Reader Mailbag: January Resolution Review

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Basic tax prep conundrum
2. Debt disaster and recovery
3. Capital gains and gifts
4. Mortgage less than rent
5. Frugal fatigue
6. Child discipline
7. Is “free” Tax Act good?
8. Solo games
9. Budgeting with fluctuating income
10. Sharing accounts with a spender

I’ve decided that once a month, I’ll take a step back and evaluate the goals I’ve set for myself in 2011.

Get fit This resolution started out very well, with regular gym visits early in the month. Since then, there hasn’t been a day where one of our children hasn’t been sick, making gym trips much more difficult. When we reached the end of the month and all three kids were suffering from a sinus infection, I gave up and developed an equipment-free home routine consisting of pushups, situps, squats, and yoga, which are all things I can do downstairs while the kids are resting. I’m still slowly losing weight, but that’s mostly thanks to diet.

Play music I’ve had the biggest success with this goal, as I’ve got sheet music for all four pieces I’m trying to learn to play this year. In the Hall of the Mountain King and Clocks are both coming along well enough that I’m very happy with my progress.

Read 100 unread books I’ve knocked only two books off my list, though I’m more than halfway through two more on the list. Thankfully, one of the thickest ones on the list – Quicksilver by Neal Stephenson – is one of the ones nearing completion. I expect February to be a very good month in terms of knocking books off of my list.

Q1: Basic tax prep conundrum
I have a question about your opinion on the different tax preparation options out there. For the last several years, I have used TurboTax Online. I am always somewhat disappointed in the amount of my refund when compared to what other acquaintances are getting.

I want to make sure I am not missing out on something, but I feel like if I go to H&R Block or somewhere like that, that they will charge me a huge fee and that I might not be any better off than what I figured on TurboTax myself.

I am married with a mortgage, etc. I have a son but switch off every other year with his father as to who gets to claim him (for 2010, I do not get to claim him). Our combined income is slightly over $100k. Do you think it is worth it to spend the money for a professional tax preparation or should I have faith that TurboTax is sufficient?
– Nicole

I’ve used TurboTax almost every year for my personal and business taxes without any sort of problems.

When you take your taxes to a preparer like H&R Block, they’re essentially just using a computer program much like Turbo Tax to prepare your taxes for you. You just get a human face and a handshake and some reassurance to go along with the package, plus you don’t have to spend your time typing. For those services, you pay extra.

If you’re comfortable using computer software, I’d encourage you to use TurboTax.

Q2: Debt disaster and recovery
I am 32 and got out of a 5 year relationship two years ago. Since that time, I have racked up credit card debt to the tune of about $10,000 on various credit cards and have been ignoring it for two years. I have no good excuse other than between student loans, car lease payment and rent, I simply cannot stretch my money to pay all my bills. I have ignored all of the collections calls and at this point, only get about one call a week. I ran my credit report to try and begin to get back on track and plan ahead for what to do when my car lease is up in December since I have completely ruined my credit score, but I honestly do not even know where to begin. Is bankruptcy my only option or can I negotiate a payment schedule with collections agencies? And if so, how do I even find out where my accounts are now? I have reached out to credit counseling three times and never heard anything back so at this point I am incredibly frustrated and not sure what to do.

– Hayley

I’m not sure what you mean by “reached out to credit counseling three times and never heard anything back”. How did you contact them? Was it just an email? Did you call them? I’m mostly trying to figure out if you actually had anyone at a credit counseling service review your situation or whether it was just an email that went into a black hole somewhere.

In either case, I think you have a big overall decision to make. You can try to repay your debts, which is the honorable thing to do. It will require some footwork and some negotiation on your behalf, but it will likely result in a better credit rating if you can negotiate that the agencies mark the debts as paid in full on your credit report. Of course, if you don’t have the means to pay those debts, this avenue will likely be worse than doing nothing at all.

On the other hand, doing nothing means that your credit will be in the tank for a few more years, then those unpaid debts will disappear and you’ll go back to having good credit. Of course, this is the dishonest thing to do.

What’s really warped about the way credit reports and credit scores are handled is that it encourages people who get behind on their bills to just walk away from them and never pay them. If you try to get a handle on your old debts, it causes new entries to appear on your credit report, which means that these old debts stick around for a lot longer than if you’ve never paid them at all. That’s frankly wrong – it rewards dishonesty when it comes to debt. Unfortunately, that’s the way the game is played.

Q3: Capital gains and gifts
For a wedding gift, and for the birth of each of our children, we have been given one company’s stock as a gift (around 100 shares for each of the 4 accounts). While the stock has done well and pays dividends, we are looking to diversify and simplify. You have me convinced on index funds, I just have no idea where to start, or what the tax implications are. The stock is currently with the bank (BNY Mellon) that issues the stock – we’d like to use half of it to buy index funds and keep the other half in the company stock, and ideally we’d like to have them in the same place for convenience. Do you have any advice on how to go about doing this, and if there would be any capital gains tax we would need to budget for? The total investment is around $30,000 or so.

– Kenny

When you sell the stock, you’ll most likely have a capital gains of some sort. The capital gains is the difference in value between what they were worth when you received them compared to the value they’re worth when you sell them. So, if you received $20,000 in stock and then sold them for $30,000, you’re facing $10,000 worth of capital gains. You have to pay capital gains taxes on that amount. Since this is a long term capital gains (meaning you held it more than a year), the tax rate would be 15%, so you’d owe $1,500 in taxes from that sale. Ideally, you’ll be able to pay those taxes out of pocket.

Some people might respond with, “Well, then I just won’t sell” because they don’t want to deal with the capital gains. The problem there is that eventually you will have to deal with those capital gains – and you’re better off having the investment in whatever form will give you the best or safest returns in the future. If you move it now, you’ll pay some capital gains now, but you won’t pay as much later on when you cash in for good.

So, how should you invest what you sell? I’d probably put it in a 529 if it’s for your children. A 529 offers tax benefits if you use the money in the account for educational purposes – other than that, it’s largely a normal investment account. I use College Savings Iowa (which is actually open nationwide, though only Iowans get the state tax benefits) for our children’s 529 accounts, which is managed by Vanguard.

Q4: Mortgage less than rent
My current lease is getting ready to end and I wanted to move somewhere closer to where I work? I currently pay $650 and found a place to rent (condo). I was browsing houses and condos and found a unit in the exact same development I was looking to rent that was selling for $32,000. I did a few calculations and the mortgage would be significantly less ($200-300/month) than what I would be paying to rent. Does it make sense to move forward buying the condo with my financial picture?

– Aaron

Are there any costs besides the mortgage? Are you going to have to pay more utilities, association fees, and things like that for the condo?

My opinion is that after you calculate in such additional costs and the numbers are still comparable, I’d make the move. However, those extra costs might be more than you realize. If you’re suddenly now covering your energy bill and your garbage bill and your water bill and you’re also paying some new property management bill, the condo could easily be more expensive than your apartment. Plus, you’ll now be responsible for your own maintenance, as there won’t be a landlord to call.

It’s not just like moving into another apartment. Owning your own without a landlord can be really expensive.

Q5: Frugal fatigue
I’m currious about your thoughts on “frugal fatigue” as discussed in this newspaper article.

– Patty

Frugal fatigue happens when the “honeymoon period” wears off. It happens with any new thing that requires some significant change in personal behavior.

At first, it’s a fun adventure and it seems exciting. After a while, the new wears off and you begin to miss your old routines and habits. Many people’s great new initiatives die in that period, because that’s the hard period.

If you can push through that hard period, these new habits start to become routine. They become the new normal in your life. This can take months, but I generally find that about a month in, a single new routine becomes normal. The problem is that becoming “frugal” usually means lots of new routines at once, which means it can take longer and be harder to adjust to.

Q6: Child discipline
Do you believe in spanking your children?

– Laurie

Not really. I think back to my own childhood and my memory of spanking is that the actual spanking didn’t really mean anything at all. It was just something painful that you shed a few quick tears over and then moved on with life. The same was true with yelling that was never really followed up with any lasting discipline – I learned to ignore it.

What really drove me to be a better child was when my parents or my teachers were obviously disappointed in me, and it was the longer-term punishments (like when the Nintendo would be disconnected and put away for a week) that would really bother me, as they served as continual reminders of the mistakes I had made. The problem as a parent with such punishments is that they require significant involvement in your child’s life as well as parental willpower to leave the Nintendo

Now, am I going to call someone a child abuser because they choose to spank their children? No, not for just giving them a whack or two on the behind for a seriously bad choice. It’s a different discipline philosophy than I have, but that’s not child abuse. Child abuse is a desire to hurt your child; a spanking is a desire to raise your children to better behavioral standards. I just don’t think it’s a choice that works really well.

Q7: Is “free” Tax Act good?
My husband and I have been married for 4 years and I am the “CFO” of the household. Each year I do our taxes by hand. Literally with a pencil, calculator and the printed forms. In the past, I tried using TurboTax, but it didn’t seem to work out right when I got to the state forms. There would always be a hiccup since I was working New York and living in New Jersey. Then I began to appreciate learning so much about the tax system and have stuck with it (even though I now live in New York and don’t have the dual state issue). I also have an issue paying for a service to figure out how much I owe the government! Anyhow, my husband is self-employed so we have deductions to deal with. We also own our home. I just saw a commercial for TaxAct.com and was wondering if you were familiar with it. If so, what are your thoughts on it? Can it handle itemized deductions? It is advertised as free so it peeked my interest.

– Sandra

For starters, both TaxAct and Turbo Tax offer free federal tax returns in most cases. The vast majority of people doing their taxes will have no problems using either offering to file their federal tax returns for free. Of course, both go on to charge you for your state income tax filing.

Last year, as I was preparing a post on tax software, I tried both and found Turbo Tax to be easier to use. I got my taxes done quicker with Turbo Tax than with TaxAct and the tax forms, in the end, were virtually identical.

If you’re doing a simple filing, then I’d just use the free filing at either TaxAct or Turbo Tax. Both are going to work for you.

If you’re in that 5% of the populace that has a fairly complicated tax situation (with lots of income streams, business income, etc.), then I’d just pick up a full copy of Turbo Tax.

Q8: Solo games
You’ve mentioned that sometimes you play board games solo when others are asleep. Are you serious?!!?

– Kelly

Absolutely.

For starters, think about solitaire card games – Klondike, FreeCell, Forty Thieves, whatever one(s) you enjoy. Many people have played the free Solitaire and FreeCell that come with their computers, and many others have played those types of games with decks of cards.

There are many board games that have similar solitaire options, creating a puzzle-like situation that provides a good hour or two of entertainment.

My personal favorites of this type include At the Gates of Loyang, Space Alert, Race for the Galaxy, and Le Havre. Each of these lasts from 20 minutes to an hour as a solo game. Each one makes you stretch your mind in different ways. Each one also improves your understanding of how to play the multiplayer game, which means that I’ll often learn how to play a game solo before playing it with and/or teaching it to others.

It’s a great way to eke more value out of a board game collection, and it can certainly be a good way to burn a winter evening.

Q9: Budgeting with fluctuating income
I have recently started a minimum wage job ($8.25) where I earn tips. I have only been working there 2 weeks and have ranged between bringing in $70-$110 a night. My co-workers say that the busy season is coming up and we should be making really good tips. I am not sure what they mean by really good tips though. So I am not sure exactly how to budget with numbers that fluctuate. I have $2,000 in credit card debt that I want to pay off ASAP. $400 in rent and $60 utilities as monthly payments. My car is payed off but I also need to start getting aggressive on saving for a more reliable ride. I would like to be able to save enough so I can put a huge down payment, or buy something outright and not be strapped down with payments for years on end. I just am having a really hard time trying to figure out the best way to plan with such a fluctuating income.

– Amanda

What I would do is budget as though you’re not getting any tips at all. Survive on that. Make your bill payments on that.

Then, when the tips do come in, bundle all of those up and make big extra payments on your debts. If you’re debt free, take those tips and stick them right in a savings account and sit on them for the future, when you may want to buy a house, buy a new car, or something like that.

Survive day-to-day on your normal pay. Use your tips to clean up your debts and prepare for the future.

Q10: Sharing accounts with a spender
I am at my wits-end with my husband. I scrape and save to put $1000.00 in an emergency fund as a cushion (ala Dave Ramsey), but my husband uses it as his personal account, buying lavish gifts for me (his excuse is that he wants to buy me nice things) or for himself. We also have an account specifically to save up for large purchases like car replacement or Christmas. That is cleaned out regularly, too. He just completely shuts down when I ask him to stop and it is ruining our marriage! Is it wrong of me to open my own account to save up an emergency fund and sinking fund for a replacement car that he won’t know about? When he found out that there is an equity line on the house, he said we could just use that to buy what we wanted or to replace what he spent on stuff. I lied and told him the equity line was dried up. He has refused to go to counseling with me. At this point I am setting money aside in my sock drawer to pay for an attorney if it comes to that.

– Janet

First and foremost, you guys need to get some counseling. There are lies, destruction of financial plans, and threats of divorce on the table here. Your marriage is in real trouble.

Sit down with a counselor. Go through your marital issues and air all of the dirty laundry. If you can’t do that, you’re just asking for it to sit there and fester and make your lives together poisonous. Don’t let that happen.

Issue your husband an ultimatum about counseling. If he won’t go, you’ll walk.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. Jon says:

    On the subject of tax preparation, I’ve used Turbo Tax for over a decade to prepare my taxes. In my opinion, the people going to H&R block or some other pro and coming back with the big refunds are probably leaving too much money on the table by not adjusting their deductions to not have the money taken out of their check in the first place. I’ve had this argument with coworkers and friends over the years, and what it boils down to for most is that that’s the only way those folks can save any money, by giving it to the gov’t tax free for a year. The H&R folks have no motivation to recommend a deduction change that would reduce the refund, and make people less likely to brag to their friends about how well the pros did for them. If you could find a pro who cared about your finances, they would recommend adjusting your witholdings so that you “zeroed out” at tax time. In time periods when our jobs remained steady, the kids were in the house, and all other deductions were essentially steady-state, I was able to dial it in to the point where I was within a $100 either way on both state and federal tax returns. All money I didn’t give to the Feds went to savings and investments.

  2. Jon says:

    Oops…shouldn’t have said “tax free” should have been “interest free”.

  3. k.sol says:

    There is absolutely nothing wrong with setting up separate accounts if you are dealing with an irresponsible spender. Trent is right that there are serious, serious issues here. I lived with a spender like this, and it was maddening and it undermined every goal we had — or that I thought we had, at least. I was fortunate that when we separated prior to our divorce that a good friend told me to get his name off the accounts so he didn’t have the opportunity to clean me out. I was torn, because it seemed the wrong thing to do in a marriage.

    Other things to consider — if it’s that bad, make sure you are protected on the credit front and that credit cards get paid. I also knew a woman who had a secret jewelry store charge account that her husband didn’t know about — you might want to check credit reports. My experience has been that money issues are not just money issues when they are this serious. They can be about power and control, they can be about widely disparate (and sometimes incompatible) goals and views of life, or they can even be a passive-aggressive thing.

    You must protect yourself financially – even from your spouse..

  4. Sarah says:

    Here here Jon! You took the comment right out of my mouth. As a CPA, I know how difficult it is to explain the concept of refunds to a taxpayer. It’s not a gift from the government, the refund is your money that the government has had for a year. In response to the reader question, I would suggest the reader look in their area for a VITA program. VITA is short for the Voluntary Income Tax Assistance Program which is administered through the IRS and is available to taxpayers with an income of $50,000 or less. Tax prep is free and the returns (federal and state) are filed electronically for free. Definitely an underused program but a good one.

  5. Dawn says:

    Q10-you could be my grandmother. She finally did what you are suggesting. Put the money into accounts he didn’t know about. The problem was, it created a big fight when she withdrew the money to make the car purchase. I still think you should do this while trying to pursue counseling.

    My husband is a spender, too. We went to financial counseling and it was eye opening for both of us to learn what the other one valued. After that, we were much better able to figure out something that works for us.

    For my peace of mind, we have accounts he can’t get to (doesn’t know the passwords or what banks they are at–they are joint accounts and if something were to happen to me, the passwords, etc. are attached to my will), but he knows they are there, and he appreciates both the reasons for them and that he can’t access them (no temptation).

    For his desire to spend, he has another account that gets regular deposits of money he can use for whatever.

    The counseling is very worthwhile.

  6. Adam P says:

    Q10 – Did he become a spender overnight? I just don’t understand how people marry completely irresponsible people (and this is not just money he is irresponsible with) and then go “Oh gee, look at this mess I’m in”.

    If he won’t go to counselling with you or at least agree to get on board with you financially, you don’t have a partnership much less a marriage.

  7. Michelle says:

    Adam, hindsight is always 20/20. I’m quite sure you have made some major judgement errors in your day – those who have not I find to be incredibly boring because they will never take a risk.

    We either don’t know what we don’t know (like spending habits matter in a relationship), or we don’t realize they are going to be as critical as they turn out to be. It’s a good thing there is no requirement to get everything right the first time; we are allowed to learn, grow and become wiser all throughout our lives.

  8. valleycat1 says:

    Q10 – a lot of couples have a joint account for fixed joint expenses, and then individual separate accounts for their own spending. I have a separate savings account that I use for splurges, from money saved out of my own income, because when the money was in our joint account my spouse expected to have a say in how it was spent. We agreed on a maximum monthly amount I can set aside, but then it’s mine to do with as I wish.

  9. valleycat1 says:

    Trent – You previously posted that you’d played 28 different board games in January; now you’re saying you didn’t have time to get to the gym. Maybe some of those friends would like to join you on a day pass at the gym.I’d also say that active play with your kids counts toward exercise (and the 2 older kids could join you in your home exercise routine instead of your waiting until they’re out from underfoot).

  10. Adam P says:

    Actually Michelle, unlike most people I like to try to assess the future based on my choices and pick the best possible outcome to maximize happiness in the future. I don’t like to take pleasure today if doing so will cause my future will suck. So no, I would not decide to marry someone who acted like an idiot with money. Anyone who gets married without knowing that spending habits matter in a marriage or without knowing their partners financial habits deserves little sympathy in my opinion.
    And no, I haven’t made any major judgement errors. Some people get through life without making them. Q10 made one, and the way to rectify it is counseling or a divorce. Just hope she gets her credit separated from the loser before she separates herself from him.

  11. Interested Reader says:

    Trent, I don’t know if you have space in front of your computer, but you may want to check out exercise.tv for free streaming exercise routines you can do at home.

  12. JJ says:

    Q1: Jon and Sarah are spot-on.

    You’re using good, solid tax-prep software. If your acquaintances really are getting bigger refunds than you, it’s not because they are doing a better job of filing their taxes. It’s because they did a poorer job in estimating the amount of taxes that were withheld during the year.

    But if really want a second opinion, why not pick up a copy of some other software, like H&R Block’s, or TaxAct, and/or use another online service? You don’t have to actually file using it, you would just punch in the same numbers and see what sort of refund it winds up giving you.

    JJ

  13. Michelle says:

    Trent I know this was a misunderstanding so I’m not going to berate you for it. . .

    but child abuse is NEVER a desire to hurt your children. Many abusers believe they are “helping” their children, as cognitive dissonance would never allow them to believe they’re doing wrong to their children. Especially child sexual abusers believe they’re giving their children experiences as adults that will help them one day. As for whether spanking is child abuse–not necessarily but it can very easily be. The idea that someone larger is causing physical pain to someone smaller does not sit well with me and as such I am much more likely to consider spanking abusive.

  14. valleycat1 says:

    Q4-Aaron – Trent is correct that you need to look at all the added expenses besides just the mortage vs rent calculation. I advise you to consider how long you realistically expect to live in the condo & how much freedom you want to have as far as relocating. Insurance will be higher because it’s based on the contents plus value of the place you own, not just contents, as renters insurance is priced. Also, be aware that condo associations periodically make special additional assessments on the owners for major repairs & renovations that benefit the complex.

  15. arthi says:

    Q4:

    What Trent says is very true.
    When we were looking for houses, I found that we would be paying around $350 extra everymonth for additional expenses:

    Increased electricity bill since there we were moving from a 1 bedroom to a 4 bedroom
    Increased gas bill
    Increased water bill because of the lawn
    Property tax (annual, which I converted to monthly)
    Homeowners association fees (annual, which I converted to monthly)
    Increased fuel expense because of the 4 mile increase in commute everyday

    (I don’t have the exact breakup with me right now, but i remember it came to a total of $350)

    And there were one time expenses as well: Lawn mower, edger, other tools and ladder

    When I added $350 to the monthly mortgage payment, it turned out it was twice what we were paying as rent, but we went ahead with the house anyway, taking other factors into consideration.

  16. Amanda says:

    I agree w all prior posters about why people have large refunds on their taxes. IRS.gov also has free electronic filing options. H&R block and other prep places in their category are worthless in my opinion. If an individual has a return that’s too complicated to prepare themselves they need to turn to a CPA or Enrolled Agent, not turbotax or H&R Block.

  17. Hope D says:

    To Michelle- I don’t agree with you. I think most abuse comes from frustration and a loss of control. The abusers know they did wrong. They will often apologize. Of course there are all types of abusers. Sexual abuse is a whole different animal.

  18. Kevin says:

    Q2: I’m not sure it’s true that if you just ignore the debt for long enough, it’ll go away. I know that legally, there are statutes of limitations on the debt, but as I understand it, all the creditor has to do is contact you to bring the debt current again. I believe lenders have numerous ways to prevent debts from “expiring” and becoming uncollectable.

    For smaller debts, it may be true that they may not bother, but I find it hard to believe that they’d just let a $10,000 debt lapse under the statute of limitations, when they have a current phone number and address for you.

  19. Courtney20 says:

    I don’t understand Trent’s response or any of the comments on Q4. They are talking about the same units and asking if it makes sense to rent one or buy one. The utilities aren’t going to be higher if you bought the unit than if you were renting it. You are paying for any association fees and property taxes in your rent (because your landlord is not going to do it as a freebie!)

    In the end, if you buy you will be paying the same or perhaps *slightly* less than your rent (depending on if your landlord will be only breaking even, or making a profit on each month’s rent). If you buy, you get to keep the equity instead of your landlord.

    So the questions you need to be asking yourself are 1) Do I have money for a down-payment (because you WILL pay more than your rental costs if you have to get PMI if you don’t put 20% down); 2) Do I intend to stay in this place long enough to at least break even with my closing costs; and 3) Am I willing to become responsible for general maintenance (you won’t have a landlord to call if the toilet breaks or the heat stops working).

  20. Aryn says:

    Q7: I use TaxAct every year. Last year I got a free copy (federal and state) of H&R Block and tried both because it was my first year filing as a homeowner. I recommend H&R Block’s handholding for a first-time homeowner. This year I’m going back to TaxAct. It’s not as “pretty,” but it does the same job.

    Q10: If your husband won’t go to counseling with you, go by yourself. It won’t solve your financial disagreement, but it will help you decide what you need to do to ensure your own mental health. It could be divorce, or it could be another solution, but a counselor can help you through that.

  21. Kevin says:

    @Courtney20:

    “The utilities aren’t going to be higher if you bought the unit than if you were renting it.”

    You’ve never rented an apartment where the rent included the utilities?

    It’s possible that the utilities could be included in the rent (along with the condo association fees), but if they purchase, they’ll now have to pay the utilities themselves, separately. I can see why it would be a factor in the decision to rent or buy.

  22. Jonathan says:

    @Courtney20 (#19) –

    “You are paying for any association fees and property taxes in your rent (because your landlord is not going to do it as a freebie!)”

    I’ve never directly paid property taxes for a place that I was renting. Unless I’m missing something, property taxes are the responsibility of the owner of the property, regardless of who is living there. Some property owners may choose to pass the property tax cost on to renters directly, but my experience is that most often this is included in the rent.

  23. Interested Reader says:

    @Kevin, depending on their energy use that may still end up paying less for a mortgage plus utilities than their rent.

    They do have to worry about HOA fees and that combined with utilities would put them over their current rent.

  24. Johanna says:

    @Courtney20: It’s possible that the landlord is not making a profit on each month’s rent. Maybe he bought the unit at an inflated price in 2006, is now underwater and can’t sell, and so is renting it at a loss for the best price he can get.

    There are other reasons, too, why renting might be cheaper than buying. Maybe the landlord bought the unit long ago for much less than Aaron would be paying now (and so can afford to rent it for less). Or maybe the landlord qualifies for a lower interest rate than Aaron does.

    As for maintenance: Don’t condo fees usually cover some amount of maintenance? I thought they did. In any case, Aaron should check whether his does.

  25. Courtney20 says:

    @ Kevin – I haven’t rented an apartment where the rent included utilities, but I’m not sure how that applies here. Either way you are paying the cost of rent plus the cost of utilities, it just differs on if you are making one payment or several. You aren’t getting any discounts. The cost of utilities usually comes up in the rent versus buy question because bigger places = higher utilities. But since they are comparing rent versus buy on identical units, the utilities should be basically the same.

    @ Jonathan – that’s my point. The owner of a condo unit has the costs of the mortgage, the association fees (which for condos typically includes insurance), and the property taxes. If they are to make money on the unit, they have to at least cover their costs. The renter is not paying the property taxes *directly* (i.e. to the county) but they are almost certainly taken into account when the landlord sets the rent.

  26. Jonathan says:

    @Courtney20, you’re right, the landlord may very well be taking property taxes into account when setting the rent. As Trent suggested, however, Aaron needs to consider all additional expenses when making his decision. If property taxes, routine maintenance, insurance, PMI (if he doesn’t have a sufficient down payment) and closing costs eat up much of the $200-$300 savings he was counting on then he may (or may not) decide that renting is less risk than home ownership at this time. The point isn’t that this isn’t a bad deal because he isn’t taking into account all expenses, its that everything needs to be weighed when making the decision not just the difference between monthly rent and a mortgage payment, as home ownership does have additional expenses than renting does not.

  27. T says:

    I tried a little experiment one year with TurboTax and H&R Block. Not sure if they still do it, but TT allowed me to see what my refund was before printing out the documents. I jotted that down and went to the local H&R Block. Turned out my tax refund was much larger than it was with TT. I adjust my withholdings accordingly and repeated the experiment the next year. Once again I had a larger refund with H&R Block. Not as large as the year before since I had adjusted, but still more than I was offered via TT. Also, I found on TT that I wasn’t sure on a few things and did research which often left me confused. At H&R Block, it wasn’t just a program someone was typing info into, it was a person that would ask questions and gain insight before entering numbers. I’ve been with H&R ever since.

  28. Jackie says:

    @ #25
    It’d be great for landlords if they could set the rent based on their expenses. But in reality, rents are set by the rental market and landlords quite often don’t break even. (At least not in times like these.)

    I loose $400 every month on my rental home, but if I didn’t it’d be vacant and I’d be losing $1500 every month. Yay housing crisis!

  29. Des says:

    While *some* unfortunate landlords lose money on their rentals, those are generally former owner-occupants in a tight situation. Most landlords make money on their rentals, and they certainly include all costs when they decide whether to buy an investment property or not.

    Looking at Aaron’s numbers, it does sound like he will come out at least even, maybe ahead. The mortgage on a $32k loan would be about $152 a month P&I. I actually just put an offer on a $32k property (weird coincidence) and the taxes and insurance will be about $200 a month on mine (YMMV). If he also has HOA, you’re looking at probably another $150, which would put his full payment at $500. The money he will save will almost certainly be eaten up by maintenance/upkeep/remodeling costs, but if he wants to be a homeowner, this sounds like a great opportunity.

  30. TLS says:

    @ #24

    As I understand it, condo HOA fees do include insurance coverage, but this insurance does not genrally cover things inside your individual unit. You need your own homeowner’s insurance to cover things in your condo.
    For example, we had water damage caused by a problem with the condominium foundation = covered by the condo association.
    A neighbor had water damage caused by her own tub overflowing = covered by her personal homeowner’s insurance. This neighbor’s insurance also covered the damage done to two neighbor’s units because of the flooding caused by her bathtub. The condo association did not cover this.

  31. Telephus44 says:

    I just wanted to say – on the tax prep software, or doing it yourself pencil and paper, or going to someone to have it prepared for you – it’s not that doing your taxes one way or another gives you a bigger refund – the rules are the same regardless of how you do it. So it’s not that your refund will be bigger if you have them done at H&R Block – if you’re getting back $873, then you’re getting back $873 – the same rules apply.

    Now, if you filled out your paperwork differently, then of course you’ll come up with a different answer. So if H&R Block looks at your iformation and figures out that you qualify for a $500 credit and you didn’t figure that in your calculations – then yes, the refund will be bigger. But it’s because of the information that you use, not because it’s H&R Block. If I ran my taxes through two different preparation methods and got two different numbers, I’d be going over them to figure out where the difference is.

  32. jim says:

    Q1 Nicole: Your friends/acquaintances taxes are different than yours. Theres no reason to expect refunds similar to someone else. Is there ANYTHING else in your tax situation that complicates it more than 1-2 wage jobs, a mortgage and a kid? If not then the home software is probably just fine. If your taxes are more complex then in what way? Generally the software will do things correctly unless theres things it doens’t know about.
    I understand H&R block has a deal where they will review a previous year’s return for $29. You could gamble $29 to have H&R do a review of last years return. If they find something then you come out ahead but if they don’t then you only waste $29.

  33. jim says:

    Q4 Aaron: Do you plan to live there for several years? Do you want the responsibility of a $32k mortgage? If you answer no to either of these then I’d just rent. Others have pointed out that its unlikely that $200-300 is your total cost. HOA fees alone could be $150-200 and taxes could be as much. I would also look carefuly at the cheap condos for sale and make sure they aren’t foreclosures or short sales. Some short sales never go through and some foreclosures are trashed and needing tons of work.

  34. Des says:

    RE: Q1 – It also depends on what you mean by “huge fee”. We had very complicated taxes last year because of a not-for-profit rental to family, and a lot (about 100) of transactions in a non-tax-deferred investment account. It cost us $250 to have our taxes prepared by a professional.

    You’re paying for more than “a human face and a handshake” as Trent says. Over and over in articles and on blogs, when someone asks for tax advice the response is “Ask your tax adviser.” If you just have the standard married, kids, & primary residence (no rentals, no investments, no business, etc.) then Turbo Tax is probably fine. If you have questions, or your taxes are complex, you’re better off with someone that does it for a living.

    If I were you, I would have them prepared just this year, and also run your numbers through Turbo Tax. If the number is the same, use TT in subsequent years. If H&R comes out ahead, you’ll have your answer.

  35. Tara C says:

    Having just been stuck with a $16,000 special assessment fee from my condo association last year, I highly recommend you investigate thoroughly any maintenance issues your building might have. Check all the minutes of the previous membership meetings to see if any issues are mentioned. That fee was a nasty surprise I could have done without.

  36. Steve says:

    @Des Re:Q1 H&R block is little more than a human face and a handshake. 99% of their employees (who I believe are actually independent contractors) are little more than data entry clerks. Though, they do do more than one set of taxes, so it’s kinda like hiring a practiced amateur.

  37. Courtney20 says:

    @ Steve – We used H&R Block for the first two years we were married, but I didn’t feel like I got much value for the money we paid. I felt like I was walking them through our issues instead of vice versa. I started using TurboTax online in 2006 and haven’t looked back. It took about 2.5 hours the first time but less than 45 minutes each subsequent year (because it saves employers, charities, etc) so you have have the same stuff pop up each year.

  38. Amanda says:

    H&R Block, Jackson Hewitt, et al. are a waste of money (IMHO). If you need someone to prepare your taxes take them to a CPA or Enrolled Agent. The cost difference is negligible. Places like H&R that charge by the form, even if it takes them 30 minutes, often end up costing more than a CPA’s office that charges by the hour.

    Also, don’t purchase the High Standard or Gold Guarantees. The employee often gets extra commission for all the extras they sell you.

    Here’s how it works: The company has a standard to prepare your return correctly. If, by their fault, it turns out it wasn’t prepared correctly they have to amend without charging you. If you end up owing more money because of it you pay it.

    With their Gold Standard Guarantee they say you won’t have to pay the additional tax due as a result of the change. THE PART THEY DON’T TELL YOU: is that you will then get a 1099 in the year they pay the additional tax for you. So, in the end, are you really getting any savings? It’s tax you would have had to pay anyway if they had done it right. Just sayin’.

  39. Amanda says:

    Oh, I forgot to mention, (I’m a tax preparer) I rarely see an H&R return that doesn’t need to be amended by the time the client comes into our professional office. In addition, small business clients that prepare their own returns often take ineligible deductions because they don’t understand, or aren’t aware of recent tax law changes. It’s fine now, but if you get audited… no CPA’s liability insurance to cover you!

  40. Diane says:

    I would never assume that renting a condo and buying one are comparable. As an owner, you are part of and subject to the HOA. Condos – especially in these times when many HOAs are underfunded due to bad planning or people walking away from their units – can be hit with emergency “special assessments.” They can and they are, all the time.

    These can range from a couple of hundred in fees, to tens of thousands. If you are a renter, and such a thing happens you are indemnified. I suppose at the end of the lease the LL could try to pass them on to you, but then you just say, “sorry,” end the lease and find a new apartment. As an owner you pay or you are foreclosed on, or at very best if you don’t pay you are saddled with a lien that will make it harder to sell the place.

    I wouldn’t ever buy a condo. But if one were to do so, I would certainly suggest you scrutinize the HOA’s finances with a fine-toothed comb. Once you buy, it’s too late to escape these hits.

  41. Matt says:

    Q1/tax preparation: let me relate my experience with H&R Block (HRB), for what it’s worth. One year I moved out of the house I owned and turned it into a rental property. I didn’t have any tax software; I tried to work through the forms manually. What I wasn’t sure about was how to account for the rental income (in particular the depreciation expenses).

    So I went to HRB, thinking I would be able to talk to a knowledgeable tax person. It turns out, what Trent said is right: the person with whom you talk doesn’t have any special tax knowledge or training—they literally just read the form to you, and type in your answers!

    Not only that, but HRB charges by the form. With all my extra forms for the rental property (and some other things), my total bill came out to $300. Again, that was literally for someone to type my answers into HRB’s web-based software, NOT for expert knowledge from a tax professional.

    I later found an actual CPA who used to work for the IRS. She charges $50/hour, and I’ve used her ever since. For the last few years, her services have cost me $250. In other words, I’m paying LESS for someone who’s entire education and career has been devoted to taxes.

  42. Charlotte says:

    Any idea where Aaron from question 4 lives? I’ve never heard of a condo that can be bought for $32k.

  43. AnnJo says:

    To Kenny @Q3 –
    Trent is incorrect on the calculation of capital gains from the sale of gifted stock. The gain (or loss) is calculated based on the difference between the price your donor (the person who gifted it to you) paid for it and the price at which you sell it. What it was worth when you got it is irrelevant. If you plan to sell, you will need to ask your donor for his/her basis in the stock.

    I have a different take on your question. I’m a firm believer in diversification of investments, but then I spend a fair amount of time studying all that stuff. If you don’t, I’d talk to the person who probably does have some savvy, or at least some ideas – the person who gave you the stock. They may have given it specifically because they believed it was a good long term investment for your kids. At least give them the chance to have a say. If nothing else, they’ll appreciate that you value their interest in your children’s welfare enough to ask for their opinion.

    I made similar gifts of stock to my nieces and nephew and have been disappointed that as they became adults, they showed no interest in why I gave them those particular stocks, what they could expect from them in the future, whether they should keep or sell, and so forth. If their reaction had been otherwise, would I have given more? I suspect so. It was a sacrifice to make the original gift, and it’s hard to stay motivated to make additional sacrifice if it does not seem to be appreciated.

  44. deRuiter says:

    Dear Amanda, Q9, Don’t foget about INCOME TAXES which you will owe on the tips. Generally your empkloyer will estimate your tips or you must give them a slip each week with your amount of tips colelcted. If your employer is only collecting taxes on your salary, you may be in for a tax problem if you are audited.

  45. jennifer says:

    Q10 I am in the same boat and I feel for you. I was 20 when I married my husband, it was about love, I was too young and niave to even worry about money issues then. We attempted counseling, he quit, it truely is about control. I am continuing couseling on my own. I now have my own bank account, which I am honest about. Over the years I realized he was a spender and I tried to reason with him, unfortunetly I found out he was also hiding money, which was devasting to me. Ultimately you are responsible for you, you can’t wait for him to change. We just had our 25th wedding anniversy, we have 5 wonderful children, and thank God, I went back to school 5 years ago when I discovered his secert account, so I can take care of myself if I have to. My husband has good qualities as well or I wouldn’t still be in the marriage, but I refuse to be a victim. I encourage you to get counseling and research on your own manipulation, sounds like he has been getting his way for awhile.

  46. Kathryn says:

    Q10: I am a reformed spender. I started out frugal, eventually began spending in order to “self-medicate,” and have now cleaned up the problems in my life and am committed to frugality once again. It is certainly possible to marry a spender and not realize that you have done so.

    Here’s what I know: it is not usually effective to talk to spenders about money because money is almost never the real problem. Trying to give a budget to a spender is like giving someone aspirin for a toothache when what they really need is a root canal. I spent impulsively when my life was not going my way or felt out of control; it had nothing to do with money or with the items I bought. Spending was me using my power (to a spender, money = power) to affect my life. Spending was being in control, if only briefly. So, when my husband wanted to rein in my spending it came across as him trying to control me, and since I already felt like my life was out of control I was extremely resentful of his efforts. In fact, my desire to gain some semblance of control was so great that whenever he tried to get me to modify my spending habits, I would spend even more. And I knew I was undermining the family, and on some level I was ashamed of it, but I spent anyway because the need to fill up the hole inside myself was so great and I didn’t feel at the time as though I had any other tools with which to accomplish that. I justified my behavior by saying to myself, “I’m the primary breadwinner, I earned this money, he’s a control freak, he doesn’t understand what I’m going through…” etc. And every bit of that was true, but it didn’t change the fact that my behavior was unacceptable and was in opposition to our needs as a family and our long term goals.

    Once I sorted out the problems in my life and regained a sense of power, I no longer wanted or needed to assert myself with money.

    BTW, as part of my “reformation,” my husband had to learn not to squeeze so tightly. Most spenders are rebelling, as I did, and a wise spouse knows when to back off. You can’t rebel against kindness and respect.

  47. Sarah says:

    Many areas offer free income tax preparation! Remember to check with your local “2-1-1″ (like 911) or town/city hall for information. For many (not all) people, the free income tax preparation is a good option. The volunteers attend extensive training.

  48. Amanda says:

    @42 I’m not sure you’re correct. I thought basis is value on date of gift. This isn’t the place to ask for this type of advice anyway, see a CPA or attorney.

    @42. Yes!!!! This is what I was trying to say. See it all the time. =)

  49. Shan says:

    Hi Amanda (Q9),

    I also had to switch to budgeting with a fluctuating income this year – we had our second child, and while my husband works his normal job, I switched to restaurant work at night so I could be with our kids during the day. We are also trying to pay down debt quickly, so it got confusing where the money was coming from (and when it was coming!).

    We use a written monthly budget, so instead of allocating our paychecks before receiving them, we switched to a list of “spending priorities”. At the beginning of the month, we create a list of each bill or expenditure in the order that they are needed or due. As I make the tips, I deposit them in the bank and cross off items on the list. As we get down to the bottom, it’s things like individual spending (items that we want, but will be okay without if the tips don’t cut it). After crossing off the final item, any income gained past that gets added to our debt repayment.

    Hope this helps!

  50. Sandra says:

    #13 Michelle – unfortunately, there are parents who intentionally hurt their children. As a 20+ year family therapist, I have seen many instances in which the goal of the parent was to physically hurt the child. I wish all parents loved their children and only wanted the best for them, and thankfully, the vast majority do. However, some parents view their children with resentment and true hatred. With respect to sexual abuse, many perpetrators believe the child wants sex and that he/she is not harming the child in anyway. Twisted thinking clearly – but obvious in forensic interview tapes of perpetrators by police detectives.

  51. Dana says:

    Re: tax prep
    My brother filed through H&R Block and is now being audited because they talked him into taking deductions for which he didn’t have proof. I’ve always used Turbo Tax, and have never had any problems.

  52. valleycat1 says:

    Q3/#45 – I thought Trent was wrong too, based on our experience with inherited stocks. However, this is what I found when I did the google:

    The cost basis of your investment, the amount that was originally paid for the investment, can be determined by several methods:
    •If you purchased the investment, the cost basis is the amount you paid for it.
    •If you inherited the investment, the cost basis is the value of the stock on the date of the original owner’s death.
    •If you received the investment as a gift, the cost basis is the amount that was originally paid for the investment, unless the market value of the investment on the date the gift was given was lower.

    So yes you woudl need to know the market value that was originally paid for the stocks you received. You can find that out easily if you know the actual purchase date.

    I’d study up on whether the specific stocks are performing well or paying good dividends compared to the market or whatever fund you’re looking to invest in. We have hung on to a few individual stocks that are performing above the average.

  53. Sara says:

    Q1: If you want a bigger refund, adjust your deductions to have more taken out from your paycheck. Ok, that would be stupid — that’s just giving the government an interest-free loan (and that’s what your friends are doing to get their big refunds). The tax refund doesn’t come from Turbo Tax or H&R Block. It comes from paying the government more than you actually owed them.

    Q7: I have been using free TaxAct for several years and I highly recommend it. You can itemize deductions with the free version, and unlike Turbo Tax, there is no income limit for the free version. FYI, the state return is NOT free (it’s $14.95). My state has a free online filing program so I just use that.

  54. Laura says:

    Piqued

  55. McGillicuddy says:

    @Q3: Remember as well that for those in the 15% income tax bracket (whose taxable income is less than $68,000 for married filing jointly) the long term capital gains rate for 2010, 2011, and 2012 is 0%. Of course that taxable income would include the income from the sale, but depending on your situation you might want to sell now, or split the sale between this year and next, if it means saving yourself a 15% capital gains tax bill.

  56. The big thing on taxes, and really many other financial situations, is knowing *when* it’s a good idea to get help, and what kind of help you should pay for.

    For instance, at one time we essentially had just wages and interest income, and no deductions more complex than mortgage interest, charities, and state and local taxes. We did our taxes with pen, paper, and calculator, mailed them in ourselves for the cost of a stamp, and that worked fine for us. (This was before free or low-cost e-filing became common.)

    Some time later on, things got a bit more complex. We started having more income streams, dealing with more possible deductions and credits, and having to deal with things like estimated tax payments and the possibility of Alternative Minimum Tax. At that threshold, we considered it worthwhile to pay for software to help us with taxes (TurboTax, as it turns out). It’s money well spent to make sure we’re not missing possibilities to save on taxes, or making mistakes that could be costly down the road.

    Even as we went to using software, though, we considered what criteria would make it worth going to the next level: getting professional help. (Meaning a CPA and/or EA, not H&R Block, Jackson Hewitt, or the like. Those companies I consider worthwhile only if you’re not comfortable with using tax software, but can still resist pitches for overpriced “refund anticipation loans”, fee-laden “cash access cards”, and the like.)

    We decided a while back that the “pro” threshold would be met if we had to deal with things like business income, non-trivial capital gains situations, or matters involving estates, inheritances, and/or tax disputes. So, as our life has further changed, this year we’re seeking accounting pros for the first time.

    The basic take-away: it’s good to be frugal, but getting in over your head can be much more costly than paying for financial services when they’re called for. It’s important to know when you might need help, and you’re generally better off finding and paying for appropriate help when you need it, than to put it off and possibly paying a lot more later.

  57. jim says:

    AnnJo and Valleycat1 are correct. Its covered in IRS publication 551. You don’t get a ‘step up’ in the basis when you get an asset as a gift.

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