Best of the Rest: Back to School Edition

Written by in Money
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Lauren recently got into graduate school, so she’s been enjoying the last few weeks of freedom before having to go back to textbook reading and paper writing. I’m very proud of her for getting in, and now we’re only about 2 years away from being a two-income household!

In honor of her hitting the books, I’ve been doing some reading of my own. Check it out!

13 Reasons NOT to Have a Budget (via Money Infant)

Don’t Be a Sheep When it Comes to Your Finances (via My Journey To Millions)

Part-Time Jobs You Should Get off the Couch for (via Studenomics)

What is Tax Evasion and How Could it Affect You (via Free From Broke)

Can I Retire? (via Canajun Finances)

Yakezie Carnival at Little House in the Valley
Carnival of Financial Camaraderie at Financial Success for Young Adults
Festival of Frugality at Squirrelers
Carnival of Wealth at Control Your Cash
Totally Money at Family Money Values
Festival of Frugality at The Frugal Toad
Carnival of Financial Planning at Skilled Investor Blog
Carnival of Retirement at Retire By 40

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Paypal Income Reporting Requirements for Bloggers

Written by in Business, Taxes
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For tax year 2011, the IRS did something very interesting: they required payment settlement entities to file Form 1099-K for payment transactions. This includes PayPal accounts that received at least 200 transactions and $20,000 total during the calendar year.

If you’re a blogger, the majority of payments are made via Paypal, so this adds a completely new hassle to the income reporting equation. The two biggest problems are:

  • Not everyone uses their PayPal account solely as a business account. For sole proprietorships, some payments from businesses should be marked as income. However, payments made from friends shouldn’t be. The IRS requirement doesn’t differentiate the different payments (unless they are made as personal payments). Therefore, in some cases, the 1099-K issued by PayPal may over-report income.
  • This also raises the issue of being taxed twice on the same income. If someone pays me over $600, they are required to file a 1099-MISC. If they pay via PayPal, PayPal then records that payment on the 1099-K. We shouldn’t be required to pay taxes twice on the same income!

The 1099-K changes are designed to prevent tax evasion, which amounts to over $300 billion a year in the U.S. I like the idea of holding people responsible for their taxes, and this holds people accountable for their online business ventures which in the past may have gone under the radar. For example, eBay re-sellers are required to report their online income, but it’s been easy to avoid it in the past.

However, this puts a large burden on taxpayers. eBay sales of used goods will still show up on the 1099-K, even though they shouldn’t be considered taxable income (if you sell something for less than it’s worth, it’s generally not taxable).

Because this is so confusing, the IRS did something smart. Really smart. On December 6th, the IRS released the 2011 Instructions for Schedule C, the form to mark profit or loss from business, and in it they gave all business owners a little reprieve and helped us prepare for our 2012 taxes as well.

First, while the 1099-K requirement still stands for 2011, the IRS has deferred the requirement to report the amounts on the 1099-K.

“However, for 2011, the IRS has deferred the requirement to report these amounts.”

What this means is that while you may get a 1099-K from PayPal, you don’t have to record that number on your taxes. You are, of course, still responsible to pay taxes on your income that you received through PayPal, but you can do it the same way it’s been done in the past, by recording only the actual business income on line 1b. You can simply enter ’0′ on line 1a.

Additionally, the 1099-K reporting requirement eliminates the need for some 1099-MISC filings, according to Don Frank, partner-in-charge of outsourcing with CliftonLaronAllen. The 1099-MISC indicates (in a not-so-straightforward way) that businesses should not complete Form 1099-MISC if the payment will already be reported on a 1099-K. So if someone pays you via PayPal and you will be issues a 1099-K, you won’t need to be issued a 1099-MISC as well. This avoids the double taxation issue.

Kudos to the IRS for realizing what a hassle this would be for 2011. I’ve started to prepare for 2012 by separating my personal and business PayPal accounts and by tracking PayPal transactions separately so I won’t have to go through at the end of the year and figure out which transactions were included on the 1099-K and which need to be recorded on the schedule C separately.

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What Happened to Envaulted?

Written by in Credit, Customer Service, Money Stories
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I’ve discussed Envaulted just once before on this site, when my brother asked if he should sign up for a service that gives 1% cash back on all credit card purchases just for giving them access to your purchase information on certain credit cards.

At the time, I said no because I thought there were a few actions that would have a much bigger effect on his finances. Why try and make about $2 a month when you can make changes that will make you $50 or more?

After signing up for Lending Club and opening an IRA account, he decided to try out Envaulted. Why turn down free money? It’s hard to argue with that logic.

My brother received a cool $100 from Envaulted over the past year, which is pretty sweet. But this past week, the site went down. I won’t even link to Envaulted.com because the site doesn’t even load.

There is no way to request payment anymore, let alone log in. People have connected their bank information, and there is no way to delete it. If I were a customer, I’d be worried. There’s no response from customer service, either. The only public communication was a single tweet from the Envaulted Twitter account, which has elicited plenty of responses, such as this one:

Envaulted

There is also this forum about Envaulted on FatWallet that discusses the issue. Alex, the COO, mentions that information is safe, but doesn’t say anything else to help people out. The mystery continues.

People want to know what happened, if their information is safe, and if there’s any way to get the payments they deserve.

This is just another reminder to choose the companies you do business with wisely, especially when it comes to secure financial information. I think the smart thing to do now is to change the passwords to any financial institutions that you had connected to Envaulted.

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Don’t Make These Mortgage Mistakes!

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There is so much to consider when buying a home: double-checking a mortgage calculator to know exactly how much you can afford; going with the lender that offers the best interest rate; knowing which size house is best for your family and many other factors. With so much at stake, you may find yourself caught up in the excitement of making that first home purchase and this is when mistakes can be made.

Show Stability

Avoid job hopping prior to seeking a mortgage lender. Lenders like to see that you can prove stable income every month for any given length of time and going from one job to another only proves that your job history is shaky at best. Transferring to the same job in a new location isn’t a deal breaker, but completely switching careers can cause problems. The best thing you can do is to wait until after the closing date to change jobs.

Pre-Approval

Many potential homeowners skip the step of becoming pre-approved for their loans. Don’t jump into house shopping thinking you can afford a certain amount because there’s always a chance that you won’t be approved.

Getting a pre-approval is more involved than a pre-qualification because the lender will look at your credit history, employment status, current assets and total income to get an idea of what you can really afford. This is why using a mortgage calculator is so important before shopping around for a home, but be sure to use the mortgage calculator in conjunction with an authentic pre-approval.

Credit History

It’s also smart to check your credit score long before the bank does so you know exactly where your credit history stands. This way you can clear up any discrepancies, if they exist and polish that report until it shines. Stay away from applying for other types of credit such as credit cards when seeking a mortgage, since doing so can harm your credit score.

Shop Around

A major mistake that most first-time homebuyers make is not shopping around for their mortgage. Just because you’ve banked with a certain financial institution for years doesn’t mean you have to take out a mortgage with them and just because you’re pre-approved with one doesn’t mean that you have to go with them. Compare multiple banks and home loan lenders to see which one offers the best rates and loan terms.

Finally, the biggest mistake that homebuyers make is not reviewing those loan documents. It’s easy to just sign on the lines pointed out by your loan officer and considering the stack of papers involved in a mortgage document it’s no wonder that people skip this step, but going over the mortgage in its entirety is crucial. You are consenting to take responsibility for that mortgage, so you need to know exactly what terms you are accepting. If there is anything listed that you don’t agree with, bring it up with the loan officer and never be afraid to ask questions.

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