Now, heres a real tax savings to the individual taxpayer with dependents. The child tax credit is a direct federal income tax credit based on the number of dependent children in your family. This federal tax credit is available to provide credit to taxpayers with income below certain established levels. Started in 2003 and going to 2010, the maximum credit per child is 1000 and is first applied to reduce or eliminate the taxpayers federal tax liability. In 2011, the Sunset Provision will decrease the tax credit unless the credit is extended or made permanent.
How does this federal tax credit work and who qualifies for this credit? Well, lets start with the last question first. Every family with children qualifies, however the federal tax credit phases out when income is above 110,000 for married filing jointly, 75,000 for single, head of household, or widow, and 55,000 for married filing separately. In addition, the child tax credit might be limited by the amount of income tax you owe as well as any alternative minimum tax you might owe. But like everything else in this world, there are exceptions. If the amount of your child tax credit is greater than the amount of federal income tax you owe, you may be able to claim a portion or all of the difference as an “additional” Child Tax Credit.
First exception: if your earned income exceeds 10,750, you may be able to claim up to 15 percent of that amount. Second exception: if you have three or more qualifying dependent children in your family, you may claim up to the amount of Social Security taxes you paid during the year, minus any Earned Income Tax Credit you received. If you qualify under both these exceptions, you receive the greater of the two amounts, up to the difference between your federal tax liability and your regular Child Tax Credit. You may want to seek a tax professional for help with this credit.
Now, to answer the how does it work aspect; the best approach might be to simply break down the requirements, and explain each fully. The child tax credit is the responsibility of the Internal Revenue Service (IRS), and the credit issuance is determined through the federal tax returns the individual taxpayer completes each year. Taxpayers must complete either the 1040 or the 1040A and the IRS form 8812. The IRS will then determine eligibility, and process accordingly; the requirements and limits change each year, so the individuals eligibility may change each year.
In order to qualify, a family must have earned at least 10,500 in income, and that figure will rise each year, according to inflation. There must also be at least one qualifying child. In order to be classified as a qualifying child, the child must meet the following requirements: under age 17 of the tax year, claimed on your tax return as a dependent, must pass the relationship test (son, daughter, stepchild, grandchild, brother, sister, foster child, adopted child, etc.), be a US citizen or a resident alien, and have a social security number.
During its original year of inception, many families with qualifying children were mailed an advance federal income tax credit of either 300 or 400 pounds; but they were also told this would reduce their end-of-year tax credit, pound for pound.
The method used for determining the tax credit is fairly simple, and is not difficult to calculate; however, any individual taxpayer with uncertainty should seek the advice and assistance of a tax professional when preparing their federal tax return.
The credits, as stated earlier are claimed when you complete a 1040 or 1040A and file your returns with the Internal Revenue Service. Although many individual taxpayers pay for a professional to complete their federal tax returns each year, there are qualified preparers that are available free of charge each year, through the IRS; either way, make sure that you communicate your qualifications for the child tax credit, and check your tax return to see that the credit was applied. You do not want to let this tax credit slip by.
The child tax credit, along with the Hope and Lifetime Learning credits are a direct means to affect the individual taxpayers tax liability and offer some level of tax relief. This is meant to help parents with the costs associated in raising children, and educating them. Most often, the child tax credit is a way to alleviate the existing federal tax liability for middle-income taxpayers. For the extremely low income families, there is often no income tax due, so there is no allowable tax credit. Although it does not help the poverty level families as a form of federal income tax refund or tax-free income, it does help to alleviate any federal tax liability. The Earned Income Credit is used by many poverty level or low-income families as a supplement to their earned income.
Do you write checks for everything you buy?
Are you a cash only type of person?
Are you like me and you live and die by your debit(debt)check card?
Regardless of the method you use to make your purchases, it is important to not only know what was spent, but what was purchased. When you can determine where your money is going it helps to accomplish a few different tasks at one time.
The first advantage to tracking your spending is that you can visually see how much you are spending in a particular category.
What most people don’t realize is that by knowing the exact figure that is spent on a particular category will lead to a subsconscious effort to control spending in that area.
Secondly, by tracking your spending you can effectively set up a savings plan that will help you to avoid financial disasters.
The saying “Plan for the unexpected!” fits very appropriately here.
If you have savings, you can be ready in the event something unexpected happens. (i.e. car breaks down, roof collapses, you take ill, etc.)
Tracking your expenditures will also lead to better money management. You will know exactly where you stand financially. This is very helpful in avoiding or reducing overdraft fees and other associated bank fees.
If your bank requires that you keep a minimum balance in your checking account, *you* will know when you are approaching that limit and can manage your money accordingly.
Lastly, tracking can lead to piece of mind. Meaning, if done right, you can rest at ease knowing that you have a strong grasp on your finances.
Even if you are not debt free, by tracking your can create a plan that will lead you out of debt and eliminate the stress that goes along with it.
These are just some of the advantages of tracking where your money goes. Of course, for every one there may be even additional advantages that we didn’t mention here. Most importantly is just doing it. If nothing else you can save money, avoid costly fees and be prepared for just about any financial disaster that may happen.
Motorists may not need to put the brakes on their lifestyles to save at the pump. Try these simple fuel-saving tips instead.
• Keep the tires of your vehicle properly inflated. The U.S. Department of Energy reports that underinflated tires increase fuel consumption by up to 6 percent and one study estimates that 50 to 80 percent of all tires on the road are underinflated. By these estimates, the U.S. could save up to 2 billion gallons of gas each year simply by properly inflating tires.
• Regularly replace your air filter. A clogged air filter can increase fuel consumption by as much as 10 percent. An added bonus: Air filters keep impurities from damaging the interior of the engine. Replacing them won’t just save you gas. It could save your engine, too.
• Upgrade your motor oil. According to multiple independent university tests, Royal Purple motor oil improves fuel economy by as much as 5 percent and produces notable horsepower and torque improvements. That means motorists could save gas without giving up performance.
• Follow the maintenance recommendations in your vehicle’s owner’s manual. An out-of-tune engine can increase fuel consumption by as much as 15 percent. Always follow your car manufacturer’s suggested tune-up schedule.
• Lighten your load. Don’t carry extra weight in your vehicle. Doing so burns extra gas and could cost you money. Only carry sandbags, tools and other heavy items when you think you’ll be needing them. Also, don’t forget that carrying lots of small, light items can be the same as carrying one heavy item. Be sure to clean your trunk and backseat out regularly.
Term life insurance is the easiest type of life insurance to understand. To put it simply, the insured person pays a minimal premium per thousand pounds of coverage on an annual, semi annual, quarterly or monthly basis. If he or she dies within the term of the policy, the life insurance company will pay the beneficiary the face value of the policy.
Distinctive Features of Term Life Insurance
To better understand some of the distinctive features of term life insurance consider the following points:
First, term life insurance is “pure insurance” because when you purchase a term insurance policy you are only buying a “death benefit”. Unlike with other types of “permanent insurance” such as whole life, universal life, and variable universal life, there is no additional cash value built up with this kind of policy. Term insurance only gives you a specific death benefit.
Second, the coverage is for a defined period of time (the “term”) such as 1 year, 5 years, 10 years, 15 years, and so on. Once the policy is in force, it only remains in force until the end of the term — assuming you pay the premiums, of course.
Third, most term insurance policies are renewable at the end of the term. With what is known as “Level Term Life Insurance”, the death benefit remains the same throughout the term of the policy, but since the insured person is getting older, the premium will gradually increase. As time goes by the cost of a level term insurance policy may become greater than you are willing to pay for a simple death benefit. An alternative is the “Decreasing Term Life Insurance” policy in which the premium remains the same, but the death benefit goes down as time goes by.
Fourth, most term policies can be converted to permanent policies within a specific number of years. If you decide it is important to retain the insurance coverage, converting may be something you should plan for. You can anticipate the accelerating cost of term insurance premiums and convert your policy before the premiums become prohibitively high. It is true that in the short term the premium will usually be higher than if you stayed with the term policy. But over the long term this difference will decrease because of the rapid acceleration of the term insurance premium as you get older. A permanent policy also accumulates cash value which increases the total death benefit paid to your beneficiary.
Popular Uses of Term Life Insurance
Term life insurance is most appropriate whenever you want to protect your beneficiaries from a sudden financial burden as the result of your death. Here are some of the most common uses of term life insurance.
Personal Costs Due to Death – When a spouse or family member dies there will be immediate costs. Many people purchase a relatively small term life insurance policy to cover these costs.
Mortgage Insurance – Banks and financial institutions often insist that mortgage holders retain a term life insurance policy sufficient to pay out their mortgage. Such policies make the bank the beneficiary of the policy. If the mortgage holder should happen to die before the mortgage is paid off, the insurance policy will pay it out. This is also a great benefit to a spouse whose earning power will likely be decreased due to the death of his or her partner.
Business Partner Insurance – Term insurance is also used by business people to cover outstanding loans with their bank, or to purchase a deceased partner’s shares on death, if they had an agreement to do so. Most partnerships have an agreement of this sort, and the policy premiums are paid by the business.
Key Person Insurance – When a company loses key individuals due to death, this can often result in hardship to the company. Key person insurance is purchased by the company for any individual it deems to be “key”. The company itself is made the beneficiary of the policy. So when a “key” person dies, the company receives a cash injection to handle the problems associated with replacing that person.
Getting a Term Life Insurance Quote
Here are some things to look for when getting a quote for term life insurance:
1. The cheapest rate today will not be the cheapest rate tomorrow. For instance, the cheapest premium today will likely be for a Yearly Renewable Term policy. This policy is renewed every year at which time your premium is also adjusted upwards. This is fine if you intend to convert to a longer term solution (permanent insurance) in a year or two, or if you have a very short term requirement for insurance. But if you think you will need this insurance for a longer period, you would be better to commit to something like a Ten Year Term Policy. This locks your premium and death benefit in for ten years. Your rates will not increase until you renew.
2. Compare coverage and premium projections for different policies. Think about the long term and get the coverage that saves you money in the long run.
3. Make sure you completely understand the conversion options built into the different policies you are considering. Most policies will let you convert part or all of your term insurance into permanent insurance within a specific period of time, and without the need of a medical examination.
4. For some situations you should consider options such as Decreasing Term Life Insurance in which the death benefit decreases as time goes by. This makes sense if the policy is being used to cover a mortgage or business loan.
Term life insurance is not the answer to all life insurance requirements, but it should be part of a sound plan for every person’s financial future.
Ask any new parent, and they will tell you that the costs associated with a new baby are many, everything from bottles to diapers to cribs, strollers, and high chairs, and all of this before the child even learns to walk and talk and beg you for a pair of 500 designer jeans. Parenting is one of the most rewarding, and important jobs that a person can have, in addition to being one of the most expensive. The good news is that there are two tax breaks offered by the federal government that the majority of parents can qualify for, which are the dependent exemption and the child tax credit.
The dependent exemption is a tax break that allows you to receive an additional tax deduction of as much as 3,000 each year until your child turns 19. This is addition to the standard tax exemption that the IRS allows per person to cover basic living expenses. Single people are allowed one exemption, while married couples have the option of taking two of these exemptions per year.
The amount that you will save with this exemption depends on your current tax bracket, and generally, the higher the tax bracket, the more money you will receive, unless your income is too high to claim an exemption, but again, most people will qualify. This dependent exemption is only phased out for married couples filing jointly with an adjusted gross income of more than 300,000. Limits for single parents exist as well, and it is important to research these limits, both for married and single parents, to be sure that your income does not exceed them. If you qualify for this exemption, you can simply fill out the required lines on your tax form, including an adoption taxpayer identification or social security number for each child.
The child tax credit is available for married couples filing jointly with a reported gross income of below 13,000, although again, it should be noted that income limits for both single and married parents are revised frequently. With this credit, it is possible to receive up to 1,000 per child.
Determining the amount of credit that an individual can claim requires the completion of the child tax credit worksheet, which can be downloaded from the IRS website. You will need to provide a social security or adoption taxpayer identification number for each child in order to qualify. As with all tax information you should always check with a professional because tax laws can change every year.
It is a well-known fact that Americans are miserable failures when it comes to saving for retirement. Well, the government is offering tax credits to change this for some of us.
Tax Credits for Retirement Savings
Social security is going to be under siege as baby boomers hit retirements. Fortunately, many baby boomers have put away piles of cash in 401ks and IRAs. Regardless, most people fail to do all they can in this regard. In an attempt to motivate us taxpayers to save as much as we can for retirement, Uncle Sam is dangling tax credits before us like the proverbial carrot.
The tax credit in question is the Retirement Savings Contributions Credit. Qualify for it and you may be eligible to take a credit of 1,000 for singles and 2,000 if youre filing jointly. The credit is eligible for those that make contributions to 401ks and retirement vehicles. The amount of the credit is determined on a sliding scale based on how much you make and contribute.
You can claim the retirement savings tax credit:
1. Individual taxpayers with incomes of 25,000 or less.
2. Individual taxpayers that are head of households and make 37,500 or less.
3. Married couples filing jointly who make 50,000 or less cumulatively.
There are some very minor restrictions regarding who is eligible for the tax credit. First, you have to be older than 18. Second, you cant be a full time student. Finally, another dependent cant claim you as a dependent on their tax returns.
Importantly, this tax credit is in addition to other tax advantages you gain from piling money into a retirement account. With a 401k, for instance, you can pound in pre-tax earnings, which cuts down your adjusted gross income for the tax year. Once you figure out your taxes, you can then deduct another 1,000 or so for the tax credit. Put another way, saving for your retirement is a no brainer.
The federal government is practically begging you to put away money for retirement. With this tax credit, there is absolutely no reason to fail to comply.
Conserving energy is on the minds of most Americans today. With gas prices skyrocketing, everybody is looking for ways to save energy, which translates into saving money.
If it takes 500 to heat your home in the winter, imagine how much it costs to heat a huge factory. Obviously any company building a factory needs to be as frugal as possible. Now, you can learn from their innovations.
In a heartening move against resource guzzling habits of big industry, Texas Instruments recently built a “green” factory in a town near Dallas, Texas. The company had been tempted to build the plant overseas to cut costs, but instead got creative and redesigned the factory’s blueprints to save money. It was a huge challenge and seemingly impossible feat for the design team, but it got done.
“We have to [approach energy consumption differently]…I think you do first have to set an impossible goal. Amazing things happen when people claim responsibility for the impossible,” said Shaunna Sowell, the company’s vice-president who oversees facilities world-wide.
Many changes were instrumented in building the new factory. Whereas the old factories were three stories, the new factory was redesigned to fit into two stories. More attention was paid to how the factory consumes its resources and short-cuts were adopted. Attention was also paid to the waste coming out of the factory, and now most of it is recycled. Passive solar construction techniques were used so the factory could become more self-sufficient.
“Green building is not necessarily about producing your own power with windmills and solar panels. It’s about addressing the consumption side with really creative design and engineering to eliminate waste and reduce energy usage–it’s the next industrial revolution,” said Paul Westbrook, who aided Texas Instruments in building their new factory and has a solar-powered home himself.
Texas Instruments expects to save big on energy costs for the life of their new building. Month in and month out, their bills will be low because they designed their building with energy conservation in mind.
The world stock markets are going through quite a turbulent period at present and on average around ten percent has been wiped off some of the leading markets over the last month. In this article I write about how on a personal note I try to save in a series of different financial products which helps me to spread the risk, including when we have these stock market falls.
I started saving money on a regular basis about five years ago. At this stage the stock market in the UK had just had some dramatic falls after the terrorist attacks in New York. I wanted to build up a kind of rainy day fund and decided to invest monthly premiums into a unit trust. I started saving 50 a month and over time I increased this figure.
I have to say that I have been very lucky as my investment has done very well, I have even over the last couple of years cashed in some of the units to pay for our family holidays. At the start of this year the stock market in the UK was showing its highest levels in five and a half years.
In the five years that I have been investing, I have bought and now own a large number of units in this unit trust fund. What it now means however, is that if the stock markets have a period just like the one it has had, it costs me financially on paper quite a lot of money.
I now believe that my exposure to the stock markets is high enough and have decided that I will leave the units that I have invested in the fund as they are, but that I will not be adding to them. Instead I am going to put my regular savings into one of the high interest regular savings online bank accounts. This of course is a way of spreading the risk.
I have no idea which way the world stock markets are going to go over the next few months. Many people are saying that the United States interest rates may rise and that this could have a damaging affect on world markets. There could well be another major terrorist attack which could of course result in dramatic stock market falls.
I am hoping that the stock markets will continue to rise in the same way that they have over the last five years and that the falls over the last few weeks are just a blip. I just think that I have enough money invested and would like to start building some form of other savings in a safer type of environment.
The journey of a thousand miles begins with a single step. Its as true with saving money as with anything else.
These days, weve been frightened into thinking we must save thousands of pounds immediately. Most of us simply cannot do this, and the media does us no favors when it makes the situation sound so hopeless that we might as well give up.
Financial planning should be focusing on real people, people who have trouble saving, people who really need the help that instead seems geared towards the wealthy.
As a result, many of us think that if we can only save, say, 10 a month, then it isnt worth it. Not true! Once you sock away that 10 and realize that youre still okay, youll realize you can put away a little more.
Maybe you increase it to only 20 a month, but thats 240 a year, plus the interest youll receive for putting the money in a savings account or money market. You only need 250 to open an IRA, and thats a worthy goal.
Even if you stick with 10 a month, thats 120 a year, and if you think that isnt much money, you can probably afford to put away more.
The best part of this technique is that you get into the habit of saving. Once you do that, savings can grow and grow as your income increases, your expenditures decrease, or you receive a bit of extra money from your tax return, a work bonus, etc.
Here are a few tips for saving more by starting small:
Pay yourself first. Youve heard it before, but thats because it works. When you pay your bills, write a check to yourself. Depositing as little as 5 from each paycheck into a savings or money market account should get you to that initial goal of 10 a month. If thats painless, increase it to 10 per paycheck. If, after a couple of months, you find 10 is painless, increase it a little more. Keep doing this and you might be surprised at how much you can afford to sock away!
If your employer offers direct deposit, even better. Open a savings or money market account and have at least 5 per paycheck deposited into that account. Again, keep increasing this as you get comfortable with saving the money.
Do you spend 2 a day on coffee, a muffin, or some other inexpensive treat? Do that five days a week for 50 weeks, and youve spent 500! Spend a little of that on a coffee maker and some ground or whole coffee beans, and put the rest into your savings account.
When you save money with good deals or coupons, consider putting the difference into your account.
Most importantly, get yourself into the habit of saving, and dont underestimate the effect of saving just a little. All you need to do to begin the journey is to take that first, single step.
Yes, this is a good idea! I know you want to know what is mad money? Well, a long time ago this term came about when a young lady went out with her friend to a party and her friend left her at the party with no way home. So, the young lady was mad with her friend that left her at the party and luckily for her, she had money stowed away in her shoe to take a cab back home. She thought to herself on her way home in the cab, that it was good that her mother had taught her to always have money set aside for emergency situations such as this!
Thank goodness, this young lady had the forethought to stash her mad money away so she could take a cab back home, since her friend left her in a lurch. Get the point? Having an emergency fund whether it be mad money or saved money is important for you to have. You say, how do I go about doing this? Well, you can read these tips to help you learn what you can do:
1) Set up a savings account specifically for your emergency fund or mad money fund. Whatever you want to call it, just establish one!
2) Deposit a certain amount of money on a weekly, biweekly, or monthly basis in your account. You may want to set up automatic deposits to your account via your payroll department. Or, you may want to have your bank automatically withdraw a certain amount of money from your checking account into your emergency or mad money savings account.
3) Try to save at least 2-3 months of your monthly salary to cover your bills for at least three months if you were to loose your job. This amount of time will hopefully allow you the cushion you need until you secure new employment.
4) The money you save in your emergency or mad money account should be used for household emergencies, personal emergencies or if youre no longer able to work. Dont use it for other expenditures such as bills, travel, etc… Get the idea? Its a savings account that you dont want to touch unless its absolutely necessary!
5) Make sure the bank account you put your emergency or mad money into, is paying you the most interest you can earn for this account! Research as many sources as possible on securing the best interest rate you can get. Check with your bank, the internet, newspaper and other sources for the prevailing interest rate. You want to make sure your money can be accessed easily and quickly if you need it for an emergency!
By establishing an emergency or mad money fund, this will give you a better peace of mind if you need access to money when there is an emergency in your life. So, the sooner you start setting money aside for a rainy day, the better off you will be! Make sure the amount of money you contribute to your emergency or mad money fund, is realistic for your budget. Save as much as you can without upsetting your overall personal or family finances. So go ahead, get started today!