Top Credit Score Misconceptions

Many Americans are mystified when it comes to their credit score. Do you sometimes wonder who’s really keeping track and what is it exactly that affects your score? There are many misconceptions when it comes to what really affects our credit scores. I thought I’d share an article from BudgetsAreSexy.com. This article lists and debunks the top credit score myths and misconceptions. Such as:

• When I get married, we get a joint credit score: Not so. Each person has their own credit score ’til death do you part—from your credit score that is. However, when you open accounts jointly, that information will be reflected on each of your credit reports, for better or for worse.
• My job/income impacts my credit score: Sorry, but making six figures, winning the lottery, or inheriting a fortune will not give you a good credit score. Your net worth and income are not factored into your score.
• Paying off credit card debt will boost my credit score 50 points: Depending on how much credit card debt you had, you may see some increase. However, credit card utilization is an important component of your credit score and those with the highest credit scores have about 10% utilization. This means if you are using your card (and of course paying off the balances on time) you should see an increase in your credit score.
• Being an authorized user on a credit card will impact my credit score: Co-signing for a credit card can have an effect on your credit score, but unfortunately just being an authorized user won’t change your credit score one point.
• I only have one credit score: There are different credit score providers and each credit bureau provides their own credit score. However, these companies all use the same criteria to judge your credit worthiness and the scores basically fall within the same range of each other (good, ok, or poor).
• Checking my credit score will lower my credit score: False. When you check your credit score at sites such as Credit Karma, it’s a soft pull so it won’t lower your credit score at all. Only hard inquiries by lenders impact your credit.

Want to read more? Click here.

IRS Injured Spouse Relief

My law firm’s Tax Relief Blog posted a very informative new article earlier this week discussing IRS Injured Spouse relief. Unfortunately, there are thousands of taxpayers across the country who have run into IRS debt problems because of their spouse or ex-spouse and the IRS has established certain programs – like Injured Spouse Relief – to help these taxpayers. You can find a snippet of the blog entry below, but be sure to read the full article on the Tax Relief Blog.

Dealing with a back tax debt of your own can be stressful enough, but being held responsible for the back tax liability of a spouse – or former spouse – can be even more trying. Fortunately, there may be relief from being held responsible for your spouse’s or ex- spouse’s back tax liability.

The general rule is: when a couple files a joint federal tax return, the IRS will hold both taxpayers responsible for any unpaid tax debts. The IRS will even keep any refund available and apply it to a past due tax liability—even if the couple later begins to file separately but incurred the original debt while filing jointly. Some taxpayers might file separately to avoid a withheld refund, but this can cause the couple to miss out on valuable tax advantages for married taxpayers. This blog entry will explain the basics of the IRS’s Injured Spouse Relief program.

What is an Injured Spouse and what is the Relief the IRS Provides?

For federal tax purposes, an Injured Spouse is someone that is denied a tax overpayment refund or a portion of a refund because the funds were applied to off-set a past-due obligation of a spouse or ex-spouse. This obligation can be a past-due federal tax, state income tax, child or spousal support or even a federal “non-tax” debt, such as a student loan. In this case, the spouse is injured because they do not have a legal obligation to the past-due amount but by having their overpayment applied to the liability, the IRS is in fact holding the person responsible for the debt.

Continue reading at RoniDeutch.com…

If He Can’t Put a Ring on it, He Can’t Sign For it!

It’s spring time! It’s generally this time of year, when many people say “I do”. Finding someone to spend the rest of your life with is fantastic, and often times the subject of finances is seen as a “buzz kill” when it comes to love and relationships. Budgets are Sexy contributor and Financial Planner, Tahnya Kristina, put together some financial advice for couples:

Moving in together can be an exciting time. It can also be quite stressful if you don’t discuss beforehand how the money will be spent. Think about it. You are merging two separate budgets into one—household bills and groceries! This is an important time to sit down and discuss finances with your significant other, and draft a personal and couples budget. In the article, Ms. Kristina recommends:

Budget for Necessary Expenses
Only merging together the necessities to ensure an equal share in the participation of monthly expenses. For example, in a joint account you would each put money in for essentials like food, shelter and related expenses. When it comes to a budget, first, determine your total monthly bills as a couple. Then, add those bills as an expense to your personal budget. What you have left over, as Ms. Kristina states, is yours to keep individually.

Think Twice about Joint Credit
If one partner can’t commit to the other and sign on the dotted line for happily ever after, then don’t allow him/her to sign the back of your credit card!

Joint Savings Account
Start a joint savings account as part of your couple’s budget. Each of you should contribute an equal amount into a savings account in both names for other joint expenses such as a couple’s vacation, new furniture, or a weekly eating out budget. It helps to break down budgets into shorter amounts of time such as a weekly budget. Read the rest of the article here.

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Is Your Spouse Overspending?

Managing your own finances can be hard enough, without having to worry about whether your spouse or partner is overspending. Liz Pulliam Weston of MSN Money.com put together a helpful article with advice on what to do if you are married to a “financial basket case”. You can find a segment of her article below.

Can this financial marriage be saved?

Few couples are on exactly the same page when it comes to money, as I wrote in "9 ways to rein in a spendthrift spouse." Smoothing out the conflicts takes work but usually can be done with communication, compassion and commitment.

Some partners are so far over the edge, however, that their destructive habits can sabotage the family finances.

How can you tell whether your partner just needs a little persuading or is a total financial basket case? You're facing an uphill battle if:

There's an underlying addiction. If your partner has problems with alcohol, drugs or gambling, he or she literally can't think straight. Financial progress takes a back seat to feeding the addiction. Recovery is always possible, of course, but you'd be smart to get counseling (even if your partner won't go) and attend a support group such as Al-Anon, Nar-Anon or Gam-Anon.

There's a mental disorder. Overspending can be a symptom of a number of mental illnesses, including depression, bipolar disorder and attention-deficit disorder, as I wrote in "How the brain busts the budget." Again, progress is possible, but the underlying disorder must first be properly diagnosed and treated.

There's no acknowledgment of the problem. This may be the hardest nut to crack. Your partner either doesn't see what you're worried about or blames the problem on you. Counseling and sessions with a financial planner may help, but if your partner takes no responsibility and instead blames others, prospects for improvement may be dim.

Continue reading at MSN Money.com…

Questions for the Tax Lady: March 8th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Can I still make donations to Haiti that can be counted on my 2009 tax return?

Unfortunately, no. The deadline to make deductions that can be counted on your 2009 tax return was February 28^th. However, if you have any extra money then you should still consider making a donation; you can claim the deduction on your 2010 return. To learn how you can make a contribution checkout this article on the top 10 options for donating to the Haitian relief efforts.

Question #2: If my husband and I start a new business can we classify it as a sole proprietorship or do we need to form a partnership?

You and your husband can classify the business as a sole proprietorship as long as you meet the following IRS conditions:

1. The only partners in the partnership are a husband and wife

2. They file a joint tax return

3. The husband and wife must materially participate in the trade or business.

4. Both spouses must elect qualified joint venture status on Form 1040 by dividing the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture and each spouse filing a separate Schedule C, C-EZ, or F accordingly, and, if required, a separate Schedule SE to pay self-employment tax.

For more information see Election for Husband and Wife Unincorporated Businesses.

Married Filing Jointly, or Separate? How to Decide

Fox Business News recently reached out to me for my input on filing statuses for married couples. The finished article has a lot of great tips for married couples unsure on how to select the best filing status. You can find a section of the article below, but be sure to check out the full text at FOX Business.

For married couples, one crucial decision regarding taxes that can keep you out of -- or get you into -- trouble with the IRS comes before you even start dealing with forms and paperwork. Make sure to choose the correct filing status, whether that be married filing separately or jointly.

“Just like good dental hygiene will keep you out of the dentist chair, choosing the right status on your taxes will keep you out of the audit seat," said tax expert Roni Deutch.

While many experts agree that married filing jointly is usually the most advantageous, they also point out certain circumstances where filing separately is more beneficial.

“If you are married, the IRS has created it so that it is more beneficial for you to file jointly,” said Buz Aaron, director of tax services for Braver Wealth Management. “There aren’t many positive reasons to file separately, you should only do it when the numbers work out for you and it saves money — but you really have to do your research.”

Some couples, such as John and Cindy McCain, for example, choose to file separately for private reasons, according to Deutch, author of “The Tax Lady's Guide to Beating the IRS.” “They do it for privacy reasons, so the income [Cindy McCain] makes and the money she distributes to her children remain confidential.”

Continue reading at FOX Business.com…

Questions for the Tax Lady: November 30th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Roni, I got married last month and I was wondering if my new husband and I should still file as single with the IRS since we were wed so late in the year?

No, as long as you are legally wed before December 31^st, then you are married in the eyes of the IRS. Therefore, you will either need to file as married filing together, or married filing separately. Depending on your unique financial situation, it might be more beneficial to select one option or the other.

Question #2: What is nontaxable income?

Nontaxable income is pretty much exactly what it sounds like – income that is exempt from taxation. If you have to file a return, there are some kinds of nontaxable income that do need to be included on your return, but will not be included in the total amount subject to income taxes. These types of nontaxable income include child support payment, most life insurance proceeds, certain veterans’ benefits, public assistance payments, etc.

Tax Tips: Married to Your Business Partner?

From The Wall Street Journal.com:

Some husband/wife teams commit to more than just loving each other forever. They also choose to become business partners — taking the whole "for richer or poorer" thing to a whole new level. Luckily, a little tax savvy could definitely help tip that scale toward "richer."

But before I titillate you with the gritty details, let me say upfront that this tip only applies to couples living in the nine community property states (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington or Wisconsin), who run their small business as a husband-wife partnership. If that's the case, then you've probably been filing Form 1065 (U.S. Return of Partnership Income) with the IRS each year to report your business income and expenses. These business tax items are then split between you and your spouse and shown on separate Schedules K-1 from the partnership (one for you and one for your spouse). Eventually, all the numbers from both of your Schedules K-1s are recombined and included on your joint Form 1040. (Anyone who's done this previously will tell you it's about as much fun as a root canal.)

But here's the good news: The IRS says you can treat your husband-wife business as a sole proprietorship for federal-tax-filing purposes. This is thanks to little-known IRS Revenue Procedure 2002-69. The upshot is you can choose to report all your business income and expenses on simple-and-easy sole proprietorship Schedule C (Profit or Loss From Business) which you then include with your Form 1040. Then you can (mercifully) forget about that ultracomplicated Form 1065 and those nightmarish Schedules K-1.

And wait — there's more! Treating your husband-wife business as a sole proprietorship instead of a partnership could potentially save you thousands in self-employment (SE) taxes every year. Here's why.

With a husband-wife partnership, both you and your spouse must each file separate Schedules SE for your respective shares of partnership income. Then you must each pay 15.3% SE tax on the first $102,000 of your share of 2008 partnership SE income. If your share of SE income exceeds $102,000, the SE tax rate drops to 2.9%. So if you have a profitable husband-wife partnership, both you and your spouse can each get hit with the maximum 15.3% SE tax rate on up to $102,000 of SE income (total of $204,000). Remember: This is on top of your federal and state income taxes. Ouch.

In contrast, if you treat your husband-wife business as a sole proprietorship, you only have to file one Schedule SE — for the spouse considered to be the proprietor — with your joint return. That means no more than $102,000 of SE income gets hit with the maximum 15.3% rate (any remaining SE income gets taxed at the much-easier-to-swallow rate of only 2.9%).

So which would you prefer: up to $204,000 taxed at 15.3% or no more than $102,000 taxed at 15.3%? Assuming you prefer the latter, simply treat your husband-wife business as a sole proprietorship instead of a partnership — starting with your 2008 return. Do this by filing Schedule C with your 2008 Form 1040 and by ceasing to file a separate partnership tax return on Form 1065. This simple drill could save you thousands in SE tax for 2008 and similar amounts each year in the future.

Valentines Day & Taxes: 7 Tax Tips for Married Couples

It is almost Valentines Day, and love is in full bloom. Unfortunately, so is tax season, which is one of the busiest time of the year for millions of married couples. Between the ever-evolving tax code, dozens of new credits and deduction, it can hard for married couples to know where they stand. In the spirit of Valentines Day, I decided to put together the following list of my favorite tax tips for married couples.

1. The Marriage Penalty

The marriage penalty is a word that is commonly thrown around during tax season, but most people do not have a clue what this penalty is. The so-called penalty is levied on couples that make enough money to put them above the 15% tax bucket. It causes personal exemptions to phase out, reductions in itemized deduction limits, and a phase out of child tax credits for those with an adjusted gross income of $110,000 or more. However, there are several ways couples can still make the best of their marriage financially, and find other ways to save in their taxes.

2. Filing Status

Since you have the choice to file jointly or separately, you should always see which one costs less. However, figuring out which filing status benefits you most can be very difficult and confusing to figure out. If you are seriously considering changing your filing status, then I highly recommend you speak with a tax professional who can evaluate the pros and cons of every option.

3. Newlyweds

The first and foremost tax rule for newlyweds is to make sure that you are married, in the correct year. In order to qualify as “married” for tax purposes, you and your spouse must be married by December 31st of that year. If you changed your last name during marriage, you will also need to get an updated social security card with the new name for tax season.

4. Medical Expenses

If you or your spouse accumulated a lot of medical bills in the tax year, then filing separately may benefit you greatly. Taking the burden on in a joint return could result in less deduction choices, as well as probable overall return loss. But as with all changes to filing status, you want to make sure to thoroughly investigate your options before making a decision.

5. Tax Debt

Unpaid tax debts can be tricky once you become married, because it could expose your spouse to liability for some of your mistakes. Especially if you file a joint return. If your spouse was expecting a significant tax refund, he or she will be in for a rude awakening if the refund is held to pay-off your old debt. Luckily, the IRS has relief for this situation—Injured Spouse. However, if you have a large amount of unpaid taxes that you will not be paying off any time soon, then you should definitely consider filing separately. You should also consider informing your spouse of the underlying debt to avoid any unnecessary surprises.

6. Update Withholdings

After getting married you want to make sure to remember to adjust your withholdings at work, so that you do not overpay the government. Overpaying by a little bit is okay, but you want to make sure that your withholdings are as accurate as possible. No need to pay Uncle Sam any more money than necessary.

7. Consider Hiring a Pro

Unless you or your spouse works in the tax industry, I highly recommend hiring a professional to help you with your taxes. Even if you have been married and filing together for years, tax codes are always updating and changing. At least check with a specialist before sending your forms in make sure you have taken advantage of any and all credits and deductions.