Banking 
25
comments

How Are Bank Promotions Taxed?

You may have seen an increase in the number of bank deals listed on Bargaineering lately. The reason for the uptick has to do with the economy. As the economy recovers and banks start offering more incentives and promotions to attract new customers, the number and size of these bonuses has been increasing. Two years ago, the bank offers were paltry, if not extinct. If you got more than a toaster out of a new account, you were doing well.

With the return of $100 and $150 cash offers for new accounts, you might be wondering whether or not you have to pay tax on the promotions.
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 Personal Finance 
20
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Lower Tax Rate on Savings Accounts to Incentivize Saving

Over the break, I read about the winning idea for the TIAA-CREF’s Raise the Rate competition and was surprised that it was selected as the winner. I’m surprised because I wouldn’t think that savings would be a reliable factor in the probability that you would default, which is what the credit score is designed to measure, and because it would be a bit of a bear to implement.

My submission was to lower the tax rate you paid on the interest you earned from savings account. You already receive this information as a 1099-INT, so the IRS already knows this is interest earned from an interest bearing account. While it would fail the “difficult to implement” test (which we don’t know if it was factored), I bet you more people would save money if they knew they would be taxed less on the interest. (Many people invest in dividend yielding stocks for this very reason)

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 Taxes 
33
comments

New 2011 Form 1099-K

Back in college, I used to sell all sorts of things on eBay for a little extra cash. Two of the more legitimate things I sold were John Deere hats, made popular by Ashton Kutcher and his Punk’d show, and Washington Wizards Michael Jordan jerseys, made popular when Jordan made his brief return to the NBA. Back then, as is the case today, eBay sellers had to report that income on their income tax returns. Many don’t because there’s no checks and balances in place forcing them, there aren’t any W-2s or 1099-MISCs for them because eBay doesn’t pay them, a multitude of sellers do.

The times have changed and now the IRS has produced a draft Form 1099-K used to report Merchant Card and Third-Party Payments made to your ID number (social or employer ID number) in each month. This is a way for the IRS to capture some of the underreported income since sellers will not have to reconcile the third-party transactions, such as through PayPal, with their incomes.
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 Taxes 
14
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Complete 99% of Your Tax Return Now

Income Tax OfficeDid you know that 30% of taxpayers file by the first week of February? I found it difficult to believe but apparently it’s true, according to an email I received from the folks at TaxCut. 30% of people file between January 1st and February 7th. Of course, the other 70% file on April 15th!

Why File So Early?

People file early because they want their tax refund as quickly as possible. Why wait until April 15th to file when the government owes you money? If your only income is from your job (and maybe some bank interest), chances are you the government owes you a tax refund unless you adjusted your tax withholding. If you didn’t adjust your withholdings on your W-4, I’m fairly confident the government will owe you money and by not filing ASAP you are extending the interest free loan.

The reason why people even have to wait in until the first week of February is because employers and banks have until January 31st to mail out W-2s and 1099-INTs. However, that doesn’t mean you have to wait until the first week to begin the filing process. If you have your December pay stub, you will have pretty accurate numbers to use as placeholders. You can look up all your bank interest by calling or logging in to your bank account and looking for a tax form. While I would wait until the official W-2 form arrives before e-filing (especially since they will ask for information not typically printed on your stub), nothing stops you from filling out the form now and updating the numbers when your W-2 arrives.

What You Can Do Now

So, want to get a jump? First, check to see if you qualify for free tax preparation. There’s no sense paying for software if you can get it for free. If you earn under $52,000 a year, you can access the IRS Free File Program (details to come Jan 16th) as well.

If you don’t qualify, you have the option of going online or buying the software in a box. In the past, I used TurboTax Online a few times. I don’t think there’s much difference between TurboTax and TaxCut, outside of pricing. I personally like the online version because I’m comfortable entering all that sensitive information online but if you aren’t, the software from a box is just as good.

With the exception of your income, you already have every other piece of information. You already know all of your tax deductions, all the tax credits you should be eligible for (if not, the tax preparation software will ask you), and everything else the form or software will require. You’re just missing the official income numbers, which will arrive by early February. Fill out everything else and wait for your official tax forms. With your placeholder numbers, you have a good idea of the refund (or tax due). If you end up owing tax, just wait until April! :)

I always e-file and I always opt for direct deposit. By e-filing, you don’t have to worry about the post office losing it or having your sensitive information floating around. By direct depositing, you get your money much faster. If you e-file your taxes on February 6th and requested direct deposit, you can get your rebate within two weeks. Last year, if you filed within the first week of February, you received the direct deposit by February 13th! (2008 schedule)

(Photo: thetruthabout)


 Banking 
13
comments

The Basics of Banking Explained

This is the first edition of our Personal Finance Foundation Series where I discuss the very basics of foundation-type personal finance topics. The topic of this post is Banking.

I was fortunate that my first real experience with banking was with a local credit union. Credit unions are really great about welcoming new members and educating them about everything. Commercials banks, while still cordial, simply don’t offer the same types of services that credit unions do. My mom and I opened a joint banking account a local credit union when I was fourteen and I was excited to even have a laminated blue card with my account number and credit union phone numbers! I still have the card in my desk drawer, I still have the account open, and it was a nice warm and welcoming introduction to the banking world.

That, however, seems to be atypical. Many people are introduced to the banking world either through the nastiness of credit cards or by walking into the antiseptic branch of a major bank. You open an account, direct deposit your paycheck, and feel like a number in a database. There is no education, no explanation, just an assumption that “you’ll figure it out eventually.” Well, unfortunately that isn’t enough because “figuring it out” usually results in you being dinged on fees so let’s start from the basics and go through what banking is.

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 Taxes 
14
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Where To Get Missing W-2 and 1099s Forms

If you’re like me, you won’t start thinking about taxes until maybe around April 1st, which is about a month and a half away; if you’re not like me and are instead smarter, more responsible, and more organized, you’ve probably started thinking about doing your taxes already. Even if you’re like me and won’t want to do your taxes until April, it’s important for you to make sure that you have all the forms you’ll need for the big day. I don’t mean IRS tax forms like a 1040, those you can get easily from irs.gov, the tax forms I’m referring to are all the 1099s and W-2s you should have already received from your employer, your banks, your brokerages, etc.

Where To Get Your W-2:

The deadline for your employer (or former employer) to mail out your W-2′s for 2006 was January 31st so if you haven’t received it yet then it was probably lost in the mail. If so, don’t panic, just request that your employer send you a new copy (you might have to pay a fee, depending on how cheap your employer is) but it will take some time so it’s important to make that request now rather than later. The W-2 form is really the only form you’ll need to include with your return.

Now, if you can’t get your employer to give you one (they’re just not very nice), you can call the IRS for help at (800) 829-1040. If that doesn’t yield any fruit (or you can’t get a copy before the due date), the last resort is to use Form 4852, which is a substitute, and you have to show that you made a good effort at getting your W-2.

Where To Get Your 1099s:

1099-INTs, MISCs, WHATEVERS, are all mailed out in the same time frame as the W-2s but there is one crucial difference between the W-2 and the 1099, you don’t include the 1099 forms with your return. That information, just like the W-2, has already been reported to the IRS and so it’s only for your use on your return (why this isn’t the case with W-2s, who knows).

The rule of thumb is that anyone who has paid you over $600 this year will issue you a 1099, so if you haven’t received it just call that person or company up and ask for a copy (if they want a fee, just have them tell you what they reported).

As for interest you’ve earned on deposits at banks, all banks will send you a 1099 if you earned more than $10 last year though they will report that amount regardless (Thanks Evan & Tom for the fix, you guys are right, my mind just skipped a beat on that one). Again, all you need to do is fill that information into the appropriate fields on your return, the form itself is unnecessary. If you haven’t received 1099 from all of your accounts, you can usually download them from the bank’s online website. Lately banks have been going the “all electronic” route so you’ll have to log into your account and print it out yourself. If that isn’t available, just stop on by a branch and ask for a printout.


 Taxes 
5
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I’m Missing Some 1099 Forms

Waiting on some 1099′s? Yeah, me too. I think I have a few 1099 forms left from some affiliate programs I was a part of the last year. Advice from the IRS website said that I should wait until February 15th (today) and then give the sender a call if I haven’t received it by then.

But… I don’t actually need the form to complete my taxes because I don’t send them in. All I need need to know how much compensation is listed on the form (the exception is a 1099-R which tells you how much income tax was withheld) and I think I can just look that up.

The IRS website lists a handy guide to what 1099 is what too:

  • Form 1099–B, Proceeds From Broker and Barter Exchange Transactions
  • Form 1099–DIV, Dividends and Distributions
  • Form 1099–INT, Interest Income
  • Form 1099–MISC, Miscellaneous Income
  • Form 1099–OID, Original Issue Discount
  • Form 1099–R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
  • Form SSA–1099, Social Security Benefit Statement

More details on the IRS website.


 Taxes 
3
comments

Start Organizing Your Tax Information

1040 Tax FormsOn Jan 31st, your employers (if you have one) will begin sending out Form W-2 documents and it pays to have your other documents organized and prepared as early as possible. If you’re owe a rebate, the faster you submit your tax return the sooner you’ll see your hard earned cash returned to you. If you owe money, then you might be able to dawdle a little bit since this year’s due date is April 17th (because the 15th is a Saturday). In either case, you should probably start sifting through that pile on your desk (if you’re like me) and see if you can rack up some hefty deductions.


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