Right now, it's Landlords over Tenants. Image: umjanedoan/Flickr/CC BY

Renting a home is not as easy at it once was. As the economy degrades, more and more people are looking to rent, while the number of available rentals is down. Landlords have the upper hand and can afford to be much more selective about who they rent to. The renter has to be more savvy than ever to ensure a happy outcome.

Not so good for the renter

According to Christina Argon of Ebay, rents went up 2 percent in the first quarter of 2011 and are expected to rise 3 or 4 percent over the rest of the year. Vacancy rates, however, are dropping as renters are choosing to stay put. Vacancy rates are down 6.2 percent from this time last year. The trends point to an improvement in the housing market and may be an early sign of economic recovery. It is not, however, currently a great position for the renter to be in. Rents are rising, vacancies are more scarce, competition is tougher for properties, and landlords are less willing to make concessions or offer incentives.

Do your homework

But there are many things a prospective tenant can do to hedge bets in the rental game. The first is to begin early and do your research. Start a month or two before your current lease expires. Once you find a house or apartment you like, contact the County Clerk to search the public records for legal action or liens against the property. Remember, each rental you apply for will require a background search with accompanying application fee. It is best to narrow the field as much as possible ahead of time.

Background checks

Landlords today routinely check credit scores and criminal backgrounds. While some blotches on the credit report do not necessarily spell rejection from landlords, they will be turned off by consistent late payments on utilities and other bills. And, of course, the cleaner your criminal background the better. One or two minor marks will not disqualify a person, but any pattern of legal problems could be very difficult to overcome.

A third or less of income

Another factor to consider is what you can afford. You may have set ideas on this, depending on your own needs and spending patterns. But one needs to consider this from the landlord’s perspective. Generally speaking, a landlord will consider a prospective tenant who earns at least three times the rent. A person looking to rent an apartment for $1,000 a month will likely be rejected if they do not have an income of $3,000 a month, or roughly $39,000 annually.

Lock in a lease

When you find the place that you can afford and that meets your needs — and you garner the landlord’s approval — Argon suggests trying to lock that rate into a lease of 12 or 18 months. Experts say rents will only go up in the foreseeable future. Keep it as low as you can for as long as you can.

Patch
Marketplace
Daily Finance

If instituted, a home renters tax credit would help offset the burden of soaring rents. (Photo Credit: CC BY-ND/Hardy's Hill House)

The U.S. housing market has scared off many potential home buyers, sending them toward home rentals. The increased demand has made it significantly more difficult for low-income families and individuals to take advantage of lower rents, a problem the Obama administration recognizes. As a means of relief, legislators are currently exploring the idea of instituting a home renter’s tax credit as a part of a larger overhaul of the tax system, reports MarketWatch.

The rent is too damn high

A recent Harvard university study found that about 26 percent of renters – 10.1 million people – spent more than half of their pre-tax household income on rent and utilities in 2009. This can be attributed to stagnant or retarding wages brought on by the recession, which is a bad place to be when rents continue to rise. U.S. Housing and Urban Development Secretary Shaun Donovan believes there needs to be a way out for struggling tax payers searching for residency, and the home renter’s tax credit is an idea that is gaining traction.

Boosting government support for home renters is an idea “that is worth looking at,” according to Donovan. If such a rental housing tax break were to be instituted, it would require adjustments to other parts of any new U.S. tax code in order to avoid unnecessary addition to the federal deficit.

Homeowners receive tax credit love

Consumers who own their own homes currently are able to reap the benefits of government subsidies through tax deductions of mortgage interest payments and property taxes. In addition, mortgage buyers Fannie Mae and Freddie Mac have received ample federal support through taxpayer bailouts.

In 2009, the government granted $230 billion in subsidies for homeowners, reports the Congressional Budget Office. Over that same period, home renters received only $60 billion.

Sources

MarketWatch

U.S. Department of Housing and Urban Development

Washington Post

Renting a home vs. buying a home: Do the math

Getting around taxes has been an American pastime since the 1773 Boston Tea Party. Image from Wikimedia Commons.

The amount of the average tax refund has been steadily increasing over the years, and so is the number of cases of tax fraud. The Internal Revenue Service has seen a rise in the number of fraudulent deductions taken on income tax returns. More people are trying to catch the government napping to scare up some extra cash.

Internal Revenue Service not amused with crazy deductions

Most Americans hate taxes, and finding ways to hoodwink, trick and blatantly lie to the tax man is practically a national pastime. The number of fraudulent tax returns, according to CNN, has skyrocketed since last year. The Internal Revenue Service received 335,341 tax returns that falsely claimed nearly $1.9 billion in deductions. That figure was a 181 percent increase over the number of similar returns last year, when the IRS received 119,484 returns that incorrectly claimed deductions totaling $721 million. However, not all of these returns were brazen acts of fraud, and the term “fraud” can be somewhat misleading.

False deductions aim to claim more money

The Internal Revenue Service investigated 230 people for questionable returns for Fiscal Year 2008 and 504 people for Fiscal Year 2010, according to the Internal Revenue Service website. In 2008, only 155 recommendations to prosecute were made and 301 were made in 2010. Those figures only include cases of bad deductions. The IRS made 1,507 recommendations for prosecution in total during 2010, according to USA Today. The reason people submit bad deductions on tax forms is simple — more deductions means more money. The average tax refund, according to the Wall Street Journal, was $3,003 for 2010, almost double the $1,698 average tax refund in 1999. The number of bad deductions in 2008 compared to 2010 suggests people are trying to claim greater deductions during lean years.

Houses, cars and kids most common bad deductions

The most common falsely or mistakenly taken deductions were for real estate, motor vehicles or children. The Treasury Inspector General for Tax Administration released a report that asserts the most problematic deductions were the Adoption Credit, the Qualified Motor Vehicle Deduction, the Non-Business Energy Property Credit, the Plug-in Electric Drive Motor Vehicle Credit and the First Time Homebuyer Credit. The Qualified Motor Vehicle Deduction and First Time Homebuyer credits caused the most trouble; the Treasury found that 218,069 people claimed $318 million in QMV deductions, but those people would have had to put off paying any sales tax or excise tax for 2009 and 2010. The First Time Homebuyer credit, according to the Los Angeles Times, paid out an estimated $513 million to people who didn’t necessarily qualify for it. At least $326 million was credited to 47,000 people who had previously owned homes.

Sources

CNN

Internal Revenue Service enforcement statistics

USA Today

Wall Street Journal

Los Angeles Times

Treasury Inspector General for Tax Administration

Need help understanding your mortgage? It may be on the way from the Consumer Financial Protection Bureau. (Photo Credit: CC BY-ND/David White/Seek4Media)

In 1975, Congress passed the Home Mortgage Disclosure Act, which required mortgage lenders to fully report all public loan data. While this and other consumer-friendly provisions relating to mortgages have been in effect for more than 30 years, the recent U.S. subprime mortgage crisis illustrated that additional regulation may be necessary. Hence, the soon-to-be-activated Consumer Financial Protection Bureau plans to debut a new version of the standard mortgage disclosure form that should make things easier for homebuyers to understand.

New mortgage disclosure form a ‘key priority’

The Wall Street Journal reports that the new mortgage disclosure form is a “key priority” of the Consumer Financial Protection Bureau, a Dodd-Frank organization that will begin operations on July 21.

Mortgage forms currently consist of copious amounts of paper documenting all aspects of the mortgage agreement in Byzantine detail. Borrowing costs and other fees connected to the closing of the loan are buried in a sea of provisions. These book-like forms were created under the auspices of 1968′s Truth in Lending Act and the Real Estate Settlement Procedures Act of 1974. If the CFPB has its way, mortgage disclosure forms will become much more user-friendly.

“We will be looking at our first (mortgage form) prototypes,” White House adviser and possible CFPB chairwoman Elizabeth Warren told Dow Jones Newswires.

Housing industry has opposed simpler forms before

Elizabeth Warren sided with scores of consumer advocates when she announced the CFPB’s intentions to simplify mortgage disclosure forms. However, various members of Congress and the housing industry have opposed similar attempts in the past to improve the readability of mortgage papers so that consumers can understand the exact costs associated with their mortgage loans. It remains to be seen whether Warren, or whomever officially accedes to the top CFPB post, will have as much success against the housing industry as the organization has had thus far with the credit card industry.

Sources

Home Mortgage Disclosure Act of 1975

Wall Street Journal

You should understand your mortgage

Credit card use continues to decline. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Use of credit cards is beginning to trail off as more people start preferring to use cash. Fewer people are willing to go into debt and less willing to borrow money for purchases by using a credit card. Card use has been declining for some time, and higher interest rates and fees make credit cards less attractive to the cost conscious.

Major credit bureau notes decline in credit card use

Credit bureau TransUnion has noted a decline in the use of general purpose credit cards, according to Daily Finance. The credit rating bureau asserted in a recently released study that nearly 8 million people quit using a general purpose credit card, the kind normally issued by a bank. The number of people who either don’t have or don’t use a credit card now is more than 78 million, according to TransUnion. TransUnion also noted that credit card delinquencies declined by 9.8 percent during the third quarter of 2010. TransUnion credit rating bureau compiles data used in determining a persons’ credit score.

Federal Reserve notes less credit card use

TransUnion also noted that consumers were still using other forms of credit, such as installment loans, despite the drop in credit card use. The Federal Reserve, according to the Wall Street Journal, observed that credit card use was still declining in February of 2011, but non-revolving credit use was increasing. Revolving credit use, or bank-extended lines of credit and credit cards, declined by $2.71 billion during February 2011. Revolving credit use has only risen once since 2008. Non-revolving credit, or non-mortgage consumer loans such as auto loans or personal loans, increased by more than $10 billion during the month of February. The increase was likely driven by auto sales, which have been increasing steadily for the past few months. The Federal Reserve data indicates that TransUnion’s assessment of declining use of credit cards and continued use of other forms of credit is plausible.

Interest rates and fees on the rise

Because of the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), banks have stricter rules about how they can change interest rates. The rates are not capped, according to Fox News, but the card issuing institution is prohibited from raising interest rates without a certain amount of notice. The average interest rate on credit cards is beginning to slowly rise along with the number of memberships fees that banks are charging customers.

Sources

Daily Finance

TransUnion

Wall Street Journal

Fox News

April 18 is Tax Day, and income tax returns are due to the Internal Revenue Service. Photo Credit: Saturnism/Flickr.com/CC-BY-SA

Federal income tax returns are due on April 18, 2011, and most Americans will dutifully fulfill their obligations to do so. There has been a lot of discussion about how large a tax burden is actually placed on the taxpayers, and how oppressive the income tax is. Nearly 50 percent of income tax filers will not owe the government a dime.

55 percent of Americans pay income tax

Tax Day 2011 falls on April 18 rather than April 15. This year nearly 45 percent of households will not have to pay any taxes on their 2010 income, according to Bloomberg. Low-income households receive exemptions and deductions, such as the Earned Income Credit and the Making Work Pay Credit. Those who pay no income taxes are very low income or living on a fixed income such as Social Security or disability income. People who have children but make very little also commonly pay no income taxes. The average tax refund, according to CNN, was $3,003 last year.

Wealthy paying less

The tax burden for the wealthiest taxpayers, according to Daily Finance, has been falling for some time. In 1992, the 400 returns with the highest reported incomes averaged a tax bill of 26 percent of their income, but that figure was 17 percent in 2007. Though the wealthiest 10 percent account for more than half the nation’s tax revenue by dollar amount and the wealthiest 5 percent account for 44 percent, the more lucrative tax breaks, such as for charitable contributions, are available to the rich. There are more than $1 trillion in tax breaks in the current U.S. tax code, enough to get an $8,000 refund per taxpayer per year. However, trying to catch the Internal Revenue Service napping is not a good idea. The IRS is more likely to press charges now than at any point in the past decade, according to USA Today.

Americans pay lower taxes than most developed countries

Though many people protest the U.S. tax system for myriad reasons, most technical literature reveals that Americans pay very little income tax compared with the rest of the developed world, according to MSNBC. The Organisation for Economic Co-operation and Development, or OECD, maintains data on taxes in the developed world. The OECD estimates that Americans average 24 percent of income paid in taxes, compared to 48 percent for Danes, 42 percent for the French, 37 percent in Germany and 27 percent in Australia.

Sources

Bloomberg

CNN

Daily Finance

USA Today

MSNBC

“Dearest, it's time to start repaying that $7,500 first-time homebuyer tax credit.” (Photo Credit: CC BY-ND/Tiffany Sly/Tiffany Sly and the City)

Taxpayers who claimed the $7,500 first-time homebuyer tax credit two years ago need to be ready to pay come tax day 2011, reports the Philadelphia Inquirer. That’s because the first repayment on stimulus is due with the 2010 tax return on April 18.

How the first-time homebuyer credit worked

A segment of new U.S. homebuyers were eligible to claim a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. According to the House and Economic Recovery Act of 2008, married individuals filing their taxes separately were eligible for a $3,750 credit, while unmarried homebuyers filing jointly could divide the tax credit. The credit applied to homes purchased after April 8, 2008, but before January 1, 2009.

Needless to say, this first-time homebuyer tax credit proved to be wildly popular. But calling it a “credit” was always problematic, as it was actually an interest-free loan. For the next 15 years, first-time homebuyers who claimed the tax credit will be repaying the government in equal installments each year. A $7,500 first-time homebuyer tax credit will break down to $500 per year, unless the home is sold before the total amount is paid off. At that point, the entire remaining amount comes due immediately.

More tax breaks for homebuyers

In addition to the first-time homebuyer tax credit, Congress extended two other tax credit opportunities to U.S. consumers. The first offered an $8,000 credit to first-time buyers who signed contracts between January 1, 2009 and April 30, 2010. As long as the contract had been signed by April 30, the sale could be completed by September 30, 2010, and the taxpayer could qualify for the credit. The second (for $6,500) applied to long-term homeowners who bought a new or existing home between November 7, 2009, and April 30, 2010.

Both of these additional tax credits require that homebuyers repay the entire amount – either $8,000 or $6,500 – if the home is sold within three years of the purchase date or the property becomes a secondary a secondary residence within the same time period. However, there’s a bit of an escape hatch if the property is sold within three years. If the profit on the sale (when compared with the original purchase price) is less than the amount of the tax credit, then homebuyers only need repay the amount of the profit.

IRS having trouble processing returns

Numerous glitches that affected tax refunds for married couples filing joint returns have caused frustration for the IRS, writes the Inquirer. Taxpayers who submitted Form 5405: “First-Time Homebuyer Credit and Repayment of the Credit” before February 22, 2011, forced the IRS to process their returns manually, creating slowdowns.

IRS projections indicate that about 1 million U.S. households will be repaying the $7,500 first-time homebuyer tax credit. Those taxpayers who haven’t gotten their refunds yet can check IRS.gov and click the “Where’s My Refund?” link for more information.

Sources

Housing and Economic Recovery Act of 2008

IRS.gov: First-time homebuyer credit

Philadelphia Inquirer

How Canada helps first-time home buyers

Two major national banks, JPMorgan and Wells Fargo, are rolling out EMV chip equipped smart cards for high end credit card customers. The chip is in the upper left of the picture. Photo Credit: Channel R/Wikimedia Commons/CC-BY-SA

The nation’s largest banks are starting to compete for customers that want EMV chip-equipped credit cards. EMV chips are actually a very small integrated circuit built into a credit card, and the technology was developed by a joint venture between Europay, Mastercard and Visa. The chips provide greater security than magnetic stripe cards that are more typical in America.

International jet set wants greater utility from credit cards

A common complaint among jet set types traveling overseas and using their credit cards is that European merchants often have problems processing American credit cards that have antiquated magnetic stripes instead of EMV chip cards more common overseas, according to Bloomberg. So, in order to capitalize on the need among wealthier credit card users, Wells Fargo and JPMorgan Chase are bringing EMV chips to their high-end lines of credit cards. Wells Fargo is launching a pilot program, where about 15,000 customers will be invited to use the Wells Fargo EMV chip card sometime this summer. JPMorgan Chase is diving straight into the deep end, and will be issuing EMV cards to customers enrolled in its Palladium program for high net worth clients.

Americans have to be unique

The need to have an EMV card, also commonly called a smart card, for travelers is not a joking matter. An increasingly fewer number of merchants in Europe can still accept magnetic strip cards, and that technology gap accounted for $4 billion in losses to merchants and $447 million in lost revenue for card providers in 2008. Smart cards, according to Wikipedia, differ from magnetic stripes as smart cards use a technology called “Chip and PIN.” Chip and PIN cards use a small computer chip and integrated circuit board, about 3 by 5 millimeters in total, that stores the information of the user. Merchants carry a smart card reader, where the card is inserted and read, rather than swiped. The user simply gives their Personal Identification Number, and the sale is made. The benefit is that smart cards are less easily corrupted by thieves.

Card companies already have them

EMV chips are only one particular kind of smart card chips, developed in a joint venture between European credit card company Eurocard, MasterCard and Visa, hence “EMV.” American Express also has EMV chip equipped cards in its Express Pay line. However, the smartcard reader technology is not as widespread in America as in Europe, as the U.S. is slow to adopt technologies from other countries at times. JPMorgan intends to distribute EMV chip cards to the rest of its customers after implementing them in its credit cards for high end customers first.

Sources

Bloomberg

Wikipedia

No child is too young for identity theft; it happens to kids 51 times more often than adults. Image: Flickr/Herckie's photostream CC-BY-SA

Child identity theft is becoming all the rage. New research shows that identity thieves are focusing increasingly on kids because parents don’t pay attention, and the theft can go undetected for years. But when the victim tries to get a job or credit as a teen or young adult, the damage done becomes evident.

The scourge of child identity theft

Thousands of children and their families are being victimized by identity theft and thousands more are at risk, according to a report by Carnegie Mellon University’s CyLab cybersecurity research center. The report examined the identity protection scans of 42,232 children conducted in 2009-10 by the Debix AllClear ID Protection Network after parents were notified their children’s IDs may have been compromised. The Debix AllClear ID data showed 4,311 of the children, a little more than 10 percent, had their Social Security numbers in use by identity thieves. That’s a child identity theft rate 51 times higher than the 0.2 percent of U.S. adults targeted by identity thieves, based on 663 attacks against 347,362 adults listed in Debix AllClear ID. The youngest child identity theft victim was five months old. A 17-year old girl from Arizona discovered she was $725,000 in debt with with 42 open accounts including mortgages, car loans and credit cards. Her Social Security number was linked to eight suspects. A 14-year-old boy from Kentucky had a credit report going back 10 years listing a mortgage foreclosure.

Victims of friendly fraud

Child identity theft appears to be coming to a head after the seeds were planted in early 1980s. Back then the Internal Revenue Service directed the Social Security Administration to give all children Social Security numbers. Most children become  identity theft victims at the hands of parents, family members or close friends who have access to their Social Security numbers. According to Javelin Strategy & Research, “friendly fraud” made up 30 percent of child identity theft cases in 2010. Because credit checks don’t verify age, identity thieves can freely take out loans, get credit cards and create accounts. The non-profit Identity Theft Resource Center recently helped a young man from Florida who failed a background check to become a police offer because his estranged father had stolen his identity years earlier and destroyed his credit.

How to deal with child identity theft

The Identity Theft Resource Center recommends teaching children about the importance of privacy and the danger of sharing personal information online. All personal information, including Social Security numbers and birth certificates, should be kept in a secure place. If mail arrives in the child’s name, that’s a warning sign that a credit file has been opened. Parents should contact all three credit major bureaus immediately and ask for a credit report. If no credit report exists, the child is likely in the clear. If a credit report surfaces, a security alert must be filed with all the credit bureaus including Equifax, Experian and TransUnion. File a police report using the credit reports as evidence. A police report listing the fraudulent accounts obligates the credit bureaus to remove them from the credit report within 30 days.

Sources

Forbes

Atlanta Journal Constitution

Wallet Pop

Credit card debt protection plans are great, for credit card companies. Photo Credit: Money Blog Newz/Flickr/CC-BY

A recent report by the Government Accountability Office advises that consumers may want to think twice about entering into credit card debt protection plans. Such plans usually offer insurance against missed payments and so forth and seem like a good idea. However, it may benefit the card companies more than customers.

Debt protection plans benefit card companies

Credit card companies currently offer their customers dept protection plans, which the Government Accountability Office asserts is a beneficial arrangement, but mostly for the card companies. Essentially, if card carriers want to guard themselves against a possible default or missed payment, they can enroll in a debt protection insurance plan. The card holder pays a monthly fee, which is usually 85 cents to more than $1 per $100 of balance carried, according to Marlys Harris’ blog on CBS MoneyWatch. At $1 per $100, a $2500 balance generates about $300 in enrollment fees per year. Those debt protection fees added up to $2.4 billion in revenue for the credit card companies in 2009, according to the Wall Street Journal.

Few claims paid

From that $2.4 billion in revenue, card issuers only paid about $518 million in benefits to people who filed a claim and only about 5.3 percent of people who filed a claim and maintained a balance had their claim paid by the credit card company. That revenue was about 55 percent profit, and a further 24 percent went to administrative costs. The 21 percent of revenue that was paid out is far less than automotive and life insurance companies pay. A person could conceivably be better off using instant payday loans instead of credit cards with debt protection insurance, in that most payday loans get paid off all at once.

Bank fees hard to get clarified

A survey by the United States Public Interest Research Group, a consortium of public interest groups from all 50 states, found that less than 40 percent of 392 surveyed banks and credit unions would fully comply with the Truth in Savings Act when asked to provide a list of all the fees the bank charges consumers, according to Reuters. Upon request the institution should be able to produce a fee schedule that lists account service fees, account closure fees, ATM fees and other fees such as a stop payment fee, bounced check or check processing fee. Some complied after multiple requests, and 45 percent refused to comply at all.

Sources

CBS

Wall Street journal

Reuters

Paying credit cards has been the latest consumer debt payment trend, notes TransUnion. (Photo Credit: CC BY-ND/Adjustable Rate Mortgage)

Debt payment patterns in the U.S. were changed drastically by the recession, and the shift to paying credits cards first, over mortgages, is a perfect example. Traditionally, this had never been the case. Yet when the subprime mortgage crisis put many homeowners underwater, addressing credit card debt seemed the more feasible choice, reports the Huffington Post.

TransUnion has tracked the disturbing trend

Mortgage delinquency is now viewed as almost acceptable in the current housing market, a trend that may have costly repercussions. According to credit bureau TransUnion, 7.24 percent of U.S. homeowners were late on their mortgage but current on their credit cards in the fourth quarter of 2010. In the previous quarter, it was 7.40 percent, but the drop can’t be viewed as good news, said TransUnion consultant Sean Reardon.

“(It is now) 72 percent higher than it was at the beginning of the Great Recession,” he told the Huffington Post.

By comparison, only 3.03 percent of U.S. consumers chose to fall behind on their credit cards in order to keep up with their upside down mortgages. This is the lowest known percentage for the category on record.

When the tide turned

Not coincidentally, TransUnion found that more U.S. consumers began to pay more attention to their credit cards than their mortgages just a few months after the financial collapse began in 2007. Booming unemployment and a poor housing market submerged scores of subprime borrowers as the country shifted toward an unhealthy dependency upon credit.

The growth in number of underwater mortgages is staggering. By the final quarter of 2010, 23 percent of U.S. homeowners had upside down mortgages, according to business data provider CoreLogic. That amounts to 11.1 million residential properties in negative equity, up from 10.8 million (22.5 percent) in the third quarter of 2010. Another 2.4 million homeowners have less than 5 percent equity, making the total percentage of negative and near-negative equity mortgages 27.9 percent nationwide. But it hasn’t just been subprime borrowers opting to pay their credit cards instead of their mortgages, notes Reardon.

“Initially it was,” he said, “but it spread across all risk segments. It’s now an issue at the national level.”

Sources

CoreLogic

Huffington Post

Refinance your mortgage and whittle down credit card debt

Is giving companies like Twitter huge take breaks killing local economies? (Photo Credit: CC BY-ND/Estupido/public var)

In an 8-to-3 vote, the San Francisco Board of Supervisors has decided in favor of an ordinance that will grant local company Twitter and others a tax break from the city’s corporate payroll tax on new hires, reports the Los Angeles Times. The 1.5 percent tax shelter will be good for the next six years, as long as companies like Twitter maintain their physical San Francisco offices. While Mayor Edwin Lee praised the move as a step in the right direction for maintaining the city’s popularity as a location for tech firms, critics believe such corporate tax holidays open the door for cities to be exploited by big businesses.

Twitter’s continued presence ‘a rejuvenation’

Offering Twitter a payroll tax break was necessary to keep the social media giant in San Francisco for years to come, said Lee.

“This moment represents a real step forward in the effort to revitalize and transform the Central Market area,” he said. “Central Market and the Tenderloin have been burdened with high vacancies and blight for decades.”

While Twitter officials would not comment on the payroll tax exclusion Wednesday, Lee told the San Francisco Chronicle that he appreciated Twitter’s enthusiasm for helping revitalize those key business districts. The creation of jobs and services in sagging geographic areas would benefit San Francisco across the board.

“There is great synergy between Twitter and the arts organizations and small retail businesses who are looking to expand in the area,” said Lee. “The city can work collaboratively with businesses, community-based organizations, property owners and area residents to catalyze meaningful change.”

Businesses will expect the tax holiday, critics claim

Over the next six years, the Twitter payroll tax break is projected to save the company about $22 million on its taxes, the Chronicle reports. That’s $22 million that San Francisco needs, said city supervisor John Avalos.

“I don’t believe giving an exception to our payroll tax is the way to go,” he said. “I believe that businesses in San Francisco and around the country should be socially responsible. … If we allow a company to threaten to leave, then give them a tax break so they don’t, we’re setting a bad precedent.”

Sources

Los Angeles Times

San Francisco Chronicle

San Francisco Mayor’s Office

Minnesota Gov. Tim Pawlenty on corporate tax holidays and offshoring

Children are legitimate tax deductions. Adult magazines are not. (Photo Credit: CC BY-SA/J.K. Califf/Flickr)

Monday, April 18 is tax day 2011, and some Americans will attempt to slip some very creative tax deductions by the IRS. From flattop haircuts to human sperm donations, auditors have seen it all. In the spirit of the occasion and prefaced with the warning not to try this at home, here are some of the craziest tax deductions enterprising U.S. taxpayers have attempted.

Holy travel and entertainment deductions, Batman!

Dallas CPA Ken Sibley told Bankrate of one client – a minister – who attempted to claim travel and entertainment expenses as tax deductions. Apparently, the minister was looking for real estate investment properties but never found his promised land after years of trying. Hence, it could not qualify as a business expense.

He was charitable enough to marry her

Deducting wedding expenses is a no-no, even under the category of business travel and entertainment expenses. Just because you invite business clients doesn’t make the wedding a business expense, a Massachusetts CPA said. And remember: your betrothed is not a charity, so you can’t count wedding expenses as charitable donations, either.

That’s a 30-year plan

New Jersey CPA Don Meyer spoke of the business manager of a famous entertainer who arranged for the purchase of a $2 million office building. The idea was that it would be deductible as a business expense, and the business manager was expecting to deduct the entire expense in the same tax year. Unfortunately, Meyer had to tell the business manager that it would take more than 30 years to recover the complete expense. Even a suitcase full of money and an ominous admonition to “make it work” couldn’t change the tax law.

Securing a lifetime of tax money

A home-based business can produce legitimate tax deductions, but claiming pets as security expenses won’t fly. Home security systems in general don’t fly with the IRS, either, says the Hunter Group of Fair Lawn, N.J. One client tried to declare a security system under the rationale that if her home was invaded and she was slain, she’d no longer be able to pay taxes.

Risky business

Dues and subscriptions for professional and trade publications may be listed as tax deductions, so long as you are a professional in an approved field. The deduction would fall under miscellaneous deductions if it meets the 2 percent floor rule (2 percent or more of total adjusted gross income), writes Quizlaw.

However, if you’re a self-employed real estate professional who is attempting to write off adult magazines under the dues and subscriptions deduction rule, take a long, hard look in the mirror and reconsider, says another Massachusetts CPA.

On a related note, Don Meyer once had a client who happened to be a prostitute. She wanted to declare her income, and listed “public relations” as her job.

Sources

Bankrate

IRS

Quizlaw

On deducting haircuts and sperm donations

A credit card debt settlement agreement may seem like security, but typically it's too expensive and is limited in its usefulness. (Photo Credit: CC BY-ND/CCQC.com)

If you have credit cards, you’ve heard the credit card balance protection sales pitch. It used to be that for the price of 99 cents per month for every $100 of outstanding balance on the card, your credit card company would allow you to skip the minimum monthly payment for as many as six months in the event you were suddenly hospitalized or unemployed. Now it goes under a new name – debt settlement agreement – and consumer finance experts are urging consumer to just say “no.”

How a debt settlement agreement works

According to Consumer Reports, a debt settlement agreement is a promise to maintain your FICO score in the event that you become disabled, lose your job or experience a major life-disrupting event like the death of a child or spouse. While it may sound nice not having to worry about your credit rating during a personal crisis, the U.S. Government Accountability Office has issued a report stating that the product is not worth the price – it’s a moneymaker for banks, plain and simple.

The GAO says debt settlement agreements raised $2.4 billion in 2009. For each $1 consumers paid for debt protection, the bank pocketed 55 cents in pre-tax earnings. Consumers only benefit from 21 cents of each dollar they pay for a debt settlement agreement. The GAO study also showed that only one in 20 credit card holders who were paying for the service actually used it.

Why debt settlement agreements are wrong for consumers

• Debt settlement agreements are loaded with fees. Depending upon the credit card company, consumers must pay from 85 cents to $1.35 monthly per $100 of outstanding balance for the service. Over the course of a year, that’s as much as a 16.2 percent APR, on top of the finance charges that come standard with the credit card. Sock that money away for a rainy day, instead.
• Most debt settlement agreements only cancel the minimum payment, but interest continues to accrue. At best, a consumer may find a card that freezes both the minimum monthly and interest, but the principal balance is still there.
• Read the fine print. Not all change-of-life conditions provide the full extent of benefits, particularly if the credit card carries a high balance ($10,000 or more).

Sources

Consumer Reports

Government Accountability Office

Is credit protection a good deal?

Mortgage rates are rising, despite demand for and sales of houses still at rock bottom. Image from Wikimedia Commons.

Nationwide mortgage rates are creeping up despite dismal sales and demand. Interest rates on major mortgage products have been rising steadily for the past few months, though the rates are still near record lows. The real estate industry is still embroiled in a quagmire involving foreclosures, and demand is nearing an all time low.

Cheap housing cannot stimulate much demand

Even some of the cheapest real estate on record cannot seem to boost sales. Recent housing data revealed new home sales and existing home sales fell during February. Interest rates on mortgage rates are climbing since hitting near-record lows in the fall of 2010, according to USA Today. The nationwide average rate on 30-year, fixed-rate mortgages reached 4.81 percent on Thursday, March 24, an increase of 0.05 percent in a week. The average 15-year, fixed mortgage hit 4.04 percent. In November of 2010, the 30-year fixed was at 4.17 percent, and the 15-year fixed reached 3.97 percent, the lowest rates in decades.

Legal quagmire still ongoing concerning foreclosures

The legal dilemma regarding possibly fraudulent foreclosures initiated by rubber stamped paperwork, or “robo-signing,” is still far from a resolution. Major mortgage lenders practically handed out same day loans, rushing foreclosure paperwork without doing the due diligence. A major investigation was launched into the matter that involves all 50 state attorneys general and various federal agencies. Banks and mortgage lenders involved in the scandal are still struggling to secure a settlement with the states and the federal government, and some government agencies are looking to create their own settlement to bypass the process, according to Reuters.

Lousy outlook for real estate

Once the matter is settled, a flood of foreclosures will begin; thousands of pending foreclosures have been stalled because of the crisis. Evicting thousands of people will likely boost the payday loans industry as former homeowners scramble for cash to cover moving expenses. The foreclosure crisis is expected to cost the banking industry tens of billions, according to Fortune, regardless of any government settlements or fines. Anyone who can get access to the credit to purchase a home will benefit from doing so sooner rather than later. Demand and sales are very low, and fewer new homes are being built. The foreclosure mess has only made things worse, and the housing industry isn’t going to recover until prospective buyers are able to purchase homes again.

Sources

USA Today

Reuters

Fortune

When it comes to frivolous tax arguments, the IRS has zero tolerance for clowning around in the name of tax evasion. Image: CC Stephen Brace/Flickr

When it comes to frivolous tax arguments, the IRS hears new ones every year. On an annual basis, the IRS releases an updated list of frivolous tax arguments made by people trying to avoid paying federal income taxes. Some frivolous tax arguments are amusing, but instead of a laugh, taxpayers who try to use them will get a hefty fine from the IRS.

A caution for would-be tax cheats

The Truth About Frivolous Tax Arguments is an annual report the IRS has just released for 2011. The 87-page document defines the most popular tax evasion scenarios of all time. The document also includes the official legal policies the government has used to get frivolous tax arguments rejected by courts, as well as the penalties and sanctions levied against would-be tax cheats as a result. Most of the arguments are spread on the Internet by a growing number of scam artists posing as brave crusaders against an unjust government and include refusal to pay federal income taxes for moral, religious, semantic or philosophical reasons.

The cost of frivolous tax arguments

Frivolous tax arguments listed by the agency include cases in which people claim not to be a “person” as defined by the IRS. Others have argued that the federal income tax is unconstitutional or that paying taxes is voluntary. To some taxpayers, military income is exempt and only foreign income is taxable. It has been estimated that every year at least 10,000 people attempt to evade taxes with a frivolous argument, and the number is growing. The IRS penalty for filing a frivolous tax return argument is $5,000. Taxpayers who go to court with their frivolous arguments can receive an IRS penalty up to $25,000. Since the 2000 tax year, the Department of Justice has filed injunctions against more than 455 companies and individuals for frivolous tax arguments.

Popular, and hopeless, tax evasion scenarios

Some of the most popular frivolous tax arguments, according to the IRS, include the claim that paying taxes is against one’s religion, that paying taxes violates the Fifth Amendment and that taxes are considered servitude, which violates the 13th Amendment. The Supreme Court often rules that saying “paying taxes is against my religion” simply will not fly. The Fifth Amendment says a person shall not be “deprived of life, liberty, or property, without due process of law.” But the law gives the government authority to collect taxes from U.S. citizens. The 13th Amendment outlaws slavery, but the claim that paying taxes is servitude has been consistently rejected by courts.

Sources

Main Street

Portfolio.com

Christian Science Monitor

Used responsibly, credit cards can help consumers build a credit history. (Photo Credit: CC BY/Andres Rueda/Flickr)

Many consumers looking to establish a credit history are denied credit because they don’t have enough credit to begin with. Even if a person has an excellent FICO score, it’s still possible to be denied something as weighty as a mortgage because the credit report reads more like a leaflet than a book.

Avoid being financially super-responsible with credit

People who are super-responsible can never enjoy their own parties, and the same is true for consumers who are financially super-responsible with their credit. Paying off student loans right out of the gate, avoiding excessive use of credit and generally living debt-free will save money in the long term, but some creditors do not view the credit-phobic kindly. Even for those who use credit but are choosy, an excessive number of credit inquiries can also have a negative impact on the credit score.

Having little credit history and being a serial credit card applicant can impact credit negatively, says Rod Griffin, public education director for the credit bureau Experian. Showing an ability to manage a reasonable number of open, active credit sources over time is paramount in illustrating credit-worthiness to creditors, including mortgage lenders.

Pay off loans, but keep some credit active

Griffin claims that contrary to what some so-called credit experts say, it doesn’t hurt to pay off loans early. Positive marks on the FICO report remain visible for approximately 10 years, whereas negative aspects generally only hang around for seven years. Paying off loans with excessive zeal can lead a consumer into the “No, thank you” zone with some potential creditors, however. If there aren’t at least three open, active accounts on the credit report that have been around for 24 months of more, it’s possible some creditors will pass on a credit application.

Use credit cards, but sparingly

It’s a myth that college students who are just beginning to build credit should take on multiple credit cards. Used responsibly and in moderation, having one credit card or two is a fine path toward building credit.

But the weather may be changing, says Griffin. Credit bureau insiders see the new Credit Card Act established under the Obama administration as a possible hindrance to young people’s ability to build a credit history. By restricting credit card company access to college students, some experts see more limited opportunities for building credit history.

Avoid the cash-only lifestyle if you want good credit

While you won’t rack up revolving debt by living a cash-only lifestyle, you also won’t build your credit. Maintain active credit accounts where you pay more than the minimum each month, and look to such products as installment loans and no credit check loans when emergency funding is necessary. While such products do not traditionally report to the credit bureaus – and hence do not provide an opportunity to record positive marks on a credit report – they will enable you to avoid building up excessive revolving debt on credit cards.

Sources

MSN Money
U.S. News and World Report

Understanding the Credit Card Act

Don't assume a debt collector is throwing you a life preserver. Demand they verify your debt first. (Photo Credit: CC BY-ND/Gibson Regester/Flickr)

If you’re drowning in debt and need major credit repair, don’t automatically assume that debt collectors have your best interests at heart. Their job is to get paid, and the truth is that sometimes, unscrupulous techniques are used that can be illegal. Before agreeing to a payment plan or even filing for bankruptcy, demand that the collector verify your debt in writing.

Debt validation: A bankruptcy scenario

Bankrate.com provides a useful example of a scenario in which someone should demand that a debt collector validate a debt. A couple has a home with a mortgage that is in both their names. One person is in collections with $30,000 in credit card debt solely in her name. She is considering filing for Chapter 13 bankruptcy, but the couple is concerned about losing the house in the deal.

While there are some potential complications that would require the consultation of a bankruptcy attorney (or two, if a second opinion is desired), Bankrate points out that filing for either Chapter 13 or Chapter 7 bankruptcy will generally not put a home at risk.

How to get aggressive with unscrupulous debt collectors

Get everything in writing when dealing with debt collectors. Don’t reveal bank account information when they push to set up automatic payments. Demand that the debt collector provide a fax number or address to which you can submit a request for debt validation. Simultaneously, dispute the debt in question.

By demanding debt verification, you’re demanding that the debt collector prove that you owe the money, that the collector has the legal right to collect and that the original company that held the account is clearly identified. By disputing the debt, you’re one step ahead in case the debt is erroneous or the collector does not have the information. Few things are as fruitless as giving money to a collection company that may not even own your account.

Know your legal rights

Under the Fair Debt Collection Practices Act, a consumer has the right to force a debt collector to validate a debt. Attorney Tom Martin of Price Law Group says that if debt collectors fail to comply, they cannot legally continue to harass a consumer for payment. If the collector continues, the consumer may even be entitled to monetary damages. But that’s not all:

“If a debt collector receives a dispute from a consumer, and the debt collector has been reporting the consumer’s account to the credit bureaus, the collector must also start reporting the account as disputed,” Martin reminds.

As a final note, the “get it in writing” directive must also apply to the consumer. If any debt payments are made, receipts and statements should be kept as proof in the event of a lawsuit.

Sources

Bankrate
Fair Debt Collection Practices Act
Lawyers.com: bankruptcy attorneys
U.S. Courts

What happens when you’re drowning in debt?

The cost of attending a university is going to keep increasing, which means high student debt will likely become the norm. Image from Wikimedia Commons.

Budgets are getting squeezed in practically every state in the U.S. In an increasingly conservative fiscal climate, one of the biggest items on the chopping block nationwide is education funding, which is leading to drastically less funding for state universities. The cost of higher education is likely to get higher as many universities will need tuition hikes to keep up.

Higher education budgets slashed in 43 states

A total of 43 states have had to cut funding for higher education during the recession of the past few years, according to MSNBC, and it is not a trend that will likely be reversing soon. During times of fiscal hardship, higher education is one of the first spending items on a budget to find itself in the cross hairs of legislators — especially because raising taxes is tantamount to political suicide. As a result of deep cuts to state funds for higher eduction and fewer federal funds to go around, tuition hikes will not be far behind. More students will have to take out considerably larger personal loans for a post-secondary education.

Federal funding slashed

Legislators at the federal level are also focusing on spending cuts, and federal funding for higher education has fallen under the ax in recent months. Federal Pell Grants, which provide financial aid based on need, could be reduced by up to $5.7 billion in the 2012 national budget, according to the Christian Science Monitor. The maximum amount of the Pell could be reduced to just more than $4,000 per year, which is not enough to cover the cost of tuition at most four year universities. The cost of attending one year at a public, non-profit university is $16,140, according to College Board.

Harder to go to college

College Board, the educational organization that creates and administers the Scholastic Aptitude Test (SAT), asserts that enrollment at public universities has increased by 33 percent in the last 10 years. Tuition at public four-year universities has increased by at least 6 percent per year since 2001, and students will bear the brunt of those increases. The installment loans needed to pay for school will be larger, and the sheer cost of attending college may become a disincentive.

Sources

Christian Science Monitor

MSNBC

College Board report on Trends in College Pricing

Are old charge-offs still giving you the blues? (Photo Credit: CC BY/Caitlin Doe/Flickr)

Maintaining good credit can be challenging, particularly after a life-altering event like job loss. Understand that if a creditor throws in the towel and charges off one of your debts, that doesn’t mean that you’re in the clear. It’s quite possible that you will still be liable for that bad debt – even after it disappears from your credit report.

Charge-offs: The light side

Imagine this scenario involving a charge-off on your credit report. While the credit item may say it’s going to drop off your credit report at a certain time, that debt may still have legs because the rules for collecting a debt and the rules for reporting a debt aren’t the same, reports Bankrate. The Fair Debt Collection Practices Act (FDCPA) provides the guidelines for debt collection, while the Fair Credit Reporting Act (FCRA) holds jurisdiction over how a charge-off is reported.

On the plus side, the FCRA mandates that a charge-off must be removed from your credit report after 7 years. That includes whatever debt collection agency owned the debt. Check your credit report about a month after the charge-off is supposed to occur. If the bad debt is still there, dispute it with the three credit reporting agencies: Equifax, Experian and TransUnion.

Student loans, tax liens and Chapter 7 bankruptcies cannot be charged off.

Charge-offs: The dark side

Thanks to the FCRA, bad debt will disappear from your credit report. Unfortunately, the FDCPA makes it possible for debt collectors to pursue your debt almost in perpetuity. As there is a lucrative secondary market that purchases bad debt, there is still cause for concern on the part of the consumer who needs debt repair. Each collection agency will likely try to collect at least once before selling your charge-off.

Can a consumer escape from that bad credit card debt amassed during a span of unemployment? Because there is typically a statute of limitations, the answer is yes. The amount of time in which a debt is subject to collection via the court system varies by state, although it is usually 4 to 6 years for credit cards and 6 to 10 years for installment loans, payday loans or auto loans. Contact your state’s attorney general for more specific information.

Know your debt collection rights

If a charged off debt is past your state’s statute of limitations for collection, it cannot be legally pursued and you can ask not to be contacted against regarding that debt. If a debt collector continues to chase, you may have the option to levy a counter-suit.

Legal action will require time, money and the advice of a lawyer, however. The best way to get out from under a debt collector that is pursuing your debt in a legal fashion is to either pay what you owe in full or come to a settlement.

Sources

Bankrate.com
Equifax dispute form
Experian dispute form
TransUnion dispute form

How to deal with collections