The national debt soars. This clock is a little slow. Image: Raphiq Phillips/Flickr/CC BY-SA

The U.S. will soon hit the $14.294 trillion debt ceiling, prompting Congress to vote on again raising the limit. But Congressional Republicans have threatened opposition if the vote does not include budget cuts and long-term debt reduction. If an agreement is not reached by August, it will be an unprecedented situation that will be felt by all consumers.

The limit the U.S. can borrow

The debt ceiling is the maximum limit the government is allowed to borrow to pay its current debts. In the past, Congress has always voted to raise the limit.

If the issue is not settled by August, military employees and dependents may see severe income losses. Those dependent on Social Security may be left out in the cold. The loss of Medicare could drive healthcare expenses to levels beyond the reach of most people. Interest and credit rates could drastically increase, as well as taxes.

Taxes pay only 60 percent

“Given that the government currently only raises taxes to cover 60 percent of what it spends, being able to borrow means that the services people depend on from the government continue,” explains Stan Collender, a partner at Qorvis Communications. If Congress fails to vote for a limit increase, it could lead to much higher taxes, a reduction of expected services or both.

T-bills considered secure, for now

The U.S. government raises money by selling Treasury Bonds, or T-bills, which promise a small return on the money borrowed. As long as the purchasers are confident that the loans are safe, they are willing to trade security for small returns. However, if national loans are defaulted on, the global marketplace will lose faith in the dollar, causing foreign goods to become more expensive. The marketplace would reflect that lack of confidence by an immediate increase in cost of fuel, electronics and many other items dependent on overseas suppliers.

Jobs could be at stake

Jobs could be at stake not only for those on the government payroll, but for those in the private sector as
well. “We don’t know what will happen because this hasn’t happened before,” says Collender. “But if the debt ceiling isn’t raised and the government runs out of cash, at some point the president may decide he has to stop doing certain things, like paying government contractors, for example. That may not sound like such a big deal, but it is if someone in your family, or someone you know, is working for that contractor, or for the supplier of that contractor, or if that contractor is a big employer in your neighborhood or your state.”

Wall Street remains confident

At this point, the market seems to be ignoring the debt ceiling debate, confident that a solution will be reached. Banks are still lending money, interest rates remain low and the stock market is relatively stable.

Sources

Daily Finance
CBS
Huffington Post

Having a Roth IRA can give your retirement fund teeth. (Photo Credit: ThinkStock)

Retirement planning is a frustrating yet necessary process, especially with the precarious position of Social Security. Here are the top five reasons a Roth IRA retirement account is for you, courtesy of Smart Money.

Make tax-free withdrawals upon retirement with a Roth IRA

A Roth IRA enables you to put your contributions in after taxes. Thus, it is unnecessary for you to pay taxes on that money once it is withdrawn upon your retirement. More money is always helpful. Payday loans are fine in a pinch, but they don’t constitute a retirement plan.

Social Security won’t enable you to maintain your standard of living

You’ve heard the debates over whether Social Security will actually continue to exist forever. But let’s assume that it sticks around, and you believe it will cover you post-retirement. The government hasn’t let you down before, right?

Wrong. It’s all too common to read something like this on a Social Security statement: “You can retire on the princely sum of $2,000 per month. You may already be a $24,000 winner!”

Roth IRA beats 401k mutual funds

A 401k retirement account gives a retiree the option of choosing from one of two different types of mutual funds. That is very limiting. With a Roth IRA, you have a greater ability to manage your retirement funds.

Flexibility is always nice

Smart Money points out that Roth IRAs give the retiree a great amount of flexibility when it comes to managing their funds. Contributions can be withdrawn without establishing a compelling cause. Furthermore, a Roth IRA can be used to save for a child’s education. There are other benefits to being flexible, too. Check with your financial adviser.

Diversity in numbers

Putting all your eggs in one basket is never a good idea, and this old saying holds true with your next egg. Some people look to both a Roth IRA and a traditional IRA or 401k in order to more readily absorb the bumps and bruises of fluctuating tax rates. It’s a sound strategy that anyone concerned about retirement should discuss with a financial adviser. Be prepared and minimize your need for short term loans.

Sources:

Smart Money

Roth IRA basics

Wikipedia entry on mutual funds

When former news anchors hawk IRAs

Governments struggling over tax revenue declines

Homeowners looking for cash now are having a difficult time due to their tax bills. Across the country, owners are challenging their tax amounts due to the value of their properties declining. The overall result is that local governments are in danger of losing yet another revenue in the already struggling state coffer. It seems that homeowners from New York to Arizona are arguing about their tax bills, and socioeconomics is not a contributor. Homeowners of $10 million-estates to one-bedroom bungalows are taking up arms against the tax bill.

A nationwide crisis

Gus Kramer, assessor in Contra Costa County, California, (see http://www.cnbc.com/id/31747498) said, “It is worthy of a Dickens story. These people are desperate. They know their home’s gone down in value. They have watched their neighborhoods being boarded up. They literally stand in there and say: ‘When can I have my refund check? I need to feed my family. I need to pay my electric bill.’”

Governments are having a difficult time with the issue. According to a survey done by the National Association of Counties, 76% said that falling property tax revenue was significantly eating away at their budgets. Jacqueline Byers, research director for the firm, said, “In the recession today it’s difficult for any government to give up any revenue. The tax revenue being hit hard couldn’t have come at a worse time.”

The recession and the state budget

The recession was difficult on every local government. The staggering growth in unemployment, lack of spending and a drop in revenues for every business have combined to make it difficult on the states. Although many experts are citing the recession as being officially over, there is still a time to regroup and resettle. Byers added, “Though the recession is behind us, its wake isn’t. We still have to wait and see what needs to be cleared up before the market returns to normal.”

Some counties are trying to make ends meet by raising the tax rates associated with home values. The plan is a sketchy one because homeowners looking for cash now don’t have extra funds to put into their homes. Add to the problem the loss of equity in their properties and it’s a difficult thing to ask for more money. Byers said, “Raising tax rates is like squeezing homeowners for something they just don’t have right now.”

Homeowners are asking for reassessments

Many homeowners are requesting reassessments. For example, in Atlanta, Georgia, thousands of people lined up at the local government office to file a request for a reassessment. In Ohio the numbers of requests have multiplied five times over. Robert W. Singer, mayor of Lakewood Township, New Jersey, said, “We have been absolutely getting killed. We have never had this before. Usually they are undervalued. Now, everyone is overvalued.”

The added cost is hampering local governments even more. Property taxes are calculated by a wide variety of things and no one formula is used for towns, counties, schools, and fire districts. Each one has their own set of rules. Because tax formulas vary so widely, not every assessment value that comes back lower is going to translate into a homeowner’s tax bill being lowered along with it.

Homeowners in trouble over tax bills

In the end, homeowners who need cash now to pay their tax bills have to be creative. Bonnie Grassley’s house in Fort Pierce, Florida is having problems making her tax bill. Though she only has to come up with an additional $150 a month, she is unemployed and living off of savings. She said, “My home means everything to me and it is all I really have. I am determined to keep it, come hell or high water. It is a terrible way to lose your home, just over taxes.”

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Choosing a retirement plan doesn't have to be a game of chance

Many people are unaware of the different types of retirement plans available to them. While most are familiar with the basic plans offered through their employer, few know much about additional plans they may still be able to invest in. Self-employed people in particular find themselves wondering how they can plan for retirement and what plans are available to them.

Qualified vs. non-qualified retirement plans

Plans are generally classified as qualified retirement plans or non-qualified ones. Qualified retirement plans are those most commonly used by large companies. These offer tax incentives to employers for contributing to the retirement plans of their employees. Besides the fact that employers generally match an employee’s contributions, qualified retirement plans are of benefit in that employee contributions are made on pretax income directly from one’s paycheck. This means that money that would otherwise go to the government is invested in one’s future instead. Also, taxes do not have to be paid on such contributions until money is actually withdrawn from the plan when a person retires or decides to withdraw the money for other purposes.

Here is a list of the most popular qualified retirement plans:

• 401(k)
• Roth (401)
• Defined-benefit plan
• Stock bonus plan
• Defined-contribution plan
• Money-purchase pension plan
• Profit-sharing plan
• Keogh plan (for self-employed individuals)

A non-qualified retirement plan, on the other hand is often used to reward high-ranking employees who earn a substantial income. Employees who invest in non-qualified retirement plans can still enjoy tax-deferred investing, but, unlike with qualified plans, they may lose the ability to transfer their money to another type of retirement account when they leave their job. This means that they may have to withdraw all of their money upon leaving their job and pay taxes on it at the same time.

Here is a list of the most popular non-qualified retirement plans:

• 457 plan (also known as a Tax-Sheltered Account or TSA )
• 403(b) plan
• Roth IRA
• Traditional IRA
• Rollover IRA
• Converted Roth IRA

Along with the previously mentioned Keogh plan, self-employed entrepreneurs also have the following retirement plan options:

• SEP IRA
• Simple IRA

Each of these plans is unique and offers its own benefits, as well as drawbacks. Before selecting the one that is right for you, read up on what each offers and consider sitting down with a professional who can explain the ones that you’re most curious about. Wealth education involves good research, asking a lot of questions and discovering the investment options that are best suited for your budget. By having a general understanding of the retirement plans that are available to you, you can now begin a further exploration in finding the one that is perfect for you.

Prepare for a great future today

While many people spend a lifetime working for money, smart investors know how to make their money work for them. Investing in a good retirement plan is one approach to doing so and understanding how each one works is the beginning of wealth education. It is never too early to begin retirement planning and those who do not have a plan are strongly urged to start one now. If you’ve been relying on cash advances or a loan till payday to pay your monthly obligations or for emergencies, try to imagine how you’ll be able to manage as a senior citizen who is without a payday at all. Start preparing for you future today by defining a personal budget that includes contributing to a good retirement plan.

During tax season, many people look forward to refunds of money owed to them by the IRS. They anticipate using their refunds for investments, repayment of personal loans, vacations, or any number of other worthwhile things. For other people, however, tax season is a very stressful time of year. It’s a time to review finances, to account for money spent and income received for the entire year, and to figure out how much they owe to Uncle Sam.

Every year, a large number of these people fail to pay their taxes and they eventually find themselves owing a serious tax debt to the IRS. Many begin to avoid the agency, believing that their debt is too large to overcome and that they may lose all of their investments and savings when and if the IRS ever catches up with them. However, the IRS may actually be able to help a person owing a tax debt if that person is willing to communicate with the agency and explore avenues of repayment.

Installment plans are available for many

For someone who’s never been delinquent with the IRS before, an installment plan may be an option. Generally, this option is only made available to those who owe less than $25,000. However, even people who owe more $25,000 may request an installment plan. When the debt exceeds $25,000, the payment-plan approval process may be a bit more involved. For instance, the account may be assigned to a special revenue officer for the duration of the payment plan.

Offers in compromise work for some

Under some circumstances, the IRS may accept less than the total amount owed in full satisfaction of the debt. This sort of arrangement is called an offer in compromise, and it requires the taxpayer to make one lump-sum payment for the total amount agreed upon in order to satisfy the debt. The lump-sum payment may be a significant amount, but frequently it will be much less than the original amount owed.

Bankruptcy won’t make the IRS go away

Sometimes, people who are indebted to the IRS seek to avoid paying by filing for bankruptcy. However, a bankruptcy does not necessarily eliminate IRS debt. In some cases, a bankruptcy may result in the creation of a plan to pay the debt in installments over time, and it may prevent additional penalties and interest from accruing, but in most cases, IRS debt is not discharged in bankruptcy. A tax debtor should always get competent legal advice before filing bankruptcy.

IRS debt forgiveness is rare, but not impossible

In rare cases, the IRS may forgive tax debts when the amounts owed are the result of a tax return filed a certain number of years prior to filing for bankruptcy or if the taxes owed were assessed at least 240 days prior to the bankruptcy filing. A few other exceptions exist as well, such as when it is determined that an extreme hardship exists and the debt is not the result of the taxpayer attempting to evade tax laws. In some cases, a bankruptcy may make it easier to repay an IRS debt, but this is never a guarantee, and anyone owing a tax debt should obtain legal counsel before deciding whether to file a bankruptcy.

Communication is best way to resolve IRS debt

It is always best to pay taxes on time. Short of that, when an IRS debt is owed, making timely payments on an installment plan helps to avoid late penalties and other fees, and may also help a debtor to maintain a good credit standing. This is just as true for IRS debts as it is for credit-card and other debts. When a person falls behind on a tax debt, the absolute best way to resolve it is to communicate openly and clearly with the IRS to find out exactly what is owed and what repayment options are available. Communicating in this way can help people to gain control of their finances and eliminate tax debt along with enormous mental and emotional stress.

E-file. All the cool kids are doing it.

You probably already know that if you make a lot of money or have complicated taxes you won’t be able to file your taxes for free. Usually, for people with high incomes or a lot of assets, it makes sense, and it’s worth it, to pay someone to do your taxes. But, if you’re like me, filing your taxes is just a matter of plugging the right numbers into the right places.

Turbo Tax Free Edition is a good option for people in this situation. You can download this program from www.turbotax.com. If you’re worried that you need extra help to avoid tax debt, there are several different programs that you can pay for to e-file your taxes through Turbo Tax. Also, H&R Block has a free online program at www.hrblock.com.

2. IRS Free File

This program is a partnership between the IRS and private tax-preparation companies. You may only file for free if you made less than $57,000 in 2009. This program is only for filing federal taxes, so if you live in a state that has income tax, you’ll need to file those separately. IRS Free File is at www.irs.gov/efile.

IRS Free File gives you the option of using tax software with step by step help. You can also choose to fill in the tax forms and file them online without tax software.

3. TaxAct Free Federal

This program is actually the one I used last year. There is an option at the TaxAct web site for filing your state taxes, too, so this is a good option for anyone who doesn’t have complicated taxes. TaxAct is very simple to use and quicker than any other method I’ve used.

The address for TaxAct is www.taxact.com, simply enough. One of the best things about e-filing taxes is that it generally makes your return come more quickly, if you’re owed one, because you can get it directly deposited into your bank account.

Most people don’t. With more and more Americans retiring early in order to pursue other careers or small business opportunities, this question is being investigated more than ever. Myths abound, which lead people to believe that they must immediately roll all of their retirement savings into a single IRA account or, at least, cash out of their 401k plan all at once. This, of course, is not true, but without the benefit of good wealth education, few people actually know what their retirement plan options are.

Consider the following suggestions:

Suggestion Number One

If you were born before 1936 and have participated in your 401k for at least five years, it is possible that you qualify for an excellent tax strategy commonly referred to as a ten-year averaging. Such requires that you first withdraw your entire retirement savings at once. Upon doing so, you will figure your taxes on this amount by dividing the total by ten and then adding an additional $2,480 to the sum. Next, research the 1986 rate for single taxpayers and multiply that amount by ten. The resulting figure tells you how much you owe in taxes for your withdrawal using this option. If your 401k value is less than $400,000 in total, you may find that you can save a lot on taxes by using this ten-year averaging calculation.

Two things to note if you plan on using this strategy: First, the IRS will only allow you to use it once and, second, you can’t roll over part of your 401k and use ten-year averaging on the remaining amount. However, the benefit to using this strategy on your complete withdrawal is that taxes were a lot less in 1986 than they are now and using the rate for single taxpayers from that year will offer you far more savings.

Suggestion Number Two

Some companies allow retirees to leave some or all of their money in an existing 401k plan. Find out your company’s policy on doing so if you believe this will be of benefit to you.

Suggestion Number Three

Roll your money over into one or more IRA accounts. You can do this an unlimited number of times in as many IRAs as you like. Take the time to investigate this option on your own or with a qualified financial planner to determine if doing so fits your retirement needs. This might be an especially good idea if your company will allow you to leave some money in your 401k and roll over just a portion of the rest.

Suggestion Number Four

People who will be fifty-five years or older in the year that they retire may also consider cashing out of their 401k all at once or in part without penalties. Of course, ordinary taxes will be due on distributions, but, depending upon how much is in your account, this may be a smart option.

While these suggestions are meant to give you guidance on what to do with your 401k account when you retire, they should not be used in lieu of or to substitute the advice of a qualified professional. Also, do keep in mind that senior citizens age seventy and six months are required by law to begin taking money from all retirement accounts at this time. The only exception to this is money in a Roth IRA or if money is in a 401k with a company that still employs the person, provided that the employee does not own more than five percent of the company in question.

Shoppers in the Washington D.C. area will have to spend more money on each trip starting Friday, January 1, 2010. These additional costs, which are part of a new plan by the administration to close the gaps in budgets, will send them racing for more payday loans. To the already burdened consumer, this will no doubt be another cost that they will deem unnecessary. However, they will have to live with the additional expenses as part of their own budgets, and will need to figure out how to make it all work.

Shopping Trip Charges

Under the new scheme, which the administration is calling a “nickels and dimes” policy, shoppers will have to pay $0.05 every time they shop and request a shopping bag. Groceries, drug stores, liquor stores and retail outlets are all expected to add this charge on consumers’ bills who have forgotten to carry a shopping bag with them. This charge will apply to every paper or plastic bag handed out by the shops, but this is not the only part of the policy. By mid January, more people will have to pay over $2 an hour to park their cars, which is sure to put an additional burden on consumers who were already looking to save their nickels and dimes. These plans are sure to make shoppers stop at their neighborhood lenders office looking for a payday loan. Of course, planning will help to eliminate this burden by bringing along their own shopping bags.

Fund Raiser Scheme

The administration claims that this scheme was designed to raise money for the various assistance programs that help people affected by the recession. Many states are already burdened by too many unemployment benefits and are experiencing a shortage of funds. It is under these circumstances that they are looking to raise additional funds from the very consumers who may be the same people they want to help. It’s not just the shopping bags and parking fees that the administration is looking to charge money for, but also on overdue library books and car pool permits. Taxes have already been increased on cigarettes and gas, and the city expects the 14,749 parking spaces, charging $2 an hour, should make up for their deficit. Increasing the costs of shopping will mean that the consumer must budget for more money that will turn into another rush for more payday loans.

Right Idea, Wrong Time

States are looking to enforce these charges because they are facing huge deficits in their budgets. Job losses and unemployment benefits are leaving them with no other choice but to increase charges for common items. At the same time, restaurants in the area are complaining that these charges will only keep their customers away and cause further losses, and as free parking time on the weekends is reduced, the restaurateurs have a point. Consumers will be paying more money for the same services they were getting for free before, and will look to cut costs, including eating out. They will also look to take out payday loans to cover for the shortage in cash.

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If you have ever experienced an audit by the IRS or had your tax deductions denied you have probably experienced the powerless feeling of being up against an impossible opponent. You may have taken some initial steps to appeal the decision, but then fell short of a victory and decided to concede to the formidable adversary. If you won the battle you are among the lucky few. Most taxpayers fold under the pressure of fighting the IRS, even when they feel strongly that they are in the right.

A Bold Move

According to a recent Wall Street Journal article, a nurse from Maryland has won just such a case against the IRS. In 2006 Lori Singleton-Clarke filed her tax return for the previous year and included among her deductions $14,747 in tuition expenses for the M.B.A. that she had been earning online through the University of Phoenix. The professional who prepared her return advised her to include this deduction, stating that her situation fell within the stringent rules for claiming this type of deduction.

The Uphill Battle

It probably comes as no surprise to most people that the large deduction was initially rejected by the IRS Feeling that she was justified in claiming the deduction, Singleton-Clarke decided to pursue the matter further. She carefully investigated the intricate regulations for claiming such a deduction and became more convinced that her original filing of this expense was accurate. She pressed on in her quest.

Sheer Determination

What started out as an exchange of paperwork between Singleton-Clarke and the IRS quickly escalated into a very hard fought battle. There were seemingly unending documents requested by numerous individuals involved in the audit. The process itself was complicated enough that it likely would have prompted most people to surrender. After all of this, Singleton-Clarke was denied again so she made the decision to go to Tax Court. Without the funds to pay an attorney though, she chose to represent herself.

One of the Few

In court Singleton-Clarke relied on her impeccable organization and record keeping to present her side of the case. These habits turned out to be very impressive to the judge and helped to clearly outline the necessary details. Even though only about 10 percent of cases waged against the IRS are won by the individuals who choose to fight their assessments, the judge ruled in Singleton-Clarke’s favor. She was absolutely in shock upon receiving the decision. This ruling may even go on to help other students deduct these types of costs in the future. This is one can of worms that the IRS may regret having opened up.

Can You Cover what You Owe?

Unfortunately not everyone is fortunate enough to have large deductions that they can claim on their tax return. With tax season coming up and the tough economy persisting, expenses can become even tighter. If you find yourself short on cash after taxes you may want to consider a personal loan. It can provide you with the quick cash you need to get through the rough patch and when you apply at a reputable online site the process can be even faster and far less frustrating.

(Photo from ChrispyWorld, Flickr.com)

Those who are unemployed are not the only people facing difficulties while looking to borrow money. States providing unemployment benefits are quickly running out of cash and are looking at the government for loans to bail them out. The Washington Post reports that 40 state programs will need $90 billion in loans to keep unemployment checks going out to people. This is completely a direct fall out of the recession, which will force the governments to either slash benefits or raise taxes.

Too Much Stress on the States

Many states that are the hardest hit with the massive wave of unemployment are now feeling the stress of not enough money to pay out. This is expected to get worse over the coming two years as 25 states have already borrowed $24 billion, with these figures expected to reach $90 billion borrowed from over 40 states by the year 2011. The effect that this will have on the economy can only be imagined, but it seems that it may only get worse. Some states that are under immense stress are already talking about tax raises and cuts in unemployment benefits.

Is there Hope for the Unemployed?

For the hundreds of people who are unemployed, this may only get worse. The lack of jobs and the rise of inflation will send people into taking actions they wouldn’t normally do, including incurring debts from credit cards, short term loans and even delayed payments of utilities and mortgages in the hope that conditions will improve. Even for people with jobs, this news will be something that is not welcome on the eve of a new year, as they may have had to borrow money to make ends meet. If additional stress is created by the government, they will be left with little choices than to start abnormal activities as well, just to survive.

Better Jobs, Better Economy

Creating jobs is easier said than done. Making tall promises with no back up plans may come easily to most politicians, but convincing companies to adhere to their promises is the difficult part of creating a better economy for all. Blame can easily be transferred to companies that have outsourced jobs to developing countries, but asking them to close down their overseas operations and return back to the country will not be enough. Companies will not want to return to pay higher production costs compared to their currently outsourced operations. And, if they were to do this, then prices will be raised even more just to cover their operation costs. Tax cuts that were announced seem to have little effect on them, and the government will need to come out with a plan to ensure that jobs stay in the United States by offering companies more than just tax cuts.

The Future – not a promising outlook

The public will be facing the worst of the coming years from rising taxes, lower benefit payments, and the growing need to borrow more money from any available sources in order to stay afloat. Sooner or later they will fail, unless drastic measures are taken to improve the economic situation.

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