Let me first state for the record that I am not employed by the IRS, I am not defending the IRS and I have just as much contempt for paying taxes as you do. However, I unlike you know the implications of not reporting or under-reporting my income. Besides the obvious – ridiculously high interest and penalties or the fact that you could actually lose everything and possibly go to jail - not reporting or under-reporting your income has other far reaching consequences that you may not have considered.
Getting a Loan?
If you are thinking about making a large future purchase which would require you to obtain financing, example purchasing a home, you will be asked to provide tax returns for at least the last two years. If you are a self employed individual, your tax return is your verification of income. It reassures the bank that you can afford the monthly loan payments and lowers (in their view) the risk of default. Your income also determines your loan amount and interest rate. I cannot tell you how many times I encounter people who are ready to purchase a home but cannot get approved for a decent loan because they are unable to verify their income. Consider also, that if you are in fact filing your taxes but have consistently under-reported your income. Since the income reflected on your return is significantly less than what you actually earn, you may have to settle for the $80K home in the not so good neighborhood even though they can well afford the $250K home in the neighborhood of your dreams. You may well be able to provide proof of your current income but your lender is more concerned about your ability to maintain. Unfortunately for you in this case, your history is indicative of your future earning potential. However, if you have somehow managed to save enough money to make a cash purchase, bear in mind that your seller and/or seller’s representative is obligated by law to report your cash purchase to the IRS, so good luck with that.
“If they are, then you should too”
If you are a private contractor working for an employer that does not make deductions from your salary but through the application process you had provided your SSN among other pertinent information, trust and believe that your employer is reporting all income paid to you to the IRS. While some employers provide you with a 1099, many including most Home Care & Nursing Agencies actually do not. But you can bet your life that they are not going to miss out on this crucial business tax deduction on account of you. You may well be wondering if this is accurate information, since you have never been contacted by the IRS. Well, the IRS conducts approximately 2 million audits (1%) out of an estimated 140 million returns each year, and the tax evaders are usually at the top of that list. So if they haven't already contacted you, thank your lucky stars. But be mindful that the IRS abides by a 3 year statute of limitations, so you do have 2 more nerve racking years to go.
Not as bad as you think
Filing a tax return is really not as bad as most people think. The truth is; many self employed individuals do walk away with a refund at the end of the year. If you are self employed, you are allowed to write off many of your work related and other expenses including Vehicle Deductions, Uniform, Travel & Entertainment Expenses, Business Use of Your Home (includes work related internet & phone expenses), Health Insurance Premiums, Retirement Accounts and Educational or Training Expenses among others. You are also allowed to deduct 50% of your calculated self-employment tax. On top of that, you also may be entitled to several tax credits including the Child Tax (CTC) and Earned Income Credit (EITC). Frankly if at the end of the day, your tax credits exceed your actual tax liability, you are entitled to a refund.
If you are a permanent resident nearing five years and you are planning to file for US citizenship, you will be required to produce your income tax returns. The law requires applicants to prove presence in the United States from a certain date. Tax returns and other proof that you have been working are good proof of U.S. presence. Similarly, if you are an illegal immigrant planning to take advantage of Obama’s Immigration Reform legislation that is coming, note that all applications for immigrant legalization will include a detailed examination of the immigrant's background, including their employment history while in the United States. Immigrants applying for a Green Card or other legalized status will be required to document tax compliance. All plans include an examination of tax return records going back a minimum of 3 years.
Filing for Relatives
And lastly but no less important if you plan to file for your relatives, you will have the burden of proving that they will not become a welfare of the state, therefore you must prove that you are capable of supporting them until they are able to support themselves. Therefore the INS will request that you provide your income records going back a minimum of 3 years.
Trust and believe that the US Government has pulled out all the stops to ensure that we pay our taxes and will severely punish those that do not, ask Wesley Snipes, Ronald Isley, Jah Rule and Lauren Hill.
Please post your comments below and contact me with you tax questions.
As we all struggle to manage our debt in the most effective way possible, our good intentions sometimes evolve into a difficult endeavor. Especially if you are a female inflicted with the all too common decease called the Shoe Addiction Syndrome aka Shopping Addiction Syndrome (SAS). I am not really qualified to give advice in this department; I too suffer severely from SAS. However, I have compiled a list of strategies that I have employed in recent months that seem to be working at this point in time. So, if like me, you are still in deep denial, have decided against therapy and are in-fact desperately trying to rehab yourself. Here are some pointers that may help you in your fight against SAS:
1. Do not walk around with a lot of cash, set a weekly budget for yourself and stick to it. If you have no extra money, you will be less prone to spending. I allocate $200 per week to myself, $150 for gas and $50 for lunch for the week. If I take lunch once or twice per week, I adjust my budget accordingly.
2. Leave your credit cards at home. However, if like me you have impeccable memory and too much time on your hands – tip #2 may not work for you. I have the unusual gift or curse of being able to memorize a lot of numbers and store them in an organized manner in my brain. I have memorized the DOB and SSN numbers for myself, my three kids, my husband, my dad, my mom, my sister and all five of her children. And I can recall most of my CC numbers, all from my memory bank. So in addition to leaving my CC at home, I stay clear of shopping websites and unsubscribe from their promotional emails. I also discovered that more than a few of my favorite stores will allow me to use my ID to pull up my CC information. So, I painstakingly avoid these stores as well.
3. Don’t get duped into sales, you will end up spending more than you save. If you do want to take advantage of sales promotion on one particular item. Take only enough money to purchase that one item or give your-self a reasonable buffer. If you do not have the money to spend, you will not overindulge.
4. If you are a serious SAS, it will be difficult to quit “cold turkey”. Therefore place a limit your shoe purchases, try purchasing only one per month. That is still 12 pairs of shoes per year. Analyze your needs vs. wants, identify your must haves and then shop around and plan your purchase carefully. Get the best value for your money.
5. Lastly, re-shop your closet. Do not run out and purchase a new outfit for every occasion. Try to pair new items with existing pieces from your closet. If you are not much of a fashionista, visit our “Frugalnesta” page for great ideas on how to look fabulous on a budget and re-shop items from your closet.
Feel free to share some of your own strategies in our comments section below..........
I am putting myself out there on this piece because I believe it's important to use personal experiences to reinforce certain points, even at the risk of you walking away thinking I am a "Cheap, Pain in the Ass, Boogie Bitch". Black people are too complacent, we seem to have developed an annoying habit of letting things slide. We do not stand up for ourselves enough and we are often leaving money on the table. And since money is my business, this is a matter of extreme importance to me. I will proceed by providing a few examples taken from personal experience below:
(1) Regarding contractors - NEVER hire a friend of a friend, always get several estimates and keep it strictly business. You do not have to insist on a license but always ask to see examples of completed jobs or permission to speak with previous clients. And finally, do not allow a contractor to walk away from an unfinished job with your money. Be mindful that these people tend to target single women because we don't have a man to defend us and we often do not pursue them. Months after moving into my first home, I hired a a friend of a friend to renovate my bathroom. I gave this guy the 1st deposit and he demolished the existing structure but never returned to finish the job. After making several attempts to contact him. I decided to file a complaint with the BBB and a few local newspapers in and around his neighborhood. He did finally contact me after a few weeks of bad publicity and offered to return 50% of my deposit. I turned it down and proceeded to file a suit against him. After hours in arbitration to no avail, we appeared in front of the judge who awarded me my entire deposit. Last I heard; he moved his business to Florida. In this particular example, "It really was not about the money, I actually grew to hate that fucker".
(2) Hospitals are by their nature, very "scammish"(that is not a word) I just don't know how else to put it. If you are made to sit in a waiting room, then a triage, then another little room for several hours with very little interaction with medical personnel (even though you see them walking by you at least a hundred times), something is wrong with that picture. Several years ago, I drove to a well know ER after I fell ill one Saturday morning. After hours in the waiting room then the triage, I released myself (despite being told my insurance would not cover my expenses). I believe I must have willed myself better, through sheer frustration. Two weeks later the bill arrives, I certainly was not going to pay for a service I never received. I made a courtesy call to give them the opportunity to do right, but they refused to reverse the charges and threatened collection. They asked for it. I wrote a very detailed complaint letter to the Hospital's Board, The Department of Health, The Informed Patient Institute, and The Attorney General. Not only were the charges cleared but I received an official apology letter that I have kept and that I occasionally show to other medical providers who routinely get on my nerves.
(3) Travel sites irk me because they are forever assigning stars to places they have never been. I booked a short trip to a destination that will remain un-named. I generally will not stay at a hotel below a 4 star. I am not "boogie" but I am somewhat of a germaphobe, I must have the "white" everything. When we arrived, we were informed the hotel had experienced a fire that morning and we had been transferred. Our new hotel was hardly a 2 star, it came complete with the unsanitary yucky floral sheets, dingy carpet, dirty shower etc. We were desperate so we took it. We spent most of the days on the road, I slept on towels and bathed in my slippers, ughh! Upon returning home, I promptly contacted the travel agency and gave them the opportunity to make things right. They offered me an embarrassing credit so I followed up with a complaint letter to their Board and the Management of the hotel I was originally reserved with. The hotel came back a few days later and informed me that they could not offer a refund because I did accept the transfer I was given. I slept on it; the next day I wrote a detailed letter threatening to expose them to the Consumer Action Committee, Consumer Complaint Agency, and that particular country's Tourist Board. It was a bluff, I really did not have that much time on my hands. But not more than 10 minutes after sending this email, I was informed that my refund had been processed and that I was issued a $200 credit towards another trip, for the inconvenience.
(4) If ever you receive a nerve racking letter from the IRS (common scare tactic), do not panic and immediately start making payment arrangements. Know that the IRS does give you sufficient time to investigate and respond. Plus, IRS accountants are known to make errors, in-fact approximately 50% of tax payers audited actually end up receiving a refund. Take the letter along with your files to a reputable accountant, do not practice paying your debts out of fear.
(5)I am not going to bad mouth this next group of people (I need them), except to inform you that if for some reason you find yourself unable to pay your credit card bill and end up being charged a late fee. Contact the company and ask nicely to have the fee reversed. If they have already reported you to the credit agencies, they will retract it, provided you are able to convince them you are a good client and you do not make a habit of it. Do not simply pay the late charge, always make the call. If the 1st agent refuses to help you, wait 5 minutes and call again and speak to someone else. If that doesn't work, ask to speak with a manager. Be polite but relentless and you will get your way.
In summary, companies care about their reputation. It costs them more for bad publicity than to appease an unhappy customer. Next time you visit your local Shopright, take stock of the disgrunted white lady returning the loaf of bread because it just doesn't look quite right.
However, you need to pick your battles and know when not to push the issue, here are a list of absolute don’t(s):
1. Track Your Spending
Outline your monthly budget on a spreadsheet, nothing fancy. Start with your net income, list all the "must pay" expenses and then the miscellaneous items you spend money on each month. Must pays includes your mortgage/rent, car payment, insurance, utilities etc. Miscellaneous items include personal care services such as dry cleaning, cell phone, hair, nails etc. Now subtract expenses from your income, are you in the red? Ok, now critically analyze your budget to see where you can make cuts. Maybe you can visit the salon once every month or hell buy a wig and paint your nails your damn self! If you own a computer, do you really need a 5GB data plan on your cell phone? Reduce your cable package, why you need HBO, Cinemax and STARS? When even though you would never admit it, you watch only reality shows? Follow the overpaid white executive in your office and bring your lunch to work. l once had a boss, AKA "THE GROSSLY OVERPAID, NO ORIGINAL IDEA OF HIS OWN SR VICE PRESIDENT OF FINANCE" who kept a jar of peanut butter and bread in his desk drawer. Okay please do not do that, seriously DO NOT DO THAT!! But you get the idea, cut cut cut........
2. Put it away and do not think about it.
Open a second bank account, many banks now offer no fee savings if you maintain a $5 balance. Do not open an account that has fees, it defeats the purpose. Split your direct deposit, so that a small deposit is made each pay cycle. Take it off the top and forget about it. Start small $20, $10, $5 - trust me it will add up quick. Please do not get an ATM card for this account, give yourself no access to the funds whatsoever. Enter into a "Partner" with yourself except you are the only one getting a "Draw". Just save it and forget it.
3. Shop around for the best deals
Shop around for the best deals on your "must pay" obligations. You can shop around for lower priced home and car insurance, you do not need to be loyal to any company, a good accident history can more than likely get you a better deal somewhere else. Do not be afraid to call up your credit card companies and request better interest rates or move your balances to a lower interest rate card. Many CC companies offer low or even zero percent interest on transfers. Be honest and tell them what you are trying to accomplish. However, DO NOT CLOSE THE TRANSFERED ACCOUNTS depending on your circumstances this could negatively impact your credit score. Check out budget billings or other money saving offers from your utility companies. And did you know that many banks now offer car refinancing at more competitive rates? The goal is to reduce your overhead and increase your savings.
4. Coupons, Bulk Buying and Used Purchases
Okay, this is a no brainer. Look for coupons at your grocery stores and do not forget to use them. Buy a coupon pouch and keep it in the car so you never leave home without it. If you are considering joining a discount store such as Sams Club or Costo, do it with a friend so you can share the cost of membership. Please do not go out and buy 20 cases of tuna. You absolutely should not, and I cannot stress this enough, should not buy everything in bulk. This will lead to waste which defeats the whole purpose. Buy only high priced items in bulk such as paper towels, tissues, detergent, water etc. And yes, It is okay to buy used products for big ticket items. I often purchase furniture from hotel liquidation or estate sales. I am not into matchy matchy furniture so I love unusual vintage finds. My dining room chairs were recently appraised for $8,000, I purchased it from an estate sale for $400 it was barely used. My husband purchased a riding mower from a couple going through a bitter divorce for $300, it is worth $2,200. Of course some items are totally off limit, please do not go out and purchase a used mattress on craigslist!! And while I do not hate on this practice, I am not into purchasing used cloths. But I do shop at fashionista stores such as TJMaxx and Marshalls. And I love love love shopping online flash sales on websites such as hautelook.com, gilt.com and myhabit.com. Flash sales are great for finding designer apparel at discount prices.
5. Train your kids
And last but by no means least TRAIN YOUR DAMN KIDS TO RESPECT THE VALUE OF YOUR HARD EARNED DOLLAR, because trust me "a kid can bruk yu pocket". They do not have to have the latest version of everything. Recycle video games and ALWAYS purchase them used. Kids are naturally prone to waste so I always keep measuring cups in my kitchen for cereal, juice and milk, my kids can have only so much in one sitting. They are trained to turn off lights, conserve water and care for their cloths and shoes because they will definitely be handed down to the next child "Jamaican style". Now, do not have a heart attack over this tip but yes you can use bargain brands on your baby. Trust me the only real difference between "Luvs" and "Huggies" diaper is the price. And lastly, I am soooo not a big supporter of Christmas lists. I do not believe in purchasing a bunch of crap my kids will not look at after one week. I generally will purchase one good gift per child. For example if you buy your kid a Nintendo DS, all you will have to buy many Christmases and birthdays to come is one or at the most two used games. It is truly the gift that keeps on giving. And lastly, as a general rule, I do not purchase toys for my kids until they are at least 2 years old. Because really what do a baby know about toys anyway? You buy a baby a toy; she will play with the box.
Please post comments below and email me your questions on this week’s topic.
Money Talk with Nadia
Accounting & Tax professional with ten plus years of managing personal finances and debt elimination for various income levels. But my greatest experience comes from being a single mom on a tight budget who was still reaching for the stars.