Free Tax Assistance (VITA)

Back-to-back tax tips – good indication that it’s that time of year again. Numerous resources are available to assist the majority of taxpayers with free tax preparation assistance as well as free electronic filing of tax forms.

Resources.
At the University of Missouri, students in the Personal Financial Planning Department and University of Missouri Extension Faculty have partnered to sponsor several community VITA (Volunteer Income Tax Assistance) sites as well as a campus site (that will be housed in the Office for Financial Success). These IRS-certified volunteers will prepare tax returns for students and working individuals/families with incomes under $40,000. The returns are prepared and filed electronically with the opportunity to have refunds direct deposited into checking, savings, IRAs, and other types of accounts (up to three) – see last week’s tip for more information. This is a great resource to help consumers avoid preparation fees and costly refund anticipation loans. This filing also includes your state returns and everything is done at no cost! Services will begin next Monday – January 29th. Walk-ins only – no appointments needed. Locations and availability are provided below.

Additional Tax Helps.
Additional information on tax issues is available at the OFS site. Information available includes:
- Current tax info (standard deductions, exemptions, tax brackets, etc.)
- Information on deducting student loan interest
- Do I have to file? [normally is worthwhile even if you “don’t have to”]
- Information on earned income tax credit
- Information on education tax benefits
- Tax forms
- Link for free online filing (AGI below $52,000)
- Tax tips, recent law changes, and other tax topics
- “Understanding Taxes” – an interactive, instructional IRS tax program

Getting FREE Assistance.
Free volunteer tax preparation sites are available across the country. VITA locations are available in most communities as is AARP locations for the elderly. Missouri VITA sites can be found by clicking here... The VITA link above can help you locate VITA sites if you live outside Missouri. Andrew Zumwalt is the University contact for VITA.


Columbia Locations (1/29 – 4/14/07).
*MU Location
OFS – 61 Stanley Hall (basement)
Tuesday & Wednesday (4:30 – 8:00), Saturday (10:00 – 1:30)

*Bank of Missouri
3610 Buttonwood Drive
Monday (4:30 – 8:00) FEBRUARY ONLY

*Central Missouri Community Action
400 Wilkes
Monday & Wednesday (10:00 – 1:30)

1500 Vandiver
Friday (10:00 – 1:30)

*All sites closed March 24 – April 1 (Spring Break).

Want that bank fee waived? Then ask

The ATM receipt I held gave me a sickening feeling. A negative sign showed next to the balance amount.

M’s and my checking account was overdrawn, and I knew exactly why. I’d forgotten to deposit a check I had put in my wallet earlier in the week, which was why I had gone to the ATM in the first place.

The good news is that I didn’t have to pay an overdraft fee, and not because Commerce Bank didn’t charge one (a nice, hefty $35). In fact, it was because I asked them not to.

A benefit of competition
You might be surprised to know that fees at banks, credit card companies, and other financial institutions are often negotiable. Many times—but not every time—you can avoid paying a charge that’s been levied on you for whatever reason simply by contacting the company and asking them to waive it.

Over the years I’ve saved by having the annual fee on my credit card waived, as well as charges for making a payment by phone (when I’ve been a little late mailing the check). Buying my first house, my father encouraged me to push the mortgage companies competing for my business to remove the many extraneous charges ($35 for courier services, $25 for faxing paperwork, etc.) that they like to tack on to provide the loan. Not every company waived every fee, but some did.

The reason financial companies are willing to let you keep your money? Competition. Losing your business to another bank or credit card company costs them much more than losing the revenue from a one-time $20 or $30 fee. Besides, for every person who asks to have a charge removed, there are many more who simply pay it, no questions asked.

Good financial habits help
That said, financial companies are only willing to go so far. If you make a habit of bouncing checks or paying your credit card late, you have little chance of avoiding the resulting penalty charges, no matter how nicely you ask.

In the years M and I have been customers at Commerce, I can’t recall being overdrawn any other time. We also were never late with a payment on M’s car loan, which they financed, and paid it off several months in advance. So the tedious chores associated with being a good financial steward—balancing the checking account, tracking where our money goes—do have their rewards.

Still, being temporarily overdrawn has shown me that I keep the cash level of our checking account lower than I should. I don’t like the idea of keeping a hundred or so “extra” dollars in the account—money that isn’t accounted for in M’s and my monthly spending plan—where it can be easily tapped. But it’s probably better than relying on my memory to make sure I always make our deposits on time.

Splitting Your Tax Refund

Three months ago I sent a tip about the Pension Protection Act of 2006; a bill passed late last summer that primarily included provisions geared toward helping consumers improve on long-term savings habits. Item #3 of those mentioned was an interesting change, one that you will likely have the opportunity to participate in shortly … splitting your tax refund.

Each year, more than 75% of U.S. taxpayers are entitled to a refund (of more than $2,000 on average). Studies have demonstrated that individuals are more likely to save if it is easy and automatic. The government is attempting to accommodate this tendency. In the past, the majority of refunds were provided via direct deposit to one’s checking account. With the new “split refund” option, individuals can opt to have their refund split into up to three different accounts. Account options include checking, savings, IRAs, and health savings accounts. Doing so appears very simple. Just include Form 8888 – Direct Deposit of Refund to More Than One Account – with your return. Indicate the account number and routing number for the financial account(s) where you want your refund deposited and instruct how you want the refund allocated among the accounts.


What you need to know …

- What is a split refund? A split refund allows you to divide your refund [in any proportions you want] among up to 3 accounts with U.S. financial institutions.

- Does my refund have to exceed a certain amount to be eligible? The deposit into each account must be at least $1.

- Can I split my refund among different financial institutions? Yes.

- Must I split my refund equally? No. You have the flexibility to divide your refund however you choose.

- What types of accounts are eligible? Checking and savings accounts, IRAs, Health Savings Accts, Archer MSAs, and Coverdell Education Savings Accts.


Things to do …

- Confirm that your financial institution will accept direct deposits.

- Confirm your account numbers and routing numbers.

- YOU WILL NEED TO SET UP YOUR ACCOUNTS FIRST! If you want to have all or a portion of a refund put into [for example] a Roth IRA, you will need to have an account established in order to have money directed to the account.


More information about splitting your Federal Income Tax Refund can be found at the FAQ section of IRS.gov.

Student Loan Interest Rate Follow-Up

Last week I commented on potential legislation that would ultimately cut in half the current interest rate on Subsidized Stafford Loans for undergraduate students. Good news to report - yesterday (1/17/06), the House of Representatives passed the legislation (356 to 71 vote). Next step - the Senate. I'll keep you informed as things hopefully continue to progress positively ...

If you are interested in reading more about this piece of legislation, or about the expected reintroduction of the Student Debt Relief Act (which proposes to: cut student loan rates, increase Pell Grant Assistance, cap student loan payments, and provide loan forgiveness options to individuals in public service areas). Here are some helpful resources:

- National Association of Student Financial Aid Administrators
- Student Debt Relief Act Press Release

Understanding Your Credit Card Statement

The monthly credit card statement is one of the most commonly overlooked financial documents we receive. Why? It could have something to do with the high volume of information that is ‘squished’ into a small page of paper. It could be the complexity of the information provided. It could be the small font size used. Regardless of the reason, it is time to take a closer look. Although statements from different companies will look slightly different, there are many common elements [here are a few]:

Monthly Charges.
Reviewing your monthly charges is very important. The most obvious reason is to make sure that your actual expenses match what the credit card company is reflecting (mistakes do happen); but this will also alert you to fraudulent charges as identity theft is becoming a bigger problem by the day. By law, you have 60 days to dispute [in writing] errors on your credit card statement.

Minimum Payment.
This is the smallest payment (normally 2% - 4% of your balance) your credit card company will allow you to make and remain in good standing. Making this payment on time is important for maintaining your credit; ideally you will pay the balance in full and thus avoid all interest charges.

Interest Rate/Annual Percentage Rate (APR).
Most of us are familiar with the interest rate – the amount of interest paid per month typically stated as an annual rate. The APR, however, documents the “bottom line” cost you’re paying for your card. The APR includes not only interest charges, but also fees [such as late and over-limit] and other transaction costs.

Grace Period.
This is the “free” period of time that you can avoid interest charges by paying your balance in full each month. The law requires the grace period to be minimally 14 days (meaning that the bill must be mailed at least 14 days before the due date). Most cards have grace periods of 20-25 days. If you fail to pay your balance in full, you will forfeit the grace period (in addition, most cards will forfeit your grace period when cash advances, balance transfers, or convenience checks are used – even if you paid the balance in full the prior month).

Credit Card Limit/Available Credit.
This is the maximum debt allowed by the credit card company on the particular card. Your maximum credit as well as your available credit (maximum credit minus current balance) will be listed on each statement. Keep an eye on your limits – card companies will regularly increase your limit when you pay on time as they want to encourage you to spend more. You can call and request that they lower your limit if you’d like.

Owning a credit card includes with it the responsibility of learning how to use the credit card. Understanding the monthly credit card statement is essential to your success as a consumer. Take the time to review the information on your credit card statement and seek assistance if you have questions/concerns/problems.

Legislative Information for Current Students ...

It wasn't long ago that I sent a weekly tip regarding the legislation that locked the interest rate on all Stafford Loans [taken out after 7/1/06] at 6.8%. Well ...

This week [expected tomorrow], the new House of Representatives leadership plans to introduce legislation that would cut the interest rate on certain student loans in half!

The Project on Student Debt has prepared a brief analysis of this bill, which would reduce interest rates on Federal Subsidized Stafford Loans for undergraduates from the current 6.8% to 3.4% over the next five years. When fully phased in, borrowers on a 10-year repayment plan would see their payments reduced by 14% and save $4,000 in interest costs on $20,000 in covered loans.

The proposed interest rate phase-in would occur according to the following schedule:
6.12 percent in 2007
5.44 percent in 2008
4.76 percent in 2009
4.08 percent in 2010
3.4 percent in 2011 and subsequent years.

To read more ...
- Project on Student Debt
- Inside Higher Education

Charged up about the cost of a cell phone battery

I've been debating getting rid of M and my cell phones. Buying a cell phone battery has pushed me a little closer to hitting "End Call" permanently.

I've had my LG VX3300 cell phone for about 15 months--not that long, in my estimation. I use it only moderately; I rarely go over the minutes in my service plan and I turn it off when I'm at work. So the fact that the factory model battery recently stopped holding its charge for any length of time was annoying enough.

Then I went to my friendly local Verizon accessory dealer for a replacement. The pricetag: an appalling $49. More than twice as much as I expected. As M pointed out after I got back, "For that, you could have gotten a whole new phone."

I want what I want
Yes, I could have. But I didn't want a new phone. My phone serves my purposes well enough. I don't need a cameraphone, a webphone, or a phone with the ability to answer e-mail.

And I definitely don't want a new cell phone plan, which cheap new phones often come with. I can't wait for our current two-year contract to run out so we can unload it from our monthly budget. I'd rather put $82 toward CJ Jr's college fund--which we've temporarily stopped contributing to, since we went to one income--than give it to Verizon.

I've considered paying the cancellation fee. Dishing out the $150 for each of our two phones is less than half than amount we'll pay ($738) for the next nine months to finish out the contract. But I just can't stomach putting out that kind of money for absolutely nothing.

Two big errors
I do shoulder some of the blame for my battery "overcharge." I didn't shop around beforehand, as I normally do. Afterwards I found one online for half the price.

I also took CJ Jr. with me on my little errand. I may have been more inclined to go to a couple different places, or even ask the Verizon guy about other options, if I had been able to keep both eyes on the cash register instead of one eye on CJ.

Now M and I have to revisit our January spending plan and figure out where that extra $30 or so will come from. That may not sound like much, but it eats up a little chunk of our expected household expenses for the month, which we try to keep as fixed as possible.

Besides, I just wanted a battery, at a reasonable price. Is that too much to ask?

Time to shop for a van

The CJ family is growing. M and I have just found out she’s pregnant, God bless, due in late summer.

While we still have to get through that crucial first trimester—as M cautions, she is 39, which means a greater chance of complications—I’m throwing caution to the wind and proceeding full-speed ahead to prepare for the new arrival. So this weekend I’ll start shopping for a minivan to replace M’s 2002 Honda Civic.

A new experience
I bought my last car, the slightly used 1998 Sentra I drive to this day, eight years ago. Back then I traded in my 1988 Ford Festiva, took out a five-year loan, and made all 60 payments.

This time, I’ll be putting some of the personal finance wisdom I’ve learned to the test. I’ll be selling M’s car privately instead of trading it in. I’ll be looking for a vehicle around three to five years old and between 75,000 and 100,000 miles on it, instead of just slightly used. And I’ll be paying cash instead of carrying around a car loan for half a decade of my life.

Private sale means more cash
The advantages of this approach: First, by selling M’s car privately, I should be able to get more money for it than I would as a trade-in. According to Kelley Blue Book, a good condition Civic like M's sells privately in my area for about $9,400, nearly $1,400 more than its trade-in value. It’s also paid off, so every dollar we get for it goes to us.

Sure, showing the car to buyers will probably be a hassle and it may cost a few bucks to run some ads. But will the time and money be worth another $1,400 that we can apply to the van purchase? I think so. We’ll see.

Used doesn’t mean unreliable
Second, we can in no way afford a brand new Honda Odyssey—the van M prefers—which currently has a minimum pricetag of $26,000. Even if we could, I’d have a hard time shelling out that kind of money for something that will likely worth about half that amount in a couple years.

A high-mileage Odyssey is still relatively pricey—around $9,000 to $12,000—but much of that cost should be covered by the sale of M’s Civic. And while we do run the risk of buying something with unforeseen mechanical problems, Honda and Odysseys have a great reputation for reliability. I also plan to check certified pre-owned vehicles first to see if they are in our price range.

In the end, I expect we’ll pay an additional $2,000 to $4,000 for the luxury of not having to hear my teenage stepdaughter complain about being wedged between two carseats. That’s family peace at an affordable price.

No borrowing costs, less risk
Lastly, I’m looking forward to telling a car salesperson that I want to pay by check instead of taking out a loan. Financing mostly benefits the dealer, since loans are often where auto retailers make their biggest profits.

For buyers, however, a new car’s value drops like an anvil in its first couple years on the road. Used car values still lose ground each year, though not as quickly. Having a car loan is like borrowing money to buy a stock you know is going to lose money. It doesn’t really make sense.

Plus, say M and I hit dire financial straits down the road and had to sell the van. We may owe more on it than we can sell it for—what’s known as being “upside down” in a loan. That would likely make our tough money situation only slightly better.

Paying cash might mean a dealer and salesperson are less willing to negotiate on a van’s price, since that’s where their only profits will come from. But I’m willing to take that chance. Last I checked, there were lots of used Odysseys for sale in my area.

FAFSA

The beginning of the year triggers a lot of financial events for most [or at least resolutions]: Evaluating your financial situation, perhaps rebalancing investments, getting your finances organized, beginning the process of getting out of debt, starting a Roth IRA, etc. If you’re an MU student, taking one of our one-credit personal finance courses (financial survival or financial success) would be a great way to get your financial goals for the new year off to a good start. Links to register for a course are available under the “Mizzou Resources” section of the blog site. Another student [or parent of a student] event at the start of each year is completing the Free Application for Federal Student Aid, better known as the FAFSA.

The FAFSA is the first step in the financial aid process. It is used to apply for federal aid such as grants, student loans, and work study or University aid in the form of scholarships. Even if you don’t think you are eligible for financial aid, you should still fill it out because schools also use it to award non-federal aid. Schools have different “priority deadlines” for submitting the FAFSA (March 1 at Mizzou) – students meeting the appropriate deadlines are given first consideration for aid. After that, aid will be administered based upon fund availability.

Even if you don’t have a need for loans, you can fill out the FAFSA to apply for scholarships, work study, etc. and you can refuse the loans if you don’t want or need them. You aren’t required to take the loan because you filled out the FAFSA. Don’t wait till the last minute to file – if you [and/or your parents] haven’t filed your taxes and the priority deadline is approaching, you can estimate the needed information [use last year’s tax info if the situation is similar]. You can then update the numbers when you get them.

Information you will need to fill out the FAFSA.
- Student driver’s license and Social Security card
- Income tax returns or as close an estimate a possible
- W-2 forms and other records of money earned
- Parents tax return [if dependent student]
- Current bank statements
- Records and documentation of other untaxed income received
- Records of investments (stocks, bonds, etc.)
- Current mortgage information
- Your alien registration card [if not a U.S. citizen]
- Business or farm records [if applicable]

Additional FAFSA Resources.
- http://www.fafsa.ed.gov (fill out the FAFSA online)
- 1-800-4-FED-AID (Dept of Ed can address questions or complications related to completing the FAFSA)
- Financial Aid – your financial aid office is another great resource for addressing FAFSA-related questions.
- Five common mistakes/errors to avoid (https://sfa.missouri.edu/FAFSA_Errors.pdf)