15 End of Year Tax Tips for 2012

 

Many Americans are unaware of the thousands of deductions available and don’t bother to take the time to find out if they are eligible for them.  You can deduct tax credits and itemize deductions.  Tax credits lower the amount of taxes you pay. Tax deductions reduce the amount of income that is subject to taxes.  There are many strategies to help you to increase your refund or reduce the amount of taxes owed.  Hire a tax preparer or accountant or use a software tax package such as TaxCut or TurboTax to make sure you don’t miss out on any deductions.  Here are a few common deductions you can take.  

1. Donate to a charity and make sure you get a receipt.
2. Defer income such as year-end bonuses or commissions if your tax rate will remain the same or decline.
3. Review your investment portfolio to see if you need to make any updates or cash in any stocks if you have losses to offset them.
4. Donate to charity money or goods.
5. If you owe taxes setup payment plans immediately.
6. Pay January bills in December.  Pay a real estate tax bill, mortgage payment or medical bills due in January by December 31, 2012 which will help lower your tax bill through itemized deductions.
7. Install energy efficient appliances to take the tax credit.
8. If you know you will owe taxes this year adjust your withholdings to have more taxes taken out of your last paycheck.
9. If you are currently unemployed or were unemployed you can deduct expenses incurred while looking for employment such as: parking, tolls, resume preparation services, and travel expenses.
10. Contribute to a Roth IRA.  You have until April 15, 2013 to contribute up to $5,000 of your earnings to a traditional or a Roth IRA or $6,000 if you’ll be age 50 or older by December 31. It’s best to contribute before the end of the year to increase your contributions.
11. If you might have to pay estate taxes, you can gift $13,000 annually to any individual without the gift counting against them. Married couples can give a total of $26,000 to an individual.
12. Convert from a traditional IRA to a Roth IRA if you think your tax rate will increase in the future. You do have to pay taxes on earnings in your traditional IRA for the year you convert. You will pay taxes at current tax rates.  Converting to a Roth is only a good option if you have enough money outside your IRA to pay the taxes.
13. Contribute the maximum to your retirement account. The limit is $17,000 for 2012 or $22,500 if you are age 50 or over.
14. If you are self-employed, setup a retirement plan. Contributions can be made until April 15^th.
15. Make sure you use all the money in your flexible spending account otherwise you lose the money.

 

Why Are You Living a Lie

                                                         

Does this describe you?  You don’t have money to pay your bills or you use your cable money to go shopping or go on a trip.  Then when someone asks you about your finances you say I don’t have any money.  Maybe if you didn’t spend $300 on a purse or $500 on a trip and paid your cable, rent and utilities you would have the money you need to pay your bills and a little extra left over to pay down debt or contribute to a savings account.

Each time you swipe your credit card and you don’t have the same amount of money in your savings account you are living a lie.  Each time you apply for a loan and you have a negative net worth, little to no retirement or savings you are living a lie. Each time you miss paying a credit card bill you are living a lie.  Each time you go into debt to buy gifts for Christmas and you don’t have the money to pay the bill when it arrives in January you are living a lie.

Getting approved for credit means that you agreed to borrow money and pay it back on the terms and conditions of the credit card.  If at any time your financial situation changed you should have stopped using the credit card and focused on paying back the debt.  Instead, you continued charging and didn’t think about the consequences.  Now you are in trouble and are trying to figure out how to pay back the debt.  This lie leads to filing for bankruptcy or foreclosure or having judgments or repossessions, bad credit and difficulty finding employment.

The first step to getting out of debt is to be honest with yourself. Next you need to be honest with the people around you, your friends, family, co-workers, anyone who you are in constant communication with including your creditors and let them know you are struggling with your finances. The worst mistake I made when I became unemployed and got behind on my bills was not telling anyone about my situation and not reaching out for help. Once I admitted to myself I had a problem and admitted it to those around me, I began to get help and was eventually able to pay off all of my debt and start a business helping people do the same.  Here are 9 ways to stop living the debt lie:

1. Pay in full. Pay credit card balances in full each month prior to the due date or as soon as you receive the bill which helps to avoid paying finance charges and late fees.
2. Pay above. Pay more than the minimum monthly payment.  This will help to pay the balance down faster.
3. Pay more than once. Send payments multiple times a month.  You can pay half of the bill balance with 1^st paycheck of the month then pay the remaining balance with 2^nd paycheck of the month. Pay weekly instead of monthly. Pay the minimum monthly payment the first week after you get the bill, and then each week pay as much as you can toward the monthly balance and repeat every month.  You can also pay as much as you can when you get the bill, and then pay more towards the bill when you get extra money.
4. Buy less. Spend less than you earn.  Control your spending, keep debt excluding mortgage or rent at 15% or less of your total monthly income after taxes. Reduce expenses by bringing your lunch to work, taking public transportation, shopping at wholesale stores and downsizing. 
5. Pay with cash. Use credit cards for emergencies only. Use cash to pay for purchases. 
6. Create a spending plan. Create a budget or spending plan to quickly identify what you spend, what you earn and what you owe.  This will quickly show you what areas you need to reduce spending.
7. Get Current. Contact your creditors and negotiate with them to setup payment plans to pay late accounts.  If possible, pay judgments, liens and collection accounts first because they weigh more heavily on your credit score.  If not, start by paying off the smallest bills first, then use the money paid towards a previous bill and apply it to the next bill and continue this process until all your debts are paid.
8. Create an emergency fund. Work towards saving at least 9-12 months’ worth of monthly expenses in a savings account to cover unexpected expenses. 
9. Sell some items. Sell some assets such as jewelry, a second car and clothing, shoes, appliances or hold a yard sale to sell unused items. Use the extra cash to pay down debt.

Do African American Banks Still Exist

                                                                       

Some may wonder do African American banks still exist and if so are they profitable.  Many African American owned banks are struggling to remain profitable.  Their traditional customer base - low and middle income African Americans, small business owners and churches has been disproportionately affected by high unemployment due to the after effects of the recession, leaving customers with less money to deposit and leaving many of the smaller financial institutions with less capital to reinvest in their communities.

Many customers have fallen behind on their loans or mortgage payments or have foreclosed on their homes which have been a main source of revenue for African American banks.  Several higher income customers with larger savings and checking accounts elect to do business with larger banks such as Wells Fargo or Bank of America, which offer branches nationwide and offer a wider variety of services.

African American banks were first developed after slavery ended and functioned mainly to help build African American wealth. The first African American owned and operated bank was Capital Savings Bank in Washington, DC, established in 1888.  It prompted an explosion in African American businesses and offered African Americans a new resource they had been previously denied at Caucasian banks. African American banks were traditionally conservative and had close ties to local churches, families and local businesses.

Due to the smaller resources and revenue when the community suffers, the banks suffer.  If a community is struggling financially it affects if they can pay their bills or give to their church or charities.  Churches have huge loans and when members are unable to give or give less this affects the churches ability to make their loan payments.

The number of African American owned banks across the country is continuing to decrease. In 1994, the FDIC identified 54 African Americans banks but in 2012 there are only 28  fdic.gov/regulations/resources/minority/minority1q2011_status.html.

The majority of the African American banks usually has $20 million in assets or less and are unable to compete with larger banks for customers. Immediately after the recession, larger banks saw African Americans as a new market and targeted African American customers with predatory loans and subprime mortgages.  African American banks were not in a position to offer these African American customers help due to lack of revenue and resources.

Some federal and state regulators don’t want to provide funding or assistance to African American banks because they feel areas with high unemployment are an investment risk.

African American owned banks have been prevented from participating in alternative means of capital that could help them stay afloat, such as TARP, the Small Business Lending Fund and major funding by private investors.

The few African American owned banks that have participated in these programs were frustrated with the restrictions that come along with the low-interest federal loans. The terms allow the government to make board appointments, become a shareholder of the bank and impose restrictions in how the bank pays dividends, to pay employees and to dictate how the bank disperses money and to whom. Some banks felt as if the regulators were "micromanaging" their accounts.

Earning income has also become more difficult as a result of high compliance costs due to regulatory scrutiny of transactions. However, without financial assistance, African American owned banks are offering fewer loans, which results in less income.

African American banks must find alternative funding sources such as Minbanc formed by the Americans Bankers Association which supplies capital funds to African American banks or large non-minority associations.

Perhaps if African American banks changed their business model and expanded their services such as offering mobile banking, online banking, “going green” and using social media they could capture lost customers, retain existing customers and generate additional revenue.