For The Love Of Money: Last Minute Tax Tips
It’s 4:00am and yes, I am awake. Why? It’s tax season! Whether you’ve chosen to prepare your own taxes or gone with the services of a tax pro, you can never have too many good tips on hand. Read below as I re-post one of my most popular articles…Last Minute Tax Tips!
LAST MINUTE TAX TIPS from Shannon Nash, Esq., CPA
If you’re one of those people who have not filed income taxes already, take comfort in knowing that you’re not alone. Each year people put off number-crunching to the last minute for any and every reason possible. The good news is that there’s still a little time left.
To help take advantage of your remaining time, tax attorney and CPA Shannon Nash, author of For the Love of Money: The 411 To Taking Control of Your Taxes and Building Your Net Worth, offers the following friendly advice:
* File! File! File! One of the main reasons people put off filing their taxes is that they think they are going to owe money. But that’s still no reason not to file.
“You always, always, always file, even if you cannot pay. No matter what,” explains Nash, CEO of the Nash Management Group in L.A. and Atlanta. ”If you don’t pay and you don’t file, the penalties add up. The IRS will find you, and it will be painful when they do.”
If you do have to pay back money to Uncle Sam, remember that you can pay the amount in installments. Just fill out the Installment Agreement Request Form 9465 and mail it with your tax return. Forms can be obtained from the IRS Web site at www.irs.gov.
* Be Prepared. Don’t wait until the tax deadline to muster up a year’s worth of information. Nash advises tax payers to “gather credit card statements and receipts ahead of time and place them in a tax organizer or an accordion folder to make filing easier.”
* Make The Miles Count. When itemizing your taxes, don’t forget to include your car miles if eligible.
“You can deduct anywhere from 14 cents a mile to 50.5 cents a mile, depending on the type of mileage deduction,” says Nash. The different mileage deductions include: charitable miles (miles driven when you volunteer services for a charitable organization), medical miles (miles accumulated for medical treatments), moving miles (miles driven when moving from one city to another for a job) and business miles (miles driven for business meetings or errands).
* Request More Time. If you absolutely cannot get your taxes completed by the April 15 deadline, Nash suggests that you file for an extension with the Application For Automatic Extension Form 4868. Instead of rushing and making errors, the extension gives you until October 15 to complete your taxes.
* Break The Cycle! “Taxes should not freak you out,” insists Nash. “Get into the habit of collecting receipts now.”
And for people who have complicated taxes, “See your tax preparer again in September or October,” suggests Nash. It’s a great time to do tax planning where you can take advantage of deductions you will be happy with.
Five Signs It’s Time to Get Help from a Tax Professional
Seek assistance if you find yourself in any of the following situations:
- You don’t know which deductions you should be taking as a small-business owner.
- You’re finding yourself stressed and overwhelmed when trying to file your business taxes.
- You have significant capital gains from stocks, selling a business or commercial real estate.
- You have income from several sources, such as consulting, royalties, rental income, interests in businesses, or stocks and bonds.
- You earn money in both the United States and another country.
Minding Their Money: Shannon Nash and Family Featured on the April Cover of Black Enterprise Magazine
Our Family is excited to be featured on the cover of this month’s Black Enterprise Magazine! I’ve dedicated my life to being the voice of reason when it comes to Tax Law, Accounting, Personal Finance and Non-Profits so this article, featuring the people I love most, truly brings my professional and personal life full circle. Enjoy and please…leave a comment!
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Minding Their Money
Posted By Diane King On April 1, 2009 @ 1:00 am In Magazine |
When Shannon Nash and her husband, Bill, got married in 1996 they began holding regular meetings about their finances. At the time, Bill’s job as a lieutenant in the Navy required him to be away from home for extended periods, leaving Shannon to tackle bills and execute the couple’s financial plan by herself. These meetings provided a way for them to reach an agreement about how to move their finances forward.
In the early days of their marriage, Bill had no debt at all, while Shannon had approximately $1,500 in store credit card debt and some $35,000 in graduate school loans. Together, the Nashes made a vow: No more store credit cards. The couple resolved to aggressively pay down their debts by doubling up on payments and eliminating unnecessary items from their budget. Five years later, the couple was debt-free. The Nashes say the strategy was effective because they worked as a team.
The couple has seen a few changes over the years. Bill left the Navy in 2001, and the Nash household expanded to include three sons: Jason, 11; Kyle, 5; and Logan, 1. Even so, the couple has maintained their strict spending philosophy: “If we can’t pay for it by the end of the month, we don’t buy it.” Their discipline has paid off. They keep their credit card balances low or at zero, and they have nearly flawless credit histories. Both Shannon and Bill have credit scores in the 700s.
Unlike many Americans, the Nashes, who are both 38 years old, don’t rely on credit cards. Because of the turbulent economic times, Shannon says she’s glad they never got into the habit of carrying one in their wallets. The family makes credit card purchases only if they have the cash on hand to pay the balance off in full. They have also trained themselves to ask a simple question before making any purchase: “Can you afford to pay this off?”
In addition, the Nash family is committed to judicious tax management. Since Shannon owns a tax, business, and entertainment management company, Nash Management Group, that’s no difficult task. A lawyer and certified public accountant, Shannon started the company in 2004. The timing was right, as the family had just returned to the States after a stint overseas, coupled with a new baby. She structured the company as an S corporation. Because she’s self-employed, Shannon monitors what she owes the government in income tax by calculating her net profit each quarter and then paying estimated taxes. She uses the Electronic Federal Tax Payment System, or EFTPS, a Web-based service provided free of charge by the U.S. Treasury.
Shannon says she wants others, especially in the African American community, to be well-equipped when it comes to managing tax issues. She has even penned a well-received book on the subject entitled For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth (iUniverse Inc.; $24.95).
The Nashes stick to a budget because they don’t try to keep up with the Joneses. Instead of worrying about who has the biggest TV or the latest car, Shannon and Bill live within their means. While many Americans are now adjusting to more frugal ways, the Nash family has been living economically for some time now. Their discipline and frugality have allowed them to amass an emergency savings fund—a key line of defense in financially prudent households—that covers three to four months of living expenses. Bill and Shannon use a simple Excel spreadsheet and conduct a comprehensive review and assessment of their finances four to six times a year.
Of course, the process hasn’t been without a few hiccups. One of their first experiences in their new suburban Atlanta home was a lizard infestation—a financial curveball that cost them nearly $2,000 to resolve. The Nashes took in stride what might have thrown many couples off track for several months. However, they remain committed to their tried-and-true strategy of being responsible about their budget, credit, and tax obligations.
THE NASHES’ ADVICE
- The amount of money you have coming in must exceed what’s going out. Focus on making sure that your cash flow is positive. If it’s not, you have to do something to make it positive. Start by cutting back on spending. If you’re a stay-at-home mom—or dad—you may have to go back to work at least part time.
- Talk regularly about money. The sooner couples talk about finances, the better. Each person should ask: Am I a spender or a saver? Knowing where you both stand will help you see how the other person views money management. This allows both of you to come into the house without feeling the urge to hide purchases or open a separate account that your spouse doesn’t know about.
- Educate yourself about taxes. Shannon says one of the best things you can do is get smart about taxes. Although many people dislike taxes and often shy away from the subject, there are many resources available. The Internal Revenue Service has helpful tools on its Website (www.irs.gov). Click on the tab labeled “individuals” for more information.
- Tap into your network. The same way you might search for a doctor, ask a colleague for advice before choosing a financial professional. When evaluating tax planners, make sure they have appropriate credentials and ask about their experience. And don’t be afraid to be open and honest with them about your situation—every professional tax expert has heard your story before.
Article printed from BLACK ENTERPRISE: http://www.blackenterprise.com
URL to article: http://www.blackenterprise.com/magazine/2009/04/01/minding-their-money/
The Power of Twitter
Well it looks like listening to the advice of my husband is finally paying off (LOL). He suggested that I finally get onto Twitter and I did just that last month. I had just taken on a brand new client who signed a tv deal with Disney (code for mama has work to do) AND it was tax season (also code for mama has work to do) so the last thing I was trying to do was develop another social networking “habit.” But I listened and imagine my surprise today when I saw that members were “re-tweeting” (RT – just learned what that means) my article on Special Needs Trusts!
Since the issue of Autism really hits home for me, the idea of being able to help other families as they sidestep the mine field that is “special needs,” makes me want to tweet even more! Thanks @asoutherngirl for posting the original link. The power of Twitter…gotta love it!
Want to follow me on Twitter? I’m @shannonnash. Now, I’m off to learn more about #hashtags and TweetGrid and TweetDeck and Tweetpics….LOL (not sure if it’s still cool to still type LOL, but it works for me). Tweet ya later.
Autism Awareness Month
When my oldest son was diagnosed with Autism, I researched and rallied support from every place I could find and the research wasn’t easy. Luckily today, for parents facing this issue, there are many more resources available. The more we share, the more we will learn. In honor of Autism Awareness Month, here are a collection of recent articles and videos relating to Autism. Please pass these resources on to other parents, grandparents, siblings and extended family members you know!
Buddy System Helps Autistic Students
Autism Treatment Cost Help On Horizon?
The Covering Up of Autism: Just What is Going On?
Ghana: Disability Law Leaves Out Autistic Children
Resources Available for Families Dealing with the Puzzle of Autism
Adults With Autism – Where Are They Now?
Special Needs Trusts
In honor of Autism Awareness Month, I am re-publishing my article Special Needs Trusts: Estate Planning is Crucial for Ensuring the Future of Your Autistic Child, formally published in Autism Today and originally published in the March-April 2003 issue of the Autism Asperger’s Digest, a bimonthly 52 page magazine devoted to autism spectrum disorders. Published by Future Horizons, Inc.
Be sure to scroll to the bottom, where I have links to several other articles I’ve written on this subject, as well as my personal Autism story.
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Special Needs Trusts: Estate Planning is Crucial for Ensuring the Future of Your Autistic Child
Jane and Mark Ramsey are an average family1. They have two kids – Jennifer age 12 and Jimmy age 3. Their assets include a house valued at $200,000 (but with no equity), two cars together worth $15,000 and a $100,000 life insurance policy. Jane and Mark have a combined gross income of $100,000. They also have 401k plans and stock worth $35,000. Recently, they learned that Jimmy has autism. Since they aren’t rich, they don’t think they need sophisticated estate planning vehicles like special needs trusts, right?
The Ramey’s need to think again. Every parent of a developmentally challenged child needs to invest in careful planning to protect their child’s future. The less the family has, the more tragic are the consequences of a failure to plan.
What’s the Big Deal?
Supplemental Security Income (SSI) is the federal needs-based program that many disabled children and adults may be eligible for if they meet certain income limits. SSI beneficiaries may also get Medicaid (medical assistance) to pay for hospital stays, doctor bills, prescription drugs, and other health costs. However, once a person’s income exceeds $2,000 a year, they are no longer eligible for SSI or Medicaid.
Over $13 billion is spent annually to care for individuals with autism. For the average affected family this translates into $30,000 per year. Many parents believe that needs-based programs like SSI and Medicaid will take care of their child when they are gone. This is a common misconception.
Take our family the Ramseys. Jimmy’s inheritance will have to be completely spent before he’s eligible for the needs-based programs. With Jimmy’s half of his parent’s estate (about $75,000), he will be forced to spend all but $2,000 of his inheritance before he becomes eligible for a single dollar of assistance. And he may be forced to spend most of this on health care expenses. At this rate, Jimmy will have exhausted his inheritance in less than three years. So much for the nest egg that the Ramsey’s had hoped to leave.
Even families who believe their child won’t need government assistance (for example, a family with a million dollars in assets) this could still be a problem. Their child will probably not be able to qualify for private health insurance after the parents are gone and perhaps before depending on their employer’s health insurance policy. Medicaid might be the only way for their child to get needed health care services. But this child will not qualify for Medicaid because of his huge inheritance. With people living longer and the costs for care of autistic people increasing, this huge inheritance will likely be completely spent long before the parents had hoped – leaving the child to spend his later days in poverty.
1The Ramsey’s are a fictional couple and are being used to illustrate some of the points in estate planning for special needs children.
The Money Issue
Although there is no bright line rule for when a parent needs a special needs trust, many families should have one. Special needs trusts are probably not necessary for parents living at the poverty level, which was $18,100 for a family of four in 2002. These families are already on government assistance and the kids will continue on this assistance even after their parents’ death.
But for the majority of American families – those earning about $65,000 a year for a family of four – a special needs trust is crucial. These families typically have very little in tangible assets, second mortgages on their homes, and little to no savings (likely due to paying for costly therapies). But even though they not wealthy, their children aren’t used to relying on government assistance. And they often have life insurance (mostly term life insurance or employer provided), which may be valuable. Estate planning vehicles like special needs trusts can ensure that this life insurance will in fact be available to retain their child’s quality of life.
Special Needs Trust
A special needs trust is a vehicle that provides assets from which a disabled child can maintain his quality of life, while still remaining eligible for needs-based programs that will cover basic health and living expenses. Here’s how it works: the Ramsey’s create a special needs trust to benefit Jimmy that provides instructions as to the level of care they want for him. They also create a will that leaves certain assets to the special needs trust – no assets are left directly to Jimmy. After they are gone, the people they have chosen to manage the trust (trustees) can spend money on certain defined expenses for Jimmy’s benefit without compromising his eligibility for needs-based programs.
In general, basic living expenses such as food and shelter may not be provided for through the special needs trust. But essential quality of life expenses such as clothing, vocational training, facilitative technologies and travel (both around town and long distance) may be provided. Certain health care expenses that are related to the person’s disability (occupational therapy, speech therapy, etc) may also be provided for by the trust. However, more universal health care expenses such as nonprescription vitamins and antibiotics may not be provided. Parameters vary from state to state so parents should check with a qualified attorney in their state. (See Side Bar for questions to ask a prospective attorney and information on how to find an attorney in your area).
Crucial choices you will need to make in establishing a special needs trust include:
Trustee
The trustee can be a family member or close friend who knows your child and who is organized, financially savvy and above all ethical. Some families opt for a professional trustee (usually working for banks or financial institutions). Whatever the choice, it’s crucial for the trustee to understand the expenses that can and can’t be provided for under the special needs trust.
Purpose of the Trust
This provision should enumerate all of the reasons for establishing the trust and might include the following issues:
· Where should the child live? (i.e., a group home vs. assisted living at home)
· What specific social activities should be supported by the trust? (e.g. special Olympics, choir, religion)
· What specific technologies or treatments should the child have access to?
· With whom should the child have regular contact facilitated by the trust? (e.g. plane tickets and other travel arrangements)
Revocable
Special needs trusts may be completely revocable (altered) at any time. But there are disadvantages to revocability. Revocable trusts can create higher taxes at death since they are included in the parents’ gross estate for purposes of the estate tax. Also revocable trusts can create a problem should circumstances change, like one parent dies and the new spouse wants to change the terms of the special needs trust. One solution might be to make the trust irrevocable when formed such that it cannot be changed. But parents should consider putting an “irrevocability trigger provision” into the revocable trust. Basically, the irrevocability trigger kicks in when the change occurs – such as death of a parent, divorce, or when the trust’s assets reach an amount that is likely to cause a huge estate tax burden.
Others Estate Planning Vehicles
Special needs trusts work best with an integrated estate plan. A will or similar vehicle that directs which funds will go into the special needs trusts is essential. But make sure to understand how the special needs trusts works with the will. A “stand-alone special needs trust” is created during the parents’ lives and can be funded by the parents though provisions in their will. Also other family members like grandparents may make contributions to this trust. However,
if the special needs trust is contained inside the parent’s will, known as a “testamentary trust”, it doesn’t actually exist until the parent dies. In that case, only the parents or those who die after them can fund this trust.
In addition to a trustee who manages the financial aspects under the special needs trust, the parents should also consider appointing a guardian who will manage the day to day care of their child. Although they can be the same person, parents should include as many loving people as possible in caring for their child with autism.
Finally, a letter of intent or a life plan that details the parents’ wishes for their child may be helpful. While these life plans are very useful in keeping the child’s care as close as possible to normal, they are not legal documents. In fact, they do not have to be followed by the child’s new guardian. But because life plans provide very valuable detailed information, they are often used in conjunction with other estate planning vehicles.
Recap
Whatever estate planning vehicle(s) is used, it is important to set up something before it is too late. With only a few hours of careful planning, the Ramseys have ensured that Jimmy will be able to maintain his quality of life after they are gone.
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The author would like to thank estate planning attorney Diedre Wachbrit, who served as an expert resource for this article.
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SIDEBAR:
The following resources provide additional helpful information on special needs trusts.
Websites
http://www.ssa.gov/notices/supplemental-security-income — This website has a wealth of information on SSI including an online program called the Benefit Eligibility Screening Tool that determines if your child is eligible for SSI.
http://www.metlife.com – MetLife provides general information on planning for your special needs child including wills and special needs trusts (search special needs trusts on the website’s search engine).
http://www.wachbrit.com – Estate Planning Attorney Diedre Wachbrit provides more detail on the common issues involved with special needs planning and materials used in connection with a parent training seminar on special needs trusts.
http://www.amgtrust.com – American Guaranty & Trust Company has a sample special need trust agreement and sample memorandum on common issues to focus on when drafting a special needs trust.
http://www.specialneedsplanning.com – Special Needs Planning has articles on special needs financial planning and sample letters of intent.
Organizations
The Association for Retarded Citizens – This organization has articles and an excellent booklet called “The Arc’s Future Planning Resources.” This booklet may be obtained on line at http://thearc.org, by calling 301/565-3842 or writing with $2 postage to The ARC, National Headquarters,1010 Wayne Ave. Suite 650, Silver Spring, MD 20910.
National Information Center for Children and Youth with Disabilities (NICHCY) – This organization has great articles on special needs estate planning and a worksheet for costing out the total expenses of a person with a disability. Visit their website at http://www.nichcy.org. (search their publications for “estate planning” and find their great 20 page guide “Estate Planning ND18”)
Attorneys
http://www.naela.com – National Association of Elder Law Attorneys is a good place to start for a list of attorneys who are knowledgeable with special needs trusts.
http://www.wealthcounsel.com – Wealth Counsel LLC is a consortium of knowledgeable estate planning attorneys with a database that can be searched by state and by typing in special needs.
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SIDEBAR
Choosing a Professional
Many attorneys claim to do special needs trusts when in fact they simply add a sentence or a few provisions to a regular trust – so finding a specialist is key. But an attorney need not break the bank. A special needs trusts may cost between $1,000 – $2,000, with many attorneys offering payment plans. Of course the cost may vary by state and by complexity of the estate plan.
California, Estate Planning Attorney Diedre Wachbrit suggests asking prospective attorneys the following questions:
1. How did you get into this practice area?
Look for a real commitment to helping folks with special needs.
2. How long are your special needs trusts?
Yes, length does matter. A special needs trust averages 40 pages at a minimum.
3. Do you recommend a stand-alone or a testamentary special needs trust?
An attorney knowledgeable in this area will almost always recommend a stand-alone trust because this allows other family members to contribute in their own estate plans directly to the trust. An inexperienced attorney will probably recommend a testamentary trust (a trust that comes into existence when the parents die) because it’s easier for the attorney to draft.
4. Should I disinherit my child?
A knowledgeable attorney should resoundingly tell you no! Some believe that if they disinherit the child and ask a relative or friend to continue the child’s care, the child will be eligible for needs-based programs (SSI and Medicaid) and they have accomplished the same thing as a special needs trust. But the best intentions may still leave the autistic child without a consistent quality of life – especially if the relative or friend has financial difficulties, divorces or even worse, dies.
5. How many special needs trusts do I need?
For families with multiple special needs children this is often an issue. A single trust may give more flexibility but separate trusts may be necessary when one child’s disability is more severe than the others and that child is likely to drain the funds quickly. Since each family will have unique circumstances, a knowledgeable attorney should be able to walk you through all of the pros and cons.
6. What is a pay-back provision and do I need one?
A pay-back provision provides that the special needs trust will reimburse the state for expenses (i.e., health care costs under Medicaid) after the child’s death. These provisions are not required in all special needs trusts and a knowledgeable attorney should know this. In fact, it is primarily necessary where the special needs trust is funded with assets from the child-a common scenario where a special needs trust is formed for a child involved in a personal injury accident. But for children with developmental disabilities, the special needs trust is established with assets from the parents and other family members.
7. Will you help us explain this to our family members?
A committed attorney will at least offer a client-friendly article or brochure on how special needs trusts work and how other family members can contribute to it. This ideal attorney will also be available to answer questions from family members and/or their attorneys about coordinating their estate plans with the trust.
8. Once the special needs trust is established, is there anything else we need to do?
A knowledgeable attorney should not only help establish the special needs trusts, but should also give guidance as to when or how often the trust may need to be updated. Whether dealing with a revocable or an irrevocable special needs trust, all newly acquired assets, such as new life insurance policies, should be added to the special needs trust.
My family has been personally touched by Autism. Read my story, courtesy of Celebrating Children.
Additional articles I’ve written on the subject of Autism:
Isn’t It Autism? Tips on Recognizing Signs of Autism In Your Child
I Can Do Bad All By Myself….
Doing your own taxes vs. H&R Block/other national chain vs. a Tax pro
Check out these three options for getting your taxes done:
1. Do It Yourself (Costs starting around $9.95)
If you file a 1040EZ, 1040A, or 1040 with basic itemized deductions, then consider self-preparing your taxes. Top tax software programs include: TurboTax®, TaxCut®, TaxAct® and Snaptax®. Also, if you claim no deductions and make less than $100,000, you may be able to prepare your tax return for free.
2. A Tax Chain (Costs starting around $150)
Tax chains like H&R Block® and Jackson Hewittt® are helpful when you need personal interaction. These tax preparers are knowledgeable on many common tax issues and deductions. In most cases, they can prepare your tax return on the spot or within a few days.
3. A Tax Pro (Costs starting around $200)
If you have complicated tax issues like: significant stock sales or itemized deductions, real estate or investment property, alternative minimum tax, detailed tax questions, past tax problems or you are a small business owner or independent contractor, then consider a tax pro. This includes: Certified Public Accountants (CPAs), Attorneys or Enrolled Agents.
Let me hear from you? Are you a do-it-your-selfer, Chain store tax addict, or only the Pros? Share your story now!
For The Love Of Money Top 10 For Entertainers And Athletes
Here is an excerpt from my book “For The Love Of Money.” Enjoy…and leave a comment!
Are you dreaming of “Lights, Camera, Action”? Before you start to lead “The Glamorous Life” (Sheila E. 1984), make sure to get these tax tips in order.
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- Track commission amounts paid to agents, accountants, and managers (all deductions), because gross income amounts are reported to IRS.
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- Make sure to track out-of-state income. They require you to file returns if you work in their state, even if you don’t live there!
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- The IRS already believes that entertainers and athletes don’t report all of their income and take excessive tax deductions. Protect yourself by keeping all supporting documents to back up your story.
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- Try to use tax professionals that have experience working with other entertainers/athletes, or seem willing to perform the necessary research. There are special rules just for you!!
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- If you have an EIN (Employer Identification Number), you HAVE to file quarterly payroll returns, even if you don’t have any payroll expenses.
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- If you own a side business (i.e., like a corporation) and you take money out of this business, the IRS might consider this a payroll expense and you may owe payroll taxes. Speak with a tax advisor about structuring employee loans if you plan to pay the money back to your corporation within the same tax year.
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- When thinking about how much bling, bling you want to get, REMEMBER that your actual cash flow is not your contract amount, but the contract amount less agent (10%), manager (15%), business manager (5%), and taxes (20%). Of course your personal percentages may differ, but you get the drift…think 50% is left.
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- Meet with your accountant/financial advisor to calculate your quarterly tax estimates.
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- Even if you are not incorporated, if you have a side business, make sure that you have a separate business checking account that is used only for business income and expenses.
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- For those who think they are sitting under the radar and the IRS does not know that you exist or that you have been working (because you haven’t filed in years), THEY KNOW WHERE YOU ARE! They read the trades and watch ESPN just like you! Expect them to show up when your BIG deal closes.
Tips for College Students AND Their Parents
This is the time of year when high school seniors anxiously await their college acceptance letters. While much is made of getting into college, often times students are left to their own devices and ill prepared financially for this rite of passage into adulthood. This week, I’m taking a close look at college students and money management.
College is the time where many financial habits, good and bad, are born. First, I’ll start with the good. On every college campus, you will find students who are either working to put themselves through school and/or creating gigs to bring in a little side money. What may seem to be frivolous money made from a side gig, can amount to a substantial income. Think about it: Let’s say a college student decides to braid hair on the weekends in her dorm room. She charges $30 per client and sees 4 clients each weekend throughout the school year for a total of 32 weekends. At the end of the school year, she would have earned $3,840 dollars. That’s REAL money and could be the sign of great earning potential after college. However, this can all be erased by having bad spending habits.
It’s a known fact that few college students truly track their spending. The National Association of College Stores estimates that the average college student spends nearly $3,000 per year on non-essential items; such as, clothing, dining off campus, and music. If the money you spend (your cash outflow) is greater than the money you make (your cash inflow), you will always be playing a catch up game, robbing from Peter to pay Paul, in the hole, etc., etc.
I encourage students to “Check Yo Self.” (Ice Cube featuring Das Efx, 1993). Students who are smart about finances during their college years are more likely to keep their future debt in check. Check out my five tips for making this 2006-2007 academic year a financially savvy one.
1. “Control,” (Janet Jackson, 1986)
Unfortunately, many college students get in financial trouble; thanks to credit card debt. Lender Nellie Mae’s 2005 published study showed that three out of four undergraduates began the school year with credit cards, and the average outstanding balance was $2,169. The sooner you clean up your credit card debt, the faster you will be on the road to financial recovery. Yes, the $150 jeans that you had to have your freshman year could keep you from buying your first house seven years from now!
Start by getting a free copy of your credit report. This will tell you how “bad” the situation really is. Next, you will need to get rid of those high interest credit cards (especially the store credit cards), and look at consolidating loan programs. Finally, consider taking on an additional job or gig that will give you the income to pay down some of that debt (see tip number 2 below for more on this). .
For more information, check out www.annualcreditreport.com, to get your free annual credit report andwww.ftc.gov/bcp/conline/pubs/credit/bbcr.htm to get tips on cleaning-up a credit report.
2. “Get It Together,” (India Arie, 2002)
Whether it’s a part-time job in your college library or selling Kente cloth, a side job is a great way to help you build your resume and increase your financial stability. If you just landed your first college J-O-B, remember, you may need to file a tax return. In January of each year, you should receive a Form W-2, Wage and Tax Statement from your employer which lists your income for the previous year. Include this amount on your tax return and attach a copy of the Form W-2. If you don’t get your Form W-2 by the middle of February, contact your employer; maybe it really did get lost in the mail, or your dog ate it, or whatever other crazy excuse you can think of. Keep in mind that you still have to report your salary income, even if you don’t have a Form W-2. Uncle Sam doesn’t care about excuses.
Also, depending on the job, you may instead get a Form 1099-MISC Miscellaneous Income which will report the money that you received. This means that you were treated as an “independent contractor” and, thus, you are responsible for paying your own taxes on the money that you made. You will use Form 1099 to report your income on Schedule C, Profit or Loss from Business (Form 1040). Remember to also include all expenses related to your part-time gig.
Finally, if you’re still singing, “Where The Party At,” (Jagged Edge, featuring Nelly, 2001), perhaps you should turn this curiosity into a money-making venture and throw parties on the side. If you opt for your own business, make sure you report your income; this will most likely be on Schedule C, Profit or Loss from Business (Form 1040).
When in doubt about what to file during tax time, check to see if your school has a Volunteer Income Tax Assistance program (VITA). VITA is a free tax preparation service sponsored by the IRS and run by volunteers (typically accounting majors when located on college campuses). For more on VITA and to see if your school has a VITA site call 1-800-829-1040.
3. “Get Rich or Die Tryin” (50 Cent, 2005)
Start saving NOW! If you can put away $250 a month in a tax-advantaged plan, like an IRA (Individual Retirement Account), your nest egg could grow to about $1 million by the time you’re 65; “Time is On Your Side,” (Earth, Wind & Fire, 1972). You have to start early, and you have to keep making your contributions every year. Before you know it, you’ll be saying “I’m Rich!”
4. “Joy and Pain” (Maze, featuring Frankie Beverly, 1989)
This tip is especially geared to the new college graduate. Let me be the first to congratulate you on making it “Through the Fire,” (Chaka Khan, 1984). Now that your great accomplishment is over, someone is surely now saying “You Owe Me” (Nas, featuring Ginuwine, 1999). It’s time to start paying off your student loans, and there is some good news. You may be able to deduct up to $2,500 of interest on your student loans. Note: The loan must be in your name, not your parents. For more information on decreasing your student loan debt, visit, www.abcloanguide.com.
5. “We Are Family,” (Sister Sledge, 1979)
Create a legacy by passing on your financial and tax knowledge to your younger friend, cousin, sorority sister, frat brother and anyone else you can mentor. When others see you getting it together, they’ll want to know your secret. Share the wealth, and you and your friends and family can all come up together.
Shannon King Nash is the author of the award-winning book entitled, “For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth.” She uses song lyrics and entertaining stories ripped from the headlines to teach readers how to manage their finances and taxes. Shannon is a CPA, Tax Attorney, and regular expert commentator for various national magazines including Upscale Magazine and Jet. Based in Los Angeles and Atlanta, you can contact the Nash Management Group at 818-986-2665.
Champagne Tastes
The Modern Girls Guide To Life is a stylishly smart TV series, on the Style Network, that delivers useful tips for today’s busy woman. On a past episode (see our video in the right sidebar), I share financial advice with Modern Girls Guide To Life co-stars, Jess and Claudia, on how to live the fabulous life and still maintain a healthy pocketbook. This was taped many months ago, but in this economy, my lesson on saving is proving to be the saving grace for so many families! How has the economy changed your spending habits? I would love to hear! Leave a comment.
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“Some financial experts advise their clients to take 40% of their income to pay for committed expenses, such as housing and other necessities, while only saving 10% of their income to pay themselves,” explains Shannon. “I have a different approach for the trendy girl who loves those Manolo Blahnik and Jimmy Choo shoes.”
Shannon expresses the importance of the 15% rule for the over-spender, and dishes out a fool-proof way for the modern girl to budget her money and still be able to take that long-awaited trip to Tahiti, or buy that gorgeous Prada bag.
The following are Shannon’s 5 steps for keeping your “champagne tastes” within your monthly expense budget:
Give Your Business A Little Credit
You recently started your own business and you can’t wait to get a piece of the American Pie. There are so many things to focus on, including buying business assets. You’ve heard about business credit and now is the perfect time to establish it. Thus, you open a business credit card (Visa, Mastercard, Amex, etc). You believe you are well on your way. Unfortunately you need to think again.
Opening a small business credit card does nothing but add more debt to your personal credit history. Remember, you have to give your personal information (i.e., your social security number) to obtain the credit card because you are, in essence, giving the credit card company a personal guarantee. You may also be lowering your own personal credit score, because you are increasing the number of inquiries to your credit history.
Instead, business credit is based on the financial information and history of your company. It has nothing to do with your personal credit. Also, business credit scores range from 0 to 100, with 75 or more being a good rating. The following is a list of tips for establishing and maintaining business credit:
1. Operate your business through a limited liability company (LLC) or S corporation? Setting up a formal business as opposed to a sole proprietorship allows you to build business credit that’s separate from your personal credit.
2. Set up your company with one of the business credit agencies – Dun & Bradstreet, Experian Business, Equifax Business or Business Credit USA. For example, you can get a Dun & Bradstreet number for approxiamtely $500 and you will need to provide comprehensive information on your business, including: company background, operational information, business owners and financial statement information.
3. Be in Compliance. Make sure you have obtained, and keep current with, all required business licenses and filings.
4. Maintain financial information and a business plan. Lenders will often require this when deciding to grant credit.
5. When making purchases for the business, ask the vendor if they are willing to extend credit, and if they will report your payment history to one of the business credit bureaus. Just make sure they don’t use your personal credit information in deciding whether or not they should extend your business credit.
The Nash Chronicles 