Debt – most of us carry some debt. We use our credit cards and we have full intent of making the payments. However, sometimes things don’t go according to plan. Something happens in our lives that make it impossible for us to keep our commitment to pay. If you are in debt and you can’t make your payments, don’t panic, and don’t ignore it!
Ignoring your creditors may seem like the smart thing to do, after all you can’t pay them, but actually, it’s not a good choice. That’s because your creditors could report you to the credit bureau and that could affect many areas of your life. It might mean you are turned down for a job that you applied for. It might mean you have to pay more for insurance or you are refused insurance. It might mean you are turned down for a rental property. Bottom line – doing nothing is not looking out for you.
Instead, sit down and start to put a list together of your creditors that includes both secured and unsecured debts. You can begin by talking to them if you like and explaining your situation and why you can’t pay. Some of them may work with you, while others may not.
You’ll need to prioritize your debts so that you can decide which ones you will try to pay with your limited funds. For example, paying your mortgage and utilities would be more important than paying your credit cards, because you could become homeless and without power or gas. Then again, if your situation is dire you may walk away from your home. In that case, you would still want to keep the utility companies happy, as you’ll always need utilities.
The Debt Collection Agency Comes Calling
It won’t take too long before you hear from the debt collection agency, which is a third party agency that purchases other companies unpaid debts, and then tries to recover part of the amount. They can really wreak chaos in your life if you do not know what steps to take to prevent it.
How You Should Deal With Debt Collection Agencies
They are going to phone you morning, noon and night and at every number they think you might be reached at. Instruct them not phone and to only contact you in writing. Know your rights under the ‘Fair Debt Collection Agency Act,’ and make sure you understand the statute of limitations. The problem with dealing directly with debt agencies to determine a settlement leaves you with no one protecting your rights and looking out for you. It’s not a wise move.
What are Your Options?
The best option would be to contact a professional organization who has the ability to challenge, dispute and remove damage caused by a debt collection agency. Or, you could try to repair you credit on you own if you have the time and know how. Honestly, you are better off leaving something as important as your credit score in the hands of the professionals.
Article Source: http://EzineArticles.com/8322587
Posted in Bankcruptcy Medical, Credit Counseling, Debt Management, Uncategorized
In the past, our grandparents prided themselves of living being completely debt free. Since the creation of the Federal Reserve, banks have expanded as the Fed has pushed money into the economy to allow them to loan it to American citizens. As money got tighter, the Federal Reserve would push out more. Banks now had the money to loan to the American people so every person could own a home and an automobile. Initially the only debt that most people would have would be that of a mortgage and possibly a car loan. People were still staying virtually debt-free until plastic was created. Prior to credit cards, the stores had layaway plans where a person could come in and put a deposit on an item to hold it. They would come in and make payments on the item until it was paid in full and at that time take it home. I remember as a child my family getting their first TV on layaway. It was an exciting day when the final payment was made and we were the proud owners of a television set. Then in the 1970s credit cards were pushed into American culture and the idea of why wait when you could charge it and have it now. This is when the idea of staying debt-free was blown to pieces.
When the economy almost imploded in 2007, many Americans woke up to the facts of what we have become financially. People like Dave Ramsey came out and spoke strongly of how Americans should get out of debt and be beholden to nobody. Now, Americans are buried under a mountain of debt and have no idea how to get out without filing for bankruptcy. It seems that becoming debt-free is a thing of the past and no longer possible. Well, that is not necessarily true and people can eliminate their debt but for some it will be a larger task.
For someone that has a large amount of unsecured debt, filing Chapter 7 bankruptcy might just be what the doctor ordered. In a Chapter 7, all unsecured debts can be included in the bankruptcy discharge including, credit cards, personal loans, payday loans and medical bills. This is huge for someone who overindulged on their credit cards over the last 10 years. Creditors were quick to give everyone and anyone credit prior to the collapse of 2007. It was no surprise to hear of people having $100,000 limits on their credit cards. It didn’t take a rocket scientist to figure out what would happen to these people. For these individuals, a quick trip to a bankruptcy attorney could start the process and turn their life around.
Posted in finance, Payday Loans, Uncategorized
ATMs vs. Personal Teller Machines
- Personal Teller Machines offer almost every transaction option available at the teller line. ATMs offer the ability to make a withdrawal or deposit.
- Personal Teller Machines provide flexibility in cash withdrawal denominations – choose from 5 different denominations. ATMs allow for single denomination only.
- Personal Teller Machines allow a customer to request and print an official check, unheard of using an ATM.
- Personal Teller Machines are easy to place, occupying a single square foot of retail space. ATMs are large and typically require some construction to implement.
Self-service kiosks may not replace ATMs, but they do represent a new way to touch the customer, improve customer satisfaction, increase up-sell and cross-sell and gain big operational improvements in the branch.
ATM’s Have Pretty Much Been the Same Since 1967
Ground-breaking in its introduction of “convenience” to the banking customer mindset, the first ATM was installed in 1967 by Barclay’s Bank in London. Since then, the positioning and technology applications have remained largely unchanged. As users we have become “trained” on where to find and how to use an ATM – mostly outside the bank branch and to make a withdrawal or deposit. That has been the extent of our self-service experience where banking is concerned for more than 40 years.
Enter “The iPhone Effect”
Since smart phones have pervaded our lives, consumers have become increasingly demanding of technology that is cool, simple and connected. They want to use this technology to do more and more of their daily tasks, and banking is no exception. So the major banks have focused tremendous resources on developing online banking to meet the needs of these customers while their retail locations – the brick-and-mortar bank branch – has remained largely unchanged.
The swift move of consumers to online banking has reduced, but not eliminated, foot traffic in retail branch locations. Banks understand that the physical branch remains critical in establishing relationships with new account holders, as well as addressing existing account holders’ financial decisions. Customers still want that human interaction. However, the Great Recession has forced the banks to find ways to reduce expenses AND offer a better retail experience to their customers.
Enter the “Branch of the Future” concept: a way to implement state-of-the-art technology and branch design to maximize both the staff and a smaller space. Self-service kiosks are an instrumental part of the concept, allowing customers to manage their own transactions with the comfort of an easily accessible staff member nearby to step in and help if needed.
Not Your Father’s ATM
Personal Teller Machines act as an extension of the teller line because they are integrated with a bank’s core system, avoiding the ATM rails and associated fees. While ATMs allow for a few standard, specific transactions, Personal Teller Machines empower customers to complete 80 – 90% of the transactions traditionally handled by a teller in a fraction of the time
Article Source: http://EzineArticles.com/9167723
Posted in finance, Uncategorized
Not paying your taxes on time entails various consequences. If you are having trouble paying your taxes in full, don’t let it hinder you in filing your tax return timely. Consider paying as large a percentage of the amount owed or borrow money from others in order to settle your tax liability in full. Filing a return and not including full payment can save you large amounts of penalties and fees. Moreover, payment plans are available and being on a current payment plans avoids IRS collection process which may include, property seizures, garnishments etc. Most CPA firms can advise you on these matters.
These are the ordinary penalties:
· “Filing Failure” penalty
5% per month on the amount of tax due on the return to a maximum of 25%
· “Payment Failure” penalty
.5% per month on the amount of your tax due on the return to a maximum of 25%
· Both “Filing Failure” penalty and “Payment Failure” penalty apply
The “Filing Failure” penalty lowers to 4.5% per month and “Payment Failure” penalty is
.5% per month. The combined penalty stays at 5%. The maximum penalty for both is 25%. Then, the “Payment Failure” penalty continues at.5% per month another 45 more months. Both penalties can go to a maximum of 47.5%.
Besides the penalties above, interest is charged on late payments. Also when you are self-employed, you take full responsibility for paying the taxes as money is earned through the year.
Payment extensions are provided when it can be proven that unwarranted hardship exists. Inconvenience caused by paying the tax isn’t enough grounds for unwarranted hardship. The taxpayer must show that paying the tax would cause significant difficulty and/or expense. For example, a fire sale, selling property at an extremely discounted price, since the person faces the difficulty of paying taxes.
When a payment extension is granted, interest is still charged but the “Payment Failure” penalty is waived. The payment extension is usually good for six months from the due date of the return. The IRS will lengthen time allowed for a payment extension due to some circumstances..
To apply for a payment extension use Form 1127. Form 1127 requires a taxpayer to provide detailed statements of; assets and liabilities, statement income for each of the 3 months prior to the due date of the tax return and statement expenses for each of the 3 months prior to the due date of the tax return.
Paying Income Taxes With Borrowed Funds
Borrowing money to settle tax obligations is an option. Here are some various scenarios:
· Loan From Individuals
Borrow from relatives or friends. Interest rates are probably lower.
· Loans From Banks Or Other Commercial Institutions
Interest on this type of loan is usually considered a non-deductible personal interest expense. Typically a financially troubled taxpayer has a hard time to qualify for this type of loan.
· Home Equity Loan
Interest rates may be lower than with other types of loans. The interest payments may be tax-deductible. This is usually the cheapest option.
· Credit Card
There are a number of companies approved to accept credit cards or debit cards to pay income tax. Note, interest charges may be high and is usually considered a non-deductible personal interest expense. On top of this interest, the companies approved to accept credit cards or debit cards to pay income tax charge a service fee.
Monthly Payment Agreement Request
File form 9465 to apply for a monthly payment agreement with IRS, this can be done online at WWW.IRS.GOV. This process can be done after a hardship extension expires. Form 9465 requires less information than Form 1127 regarding the hardship extension. No financial statements are required if tax due is under $50,000.
When the amount owed is more than $50,000 Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals is required. This form helps the IRS obtain detailed, information about you. Consider consulting a CPA Firm about allowable expenses and national living standards that correspond to Form 433-A.
There is a fee for the monthly payment agreement and it is deducted from the first payment if the request is approved. When the payment agreement request is approved, interest on any tax due date is still imposed. However the “Payment Failure” penalty is reduced to.25 % instead of.5% if the return is timely filed.
The monthly payment agreement has a fee of $120. The fee is reduced to $52 when a person permits the IRS auto debit from their account. In the event the taxpayer qualifies as a low-income the fee is reduced to $43.
Monthly Payment Agreements may be terminated if IRS thinks the probability of obtaining payments are at risk. The IRS will also terminate a monthly payment agreement if the financial information supplied was not accurate or complete.
Other reasons for terminating the agreement are the following:
• Failing to make a monthly payment.
• Failing to pay another tax liability when it’s due.
• Failing to provide updated financial information.
• IRS finds out that your financial condition has improved.
A written notice will be sent by the IRS 30 days prior to changing or terminating a monthly payment agreement. IRS will also provide the grounds for changing or terminating a monthly payment agreement. The requirement for written notice does not apply when the IRS believes the collection of tax owed is at risk.
Thus, it is very important that tax returns are filed properly even if full payment cannot be made. Options like hardships extensions or monthly payment agreements may be availed to prevent further charges, penalties and other serious consequences
Article Source: http://EzineArticles.com/9059857
Posted in Bankcruptcy Medical, Credit Counseling, Debt Management, Uncategorized
Debt freedom is only 4 simple steps away. Now I said simple not easy. I know that Guru just told you to pull out your credit card and buy the next big shiny object. He just told you to believe in yourself and spend $995. The super-duper business kit and $150 auto-ship is the key to millions. Just charge it.
That new flat screen is calling. 0% interest for 18 months. It looks good 70 inch and it curves. How about a new car. You just paid this one-off but it’s 5 years old and the new car has more lights. The payments are about the same… what is another 5 years paying off another car. You look good in a depreciating asset.
Cash is King
The tough thing about debt freedom is you want to use cash. When you use cash you feel it more. Your brain registers cash leaving your hand. You don’t feel it when you use your debit or credit cards. Just try it and see. Dropping $995 cash on a business opportunity, $4000 on a flat screen, or $25000 cash for a new car will have you investigating your purchases more.
Paying cash will have you work that new business more diligently. Being stuck with business debt and all the crappy products that comes with it is a pain. I am not going to get in a debate about good debt vs. bad debt. I rather you boot strap your way to success. If you knew how to use debt you wouldn’t be reading this article.
Investing cash into your business and purchases makes you more cautious. It produces delayed gratification and in the end you get better deals because you brought cash to the table. I have bought furniture, electronics, cars with cash, and saved hundreds even thousands of dollars. Cash Is King.
Debts can kill your business, destroy your marriage, and cause friendships to disappear. You don’t need the stress and frustrations that come with owing credit cards, banks, and personal loans. Here are 4 Simple Debt Freedom Solutions.
4 Simple Debt Freedom Solutions
Pay More Than The Minimum
Stop the habit of only paying the minimum. Your statements shows you how long it will take you to pay off your credit cards or loans when you pay the minimum. This only prolongs the agony and you are spending more money. Interest payments equals cash flow for your lenders. That’s how they make money.
Bite the bullet and pay more. If your minimum payment is $50 pay $100. If it is $100 pay $200. Get rid of it. The money is there. Stop eating out, tell 7-eleven you are on vacation, stop all the bad habits of smoking, drinking, or gambling. Smokers can save on average $35 per week if they stopped smoking.
Sacrifice is the key word here. If you have more month at the end of your money you need a cashflow plan. Financial Peace University teaches you how to create a monthly budget. A budget will help you know where your money is going.
The increased payments will save you more money, time, and frustration. Better to live below your means now than fearing living hand to mouth in the future.
I got this from FPU. List all of your debts in order from the smallest debt to the largest debt. The next to each debt list the monthly payments.
Don’t worry about who has the highest interest rate. We want something simple. You want quick victories to build momentum. Paying off the smallest debt first will create energy and motivation for you. Seeing progress is the only way you will keep going.
The second part of the snowball effect is to come up with an extra $100 to $200 per month to add to your debt payments. Cut back on expenses, get a second job, sell all that stuff you don’t use. Sell so much stuff the kids think they are next. You will find the money hidden in your credit card and bank statements. Go through them and cut expense you don’t need.
Apply your extra money to the first debt listed. When that debt is paid off, apply that money to the second debt. For example you came up with $200 extra. Plus the monthly payment of the first debt of $15. That is a total payment of $215. Now you apply $215 to the monthly payment of the second debt which is $25. Your total payments are now $240. Keep up this process until all your debts are paid. Hence the snowball effect.
Cash Out Your Savings
Cash out your savings. It doesn’t make since to save at 1% interest and have debt at 18% interest. You will never win that battle. Cash out all of your savings. Leave $1000 in an emergency fund and use that cash to help your debt freedom plan. Trust me on this when you are debt free you will have enough money to fund your savings plan.
Get A Second Job
The goal is debt freedom right? Then get a second job or find another income source. Imagine putting an extra $1000-$1500 per month to your debt snow ball. How fast could you pay off your car loan, student loan, and those darn credit cards. Have a long-term perspective. It could take 3 to 5 years to become debt free.
Notice I didn’t say file bankruptcy, take out a home equity loan, or borrow against your 401(k). Getting into more debt to pay of debt is stupid and just a marketing ploy. It took me 28 months to become debt free and now I put my debt payments into what I call my Debt Freedom Fund. My total debt payments were $1100.
Change Your Behavior
These solutions are simple not easy. Combine all four. That’s what I did. But before you start realize that your current behavior has you in this situation. Keeping this same behavior will only have you pay off your debts and then going back into bondage. There are plenty of books and courses on how to handle your money.
Getting into debt did not happen over night. Neither will becoming debt free. Start now and remain consistent.
Charles Fitzgerald Butler, is an entrepreneur and expert in internet marketing. Charles has a passion for helping people start and run successful home businesses. You can partner with Charles and start building multiply income streams from your home. Charles’ goal is to help all who partner with him achieve cash flow and profits from their business.
Article Source: http://EzineArticles.com/9003104
Posted in Budgeting, Debt Management, Uncategorized
Smart consumers will always want to steer clear of unnecessary debt. However, this does not mean that you need to renounce necessities or things that you yearn for in this life. The key is to be realistic. Develop sensible spending and saving habits. This in essence is called personal financial forecasting. Your plan must shape proper handling of money.
Develop spending policies that are easy to achieve. You must not fight the desire to spend. Instead, understand the need for reasonable expenditures without falling into financial liabilities. It is essential to convert said guidelines into routine practices. Make your decisions anchored on what is ideal for your personal funds.
Create a rational budget. Keep track of your earnings and how much you spend for at least three months. Keep a log book if possible and retain all receipts. Create expense categories such as food necessities, household utilities, clothes, travel, and entertainment. Find out ways to limit expenses that you can channel towards savings and paying off bills. Make it a point that you always have money for credit card balances and basic monthly purchases.
Strive to earn additional income. This is a sure way of not turning out short on your monthly budget. It is also the ideal way of controlling your finances. It is as simple as earning more if you want to buy more. Deposit more money to your savings account. You will surely need this in times of emergencies.
Choose the right credit card. This may not be an easy decision since a lot of cards proliferate in the market. In fact, you can find sales representatives of credit cards selling their products almost everywhere. However, credit cards are essential to consumers so you have to find a way of getting the suitable credit card without being over-stressed. It is important to identify the different categories of credit cards. Opt for a low interest credit card has very minimal interest rates. Purchases you make will not lead to unmanageable interest costs. Consumers, who carry over balances, will find this card as a practical option. It is a solution for consumers who are not capable of paying the full amount of monthly credits. The low interest card also offers huge savings and permanence while you settle your balances.
These are just some of the useful pointers in avoiding debt. Spend time to assess your present situation. Focus on saving rather than splurging. It will come in handy especially on rainy days.
Posted in Bankcruptcy Medical, Credit Counseling, finance, Uncategorized
n Part I of this article, we looked at “WHAT IS THE PSYCHOLOGY OF WEALTH?”
With the first 19 of the 48 laws of wealth, you learnt to develop the psychology to achieve the mind-set of a wealthy and successful person and attract great wealth into your life:
PART II: HOW DO YOU PLAN YOUR WEALTH?
This section of the laws of wealth is designed to help you plan for wealth. Wealthy and successful people leave nothing to chance, they plan meticulously. So must you.
Law 1: Define what wealth means to you: how do you perceive wealth?
Know your own representation of wealth. Do you want enough money banked for 5, 10, or 30 years? Property investments, for example, that grow by £x annually? Passive income from a business or investment? A specific salary? Pen it down as a guide to measure your progress.
Law 2: Money for what?!: Know exactly what you want money for.
What do you want money and wealth for? Material things? Charitable purposes? A revolution? Write this also down and use it as a goal, a checklist, a reminder, a reference and as a tool by which to measure your progress! And you can only do that with a yardstick.
Law 3: Ecology: make money in a clean way and avoid dirty tricks.
Make money legally because methods detrimental to people or the environment create negative energy. So avoid what seems like the shortcut or the easy option to getting wealth. Work rather to add value to people’s lives guided by safety, fairness, value and legality.
Law 4: See your journey before you: Where are you now and where do you want to be?
What you focus most on is what you attract into your life. If you want to be successful in any venture, see (rather, visualize) your journey before you. The steps to doing this are:
1. Where are you now?
What is your exact financial position to the last penny? Your monthly expenditures? Your budgets? Your cash flow? Your assets? Your liabilities (debt)? This total net worth will be your marker for your wealth and your progress.
2. Where do you want to be?
Do you want to become a millionaire? Have just financial independence? To be able to measure your success, quantify your end goal. So specify timescales, numbers and figures. The more real and tangible and specific you make it, the more the possibility of attracting it.
3. Have a plan
Right now what is your plan? To set up your own business? To invest in property? Only if you look for them will opportunities come to you. So charting your path to wealth will sharpen your awareness to the tools, the people and the challenges you must face succeed.
Law 5: Be Realistic: About what you can achieve and when you can achieve it.
Believe in your dreams but be realistic about your goals and your expectations of wealth. Wealth will come to you, but it will demand lots of patience, hard work, working longer hours and smarter than before. So set yourself realizable targets and fix believable timescales.
Law 6: Your wealth strategy: The road map that will lead you to money and wealth.
Don’t be a person without direction. Follow a strategy and update it when necessary so as to make it.
The first is understanding exactly where you are now:
1. Know how much you earn.
The crux of this is that don’t spend more than you earn.
2. Know really exactly how much you spend.
Determine exactly how much you spend on every area of your life. Include unforeseen expenses in your budget and keep it in another account. And always pay off your debts first.
3. Know your attitude to risk.
How much money can you comfortably ‘risk’ or speculate in your investment strategy?
4. Know your potential avenues to earn.
How many different ways can you think of to earn income, especially passive income?
5. Cash flow and capital growth.
Your cash flow will come from a salary or a dividend certain businesses, careers and investments will bring you. But assets such as property will give you capital growth. Both must be part of your strategy for great wealth.
The second step of your wealth strategy is to set a goal that you can review. As your income increases, raise the bottom 3 columns above but not column 2.
Adjust the figures as necessary based on monthly income:
Earned income: £1,500 [after tax and N.I] Total living allowance [spend including living, debt and contingency]: £975 [65%] Tithing [giving back]: £75 [5%] Total saved and never touched: £150 [10%] Total invested: £300 [20%]
Attitude to risk: 20% [total invested]. Although fairly safe, you can invest more if you are young, ambitious, and single. But if you are a little older and need stability, have children and commitments then add more of your earnings to your ‘total saved’ column.
Now decide where to donate your tithing, what high interest account to deposit your 10% in and what to invest your 20% in.
If you want to invest in property-recommended-hold your investment until it becomes large enough for that.
Develop your strategy as the years and wealth increase. Don’t change it at will. Give it the opportunity to work!
Review your strategy and your finances each year. Open and update it and do a financial check-up to see where you are. Compare this year’s strategy to last year’s to ensure you are making progress in the right direction.
Law 7: Worst case scenario: things more often than not turn out not as anticipated.
It is a fact of business and life that things will not turn out just right. Therefore work the worst case scenario into every business proposition or plan, investment decision or forecast: what if recession struck your business? What if you suddenly fell sick?
Your business plan forecasts profit from year 3; what are your plans if it doesn’t happen until 2 years later?
Work out your sensitivity analysis [projections of earnings/turnover] on low figures. Imagine what happens if you planned to turn over £1m in year 1 but actually get £50,000?
If you obtain an affiliate network website supposed to make you money in 1 month on autopilot, make it 2 months. Your affiliates may not work as hard as you and even careless.
If making an investment, especially over the long-term, factor in a good contingency to cover unexpected costs. So if you need £10,000 for marketing, budget £15,000 or best, £20,000.
Eagerly watch over your streams of revenue. That way you can back out of any threatening to dry up and move your investment elsewhere where it is safe.
Law 8: Know your exit strategy: when to back out of a business before it sinks you.
Business is full of “force majeure” (act of God). So go into any investment with a clear idea of how you can back out and liquidate efficiently and cost effectively when need be. What it all boils down to is diligence, planning, foresight. Don’t ignore your contingencies.
As an affiliate marketer, I have carefully chosen online businesses to help me make money. One is Wealthy Affiliate. How does it work?
Choose an Interest
What interests you? We all have a hobby or something that gets us excited and motivated when we think about it. There are millions of different ideas that you could potentially tap into online and we are going to help you come up with your very own “topic” within Wealthy Affiliate.
Build a Website
Building your very own website is SIMPLE within Wealthy Affiliate. The process takes less than 30 seconds to build a beautiful looking, revenue ready website. This is going to be the foundation of your business and what will ultimately lead to a successful venture.
Your goal before you try to make money with any website is to focus on getting actual people to that website. Without people, you have no business so this is a critical stage.
Once you have an audience (traffic), you can promote products and services through special programs called “affiliate programs” which are free to join. These allow you to promote pretty much anything you can imagine without having to own or create the product yourself.
Article Source: http://EzineArticles.com/9166330
Posted in Budgeting, Credit Counseling, Payday Loans, Uncategorized
The United States Treasury Department is now actively working with more than 50 nations to share Americans’ personal financial data that will reveal who is tax compliant, including American expats living overseas. The effort is in support of new FATCA (Foreign Account Tax Compliance Act) laws that require foreign financial entities to report Americans’ account information to US authorities and to undertake mandatory withholding from them to assure compliance with American income tax laws.
The trade-off is that the United States will reciprocate with the data of partner countries’ own citizens with accounts in the States. The laws have been rolling out in varying levels since its enactment in 2010. The US has principal agreements with the 5 big sovereigns of Europe, including the United Kingdom, Germany, France, Spain and Italy, and has signed a “model agreement” with the United Kingdom.
The inception of, roll out and implementation of FATCA has been clever, if not masterful on the part of the US Treasury. The United States enacted FATCA and began by leaning, mostly, on foreign financial entities and mandating that they comply with certain new rules, including reporting of data on American clients and withholding of monies, to ensure Americans were compliant with US tax laws. Foreign financial interests, in turn, desperately sought relief from their own governments. The US mandates were burdensome and cost prohibitive for them to implement. The solution for financiers was for their own governments, many of whom already have the data the US wants to take on the sharing requirement that the US, using its global financial clout, is forcing on everyone.
50+ countries in all are clamoring to get on board. In part because of the controversial nature of FATCA itself. Foreign financial entities are pleading with their own governments to facilitate the newly required reporting that the US laws mandate. For many, it is impossible to continue doing business with American clients and are closing their accounts. Additionally, foreign banks and investment houses who do not comply face a 30% withholding on their own transactions that occur within the US, so there’s no way to opt-out.
The US Treasury expects to finalize signed data sharing agreements by the end of the year with countries that include Norway, the Netherlands, Mexico, Jersey, Ireland, Isle of Man, Guernsey, Finland, Denmark, Canada, Switzerland, Japan, Spain, Germany, Italy and France.
Treasury is actively negotiating with the following countries to finalize and enact data sharing agreements – Sweden, Singapore, Slovak Republic, New Zealand, Malta, Malaysia, Liechtenstein, Korea, Israel, Hungary, Estonia, Cyprus, Cayman Islands, Belgium, Australia and Argentina. Their goal is to conclude agreements with as many as possible by year’s end.
The list goes on – The US Treasury is reaching out to and actively attempting to engage the following countries to agree to data sharing as well – South Africa, Slovenia, Sint Maarten, Seychelles, Russia, Romania, Luxembourg, Lebanon, India, Gibraltar, Czech Republic, Chile, British Virgin islands, Brazil and Bermuda.
Assistant Secretary of the US Treasury, Mark Mazur, in a public statement said, “Global cooperation is critical to implementing FATCA in a way that is targeted and efficient. By working cooperatively with foreign governments and financial institutions, we are intensifying our ability to combat tax evasion while minimizing burdens on financial institutions.”
Posted in bussiness, Uncategorized, Wealth Building
The TFSA or Tax Free Savings Account is designed for people to obtain tax free income and withdraw funds if they want to. The intention behind this vehicle is to get people to save money – which is why it is called a “savings account”. The incentive to save comes in the form of tax relief on the income generated, and the flexibility of withdrawal which the RRSP and RESP do not have. If you are already a disciplined saver, you may not need this type of account, but you may want to use it if the tax savings are worthwhile in your current financial situation.
One key word to remember is “income”. The money deposited into the account is not tax free, and will not generate a refund like the RRSP contribution will. Only after you made some income will you see the effect of not paying taxes on this money earned. The flip side of this is that if you lose money that you invested in the TFSA account, you cannot claim the losses.
Another thing that can arise among TFSA account holders is the redeposit of money back into the account after withdrawal. If you take out money from the account, you would have to wait until the following calendar year before you can replenish the amount of money you withdrew. If you do it beforehand, you may trigger taxes owing to the government, which you would have to pay by June 30th of the following year in question. Check the CRA web site for details.
What about fees? Due to the small amount of money that is eligible for a TFSA account, you have to watch the effect of fees. There are three types of accounts available: the savings account, the mutual fund account and the self-directed brokerage account. These accounts will have differing fees. Every fee that you pay will reduce the income generated in the account, and because the maximum amounts are relatively small (up to $20,000 in 2012), the fees can cancel out the gains made on the income generated.
If a TFSA is being considered simply for saving money, and investing in cash or short term bonds, this account may not be worthwhile. It would likely be just as lucrative for you to have an ordinary high interest savings account, and treat that as a “savings reservoir”. You can withdraw money whenever you want to, and as often as you want to. There is no tax advantage in doing this, but the government does not make it mandatory to issue T5 tax receipts if income is under $50. If you have a $10,000 TFSA account and you earn 1% for a year, this would amount to $100. If you have a $50 fee on the account, you would have $100 – $50 = $50 worth of income. In this scenario, you may not even have to declare the $50 as income since a receipt may not be issued. The time and effort to register the account and keep track of the contributions may not justify having the TFSA account. If you make a net income of $200 instead of the $50 as per the above, and if your tax rate is 30%, the tax savings is: $150 multiplied by 30% = $45 per year. Of course, as the dollar amounts invested go up and the returns go up, the tax savings will be more worthwhile.
If you are going to open as TFSA account, you should invest the money in something that generates good return, at least 3% or more per year on a $10,000 account size, while minimizing the losses you may receive. This way, the tax benefit is maximized, and the money is available relatively quickly if needed. You would need to be able to generate this return consistently, so if your investing record is poor, it may not be tax efficient. In terms of comparing to other options, paying down debt or using your RRSP instead of using the TFSA may be more useful in terms of a long term overall plan. If you have uneven cash flow and want to save money for short term use, the TFSA would be helpful.
The TFSA Compared to the RRSP
How does the TFSA differ from the RRSP? There are a number of differences. The RRSP is intended for people to save for their retirement, so it is assumed to be money you don’t intend to withdraw for a long time. The TFSA is designed more for saving, and possible frequent withdrawals. Take note that many institutions charge fees for withdrawals, and this should be accounted for if your account balance is small, your rate or return generated within the account is low, and your withdrawals are frequent.
The RRSP will give you a tax deferral on all of the money you put into the account. Take note that tax deferral does not mean you do not pay taxes on this money – you pay taxes later on the money deposited and all of the money it generates upon withdrawal. Once money is withdrawn, you cannot redeposit the money back into the RRSP account unless you have new contribution room that you would have generated with more taxable income. The taxes you pay depends on your marginal (or highest) tax rate in the year that you deposit the money. The taxes paid on withdrawal will depend on the marginal (or highest) tax rate in the year you make the withdrawal. With the TFSA, the money deposited is not affected by taxes. Only the income generated is tax exempt, and you can replenish the amount as often as you like (within CRA tax rules).
The RRSP will depend on your income situation, whereas the TFSA does not. The maximum TFSA amounts are determined by the government, and anyone can put the stated amounts into an account regardless of their income situation. The maximum has been increasing each year by $5000 since the beginning of the program, and is currently $20,000 for all of your TFSA accounts. Like the RRSP, the unused portion of this amount can be carried forward and used in later years, or not used at all – the choice is yours.
The Tax Free Savings Account is a useful tool to be aware of, but it is not for everyone. Knowing the best time to use this account and its limitations would go a long way to understanding what is best for your situation.
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This is a type of tax whose charge is based on the amount of another tax being paid. In Canada, there are four types of surtax: federal income, provincial/territorial income, Ontario’s wealth and the non-resident.
Federal, Provincial and Territorial Income Surtax
The federal government and most provinces/territories use a staggered tax system with individuals and joint filers paying tax based on income thresholds. Some of these government agencies, including the federal government, charge surtaxes on top of these rates.
The amount of the surtax is determined by the amount of basic income tax paid. For example, someone with $40,000 of taxable income will pay 15% of this, $6,000, to the federal government. They will also pay an additional surtax of 15% on that $6,000, or $900. The marginal tax rate, the total paid to taxes, is $6,900, or 17.25% of the filer’s income.
Deductions apply to the basic income tax, but since this decreases the amount of income tax paid, it also decreases the amount that needs to be paid for the surtax. If the person in the previous example was able to deduct $6,000 of their taxable income for child support, they would then be taxed on $34,000. That works out to $5,100 in income tax and only $765 for the surtax. That works out to a marginal rate of $5,865, or about 14.6% of the filer’s full income.
While there are some exceptions, a “non-resident” is defined as someone who was in Canada for less than 183 days that tax year and didn’t emigrate to Canada or immigrate to another country. Since people in this situation don’t have an established province or territory of residency, they pay a 48% federal surtax to the Canada Revenue Agency in place of province/territory taxes. All federal taxes for non-residents only account income earned in Canada or from the sale of taxable property in Canada.
Usually, people moving into or out of the country must pay this surtax up front, then claim a refund after their emigration paperwork goes through.
Ontario’s Wealth Surtax
Starting July 1, 2012, a new tax came into effect for individuals and joint filers in Ontario earning over $500,000. Originally planned to help defer a planned reduction in heating oil tax, it finally passed as part of a plan to balance the budget; politicians promise this tax will be repealed once the budget is balanced sometime during the 2017-2018 fiscal year.
Although widely referred to as a “surtax,” it is merely a new tax bracket. Before, the highest tax bracket topped out at a rate of 11.6% for Ontario residents, but those who earn enough to fall into the new bracket, set at $509,000 and above for the 2013 tax year, must pay 13.6% in income tax.
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