Taxes are notoriously complicated. Most might know that it has to do with money, keeping records, and filing them on time. But what else should we know? As part of our Special Finance Issue, Sampan interviewed Melody Tsang and Richard Soo Hoo to provide us with some reminders and a brief overview on the significance of filing taxes.
Melody Tsang is Asian American Civic Association’s (AACA) Multi-Services Coordinator and specializes in immigration and tax filings. “Everyone in America has to file tax returns no matter what,” said Tsang. “Even if you are a Green Card holder or a citizen, you don’t live in the United States, you may be subject to file tax returns too. But it all depends on how much you make in the past year.”
Filing taxes requires you to provide a Social Security Number (SSN). According to the Internal Revenue Service, those who are not eligible for an SSN, are required to apply for an Individual Taxpayer Identification Number (ITIN). “This is issued regardless of immigration status because both resident and non-resident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code,” stated the IRS on their website. It is important to note that “the ITINs do not serve any purpose other than federal tax reporting.”
If you do have an SSN, filing tax returns every year proves to be more beneficial than not. As a reminder, tax season takes place during January and April 15 every year. That time of the year has always been especially busy for Tsang. She said, “Before we start filing taxes, everyone wants to file tax returns on the first day because they get their money back.”
More importantly, for those in the lower income bracket, there are a lot of benefits. “If you have children, if you’re under 17, there’s child tax credit. If your kid goes to college, there’s tuition credit. Some people, after filing their tax returns, have more than $10,000 refunded to them,” said Tsang.
In addition to receiving money back, filing tax returns regularly not only ensures that you maintain good standing, but also can prove that you qualify for affordable health insurance, such as Health Connector. This is for those who may lack employer-subsidized health insurance. This is particularly important for those who might not qualify for MassHealth, which requires applicants to either be under 17 or have resided in Massachusetts for more than five years to qualify for MassHealth.
Though it might not cost much, there is a penalty for not filing taxes on time, and it goes on your record. Tsang said, “If you want to buy a house, or anything, they have to see your tax returns. To file for FAFSA, financial aid, you have to show them everything. This will all be on your records.”
If one has a bad credit report, it may also make it difficult to file for relatives. “They’re proposing that people who file for their relatives, they might submit the credit report of the person that is doing the filing,” said Tsang. “If you have bad credit, you did not file tax returns on time, then you might not be able to file the tax returns for your relatives. It depends on how bad your credit report is.”
This is all on a case by case basis. If you run your own business, for instance, and you receive rental income, you must report all the expenses it takes to upkeep the property. Tsang stresses how important it is to report everything and know what to report.
She said, “You have to show me the papers of how much your tenants pay you, how much you pay for your mortgage, how much you maintain your house. How many times you drive from your home to your property to look at it. So the mileage is a kind of deduction. And how much you pay for the cleaning, maintenance, chop the tree, clean the leaves, you have to tell me. Of course insurance, and also a lot of things.”
This year, due to the pandemic, there are slight differences in our personal finances, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed on March 27, 2020. This includes the $1200 stimulus check, leniency in IRA early withdrawals, and relieved burden on student loans, all without a tax penalty, according to Ken Berry’s post on AccountingWeb.com.
For those worried about not having received the $1200 stimulus check, it will be counted towards your tax credits for the year 2020.
“People were worried that if they did not receive it, they might not be eligible for it,” said Tsang. “But don’t worry about it. Next January, when you file your tax return, they will ask if you received the stimulus money. No worries, people don’t worry about this. If you tell them that you did not receive it, you can have it back. Because you always file the previous year’s tax returns.”
According to Tsang, if one has investments, rental income, or more property to manage, they need a professional, or a Certified Public Accountant to file their taxes. Richard Soo Hoo is a CPA and serves mostly Chinese companies and owners of the companies who want to do business in the U.S., primarily in Boston. The most common types of businesses they are involved in are real-estate investment and developments, start-ups, in particular biotech or software companies.
Soo Hoo said, “Most Americans find the U.S. tax system complicated, but I work in international taxes as well, so for these Chinese companies and individuals, it’s even more complex because of the extra layer of international tax.” For this reason, Soo Hoo would try to explain this system to his oftentimes successful clients in order for them to run their finances tax efficiently, and their taxes as manageable as possible.
For these clients who are also interested in working their way towards obtaining a permanent residence in the U.S. or perhaps becoming a citizen, there are investment visas that can be satisfied. By sending their children to a college or university in the U.S., once they graduate, Soo Hoo said, “there’s a subsidiary here in the U.S. for them to operate because they’ve been educated here in the U.S. In particular, it gives them more experience before they go back to China.”
In light of the new presidency, tax policies may change, but it is still to be determined. For the most part, Tsang does not think it will too heavily affect her lower-income clients within the U.S. On the international front, Soo Hoo is keeping track of the trade war between the U.S. and China, and how tariffs will affect the economic growth of both countries.
Regardless, taxes and filing taxes have a significant impact on immigration and legal status. There are resources available everywhere, from CPAs to free filing services at nonprofit organizations or from the city of Boston and affiliated organizations. While the process may be complicated for all filers, there are benefits to completing taxes on time, particularly for individuals with a lower income.
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Martin Lewis issues guidance on using credit cards to build ratings – best deals | Personal Finance | Finance
Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.
“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.
“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.
“That way you won’t pay any interest.
“You do that for a year, you’ll start to build that credit history, showing them you’re a good credit citizen.
“Then you’ll be able to move into the sort of more normal credit card range.
“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”
Consumers of all kinds may not have the best options at the moment as recent analysis from moneyfacts.co.uk revealed.
In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.
On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.
Rachel Springall, a Finance Expert at moneyfacts.co.uk commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.
“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.
“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”
Should you use a balance transfer to pay off debt?
A balance transfer might be the solution if you have debts and want to gain control over your finances. But whether a balance transfer is right for you will depend on a number of factors.
Things to consider before using a balance transfer
The size of your debt
If you want to apply for a balance transfer credit card, be aware that most providers will allow you to transfer up to 90% of your credit limit.
Your credit limit will be dependent on your own personal circumstances, including your salary, your credit history and your residential status (homeowner or renter).
Be realistic about your debt. For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt.
The time taken to pay the debt
The main advantage of a balance transfer credit card is that many offer an interest-free period on the balance. So, if you can pay off your balance in that period, you won’t accrue any further interest charges.
However, these periods typically range from 18 to 24 months, so if you think you will need more time to pay the debt, you may need to factor in additional interest charges when the interest-free period ends.
Whether or not a balance transfer is the right debt payment solution will depend on your personal circumstances. Check our balance transfer calculator if you want to work out how much a balance transfer could save you in interest payments.
Your credit score
The advantage of a good credit score cannot be underestimated in this situation.
When applying for a balance transfer credit card, the company will check your credit score. Based on this score, they could refuse your application.
Even if you are accepted, if you have a bad credit score they could reduce your credit limit. Ultimately, this will determine the benefit of a balance transfer as a suitable debt payment solution.
If you think your credit score might be a problem, it’s worth checking with the credit reference agencies before applying. That way you can avoid any nasty surprises.
Alternative solutions to balance transfers
You could still use a balance transfer even if the size of your debt is bigger than the credit limit.
Transferring part of the debt would enable you to benefit from any interest-free period, where applicable.
Alternatively, if you have multiple debts, you could consolidate all of your debts so that you can make a single regular payment. If necessary, you could do this using an unsecured personal loan over a period longer than 24 months.
Look at your own personal circumstances with a critical eye. Remember that you need to factor in living expenses when thinking about how long it will take you to pay off your debt.
Balance transfers are a useful method for debt repayment, but be aware that credit cards are an expensive way to borrow money. Take full advantage of any 0% deals wherever possible. Check out our list of the best 0% credit cards.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.
Turn credit declines into a win-win | 2020-11-20
The pandemic has left millions of people needing credit at a time when lending standards are tightening. The result is a lose-lose situation—the consumer gets a bad credit decline experience and the credit union misses out on a lending opportunity. How can this be turned into a win-win?
The case for coaching
Let’s start by deconstructing the credit decline process: The consumer is first encouraged to apply. The application process can be invasive, requiring significant time commitment and thoughtful inputs from the applicant.
After all that, many consumers are declined with a form letter with little to no advice on actions the applicant can take to improve their credit strength. It is no wonder that credit declines receive a poor Net Promoter Score (NPS) of 50 or often much worse.
On the flip side, forward-looking credit unions provide post-decline credit advice. This is a compelling opportunity for several reasons:
- Improved customer satisfaction. One financial institution learned that simply offering personalized coaching, regardless of whether or not consumers used it, increased their customer satisfaction by double digits.
- Future lending opportunities. Post-decline financial coaching can position members for borrowing needs even beyond the product for which they were initially declined.
- Increased trust. Quality financial advice helps build trust. A J.D. Power study noted that, of the 58% of customers who desire advice from financial institutions, only 12% receive it. When consumers do receive helpful advice, more than 90% report a high level of trust in their financial institution.
Provide cost-effective, high-quality advice
AI-powered virtual coaching tools can help credit unions turn declines into opportunities. Such coaches can deliver step-by-step guidance and personalized advice experiences. The added benefit is easy and consistent compliance, enabled by automation.
AI-based solutions are even more powerful when they follow coaching best practices:
- Bite-sized simplicity. Advice is most effective when it is reinforced with small action steps to gradually nurture members without overwhelming them. This approach helps the member build momentum and confidence.
- Plain language. Deliver advice in friendly, jargon-free language.
- Behavioral nudges. Best-practice nudges help customers make progress on their action plan. These nudges emulate a human coach, providing motivational reminders and celebrating progress.
- Gamification. A digital coach can infuse fun into the financial wellness journey with challenges and rewards like contests, badges, and gifts.
Virtual financial coaching, starting with reversing credit declines, represents a huge market opportunity for credit unions. To help credit unions tap into that opportunity, eGain, an award-winning AI and digital engagement pioneer, and GreenPath, a leading financial wellness nonprofit, have partnered to create the industry’s first virtual financial coach. To learn more, visit egain.com.
EVAN SIEGEL is vice president of financial services AI at eGain.
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