Need Extra Money Now? Tip: Claim the Advance Earned Income Tax Credit Today

By Lynnette Khalfani-Cox, The Money Coach

One special feature of the earned income tax credit is that you can get it sooner, rather than later. If you expect to qualify in 2009 for the earned income tax credit and you have at least one dependent child, you can request part of that credit right now under the “Advance EITC Program.”

Here’s how it works. You fill out a Form W-5, which is called the Earned Income Credit Advance Payment Certificate. (Get a Form W-5 from your employer, or download a copy from: http://www.irs.gov/pub/irs-pdf/fw5.pdf.) Soon after you complete the W-5, you will begin receiving advance EITC payments through your employer. The EITC payments are added to your regularly scheduled paychecks.  If you are self-employed, you cannot qualify for the advance payment.

In 2009, the maximum advance EITC payment amount you can receive through your employer is $1,826. Once tax season rolls around next year, you can still claim the earned income tax credit and receive the balance of any money that may be due you, above and beyond the $1,826 that was added to your pay over the course of this tax year.

To be eligible for the advance earned income credit payment, all four of the following must be true:

• You (and your spouse, if filing a joint return) have a valid Social Security Number
• You expect to have at least one qualifying child, and to be able to claim the earned income credit using that child
• You expect that your 2009 earned income and adjusted gross income will be less than $35,463 (or $38,583 if married filing jointly), with one qualifying child. Or you expect to have two or more qualifying children, and you expect your 2009 income will be less than $40,295 (or $43,415 if married filing jointly).
• You expect to be able to claim the EIC for 2009

The W-5 form is very short, easy to fill out, and will likely take you just one minute to complete.

On the W-5, you simply print or type your full name and social security number. Then you answer “Yes” or “No” to two questions, and check a box indicating your tax filing status (i.e. single, head of household, qualifying widow(er), or married filing jointly). At the bottom of the form, you sign and date the W-5, and that’s it.

Financial Tips for Stay-at-Home Moms

By Lynnette Khalfani-Cox, The Money Coach

Stay-at-Home Moms are very valuable. If the typical American stay-at-home mom got paid, she’d earn more than $116,000 a year for her work, according to a Salary.com survey. A SAHM (or dad) can even use a tool to personalize her own salary. But regardless of how much value a mom actually adds to her family, it is important to take mom’s contributions seriously and be prepared financially. If you’re a stay-at-home mom, here are five financial tips to help protect you and your family:

1. Get a life insurance policy on yourself.

Many people think that only working individuals need life insurance; but that’s a mistake. You want life insurance because if something should happen to you – heaven forbid – the cost of replacing all the services and things you provide for the kids would be enormous. Consider this: You’re essentially the children’s full-time doctor, chauffeur, a teacher to them, their daycare provider and more. If you weren’t around, your husband would have to pay for all these services, or cut back on them, and you don’t want your kids to be short-changed.

2. Plan for a pink slip – even if you’re sure your spouse won’t get one.

While your family may currently be able to get by on just your husband’s income, you must think about how you all would fare if your spouse, by some misfortune, lost his job. Not only would it be financially daunting to make ends meet, but it could also cause marital problems too. PayPal’s 2009 Can’t Buy Me Love survey found nearly half of all couples surveyed in the U.S. said they were arguing more about money amid the recession. Needless to say, it didn’t help that many people have recently been downsized, had their hours cut, or seen their pay slashed. Avoid potential money battles by establishing a budget together, eliminating debt, and building up an emergency cash cushion. You’ll never regret being prepared for a “worse case” scenario.

3. Open at least one credit card – and a separate account – in your own name.

Don’t make the mistake that many stay-at-home moms make by allowing all the family’s credit to be held solely in their husband’s name. Some women are simply added as “authorized users” on credit accounts. It’s better for your personal credit rating to be listed as a co-signer on an account, or to have one or two credit cards in your own name. This also protects you in the event of divorce (you won’t have to apply for new credit, and get “inquiries” on your credit file, which can hurt your credit rating). A credit card account in your name can even prevent hassles in the event of a spouse’s death. Additionally, opening a separate checking account will help you to achieve financial harmony with your mate. You’ll both have a bit of financial autonomy, and you will avoid common money spats over spending because neither one of you will have to account for or “get permission” to make routine purchases. Just be sure to set a limit on how much each of you can spend independently. For example, you might say: “We’ll check in with each other if we want to buy anything over $300.”

4. Stop secret spending.

Plenty of stay at home moms engage in “secret spending,” where they make purchases and hide them from their partners. Working women do it too. But the typical stay at home mom has more opportunity to stash clothes, purses, shoes and other merchandise while her husband isn’t around. Secret spending – whether you’re splurging on yourself on buying stuff for the kids — can easily get out of hand and cause you to rack up big credit card bills. Moreover, if your spouse finds out about your hidden items (and don’t think he won’t ever look in the back of your closet, or notice items with tags still hanging on them), he’ll wonder what other secrets you’ve been keeping from him. Don’t erode your husband’s trust. That could put you on the fast-track to divorce court.

5. Don’t rationalize irrational spending.

Some stay at home moms who go on spending binges or frequently make impulse purchases often justify their constant spending by rationalizing about all the money they’ve allegedly saved. Some women resort to the old “but it was 25% off!” as their rationale for buying something that their spouse later questions. In many cases, it’s an item that they didn’t need or simply couldn’t afford – even with a 25% discount. Other times, stay at home moms think it’s OK to spend excessive amounts of money based on the illogical argument that they’ve already saved money by not going to work, and therefore are not having lunches with colleagues, not commuting, etc.

How to Claim a ‘Qualifying Child’ On Your Taxes

By Lynnette Khalfani-Cox, The Money Coach

Although you can receive an Earned Income Tax Credit even if you have no children, the largest EITC refunds go to those with at least one ‘qualifying child’ on their returns.

If you want to claim someone on your taxes as a ‘qualifying child’ in order to get the EITC, you must meet federal guidelines. The IRS establishes three tests to determine whether your child is a so-called ‘qualifying child.’ The three tests examine relationship, age and residency.

According to the IRS, to be considered your ‘qualifying child’ for the EITC, a child must be your:

• son, daughter, stepchild, adopted child, eligible foster child, or a descendant of any of them, such as your grandchild; or
• brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (such as your nephew or niece)

Relationship, Age and Residency

What this means, thankfully, is that the EITC doesn’t just help parents. Grandparents, aunts, uncles, and even siblings can get this refundable tax credit, as long as they can claim a ‘qualifying child’ that they lived with for more than half of the year.

Regarding the IRS’s age requirements, you can claim someone as a ‘qualifying child’ for the EITC provided the individual was 18 years of age or younger at the end of the tax year. You can also claim young adults up to and including age 23 if they were a full-time student for at least one semester. Lastly, you can claim someone of any age as a ‘qualifying child’ if that individual is totally disabled.

Under the IRS’s residency test, the ‘qualifying child’ must have lived with you in the U.S. for at least six months and a day in 2008.

3 Things You Probably Don’t Know About the Earned Income Tax Credit

By Lynnette Khalfani-Cox, The Money Coach

If you’ve just found out about the earned income tax credit, you may feel like you’ve hit a financial jackpot – especially if you are able to use this tax credit to eliminate your tax bill and get back thousands of dollars from the government. But what you may not know is that you could be entitled to an even larger financial bonanza, and a host of other benefits, all thanks to the EITC.

You Could Be Owed Three Extra Years’ Worth of Refunds

Under the law, if you were eligible to claim the earned income tax credit in the past, but didn’t, you can still get that money. You can file anytime during the year to claim an EITC refund for up to three previous tax years. For some taxpayers, this provision could spell many more thousands of dollars – money that will no doubt come in handy during these trying economic times.

Your Other Benefits Won’t Be Reduced

If you are receiving public assistance or welfare benefits, you’ll be pleased to know that claiming the earned income credit has no effect on certain forms of aid. For example, getting a refund via the EITC does not impact your eligibility for food stamps, low-income housing, Medicaid and Supplemental Security Income (SSI). EITC payments are not counted as income for these programs.

Your State, County or City May Offer Additional Earned Income Tax Credits

In addition to the federal earned income tax credit, 22 states and a handful of local governments offer their own earned income credit programs. These state and local earned income credits are sometimes called “Piggyback Credits” because they are tied to the amount of your federal earned income tax credit. State and local tax credits currently range from 3.5% to as much as 43% of your federal EITC. As of February 2009, Washington D.C., New York City, Montgomery County, Maryland and the following states offered an earned income credit: 

• Delaware
• Illinois
• Indiana
• Iowa
• Kansas
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Nebraska
• New Jersey
• New Mexico
• New York
• North Carolina
• Oklahoma
• Oregon
• Rhode Island
• Vermont
• Virginia
• Wisconsin

 

If you live in any of these areas and you qualify for the federal EITC, be sure to also file a similar credit on your state or local income tax return. For further information about this topic, read IRS Publication 596, Earned Income Credit. 

Quiz: Want Free Money? 10 Qs to See If You Qualify for the Earned Income Tax Credit?

By Lynnette Khalfani-Cox, The Money Coach

Would you like to receive a no-strings-attached check for hundreds or even thousands of dollars from the federal government this tax season? If you can answer “Yes” to 10 short questions, you may qualify for a huge financial windfall, compliments of Uncle Sam.

The financial windfall is the Earned Income Tax Credit. The EITC has been touted as one of the best anti-poverty, pro-family tax measures ever created because it targets working individuals and helps them keep more of their hard-earned money.  There are many rules governing eligibility for the EITC. But if you can answer “Yes” to each of the following 10 questions, chances are you qualify for the EITC and may have a big check coming your way:

1. Were you a United States citizen or resident alien for all of 2008?

2. Have you lived in the U.S. for more than half a year (i.e. six months and a day)? (Note: living in U.S. territories – such as Puerto Rico, Guam, the U.S. Virgin islands or American Samoa — does not count).

3. Do you (and your spouse, if filing a joint return) have a valid social security number?

4. Did you have earned income from a job last year? (Note: earned income includes wages, salaries, tips, taxable employee pay, non-taxable combat pay, net earnings from self-employment, clergy income, strike benefits, disability benefits, and gross income received as a statutory employee)

5. Based on your family size, was your earned income and adjusted gross income last year less than IRS limits established for the EITC? (Note: for singles, the income limits set by the IRS are capped at $38,646; for married tax filers, the maximum income limit is $41,646. See the table below for more details).

NO CHILDREN        1 CHILD        2 OR MORE CHILDREN

Single Income Cap    $12,880                       $33,995           $38,646

Married Income Cap $15,880                       $36,995           $41,646

Max Credit-Single   $438                            $2,917             $4,824

Max Credit-Married $438                            $2,917             $4,824

                                                                           

6. Is your tax filing status any of the following: single, head of household, qualifying widow(er), or married filing jointly? (Note: married filing separately is the one filing status that disqualifies you for the EITC).

7. Are you at least 25 years old, but under the age 65? (Note: If you are under 25, or are age 65 and older, are you raising a child, grandchild or other descendant that you can claim as a ‘qualifying child?’)

8. Did you earn investment income of $2,950 or less for the most recent tax year? (Note: Investment income includes ordinary dividends, capital gain distributions, taxable interest, and tax-exempt interest).

9. Can you confirm that neither you nor your spouse is the ‘qualifying child’ of another person? (Note: See the IRS definition of a ‘qualifying child’ below).

10. Can you confirm that neither you nor your spouse is filing Form 255, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion? (Note: These forms allow you to exclude income earned in a foreign country from your gross income, or to deduct or exclude a foreign housing amount).

If you answered “Yes” to every question above, congratulations! To get the fastest refund, use IRS e-file (http://www.irs.gov/efile) and direct deposit. Filing a Federal return electronically is safe, easy and free, plus you’ll get your refund wired into your checking or savings account in 10 to 14 days. 

You May Be One of Millions Eligible to Claim Free Money — the Earned Income Tax Credit

By Lynnette Khalfani-Cox, The Money Coach

Would you like to receive a no-strings-attached check for hundreds or even thousands of dollars from the federal government this tax season? If you can answer “Yes” to 10 short questions, you may qualify for a huge financial windfall, compliments of Uncle Sam.

The free money in question is the Earned Income Tax Credit, also known as the EITC. The EITC is a refundable tax credit ranging from $438 to $4,824 and designed to supplement wages for low-to-moderate income workers. But don’t be fooled by the term “low-income,” because it doesn’t just apply to blue-collar employees or those earning small salaries. Tens of millions of individuals and families previously classified as “middle class” – including many white-collar workers – are now considered “low income” because they lost a job, took a pay cut, or worked fewer hours last year.

Since the EITC is a tax credit, not a deduction, if you claim the EITC you can slash the taxes you owe to zero, and even get lots of money back from the government.

The IRS reports that the average EITC refund is about $2,000. The exact refund you receive depends on your income, marital status and family size. To get a refund from the EITC you must file a tax refund, even if you don’t owe any taxes.

In 2008, 24 million taxpayers used the EITC program to claim more than $48 billion. Unfortunately, 25% of taxpayers who are eligible for the earned income credit fail to claim it, according to the IRS. Some people miss out on the EITC because the rules can be complicated. Others simply aren’t aware that they qualify for this hefty benefit.

You don’t have to remain in the dark, however, about the earned income credit. Check back tomorrow, I’ll post a 10-question quiz that let’s you see if you qualify. You can also get help with the EITC by using the new EITC Assistant, available in English and Spanish on the IRS website: http://www.irs.gov/eitc.

6 Tips to Heed When Launching Your Own Business

By Lynnette Khalfani-Cox, The Money Coach

Although America may be in a recession with a rising job less rate, many laid off workers are contemplating a life of entrepreneurship. If you’re thinking of becoming your own boss, there’s much to heed before you start dipping into your retirement savings or severance pay to launch your own business.

Here are six quick tips for entrepreneurs trying to finance a start-up or expand existing operations:

1. Do seek “trade credit” from vendors and suppliers. Too many entrepreneurs dream of going to a bank and getting a business loan or line of credit for their enterprise, but maybe you don’t need a traditional bank loan at all to launch or grow your business. If you can get your vendors and suppliers to agree to provide you with trade credit — i.e. the ability to pay for goods and services over time — you can creatively and more frugally run your operation.
2. Do request major funding long before you need it. Realize that getting money from “angel” investors and venture capitalists can be a longer-than-expected process; it often takes 6 to 12 months to secure. See the “How to Get Funding from Angel Investors” article from the Wall Street Journal.
3. Don’t feel compelled to buy everything. Ask yourself: Do I really need to purchase equipment, furniture, computers, etc? You may be able to get by, temporarily, by bartering, or even by renting and leasing equipment. And that’s OK!
4. Do get “buy in” from your spouse/partner. Many new (and veteran) entrepreneurs will tell you one of the biggest dream killers they’ve encountered is an un-supportive spouse. Make sure your partner is on board with your entrepreneurial ambitions. If not, you’ll face a host of financial arguments and money-battles that will be counter-productive to you building a business.
5. Don’t let your personal credit rating lapse. Amid the current environment, your credit standing is more important than ever. Guard it jealously. Pay all bills on time. Only take out loans/credit when you truly need it. The higher your FICO scores, the better loan rates and terms you’ll get when it is time to do business with a bank —or even just getting a corporate credit card. See more on how to get your financial house in order.
6. Don’t “bet the farm.” Smart entrepreneurs don’t “roll the dice” and risk everything. They take risks, but they’re calculated risks. Don’t gamble everything: 100% of your savings, your credit, putting your home up, etc. in the hopes that you’ll create a successful business. Be willing to invest in your business of course, but not foolishly, and and not at the expense of everything else.

Valentine’s Day Tips #9 and #10 for Love and Money

 By Lynnette Khalfani-Cox, The Money Coach            

This is the last entry of 5 sets of “Valentine’s Day Tips for Love and Money” geared to help you achieve financial harmony in your relationship. Read the first set here, the second here, the third here and the fourth here. 

9. Retirement happens.  Plan Accordingly. Given the current financial crisis, younger generations are worried most about not having enough to live the way they want to, while those over 45 worry more about having resources for old age and retirement.  The under-45 crowd could learn a lot from its elders.  There’s no time like the present to start saving for retirement, especially for couples.  Sit down together and evaluate your respective 401K plans, then make your collective contributions to the plan that offers the best benefits – higher employee matching, for example —instead of each contributing blindly to your separate accounts. If you have maxed out the matching options under one 401K, and still have extra funds to put toward retirement, then consider other investment options, such as the other spouse’s retirement plan if employee-matching is available there. Free money in the way of matching, tax credits, tax deductions, tax-deferred savings, should typically win out over those that don’t offer such benefits .

10. It’s OK to have some financial independence, too. While it’s imperative to plan your financial future together, many couples still want their own money to spend as they like. In fact, over half of all couples keep some sort of separate bank accounts.  The smartest solution is to keep joint bank accounts to pay household bills but also separate checking accounts for personal spending.  Just make sure to agree on how much each of you contributes to your joint accounts — take into consideration what you earn. 

 

 

Valentine’s Day Tips #7 and #8 for Love and Money

By Lynnette Khalfani-Cox, The Money Coach

This is the fourth of 5 sets of “Valentine’s Day Tips for Love and Money.” Read the first set here, the second here and the third here. Come back tomorrow for the final of the 10 tips to help you achieve financial harmony in your relationship.

7. The first date is awkward enough – the first check doesn’t have to be. For those on a first date this Valentine’s Day, be sure to manage expectations about who pays the check before the waiter comes looking inquisitively at the two of you. In a PayPal study, men were more likely to say that they should pay for the first date, but women were more likely to say that the bill should be paid equally or through some split not based on gender.  Agreeing in advance on a payment plan that pleases everyone could eliminate some of the check-dividing awkwardness, which could even increase the likelihood of a “Date #2.”

8. Don’t stop giving gifts to each other, no matter how tight your budgets get. When times are stressful and budgets are tight, it’s all the more important to be open and expressive in your relationship.   If you’re cash-strapped, the best advice is to invest in thoughtful gifts that don’t cost a dime; they’re usually the ones with the most meaning. This Valentine’s Day, bring out some old movies or photo albums and make it a date night.  The one rule: no talking about money.  But, if you can’t bear to skip the gift — for Valentine’s Day, an upcoming birthday or a holiday — remember that there are options other than credit. Look into layaway plan at your local retailer, or try another option like Bill Me Later, which gives you 90 days to pay with promotional financing, all without using a credit card.

Valentine’s Day Tips #5 and #6 for Love and Money

By Lynnette Khalfani-Cox, The Money Coach       

  

This is the third of 5 sets of “Valentine’s Day Tips for Love and Money.” Read the first set here and the second here. Come back each week day this week for more tips to help you achieve financial harmony in your relationship.

5. In love and money, old stereotypes about men and women die hard. More than one-third of the women surveyed by PayPal said they share primary income responsibility with their partners, but only about a quarter of men said the same.  What gives?  Is he understating her contributions or overstating his own?

Don’t let stereotypical disconnects between women and men’s money-making abilities wreak havoc on your relationship.  Talk to each other about the contributions you each make to the shared bottom line: be clear and be honest. Make sure you’re on the same page in your financial planning and always resist the urge to be competitive. 

6. Stop secret spending; it isn’t sexy. More than one in ten of PayPal’s respondents admit to hiding purchases from their partners.  Why all the secrets?  Even if you don’t always agree on each other’s spending habits, you can at least agree that any purchase over a certain amount ($200, for example) will be discussed in advance.  Such easy relationship guidelines can go a long way in creating financial harmony. One out of ten couples have ended a relationship due at least in part to financial issues.  Curb your secret spending habits before you join their ranks.