"The chief value of money lies in the fact that one lives in a world in which it is overestimated." - H. L. Mencken

How Long Can You Postpone Your Taxes?

Postpone your taxes or get an extension -- which is possible?Have you wished you could postpone your taxes — like until different politicians take office and change the tax laws? Sorry, but you’re out of luck.

You can postpone your filing deadline until as late as December 15, a couple of weeks before any newly elected Congresspeople get sworn in.

And all an extension does is delay the deadline for filing a return. It doesn’t postpone the payment deadline. You end up incurring interest and even penalties if you wait to make a payment.

Postponing the Filing Deadline

The Internal Revenue Service gives you the option of requesting a six-month extension — and you can file for a second one lasting two months (three different exceptions apply, but details on them come later in the article).

The agency automatically approves all requests for extensions — as long as you follow the rules for doing so.Make the request by filling out Form 4868 by the filing deadline: April 15 for the first one and October 15 for the second extension. You can submit the form electronically or by mail.

Obviously, you won’t know how much you owe or are owed as a refund until you file that return, but if you wait to pay until October 15, the agency may charge you six months’ worth of interest on the amount you are owed, plus possible penalties. Get another postponement until December 15 and you incur eight months of interest.

Payment Plans Are Better

So if you are considering filing for an extension because you can’t afford to pay the taxes right away, there’s a more cost effective way to handle the situation.

File your return on time, and include a payment for as much as you can afford — even if it’s only a nominal amount, like a dollar — and request a payment plan — the agency actually has several such options available — that will allow you to make monthly payments until the amount is fully paid.

This tactic can spare you from having to pay penalties and also reduces the amount of interest the IRS will charge you.

Some Exceptions

As alluded to above, the IRS also grants some automatic extensions people who don’t ask for it in three different circumstances:

Business Filings

Speaking of businesses, things work a little differently for those filing tax returns on a behalf of a business. If you want an extension for a business filing, fill out IRS form 7004, and the agency will allow you to postpone the return by five or six months.

If you anticipate that the business will report a net loss for the year, complete form 1138 instead of 7004, and the deadline for payment of taxes gets extended until the end of the month in which the taxes are usually due.

Just like the form for individual tax return extensions, both form 7004 and 1138 can be filed either by postal mail or electronically. Similarly, you still incur interest on any amount due if you submit a payment after the deadline.

Before You Postpone Your Taxes…

Don’t forget to request an extension, because you don’t automatically get one if you file late. So if you just skip filing a return and postpone paying your taxes, you may incur a stiffer penalty and interest whenever you get around to finally filing and paying.

In fact, you might receive a letter from the IRS telling you how much you owe and offering you the chance to file a late return — and if you disagree with the amount, you have to provide documentation proving otherwise.

Even if you just pay the amount without disputing anything, that doesn’t necessarily get you off the hook: The agency may give closer scrutiny to your future tax returns, possibly even increasing the chance that you might undergo an audit. While neither of these outcomes is necessarily a bad thing, it simply complicates matters for you in the future.

Speaking of which, putting off payments indefinitely eventually gets really costly. Eventually if your unpaid IRS debt reaches $50,000, the IRS has the power to revoke your passport. Don’t let it get to that point.

If you work with an accountant on your taxes, he or she can advise you on the best course of action, including situations that might merit getting an extension or asking for a payment plan.

Readers, can you share in the comments section any experiences you might have had with either requesting an extension on filing a tax return or going on a payment plan? And have you filed your taxes for the latest deadline yet?

Can I Live Off the Interest of $1 Million?

can i live off the interest of $1 million

Despite recent opinions, $1 million dollars still seems like a lot of money (unless, of course, you’re a billionaire). When you invest your money into a retirement fund or put your money into savings, you are often rewarded with interest that accrues over time on the amount. How much that accrues, though, depends on the length of time in the account, who you’re investing or saving with, and so on. But, if you wanted to stop working, would this be enough to live comfortably? So, today we answer the question: Can I live off the interest of $1 million?

Can I live off the interest of $1 million?

Even though $1 million is not what it used to be, it’s still more than what nine in 10 Americans possess, according to this 2013 New York Times article by Jeff Sommer. This sum of money could potentially change someone’s life (for better or worse). Imagine, then, how much interest would accumulate on $1 million. After all, the more money you invest into an account, the more money you will gain from interest. All of this is still dependent on the type of investment and the time the money spends in the account though.

When you choose to invest or save money with the intent of using it to live off of, it is important to do your research on the type of investment that will be best suited for your financial goals. For example, a certificate of deposit (CD) earns more interest on your money in a shorter period of time with an average of a 0.27% interest rate for 12 months, while a standard savings account only averages about 0.06%, as noted by the Federal Deposit Insurance Corporation (FDIC). On the other hand, retirement funds can earn you around 5% interest on your deposit.

The short answer is yes, you could live off the interest of $1 million, but it is a bit more complicated than that. For one, you won’t live a lavish lifestyle that you may imagine. If you’re debt free (or plan to be by the time you retire) you’ll be much better off, but you still have to monitor your finances and spend wisely. In fact, you would likely need to be extremely frugal if you wanted it to last as long as possible. Not to mention, inflation and taxes could also affect the amount you would actually have to work with as well as cost of living in any given location.

As far as what to expect each year, you could expect the annual pay you’ll receive to be $27,000 to $40,000. In a Quora commentary, one user noted this is because of you can take out about 4% each year from your investment. If you are lucky enough to invest in an account that offers 4-5% interest, you will be in a decent situation. At 4%, you’d earn another gross amount of $1,222,582.09 after 20 years with monthly compound interest, as shown with this money calculator. The younger you are, however, the less money you can expect to be able to have as you will have more and larger expenses.

When trying to determine whether or not you can live off the interest of $1 million, you need to also look at your current debt. What are your yearly expenses now, and could your annual pay from your investment cover these costs among other surprises that may occur along the way (health issues, car replacements, etc.)?

Conclusion:

There is no cookie-cutter answer to answer the question, “Can I live off the interest of $1 million?” Alternately, with the right investment decisions and starting to invest that amount now, you will be better off than many of your peers in the future.

What are your thoughts? Weigh in on the conversation in the comments below. 

How Much Interest Will I Earn on $100,000?

How Much Interest Will I Earn on $100,000

We go through life hearing of the same financial advice: save money, create a passive income, and start investing. But, whether I invest in a retirement fund or the stock market or a savings account, what interest can I earn on this money? How much interest will I earn on $100,000, specifically?

Interest and Investing

There are different ways you can invest your money. You can put your money away into savings either through a savings account or retirement account; you could even invest funds into the stock market for a potentially high return.

Confusion can ensue, though, when trying to determine what route is best for you and your finances. The problem is that the answer is vague because it is contingent on a variety of factors. Depending on where you choose to invest your money determines how much interest you may receive.

For instance, the average interest on a normal savings account is just 0.06%, according to a 2013 article by Blake Ellis of CNN. In fact, it adds, many of the top banks in the nation actually only have a 0.01% interest rate. So, if you had $25,000 put into a savings account with the average of 0.06%, you’d only earn $15 in that first year. For best results, look for savings accounts that have closer to a 1% annual interest rate.

A certificate of deposit (CD), on the other hand, will earn you more interest over a shorter period of time. While they usually do not require monthly fees, you opt to keep your money in the account for a specified length of time. This can range from a few months to a decade. The interest rate you receive is determined by how long you decide to keep the money untouched in the CD. The Federal Deposit Insurance Corporation (FDIC) note the national rate averages on their site for both regular savings and CD accounts. For a 12 month CD, the average is 0.24% but can be as high as 0.99%, depending on who you choose to go through.

The typical national interest rate earned through the stock market on a large-cap stock is about 7% after inflation, says David Blanchett in this May 2016 article for the Wall Street Journal. Bonds, he adds, are yielding about 2%.

As for retirement funds, specifically 401(k)s, Investment company Morningstar’s Christine Benz told Interest.com that an average of 5% is a good estimate. This, too, depends on your plan and any fees associated with your account.

Now, back to the original question: How much interest will I earn on $100,000?

How much interest will I earn on $100,000?

Again, this is determined by what type of investment plan you use and the amount of time it is invested. Using the above numbers and investment routes, let’s crunch some numbers:

Conclusion

Your $100,000 has the potential to earn you much more as long as you invest wisely and choose plans with high-interest rates. You should also be willing to be patient in order to allow the money to accumulate more. Given the above information, where would you invest your $100,000 in order to yield the biggest return?

10 Reasons Why I Love Our Credit Union

Since I landed my first job at age 15, I have been with the same bank. It is a credit union open only to residents of Washington State and I love the perks it gives us. When my husband and I got married, we decided to go with my bank for our checking and savings account because the benefits of this bank far outweighed the benefits of his bank (which was also a credit union). Here are some the reasons I love our bank:

1. High Initial Interest Rate: On the first $500 in our checking account, as well as the first $500 in our savings account, we earn 7.5% interest. You pretty much can’t beat that for a savings or checking account anywhere else. Granted it is only the first $1000 combined, but you better believe we keep that $1000 in there at all times to take advantage of that interest rate that trumps even our high-yield online savings account that houses our emergency fund.

2. Interest Rate Received on Checking Account: I’m not sure if a lot banks give you interest on the money in your checking account, but I know there are at least a few that don’t. Even though it isn’t a large amount by any means (.5%) we earn interest on the amount that sits in our checking account. Again, it isn’t much, but it sure beats earning nothing on the money that’s just sitting in there waiting to pay bills.

3. No Monthly Fees: My husband’s former bank charged a $3 fee just for holding a checking account there. To him, $3 a month was no big deal. To me, it’s ridiculous. Sure, $3 a month isn’t a lot, but it’s a charge that is unnecessary when you can get a checking account elsewhere for free. And $3 a month adds up over time. As soon as I found out that his bank charged that $3 a month, we immediately transferred everything to my account (and set it up as a joint account) and closed his account down. That was the last $3 charge they received from us. Now we don’t get charged just for having an account there. Granted there are still fees for overdrafts and things of that nature, but not for simply having an account.

4. Automatic Overdraft Protection: Even though our bank does charge for overdrafts, it doesn’t affect us because we always have money to cover it. If our account were to overdraft (pretty much only when a bill is due the day before a paycheck comes) our bank will automatically cover that charge with money from our savings account in order to avoid a charge. Since we always have money in our savings account, we never have to pay overdraft fees.

5. Other Services Offered: In addition to checking and savings accounts, our bank offer multiple other services such as credit cards, auto loans, mortgages, CDs, money market accounts and much more! I got my first car loan from this bank and the payment would come automatically out of my savings account. I also got my first credit card from them. As a young teenager just starting my credit history, they gave me a card with a low limit based on my having an account there. I started learning financial responsibility with a credit card because they gave me something to start with. We have also had a few CDs with them that have offered pretty competitive interest rates.

6. Easy Transferring: In addition to having multiple services, it is very easy to transfer money to and from different accounts located at our bank. I can buy a CD with a click of the mouse and see the balance of that CD every time I log into online banking. I can also move money to and from my savings and checking accounts with the click of a button and the funds are moved instantly. Making an extra auto loan payment is just as easy. In fact just yesterday I was able to transfer money from our checking account to our auto loan and pay off the loan completely with just a couple clicks.

7. Co-op Banks: Since our bank is a credit union, it is part of a co-op group of other credit unions that are all over. Being part of this co-op means we can make deposits, withdrawals or any other transactions at any other credit union with no charge, including using their ATMs. This is more than just a matter of convenience for us since we don’t have an actual branch of our bank within 300 miles of our city. A couple years ago we moved across the state where they our bank doesn’t have any branches. But because of the co-op, we are able to use any credit union near us to take care of any transactions. We do most of our banking online, but sometimes we have to make deposits or get out cash and being able to do so free of charge at these other credit unions is extremely convenient and handy.

8. Quality Customer Service: In a time where it seems that quality customer service is virtually non-existent, it’s refreshing to work with a company that cares about their customers — especially when they hold your money. I’ve had nothing but positive experiences with this bank for the past 10 years. Just the other day we had an unauthorized withdrawal from our checking account. I called customer service and they told me to go to their website, download a specific form, fill it out and fax it back in. I did that and less than an hour later the money was put back into my account. I was surprised to see it back that fast, but very happy about how they treated the issue.

9. Financial Classes: Our bank also offers free financial classes and web seminars on different financial topics, including personal finance, real estate and mortgage, retirement planning, small businesses, and trusts, wills and probates. In addition, they also offer free financial counseling to their members. As a non-profit credit union, they seem to be more interested in helping their members succeed than merely getting their money.

10. Scholarships and Grants: When I was in college and trying to make tuition payments, I applied for one of the scholarships my bank was offering. I was volunteering with the youth ministry at my church at the time and wrote an essay about what I learned from that experience and I also sent in a few letters of recommendation. They selected me as one of their scholarship recipients and rewarded me with a $2000 scholarship. The school I was attending was a smaller school, so that scholarship pretty much took care of an entire year of tuition. They also offer grants to schools to help with things like building a library or starting different learning projects for students.

There are many other credit unions and banks out there that might offer these same perks and I hope that you receiving these types of benefits as well. If not, I hope you see that there are banks out there that will offer you some nice advantages for the benefit of holding your money. There are enough businesses out there that just want your money and don’t care about you — don’t let your bank be one of them.