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Make Your Savings Earn More For You

According to a study, Americans keep more than $1 trillion in low-interest rate savings accounts, often for convenience and a desire for easy access to their cash. 

But by shifting that money into safe, higher-yielding accounts, you could reap $30 billion to $50 billion in additional interest yearly, says the Consumer Federation of America and Providian Financial Corp. that commissioned the study. 

Low-yielding savings accounts that are earning on average 2.1 percent are widely held by consumers, no matter the age, income or education, the groups said. But Americans 65 and older may be losing out more than other age groups because they are more likely to hold accounts with $25,000 or more. 

One of the dangers is in keeping money this way is that for the things they want in life you come up short. The other danger is that, failing to see any kind of satisfying return on your money, just might not excite you about saving. In other words if you are not growing your money, then why should you save?

How can we put our money in proper places? 

Here are several options: 

1) Money market mutual funds, now paying 5.5 percent to 6.5 percent in taxable funds. They invest in Treasury bills, commercial paper and other short-term obligations, and though not FDIC insured, are widely considered safe. One can write checks, although many funds require a check to be a minimum amount.

Home Business Bring Some Great Deductions

You may be able to lower your taxes and it doesn't matter if you are a teacher, contractorm or sale Mary-K on the side. Home businesses have tax cutting capabilities that aren't available to individuals.

Any and all expenses for your business in 2006 are deductible--pens and staples, educational expenses, legal fees, bad debts, and business entertainment and travel costs.

According to an article in the Chicago Tribune, deductions small businesses often miss include:

Home Business

Deducting part of your residence. If you are using a part of your home or apartment to conduct business, you can deduct it.

Even if the business is based in a mobile home or boat, you might be on sound ground, said Stephen Fishman, author of "Home Business Tax Deductions: Keep What You Earn."

Income Tax Loans Up to 2000% Interest

If someone offered to take part of your paycheck each pay period and hold it for you until the end of the year, then charge you a fee of up to 2000% (yes, two thousand percent) to get it back, you'd probably laugh them out of town. Yet According to about.com if you've ever taken a pay day loan or tax refund loan, that's exactly what you've done.

Tax refund loans, also called "instant refund loans," or "refund anticipation loans," target lower income Americans, but people in middle income brackets also fall for this gambit. For a loan fee ranging from $29.95 to $89.95 plus electronic filing fees of $40, you receive a loan for the amount of your refund (usually up to $5,000) within one to two days. When your refund is received in a special bank account set up by the lender, the loan is repaid.

The average loan time is ten days.
The fees for the average refund of just under $2,000 equate to an annual percentage rate of 222.5%. Some taxpayers pay the equivalent of a rate of over 2000%, according to the Consumer Federation of America and the National Consumer Law Center. Yet 12 million taxpayers paid over $900 million dollars in fees last year just to get their refunds a little faster.

Tax Tips: Don't Pay Uncle Sam What You Can Keep For Yourself...For Now, Anyway

We all know that the government needs our tax money in order to do its work. But you can put it to good use too. Here are some tips on reducing your 1999 taxable income while at the same time putting money away for retirement and other good causes.

• If your employer offers a 401(k) plan, take advantage of it! If you can't afford that much, you should definitely contribute enough to get your full employer match, if your company offers one. (Say your employer will contribute 50 cents for every dollar you contribute up to 6% of your gross salary. You'll get an extra 3% of your salary for free! If you earn $50,000 a year, that's $1,500 on your investment of $3,000.) If you don't get a company match, you'll still get the benefit of compounded interest -- you don't have to pay tax on your interest until you actually withdraw the funds.)

• Make sure you explore other options for tax-deferred savings.

• Here are a few you may have overlooked.
  • If your non-working spouse doesn't have a spousal IRA, you might want to set one up. You can make annual deductible contributions of up to $2,000 into this kind of account, even if you participate in an employer-sponsored retirement plan like a 401(k) (which used to preclude deductible spousal contributions). But watch your modified adjusted gross income (AGI) - this type of deductible IRA contribution is phased out at AGIs between $150,000 and $160,000. (You can calculate your reduction by subtracting $150,000 from your modified AGI and dividing the result by $10,000.)
  • If you aren't eligible to make tax deductible contributions to an IRA, you might want to consider non-deductible IRAs for yourself and your spouse - at least your interest income will accumulate tax-free in the accounts.
  • If you have children, education IRAs are a way to save. You may contribute up to $500 annually (non-deductible) to an account for each child under 18. Withdrawals are tax-free if they are used for qualified educational purposes.
  • If you are self-employed, consider establishing a Keogh or SEP retirement plan.

• Don't Lose 50%! You are required to take a minimum distribution on your tax-deferred accounts (401(k), IRA) by April 1 of the year following the calendar year in which you turn 70. If you don't, you could be charged 50% tax on the amount you were supposed to take out, but didn't. (The IRS lets us defer some taxes, but we have to pay them eventually. The benefit to us is that, as retirees, we are most likely in a lower tax bracket.) One exception: if you are 70 and you are still working for the employer that sponsors your 401(k) plan, and you do not hold more than 5% of company stock, you can put off minimum distribution payments.

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Free Filing - No Longer Offer Refund Loans

Free Filing, Pitch-Free

According to an article the Associated Press (AP), the Internal Revenue Service and private tax preparers have agreed that the Free File electronic-filing program will be offered for 2006 tax returns without solicitations for refund loans -- which sometimes carry high interest charges and fees.

The IRS said the Free File Alliance, a coalition of makers of tax-preparation software that make filing software available free, would no longer include side offerings such as "refund anticipation" loans in their programs.

Such loans let customers immediately take home the expected refund amount. But consumer groups have complained that some loans come with high interest rates and fees.

"We heard many legitimate concerns about the marketing of ancillary products during the last filing season," IRS Commissioner Mark W. Everson said in a statement. "This is a constructive step."

According to the AP, the IRS said its data showed that only 0.5 percent of Free File users requested a refund-anticipation loan last year in filing their 2005 tax returns.

The Free File program enters its fifth year this month. It is available to taxpayers who earn $52,000 or less, about 70 percent of all returns. Taxpayers must enter Free File through the IRS Web site, http://www.irs.gov.

About 3.8 million taxpayers used the Free File program this year, still a small percentage of the 70 million taxpayers who filed returns electronically.

Under the agreement, the alliance can still offer to prepare Free File users' 2006 state tax returns for a fee.

 

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