Make tax filing easier; be organized

This was originally published on Monday, February 19, 2018, in the Pacific Daily News. Click here to subscribe to the PDN.

 April is around the corner and that means tax season will be here soon. By now you should have received all of your tax documents. It all can seem overwhelming, but getting a head start on your taxes will eliminate a lot of the stress.

Filing taxes does not have to be a big ordeal. By being organized, you will cut back on a lot of the frustration and become more efficient.

According to the Internal Revenue Service, we have until April 17 to file for 2017 and pay any taxes due. The filing tax deadline is later this year because the usual April 15 deadline falls on a Sunday. Usually that would normally give taxpayers until at least the following Monday. However, Emancipation Day, a Washington, D.C., holiday, is observed on April 16. This gives taxpayers nationwide an additional day to file. By law, Washington holidays impact tax deadlines for everyone in the same way federal holidays do. For those taxpayers requesting for an extension, you will have until Oct. 15 to file.

Identification numbers. Remember to include all your dependents’ Social Security or tax ID numbers. This includes infants and elderly parents you may be claiming. If your kids don’t have an identifying number, contact the Social Security office as soon as possible. You will also need the tax identification number of the person or business that takes care of your children during the work day if you are filing for the child care credit. If you use an accountant, be sure they have all this information as well. A missing Social Security or tax ID number could cause a delay in the processing of your filing.

Form W-2. By the end of January, you should have received your Form W-2 from your employer. Your W-2 shows how much you earned and how much of that income was taxed. It also breaks down what taxes were withheld from your pay. If you work more than one job, you should receive a Form W-2 from each employer. If you are self-employed, gather all your business-related receipts and documentation. This includes office supplies and mileage for work-related trips.

Other income. Your income you receive from work isn’t the only earnings the IRS taxes. Interest earned on most savings accounts is taxable. Just like your W-2, you should receive statements from each of the financial intuitions with which you have accounts that earn interest. Interest earnings are typically documented on Form 1099-INT. If you invest in stocks or mutual funds, you should get Form 1099-DIV for each stock, mutual fund or money market account. If you use a broker, reports on your transactions will be sent to you on Form 1099-B.

Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income return, don’t include child support payments received. According to the IRS website, “Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony for federal tax purposes. Alimony is deductible by the payer spouse, and the recipient spouse must include it as income.” There are some requirements that must be met, you can find them on the IRS website, www.irs.gov.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Advertisements

The five factors in your credit score

This was originally published on Monday, February 5, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Your credit report simply tracks your payment history. Your credit score, on the other hand, rates how well you handle your finances. Your credit score is based on five major factors that go into calculating your score.

Payment history. Accounts for 35 percent of your score. This factor will show lenders your accounts, past or current. This section also tells the bureau how well you meet your payment deadlines and if you are behind, how many days you are past due. It also reports if you have missed payments. This category also shows if your accounts have been turned over to a collection agency or if you have filed for bankruptcy.

Current amount owed. Accounts for 30 percent of your credit score. Recorded in this area are the number of credit accounts you have — credit cards, loans, mortgages or in-store credit cards. Your balance on each account is also noted. High balances or large amount of debt from many sources will lower your score. Also, having a lot of credit with no debt could have an adverse effect on your score. Usually small debts that are paid off in full will raise your score.

Length of credit history. Your credit history accounts for 15 percent of your score. This section concentrates on how long you have maintained your credit. For most creditors, time equals stability. Having a credit card but not using it can actually drop your score compared to carrying a balance on a few different accounts and paying them off on time.

Types of credit. This category is 10 percent of your score. Being more varied in the types of accounts you use will increase your score. A person who carries only one credit card may have a lower score than a person who shows that they can responsibly manage more than one account.

New credit inquires. This finalizes the last 10 percent of your score. There are two types of inquires that can be made: a soft inquiry; and a hard inquiry. A soft inquiry can be from a financial institution or potential creditor just wanting to look at your score, a perspective employer or you viewing your credit history. Soft inquires don’t affect your score. Hard inquires come from a financial institution that you have applied for a line of credit or loan, such as a car dealership. The increase in hard inquires lowers your score. Usually, if someone has opened a lot of accounts in a short time period, it may suggest potential financial troubles.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Credit score, report, history are different

This was originally published on Monday, January 22, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My New Year’s personal finance resolution is to start repairing my credit score. I have had some missed payments and other serious financial troubles. I know that there are certain areas that the credit institutions look at but I find it all a bit confusing. Could you help simplify how it works and what I can do to improve my score?

Answer: That is a great resolution. Your credit is important because it affects your ability to get low interest loans, your employment, your purchasing power and many other areas. Your credit is basically your reputation as a borrower. Credit agencies use information about your borrowing patterns and repayment history.

Your credit history is the foundation on how you are scored. Paying bills on time is the key to good credit. Paying late or defaulting on payments can severely damage your score and rebounding from it can take a while. Employers, utility agencies, and landlords often look at your credit history to see how financially responsible you are.

When looking at your credit, many use credit score, credit report and credit history interchangeably. These are three separate terms that are related to each other.

Credit score. This is a calculated value that specifies your creditworthiness. FICO, or Fair Isaac Corporation, has created a formula that’s the model most financial institutions use to determine your credit score. Your credit score can range from 300 to 850. There are 28 different FICO scores that are industry specific. The three credit bureaus often use these different scores and this is the reason you get a different score from each.

According to the myfico.com website here is what your FICO scores indicate:

  • 800 and up is an exceptional score and is well above the average U.S. consumers. It exhibits that you are an exceptional borrower and that you are not too far in debt and pay your bills in a timely manner.
  • 740-799 is very good. It is still above the average of most United States consumers and indicates that you are a dependable borrower.
  • 670-739 is good. In this category you are near or slightly above the average credit score which the FICO website states as 695. Most lenders consider this a score still trustworthy.
  • 580-669 is fair. If your score falls in this range you are below the average consumer score. Lenders still see some credit worthiness in you but will offer a higher interest rate.
  • 580 and below is poor. This range is far below the average consumer score and indicates to lenders that you are a very risky borrower. Many who fall in this category are often denied loans.

Credit report. This is the official record of your credit history that you receive from the three credit bureaus — Equifax, Trans Union and Experian. Lenders, utility companies, landlords and collection agencies send the credit bureaus information about your status with them.

You are entitled to a free credit report from each of the three credit reporting agencies once every 12 months. You can request all three reports at once, or space them out throughout the year, which is my recommendation. That way you can monitor your scores throughout the year. You can order your free credit reports at https://www.annualcreditreport.com.

Credit history. This is the unofficial record of your debt and repayments. Your credit history describes how you use money. It contains how many credit cards you have, how many loans do you have and if you pay your bills on time.

You have a credit history if you have a credit card or a loan from a financial institution. Without a credit history, it can be harder to get a job, an apartment, or even a credit card.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Money matters: Ways to increase your income

This was originally published on Monday, January 15, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: This year I want to be able to save money, but right now it is difficult and I find myself living paycheck-to-paycheck. I am making my monthly payments on time, but I can’t seem to save or even enjoy the money I do make. Do you have any suggestions to help increase my income?

Answer: According to a CNN.com article from November 2017, in the United States “unemployment inched down to 4.1 percent, the lowest since December 2000.” That same article also sites that “wages took a step back. They grew only 2.4 percent in October compared with a year earlier.”

Although many are employed, the wages they earn aren’t sufficient to keep up with inflation and the rising cost of living. Most would say: “Get a better paying job.” But at times it isn’t that simple. You may actually enjoy the job you have, the people you work with, or maybe even your work schedule. Here are a few ideas to help increase your income:

Part-time job. The tried-and-true method of making more money is taking on a second job. You can look for another job or work from home. Part-time jobs add up.

Many people are getting creative and selling their skills. A talent that seems ordinary to you might be extraordinary to someone else. Can you speak a second language? Perhaps you can be a tutor or help companies as a translator. Are you good with pets? Many people are looking for someone to watch Fido or Kitty while they are on vacation. Are you a good cook? With today’s hectic schedules people are looking for alternatives to fast food; a personal cook may be a niche that needs filling.

Just think, if you cut grass for five of your neighbors for $50 twice a month you will earn $500 a month. That is $6,000 a year!

Renting. Do you have an extra bedroom in your house? You may want to consider renting out a room and taking on a roommate. In this economy, many single people are looking for others to help ease the cost of rent and utilities. With the rise in rentals, a roommate could lighten some of that financial stress.

You can also rent out your room to visitors. Airbnb has made a few headlines on Guam lately. I was surprised to see how many rooms/houses were available on Guam. If you are interested in turning your home into a rental, be sure you follow the correct procedures and visit the Department of Revenue and Taxation, or you could run into some costly penalties.

Skill and worth. Ask your boss how you can be more valuable to your company or organization and what you would need to do to earn a higher wage. Take what your boss says and do it. It may involve gaining additional skills, a degree or certification. The most important asset to a company is human capital. It takes a lot of money to train and hire people. If you can stand out and show incentive to want to make a difference for the company, it may just pay off in the long run.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

Get your personal finances into shape

This was originally published on Monday, January 1, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Happy New Year’s! Many of us are looking at the first day of 2018 as a fresh start. The No. 1 New Year’s resolution is usually to get physically healthier by losing weight, eating better or to start exercising. As you start to get healthier, don’t forget to get your personal finances in shape as well.

Here are a few ideas to get your wallet and budget healthier:

Get out of debt. Most people think debt is all the same, but it isn’t. Make a list of all your debt and liabilities, including the amount and interest rates. The debt with the highest rate should be paid off first. Once you pay that debt in full, use the same amount to pay toward the second-highest debt.

Think about your retirement. If you haven’t opened a retirement fund, you may want to strongly consider one. If you have one, add a little more to your contributions. If your employer matches your contribution, contribute at least to their maximum match. Take some time and talk to your financial adviser if a traditional IRA or Roth would best suit your financial goals.

Save money. One of the hardest yet most important financial steps to take is saving money. You should have at least three months worth of your living expenses saved in case of an emergency. This includes rent/mortgage, groceries, utilities and loan payments. If you are looking to buying a home or car this year, open an account that is strictly for that goal. One of the easiest ways of savings is using an automated deposit into your account.

Spend less. Take a good look at your spending habits and examine where you can cut back. Find ways ] you can spend less money. Cancel your gym membership and work out at the beach or at home. Look at bundle plans for your insurance and communication needs.

Cutting cable is a big trend in saving money. Many have opted to remove cable from their homes and use online entertainment apps and sites.

Another money saving technique is to commit to a weekly no-spend day. Set aside one day a week where you spend absolutely nothing. No shopping, pack lunch to work and school, use free entertainment. If you spend an average of $20 a day, by the end of the year you will have saved $1,040.

Another money saving idea is to learn how to perform your car and home maintenances. There are many online sites to help you fix and maintain your property.

Make more money. Do you have a hobby like painting, sewing or baking? Or maybe a skill like automotive maintenance or babysitting? Turn these hobbies and skills into making money. Why not get paid for doing something you love and are good at? Consider a part-time job. Even if it isn’t a high-paying job, every little bit counts and adds up.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

For next year, set financial resolutions

This was originally published on Monday, December 18, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

There are just a few more weeks left in 2017. Have you started reviewing your end-of-the-year financial checklist? Now is the perfect time to start reviewing and setting your 2018 New Year’s resolutions.

With that in mind, here is a look at some end-of-the-year financial tasks to tackle:

  • Schedule a meeting.If you have a financial planner, schedule a meeting. A financial planner can help you prioritize your goals. If you use a tax accountant, meet before the end of the year to review your finances and take advantage of any last-minute tax breaks.
  • Minimum distributions.In the year following the year you reach age 70-1/2, you must take the required minimum distribution from your IRA by April 1. If you don’t, a substantial penalty will be taken on the amount you should have withdrawn.
  • Tax-withholding. If you got married, divorced or had kids in 2017, you probably need to update your tax withholding with your employer’s human resources department. Receiving a large tax refund means that you have overpaid your taxes and the government “borrows” the money you overpaid. Instead, you can lower the amount the government withholds during the year and use that money to pay debt or invest it. The idea is to owe as close to zero as you can at tax time.
  • Capital loss. If you have an investment that is trading at a significant loss, you may want to consider selling it and using the capital loss as a deduction. A capital loss is the result of selling an investment at less than the purchase price or adjusted basis. Talk to your broker or financial adviser. Just like with any tax break, there are certain criteria to be able to utilize the loss.
  • Flexible spending account.A flexible spending account is a special, tax-free account in which you can contribute money that will pay for health care services your insurance doesn’t cover.  Check with your benefits adviser to find out deadline for using that money. If you don’t use it by the end of the year and you don’t have a roll over plan, you may forfeit some of that money.
  • Solar energy credit.Unfortunately the tax benefit for residential alternative energy equipment terminated for property placed in service after Dec. 31, 2016. However, the credit for solar electric property and solar water heating property is available for property placed in service through Dec. 31, 2021, based on an applicable percentage. The applicable percentages can be found at the Internal Revenue Service website, irs.gov.
  • Talk to your family and let them know where the family stands financially. Access your current financial situation and review the past year. Answer questions honestly with your spouse and children. If there is an area that needs improving, commit to it as a family.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Evaluate finances before 2018

This was originally published on Monday, December 4, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

It is hard to believe 2017 is coming to an end. In a few weeks we will be ringing in the New Year.  December often flies by with holiday parties, present wrapping and cookie baking.  With all of the commotion happening around us, take some time this month to review your personal finances.  Here are some items to check-off of your end of the year checklist.

  • Your net worth. Calculate what you own and subtract what you owe.  This is the best way to start figuring out if you met this year’s financial goal and how to improve and set next year’s goals.
  • Credit report. You are entitled to one free of each of the three major credit reports from TransUnion, Equifax and Experian. It is best to request one at different points in the year to catch errors or irregularities.  Pull your credit report at AnnualCreditReport.  Look at your report and verify that there are no errors.  Not happy with your score?  Work on any past due or collection debt, make payments on time and lower your debt to improve your credit.
  • Insurance coverage. Review your life, home, auto and health insurance policies.  If you have had a major life change such as a new baby, marriage, or divorce you will want to make sure your insurance reflects those changes.  Many policies, especially health, have an open enrollment period which is the only time you can make changes.  Know when that period is and make the necessary changes.  If you have made any structural changes or improvements to your home, make sure you have informed your insurance company and it is reflected in your homeowner’s policy.  Now is also the time you can get quotes from other insurance companies to ensure that you are getting the best coverage for your money.
  • Estate plans. If you have sold or gained property, had a major life change, opened or closed a new account, you may want to appraise your will and make the necessary changes to reflect your new status.  Also examine your living trust and health care power of attorney. If you don’t have a will, living trust or health care power of attorney, make that a goal for 2018.
  • Review your beneficiaries. A lot of change can happen in a year: births, marriage, divorce, death, adoption, etc. Ensure that you have the appropriate person or persons listed as your beneficiaries on your insurance, retirement accounts, and even checking/savings.
  • Donate to charity. December 31 is the deadline for charitable contributions you plan to deduct from your 2017 tax return.  This includes money, clothes, cars, or even stock.  Be sure that you get a receipt of your donations to include with your tax forms.
  • Use up FSA. If you participate in a health or child care flexible spending account, double check the balance on that account. If you don’t use it, you’ll typically lose it. While there may be a grace period to submit an expense for reimbursement, the actual expense needs to have been incurred by the end of December.  Double check your plan’s terms to be sure.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.