Personal Finance Blog

Posts Tagged ‘Should’

April 15 is fast approaching but there’s no way you can get your personal income tax return done by then. What’s a procrastinator to do? File an extension, of course.

But perhaps you are wondering whether this is the best option for you. Read on to find out.

You can automatically extend the April 15 due date to October 15 by filing Form 4868, “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.” So now you have six more months to file your personal income tax return.

The nice thing about Form 4868 is that simply filing this form grants an automatic, no-questions-asked 6-month extension. You don’t have to have a reason. Just sending this form to the IRS on or before April 15 gets you the extra six months.

But here’s another important point about Form 4868: This 6-month extension is NOT an extension to pay any tax you may owe on the tax return. Form 4868 only grants an extension of time to file the tax return.

So, if you usually get a refund on your personal tax return, you are OK. But, if you think you might have a balance due, or if you are not sure, then you should go ahead and prepare the return to the best of your ability, do the calculations, and see where you stand.

If you are getting a refund, great. If you’re not in a hurry to get the refund, then file the extension form and wait until October 15 to send in the return. But if you have a balance due on the return, then you should send in your balance due with Form 4868. That way you avoid any penalty and interest for late payment of tax.

When October 15 rolls around, you send in the return, showing the Form 4868 payment as a credit. The end result is this: you paid your tax on time (April 15), and you filed your tax return legally late (October 15) because you filed the extension form on time.

Obviously, the key here is whether or not you have a balance due on your return. If you have a balance due, but don’t send in the payment with Form 4868, then you will have penalty and interest charges for paying the tax after April 15.

Bottom line: Do not overlook the fact that Form 4868 does not grant you an extension of time to pay the tax. It only gives you an extension of time to file the return.

At the time of writing this article the Markets are showing great signs of nervousness and probably should be on Prozac.

The problem is that the Markets are uncertain as to the future and therefore have bouts of pessimism followed by optimism followed by pessimism again. Consequently, we see big swings in daily prices of securities. We know that the main instigation for this has been the “credit crunch”, which is a result of a lot of poor lending decisions and too much credit being made available to people who ultimately can’t afford to make the repayments.

This has been particularly the case in the USA but the contagion has spread. I do not wish to belittle the importance of the lack of credit being available as we have seen the upset, uncertainty and fear that can be caused as the Northern Rock was a direct casualty of this.

That said, the Stock Market continually goes through cycles of good times and bad times. However, the thing to remember is that unless capitalism is completely broken it will recover.

We have seen this on numerous occasions from the period around the First World War, the Great Depression in the late 20s to early 30s, the Second World War, the crash of 1987 and, most recently, the bursting of the dot com bubble from January 2000 to March 2003. In every case, the Market recovered and recovered strongly.

I missed out one important period and that was in the early 70s when Ted Heath was struggling with the unions, the three day week and oil prices went through the roof. In 1973 to 1974 the Stock Market fell by around 70% but recovery the following year was even more dramatic with a rise of over 150%.

The point I am trying to make is that corrections will occur and there will be periods, sometimes extended, of negative performance. However, the economy and therefore the Stock Market will bounce back. The question now, therefore, is what do you do if you are already invested? In this case I would recommend that you review your portfolio to make sure it is in line with your long term aims but I would not recommend bailing out.

Why?

Because it is impossible to time the Market. Further, if you miss the good days by being out of the Market then you can miss substantial opportunities. As an example of this there is a study of the Dow Jones covering the first quarter of 1981 through to the end of the second quarter in 2003. It showed that if someone had been invested all through this period, which had good times and bad times, the annualised return was 10.4%. However, if an investor was trying to jump in and out of the Market to avoid the falls but missed the best ten days in that period, their annualised return would fall to 7.7%.

Similarly, if they missed the best twenty days then it would fall to 5.8% and the top fifty days of performance missed would reduce the annualised return to 1.3%. This means that the unfortunate “mis-timer” of the Market would have lost out on 86% of the total return if they had been out of the Market for the best fifty days for investment.

In addition, this does not take into account the costs of buying and selling. A buy and hold strategy is more efficient from a cost and ttax point of view. Consequently, it is important to get your choices right at the start.

The more cautious may think they would rather just stick the money under the bed but you must remember that inflation will continue to eat away at your money’s real value. For example, the Government’s target of 2% for Consumer Price Inflation means that your pound would only be worth sixty pence after twenty five years.

The Retail Prices Index is actually higher than this and is running at over 4% as I write, which means it would half the value of your money in around seventeen years.

The moral of this story is that if you are looking to invest you must be looking at long term horizons and not short term. You just be prepared to see some volatility in the values of your portfolio, but do not panic. Have the belief in what the Market can and has done consistently.

Looking ahead, I believe that there will be some bargains to be had. It is said of Aristotle Onassis, the Greek shipping magnate, that he made his fortune at the time of the Great Depression because he was one of the few people with cash and was able to buy his first fleet of ships at a tenth of their value. Whilst I do not expect that we are looking at a Great Depression or prices as low as Onassis found, I do believe that there could be significant value in certain arenas.

The Financial Tips Bottom Line

Understanding the key principles and fundamentals of investing is crucial when you are investing your money on the Stock Market. If you don’t, then you run the risk of continually chasing the next big fund launch and incur additional costs when you buy and sell shares and funds.

Action Point

Don’t make the mistake of underestimating the importance of leaving your money invested over the long term. And make sure you have the money invested in a suitable portfolio (NOTE: This is vastly different to a collection of funds that many investors have) using the process of Asset Allocation.

The current tax system imposed on corporations by the U.S. government is at best, a biased system; for corporations that have a net profit, taxes on those profits amount to a full one-third. So, if you’re doing business as a standard “C” corporation, and you do manage to make a profit, you’re going to owe Uncle Sam about 30%. That’s an amazing figure, so let’s look at some of the behind-the-scenes information that will help to enlighten us as to the “why” so much tax should be levied.

The first thing you must understand when dealing with the corporate tax structure, is that for the most part, many large corporations do not pay the complete 30% tax that would typically be levied against an individual if they were in the same situation; corporate accountants and the sheer process by which corporations must report their income, expenses, deductions, depreciation, dividends, and any other financial transactions allows for huge deductions that typically offset any tax due. This concept is a major topic of discussion today, as we attempt to better control and regulate corporate accountability for their finances.

When you have large corporations that are obviously reporting earnings and paying dividends, yet they pay no tax, you should be tipped off to the fact that there is a problem. How to fix that problem, may be another subject altogether.

The latest proposals have been to eliminate the corporate tax altogether. This would shift the tax burden to the individuals of this country; that is a tremendous shift from the post-war era of the Second World War, when corporations and individuals shared the responsibility almost equally. Thanks to the lobbying done by corporate lobbyists over the last thirty years, we’ve finally reached the point of no return. The latest proposals have come from within the halls of Congress to eliminate corporate tax, and let the average taxpayer assume all the responsibility.

In case some of you have noticed, we as individual citizens are losing more and more of our take home pay each year, to taxes of some kind. Medicare, social security, and income taxes take a larger portion of our dispensable income each year. This would take a step closer to making even more of our income the property of the tax man.

What about this seems unfair? As pointed out by the individuals who are in favor of eliminating corporate tax, it would encourage capital investment and job growth in this country and that is absolutely true, it theoretically would do just that. But since when does theory actually work in practice? Communism works in theory. Many individuals believe it is simply another way to provide tax-free income to CEOs, and Board Members. The latest scandals such as Enron and HealthSouth have shown this country real hard evidence of the corporate abuses that are rampant in this country, and so far uncontrolled. The Sarbanes-Oxley Act has taken great steps toward greater accountability on the part of the corporate environment, but elimination of corporate tax is simply a legal way to avoid paying the tax.

The most interesting information I have found in researching this topic, is the fact that the media has paid little or no attention to these issues, thus allowing the purported growth of the corporate lobbyists to go virtually unnoticed by the American public. While mush emphasis has been placed on the Social Security issues we face, nothing has been mentioned about the loss of revenue we’ve experienced over the last thirty to forty years because of the decreased taxation of corporate America.

Where have tax laws and law makers turned to accommodate the decrease in corporate tax? There have been increases in individual tax liability and there has been an increase in sales tax. The sales tax affects the poorer of this country as a percentage of income, than the rich. The loss of revenue from the corporate structure of this country have led to starved educational systems, cities and counties that are revenue poor, and a economic system for the poor that only becomes harder to sustain.

When you factor in the ability of the wealthy and the corporate entities of this country to hire brilliant accountants that find loopholes in the tax system, and relieve their clients entirely of their tax liability, you cannot believe that the current system operates for the people, by the people, can you?

With so many options out there for the individual investor, it is sometimes difficult to determine that investments are right for you. The key to having a long-term, stable and profitable portfolio is to diversify your investments. For many investors the process of diversification includes investing in both mutual funds and stocks. The best course is to learn all you can about both types of investments and find your ideal balance between the two.

Mutual funds are open-end funds that are not listed for trading on a stock exchange. They are created by companies who use their capital to invest in other companies. Mutual funds will sell their own new shares to investors. Capitalization is not fixed and normally shares are issued as people want them.

1. Mutual funds have great characteristics for investors

Mutual funds are professionally managed. The mutual funds employ professional managers to operate all investing. These professional managers bring with them many years of experience. They are experts in selecting and evaluating investments for the fund. The managers make all of the buying decisions and selling decisions that relieves the individual investors from that responsibility.

2. Mutual Funds Are Diversified

Another advantage of mutual funds is that most of their portfolios are highly diversified. This means that the mutual fund is invested in a wide variety of stocks. The advantage of diversification is that if a few stocks drop in price the entire fund won™t be dramatically affected. Diversification occurs by investing in many different companies. It can also be accomplished by investing in several different industries. The advantage of diversifying through mutual funds is that the funds can reach a wider diversification than can be reached by individual investors.

3. There are thousands of mutual funds to choose from

Depending on your preferences, you can choose to invest with a mutual fund that covers the whole market or with a fund that focuses on one or two industries. There are even mutual funds available that invest only in foreign markets. Mutual funds can be very convenient for the investor since the fund does all the record keeping. Your mutual fund will provide you with all the forms you need to file your taxes. Additionally, many may offer perks such as the ability to write checks against the money market fund.

4. Stocks Have Greater Returns (Potentially)

On the other hand, purchasing individual stocks has attractive features as well. After the brokerage fee is paid, there is no ongoing fee associate with owning individual stocks. This is in contrast to mutual funds that charge a participation fee. Mutual fund fees can totally negate the mutual fund return that you are expecting.

With investing in individual stocks, an investor has the ability to be very flexible with their investing and move with market if they so desire. Mutual funds are very stable but this also keeps them slow. Individual stock investments can be traded quickly if need be, and purchased just as quickly if the investor finds an undervalued stock.

5. More Control

With individual stock investing, an investor has a greater level of control over their investing. Although brokerage firms are involved there is the opportunity to be more hands on with the stock purchases. This level of involvement is impossible with mutual funds. Many investors like to know exactly where their money is going and this can be hard with a mutual fund that holds shares in 50 or more companies. Investing in individual stocks allows the investor to have a larger relationship with the company they are investing in. This can create a sense of comfort for the investor because they know where their money is being used. They can track the activities of the company they have invested in and feel like a true part of that company.

6. The Verdict

Investing a mixture of mutual funds and individual stocks seems to the best method for a majority of investors. Those who do not want to take the time to research their stocks and would rather let an expert handle things are more comfortable with mutual funds. On the other end of the spectrum, those who want a greater level of participation with their investments will find individual stock investing attractive. As part of a long-term diversification strategy it may be best to look into both in the ratio that you are comfortable with.

Buying a car online i.e. on the internet is getting very popular nowadays. Online car buying saves one a lot of time, energy and money. Vast information about different car models and their prices can be accessed online, without having to rush from one car dealer to another to see different car models. The majority of individuals don’t realize that up to what extent the economy has affected the average employee. Individuals who used to have superior credit now fight back to make monthly payments because of a lack of employment.

Large amount individuals have had their credit rating depressingly affected through the economic recession. This has made it tough for millions of individuals to avail various loans to gain Car Loans for Bad Credit. Bad credit car loan is a lot more complicated to obtain approval for today compared to a few years ago. If you’re interested in availing any kind of loan standard there are some things, which you need to carry out and make sure you get, approve.

Perhaps the first thing anybody who is in the hunt for a loan need to do is apply for a credit report. By having glance at your credit score, you could see how good or bad your ratings are. If you’re having from a low rating you should take firm steps to get better your attractiveness to potential lenders. Paying down your debt is a superior way to progress your credit. Reducing your debt would get better your attractiveness for various lenders, which are available. Having a better rating would mean that you acquire access to lower rate of interest and larger loans.

An additional benefit to repaying your debts is the upgrading it would have to your debt to income percentage. The debt to income ratio is made use of by number of lenders to decide whether or not a borrower is eligible to gain a loan approved. Availing bad credit auto loan financing is much essential for individuals looking to buy a car. Looking for the right lender would ensure that you search out the best rate of interest on your loan application. If you’re interested in getting bad credit auto loan financing it is essential to search the precise lender and ask auto loan quote. Carrying out a complete search of the different auto loan lenders would give you a good estimation of what lenders are available.

One needs to get accurate information about the car dealer, the car model, its price and features before taking a decision. Facts about the vehicle’s safety, mileage, and maintenance costs also should be carefully considered. The car dealer from whom the car is being bought, should have a good reputation in the market, and should be an authorized dealer. Credit unions, Banks as well as other regular monetary organization, might reject a credit application from an individual having absolute no credit, and will not approve a car loan with no credit. One may not be able to buy a fancy car with bad credit, but can buy a cheap car that fits in your budget.