More Bang For Your College Bucks

by Gerri Willis

If there’s one regret most college students seem to have it’s this:  That they spent too much for their college education. I see the problem up close and personal here in New York City, where it’s not uncommon for a journalism student to graduate from an Ivy League or near-Ivy League school with $100,000 in debt. Given the fact that starting salaries in journalism are low, it’s no wonder these students struggle.

One rule of thumb prospective college students and their parents should use is this: Your four-year total college tab shouldn’t exceed the starting annual salary in your field of choice, that’s according to Kal Chany, founder of Campus Consultants and author of “Paying for College Without Going Broke.”  Chany says meeting that hurdle may be easier said than done, and added, “There is no one size fits all answer.”

To be sure, though, some students will find it difficult to hold to that rule of thumb, and for that reason, many apply for student aid. The FAFSA is the most critical tool to accessing that aid and you can still make application for federal student aid now for the 2014-15 school year. Even if you don’t think you’re eligible for assistance, Chany says it’s important to apply. Other common mistakes people make in applying for federal aid include using the wrong year’s version of the form, waiting to be accepted to college to apply for aid and even using an incorrect Social Security number.

But it’s not enough to simply borrow a lot of money. If you want to keep your costs low, you’ll seek out schools that have the best return on your dollar. The average cost of a four year degree at Harvey Mudd College as an eye popping  $229,500 with average annual scholarships of $27,763, but the return on investment over 20 years is over a million dollars. Graduates of MIT, the California Institute of Technology and Stanford University all enjoy similar high rates of return, according to an evaluation by PayScale.

Bottom line, plan ahead – in terms of both nailing down as much grant money as you can and finding a college that gives you value for your education dollar.

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Do You Have What It Takes To Put Down Your Credit Card For Good?

by Gerri Willis

What if I told you there is a way you can save your family twenty percent whether you are shopping at the grocery store or the mall -- guaranteed? You’d be surprised, right? Well the reality is that most people who use cash only in their transactions spend 20 percent less than people who pay via credit cards, according to the National Foundation for Credit Counseling.

But how do you do it and just how difficult is it to dump the cards and pay in cash? That's the question we're asking viewers this week as we launch The Willis Report Cash Challenge. In the wake of the credit card breaches at retailers across the country, many of our viewers have been asking questions about just how hard it is to convert to paper (cash) over plastic (credit cards).

More and more people are opting for cash. According to a survey of shoppers conducted by Harris Poll on behalf of Feedzai, a cyber-security firm, forty percent of people who were aware of the data breaches are using cash more and plastic less. The breaches, more than anything else, seem to be spurring people to change their habits. Just last week, beauty retailer Sally Beauty Holdings, became the most recent retailer to go public with the news that hackers had broken into their systems. But the biggest breach occurred at Target, where information about 70 million customers was hacked during the Christmas season. Cyber security experts say it's no longer a question of whether your personal information will be stolen, but when.  

To be sure, the adjustments can be difficult, but the payoffs are greater than just protecting your personal identity, although that's no small thing. Surveys show that people who use cash instead of credit cards spend less. And, it's easy to see why. Giving a cashier your cold, hard cash --the money you toiled to earn -- is a much different experience that handing over your credit card. Using plastic, distances you mentally and emotionally from the transaction. It becomes an exchange that will happen in the future; say a month from now, when you get your credit card statement instead of something that's happening right now. I believe that credit cards are a powerful tool, if used correctly. But most of us use them as a crutch to upgrade our lifestyles beyond what we can afford.

Dumping the cards then has more appeal than ever. But making the change is no small task. What do you do if you have to fly cross country for a family emergency? What if the kids need something for a class assignment Monday and it's already late Sunday night? The challenges are real, but planning is the key to making going cash free work.

Most all-cash families make it work by planning their spending, developing a budget and buying only those things that fit the budget. Look, credit cards, in my view, are a powerful tool, but no substitute for actually figuring out what you should be spending. As a result, different people adopt a "Cash is King" lifestyle in different ways. Some use debit cards, others use checks. Some online shoppers buy gift cards. But the message is all the same. Pay now for what you buy now.     

In the coming weeks and months we will be following viewers who agree to take the challenge. If you believe cash is king, join us. Send us an email at gerriwillis.com or tweet or Facebook me @GerriWillisFBN.

 

Don’t miss The Willis Report 5pmET on FOX Business

Cash Challenge

by Gerri Willis

Can you go credit-card free? That's the question we're asking viewers this week as we launch The Willis Report Cash Challenge. In the wake of the credit card breaches at retailers across the country, many of our viewers have been asking questions about just how hard it is to convert to paper (cash) over plastic (credit cards).

To be sure, the adjustments can be difficult, but the payoffs are greater than just protecting your personal identity, although that's no small thing. Surveys show that people who use cash instead of credit cards can save as much as 20 percent. And, it's easy to see why. Giving a cashier your cold, hard cash --the money you toiled to earn -- is a much different experience that handing over your credit card. Using plastic distances you mentally and emotionally from the transaction. It becomes an exchange that will happen in the future; say a month from now when you get your credit card statement, instead of something that's happening right now. I believe that credit cards are a powerful tool, if used correctly, but most of us use them as a crutch to upgrade our lifestyles beyond what we can afford.

More and more people are opting for cash. According to a survey of shoppers conducted by Harris Poll on behalf of Feedzai, a cyber-security firm, forty percent of people who were aware of the data breaches are using cash more and plastic less. The breaches, more than anything else, seem to be spurring people to change their habits. Just last week, beauty retailer Sally Beauty Holdings, became the most recent retailer to go public with the news that hackers had broken into their systems. But the biggest breach occurred at Target, where information about 70 million customers was hacked during the Christmas season. Cyber security experts say it's no longer a question of whether your personal information will be stolen, but when.  

Dumping the cards, then, has more appeal than ever. But making the change is no small task. What do you do if you have to fly cross country for a family emergency? What if the kids need something for a class assignment Monday and it's already late Sunday night? The challenges are real, but planning is the key to making going cash free work.

Most all-cash families make it work by planning their spending, developing a budget and buying only those things that fit the budget. Look, credit cards, in my view, are a powerful tool, but no substitute for actually figuring out what you should be spending. As a result, different people adopt a "Cash is King" lifestyle in different ways. Some use debit cards, others use checks. Some online shoppers buy gift cards. But the message is all the same. Pay now for what you buy now.

In the coming weeks and months will be following viewers who agree to take the challenge. If you believe cash is king, join us. Send us an email at gerriwillis.com or tweet me @GerriWillisFBN.

Don’t miss The Willis Report 5pmET on FOX Business

What You Need To Know Before Signing Up For Health Insurance

by Gerri Willis

Monday is a big deadline for the Affordable Care Act. It’s the date by which all of us have to be able to prove we have healthcare coverage or face a hefty penalty on our 2014 taxes next year. So far, the Department of Health and Human Services say signups have failed to meet goals. The administration had said it wanted seven million people to sign up, but only five million have done so, according to the most recent government report. So, you can bet the healthcare.gov website will be pretty busy over the next several days. Here’s what you need to know if you plan to sign up:

Before you go to the web to enroll, talk to your doctor to find out whether he or she is affiliated with any of the insurers offering plans through Obamacare. Best case scenario, you’ll want to stay with any service provider you are already using to make sure that your care is seamless. Once you are armed with that information, head to healthcare.gov, that’s the federal website. In some states, you’ll do your shopping on this site, but in others you’ll be directed to a state site for assistance. Depending on where you live, you may find a dizzying array of plans or only a few. Don’t be confused by the names of the plans. Words like “exclusive,” “premier” and “predictable cost,” have virtually no meaning, except to the insurers themselves. Instead, focus on the level of coverage. Policies are available in four categories from the least to the most generous: bronze, silver, gold and platinum.

According to one analysis of the insurance offerings, you’re best off considering the bronze plans first. According to Dr. Scott Gottlieb, here’s why: You can’t trade up to a better benefit by buying gold or even platinum plans. The benefits are the same regardless of the category or “metal” that you choose. Gottlieb says that the only difference with the plans is the structure of the co-pay and deductibles. As you pay higher premiums for a gold or platinum plan, your deductibles and co-pay decline. The insurer, according to his analysis, typically covers 60 percent of expected medical expenses in a bronze plan, 80 percent in a gold plan and 90 percent in a platinum plan. So, by buying the costlier plans, you are simply fronting a higher premium to buy down your anticipated out-of-pocket costs. The doctor networks are all the same, as are your access to drugs. 

Once you choose a plan and make a payment, be sure you get a clear confirmation that your choice is confirmed. One man I interviewed on The Willis Report, thought he was enrolled and even had money deducted to pay for the policy, but was ultimately denied coverage. Worse, he suffered a heart attack and was directly billed for $407,000 for care. Making sure you are enrolled and actually have coverage is your responsibility. Contact the insurer directly to make sure all the paperwork has been processed and you don’t get caught without coverage when you need it.

Finally, Obamacare requires everyone to have some sort of coverage, whether its ACA offerings, Medicare, Medicaid or employer-sponsored coverage. The first-year penalty for not having coverage is 1 percent of your annual income or $95 whichever is greater. If you miss the deadline, you’ll have to wait for the 2015 enrollment period to get coverage unless you experience a major live event like marriage or divorce. To be sure there may be exceptions to the deadline. Some states will accept enrollments after Monday. Check the healthcare website for details.

 

Don’t miss The Willis Report starting 5pmET on FOX Business

Before You Buy Gluten-Free Products

by Gerri Willis

You can’t go anywhere these days without running into gluten-free products. Whether you’re at the grocery store or in a restaurant, the gluten-free option is everywhere. Heck, even the Girl Scouts this year are offering gluten-free cookies. The question is do you need to buy them?

Gluten-free, according to the Federal Government means getting rid of the protein found in wheat, rye and barley. People with severe gluten allergies, a condition called celiac disease, try to stay away from gluten. But those folks make up only one percent of the population. What’s going on now is the food manufacturers are promoting these foods to everyone as healthier.

And, it’s working. The business of gluten-free products is expected to grow 50 percent in the next few years to $15 billion in sales by 2016. Today’s gluten-free products are purchased by 11 percent of customers – more than ten times the number with celiac. At the same time, wheat flour consumption has fallen to a 22-year low, according to the U.S.D.A. So these non-wheat products are popular with loads of health-conscious consumers who believe in its benefits. Experts say as many as 18 million people or 6 percent of the population may have sensitivity to gluten.

But here’s the rub: These products are more expensive than their more common counterparts – way more. Consumer Reports estimate that gluten-free products can cost two to three times more than regular non-gluten free products. What’s more, you don’t have to pay the premium price to stay away from wheat in some categories. Plenty of foods are naturally gluten-free, like polenta, rice-crackers and nuts. 

Even so, food makers are on the bandwagon. General Mills, whose brands include Bisquick and Pillsbury, have begun reformulating products to remove gluten. It’s already reformulated Chex and plans to introduce gluten-free brownies, cookies and cakes next year. Likewise, the grocery store chain, Wegman’s, is now the country’s largest seller of gluten-free products. New brands, like Udi’s and Glutino, are taking advantage of the trend.

Just keep in mind as you shop the supermarket aisles that cheaper options may be available.

 

Don’t miss The Willis Report starting 5pmET on FOX Business

Avoiding an IRS Audit

by Gerri Willis

Avoiding the audit should be goal No. 1 when it comes to your taxes this year. And, here's where an ounce of prevention can prevent a pound of cure. Here's what to be on the lookout for: 

  • If you are a high earner, you are more at risk for an audit. Taxpayers earning $200,000 or more have an audit rate three times more than the general population. And if you're earning  a million dollars, you're chances jump to one in nine. The lesson of the story: The more you make, the more careful you need to be with your filings. 
  • The home office deduction. It's everyone's favorite, unfortunately not everyone should take it, and this year the rules have changed. You can opt to use a simplified formula that maximizes the write-off at $1,500. Whether you use the new calculation formula or not, make sure the space you say you're using as a home office is used exclusively for that purpose. 
  • Non-cash charitable contributions are a favorite area of scrutiny for the IRS.Many families like to give the old family clunker as an in-kind gift to their favorite non profit. If you choose to do so, be sure the car is properly valued. 
  • You claim deductions that are disproportionate to your income, such as large charitable contributions, substantial mortgage interest or real estate taxes. The IRS knows average deductions for filers of varying incomes. If your deductions are out of line, you may get a second look. Having said that, don't back away from deductions you are due. 
  • You forget to claim income. If you get incomes from various sources, you'll need to report it, even if the 1099 form doesn't reach your mailbox. That's because the employer will no doubt report your pay to the IRS on their income tax form. It's easy to lose track of these payments over the course of the year. Keep good records. 

Finally, if the worst happens and you do get contacted by the IRS, don't panic. Chances are what you're experiencing is a "correspondence audit," meaning it is a request for more detailed information conducted by letter. You may be well able to handle this yourself by supplying the missing information. 

 

What The IRS Doesn't Want You To Know This Tax Season

by Gerri Willis

The IRS is an agency of mystery – and power. The IRS has the power to garnish your wages, throw you in jail or generally make your life difficult, if you run afoul of tax law. So how do they operate and what are they not telling us? Here’s a list of the things the IRS generally would prefer you didn’t know about this tax filing season:

  • It’s all a matter of interpretation. You’d think tax law is hard and fast, but the truth is that things can get pretty grey when it gets down to the details. For example, there’s the case of the couple that the IRS allowed to deduct the cost of feeding wild cats on their property because the cats fended off snakes, rats and other vermin. Or, the man who was able to deduct money he gave his girlfriend to care for rental properties he owned. And, the stripper who was allowed to deduct her breast enhancements as a cost of doing business. Don’t assume your deduction will be rejected, but check with a tax professional before claiming it.

 

  • April 15 is not necessarily the deadline. You can get a no-questions-asked six month extension for filing your final tax form, if you pay any taxes you owe by April 15. Download Form 4868 from www.irs.gov to request an extension and include a check for whatever you estimate you owe – that’s the critical part! Even if you can’t afford the entire bill, the IRS allows you to structure a payment plan.

 

  • Getting audited isn’t the big deal you might think. Getting the letter in the mail from the IRS may cause anxiety, but, these days the agency is conducting correspondence audits, audits automated by computer reviews of your filings. These audits are done through the mail, and are seeking additional information. This is the lowest level of audit and if you can provide sufficient evidence to resolve the question, the audit is dropped. Oh, by the way, the audit rate is just about 1 percent.

 

  • If you’re planning to use the “I had a crook as an accountant,” as a defense, forget it. If you’re tax preparer is incompetent or simply a crook, you’ll still be on the hook for any fines or fees levied as a result of his or her mistakes. Read the final product – the most common way preparers boost refunds is by inventing fake children.

 

  • Don’t expect a returned phone call, if you have a question. The IRS has said it is only responding to “basic” questions this year, whatever that means. So if you’re trying to understand a nuance of tax law, you’re better off asking a tax pro.

 

Don’t miss The Willis Report starting 5pmET on FOX Business

Taking Advantage of Tax Deductions

by Gerri Willis

If ever there was a year to look for deductions to your tax bill, this is it. The reason? Millions of Americans will be paying more because of higher tax levels imposed by Obamacare and the ironically named American Taxpayer Relief Act of 2012. But even if you aren't subject to the higher rates, it still pays to get all the breaks you can.

  • PRIVATE MORTGAGE INSURANCE. The home mortgage interest deduction is a perennial favorite of homeowners and while that deduction is now on a phase out schedule for high earners, others may benefit from the private mortgage interest deduction. PMI is an insurance policy that lenders require if you can't make a 20 percent downpayment on a home. And, 2013 is the last year you'll be able to claim the deduction unless Congress changes its mind.

You'll find the amount of PMI you paid on your bank's mortgage interest form 1098. The break is available to homeowners who took out their mortgage after Jan. 1, 2007.

And, like a lot of deductions, this one has income phase outs too. The sweet spot for this break is an adjusted gross income below $109,000.

  • CARING FOR A DEPENDENT PARENT. This is more complicated than it sounds, but if you can claim a parent as a dependent, you can save on taxes. Your parent must live with you and get more than half of his or her support from you. Keep in mind the parent's earnings must be less than the tax exemption level. The devil is in the details with this one, and you should consult a tax professional. But if you meet the requirements, you'll be able to claim an added personal exemption on your income tax return.

An added plus, any medical expenses you pay for that parent can contribute to the threshold for deducting medical costs. To meet that threshold, you have to spend 10 percent or more of your adjusted gross income on medical expenses. (That threshold increased from 7.5 percent last year.

  • COLLEGE LOAN INTEREST. Parents struggling with the high cost of education will find they can deduct up to $2,500 of annual interest on loans to pay for college. Income phase outs exist, naturally, so high earners might want to consider taking out a home-equity loan instead, which in most cases, will allow you to deduct interest.
  • HOME EQUITY LOAN INTEREST. You probably know that mortgage interest is deductible. Interest on mortgage debt up to $1 million is deductible, but phases out at higher income levels. Interest on home-equity loans totaling up to $100,000 also is deductible, no matter what you do with the money.
  • JOB SEARCH. If you were looking for a job last year as millions of Americans were, the costs of that job search is deductible. File them under miscellaneous expenses. You don't have to be successful to claim the deductions. If you do land a new gig, you can also claim relocation expenses for the new job. Consult a pro to determine exactly what you can deduct. 

There are more deductions -- many more -- but you should be aware that some of them are IRS audit bait. Here are a few of the deductions that might get you a second look, if not an audit:

  • Home office deductions. This one draws attention especially if you claim a salaried income.
  • Non-cash charitable donations, especially if you donate a car to a charity.
  • Earned income tax credit. This benefit for low-wage earners is often abused and the IRS will take a close look.

When it comes to deductions, one of the things IRS auditors keep in mind is just how you stack up with other taxpayers. CCH Inc. recently calculated average deductions, and while you shouldn't use these as a hard and fast guide to your own tax return, it makes sense to have a general idea of what people in your income bracket pay. For example, folks with an income range of $50,000 to $100,000, claim medical expenses of $7,312 interest of $9,320 and charitable contributions of $2,815. These households pay federal taxes of $6,111.

So the point, here, isn't to discourage you from the taking all the breaks that are due to you. In fact, I say take absolutely everything you are eligible for. The IRS expects nothing less. 

 

Don’t miss The Willis Report starting 5pmET on FOX Business

Tax Returns: Do Them Yourself or Hire Help?

by Gerri Willis

Tonight on The Willis Report at 5pm ET we’ll be talking about the best tax software for filers. But that’s not the only way to get the work done. There are times it makes sense to actually hire a tax pro. Tax software is great and for millions of Americans, it’s a good solution, but there are times you need professional help.

It’s best to use a professional when you own your own business, you’ve gone through a major life change like marriage or divorce, you’ve bought or sold a home in the previous year, you own rental property or have a large investment portfolio. In other words, if your taxes are complicated for any reason, it pays to hire a professional. If you manage to pick an experienced accountant, you’ll find that he or she has probably prepared a return for someone in your exact situation. What’s more, if the IRS has issues with the filing, such as wanting more information, your professional will handle the exchange.

Picking a professional is a whole other kettle of fish. Certified public accountants are the gold standard having completed a four-part accounting exam. What’s more, they can represent you in front of the IRS (if it comes to that.) However, there are less expensive ways to get help. Enrolled agents who have passed a tax exam and/or actually worked at the IRS and are licensed to file taxes. You can find an enrolled agent at www.naea.org.   Some certified financial planners also offer tax services. At a minimum, you want your CFP to be talking to whoever prepares your taxes. There are also accredited tax accountants and tax planning services. (I did say it was a whole kettle of fish, right?) Getting a preparer who is recommended by someone you know and trust is a good idea, too. Keep in mind, though, if there is an accountant that everybody in the office uses because he gets incredible refunds, I’d stay away. When a pro gets in trouble, the feds typically audit everyone he did a return for.

Truth is, tax software isn’t nearly as scary as you might think. You don’t do math. The software makes calculations for you. And, the way the packages work is that they have you fill out the form by asking you questions and prompting you for a response. Better yet, if you make a mistake using a software program, like entering the wrong Social Security number, the IRS will ask you to fix the issue, instead of sending you a bill.

For some of us, it comes down to a comfort level – do you want to handle it on your own, or do you want a pro to do it for you. Just make sure that however you get it done that you file electronically. Filing online is the most secure way of filing your taxes, and guarantees the quickest processing.

What Changes to Expect on Your 2013 Tax Return

by Gerri Willis

The countdown is on with just five weeks to go to April 15! Tax season is upon us, and if you are wealthy or simply well-to-do, steel yourself, you are about to get soaked. Tax changes for the 2013 tax year are huge and the nation's top earners are likely to see their tax rates rise above a whopping 50 percent.

At risk for the biggest changes, are Americans earning over $200,000, says Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants.  To be sure, though, earners above $400,000 for single filers and $450,000 for married filers filing jointly will get the biggest bite. And, it’s not just wages that will get more heavily taxed; investment income taxes are rising, and tax benefits that you might have taken for granted like personal exemptions and itemized deductions are under assault too. These changes come thanks to Obamacare and the American Taxpayer Relief Act of 2012.

“I think high earners may be surprised that multiple increases are hitting them,” says Rich Coppa, of Wealth Health LLC. “If they didn't pay attention to these changes from last year they are going to find a bigger bill to Uncle Sam.”

Here’s what you can expect: You likely already know about the increase in the Medicare payroll tax. In 2012, the tax was 2.9 percent and employee’s share of the tax, 1.45 percent, was automatically deducted from your paycheck. Effective this calendar year, however, high-wage earners owed an additional 0.9 percent tax on earned income above $200,000 for single filers and $250,000 for those married and filing jointly. This year also starts a new income tax bracket for people earning $400,000 for single filers and $450,000 for joint filers – a top tax rate of 39.6 percent up from 35 percent last year. That’s the easy stuff to understand. Some of the other changes are more complicated.

Your personal exemption of $3,900 last year is phased out. The amount of the reduction is 2 percent for each $2,500 in excess of adjusted gross income amounts of $250,000 for single filers and $250,000 for those married, filing jointly. The result is a complete elimination of the exemption for single filers with an adjusted gross income above $372,501, and for couples filing jointly over $422,501. What’s more, itemized deductions, such as mortgage interest, state income and sales tax and home office deductions will be on phase-out schedules as well. (These are sometimes Pease deductions). This change will reduce the value of itemized deductions by 3 percent of adjusted gross income above $300,000 for couples and $250,000 for single filers to a maximum reduction of 80 percent of its value.

Even more pernicious are higher taxes on investment income. If your income is greater than $200,000 as a single filer or $250,000 married and filing jointly, a 3.8 percent Medicare surtax on investment income will be due. (The tax applies to the lesser of your net investment income for the year or the amount by which your modified adjusted gross income exceeds the income thresholds). Note that a taxpayer could be subject to both the additional 0.9 percent tax on earned income and the 3.8 percent tax.

In addition, Obamacare makes it more difficult to deduct unreimbursed medical expenses. Before the Affordable Care Act was passed, unreimbursed medical expenses could be deducted after they exceed 7.5 percent of adjusted gross income. The threshold is now 10 percent.

All this week, we will be discussing what you need to know about this year's tax bite and what you can do to reduce it.

 

Join us on The Willis Report at 5pm ET.

 

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