:
To get the freebie.

You must give a credit card number:
To get the free item.

There's a free "trial period":
This may be true, but the company can make it difficult to cancel, and if you forget, wham! You're on the hook.

Some Free Things

2008-10-18T21:48:00.000-07:00

Expert Computer Help:
If you've ever had a computer problem and wanted to pull out your hair in frustration, this is for you. Need to solve a hardware glitch? Want to learn how to use HTML? Submit your question at Protonic.com and you'll get a pretty prompt answer e-mailed to you from a volunteer expert. It's no secret that many computer manufacturers provide support for their own products and charge good money for it. The folks at Protonic are tired of this sort of treatment, and believe it or not, their service is free because they enjoy helping people.

Spam Filter:
Say so long to all those annoying solicitations that clog your e-mail. Spamato, an add-on for Mozilla Mail, does what it can to kill the junk. PC World magazine recently named Spamato one of its 101 Fantastic Freebies. Get your download at spamato.net. The company wants to make spam filtering available to as many computer users as possible.

Business Classes:
Learn everything from how to write a business plan to how to finance your venture through the Small Business Administration's website. Online courses are free and self-paced; they take about 30 minutes each to complete. Free in-person classes are also offered at SBA district offices and resource partners around the country. The SBA was created in conjunction with the government to help U.S. citizens learn how to become successful entrepeneurs. Support comes through financing of SBA loans.

Spanish Lessons:
Want to learn the basics of practical spoken Spanish? Sign up (some classes are 12 weeks) and you'll get weekly e-mails from a teacher with lessons and learning tips. You can also learn French, German, Italian, Portuguese, Greek, Mandarin Chinese and more. Go to bbc.co.uk/languages. The BBC, one of the world's largest broadcasting corporations, is on a mission to enrich people's lives with programs and services that inform, educate and entertain.

Photo Organizer:
Picasa is a free software download from Google that helps you locate and organize all the photos on your computer. You can edit and add effects, share photos with others through e-mail, print them or upload them to the web. It's fast and easy. Originally a pricey piece of software, Picasa was purchased by Google, then made free as an enhancement to the whole family of Google products.

Credit Report:
If you haven't done this already, do it now. Everyone is entitled to one credit report from each of the three major credit bureaus each year free of charge. Go to annualcreditreport.com and follow the directions. You will be offered many options for which you must pay, but stay on target for the free report. Caution: There are dozens of services on the Internet that pose as sources for free credit reports, but they really cost you money. Ignore them. It's mandated by lawe, and this site is sponsored by the three major companies-Equifax, TransUnion and Experian.

Directory Assistance:
If you're tired of paying a fee each time you dial 411, here's your alternative. Dial 800-FREE-411, then follow the prompts to get your desired number by phone or text message. Works for both residential and business listings throughout the U.S. This service is advertising-driven. You dial in, listen to a 10-second sponsored message, then proceed to get the number you need.

Cookbooks:
The popular website Allrecipes.com, which features recipes from home cooks, now offers free downloadable cookbooks for many occasions (listed under Tips & Advice). The pictures are incredible and there are many to choose from. This site derives its revenues through advertising and other sources, so members pay no fees.

Gently Used Stuff:
One person's castoff is another person's treasure at freecycle.org. By joining your local Freecycle chapter, you can get used furniture, household appliances and a variety of other items. Just know that those who take are also expected to give. However, no money is allowed to change hands. Freecycle is a grassroots, nonprofit movement of people committed to helping the environment by reusing goods and keeping stuff out of landfills.

Some Free Stuff

2008-10-18T01:03:00.000-07:00

This post will list websites and what they have to offer for either free, or for the amount of postage and handling.

Family Calendar:
At Famundo.com, you can keep all the information you need at one place. Famundo is an online calendar, address book and message board. The site merges each individual's schedule into one calendar, which you can access with a personal code from any computer. The basic free version is ad-supported but not in an in-your-face way. You can upgrade your account to the "Plus" version for about $10 a month, but it's not required, and you won't be hounded.

Silver Jewelry:
The Silver Jewelry Club offers high-quality jewelry including rings, pendants and bracelets (most of them with genuine gemstones). It really is free provided you pay the shipping charge of $5.99. These are quality pieces, not junk. Giving away jewelry is SJC's way of introducing their products. They also sell their jewelry through wholesalers and stores. You will never receive a single solicitatio from the company.

Online Checking Account:
This is an online checking account that is completely free, with no monthly fee attached. Electric Orange, through ING Direct, is a paperless checking account (no checks or checkbook) that pays you up to 3.4 percent interest on your balance. You can do everything-deposit your paycheck, pay bills, send a paper or electronic check, transfer money-securely online. (Of course, you'll pay a fee if you send paper checks, drop your overdraft line of credit balance below zero or require a stop payment.) ING is looking to add new customers. Because they use no paper and have no branches, costs are low.

Radio Service:
Pandora.com is like your own personal radio service. You type in an artist, and the service plays songs by that artist and others with a similar style. You can't download music, but you can listen and manage your own "stations". The site offers a free ad-supported service as well as a paid option where you don't see ads.

Time-Management Organizer:
Create an up-to-the-minute to-do list complete with reminders via insant message or e-mail through RememberTheMilk.com. Upload Remember The Milk to your cell phone and you'll always have your grocery list with you. And when someone at home adds to the list while you're walking into the store, you'll be sent an update. The majority of the site's features are free, but a subscription ($25 a year) gives you access to some additional premium features.

Wi-Fi Hot Spots:
Would you like to know which restaurants and coffee shops in your neighborhood offer free wireless Internet access? Get a directory at wififreespot.com. It is probably free because they want to build traffic to its site and derives financial support through advertising.

Sheet Music:
Want arrangements of classical pieces for free download? MutopiaProject.org has 1,272 pieces available based on editions in the public domain, including works by Bach, Beethoven, Chopin, Handel, Mozart and many others for piano, guitar, cello, voice and more. This is a labor of love by a team of volunteers who are involved in typesetting the music for electronic distribution. High-quality copies are available for a cost, but you're not pressured to by them.

Business Cards:
Vistaprint is an online printing company known for its amazing offer of 250 free business cards. They're good-quality, too. Visit Vistaprint, create your card and all you'll have to pay is about $5 for shipping. Vistaprint would like you to join their 12 million customers who buy printing online, so they offer this enticement. Just knw that once you get your business cards, you may hear from them a lot.

Some Debt Strategies

2008-10-18T00:37:00.000-07:00

The 10-10-80 Rule:
Even if you are deeply in debt, this formula has you giving away 10 percent, save 10 percent and live the best life you can on 80 percent of your net income. Giving to others who are less fortunate releases gratitude for what you have. Knowing you have money in the bank quells the fear of being broke. Together, giving and saving promotes contentment, which makes you willing to do whatever you must to live below your means.

A Spending Map:

Spay your paychecks on paper before cashing them. This will help you decide where every penny would go, starting with giving and saving, then moving on to essentials such as the mortgage and home equity loan. Pay your bills according to the severity of the consequence if they weren't paid or if they were paid late. After that, move onto optional expenses such as clothes and eating out.

Track your actual spending each month to compare with your planned spending. If you need help with food needs, here are a couple of websites to help out. The Grocery Game, which teaches you how to use coupons effectively. They have lots of other things to offer such as recipes. Angel Food Ministries which is a nonprofit, nondenominational organization that provides food relief.

A Contingency Fund:
The 10 percent can be put into an emergency fund to help relieve your mind knowing that you have money in the bank. Make sure the account brings in interest that helps the amount grow. You may want to pay off your debt with that money, but you can rest easier knowing that money is there if you ever need it.

The Rapid Dept-Repayment Plan:
Here is a method to rapidly repay unsecured debts such as credit cards and student loans. This plan deals with minimum monthly payments. Do not add any more new debt, which means no credit cards. "Fix" your monthly payments at the amount you paid in the first month of the plan. Line up your debts with the smallest at the top. As the first debt is paid off, it's payment is added to the regular payment of the next debt in line. If you pay your debt off at the creditor's schedules, it would take twice as long.

A Freedom Account:
Setting up this account will help you anticipate occasional expenses such as Christmas gifts and clothing. You can estimate these on a yearly basis, then deposit one-twelfth of that amount each month.

12 Ways to Save Money

2008-10-18T00:21:00.000-07:00

1. Think before you buy anything. Do you really need that kitchen appliance? Do you have something at home that does the same, or a similar, job?

2. Reevaluate you insurance needs. See if you can get a reduced premium.

3. Get your haircuts at a beauty school. They cost less than a salon and you will be helping students get more experience.

4. Pay your bills online. You will save money by not needing stamps and envelopes. You will also be saving your time.

5. Borrow your movies from a library instead of renting them or buying them. If you like the movie you borrowed from the library, you can always buy it later when you have the money to spend.

6. Enjoy your local, free entertainment opportunities such as open houses, festivals and fairs.

7. Have your kids pay for their things (cell phones, gasoline and clothes) with their babysitting money, or whatever other job they have. This will teach your kids how to manage their money and save yours from being spent.

8. Replace your soda with water. I use a large jar of instant tea that costs about $2-3 and it last me weeks.

9. Brown-bag your lunches instead of buying them at a restaurant, vending maching or a fast food place.

10. Use your stuff until it is gone. Or you may find you don't really need it after all.

11. Cancel your "maintanence contract" on everything but your computer.

12. Sell castoffs at yard sales, resale shops and Craigslist. You can give things to charity to take advantage of the tax reduction.

Audit Alert

2008-10-14T02:19:00.000-07:00

There are two ways the IRS may ask you for more information. "Correspondence audits" are conducted by mail and require taxpayers to send back additional documentation. A "field audit" requires a taxpayer, or her representative, to sit down with an IRS agent and provide receipts that substantiate all the deductions and credits on the tax return. If you're audited, answer the questions as specifically and briefly as you can-and don't offer information that the IRS hasn't asked for. Anything you bring up becomes open to further IRS questioning.

Relocation

2008-10-14T02:16:00.000-07:00

Moving expenses are deductible if you change locations for work and meet this distance test; Your new job location has to be at least 50 miles farther from your former home than your old job location was from your former home. Write off costs of packing, transportation and lodging en route.

Hurricane Relief

2008-10-14T02:12:00.000-07:00

Did you house a Katrina evacuee in your home for 60 days or more without charging rent? You can take an additional personal exemption of $500 per individual-up to $2,000 for housing four people. Fill out form 8914, which will ask for details about those you've helped, such as their Social Security numbers and former addresses. If you used your car to provide disaster relief to Katrina victims, deduct 32 cents per mile.

Fuel-Effecient Cars

2008-10-14T02:10:00.000-07:00

An energy-efficient hybrid vehicle bought on or after January 1, 2006, might qualify for a credit. Go to irs.gov to see the list of IRS-approved vehicles and the amount you can deduct.

Home Improvements

2008-10-14T02:05:00.000-07:00

The Energy Policy Act of 2005 made tax credits available for many types of home improvements, including insulation; replacement windows; high-effeciency central air-conditioning units; and high-effeciency fans for cooling and heating. The maximum credit is $500 during the two-year period beginning January 1, 2006, and ending Demcember 31, 2007, and you can use up the credit in one year or spread it out over two years. Those who've installed solar panels, solar water heating equipment or a fuel-cell power plant can take additional credits.

Mileage

2008-10-14T02:01:00.000-07:00

If you use your car for unreimbursed business travel, make sure you deduct 44.5 cents per mile. If you volunteer for charity and drive to and from the location, deduct 14 cents per mile.

Telephone Tax Credit

2008-10-14T01:55:00.000-07:00

Thanks to the Federal Excise Tax change, telephone customers will no longer be taxed on their long-distance and bundled services, including prepaid phone cards. You can claim a one-time credit or refund on your return for the taxes you paid after February 28, 2003, and before August 1, 2006-without showing any records. For individuals it's $30; if you have four or more exemptions, it's $60. Or go through your phone bills for that three and a half year period, assuming you've kept them, and claim the total amount you paid in federal excise tax.

Tax Mistakes: Failing to File Because You Can't Pay

2008-10-03T00:01:00.000-07:00

This can be costly. When the IRS catches up with you, you'll be charged not only the tax owed, but also a failure-to-file penalty (5%) and interest (at the end of 2006 it was 8%). The solution? Submit your return, paying as much as possible. The contact the IRS and ask to create an installment agreement, which will allow you to pay off your debt, with interest, over a period of months. Go to IRS to get form 9465 or call the IRS customer sevice hotline at 1-800-829-1040. It costs $43 to set up the plan.

Tax Mistakes: Declaring a Child a Dependent Who Isn't

2008-10-02T23:58:00.000-07:00

Whe the IRS detects the mistake, you'll get a smaller refund or a higher tax bill, because they'll recalculate your return. Plus, they may charge a penalty, based on the taxes owed and the reason for the error, along with interest on the unpaid tax. A full-time student up to age 24 is still considered a dependent; otherwise, the cut-off age is 18. In cases of divorce, the parent who has residential custody for more than six months of the year is the only one who can take the deduction.