Let’s go over the concepts you need to talk about with your teen.

Checking Accounts

A checking account is key to financial responsibility for teens. Explain how checking accounts work, including the fees associated with these accounts. Teach your teen about writing checks, using a debit card, and recording everything. Make sure the child understands that failing to record something could lead to an overdraft and overdraft fees.

Don’t just explain checking accounts to your child. Have your child set up a checking account early to learn fiscal responsibly. Monitor the account at first to make sure your teen is recording every item, even those packs of gum.

Credit Cards and Interest

When your teen turns 18, he or she will begin receiving credit card offers. Many teens don’t understand how credit cards work, and because of that, they overspend. This comes down to not understanding minimum payments and interest.

Unsavvy teens believe if they spend $1,000 on their credit cards, they can pay it off quickly by paying $20 a month. In reality, if they only make the minimum payment, it will take six years to pay back that debt if the interest rate is at 12 percent.

Use a payment calculator to show your teen how much credit cards actually cost. When your teen is ready for a credit card, consider adding him or her to your own account so you can monitor the spending for a while. This could save your child a huge headache and a lot of heartache in the future.

Taxes

As an adult, you understand that taxes are a way of life, but your child may not – make sure they are prepared before heading into the real world.

Your child drives on roads and visits parks, sees police and fire stations on the road and likely attends public school. Explain that these services are covered by taxes.

Break it down so your child understands that sales taxes are paid whenever he or she purchases an item, and state and federal taxes are paid out of paychecks. It’s important that your child understands how the tax process works to avoid over or underpaying taxes.

Insurance Plans

Right now, your child is on your health and auto insurance plans, so they don’t have to think twice about making payments or heading to the doctor. That won’t always be the case, though. Your child needs to understand what insurance is and why it is important.

Explain that they will give money to insurance companies, so the companies will cover expenses if something happens. For instance, tell your child that they will pay auto insurance premiums, so the insurance company will cover them if an accident occurs.

Also, explain how bundling insurance policies helps people save money. In addition, go over the expenses he or she can incur without insurance. For example, an emergency surgery could cost hundreds of thousands of dollars without insurance.

Emergency Funds

Explaining emergency funds is probably the most important lesson you can teach your teen. Working adults should have at least six months of income in a savings account. That way, they can dip into the account in case anything happens.

Explain to your child this money will help in the case of:

• Loss of employment
• Medical emergency
• Home repairs
• Unplanned travel expenses

It’s Time to Have the Financial Talk with Your Teen

Don’t wait another moment. It’s time to have the financial talk with your teen so he or she will be ready for the real world. If your child has smart money sense, he or she will make it far in this world.

The post Financial Concepts Your Teen Should Understand appeared first on AccurateTax.

What Is Cryptocurrency?

There are several types of cryptocurrency available, with the most popular being Bitcoin. Alternative varieties include Litecoin, Etherium, Zcash, Dash, and Ripple, among others. All of these operate within the same type of basic framework that relies on cryptography to verify transactions. This ensures that the same units of currency can’t be spent multiple times, thereby establishing the value of that currency.

That value can fluctuate, however, in a manner similar to that of a traditional currency but much more dramatically. That’s partly because there is a limit to the number of units of each currency that can be in circulation. So the more people who are holding these units, and the closer the number in circulation gets to the cap, the more valuable each unit becomes.

Of course, there are a number of other factors that go into determining the value of any given cryptocurrency at a given point in time, but the basic structure for each is the same. There had been several previous attempts to create a virtual currency, but all had failed due in large part to their reliance on a company or other large entity to serve as a guarantor of the transactions. The cryptographic model eliminated the need for that guarantor, and so Bitcoin was able to flourish.

Uses and Trends

Cryptocurrency can be used to make purchases, or it may be acquired as an investment. Although the number and types of places you could use cryptocurrency were limited at first, there are even apps now that make it possible to pay in cryptocurrency at a brick-and-mortar store. Investing in cryptocurrency is another common practice, made more attractive by the dramatic spike in the value of Bitcoin in particular recently.

In October of 2013, one Bitcoin was worth about $150, and it increased shortly thereafter to almost $1,000. The value then hovered in the hundreds of dollars for the next couple of years before suddenly rising dramatically, spiking at close to $20,000 in December of 2017. Since then, Bitcoin has settled back down, with a value as of this writing around $8,000 per unit (you can check the current value of Bitcoin and other cryptocurrencies here). That demonstrated volatility has made it and other cryptocurrencies look like attractive investments to some, despite the potential for incurring large losses as well.

Cryptocurrency and Taxes

Another aspect of dealing in cryptocurrency that many people are not aware of before investing in it is the fact that, for tax purposes, the US government considers cryptocurrency to be property rather than currency. This may seem like an insignificant distinction, but it actually has a direct and dramatic impact on the tax bill you may receive if you’ve been using cryptocurrency.

That’s because, when cryptocurrency is viewed as property, making a purchase with it actually becomes two transactions. The first involves converting the cryptocurrency to traditional currency, and the second involves completing the purchase with the traditional currency. These are steps you may not be aware you are taking, but as far as the IRS is concerned, they occurred. Thus, you are responsible for paying capital gains tax on the first transaction and possibly sales tax on the second, depending on the item purchased.

Investing in cryptocurrency is risky as well, especially if you only plan on holding it for a short period of time. Any cryptocurrency you sell after holding it for less than a year will cause your profits to be taxed as income. If you do hold the cryptocurrency for more than a year before selling it, your profits will be considered long-term capital gains, and so be taxed at a lower but still significant rate.

This is a dramatically different process than that involved in converting between traditional currencies, and due to the volatile nature of cryptocurrency value, it’s very possible for you to wind up with a tax bill that’s much higher than the current value of the currency you’re holding. Similarly, converting from one cryptocurrency to another is two transactions rather than one for tax purposes, leading to the same types of potential pitfalls and high tax bills as using cryptocurrency to purchase goods.

The popularity and versatility of cryptocurrency mean that it’s likely not going away any time soon. That makes it an essential element to understand, both as a consumer and as a retailer, and while it’s possible to deal in cryptocurrency profitably, it’s important to know exactly what you’re working with so that you’re not overwhelmed when your tax bill arrives.

The post Tax on Cryptocurrency appeared first on AccurateTax.

Harvey in Texas

Predictions for the total cost of the destruction wreaked by Hurricane Harvey in Houston and the surrounding areas ranges all the way up to $190 billion, which would make it the most costly storm in US history. That’s largely due to the massive amount of rain the hurricane dumped on Houston and the widespread flooding that resulted. That flooding damaged or destroyed many homes and cars, kept businesses from opening, damaged infrastructure, and kept people from getting to work, all of which has a negative impact on the local economy.

The losses brought about by that brief pause in the local economy can quickly be made up, however, particularly because the rebuilding efforts will inject a significant amount of money back in, and because Houston’s economy was booming before the storm. That’s not to say that the challenges for individual people will be overcome quickly, as many of them lost everything and are struggling to figure out even where to begin. But in terms of the larger economic picture, the work of rebuilding will provide jobs, while financial assistance from the federal government will bring the necessary capital to get the work done.

One potentially far-reaching impact of Hurricane Harvey involves the oil and gas industry, which makes up about one-third of Houston’s economy. A significant portion of the oil refining done in the US happens in and around Houston, and damage to those refineries cannot be easily repaired due to the lack of companies skilled in that particular type of work. Gas prices in Texas are already rising, and depending on how long it takes the industry to get back up to capacity, that impact could spread to the rest of the country as well.

Irma in Florida

The damage estimates in Florida in the wake of Hurricane Irma range from $64 billion to $92 billion, which is mainly due to the sheer size of the storm. Very few parts of the state escaped at least some impact, and so the rebuilding effort will have to be far-reaching as well. The situation is further complicated by the fact that there were not many large insurance companies operating in Florida, as most pulled out after a series of storms hit the state in the 2000s. That leaves an insurance market dominated by small companies, and it remains to be seen how they will handle the massive volume of claims they’ll be receiving in the coming weeks.

One area where Florida could see a lasting economic impact is in the tourism industry, the recovery of which will depend on how easy it is to get to Florida in the near future and how livable it is. That will vary from one part of the state to another as well, and so losses in this area may not be evenly distributed. September is typically a slow month for tourism, though, which gives the state some time to get back on its feet.

Agriculture is also a significant economic force in the state, and the storm has caused an estimated 12% drop in Florida’s citrus production for the year, as well as a 10% reduction in the sugarcane crop. Also impacting the agriculture industry is the fact that much of the housing for seasonal farm workers was damaged or destroyed by the storm, which may make it hard for farmers to get the help they need to bring in the harvest.

Maria in Puerto Rico

The catastrophic damage Hurricane Maria brought to Puerto Rico will have much more of a long-lasting economic impact on the island than either Houston or Florida will have to deal with. The storm knocked out all power to the island, and it may take anywhere from three to six months for it to be fully restored. Fuel supplies for generators are running low, and many of them run on diesel fuel, which is in particularly short supply.

The lack of power means that businesses can’t function normally, and although the total cost estimates are closer to $30 billion for this hurricane, that represents about one-third of the entire gross domestic product of the territory. Losses from tourism are another significant source of concern, as that industry was the only one in Puerto Rico that had shown consistent growth recently. The island was already in the midst of a decade-long recession, and that will be greatly exacerbated in the aftermath of the storm.

About 25% of the pharmaceutical drugs exported by the US are manufactured in Puerto Rico, which makes up a significant chunk of the island’s economy. These companies have been moving away from Puerto Rico in recent years since Congress decided to end special tax incentives for businesses operating on the island, and that trend is likely to accelerate in the near future. A similar exodus of people, particularly those with more means and more advanced skill sets is a concern as well.

All of these long-term problems pale in comparison to the crisis on the ground in Puerto Rico right now, and getting enough food, water, and other supplies to the island will likely be the main recovery priority for some time. Due to the island’s relatively small size, the economic impact of the storm may not be felt in other areas of the United States, but for Puerto Rico, it will be a very long road to recovery.

The post How the 2017 Hurricane Season is Affecting Our Economy appeared first on AccurateTax.

One major benefit of the legalization of marijuana in these states has been the huge infusion of cash due to taxes on the sales to both state and local government budgets, and this revenue is being used to finance new programs as well as fill the void created by the loss of some more traditional streams of revenue.

Where is Recreational Marijuana Legal?

Currently, there are eight states with laws in place that make it legal to purchase marijuana for recreational use. In 2014, Oregon and Alaska followed the lead of Washington and Colorado, while California, Nevada, Massachusetts and Maine all passed ballot initiatives in 2016. On May 10, 2017, Vermont became the first state to pass a bill legalizing marijuana entirely through the state legislature.

Twenty-one other states allow some measure of legal medical marijuana use, and more are considering similar legislation. However, the federal government still technically classifies marijuana as a Schedule I drug, which is the most rigid possible classification and does not even allow a doctor to prescribe it.

There has been an ongoing battle to get the drug reclassified since 1972, and the impetus to do just that may increase as more and more evidence accrues about its many therapeutic properties. Although the federal government is not set to change its classification of marijuana in the near future, it has largely stayed out of the legalization movements within individual states.

Impacts on State Revenue

Regardless of the legal and social debates surrounding recreational use of marijuana, there is no doubt that it’s been a huge and much needed source of revenue in the states that have legalized it. That revenue is the result of substantial taxes on the retail sale of products containing cannabis, as well as fees paid by retailers and growers to obtain licenses to operate legally. Although the specifics of the tax rates and statutes vary from one state to another, their impact can’t be easily overlooked.

Current Tax Rates and Revenue Distribution Plans

These tax rates are relatively high, especially when compared to standard state sales tax rates, but they are accepted by the industry as part of the cost of doing business. This has been a huge boon for these states, as a recent study by New Frontier Data (no longer on their website) reports that they’re on track to take in about $655 million in taxes on the legal marijuana industry in 2017.

When you look at the volume of sales across these states, that number isn’t terribly surprising. For example, Washington collected more than $20 million in tax revenue in June 2016 alone thanks to an approximately $87.6 million in total sales in the state. The $67.2 million that Oregon took in the first year after legalization was more than three times government estimates, and Colorado had $70 million in revenue for the fiscal year that ended in June of 2016.

Even states that have only legalized medical marijuana have seen great influxes of cash thanks to taxes on those sales. Arizona, for example, took in $30 million in 2016 in revenue from sales of medical marijuana. Taxes on medical marijuana are also typically significantly lower than on recreational sales.

A Growing Trend

The incredible revenue streams the states with legalized marijuana have unearthed are leading more and more states to consider this type of legislation, and they’re also providing plenty of incentive for states where it is already legal to push back against any federal attempt to restrict these sales.

The value of the marijuana sales tax income that these states are receiving in is enhanced even more by the fact that some traditional revenue streams are dwindling or disappearing entirely. Cigarette sales are down in most places, and so that source of income has stagnated somewhat, as have revenues from fuel taxes since many people have more fuel-efficient vehicles and gas prices in general have been relatively low.

States are also facing the prospect of reduced funding in some areas from the federal government, and so in that context, the sizeable income available through taxes on the sale of legalized marijuana is an even more enticing prospect and may even be a much-needed lifeline.

The post How Legalizing Marijuana Has Affected States’ Revenues appeared first on AccurateTax.

Use the following links to quickly jump to a section of interest.

Taxes on Income & Business

1. Payroll Tax

This tax is generally a percentage deducted from the paychecks of staff (full- and part-time employees). These taxes include two parts:

• Deductions, also known as Withholding Tax. These cover an employee’s required contributions to federal and state incomes taxes, local taxes, FICA (short for Federal Insurance Contributions Act) for social security and Medicare, unemployment and disability insurance. This also includes voluntary deductions that an employee chooses, such as contributing to a Flex account.
• Taxes related to the employer’s cost of employing a person, such as contributing to the employer’s healthcare insurance costs.

2. Alternative Minimum Tax (AMT)

This supplemental income tax was established by Congress in 1969 in order to ensure that wealthy households avoid loopholes and pay more tax. It applies to individuals, corporations, estates and trusts that apply for certain benefits or exemptions. As of the American Taxpayer Relief Act of 2012, the AMT is now tied to inflation to ensure that middle class families are not impacted too harshly by the AMT.

3. Estate Tax (Federal)

According to the IRS, this is a tax on a person’s right to transfer property at the time of their death. The tax takes into account everything a person owns or is invested in at the time of death, including cash, securities, real estate, insurance, assets and more. This is called the “gross estate” and only a few deductions are allowed (such as funeral expenses). A certain amount is exempted by law depending on the year of the death. The current exemption rate for 2016 is $5.45 million, with a top tax rate of 40%. Any amount inherited above that rate is liable to the estate tax. Portability is when the unused exclusion is transferred to a surviving spouse and can be used against that tax liability as well.

4. Estate Tax (State)

The Tax Foundation reports that more than a dozen states also have their own estate tax, which can range as high as 20% in Washington State. Exemptions sometimes exist for this too but the estate tax assets range is lower than federal, currently ranging from $675,000 to $2 million.

5. Inheritance Tax

This is a state tax only in effect in a few states levied on those who inherit property or income from someone living or owning property in those states, outside or their own spouse. The amount and availability of deductions depends on the relationship of the deceased to the inheritor. This is different from the estate tax listed above (New Jersey and Maryland have both). Each state has different regulations so check your state.

6. Federal Gift Tax

Similar to the estate tax, this applies to transfer of property from a living person, without getting something in return such as compensation or consideration. Portability can apply to this as well. This tax is paid by the giver rather than the recipient. The IRS specifies this does not apply to certain gifts such as donations to a political organization, tuition, medical expenses or gifts to a spouse. Gift taxes apply when a donor gives more than $14,000 per recipient in a calendar year for 2016.

7. Self-Employment Taxes

The IRS and certain states require those who are self-employed as a sole proprietor, an LLC with a single owner or as an independent contractor to pay the following taxes:

• Income tax: If the net losses or expenses are less than the net profit, self-employed individuals will need to report that difference as income. You must report income over $400 and possibly less.
• Self-employment tax: These quarterly taxes are used for Social Security and Medicare contributions.
• State income tax, if applicable.

8. Taxes for Other Small Businesses

Depending on whether the business is a partnership, corporation, S-Corporation or an LLC with multiple partners or shareholders, you will need to file federal income tax and self-employment taxes, and possibly estimated tax. Owners will also need to file state income tax, where applicable.

9. Affiliate Income Tax

Affiliate income earned from any outlet is considered taxable income.

Numerous state rules apply determining who must pay and when, including whether a nexus applies as well.

10. Rental Income

The IRS requires filing on rental income, however it allows a number of deductions for expenses, such as mortgage interest, property tax and operating expenses. Reporting goes on the annual income tax form. Additionally, state taxes may apply from the state that the rental property is located.

11. Tax on Prizes

Any merchandise, property, trips or cash that a person wins are subject to federal taxes, and must be filed on your annual form as “additional income.” Additionally, winters will have to report that income in applicable states.

Taxes on Purchases

12. Sales Tax

Sales tax is collected on most tangible items that are purchased, however it can also apply to consulting services and downloadable software, SaaS and cloud computing services as well. Sales tax is figured as a percentage of the item taxed and is set by local governments and states that collect tax. It is paid by the buyer at the time of purchase and remitted by the retailer.

13. Use Tax

Frequently collected by states that have a sales tax, a use tax is collected on goods bought out of state, paid by the purchaser. Use taxes are not enforced by states as rigorously as sales tax. Laws have changed in recent years, and now some states require the retailer to pay uncollected tax for online purchases if a nexus exists for the retailer.

14. Excise Tax

Excise tax is similar to a sales tax, but it only applies to specific goods such as luxury items and fuel, or goods linked to health issues, such as cigarettes or alcohol.

15. Capital Gains Tax

A capital gain is defined as a profit made from the sales of an asset (property, home, furnishings, stocks and bonds, etc.) minus the amount you paid for it – which includes all costs, including taxes, shipping, installation, home improvement etc. However, the sale of homes is most often exempt from capital gains taxes, according to Investopedia.

16. Alimony Tax

Alimony is deductible for the payee and taxable for the recipient. (However, child support is not considered taxable income and therefore, not deductible either.)

17. Property taxes

Annual property taxes are collected by states and local governments based on the appraised value of a property. They include:

• Real estate, including land and homes.
• Cars, boats and aircraft tax in some states.

Taxes on Investments & Savings

18. Tax on Interest and Dividends

Generally interest earned is filed as income on the federal tax return. It includes interest on bank accounts, dividends, interest on loans someone gives out and more. Some forms of interest may be exempt, including interest from certain bonds.

19. Tax on IRAs

Contributions to traditional IRAs are tax-deductible but when that income is distributed, it is taxable by the IRS. According to the Wall Street Journal, some distributions are not taxed even in a state with taxes. This is not the case for Roth IRAs, however those contributions are not reported on tax returns. Additionally, some Roth IRA distributions are not subject to tax.

Other

20. Individual Shared Responsibility Payment

This is a fee assessed on households for any month a taxpayer or any of his or her dependents do not have minimal essential health insurance if it is deemed you can afford coverage. The fee is either a percentage of household income or per person, whichever is higher and is paid when taxpayers file their Federal income tax returns. See Healthcare.gov to learn more. (Note: This no longer applies as of 2019.)

As an American, will you eventually pay all of these taxes? It’s possible, but most people won’t. If you never own a home or car, you won’t pay property taxes. You won’t have self-employment taxes if you’re not an entrepreneur. Only those who are divorced have the possibility of alimony tax. But I’m willing to bet there are some people who’ve paid every single one of these kinds of taxes across a lifetime.

The post All The Taxes You Could Pay In Your Lifetime appeared first on AccurateTax.

This month and next, millions of young people will graduate from high school and start preparations for the next step in their lives. As these new graduates prepare for college and the world at large, it’s important that they are as prepared as possible.

If you or someone in your family is embarking on this journey, we’ve gathered 10 personal finance tips every college student should know.

1. Choose a Checking Account that Matches Your Needs

If you have an existing checking account from high school, there’s a good chance that it won’t match your needs as well in college. You’ll want a bank that is flexible in location as well as your balances and how you access your money. ATM fee reimbursement, low daily minimum balances, and plenty of branches both on/near campus and back home are all important to ensure your checking account is as flexible as possible for the next four years.

2. Invest Time in Software to Manage Money Now

Don’t wait until your finances are a mess or worse, you have no idea what is happening with your money. Invest time in a simple, easy to use money management tool now and it will keep things simple moving forward. There are several powerful mobile apps like Mint and level that make money management both easy and mobile while in college.

3. Research Your First Credit Card Carefully

It is important for students to obtain and wisely use a credit card in order to start building credit as a young adult. The sooner you do this, the better your credit score can be, since the age of accounts is a critical factor in the score. This will help you have an established financial history, years ahead of when you may need it – for an auto loan or mortgage, for instance.

But be careful. Credit card companies are notorious for offering freebies and incentives for young people to get them on board. Instead of the t-shirt or frisbee, ask the credit card company to explain the fine print of a potential contract. What is the annual fee, what kind of rewards will you get, what is the effective APR, and what are the repayment terms?

4. Don’t Use Credit for Things You Cannot Afford

Credit cards are a useful tool to consolidate spending, protect your identity, and build credit for future large purchases. They are not a resource for buying things you cannot afford. While they can certainly be used as such, it can be extremely costly if you are not careful. High interest rates leveraged on students, overextension beyond your budget, and high balance percentages that can actually hurt your credit score are all dangers. Don’t use your credit irresponsibly.

5. Build a Budget Early and Follow It Carefully

For the first time, you’ll be fully responsible for a large number of expenses (possibly all of them). So you need a budget for how to manage those expenses. Track your monthly income from a part time job or financial aid disbursement, and have a clear list of all of your recurring expenses.

Make sure you know exactly how much money is needed each month for rent, groceries, gas, car and health insurance, utilities, and other household goods. It doesn’t need to be detailed to the last cent, but you should have a very close idea of what you need and whether you are making enough to cover it. Don’t forget recurring expenses like books either – these can sneak up on you since they only recur 2-3 times a year.

6. Use Student Discounts Wisely

When you arrive on campus, you’ll get your first student ID. That magic card will come with a bevy of discounts and ways to save money – and not just on campus. Many local businesses will offer discounts and perks to students. This could be as simple as a 10% discount on your next meal, all the way up to major discounts on new computers, greatly reduced transit costs for local trains or buses, and supplies for your classes. Use them wisely to save money on things you already have to buy.

7. Reduce Your Textbook Spending

It may only happen 2-3 times a year, but textbooks represent a huge expense for most college students. The first semester you have to drop upwards of $1,000 on books, you’ll be eager to find any way you can to reduce the expense.

Fortunately, there are ways to do so. To start, you can buy used textbooks. You can find students who recently took a course you are taking locally on campus or on sites like eBay or Craigslist. You can also find discounted textbooks on Amazon.com, or you can rent them from services like Amazon or Chegg. Some textbooks are even available for digital rental, which can reduce their cost by as much as 60% if you have a tablet or laptop.

For those books you do buy, make sure to sell them immediately after the semester is over to recuperate the cost. You can get upwards of 60% back on a new book and potentially all of your money back on used books you already bought.

8. Protect Your Identity

Students between the ages of 18-24 are among the highest in terms of risk of identity theft. Worse, most people in this age range don’t pay attention to their credit score, credit card statements and other data. The average time to notice a problem for this demographic is nearly 4 months. You can get a free credit report from AnnualCreditReport.com or you could pay extra for a service like Lifelock to protect your identity and alert you when something suspicious happens.

9. Manage Your Student Loan Debt

If you are like most college students, you’ll likely need to take out at least some loans. For most students, this means a combination of Federal and State subsidized loans that have low interest rates and friendly repayment terms, and private loans with much higher rates and less friendly terms.

To avoid taking on too much of the latter, to your research and make sure you only take out as much as you need. As much as you might like to enjoy your time in college, a part time job can cover a lot of expenses over the course of four years, while student loan debt can pile up rapidly and become a major burden when you graduate.

10. Be Smart and Become Better Prepared for the Future

Most of your financial decisions while in college won’t have ramifications for years to come, but they can affect you for decades. The debt you accrue, the credit score you carry with you, and the money in savings will all be huge factors when it comes time to move and get a job for the first time, buy your first car, rent an apartment, and more.

So be smart, be careful, and be frugal. Smart decisions now will pay dividends for the rest of your life.

The post Personal Finance for College Students appeared first on AccurateTax.