Common Tax Mistakes by Parents

There are a number of common tax error made by parents which can be costly if you are not careful. Here are several of the most frequent, and how to avoid them.

1. Not getting a Social Security Number (SSN) quickly for each new child

You can’t claim them on your taxes if they don’t have a number.

2. Not writing down the correct SSN numbers

This is a time-wasting and potentially costly error.

3. Not taking an adoption credit

If you are adopting, keep track of all involved expenses. It can be a lengthy process. File all the expenses the year the adoption is finalized. You could get around $13,000 in tax credit.

4. Not making the most of a Dependent Care Flexible Spending Account (FSA)

A Dependent Care FSA allows you to set aside up to $5,000 in pre-tax dollars to pay for childcare expenses. Ask your employer if it is possible to set up an account if this is not offered in your workplace already.

5. Not keeping track of dependent care expenses

If you pay for childcare, be sure to have the name, address and SSN of every caregiver you use. Don’t forget to claim for after-school programs for any children younger than 13. Summer day camp fees also count if a sole parent or both parents work full time and the child is under 13.

6. Forgetting to claim head of household status

This is important for single parents in particular, since it offers a number of tax benefits and allows them to claim their children as dependents.

7. Missing out on the child tax credit

If you are in a lower income bracket, this can be worth up to $1,000. The child must be under 17 and live more than half the year with the parent claiming the credit.

8.Forgeting to file taxes for an older child who has a part-time job

An older child might also be required to file taxes even if they are still a dependent. Failure to file could mean missing out on a refund, because children don’t usually earn enough be liable for taxes but the employers may still withhold them. The only way to get that money back is for the child to file a tax return.

9. Not making the most of tax-advantaged savings plans for your child

If you don’t have a 529 account for each child, you could be missing out. These are state-run college savings accounts that allow parents (and family members) to invest after-tax money and grow it tax free. There is no penalty for taking out the money as long as it is used to pay expenses related to higher education, such as tuition and books.

A Coverdell Savings Account is another option. It has a strict contribution limit of $2,000 a year and income limits, but the contributions are tax deductible.

10. Missing out on college cost benefits

Parents can claim student loan interest on their own taxes if the college student is still a dependent, even if the college student is the one paying the loan interest. States have different rules and regulations about contributions to college savings plans, so check savingforcollege.com to see how much you can contribute each year that will be tax deductible.

Tips on How to Get Control of Your Credit

One of the main reasons people get in too deep with their credit is that they don’t manage it effectively. Here are some of the best ways to start taking control.

1. Automate All Payments If Possible

One way to avoid late payments or missed ones is to automate them. If you are not already using online bill pay and making electronic payments to your creditors, go online now and start setting them up.

2. Go Paperless If You Can

Paperless statements are convenient and easy to store. Save them as PDFs in a Finances folder on your computer for easy reference. Create one folder per bank account or credit card to keep yourself organized, and download each statement into the correct folder. Also remember that you will need to keep all your financial records for at least seven years for tax purposes.

You can also print out a copy to keep on file, such as if you have questions about a statement and wish to follow up via their online customer service or in the mail.

3. Take the Time to Read and Review Your Most Recent Credit Card Statements

There are a several important reasons for this and several key things you should be looking for and doing as you conduct your review.

i) Make sure everything is correct. Don’t recognize a transaction? Challenge it using the online customer service, or over the phone. You have 30 days to challenge a credit card purchase and two days for a debit card purchase.

ii) Check the interest rates you are paying on each card. If you are not paying off your balance every month, chances are you are spending a lot more than you should on interest.

iii) Create a spreadsheet or chart, listing each card and the interest rate. This will be handy for paying down debt in a structured way.

iv) Review your spending. What did you buy on those cards this month, and why? A credit card can be helpful if you:

* Get cash back or something useful, like money paid into a Upromise account for your kids’ college funds

* Pay your balance off at the end of each month. If you don’t, then you will be paying interest on all your purchases, making them much more expensive than the sale price that probably tempted you in the first place

v) Look for the minimum versus paying extra scenarios on your bill.

Due to new regulations designed to cut down on predatory lending practices, your statement should have two financial scenarios presented on the front page. One will be an example of how much you can expect to pay on your existing credit card balance if you pay only the minimum on your bill. This projection is only based on what the balance is at present. It does not take into account you continuing to use the credit card.

It then shows a second projection, how long it will take to pay off the existing balance if you were to pay back more than just the minimum.

Compare the two projections. Do you raelly want to hand over that money to the credit card company? Or would you rather keep it yourself? Most of us will choose the latter. In that case, it is time to get serious about paying down your debt, and staying out of debt by not using the card/s.

4. Store All Receipts Safely for Each Tax Year

If you want to claim deductions on your taxes, you will need to have an actual paper receipt, not just your credit card statement with the purchase listed. Therefore, start storing all your receipts safely to get back all you are owed.

Use these tips to get back control of your credit, and then continue to use them in future.

Credit Counseling: Learning the Tricks of the Credit Card Trade

Credit cards seem like such an easy way to pay for everything – online, over the phone, and in person. You don’t have to fiddle for cash; all you have to do is swipe or insert the card so the machine can read the chip. In most cases, you don’t even have to sign for your purchases. Some credit cards are simply tap and go.

All of this is amazingly convenient, but it is also very easy to lose track of what you are spending, and end up maxed out on one or more of your cards.

Rewards for Shopping

In addition to the convenience of a credit card, companies often offer special rewards and incentives for using their card. Things like air miles, cash back, or points in their gift mall may seem like a good deal, until you consider that studies have shown that people who use reward cards tend to spend an average of 4% more than those using regular cards. Unless you travel a lot, your best deal is cash back, and monitoring your spending.

Another good deal might be a Upromise card linked to a 529 educational savings account if you have children and are planning to send them to college. The card will give you money back, and also register extra money back when you buy Upromise-approved products, such as in the supermarket. You can also invite friends and family to link their cards, for instant rewards.

Note: any money saved in the 529 account will be taken into consideration when it comes time to determine your child’s financial aid, but only if the account is in your name. See if you can get an aunt, uncle or other relative to open the account and then you can all contribute without it affecting your child’s financial aid package.

Attitudes to Money

Some people are very casual about cash. If they have it, they spend it. If not, they live on Ramen noodles for the rest of the month.

One of the main driving factors for spending is emotional. It might be to keep up with what others have. It could also be that you work so hard, you feel you deserve a little treat. Look at all of the credit card ads with smiling, happy people going on vacation, dining out, or buying their dream item. It’s easy to get tempted, and that is exactly what the credit card companies are banking on.

The Offer That Is Too Good to Be True

The 0% APR offer for X months is a common lure credit card companies use to get new customers. It can be bad for a number of reasons. The credit limit and fixed term often tempt a person to use the full amount offered, treating it like “free money” because they don’t have to pay it back at the end of the month. They estimate they have, for example, a year to pay the bill. But what happens as the year draws to a close, and all the accumulated interest will fall due unless the full amount is paid in time?

A second reason these offers are too good to be true is that every time you sign up for one, it shows up as an inquiry on your credit report. Too many will lower your credit score.

A third reason is that having more than one card makes it easy to lose track of your spending and the amount of time you spend paying bills and juggling payments. The simpler, the better when it comes to finances.

Credit counseling can open your eyes to all the tricks of the trade. Then it is up to you to avoid temptation.