Let’s be honest, nobody wants to pay taxes but it is just one of those things that needs to be done. As a recent college graduate, my dad has always done my taxes for me. I know that many graduates are in the same situation as I am: what do I do now?

Here are some tips that might help you get through your first round of taxes:

1. Ask for Help – Your parents, friends, or other family members are not going to say no if you ask them for help with filing your taxes. If you are confused it is better for you to ask someone to walk you through them your first time instead of doing it wrong and continuing to do it wrong in the years to follow. Ask if you could sit down with someone while they do their own taxes (yes, this may be extremely boring but you will learn a lot).

2. You Don’t Need to Pay Someone – My friend paid someone a few years ago to help her with her taxes and realized it was a huge waste of money since everything got messed up. Don’t leave your taxes to someone else. Turbo Tax can be extremely helpful and gives you step by step instructions on what to do. I’m not saying that paying someone will end up poorly for you, but if you are trying to save some money then try doing your taxes by yourself first.

3. Don’t Try to Skip Out on Taxes – It won’t help you in the long run to avoid paying your taxes. If you get paid in cash under the table and do not get taxes taken out, you don’t want to try to avoid filing your earnings with the government. Yes, some people may slip through the cracks, but there is a chance that you may not and the consequences may be more than you want to pay. According to our partners at MainStreet.com, more than 50% of taxpayers will be audited during their lifetime when it comes to their taxes. Don’t take risks or try to find loopholes because you could be one of these people!

4. Consider All Your Options – There are so many ways that you can get some money back on your taxes. In an article at MainStreet.com, Sean Leviashvili explains all the areas that you should consider while filing for your taxes such as your 401(k), property taxes, and charitable contributions. Check out the article here for more information about how these and other areas can help you save money on your taxes this year.

Taxes won’t be fun so doing it for the first time might be a little bit stressful. Nobody likes doing their taxes (except for maybe those that do them for a living) but it is something that needs to be done. Check out some advice from our Geezeo users in the Grim Reaper: Death, Taxes, Wills, Lawsuits, etc. group!

Photo: Aldo Garza

As we approach the end of 2008, now is the time to start thinking about your retirement contributions.  Most people are aware of the rules for corporate 401(k)s, Traditional IRAs and Roth IRAs, but here are four retirement plan options that you might not know.

1. Individual 401(k)
Sometimes known as the Individual(k) or the Self Employed 401(k), the Individual 401(k) was created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).  It is designed for owner-only (or owner and spouse) small businesses, and allows them to establish an Individual 401k plan, similar to those run by large companies.

Compared to other self employed retirement plans, the Individual 401(k) allows for greater contributions, and thus greater tax deductions.  In 2008 the contribution limits for an Individual 401(k) is $46,000, or $51,000 if the owner is over age 50.  This is made up of a maximum salary deferral of $15,500 and profit sharing contribution of up to 25% of compensation. In addition, like a corporate 401(k), the Individual 401(k) allows for tax free loans of up to 50% of the total value, to a maximum loan of $50,000.

2.  SEP IRA
The Simplified Employer Pension (or SEP) plan is another retirement savings vehicle for small business owners and the self employed.

The annual contribution limit is 25% of W-2 compensation, to a maximum of $46,000 for 2008.  Like a Traditional IRA, monies invested in a SEP IRA are tax deductible and earnings are tax deferred.  To make the maximum contribution into your SEP IRA as a self employed or small business owner, you must declare at least $230,000 in earned income.

3.  Simple IRA
A Simple IRA is an employer sponsored plan for small businesses with up to 100 employees.   It consists of two parts: an optional employee salary deferral and a mandatory employer match.

Like a 401(k), employees can defer up to 100% of their compensation, to a maximum of $10,500.  This amount is tax deductible for the employee.  Employers are required to match the employee’s contribution on a dollar-for-dollar basis, up to 3% of the employee’s compensation.

4.  Spousal IRA
There are two flavors of Spousal IRA: nonworking spouses, and both working spouses.

A nonworking spouse can make a tax-deductible 2008 IRA contribution of up to $5,000, as long as the couple files jointly on their tax return, and the working spouse has enough earned income to cover the contribution.  There are income limits and rules surrounding the working partner’s coverage in an employer’s retirement plan (such as a 401k) which phase out the deductibility of this contribution, so always check with your tax specialist before making any contribution.

If both spouses work, and neither participates in a qualified retirement plan at their job, both can make deductible IRA contributions of up to $5,000 as long as there is enough earned income between them to match the amount of the contribution.  For example, a wife works a regular 9-5 job (which does not offer a retirement plan) and the husband has a small part time business at home.  Her income is $65,000 and his is $4,500.  They can both make deductible IRA contributions of $5,000 (for a total of $10,000) because combined their income is over $10,000.

Spousal IRA contributions can be made into either a Roth (non-deductible) IRA or a Traditional (deductible) IRA.

There are pages and pages of rules and regulations surrounding all of these options, so please talk to your financial advisor and tax professional first.

Related
4 Reasons Young Adults Should Start a 401k

3 Financial Tips to Be Your Own Boss

How to Earn Extra Cash

10 Steps to Take Before You Open Your Own Design Business

Have you ever seen the movie Failure to Launch with Sarah Jessica Parker and Matthew McConaughey? If so, you may remember that the movie is a chick flick where Paula (Parker) is hired by Tripp’s (McConaughey) parents to convince him to finally move out of their home. There is a minor detail in the movie where one of Tripp’s friends explains to Tripp that technically he is more grown up [than Tripp] because he has already purchased his parents’ home in order to avoid the inheritance tax. So technically, Tripp’s friend is living in his own home…not that of his parents.

I found it really interesting that (1.) Such an important aspect of life was thrown into a romantic comedy and (2.) I had no idea about this inheritance tax before it was mentioned in the movie. It got me thinking that maybe I wasn’t alone and other people might not know this fact either!

Many times people are left property through a will that is made by the deceased. What they may not realize, is that they can also be taxed on top of this property and do not get it for “free.” (To find out more about written wills, check out this Geezeo article called Importance of Your Will!)

An inheritance tax is more commonly known to many as the ‘death tax’ or an ‘estate tax’ (even though they don’t always mean the same exact thing). This tax is so unpopular that the government is looking to get rid of it altogether. However, for now it remains. From 2006-2008, any inheritance below $2 million is tax free; in 2009 this number will increase to $3.5 million. Here’s the catch though – for every dollar over this amount you are taxed. Many tax rates vary state by state, but I can definitely see that number adding up fairly quickly!

One of the largest affected areas by this death tax is family businesses. Many families are not able to pass down the business through generations because those receiving the business cannot afford to pay off the tax that comes with it. In my mind it is really sad that a family tradition cannot continue when someone passes away. If the company was thriving in the first place, it should not be closed down just because someone cannot afford to pay a tax…if the person who passed away had survived, there would have been no tax anyway! It is hard enough to lose a close family member, let alone the business that has been passed down through generations as well.

One of the problems that the government is facing by getting rid of the ‘death tax’ is that it generates a fairly large amount of revenue for the government. According to USA Today, ending this tax would reduce the government’s revenue by about $290 billion to $745 billion over 10 years. That definitely is a lot of money, but that doesn’t mean that this tax is fair.

Losing a loved one is hard enough; dealing with financial difficulties after their death just makes it worse. Like I mentioned earlier, I hadn’t really heard about this topic until recently. If any of our Geezeo users have any stories surrounding the ‘death tax’ it would be interesting to hear how you dealt with it. I personally can’t imagine anything worse than having to deal with financial uncertainty at an already uncertain time, but I have not gone through this scenario and do not know firsthand. From what I have heard and read however, the ‘death tax’ sounds like anything but a good time!

© Photo by Kenn W. Kiser

Related Articles:
Can You Buy a House After Death?
Make The Call That Will Make Next Year’s Tax Filing Easy
Your Own Personal “Bucket List”
Life Changes? Money Fears?

Nobody really wants to think about retirement. But the truth is, you really need to consider all the important options and lifestyle choices you must make BEFORE the paychecks stop coming. You want to be prepared when that day comes, not struggling to figure it out once it happens.

Some aspects of retirement you should start to consider (the earlier the better!):

1.) Saving vs. Spending – This is obvious. There will be no retirement without saving some money each month. But the difference between saving and spending the same amount of money is significant. In an article from our partners at BankingMyWay.com, Jeffrey Strain writes about Spend $10 Today, Be Out $100K Tomorrow.

In this article Jeffrey Strain explains the following:

“If a person were to save $300 a month (approx. $10 a day) and invest it to get a 5% yearly return, that person would have $20,402 in the bank after five years. On the other hand, if a person ends up spending $300 a month more than he has and puts it onto a credit card that he doesn’t pay off over the same 5 year period, that person will owe $36,259, assuming a 26% credit card interest rate. After five years, the difference between saving $10 and spending $10 each day results in a $56,661 gap in net worth between the two.”

When you look at it this way, it is easy to see how much money you are able to lose, even though spending $10 a day does not seem extravagant.

2.) Keep Your Will Updated – This is extremely important. Although many people (along with retirement) do not like to consider their own death, a will is your only way to make sure things run smoothly when you are gone. It also helps your family through the hard times if all of your decisions are put on paper and they don’t have to struggle to figure out what you would want. Check out this Geezeo article to get more information on the importance of your will.

3.) Lifestyle – Again, this may seem obvious but your savings really determine what type of lifestyle you will lead after you retire. Many people underestimate how long they will live and also how much to save per month. If you want to be able to live the same type of life, make sure not to underestimate these important aspects! You want to be able to travel and live an easy life…not struggle to make ends meet.

4.) Where To Live/Housing – This one is obviously no easy decision. Will you stay in the same house? Should you move to a community living area? Or do you want to move closer to your families? Or how about moving to warmer weather climates? All of these are important questions to consider and the current housing market does not make the decision particularly easy. According to an article on MainStreet.com by Lauren Tara LaCapra, it was found that baby boomers could really struggle with the housing market drop because it will be harder for them to change their spending and saving habits compared to those that are of a younger generation.

5.) Taxes – Regardless of if you have a steady income or not, you will still be affected by current tax levels. For instance some states have income taxes but will not tax your retirement income or your social security. Do some research; maybe you want to live in one of these areas to save some money!

These are just a few things to consider but obviously there is much more! Just make sure to plan EARLY. Being prepared for the unexpected will help you out the most in the long run.

Photo: Michael Connors

MainStreet.com alerts us to a new tax law on the books for anyone dumping their American citizenship.

—
There’s A Law That Takes Away Money If You Leave U.S. Citizenship?
By Terry Savage

A lot of people probably can’t understand why someone would voluntarily give up American citizenship — but if someone wanted to do that, they’d now incur financial penalties for it.

Congress just passed a new law that will stop your capital — or at least a good portion of it — at the border, should you decide not to be a U.S. citizen anymore. Is it, perhaps, in preparation for the possibility that Americans might rebel at the debt and taxes incurred by their government by leaving for lower-tax locales?

You probably didn’t notice this little provision inserted into the Heroes Act of 2008, passed by Congress on June 17. The headlines in the press release about the law were about the increased benefits for veterans and families of deceased military.

But Richard Kohan of Price WaterhouseCoopers drew my attention to one section of the act, which states that anyone voluntarily giving up his or her citizenship will be taxed on all of his assets as if he or she had sold them — paying capital gains on assets that have increased in value, even though they have not been sold.

Continue reading for more details.

Why should you spend a few minutes reading about personal taxes? Aren’t there other equally confusing and boring topics? And won’t my tax accountant do it all for me anyway?

Consider that taxes are a lot like someone (Uncle Sam) peeing in your (financial) pool. The difference being that when someone pees in your pool you get upset. When Uncle Sam does it, his efforts go toward maintaining our highways, schools, and other public ventures. So, complain as we might, no one who ever peed in your pool does so much for you. It’s a trade-off.

As stated, this series will focus on the basics. Here are the basics to remember about personal taxes:

1. It is illegal not to pay taxes. Proceed cautiously if you smell advice that is intended to avoid taxes altogether. You cannot plead ignorance or stupidity. You can, however, be fined considerably and/or yanked out of line and into jail. Just say’n…

2. That said: the name of the game is to pay what is legally required but nothing more. Pay your share willingly. Americans pay considerably less in taxes than folks in other countries. (If we paid more, maybe we’d have the luxury of free health care, too!). How do you prepare? Organize, organize, organize. Save receipts throughout the year so you can back up any deductions.

3. File your tax return even if you can’t pay your taxes. When you file but don’t pay, the IRS assesses a penalty of 1/2% percent per month on the balance due. That’s a lot better than the 5% penalty compiling daily on top of this 1/2%, plus market rate interest if you don’t even file. It can seriously add up.

4. Never ignore any mail from the IRS. The government can freeze your bank accounts, garnish your wages, and put liens on your property. You will endure a lot of embarrassment, fines, and aggravation if you choose to ignore the IRS. Save yourself the headache.

When in doubt, speak to someone who knows the law and likes to crunch numbers. Remember: it’s your tax return.

Related:
* 3 tips: how do I hire an accountant or tax professional?
* Year-End Financial Housekeeping
* Don’t Let the “Gotcha’s Get You

Tax time is over for another year. Did you swear this was the last year you’d have the hair-tearing, math-heavy, where-is-the-box-of-wine-to-calm-my-nerves? weekend sorting through your financial life? You’re not alone.

Now that tax season is over, it’s a good time to start looking for an accountant. Here are three tips to manage your tax professional or certified accountant.

1. Hello? Yes, it’s me, I had a question. Choose a professional that returns your calls promptly. Sure, cut them a little slack during the heaviest weeks of tax season. Generally speaking, however, you want someone who welcomes your calls. Seems obvious, right? You’d be surprised. It took me three pros to find one who was willing to talk with me at length.

2. You’re the pro; I’m in the minor leagues. Hiring a numbers professional doesn’t get you off the hook. To really maximize your use of (and relationship with) your tax professional make sure you are as educated as a non-pro can be on topics relating to your specific situation. This allows you to say, “I’ve read about XYZ approach and think it sounds appropriate. What do you think?”

Don’t care to be that proactive? Make sure you find someone you can trust, and read up on any unusual recommendations. You shouldn’t blindly sign something when your “professional” says, “I think we should structure this as a Ponzi…” This is doubly-important if your pro also sells investments.

3. Tune-ups every 10,000 miles. Found a great accountant or tax professional? Now make sure you keep them informed every year about life changes that may impact your finances. Life events such as children, divorce, inheritance, home purchase, or starting a business all can influence your tax return. Updates ensure they know your situation and have your best interests in mind. Sometimes these changes reveal new ways to structure your taxes.

In summary: find someone you can trust who returns your calls. Keep yourself accountable to your accountant because you’re ultimately responsible. And keep your pro up-to-date for best results. Here’s to a less stressful tax season next year!

Related Geezeo groups:
Grim Reaper: Death, Taxes, Wills, etc.
Bookkeeping Women

“The money-management needs of the under-40 set today are just widely different from even 15 years ago.”

A lot of Geezeo users ask, “where do I start”? Gaining control of your finances can, at times, feel overwhelming. Sometimes it requires you change habits. Sometimes you have to learn new things. And sometimes, you just have to cut to the chase, get down to basics, and take action.

So I was pleased to ask Carmen a few questions about her book and get her thoughts on issues close to young people’s wallets.

Carmen, what compelled you to write the book Generation Debt: Take Control of Your Money: A How-to Guide?

I was a young editor at a personal finance magazine and I realized that there was a big hole when it came to the needs of young adults. At the time, a couple of year ago, most personal finance information and media didn’t have a 20-something graduating five-figures in debt and with no health insurance in mind. The money-management needs of the under-40 set today are just widely different from even 15 years ago. I wanted to address that. And mostly, I wanted to pull together my advocacy side with writing swathes of people don’t subscribe to personal finance magazines and don’t grow up exposed to good financial advice. It’s important now, more than ever, to be on your money-toes. Why not spread the word to regular folks? The advantage of having exposure to and knowledge of personal finance these days is an advantage that can mean the difference of living a life in constant financial strain and living a comfortable, in control life. I want to give as many people as possible that edge.

What do you see as the largest contributing factor(s) that keep young people (particularly women) from taking an active role in managing their finances?

Fear. It’s intimidating. They don’t teach personal finance in school, yet it’s a very technical life-skill we all should have. Some of us start out at the gate way ahead in terms of knowledge and exposure while many others learn from scratch and in practice. Learning the hard way is a difficult way to learn. Think of money management like mechanics. It has its own vocabulary, rules, changing products, etc. How many people know how to change their oil? It’s technical and anything technical, even if it’s a basic life skill, is intimidating.

I also think that there’s an element of struggle for many young adults graduating with a load of loans, then landing a great but low-paying entry-level job and trying to live on your own is a big burden. One our parents didn’t have. Just managing to keep your head above water can be overwhelming. Sometimes it feels better to hide your head in the sand!

Women have the added societal pressures of expectations, in terms of appearance and roles, but it’s only been a couple of generations where it’s the norm for women to live on their own, have a fulltime career and be partners in taking care of the household financially. We’re still blazing trails here! To adjust in two or three generations what has been the norm for centuries is difficult and so we have a funny relationship with money. The tradition of women as breadwinners hasn’t taken hold in a substantial way yet. All the more reason why we should be on top of things — plus, we live longer, decades longer on our own, especially as parents.

You break your book down into broad categories a person needs to control in order to get their finances in good order. Which of these chapters was most personal? Which do you think is most critical for our generation to master (Gen X and younger)?

Knowing when and how it’s OK to spend and when and how it’s good to borrow. There is a big fat corporate machine out there that wants you to spend, spend, spend — don’t be easily manipulated. Be selfish and protect yourself financially.

Everyone can read the book and get information but a big part of it is attitude and approach. How do you manage your money? Are you pretty much on top of things? Or are your bills all over the place? Do you know when you can and when you can’t afford something? And do you have a plan in place to get rid of debt and build some savings and then equity? It’s similar to keeping your body healthy. We all know what to do, but do we do it? And just like with dieting and exercise, if you integrate a manageable program into your everyday life (leaving room for slip ups here and there), you’ll be in great shape. If you make the decision to make money-management a regular part of your life, one that gives you a deserved element of control and comfort, you will always be taking care of yourself, and one day, your loved ones.

As for what I write about that is most personal for me, well, I’ve been through it all! My mother and I waited tables to help put me through undergrad and I still left with a nice chunk of debt. I also started on the job-front with little help except three months on my brother’s couch while I saved up a deposit for my own place (Thanks, bro!). I went into credit card debt just to get a futon to sleep on and some clothes to look decent in. And yes, I followed my own plan (credit card debt chapter!) to get out of debt years later. I now own my first home with the hubby and we even pay for our own insurance. Point to a page, I’ve been there! Self-made, through and through.

There isn’t a specific chapter on philanthropy so I’m curious how you see giving as part of a good financial plan. Is it unrealistic for young people fresh out of school to have the money to contribute to causes?

I would have loved to address that and I do get this question now and then. I grew up in a family that tithed (the practice of giving 10% of your income regularly to your church or charity) no matter how little money we had. Sometimes I had to ‘tithe’ with my time rather than cash, but I believe that giving back is an amazingly important and rewarding thing. Ten percent or ten dollars a month whatever you can afford you can afford it if you make it a priority to do so. I was always amazed in my lean days how I would find that extra $20 I needed to pay dues or the phone bill. Cash can be found, usually in those couple of dollars at the toll booth or newsstand or iTunes. No matter what your budget or income, more so when you’re young and no one else is depending on you yet (such as children), if you want to give back, find a way to give back. Make an automated deposit to your favorite charity every other month or even make it once a year if things are super tight. There’s always room in a budget to give back. And if and when you’re in such dire straits that you can’t give as much as you’d like, do what I did and hook up with a volunteer agency. Doing both can be doubly rewarding!

Politically speaking, students and young adults face a changing world .. and generally speaking, we aren’t standing up for our (financial) selves in the voting booths. You address some of these issues — like student loan reform— in your chapter “A Pricey Future”.

If you could boil it down to one financial issue our generation should consider critical for the next presidential election, what would it be?

Health care. As important as student loan reform is, we are all much more affected by the huge health care gaps in this country and it’s getting worse. Young adults are the fastest growing group declaring bankruptcy these days and a large % of this is due to medical debt. Young adults are the least likely to have health insurance. You have the advantage of time to pay off student loans but medical debt can go from $0 to $100,000 in a matter of days and that debt-load is a matter of life or death. It’s absurd. And I’ll stop there because I could go on and on with this one!

Can you tell us a bit about your upcoming book?
Let’s just say it’s going to help a lot of people.

I can’t wait! Thanks for speaking with us, Carmen, and thanks for writing such a clear and concise book. I think many Geezeo users will enjoy it, too. You can find out more about Carmen and buy her book by visiting her website, GenDebt.com.

Did your cable get shut off? Good. Crack open a book. Look for more financial book reviews here at the Geezeo blog.

P.S. Carmen is going to be featured as one of four experts on two upcoming CNBC specials of ‘The Millionaire Inside’ taping this week, airing on CNBC at 9pm next Tuesday, the 29th.

Thinking about how this past year stacked up? Planning for the new year? Here are some things to do to get your financial life spruced up and ready for the new year.

1. Check to see how much you’ve contributed to your IRA. (Do you even have one?) Yearly contributions vary depending on age and income. Have you maxed it out? If you haven’t, get cracking. I believe you can still add to your IRA as a “2007 Contribution” until April 15th. (But check with your certified tax or investment person, I’m no expert!). Once the year is out, so is your opportunity to contribute to your future, tax-advantaged.

2. Use some of the “down time” to gather everything you need for filing your taxes. Note: I didn’t say you had to DO anything with the paperwork…just put it one place! This will make life at tax time easier…particularly if you’re self-employed. The best part of this task is that there is no reason you can’t do this part with a cup of eggnog (or soynog) in hand.

3. If you moved this year send a postcard to your old employer giving them your new address. It’s a nice gesture, and besides, you need them to send your W2 (or 1099, or other tax documents) to your new place so you can file your taxes without delay.

4. If you secretly think that you could do a better job of saving or investing for your future, now’s the time to sit down and set up that automatic draft. Set it and forget it.

5. Finally, clean out your closet. According to feng shui this opens up new possibilities in your life. But in practical terms, it’s nice to feel organized. And you can donate those unused items for a nice tax write-off… and help someone else out. Isn’t that what it’s all about?

Doing your taxes sounds like less fun than taking your finals, but don’t be so glum. Doing your taxes could actually get you some cash back in your pocket. If you’ve had any money taken out of your paychecks you could have a refund coming your way. For some extra guidance on filing your taxes as a college student check out these 12 Tax Tips for College Students and this article from UNM’s Daily Lobo.

If you’re a recent grad you should check out some of these tips from TurboTax. TurboTax addresses deductions like Student Loan Interest, Moving Expenses and Job Hunting costs. All of which can put more cash in your pocket come tax time.