I would call a credit card as necessary evil.In this complex jargon of living a good life with all the amenities, most of us have to use a credit card some time or the other.Well, a credit card definitely has a lot of esteem value.When you do well in life, go up the success ladder, one can definitely go for a credit card with more value.

However,at the same time a credit card is a must,when you are buying goods or tickets for airline, shopping on sky malls or online  stores, there may be a necessity of using a credit card.Some service providers, like cable operators,dish TV network or international telephone service providers  insist on monthly payments by  a credit card.

Higher Spending Levels

At times of  big family events like weddings , birthday parties, anniversaries or several other occasions, there may be a need to pay a caterer, a flower decorator or even a jeweler. Building your own house involves spending on higher levels as compared to day today expenses.

Must Watch

At times of  higher spending  activity and paying by credit card, one need to watch; your Credit card limit, Account balance and Available credit. Remember, at all times:

Credit limit =Account Balance + Credit Available

I must narrate something which not only is possible but has actually happened.Readers can therefore note the red flags and avoid situations having financial implications

All names and situations changed, for privacy purpose.

Tim and Peggy  were happily destined to get married. They decided to share the wedding expenses, which is quiet common  these days.Peggy’s dad kept the accounts and managed the payments.

A Contract

John the Video/Photographer raised an invoice of $8000 to cover all the wedding events and make a copy of the CD each for Tim and Peggy. John wanted  $1000 as booking advance( about six months before the wedding) and  out of the balance remaining amount,$6000   in two equal installments($3000) be paid latest a week before the event. The last payment of  $ 1000 be paid on receipt of the CDs.

It was jointly agreed that, since Peggy,s  dad already paid the $ 1000 advance, Tim would take care of the final payment of $1000 after the wedding.However Tim would pay his share of  $3000, two months before the wedding. Peggy,s dad would then pay his share of $3000 one month before the wedding.

What Happened

Tim already paid his share of  $3000.(Two months before the wedding)

When the time came for payment, Peggy,s dad paid $ 3000 using a credit card.However at this time John also pulled out a payment of $ 3000 from the credit  card  of  Tim , whereas he had already paid.This resulted in excess payment of $3000 to John the Video grapher.

Tim was alert and would check his credit card account summary more frequently than ordinary circumstances.

one day when Tim opened his credit card account summary  he found his Available credit $3000  less than it should have been, after looking at his Account Balance and Credit limit(go back to serial 4)

This was a go live situation. Tim happened to open his credit card summary when the excess payment was going through. He immediately called his credit card company and appraised them of them of the situation.As`advised by the credit card company, Tim called the merchant company( John the Video Grapher). The finance dept acknowledged the mistake and promised to reverse the payment back to Tim’s credit card.

Lesson Of The Story

Make sure you watch the charges on your credit card at times of higher spending. In this case Tim was able to save an expense of $3000 in time and get a credit back to his account.

We  would love to get feed back from readers who wish to share their experience.

Are you the one who had taxes withheld from your wages or made quarterly estimated payments but did not file 2006 return, because you had too little income to require filing a tax return.

In case a return was not filed, the IRS gives a three year window to file previous returns and claim refunds.If no return is filed within three years the money becomes the property of US treasury.

For 2006 returns, the window closes on April 15, 2010. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

Alert:In case you have not filed your taxes for 2007 and 2008, in addition to 2006, your tax refund will be withheld.You need to file the tax returns for 2007 and 2008 as well, to get your refund for the previous years.

In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell-phone users, qualify for the one-time telephone excise tax refund.

Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.

In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.

Report of Foreign Bank and Financial Accounts (FBAR)

Do you have a bank account in a foreign country. If your answer is yes. Go on reading.In case you have a brokerage account, mutual fund account or any other type of financial account outside the US, be prepared to disclose the details of your financial account to the IRS.

If the total amount in foreign accounts exceeds $10,000 at any time during the year, reporting to IRS  is mandatory. This can be done using Form TD F 90-22.1.

This form is required to be submitted by June 30 every year. However there is no embargo on US persons owning foreign accounts.The information may be used by the Govt. for law enforcement  and tax compliance.

The  US person, here includes  a citizen or resident of the United States, or a person in and doing business in the United States.  Artists, athletes, and entertainers who are not citizens or residents of the United States and who only occasionally come to the United States to participate in exhibits, sporting events, or performances, do not have to file FBARs.

A person who is not a United States citizen or resident and who visits the United States to manage his personal investments, such as rental property, and conducts no other business, is not considered to be in, and doing business in, the United States. He  does not have to file FBARs.

For more details read : FAQ

Middle class is the back bone of society. A financially strong middle class can give  impetus  to the economy. Raising their living standards, can result in giving boost to  the  sale volumes  in the Fast Moving Consumers Goods (FMCG) sector.

Secret behind the financial strength of middle class is  affordable, quality education. Therefore it is quite pertinent that initiative be taken to make higher education within the reach of  common man.

President   announced the creation of a White House Task Force on Middle Class Working Families, which is chaired by Vice President . The Task Force is a major initiative targeted at raising the living standards of middle-class, working families in America.

The Task Force is comprised of top-level administration policy makers, and in addition to regular meetings, it will conduct outreach sessions with representatives of labor, business, and the advocacy communities.

The  following  goals  have been  set  for the Task Force:

Expanding education and lifelong training opportunities
Improving work and family balance
Restoring labor standards, including workplace safety
Helping to protect middle-class and working-family incomes
Protecting retirement security

As part of the ongoing  process , Task Force has taken initiative to reduce  high repayments on college loans. College tuition has risen ten times faster  than the household incomes over the past few decades. Two thirds of Graduates take out loans to pay for their college expenses. Average debt is over $23000.00.

Presently  the  monthly payment for a single borrower earning $30,000 who owes $20,000 in loans  is  $228 a month under the standard 10-year repayment plan. According to the initiative taken by the  Task force, the  monthly payments have been projected to be reduced to $115.00 every month.

In addition to lowering monthly payments, The Task force is  proposing to keep the total cost of loan repayment manageable by forgiving all remaining debt after 20 years of payments, or 10 years of payments, for those in public service.

These changes build on the Income-Based Repayment (IBR) plan for student loans, was implemented in 2009. Aim of these initiatives was to make  college more affordable and accessible.

For more details :IBRinfo.org

THE FUTURE OF HOUSING MARKET

The housing market  peaked in 2005.Thereafter, until the beginning of 2009, there was a dramatic fall, as the housing bubble burst.The home ownership rate reversed and went back to 2000 level.

Just as the high level of activity in  construction and housing market  were not sustainable, the recent extremely low levels of  construction will not persist indefinitely. As the population grows and the value of housing stock goes down, the demand for housing grows.

However in future, the underwriting standards will dictate more would be homeowners, to save for a down payment, before they will be able to close the deal.

From 2010  onwards the growth in demand  for housing is expected  to be between 1.1 million and 1.3 million new single family housing units per year, more than double the pace of single-family housing starts in November 2009.

This  trend of upward  activity in housing construction has been noticed due to a little spurt from the middle of 2009 onwards.The stocks of new homes, existing  homes for sale, vacant homes that are not currently on the market, homes that are in the process of foreclosure and those are likely to be put on the market  for sale  remain high.

As a result, construction demand is  likely to rise to its long-run level only gradually, while some demand is met  by the stock of existing units. A slower demand activity is always more stable, as it is able to discount more factors.This is more true of the housing market.

In the past the housing demand, it is  suspected was artificially driven by the market players and not by the actual users. The house prices were raised( to benefit the vested interests) to unsustainable  high levels. The would be home owners were enticed to purchase homes, not on competitive prices, but due to the fact that housing loans were freely made available.

As the economic  growth stabilizes, demand for housing will pick up.It definitely is going to contribute towards the economic recovery but may not be a leader for the economic growth.

COMMERCIAL REAL ESTATE

The problem of  demand growth  in housing market is compounded by over building, sudden drop in prices of houses that were sold at high levels and inability of home owners to pay the mortgage due to loss of family income.

The demand for commercial property has dropped due to sharp decline in the economy.The decline in business revenue due to economic reasons has hurt the  industry. The office, apartment, industrial, and retail buildings, commercial real estate prices fell 43 percent from their peak in October 2007 to September 2009.

However  less volatility has been observed in the non residential  construction activity. Commercial real estate  prices have declined since 2007.

Several banks have reported that they continued to tighten standards on commercial real estate loans.Where as none reported easing the loans.   Since commercial real estate loans typically are relatively short term, an inability  to refinance debt has led to a sharp rise in delinquencies and foreclosures.

Private sources of funding have shrunk, the Federal Reserve  has helped fill the gap through the Term Asset-Backed Securities Loan Facility (TALF). In June 2009, the TALF made lending available to private financial market participants against their holdings of existing commercial  mortgage-backed securities (CMBS), thereby increasing liquidity in the CMBS market.

Experience in previous business cycles  suggests that recovery of the sector will lag the economy as a whole.

You think the  housing mortgage  securities being  traded in the market, was used  to pass  the risk to new buyer of the security  Freddy Mac /Fennie May  in lot of cases. Do you think the Federal needs a tool to check this in future.

TAX RETURN: FILING IN TIME, PAY TAXES IN TIME

I am privately a very prudent guy, in matters financial. I would always endeavor to file my tax return in time and pay all the taxes i owe, in time. Well, someone may say it is an ideal situation. Yes it is so.The benefits for doing this are numerous. I would like to enumerate below.

When you plan to buy a home, refinance you timer home, purchase a new business or to start a new business, you may have to depend on borrowed capital.A lot of times the lenders ask for a copy of your  last 2-3 years,tax returns.

In such situations, whether you are in service or if  you are already in business or are self employed, the lenders  look at your tax returns, to see if you have been incurring profits in your previous business endeavors.

In case you file your tax return, pay all your taxes in time, you definitely  are not going to pay any penalty or interest to the IRS.In case it is possible, follow this,Every dollar saved go to your equity.Money makes money.

PAY YOUR TAXES IN FULL

In case the taxes are not paid in full,IRS can ask the tax payer to sell or mortgage the assets.Otherwise obtain a loan to pay uncle sam your tax bill. If the matter is not resolved, IRS may even resort to enforced collection action, such as levying bank accounts, wages, or other income, or taking other assets.

Remember the penalties are always heavy in most of the situations. This is definitely going to hurt your credit standing in the market.You do have an option of back payments in installments.But these come with a price. Good to avoid this.

TAX RETURN NOT FILED

File your tax return voluntarily ASAP.This could impact your status with the immigration authorities, in case you are a resident alien or a worker on H1B program.For all tax payers,earlier you file, more you save on additional penalties and interest.

Advantages are, in case you owe refund for withholding or estimated taxes paid,these must be claimed within 3 years. Self employed persons  who do not file a return,will not get the benefits for social security, retirement or disability benefits reported to the social security administration.

Filing a return is easy. In case you owe back taxes, you may qualify for payment plan.If you opt for this, make sure you do not falter  on payments in future.But remember it is a costly plan. If possible pay the IRS in full out of a loan .

Accountants,Tax Preparers,Readers: Do share your views and real life experiences with  the IRS. This may help someone and cost him less. I would call upon retired IRS employees to join this forum for fruitful contribution.

CRIMINAL PROSECUTION

IRS also has the option of starting criminal proceedings against any one who does not file a tax return voluntarily. A taxpayer must volunteer to make an honest effort to file his back tax returns  and avoid going to jail.

The IRS helps to get people back into the mainstream, as part of its long term plan to improve its voluntary tax compliance.The cases of violation of the tax laws of land will continue to be investigated by the IRS.

The IRS suspended for 12 months from practice, a CPA, for providing false or misleading information. The CPA, advised his clients to transfer funds  from their business accounts to two corporations.The corporations then rebated the funds to his clients.

Robert A. Loeser, a Certified Public Accountant from Houston, Texas,helped  his clients to lower their tax bills by claiming false business expenses on tax returns he prepared.

Moral of the story is that, if  the pillars of  the  institution are sold for financial greed, will the society not stagnate. The solace is that there are checks in place to red  flag and stop the unscrupulous. Professionals need to work diligently for the institution and their clients,to justify the trust and faith reposed in them.

The Office of Professional Responsibility (OPR) establishes and enforces guidelines for competence, integrity and conduct for tax professionals, enrolled agents, attorneys, CPAs, and other individuals and groups.

The settlement agreement included a disclosure authorization that allowed the OPR to issue this release.

Contact for OPR : e-mail opr@irs.gov. Please do not send any confidential information via this email. Inquiries containing sensitive information should be faxed to our office at (202)-622-2207.

What are your views  on the subject.

MAKING WORK PAY CREDIT

Have you worked during 2009.There is good news for you.File the new schedule M,to claim $800,in case of married couple and $400 for others.Certain conditions apply.

Thus a married couple whose earned income is $12903 or more, can receive $800, the max amount.For other categories,the credit is $400 max, if the earned income is $6451 or more. Other taxpayers whose MAGI is more than $75,000 but less than $95,000,may claim reduced amount.

Making Work Pay Credit is refundable.You still get the credit even if you owe no taxes.Credit for self-employed will be based on the net profit or loss  received from a business or farm.

Anyone who can be claimed a dependent by someone is not eligible. Non Resident Aliens and those not having a Social Security number,are not eligible to claim the credit.

GOVERNMENT RETIREE CREDIT

This credit provides  benefit equivalent to the economic recovery payment to those government retirees who did not qualify for these payments.

Retired federal,state or local government employees who receive pensions in 2009, based on work not covered by Social Security, are eligible to claim this credit.

The credit is $250. For joint filers the credit is $500 if both spouses are retired government employees who receive pensions based on work not covered by Social Security.

The credit cannot be claimed by an individual if he or she received an economic recovery payment during 2009.

For Detailed Instructions See: Schedule M

Tax planning is an essential element of, management of personal financial resources.Need for tax planning is more acute, in these times of  shrinking jobs,rising prices of everyday use items, ever growing  demand of funds for Children education and  Housing.

In these  financially hard times, every dollar saved, followed by discrete spending  will be welcome, by majority of households. At least  in these days of recession, we need to give a fresh look at our concept of  spending.

Tax season 2010 is in full swing.It is therefore important to understand the do’s and dont’s,at the same time, remember the tips before and after filing a tax return.

D’os

Read  Important Changes for 2010 Tax season. Understand, what is applicable to you and get hold of  documents needed to claim a credit.

Select a Reliable Tax Preparer. Tax preparer must be  current  on latest changes in the tax laws. He/She should be able to provide the best possible service  and be diligent in giving advice to a tax payer.

Know your Rights as a Tax Payer.You have a right to representation.Your civil rights are protected.You have a right to appeal any action taken by the IRS.Innocent spouse relief is available in some cases.

File Your Tax Return In Time.If for some reason cannot, then ask for extension. It cost you nothing.If you don’t  file tax return in time,there is a      penalty.You pay $135 or 100% of tax owed,whichever is smaller.

E-File. your tax return. In case you claim First time home buyer credit, then file a paper return.

Don’ts

Frauds.  Do not give your personal information. Be watchful of  any impersonations. These people try to contact on phone, e-mail, internet site, and social networking  sites and obtain personal financial information for fraud purpose.

Avoid Accepting A Instant Refund. This may have additional fees, charges or interest attached. Some times this would be in the range of $100 to $350, which you have  to pay to get instant refund.

Tips

Making Work Pay Tax Credit. Workers must  file schedule M, if you worked during 2009, to claim $400(individuals) $800(married couples).Check  if you qualify.

IRS 2009. Open a file  marked, to secure all your W-2’s, receipts and other tax related documents handy, if you have not already done so.

IRS 2010. Keep a file marked, for tax year 2010, to save all the related documents.

Free File Program. Use this program to file your return, if you are eligible. This cost you nothing.

Refund. Best way of receiving  refund is direct from IRS. Refund goes direct to your bank account.This is received  faster than a check.

If You Cannot Pay The Full Amount Of Tax You Owe. File your return in time and pay as much as you can. Call IRS to discuss your payment options. Some times they let you pay in installments. If you decide to in installments,remember they come  with a cost. IRS may charge you penalty/interest on the amount of  tax you owe.One option is to  borrow money to pay taxes.

Readers are welcome to add more tips, do’s and dont’s for filing tax returns.

The IRS has issued significant policy changes in the 2010 tax season, for the  tax preparers in the US, who help About 80 percent American households, in filing a tax return.

IRS feels, there is  need for  raising the competence  threshold of the tax preparers.Therefore, there is a need for registration , testing and continued education of the tax preparers.  Some of the important proposals are being enumerated below.

Good news for employees preparing their employer’s tax return.In such a case,the tax preparer is not required to sign as a paid preparer.There is no requirement to register and obtain  a Preparer’s Tax identification Number(PTIN).

But in case  a tax prepare has  to file  returns for other tax payers,  as paid tax preparer,there is a requirement to register and obtain a PTIN number.

Accredited Council of Accountancy for Taxation(ACAT), credential holders will need to pass the IRS exam.

Attorneys, Certified public accountants and Enrolled agents will be exempt from testing and  the preparer continuing education.

PTIN will be mandatory in future. But  a PTIN  can be obtained now.  When the  new online  registration Starts, you will still need to register.

Tax preparers signing paid tax return  will be levid a  fee of $125, to register  and obtain a PTIN.Attorneys, CPAs, and Enrolled agents would not be required to pay the separate testing fee, as they are exempt from testing .

Online registration  is proposed to begin from Sept. 1, 2010.The proposed date for all paid preparers to be registered and use their PTIN  is  Jan. 1, 2011.

Testing will be implemented only after registration and allotment of PTIN’s is completed.

In the  States of Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Maine, Montana, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, and West Virginia ,  the LPA has the same rights and previllages as CPA’s they may not be required to test and enroll.

However in other states where LPA’s do not have the same privileges as CPA’s   they will be required to test and enroll.

The practice of enrolled agents  will not be limited.The practice of  new category of  paid tax preparers will be limited to preparation of tax returns.They also will be allowed to represent the tax payer , when the return they prepared,  is under examination.

For detailed reading: Proposed New Requirements For Tax Preparers

New guidelines for tax preparers: New registration , testing  and continued education  requirements for Tax return preparers