Before deciding that student loans are the right source of financing for you, ask yourself: “How much in student loans will I need?” and “What can my student loans cover?”
Subtract any scholarships or grant money you’ve received.
Subtract any money you plan to put toward your education from a summer job or personal savings. If your family plans to contribute funds, factor those in as well.
If you come up short, a student loan could help fill in the gap between family resources, grants, student aid and scholarships, and the cost of a college education. Just remember to borrow wisely, only taking on the amount you need, because you’ll have to pay back those loans.
While there are no hard and fast rules about exactly what triggers a tax audit, mistakes and misinformation are likely to lead the IRS to your door.
Here are a few tips that will help you report your income and deductions as accurately as possible and decrease your chances of being audited by the IRS.
1. Be Honest on Your Tax Return
Make sure you enter all of the information the IRS has received about you from any employer, including data from your W-2s. The IRS compares the information from these types of forms to the information you supply on your return. If these don’t agree for whatever reason, you may hear from the IRS, says Greg Lemons, CPA and owner of Padgett Business Services of Franklin, Tennessee.
It’s also important to report any cash income, such as tips. If you fail to report a portion of your income, you may be subject to hefty fines.
“You are required to report all of your income,” Lemons says. “Your return should always reflect your tax situation as accurately as possible.”
2. Seek Professional Help When Filing Your Taxes
If you fill out and file your return yourself, using tax software can help you avoid the types of errors that can trigger an IRS audit. In addition to doing the math for you, these programs let you know about tax deductions you may have missed, says Andrew Poulos, principal of Tucker, Georgia-based Poulos Accounting & Consulting Inc.
Poulos and Lemons agree that if you have anything beyond a simple return (i.e., you have more than two W-2s), you should consider hiring a qualified, licensed tax professional.
“People with one or two W-2s are generally a low audit risk,” Poulos says. “But if you are a homeowner with multiple properties, property taxes, children, and retirement contributions, you should use an accountant or licensed tax preparer. The benefit of using one can outweigh the fees they charge.”
3. Keep Accurate and Detailed Records Related to Your Taxes
Prepare for an audit when you’re preparing your return. “I safeguard my clients by making sure they have all of their records in hand before they file,” Poulos says. “We don’t know what may or may not be deductible until we get the numbers down on paper and see what we have.”
If you’re audited, you’ll need to prove that you qualified for the deductions you took. Always triple check that you meet all of the specific requirements for taking a deduction before you take it and keep supporting documentation for at least three years, the IRS suggests. For those who have had past issues with the IRS, such as missing or fraudulent tax returns, the IRS recommends keeping records indefinitely.
If you make a monetary contribution of any amount to a charity, you must obtain and keep a bank record or a written communication from the charity as a record of your contribution, and the written communication must meet certain IRS requirements.
If you claim a deduction of $250 or more, you must obtain and keep a “contemporaneous written acknowledgment” for the contribution. This means you must obtain a letter or receipt that is dated on or before the date you file to be able to take the deduction. The acknowledgment must meet other IRS requirements as well, including but not limited to the fact that it must state whether the charity provided goods or services to you in exchange for your contribution and other information that substantiates the amount of your contribution.
If you claim a deduction for a contribution of more than $5,000, a qualified appraiser may need to prepare a qualified appraisal in order to take the deduction.
4. Be Specific With Your Tax Deductions
Itemizing high-dollar, non-cash charitable donations, such as furniture or clothing, may call attention to your return. So Lemons suggests asking questions and obtaining documentation when you donate material goods.
“Agencies like Goodwill and Salvation Army can supply guides to help you determine what the proper deduction should be,” he says. When filling out tax forms, use as much detail as possible when describing the items you donated.
Lemons also suggests that when you list any cash donations on your return, go beyond just giving a grand total. “You should actually list out each charity and show the dollar amount for each one,” he says.
5. Check Your Work on Your Tax Return
Be sure that all relevant Social Security numbers are correct and that the return properly reflects your individual income and deductions. “I would recommend doing this even if a professional does your return,” Lemons says. “At the end of the day, it’s your return so make sure it is accurate in all areas before signing on the dotted line.”
Here are answers to some of the most common questions when it comes to the FAFSA.
What Information and Documentation Will I Need to Apply for Student Financial Aid?
The FAFSA for the 2015-2016 school year comprises seven sections of questions and requests for information regarding the student, his or her parents, and the colleges that should receive the student’s FAFSA information. Everything from general demographic and contact information (for example, marital status, mailing address, and Social Security numbers) to specifics regarding the student’s and parents’ assets (such as gross household income and 529 account balances) is requested.
Before filling out the FAFSA, gather key documents, including the most recent federal income tax return(s) for the parents and/or the student (as appropriate) and other tax and financial information and documentation. Find a complete list of the necessary documents and information at the U.S. Department of Education’s Federal Student Aid website.
When Should I Apply for Student Financial Aid?
The deadlines for submitting the FAFSA vary by program and by state, so it’s important to familiarize yourself with the various aid programs and their respective deadlines. The FSA’s website provides deadline information for some programs.
There are a few federal student aid programs that have limited funds, and many schools award aid on a first-come, first-served basis, so it may be beneficial to apply as early as possible — even if current taxes for the student and/or his or her parents have not been filed. If this route is chosen, and estimated tax information is provided on the FAFSA, it must be corrected after the appropriate return(s) is filed. In addition, because financial situations can change from year to year, a new FAFSA must be completed for every school year in order for the student to stay eligible for student aid.
Fortunately, filling out an application is free, the FSA provides several resources, and the process can take less than an hour.
How Is the Amount of Student Aid Determined?
Most students are eligible for some form of financial aid. States’ and schools’ financial aid programs use the information provided on the FAFSA to determine financial need. They usually apply a mathematical formula that takes into account the cost of attendance at the school or schools listed (up to 10 may be included on the FAFSA), minus the expected family contribution. The size of a family and the parents’ income, among other factors, are typically considered when determining financial need and aid award amounts.
How Do Federal Student Loans Compare to Private Student Loans?
Federal student loans often have fixed interest rates while private loans can have variable interest rates. Also, the terms of a federal student loan may not require repayment until after a student graduates and may allow for monthly payments based on income.
Given all of the upsides, if you’re starting college — or your son or daughter is — it’s worth applying for student aid.
When you start to invest in any market, your first step should be determining your risk appetite — or how much investment risk you can handle. You might be comfortable navigating the market’s high peaks and low valleys. Or you might find the uncertainty that can come with an aggressive investment strategy too stressful. These three questions will help you determine your appetite for risk.
Before you invest, your first step should be determining your risk appetite — or how much risk you can handle both financially and emotionally. You might be comfortable navigating the market’s high peaks and low valleys. Or you might find the uncertainty that can come with an aggressive investment strategy too stressful. These three questions will help you determine your appetite for risk.
If you want to achieve a certain amount of financial growth, you need to have some financial and emotional tolerance for risk, says Mark Gartman, Financial Consultant with Regions Investment Solutions. That’s because if you find it too stressful to watch your portfolio value go up and down, you might act impulsively.
“Pulling your money out at the slightest market fluctuation may not be a good idea. You can end up losing money over the long run,” Gartman says. If you have little to no comfort with market fluctuations, you might want to consider building a portfolio with less investment risk.
People often come to a financial advisor to handle one aspect of their finances, like setting up a 529 college savings plan. But a good financial strategy looks at the bigger picture. “I look at my client’s aspirations, risk concerns, and assets. I ask them, ‘What are you trying to accomplish?’” says Gartman.
Most people are trying to reach multiple financial objectives. “If my clients have a young child, they might have retirement goals and want to buy a lake house in the not-too-distant future. So I help them designate funds for each of these,” Gartman says.
He recommends maintaining a diversified portfolio to work toward financial goals while also mitigating risk. “I spread my clients’ assets across investment vehicles,” he says. “The objective is to create balance so that all assets are not in any one category. It’s the ‘don’t put all your eggs in one basket’ concept.”
Your risk appetite can rise and fall along your investment timeline, which measures both your age and how much time you have to reach your financial goal.
For example, as you near retirement, your risk tolerance will likely decrease because you have less time to recover any money lost as a result of market fluctuations, Gartman says. But when you’re planning for retirement 30 or 40 years out, you may be able to tolerate a higher level of investment risk.
Gartman suggests setting aside at least 10 percent of your net income per paycheck when you’re in your 20s for long-term goals like retirement. “This should not only help you achieve your longer-term goals, but it should also help you stay out of debt and accumulate wealth over time,” he says.
Learn more about understanding your risk appetite — and saving for the future — by visiting the Regions Investment Management Center.
Natural disasters — such as flood, tornadoes, hurricanes, or fires — can strike with little or no warning. If you live in an area that’s prone to extreme weather events, it’s critical that your family knows what to do to stay safe.
Before the clouds begin to gather, create a disaster preparedness plan to outline how your family will respond to different emergency situations, says Kevin Kelley, senior director, community preparedness programs, at the American Red Cross. “Everyone in your family should know the safest place in your home to go during a tornado, for example,” he says. “That’s an underground shelter in a basement or an interior room (closet, hallway or bathroom) of a sturdy permanent building.”
Each community comes with its own risks. So your first step should be to determine which types of natural disasters, such as floods, fires or hurricanes, are most common in your area, Kelley says. “Then create a disaster preparedness plan that addresses protective action to take for each local hazard and establishes a safe meeting place to reunite if household members are separated by the event,” he said.
Next, determine a family meeting point and outline what each family member should do if they are unable to get to the meeting point during an emergency situation, such as a mandatory evacuation. List the addresses of all the places where family members spend significant amounts of time, such as school, work, and day care, so that this information is saved in case GPS signal is unavailable.
Vickie B. Adams, a 20-year community emergency response team volunteer who is trained in first aid and emergency preparedness, recommends you choose two places to meet:
Identify an out-of-area emergency contact person, such as a close relative, and keep their contact information with you at all times. This person can help family members in the affected area coordinate if cellular service is unavailable or personal cell phones are damaged.
Finally, put together a disaster preparedness kit that contains food, water, and other basic supplies for each family member. Consult websites like Ready.gov and Redcross.org to learn how to put together a comprehensive kit.
Once you’ve created your disaster preparedness plan, review the details with your family periodically. “Ensure that everyone in your family knows the plan and practices the plan together on a regular basis,” Kelley says.
Present your kids with a realistic picture of what to expect in a disaster so they’ll feel comfortable playing their part if it becomes necessary, Kelley says. Quiz them about what they should do if a disaster strikes while they are at school or away from home. In addition to walking them through the plan, empower kids by giving them simple, age-appropriate tasks, such as gathering pet supplies for the disaster preparedness kit, Kelley suggests.
You can also involve them in the planning process by asking them what they would do in an unexpected emergency. For example, when you’re in the car with your kids, explore some alternate routes to get home from the grocery store, Adams says, or draw a map of your home and ask them, “What’s the best route to go in case of a fire?”
“What if’ scenarios can empower kids with more confidence and the ability to be active in an emergency because they’ll know what to do,” Adams says. “At the end of the day, if the children don’t know the plan, then the plan doesn’t work.”
Every teen looks forward to that first paycheck — but few know what to do with their newfound financial freedom.
Spending and saving habits start early in life, so it’s never too early to start teaching teens the importance of saving money. Here are five practical lessons that will show your teen the value of responsible money management.
Helping teens cultivate a habit of saving is what it’s all about. Encourage your teen to pay him or herself first by putting a certain percentage of the money he or she earns into a separate savings account. Getting used to setting aside 10 percent early will prepare them to save for an emergency fund, for their first home, or a rainy day. You can also teach the value of philanthropy by having the teen save a certain percentage to give to an organization of his or her choice. If your teen’s employer offers direct deposit, show him or her how to set up an automatic transfer of funds from every paycheck into a separate savings. If your teen needs encouragement, you could offer to add one or two percent to the total amount he or she saves over a set period of time.
There are a wide variety of online tools that can help you teach your teens how to manage their money. For example, the President’s Advisory Council on Financial Capability launched moneyasyougrow.org to help prepare children “to live financially smart lives.” It offers activities and resources that make it easier to talk to kids and teens about spending wisely and saving money as they grow. Similarly, the Financial Industry Regulatory Authority’s saveandinvest.org offers videos and games designed to teach teens and adults about topics like budgeting, saving, and the power of compounding interest.
The ability to distinguish between needs and wants will help your teen become a smart spender. Today’s teens live in a world of immediacy, so parents are encouraged to explain financial goal setting, which includes wishes, wants and current and future needs. Having conversations about needs and wants with teens not only helps them differentiate between the two but also teaches them to evaluate and make better financial decisions — such as opting for a lightly used sedan over a shiny new sports car.
When it’s time for your teen to decide how to spend his or her money, start by asking him or her to set specific financial goals. Whether they want a bike, a first car or to preempt those college expenses, having a clear goal will give your teen a better understanding of how much he or she needs to save. Then you can work together to set a weekly or monthly saving goal that will help your teen reach that goal.
Set up a simple system to help your teen track spending: Mark 12 envelopes to correspond with each month of the year. Then ask your teen to save each month’s receipts in the appropriate envelope. This will allow him or her to review purchases, evaluate past buying decisions, and recognize when he or she could have spent more wisely — or perhaps not at all. This exercise will empower your teen to improve spending habits over time. Perhaps he or she will think twice about spending money to eat out, for example, and put that money into savings instead.