Plagued by overdraft fees because you forgot how much money was in your account before you decided to pay your bills? Well there is help, sort of, on the way. There has been an amendment to Regulation E, the regulations that administer the rules that pertain to overdraft charges and protection.
Most important to remember is what banking transactions the new laws apply to and which transactions they do not. The new law does apply only to ATM transactions and one time debit card transactions (i.e. paying for your groceries with a debit card). The new law does NOT apply to checks written against your account, nor to recurring, typically monthly, charges such as for your car or mortgage.
Currently, if one uses more money than is in the account, the bank has the discretion to permit those charges to hit the account and the account owner is then assessed an overdraft charge of say $35. Now, for example, if 10 checks hit the account after it goes negative, the bank can assess $350 (10x$35) in overdraft charges. As stated above, writing checks or having monthly recurring charges can still result in these multiple overdraft fees.
Now there are new procedures for ATM or one time debit card transactions that can prevent those multiple overdraft fees. Here is how it works. Let’s say you’re pulling $300 out from your ATM. But by doing that it causes your balance to go negative.
If prior to that withdrawal you had told your bank that you did not want to “Opt-In” or affirmatively consent, to the institution’s overdraft service for ATM and one-time debit card transactions, then no overdraft charges would be assessed. One small thing, your request to withdraw $300 from your ATM would also be denied. The bank is not going to let you overdraw your account if they can’t assess charges. This same procedure applies if you were trying to pay your groceries and used your debit card. If by doing that your account would go negative, the bank would deny the withdrawal and no overdraft charge would be assessed.
Now if you chose to “Opt-In”, then the same rules apply as before and you’re subject to multiple overdraft charges as before.
How best to avoid overdraft charges? One should establish an overdraft protection account to be used when you inadvertently go negative. This way your withdrawal goes through on the ATM and you incur no overdraft charges. That is, of course, as long as you don’t blow through your overdraft coverage.
The mandatory compliance date is August 15, 2010 for existing banking customers to declare they want to “Opt-In” and July 1st, 2010 for new bank customers to declare if they want to embrace these new overdraft laws.
So at the end of the day, it is a lot of confusion with a little bit of consumer protection.
1) Don’t take out more money from your account than what you have — this isn’t rocket science, just pay attention.
2) Don’t Opt-In — Yes you could incur bounce check charges, but ATMs are for emergencies and you don’t want that option closed off.
3) Get Overdraft Protection — This way should you slip the bank is there to catch you and you can avoid bounce check charges.
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Hopefully you and your accountant didn’t miss these important Tax Tips!! Here’s a review of a few key items you want to take advantage of next year if they were missed:
First-time homebuyers: If you bought a new home in 2008, and you have not previously owned a home in the last 3 years, you are entitled to receive a $7,500 refundable “credit” on your tax return. This “credit” is in fact a loan that needs to be repaid over 15 years, interest free, beginning in 2010.
However, if you were fortunate enough to have bought, or plan on buying in 2009, you get $8,000 no questions asked. This does not need to be paid back and you don’t have to wait until April 2010 to get the credit! Just amend your 2008 tax return and claim it today.
Tax Strategy: If you are engaged to someone who does not qualify as a first-time home buyer, amend your 2008 return before you tie the knot.
Kiddie tax extended: If you are planning on having children to shift income to lower tax rates, you should be aware that the rules have changed. For children under 19, or under 24 and a full-time student, any unearned income over $1,800 will be taxed at the parent’s tax rates. This is a change from 2007 where children under 18 with unearned income over $1,700 were taxed at their parent’s tax rates. (Prior to 2007, the emancipation age was 14!)
Tax Strategy: If your child earns more than 50% of their upkeep, even while being a full time student, they could file on their own for the lower tax rates (not as a dependent on your tax return).
Education Credit: One can obtain a tax credit (a credit is when the IRS gives you a reduction of your tax liability dollar for dollar) on the money spent for their own, or their child’s, college education. However, one must claim the child on their tax return in order to be eligible. This credit is subject to income limitations.
Claiming a child after divorce: Too often after a divorce occurs, the important detail of claiming a child is neglected. A typical arrangement is to can claim the children on the tax return every other year- should be documented in the divorce agreement. The loss of this deduction due to failure to fulfill financial obligations should also be included in the divorce agreement.
Hire an accountant:
You could attempt to calculate your liabilities owed to each of the respective jurisdictions on your own. A better choice would be to hire a professional so you don’t miss out on taking all of the appropriate deductions that you are entitled to. It would help to choose an accountant that specializes in your line of business, since they would be able to provide you with a benchmark for your industry. They will also help ensure that your silent partners don’t get more than they deserve!
Don’t try this at home:
Tax returns should definitely not be a Do It Yourself (DIY) activity. Sure, anyone can type numbers into a tax return. But, not everyone knows how to apply correctly for earned income credits, education credits, and teacher deductions to name just a few. And there are no clear instructions for when to apply kiddie tax rates, or what the kiddie tax even is, for that matter! The average taxpayer would also not know when to claim head of household filing status and gain a more favorable tax bracket.
They also may not know what job related out of pocket expenses are deductible, when moving expenses are deductible, or when an IRA distribution is not subject to penalties. This is just the tip of the iceberg of our mammoth tax code, and not knowing the rules can result in thousands of tax dollars being overpaid to the government, and not staying in your pocket! So, unless you’re a single person over the age of 24 who is renting with no dependents and not in school, please seek out a tax professional to prepare your tax return.
For those DIYs choosing to ignore this tip, I will list some other tax tips to consider when preparing your tax return.
Governor Christie has launched a historic budget for New Jersey. With any great undertaking there is always room for improvement and thus the subject for this month’s newsletter. We are under economic siege and any great battle is won when we citizens come together and share sacrifice. Following are a few suggestions to fine tune the goal of resurrecting the dilapidated state that is the economy of New Jersey.
New Jersey is not just broke, we are dead broke. The state’s stated unemployment rate is 10.1 percent but that does not begin to reflect the economic suffering that is occurring in New Jersey. An additional 10 percent of the workforce reflects citizens who have either given up, or have chosen to remain in their job that has been downsized to part time from full time or those who can’t find full time employment and settle for part time status.
Further the unemployment rate does not reflect employees who have taken 10, 20 and 30 percent pay reductions in order to remain employed. Business revenue has dropped dramatically, and thousands of businesses that once were profitable are now struggling to survive.
This coming year’s budget contains an $11 billion deficit. There are no reserves to steal from, no more one shot source of federal government stimulus or tax amnesty programs to plunder.
I have a very straightforward approach to balance the budget. Cut spending 20% across the board (or $6 billion), eliminate the numerous authorities which serve only as patronage pits ($1–$3 billion), and form a State bank to pay off the state’s debt ($6 billion in debt service savings).
If this crisis is not addressed immediately and fixed, the result will be massive layoffs and cutbacks in all of the necessary services we have come to enjoy and expect. Teachers, policemen, firemen and every other essential service are all threatened.
One area targeted for elimination should be school superintendents. New York City with a population of 8 million people has one school superintendent, New Jersey has a population of 9 million, yet we have 611 school superintendents. These positions are the tip of an iceberg of fiscal waste so great that it makes the iceberg that the Titanic hit look like a popsicle.
Over the next three years we should phase out 585 school superintendents leaving one per county. The estimated savings is $250 million from this act. The problem is we do not have three years; we barely have three months.
The first step after the governor and legislature immediately reduce their pay 20%, will be to recommend that all state employees also take a 20 percent pay reduction, effective July 1. Unfortunately, these pay reductions will not be sufficient to eliminate the deficit.
Therefore, all local governments need to reduce the wages of employees by 20 percent, including those working in education. Anyone who receives a paycheck that is funded by taxpayer money will be asked to take a 20 percent pay reduction. That means teachers, administrators, policemen, firemen, anyone who draws a check from taxpayer money will need to take a pay cut.
By taking these wage sacrifices, the state will be able to avert massive firings and continue the fine level of civil and educational service New Jerseyans have come to expect. Now, this pay reduction cannot be imposed at the local level. However, the governor could use the leverage of withholding future funding increases for those towns who chose not to participate in the state wide sacrifice.
Further, all state delivered benefits will also be reduced by 20 percent. Simply anyone who receives benefits or compensation from taxpayer funds will need to take less. These cuts are not a judgment about the compensation one earns or the value of benefits delivered. They simply reflect all the State of New Jersey can afford to pay. The smoke has blown away and the mirrors are cracked.
Bringing our house under sound fiscal management is a first step, but it will not be enough to entice businesses to stay, or to attract new businesses to set up shop in New Jersey. The regulations imposed on anyone trying to operate in this state are what has caused so many to flee.
There is no better example than the COAH (Council On Affordable Housing) regulations passed to help create more affordable housing. A Carnegie Mellon University study on the impact of the COAH rules found that since 2005, when the latest regulations were passed, our state’s housing starts declined more than 300 percent when compared to neighboring New York, and fell 20 percent compared to Pennsylvania.
These declines mean that millions and millions of dollars in business revenue, wages, and state income were lost due to inept and counter productive government regulations. The result of the COAH regulations was to add citizens to those eligible for low income housing recipients.
These regulations, that have created a tide of businesses fleeing New Jersey, need to be aggressively eliminated.
Finally, the New Jersey needs to form a State Bank for the purpose paying off whopping $51 billion debt while eliminating the mammoth $6 billion in annual debt payments.
While there are regulatory issues to work out concerning the types of capital needed to capitalize a State Bank, the crucial point is that such a bank would enable us to pay off our mammoth debt.
The working people of New Jersey have been and continue to make sacrifices in this economic downturn. The solutions offered are what businesses and families are doing to survive, it is long overdue that our government initiate those same sacrifices.
1) Everyone Gets a Pay Cut — All employees who derive their income from taxpayer money need to take a 20 percent pay cut.
2) Consolidate School Superintendent Positions — Eliminate 585 school superintendent positions to one per county saving $250 million.
3) Consolidate Authorities — They are nothing more than patronage pits.
4) Form a State Bank — Capitalize bank to pay off State’s $51 billion debt and thereby eliminate $6 billion in annual debt service.
Brian Greenberg and Associates is a Marlton, NJ CPA firm providing tax and financial planning services. We specialize in helping small business owners retire on their own terms. Follow this link for more on how we can help you.
Brian C. Greenberg & Assocs
1 Eves Drive, Suite 111
Marlton, NJ 08053
856-596-7800
Don’t miss out on home expenses
Now that you’re self-employed and your only office is your apartment or a portion of your house, you are entitled to a business deduction for a portion of the expenses paid to maintain your workspace.
Financial tip: Keep track of all money spent maintaining your home, including, but not limited to, utilities, maintenance, and rent.
Don’t run out and incorporate
If you’re newly self-employed, don’t jump to the conclusion that forming a corporation is the way to go. If you work in New Jersey, for example, and your business receives over a million dollars in revenue, as a corporation you would owe $2,000 to the state. (If your business made nothing, you would still owe the state $500!). In addition, you would be required to set yourself up as an employee, where you would pay approximately $1,500 into an unemployment fund that you would never be eligible to collect from. Different states have different minimums—know these costs before you take the leap and form a corporation.
Financial tip: Consult an attorney to help determine if it would be best to incorporate or form a Limited Liability Company.
This week: Basic Bookkeeping Principles
Set up a separate bank account for your business
Don’t mix your business income and expenses with your personal accounts. You want to make it as easy as possible to track what’s going on in your business, and you don’t want to open up your personal assets to government review.
Financial tip: Get pre-printed checks that interface with Quickbooks software. This enables you to automatically record your bills paid in Quickbooks, which saves time…and time is money.
Develop a system to track business expenses paid in cash
Otherwise, you could end up overpaying your tax obligations. If you lose paper receipts and forget to record cash spent, you risk not accounting for all of your business deductions.
Financial tip: Create a folder that you put your cash receipts in. At least once a month, prepare an expense report summarizing your cash payments. If you’re not sure how to set it up, you can buy pre-printed forms at an office supply store. Then write a check (using Quickbooks) for the total amount spent, and record each expense appropriately.
2 #TaxTips for the self-employed this week as we head towards 4/15/10!
2. You’re an adult now
When you work as an employee, the company for which you work withholds all required taxes due, and remits them to the appropriate government agency on your behalf. Now that you’re self-employed, you are required to make these payments quarterly on your own. This is where you see first-hand what it means to truly pay taxes in this country!
3. Get organized
Though acting as a bookkeeper can be quite stifling to your right brain creativity, if you don’t accurately track your business income and expenses properly, you may not be able to feed your creative side. Not to mention, your silent partners from #1 (IRS) like proof that they are getting their fair share