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Author: Cheryl Rauh

Taxes: Basics to Know

Posted on by Cheryl Rauh

Overview of Tax Day

Tax Day is approaching quickly. You may ask ‘what is Tax Day’? Tax Day is the day in which individual income tax returns are due to be submitted to the federal government. This year the tax deadline is April 18, 2023. As this time of year can be a hassle, the more prepared you are the smoother and more successful your filing process will be. Proper preparation includes knowing your filing status (single, married filing jointly, married filing separately, etc). Also, analyzing your situation and determining if you need to file taxes. Whether you need to file taxes or not depends on your income, filing status, age, and whether you fall under a special circumstance. For example, U.S citizens under the age of 65 filing single with a gross income of less than $12,950 are not required to file their taxes. Even if you are not required to file, you may still want to file for tax credits and other benefits. Finally, having all your personal information and tax forms sorted out can help your filing process.Image of a red stamp of an arrow pointing right at the words "tax day"

What documents do I need?

  • Personal and Dependents Information
    • Social Security Number or tax ID number
    • Identity Protection PIN (if issued by the IRS)
    • Routing and account numbers to receive refund via direct deposit or to pay due balance
  • Sources of Income
    • Employed: Form W2
    • Unemployed: Form 1099-G
    • Self Employed:
      • Forms 1099 (NEC and other types)
      • Schedules K-1
      • Records of all business expenses—receipts, credit card statements, etc.
      • Business asset use information (costs, dates of use, etc.)
    • Any other sources of income: rental, retirement, savings and investments, state tax refund, prizes and awards (some of these sources provide 1099s)
  • Education expenses
    • Tuition Statement: Form 1098-T
    • Student Loan Interest Statement: 1098-E
  • Savings contributions
    • IRA contributions: Form 5498
    • HSA contributions: Form 5498-SA

There are many different forms that fit all possible situations, listed above are a few common source of income and education expense forms that you could receive when it’s time to file. For all forms and more information on the different forms that may apply to you visit https://www.irs.gov/forms-instructions-and-publications.

What are tax credits and deductions?

Tax credits directly reduce the amount of tax you owe. Giving you a dollar-for-dollar reduction of your tax liability. For example, a tax credit valued at $1,500 lowers your tax bill by the corresponding $1,500. If your tax liability is covered, any remaining refundable credits will be refunded to you (not all credits are refundable).

On the other hand, deductions reduce how much of your income is subject to taxes. The two different types of deductions are:

  • Standard Deductions
    • The standard deduction is a one-size-fits-all reduction in the portion of your income that’s subject to tax. You do not have to provide any documentation for the standard deduction.
    • 2023 Standard Deductions
      • Filing single: $13,850
      • Married filing jointly: $27,700
      • Head of Household: $20,800
    • Itemized Deductions
      • The itemized deduction allows you to take advantage of deductions such as home mortgage interest, medical expenses, and charitable donations. These deductions will need documentation.

If you choose to do itemized deductions and together your deductions exceed the value of the standard deduction, you will want to itemize so you pay less tax.

What if I need more time?

In order to extend your tax deadline, you must fill out Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form must be filed by the original tax deadline. Your new tax deadline will be October 16, 2023. Keep in mind that even if you file a tax extension, if you owe taxes, you are still required to pay your tax bill by the original tax deadline in April. Failure to pay your tax bill by the due date will lead to a 0.5% penalty for each month or part of a month the tax remains unpaid. If you have an approved payment plan, then the failure to pay penalty is reduced to 0.25%. A tax penalty won’t exceed 25% of your unpaid taxes.

Interest is also charged on unpaid taxes. Interest will be charged from the due date on the amount you owe and will continue to accrue until the balance is paid in full. For more information on tax extensions, failure to pay penalties, interest, and payment plans on your taxes visit https://www.irs.gov/payments.

What if I need help preparing my taxes?

Check out the VITA free tax preparation program, available nationally.

Locally, VITA offers free tax preparation to eligible taxpayers right here in Manhattan, KS at the public library. The program prepares IRS 1040 tax returns and corresponding state returns for qualifying low to moderate income taxpayers (income not exceeding $72,000), including military members and retirees. They cannot prepare returns for international students or small businesses. All taxpayers will be required to provide proof of identity by the IRS. To request an appointment for preparation of your federal and state returns, go to www.riley.ksu.edu, and click on the Tax Appointment button.

International students can find information on tax preparation on the International Student and Scholar Services Income Taxes resource page, which reviews required documents and has info on Sprintax, a web-based international tax preparation program.

Although Powercat Financial cannot offer specific tax advice, if you have any questions regarding common tax information, or help creating a savings plan for your tax return, Powercat Financial is here to help. We offer free and confidential appointments in-person and via Zoom. Appointment requests can be made online at https://www.k-state.edu/powercatfinancial/.

Aidan Little
Peer Counselor I
Powercat Financial
www.k-state.edu/powercatfinancial

Planning for the Unexpected

Posted on by Cheryl Rauh

As difficult and foreign a topic as this can be, especially for those who are younger, estate planning can ensure your wishes are carried out according to your intentions in the case of a premature worst-case scenario. Your state of residence has laws which will make those decisions for you, however they may not align with your own choices. One part of this is managing both your financial and medical affairs in the event you require assistance due to being incapacitated and unable to make decisions for yourself. The other aspect is carrying out arrangements after your death including your funeral/burial as well as how your assets will be distributed to reflect your values and those individuals important to you. The documents listed below are instrumental in the estate planning process. A financial advisor can work with you to help identify your wishes in these various areas and can assist you with finding legal representation to execute them in the proper manner. There are other options beyond this list, such as a trust agreement, which may be appropriate for certain individuals and an attorney can provide those recommendations in consultation with you.

Will

Your Will decides who receives your assets after death that are subject to probate, which include those that do not pass by beneficiary designation (like retirement accounts and insurance policies) or survivorship. These assets would likely include any taxable investments, bank accounts, real property, and personal property. Probate is the legal process of proving that the will is valid and assigning an executor to carry out the provisions. The trusted executor who you select will administer the estate and ensure that your heirs receive the assets you select in the proper proportions.

Image of a spread of papers. One is a will and testament, another is a power of attorney. Durable Power of Attorney

Your Durable Power of Attorney gives the agent or co-agents of your choice the ability to manage your financial affairs. This power can be limited in scope to certain types of transactions or wide ranging including the ability to make gifts on your behalf. This power can be effective immediately or springing upon your incapacity as determined by your physician. If your primary agent is unable to act, successor agents you name in order will take their place.

Medical Power of Attorney

Your Medical Durable Power of Attorney gives the agent of your choice the ability to make decisions regarding your medical care upon your incapacity. Your agent would be able to act on your behalf until you regain your own ability. You can place limitations if desired upon your agent’s authority. It is important to consider who would best be able to handle emotionally the considerable responsibility.

Advance Directives
Advance Directives or a “Living Will” allow you to make certain wishes known ahead of time regarding your healthcare choices in the event you are incapacitated. These decisions usually occur in the event you have a chronic and irreversible or terminal condition. You may only want to be made comfortable or you may want life-sustaining methods to be used. These are not easy decisions but planning ahead will help give guidance to your family.

HIPAA Authorization

HIPAA Authorization allows those of your choosing to have access to your medical records to the extent you wish. Your acting agent of your health care power of attorney should already have this ability, but you may want others to be able to access this information as well. This can help your family stay informed about your care directly versus always having to go through the power of attorney route. This authorization is typically effective immediately until it is withdrawn, or a specified period has elapsed.

Appointment of Guardianship

If you have minor children and both parents were to predecease them or become incapacitated, you will want to have in place who would be best suited to care for them in your stead. Those guardians should have the willingness and capacity to take on this major responsibility, and ideally they will also share similar beliefs as you regarding parenting. Also important to consider is leaving resources, either through existing assets or life insurance policies, to help provide for your children’s expenses.

If you have questions regarding finding an estate planning professional, or about any other financial topic, Powercat Financial is here to help. We offer free and confidential appointments in-person and via zoom. Appointment requests can be made online at www.ksu.edu/powercatfinancial.

K-State Student Legal Services is also a resource on campus which may be able to provide some estate document preparation and consultation services. You may find out more info at www.k-state.edu/legal/.

Michael Pumphrey, AFC®
Peer Counselor I
Powercat Financial
www.k-state.edu/powercatfinancial

A Crash Course on Credit Cards

Posted on by Cheryl Rauh

What is a credit card?

Photo of a stack of credit cards.

A credit card represents a line of credit (money available for borrowing) that allows the card holder to borrow funds quickly. Think of swiping your credit card like taking out a mini loan for whatever you are buying. Similar to loans, you are expected to pay back the amount you borrow. This amount normally comes due at the end of the month. If you miss your monthly payment or carry a balance forward into the next month (owe money on the card), the company you are borrowing from will charge you the predetermined interest rate. The average interest rate on credit cards currently is 21.68%. When you are issued your credit card you will notice that there is a credit limit, this is the maximum amount you can borrow on your card. Overtime, this limit can be increased if you are managing your card well.

Differences between Credit Cards and Debit Cards

Credit Cards
 Debit Cards
  • Connected to line of credit
  • Monthly bill for purchases
  • Interest builds on unpaid balances
  • Additional fees
  • Builds credit history
  • Fraud protection (liable up to $50)
  • Connected directly to your bank account
  • No monthly bills for purchases
  • Overdraft fees if money runs out
  • Requires pin number
  • Fraud: liable up to 50$ if reported within 2 days; if 2-60 days liable up to $500

Managing your credit card:

Credit cards can be a big responsibility due to the potential for them to be mismanaged. If you are not careful you can rack up a lot of debt and fees that you might not be able to pay off. Additionally, if you miss payments or misuse your card it can hurt your credit score. Your credit score is like your financial GPA and is calculated based on five different things.

Credit Score Factors Graph: 35% Payment History, 30% Amounts Owed, 15% Length of History, 10% Types of Credit, 10% New Credit

  1. Payment History: 35% of your credit score is based on if you make your payments or not. Be careful not to miss payments!
  2. Amounts Owed: 30% of your credit score is determined on your usage of the credit made available to you.
  3. Length of History: 15% is determined by how long you have had credit; the longer the better.
  4. Types of Credit: 10% is effected by how many different types of credit you have. It is actually good to have several types of credit (i.e. a mortgage, student loans, and a credit card).
  5. New Credit: 10% is based on how often you apply for credit.

Finally, to check your credit report, you can go to this website for a free credit report three times a year (due to the pandemic, you are currently able to check your report weekly): Annualcreditreport.com. Your credit report is like your financial GPA, it includes information about your credit accounts, account payment history, and credit limits. It is important to check your report frequently to catch identity theft. Any credit usage under your name and social security number will appear on the report. If there is activity that you know isn’t you then sound the alarm! (Identity Theft Information). Your report will also show your credit score which is like your credit worthiness. Credit scores can range from 850 to 300. The higher your score the better with 700 or higher considered excellent. Having a good credit score is important because if you have a low credit score you could pay higher interest, have a lower credit limit, and it can even impact your employment or renting opportunities.

Three Helpful Tips:

To maximize your credit card for your benefit, I recommend keeping these tips in mind:

  1. Pay off your credit card every month so that there is a zero balance at the end of every month.
  2. Only use 30% of your credit limit. For example, if your credit limit is $2,000 you should keep spending to a maximum of $2,000 x .30 = $600. This means that you should try to keep your credit card spending under $600 for a month.
  3. Shopping and applying for credit cards can decrease your credit. Make sure you only apply for one credit card at a time!

Helpful Links:

If you have any questions about credit cards or want to learn more, please feel free to schedule an appointment with us at Powercat Financial. All appointments can be made on our website: Powercat Financial.

Abram Mugler
Peer Counselor II
Powercat Financial
www.k-state.edu/powercatfinancial