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Freebie Broadband Deals

Today, a guest post from Crystal –

Many companies offer incentives to entice new customers into buying their products. In the case of broadband, this has now become a growing trend but it is always important to consider carefully if buying the broadband package is actually worth the gift and whether or not, you could actually get better value elsewhere that a company that does not offer a free gift, but actually works out a lot cheaper. This article explores the world of free gifts and whether or not it is worth it in some case, or it is just a novelty.

Many people believe this can save you money, there are two options to consider with your free gift. The first one is whether or not you actually need the gift, for example, if you weren’t buying the broadband, would you potentially go out and buy the gift anyway. If this is the case, this is the ideal situation, however, if you don’t need the gift, it may also be beneficial to get the deal anyway as one could sell the gift and gain some extra money in the process. Free gifts such as a reward voucher can be a good example to use, you must ask yourself the question of whether or not you will use the reward voucher, it will normally be for the same company and so it is important to do your research to see if there is actually anything you want to buy from the company because you may find that there is simply nothing you would like to spend your money on out of the products that they offer.

There is no doubt there is potential to save a little extra money here, by buying the things you need and capitalizing on the free gift and you don’t even have to leave your house to do so. However, in this day and age there are also plenty of other ways to make a bit of extra money, again online and again, without leaving the comfort of your own home.

Some companies will also offer gifts in the form of electronics and this can be a good example to use and try to weigh up the pros and cons. For example, if the free gift is a television, this can be very profitable, but you must ask yourself if you need a television? Do you already have one? If you do then it may be wiser to sell the free gift as it comes and you can get cold hard cash instead. The resale value of a television for example will be very high, providing you do not take it out of the packaging and you can find a buyer. Speak to friends, family or even put it on eBay, it could be very easy to sell and get cash in no time at all. If you are selling a free gift, you must do the calculations. Will the money you get from the gift actually be worth spending more money on what could be a much more expensive broadband package than many other service providers and it is also important to make sure you know it can be sold quickly as otherwise you could be left with an expensive broadband deal and a spare television collecting dust, slowly depreciating in value.

In conclusion then, when entering into a broadband deal, this is a long term commitment and before you go splashing out on something just because you get a fancy new gift with it, it is important to weigh up both the advantages of the free gift, in terms of money and how much you will save and the disadvantages of the free gift, in terms of are there other broadband providers out there that don’t offer free gifts, but actually work out cheaper in the long term. You should also consider other factors in terms of broadband speed and the quality of the service provided.

How I Changed to an S-Corp to Lower My Taxes

This is a guest post by Eric Rosenberg, a full-time freelancer and blogger at Personal Profitability. Eric writes about personal finance and entrepreneurship at InvestmentZen, his own blog, and other sites around the web.

When I started writing about personal finance online in 2008, I had no idea where it would take me. Here I am nearly a decade later and writing about personal finance is my full-time job! Earning as much as I have online, I have picked up a few tax tips as well. None were as valuable to me as changing my business to an S-Corp, which I did when I went full-time in April last year. Read on to find out why I did it, how much I’ve saved, and if it makes sense for you.

Business Structures and Taxes

When I started my online money making adventure, I started working under my own name. Any time you earn money outside of a job with an employer, you are considered a sole proprietorship by default. This means that you are personally liable for any legal issues or claims and count all income and expenses on your personal tax return.

Eventually I started to make enough money that I thought it was worth filing as an LLC. Registering as an LLC was very easy and only costs $50 in Colorado. I filled out the form myself online and was operating as a business, Narrow Bridge Media, LLC, by the end of the day.

Like a sole proprietorship, single member LLC taxes are reported on your personal tax return. In both cases, you use Schedule C to report your business earnings and expenses. An LLC offers legal benefits over a sole proprietorship but as far as taxes go, they are pretty much the same thing. As I started earning more and more each year, reaching $40,000 from my side hustle in 2014, I noticed that my tax bill was going up too.

Self-Employment Tax

The big downside of self-employment as far as taxes go is self-employment tax. When you have a job of any type, both you and your employer are required to pay income taxes on your earnings. You see the taxes you pay deducted from each paycheck, with a true up due in April. You don’t typically see, however, that the employer is paying quite a bit in taxes as well.

As a business owner, you are required to pay both sides of the income tax equation. You pay your own income taxes from your personal earnings and have to pay the employer part of the taxes. This is known as the self-employment tax.

Self-employment tax adds up fast. If you earn $40,000 in a year, your self-employment tax is $5,652. If you make $100,000, you would pay $14,130. The FICA, or Social Security, component is limited to $14,694 per year, but the Medicare component does not have a cap.

How S-Corps Lower Taxes

When I quit my job in April, I knew that I would earn well over $40,000 in 2015. At the end of the year, it came out closer to $100,000 in revenue. Looking forward to increased earnings, I wanted to take steps to limit my tax liability. I found that S-Corps were the right way to do that in my situation.

An S-Corp is a type of corporation that acts somewhat independently. Think of it as a step up from an LLC. In some cases, an LLC can be taxed as an S-Corp. Because I was moving states at the same time, I decided to just register as an S-Corp from the start effective April 1, 2016. Starting on that date, the business became Narrow Bridge Media, Inc.

When the business became an S-Corp, I became its first employee. Now, rather than just keeping everything my business earns, I get a paycheck every Friday. I have to pay self-employment tax on every dollar I earn through my paychecks, but any income I earn above that is taxed at my regular income tax rate which is lower than the self-employment tax rate.

For this to work, I have to follow some special IRS rules. I have to pay myself a “reasonable” paycheck amount for someone doing the work that I do. As a content writer, I did some research and found $35,000-$40,000 per year to be common, so that is what I used for my paycheck. Any additional earnings are considered dividends, not employment earnings.

I did some math to estimate how much this would save me on my 2016 taxes, which I have yet to file, and found I would save around $6,000-$8,000. That is huge! Even with the costs of registering an S-Corp in California and dealing with payroll, this was still a no brainer.

Does an S-Corp Make Sense For You?

If you earn income on the side or are self-employed, you may be wondering if this makes sense for you. It very well might, but it doesn’t in all situations. In general, if you are making around $40,000 or more per year, it is worth looking into. If you find this too confusing or complicated, speak with a local small business accountant to find out what makes the most sense for your own unique situations.

For me, running my business as an S-Corp has been great. There were no operational changes to my business, but I am saving money on every dollar I earn over $35,000 per year. That is something anyone can get on board with! Sorry Uncle Sam, but I’m keeping as many of my hard earned dollars as I can.

It may work for you as well. If you have any self-employment income, it is certainly worth a look. Who knows, maybe you’ll save even more than me on your 2017 taxes thanks to reducing your self-employment taxes!

When feeling good costs you $20,000 (The failure of the Debt Snowball)

A fellow blogger wrote about the debt snowball. For those of you who do not know what the debt snowball is, it’s a method of paying one’s debt off (a good thing) ordered from lowest balance to highest. I wrote about this over 7 years ago when I was Thinking about Dave Ramsey. In that article, I was trying to keep an open mind. I’ll even suggest that for the lost few hundred dollars, if the good feelings you get from knocking off the first card help keep you going, a few hundred, or even a thousand dollars might be a small price to pay for long term success. In my opinion, the fastest way to eliminate all one’s debt is simple – make all minimum payment due, and send any extra money to the highest interest debt. Others insist on the snowball good feelings.

But. As a numbers guy, I ask, “Where do you draw the line?” And toward that end I wrote to Derek, the blogger I mentioned –

“I don’t dispute that killing off a card completely can provide an emotional reward, a boost to one’s feeling of accomplishment, etc. But, I often say “knowledge is power” and one should know the cost of that decision. A few hundred dollars over 4 years? No big deal. Thousands of dollars? Look carefully at the numbers before choosing the method.

Consider – ‘snowballers’ suggest you pay your 8 student loans, all zero interest, $10,000 each, before paying that $20,000 18% card. Of course, that’s an exaggeration, but one that easily illustrates why it’s important to look at the numbers.”

What I expected was an acknowledgement that there are some extreme, contrived, cases when you just pay off that 18% debt first. Nope. His response?

“I used to be like you – a hard-nosed financial professional that only believed in the numbers and percentages. Today, I understand much more about the emotional side of money. If you make no progress over the course of a year, there’s about a 100% chance of giving up. If, however, you pay off a $2,000 loan and get rid of that payment completely, you’ll be charged up and ready to tackle another!

I’d still suggest that people pay off their $10,000 zero interest loan before their $20,000 18% interest loan because there’s a greater percent chance of them getting rid of the smaller debt and continuing their debt payoff journey! Pay a couple thousand extra dollars in interest but paying off the debt is better than trying to save the interest and failing at the debt payoff entirely, don’t you think??”

snowball17

What? I aimed to find the most ridiculous spread from high rate to low, trying to show how there’s some point where it’s silly to pay off your low-to-no interest debt first. And, with a daughter about to enter college, I figured that an example of 8 low rate separate loans was actually possible.  Here’s what this would look like. Do you see what makes this so ridiculous? You graduated college, and the loans happen to be individual loans. The lender could just as easily have made this into one loan with a monthly $664 due. In which case, the snowballers would have no issue paying the “low balance” $20,000 card first. But because these loans are each $10,000, they rise to be the priority, pay them off, get rid of 1, 2, 3, etc as fast as you can, before sending an extra dime to the $20,000 high rate loan.

Let’s look at what happens when we prioritize that awful 18% debt. I happen to choose a total $1,200 available to pay debt, just $236 more than the minimums required. If we pay the low balances first, the interest jumps by over $20,000. A $10K loan is too small to kill in less than a year with only the $236 extra, so the snowball takes 32 months to eliminate one debt,  while my plan gets rid of the credit card 18% debt in 56 months. Would you really be happier paying interest-only for 89 months on that 18% debt but feeling great that you have fewer loans, fewer checks to write?

The truth is that most people are not in such an extreme situation. And the real cost may be far less that this contrived example. As I offered on Derek’s site, knowledge is power. Why would you not wish to know the cost of one method vs another?  And if you knew the cost, how high (or low) would it need to be to sway your approach to paying off your debt? What could you do with the $20,000 you’d have saved over these 10 years? How much snowball Kool-Aid does one have to drink to state they will stick to a method no matter the cost?

By the way, I do believe in more than numbers and percentages. I also believe one shouldn’t fall for bad advice offered by a celebrity, Dave Ramsey, who takes a “my way or the highway” approach to his advice. Know your options, and decide for yourself.

On a final note, as I was writing this, John, another blogger who writes at Military Fire, also visited Derek’s article, and agreed with me, stating,

“If the snowball method costs you “a couple thousand” annually, and you make less than $50K a year, you would have to work 13 months a year to recoup that unnecessary interest. The snowball requires nuance. Lets help people work smarter, not harder.”

Derek, on the other hand, wasn’t budging,

“I’m a nerd just like you and understand the percentages perfectly. After helping hundreds of people though, there’s no denying that those who pay off a debt early are far more likely to stick with their debt snowball. To help the most people possible, I’m sticking with this method for life.”

Check out John’s excellent article Debt Snowball: Not a Chance in Hell, because John doesn’t like throwing away money on interest any more than I do. If you comment at either site, let them know that Joe sent you.

2016 Year End Tax Tips

The end (of 2016) is near. Still, you can do a lot to help your finances before the ball drops on Saturday and we ring in the new year. Let’s look at some of my top year end tips –

  • The Charitable RMD is part of the tax code that allows those who are 70-1/2 and taking RMDs from their IRA to donate directly to a charity. In effect making a donation deductible even though the donor doesn’t itemize.
  • If you are retired already, and are not too close to the next tax bracket consider a Roth conversion to “top off” your current bracket. Say you are at a taxable $65K. You have an additional $9,900 you can withdraw or convert to Roth, and pay just 15%. By converting to Roth, you help to keep from breaking through the 25% rate as your withdrawals increase in the future.
  • Are you getting a big refund (I know, big is relative) every April? Has no one told you that Big Tax Refunds Are Really Bad? Let me be the first.
  • Do you have an FSA (flexible spending account) at work? If there’s a bit of money left, you should consider a quick purchase, typically, eyeglasses come to mind as they are an easy expense, and have a wide range of cost from simple reading glasses at $100 to a fancy pair of glasses well over $500. Don’t let that money get forfeited.
  • Year end is a good time to look at how much you are depositing to your 401(k) account. Can you bump the deduction up by a percent or two? You won’t regret it. Are you at least depositing enough to grab the matching amount? If not, do this now.
  • Did 2016 bring you any change in family members? Marriage, new child, divorce,  family member pass away? It’s time for an annual review of the beneficiaries on all of your accounts. It’s never to soon to see if your new spouse has a former spouse of their own as a beneficiary. Pretty important to get that updated asap.
  • See if the Tax Loss Harvesting can help you. You can read the full article, but the important thing to know now is that you can take stock losses against up to $3000 of ordinary income each year. Hopefully, you are making a profit, but this is an easy way to get a bit of money back on a stock you are holding at a loss and are wanting to sell.
  • Last, it’s not too late to beat the standard deduction. This strategy depends on your current situation, of course. It’s ideal for a couple who just misses the required minimum for itemizing, $12,600 for 2016. Pulling some of these deductions into the current year can allow them to itemize. Check out the article I wrote earlier this month, and see if this strategy can help you.

That’s all for this year, Happy 2017

 

Financial Planning 101 for Young Adults and Why You Need to Pay Attention in Class

A Guest Post today –

You’re young and the world is your oyster; nobody is disputing that. The one mistake that a majority of young adults make, however, is failing to take their finances seriously. You’ve just completed four (or more depending on your major) years of college. During that time, you worked hard to earn your degree, but you also partied hard. It’s time to get serious, because failing to do so will cost you right away and over time.

Why Financial Planning Is So Important

Financial planning might seem like something you needn’t worry about until you are in your 40s or 50s but it’s important now. Your place within the global economy will directly affect your future. It’s never too early to start saving for your retirement, much less plan for unforeseen circumstances. What if you become ill and cannot work? What if something worse happens? You don’t have to be in debt for the first 20 years of your adult life if you plan accordingly.

Some Ways to Put a Financial Plan in Place

As you start your new adult life, you’re already in debt. You have student loans that must be paid off and you have a new form of independence to maintain. You’ve said sayonara to your dorm life and must now pay for your own pad, which will cost you significantly more. Yes, you’re starting out in your new career, but this won’t cover your expenses right away unless you’re extremely lucky and earned a CEO position with a Fortune 500 company upon graduation, which, face it, you didn’t.

The key to financial planning is start working on your budget and savings now. Don’t make the mistake of assuming you have time. The more you plan now, the better off you’ll be later, and your first step is assessing your student loans. How much of your monthly budget are they taking up and is there a way you can refinance them to save you money? If you can refinance them into a lower interest rate, you’ve just added thousands of dollars to your personal finances.

Another thing you should do is set a monthly budget and stick to it. Keep track of how much you spend. This helps you see where there is hemorrhaging, which will enable you to take steps to stop the financial bleeding. For example, are you paying excessively for insurance coverage you don’t need? Do you really know what insurance coverage you need? Enlist the expert guidance of a local insurance agency to see where you can save precious dough.

Avoid Luxury Expenses Until Later

Your college graduation present to yourself should not be a luxury vehicle or downtown pad. You can’t afford it, unless you secured that Fortune 500 management position discussed above. Start off small, because you will have better financial resources to go big later. When just starting out, it does you no good to exceed your financial capabilities, because stretching yourself too thin will land you residency back home with mom and dad.

You don’t want that when you’re proving to them and yourself that you’re a responsible adult now. Take your finances seriously, plan wisely, and reap the benefits in your future. You’ll be glad you did.

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