Personal Finance

5 Common Mistakes When Applying For Financial Aid

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Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Given the astronomical cost of college, even well-off parents should consider applying for financial aid. A single misstep, however, can harm your child’s eligibility. Here are five common mistakes to avoid:

1. Presuming you don’t qualify. It’s difficult to predict whether you’ll qualify for aid, so apply even if you think your net worth is too high. Keep in mind that, generally, the value of your principal residence or any qualified retirement assets isn’t included in your net worth for financial aid purposes.

2. Filing the wrong forms. Most colleges and universities, and many states, require you to submit the Free Application for Federal Student Aid (FAFSA) for need-based aid. Some schools also require it for merit-based aid. In addition, a number of institutions require the CSS/Financial Aid PROFILE®, and specific types of aid may have their own paperwork requirements.

3. Missing deadlines. Filing deadlines vary by state and institution, so note the requirements for each school to which your child applies. Some schools provide financial aid to eligible students on a first-come, first-served basis until funding runs out, so the earlier you apply, the better. This may require you to complete your income tax return early.

4. Picking favorites. The FAFSA allows you to designate up to 10 schools with which your application will be shared. Some families list these schools in order of preference, but there’s a risk that schools may use this information against you. Schools at the top of the list may conclude that they can offer less aid because your child is eager to attend. To avoid this result, consider listing schools in alphabetical order.

5. Mistaking who’s responsible. If you’re divorced or separated, the FAFSA should be completed by the parent with whom your child lived for the majority of the 12-month period ending on the date the application is filed. This is true regardless of which parent claims the child as a dependent on his or her tax return.

The rule provides a significant planning opportunity if one spouse is substantially wealthier than the other. For example, if the child lives with the less affluent spouse for 183 days and with the other spouse for 182 days, the less affluent spouse would file the FAFSA, improving eligibility for financial aid.

These are just a few examples of financial aid pitfalls. Let us help you navigate the process and explore other ways to finance college.

Ensuring Your Year-End Donations Are Tax-Deductible

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Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Many people make donations at the end of the year. To be deductible on your 2017 return, a charitable donation must be made by December 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean?

Is it the date you write a check or charge an online gift to your credit card? Or is it the date the charity actually receives the funds? In practice, the delivery date depends in part on what you donate and how you donate it. Here are a few common examples:

Checks. The date you mail it.

Credit cards. The date you make the charge.

Pay-by-phone accounts. The date the financial institution pays the amount.

Stock certificates. The date you mail the properly endorsed stock certificate to the charity.

To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions. The IRS’s online search tool, “Exempt Organizations (EO) Select Check,” can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access it at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check. Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2017 tax bill.

Should filers be prodded to save tax refunds?

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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It’s that time of year when I — and other tax specialists — nag, I mean encourage, you to adjust your withholding so that you don’t get a big refund.

Our argument generally focuses on getting that money now as part of your regular paycheck so you can use it to pay for holiday spending instead of charging those gifts and paying the bill later with your tax refund.

One group of tax experts, however, says we should instead encourage folks to save their refunds even before they get them each filing season.

Millions of refunds, billions of dollars

That’s probably a wiser approach. After all, Americans love their tax refunds from Uncle Sam. The IRS says that through Oct. 30, it had issued almost 109 million refunds that totaled nearly $299 billion.

The average federal tax refund check was $2,746.

The Refund to Savings initiative is a research project by the Center for Social Development at Washington University in St. Louis, Duke University and Intuit, the maker of the popular tax software program TurboTax.

The Refund to Savings, also referred to as R2S, looks at the taxpaying and saving behaviors of hundreds of thousands of people using a special tax software program. The software version used, TurboTax’s Freedom Edition, is available for free to individual filers and active-duty military members who meet certain earnings limits.

Based on data from those filers, the R2S believes it can help bolster individuals’ finances by suggesting these filers save their tax refunds before they actually get the money.

Savings suggested at filing time

When people complete their tax returns, note R2S researchers, the money is there, but it’s not quite in the filers’ hands. By offering taxpayers a choice to save at that key decision point, the study believes it will get more savers because the intent is still fresh and the desired option is convenient.

“When filers are asked how they want to receive their refund, we inject motivational messages, suggesting they save for emergency, retirement or another long-term goal,” Michal Grinstein-Weiss, a professor at George Warren Brown School of Social Work at Washington University, told The Wall Street Journal. “We also suggest the amount they should save.”

The IRS already gives taxpayers the option to have their refunds sent to checking, savings or retirement accounts. All you have to do is check a box on your 1040, enter the account number and the money will be directly deposited as instructed. You can even divide your refund among various accounts.

The R2S effort simply encourages such savings actions.

Suggestions for VITA filers

The effort is detailed in a recent R2S report, of which Grinstein-Weiss is a co-author, prepared for volunteer tax preparers who help filers each year at all Volunteer Income Tax Assistance, or VITA, sites. VITA workers help lower income taxpayers prepare and file their annual returns at no cost. The 2015 filing season threshold is $54,000 or less.

“If one of your VITA clients decided to save his or her refund, or even part of it, it could prevent a potential financial hardship for them and their family,” notes the R2S report. “Or, perhaps better, it could be the start that enables them to do things they may have thought they never could: buying a house or sending a child to college. Encouraging your clients to save a portion of their refund could have a profound impact in their lives.”

Refund savings for all

I believe R2S is on to something here. And it’s an approach that should be taken by all taxpayers who get refunds, regardless of income.

Everyone needs to have some cash set aside for a special goal or for emergencies that always crop up.

As long as people are using tax over-withholding and the subsequent refund amount as a forced savings mechanism, we should do all we can to ensure that the money actually does transfer to a savings account.

Do you get a refund every year? Have you ever had that refund directly deposited to a savings or other account? Have you considered adjusting your withholding so that you’ll get the money in your regular paychecks?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

 

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.