Category: Money

Just because you filed your taxes wrong doesn’t automatically mean that the IRS will be going after you. However, it will always be wise and work to your advantage to make any necessary corrections immediately, regardless of whether a tax preparer filed your taxes, or you did it yourself. The consequences of an error are dependent on whether it has been determined to be willful or accidental by the IRS. What happens if I file my taxes wrong?

There are actually several mistakes that you or the tax preparer can make when filing your taxes, and each of these errors can be addressed in different ways accordingly.

Amended Returns

Any serious correction or error, like when your credits, deductions, income, dependents, or filing status was reported improperly will require that you file a modified return. An individual return can be corrected using Form 1040X.

This amended return should be filed on paper instead of electronically. If you committed errors on a tax return of more than one year, you have to file a 1040X for each one of them. These should then be made mailed in separate individual envelopes.

The amended returns resulting in new refunds should typically be filed within 3 years of the date that your original return was filed or 2 years from the time when your owed taxes were paid, whichever of these two is later.

Math Mistakes

In general, you are not required to file an amended tax return to correct any inadvertent mistake you made in your calculation. Most of the time, the IRS is the one that rectifies any errors in the math and will just bill you for the extra taxes you owed or adjust your refund as needed.

Similarly, if you didn’t submit the required form together with a paper return, you will receive a request for one from the IRS. There is also no need for you to modify your entire tax return unless they ask you to do so.

Missed Deadlines

For more serious errors, the IRS imposes some penalties that may include fines or even jail time. When you file your taxes without sending a checking or you filed them past the deadline and you still owe taxes, you will get a failure to pay the penalty that is 0.5% of the unpaid taxes you have every month. This can then increase up to 1% for each month that you don’t pay your balance after you receive the immediate demand for payment from the IRS.

Disregard and Negligence of Tax Rules

If you are not too careful in your attempt of obeying tax laws or you deliberately disregard the regulations of the IRS, expect that there will be more serious dangers waiting for you.

Errors that were identified to be due to fraud are often passed on to the Internal Revenue Service Criminal Investigation Division. This can lead to a penalty of 75% of the underpayment that will be added to your tax return.

Meanwhile, frivolous tax submissions like tax protesters who intentionally file incorrect amounts may be penalized for up to $5,000. There might also be some criminal penalties. For instance, trying to evade taxation has federal charges that may result in a fine of $250,000 and a jail time of up to 5 years.

Compound interest is usually called the 8^th wonder of the world for a good reason. This is because this can make your money work on your behalf.

Compound Interest – A Short Definition

Compound interest can be defined as the interest on deposit calculated depending on the accumulated interest from past periods and the initial principal alike. To put it in simple words, compound interest refers to the interest that you make on your interest. It is possible to compound interest on varied schedules of frequency like yearly, monthly, or even daily.

The compounded interest is greater if the number of the compounding periods is also higher. You can try to picture it like a snowball. When you start to save sooner and you add more money to your snowball, it will also grow bigger over time.

Now, imagine pushing this snowball down a hill covered with snow. The snowball that you already formed will remain and you will accumulate more snow along the way. Once the snowball gets to the bottom of the hill, this will still contain the amount of snow you began with together with the snow that it was able to pick up on along the way then even more snow above it.

This interest-on-interest effect will be able to generate returns that continually increase according to the amount of your initial investment. It means that if you save more often and when you save a larger amount, this will also return bigger interest amounts. It is known as the compound interest’s miracle.

Importance of Compound Interest

Compound interest makes it possible for your wealth to see faster growth. This can make the sum of money grow at a much faster rate compared to simple interest since you will be earning returns on your invested money and the returns when each compounding period ends. It means that there is no need for you to save as much money to achieve all your goals.

Compounding and its magic can be a crucial factor when trying to build your wealth. When you open an account that bears interest and start to stock money away earlier and sooner, you will also earn more money in compound interest. This is also the secret that can help mitigate factors that can erode your wealth such as reduced purchasing power, inflation, and higher cost of living.

Benefits of Compound Interest

It can be very helpful to have a compound interest when you can give your investment a substantial amount of time to grow and flourish. Compound interest also has the power of making even small investments earn large profits over long periods of time.

Compound interest can also help your account funds to increase fast since the growth rate is calculated according to the amount of accumulated money through the years on top of the original principal amount. This can also exponentially increase your money since your original investment and earned profits increase together at the same time.

If you wish to see your investments grow sooner or later, take advantage of compound interest to the fullest.

There are some well-meaning “experts” out there who will try to tell you that long-term investors must invest in 99% equities.

This very idea was advocated when the US stock market’s long bull trend neared its end. However, there are a few things you need to know about such an appealing albeit potentially risky idea.

The Strength of 99% Equities

Proponents of the 99% equities strategy have a straightforward and simple main argument for it. After some time, equities outperform cash and bond. This means that allocating almost your entire portfolio to stocks can help maximize returns.

The supporters of 99% equities cite the extensively used historical data of Ibbotson Associates, which “proves” that stocks were able to generate higher returns compared to bonds and in turn, these would have generated more returns compared to cash. Most investors, from the fresh beginners to the seasoned professionals, accept the assertions without any additional thought.

Although these historical data points and statements might hold some truth to an extent, any investor must try delving a bit deeper into the possible ramifications of and the real rationale behind a 99% equity strategy.

The Weakness of 99% Equities

The Ibbotson data that is often cited is not that robust at all. This only covers a specific time frame in just one country, specifically from year 1926 to present day in the United States.

Through the years, many other countries that are not that fortunate have seen complete disappearance of entire public stock markets that result to 99% losses for investors with 99% equity allocations. Although there were great returns that occurred in the future, compounded growth on nothing doesn’t really amount to anything.

However, it might not be wise to just base your strategy for investment on doomsday scenario. But, if the near future will look almost similar to the benign past, there is still an issue to 99% equities. This is because even if stocks might outperform cash and bonds down the road, you might still go almost broke in the meantime.

Should You Invest in 99% Equities?

99% equities are never the best solution for long-term investment portfolios. A portfolio dominated by equities will only be reasonable when you assume that equities are going to outperform cash and bonds over long-term timeframes.

But, it is still a must that you widely diversify your portfolio across several classes of assets. These can include US equities, international equities, long term US Treasuries, real assets, emergency markets equities and debt, as well as junk bonds.

Your age will also play a role here. If you are already nearing retirement, there is more reason for you to cut allocations to holdings with more risks and increase assets that are less volatile. For many people, this means moving away from stocks to bonds little by little. Target-date funds can do it for you automatically.

If ever you are lucky enough to be an accredited and qualified investor, your allocation of assets must also include healthy numbers of alternative investments such as buyouts, venture capital, timber, and hedge funds.

There is this common misconception that rich people have some insider into ultra-classified secrets for money management that help them earn millions or even billions of dollars a year. There are even people who claim online that they were able to discover these secrets and are willing to reveal these for a fee.

However, in reality, rich people actually know a few things about money that many people don’t. One of these is that they have the right know-how on how to make their money work for them. Simply put, rich people know the most effective way of investing their money.

Here are some helpful tips on how to invest like the rich so you can also watch your wealth grow in no time:

Learn to Delay Gratification

The ability to delay gratification is probably the most critical attribute you should hone and develop to make money. Wealthy people know that it is more important to invest in their long-term goals instead of focusing on their short-term needs and wants.

Among the most important ways that rich people practice delaying gratification is that they save their money first instead of spending it on things they want.

Delaying gratification is also applicable to luxury purchases. Rich people purchase luxury items using the money they save instead of getting them on credit.

Diversify Your Investments

Rich people also know that it is never waste to have all their financial eggs in just a single basket. Their investments are diversified in different vehicles as this can help weather financial storms that may come along their way.

There are also company 401(k) programs that can have your money invested in several companies suitable to your preferred investment style. You can look beyond the stock market if you want your portfolio to be diversified. You can invest in index funds or treasury bonds. One more option is to invest in a CD or certificate of deposit.

Be Conservative with Your Investments

Every time you imagine how the ultra-rich invest, do you picture them risking millions or billions of dollars on new startups or putting huge bets on just any company? If this is how you assume them to be, it might be time to stop believing those movies and shows you have been watching all this time.

The truth is that many millionaires try to avoid risks as much as possible instead of making money. They follow two major investing rules. The first is not to lose money and the second is not to forget the first rule.

This is the reason why many rich people opt to invest in safer mutual funds like stocks and index funds that show slow yet steady growth rates. Many wealthy people put their investment in treasury bonds as well.

Make Some Long Term Investments

Finally, aside from being conservative, many rich people invest with the purpose of making long-term profits. These people stay away from hot stocks scheduled to rise “any time now.” They would rather buy investments and hold onto this for several years.

If you want to invest like the rich, be sure to follow these tips to the T.

There is always something beautiful about marriage. Two people who love each other decide to build a new life and this time, they will do it together.

Unfortunately, marriage is not as colorful and festive as those lovely wedding decorations you used during the ceremony.

Financial problems and challenges will always pop up along the way, no matter how much you try to avoid them. And the sad news is yes, financial issues can get in the way of marriage, whether you like it or not.

Read on to know how financial problems can harm or affect your marriage:

Financial Problems Can Lead to Resentment

There is really nothing new about couples arguing about money. In fact, a study has found out that money was the most recurring and common topic that most couples fight about.

If you and your other half go round and round in circles talking about the same old financial topics without actually addressing the issues, resentment may start to build up soon. You might start feeling like your spouse no longer listens to you or cares about what you feel.

Financial Problems Can Damage Trust and Communication

There are many couples who are more willing to share about their weight than the money they have in their savings account. It only shows how hard it is for couples to be more open when talking about their finances.

The moment a financial issue occurs during your marriage, this may compromise your communication skills that can later on damage the trust that you and your partner used to had between the two of you.

Financial Problems Can Increase Stress Levels

Your marriage ought to be your personal haven or sanctuary instead of something that will just make you feel worse about yourself. However, mixing finances and marriage will always create the perfect recipe for stress.

Studies revealed that it is more likely for low income couples to suffer from mental health issues and stress.

Stress will not only increase your levels of irritation as it was also discovered to hurt marriages and a person’s mental and physical health. Excessive stress may then lead to:

• • Lower libido or change in sex drive that can limit intimacy that is essential in promoting a bond among married couples
  • Angry outbursts
  • Anxiety
  • Changes in eating
  • Depression
  • Difficulty sleeping
  • Fatigue
  • Headaches
  • High blood pressure
  • Lack of patience
  • Restlessness
  • Upset stomach

Financial Problems Can Reduce Opportunities

Many experts also agree that financial difficulties can reduce the number opportunities for a couple’s future. Poor credit, job loss, or high amounts of debt can all significantly limit your financial choices as a couple. Lack of income may make it hard for you to buy a house or car, save for retirement, go on travels, and even start a family.

Financial problems will always happen even to the best couples with the best budgeting plans. Never let them bring your marriage down. Discuss things out in the open, set goals, prioritize your expenses, and seek help when needed.

The gig economy has seen significant growth for the past 10 years and has dramatically changed the relationship that people have with work.

If you want to make the most out of this current gig money, here are the top 5 ways you can start earning money through it.

1.  Food Delivery

Thanks to on-demand delivery services, you can now have almost everything delivered right on your doorsteps. Although there are only a few restaurants with traditionally offered home delivery, today’s gig economy made the process easier through food delivery apps.

Delivery gigs will require you to have a smartphone of your own. Having a car is not a requirement, too.  You can start working for food delivery services even if you only have a motorcycle or a bicycle. Food delivery also lets you make money almost right away.

2.  Freelance Writing

Although the modern world has become more visual, writing remains important, valuable, and relevant. Businesses don’t only need skilled content writers since there are also online publications that work with freelance writers.

Aside from straight-up articles, your task may also include writing ads, website copy, billboards, and other types of writing.

It is a popular and common gig economy job because you can write no matter where you are in the world. While some credentials and experience can help you get more gigs, you will be successful without this if you practice and build your writing portfolio.

3. Personal Grocery Shopper

This particular gig might be a bit different from the rest of the gigs in this list. When you are a personal grocery shopper, you will not only make the deliveries because will also go to the store, find the items on the shopping list of your customer, and buy them.

It is a job that will require more communication with the customers compared to other forms of delivery gigs. If you need to find a substitute or you cannot find a certain item, you should confirm this with the customer first.

4. Ridesharing

Working for ridesharing services is among the most popular jobs in the current gig economy. This lets users turn their vehicles into taxis. Different ridesharing services have become renowned among users since they are more convenient and affordable compared to traditional taxis.

Ridesharing services will require you to have a smartphone and a car of your own. There is also an application process and background check involved during which you will get acquainted with the rules and regulations of the service. It is a quick process that lets you start making money almost instantly.

5. Virtual Assistant 

Hiring virtual assistants who can handle daily and recurring tasks is a remarkable time saver for most small businesses and online business owners.

Things such as booking travel trips, handling email, basic website management, scheduling social media, data management, scheduling meetings, and others are just some of the responsibilities of a virtual assistant.

These are the kind of tasks that could be done no matter where you are in the world as long as you have a decent and stable internet connection.

Which of these ways to earn money would you like to try in this current gig economy?

If you think that only the rich and wealthy should bother with estate planning, you might want to think again. Your wishes during your end of life might cause confusion and emotional stress for your loved ones if you don’t have a sound estate plan in place.

Here are a few tips on how to prepare for your estate planning.

List Down and Distribute Your Assets

Start by listing down all of your assets that will include your investments, financial accounts, real estate, and property. Jewelry, boats, motor vehicles, and other properties of value are examples of personal property.

Your investments can include bonds, life insurance policies, retirement accounts, stocks, and others. Be sure to include all liabilities and debts to take care of their payments after your death. You can work with an estate attorney to make it easier to plan and work on these legal documents.

Identify Your Beneficiaries

Most estate plans indicate who will receive the person’s properties after death. You can use a living trust or will to name your property’s beneficiaries. Many people use their will to name their beneficiaries since this is simple. Using a living trust can be used as an alternative to avoid probate and get the chance to have further levels of planning.

Prepare Powers of Attorney

Powers of attorney are legal documents that allow someone else to choose to act in your behalf during those times when you cannot. A power of attorney is especially crucial for the elderly and those who want a person they trust to act in their behalf. Medical power of attorney and financial power of attorney are two types of power of attorney.

Plan Guardianship for Young Children

The estate plan can also be used for naming a guardian who will look after your young children if ever you and the other parent of your children are no longer available. You can also name a conservator or a property manager to look after the property of your kids.

Store Important Documents Properly

Be sure to itemize all of your assets that include locations and numbers. Have a printed copy of your list then keep this with your healthcare directives, insurance policies, wills, and other essential documents for faster reference.

Trusts and Wills

Wills are common tools for estate planning since these are simpler, cheaper, and more popular. Your will states who you like to inherit your properties and might also name the guardian who will look after your young children if ever something happens to you or the other parent.

The state law determines who will get your property if you failed to make a will prior to your death and a judge is going to decide who is going to raise your kids without your input.

It is not enough that you just have an estate plan in place. You also need to review it every now and then. A new baby, appointees or children getting older, or a change in marital status are only some instances that will require you to change or update your estate plan.

Does your heart skip a beat every time you hear the term “IRS audit?”

Your dread of an IRS audit may affect how you are filing your federal income tax return. Well, the good news is that you are not the only one in this situation.

Studies revealed that most taxpayers claim that their fears and worries of being audited are among the key factors that motivate them to be honest during federal income tax filing. Most people also say that another factor is their personal integrity.

Of course, there are times when these fears are unfounded. You can still be honest on the tax return, file it diligently, and make timely tax payments, and still fear an IRS audit.

Good thing that your fears may be higher than your chances of getting audited by the IRS.

How Many People Undergo IRS Audits?

The IRS typically audits less than 1% of all the tax returns that are filed in a single fiscal year.

In 2017, for instance, the IRS was able to audit 0.9% of the corporate income tax returns exclusive of returns from S-corps or S corporations and 0.6% of all the individual tax returns during that year.

Even though 196 million tax returns were received by the IRS in the same year, it audited only 1 million the next year. Almost 75% of the audits were done through correspondence for the audits during the 2018 fiscal year. Approximately 25.2% of return audits took place on the field or that dreaded personal audit with an agent from IRS?

Who Gets Audited by the IRS?

Majority of high earners go through IRS audits. Those who report AGI or adjusted gross income of $10 million or higher made up 6.66% of audits in 2018 fiscal years. That very same year, taxpayers who reported $5 million to $10 million AGI made up 4.21% of the audits.

However, just because you are lower-income earner doesn’t completely eliminate the possibility of being audited. In 2018, 2.04% of the audits, the third biggest percentage of returns, involved those people who didn’t report any AGI at all.

What Factors Trigger IRS Audit?

There are several reasons why the IRS may choose your return for an audit. However, remember that being audited doesn’t mean that you have been dishonest or there is something wrong with your tax return.

Here are some of the common reasons why the IRS may audit your tax return:

• There is a questionable item on your tax return.
• There is computer scoring program that designates a score to several corporate and all individual tax returns once they are processed. If your tax return is chosen due to the high score under the scoring program, an inspection of your return may result to a change to your liability for income tax.
• Information coming from sources like individuals, newspapers, or public records indicates possible tax return inaccuracies or noncompliance with tax laws. The IRS checks the accuracy and reliability of these sources before they act on the details from them.
• Information on some third-party documents doesn’t match what was reported on your tax return.