Posted on March 7, 2014May 31, 2016 by Jan Roberg

Planning Now for Next Year’s FAFSA Application

You may be able to boost your financial aid package if you plan ahead.

__________________________________________________________________________

Parents of seniors are filling out FAFSA applications right now, but if you’ve got a sophomore or junior in high school, then it’s time for you to start planning now so that you get the best possible financial aid later.

Here’s the main thing: if your child is a junior right now, then the income that you make this year will be the income reported on the FAFSA when she’s a senior. If your child is a sophomore, it will be next year’s income.

Why does that matter? Bottom line: the higher your income, the less financial aid you’re going to receive. If your child is already a senior, it’s too late to make any adjustments, the year is already over.

So if you’ve got a junior, you want to make your income look lower. If you’ve got a sophomore, you might want to move up your income for this year, to reduce it for next year.

For example: let’s say you’re a small business owner. One of my favorite strategies is to prepay business expenses in December to reduce my taxable income for the year. You can prepay up to a year’s worth of expenses. This is a smart move when your child is a junior. If you’ve got a sophomore, you might want to hold off on that to take the income hit sophomore year—when you’re not filing the FAFSA so that you can push more expenses into junior year which is the income year for the FAFSA.

Another example of future planning is when to take your capital gains on the sale of stocks. Now you’re going to want to make good choices, sometimes you’ve just got to sell because you need to sell and the time is right. But if you’ve got a choice, taking the gain is better in your child’s sophomore year than in the junior year. Remember, if you’ve got capital losses that are more than your gains, you can deduct up to $3,000 to offset your regular income. Anything more than a $3,000 loss will just be carried forward to your next year’s tax return.

One of the things that can really mess up your income during FAFSA time is taking a distribution from your retirement account. Sometimes things happen and you just don’t have a choice, but if you’ve got an option to take a distribution like that during the sophomore year instead of the junior year it will help to keep your income down for the FAFSA filing.

Now you need to realize that you’re going to be filing FAFSA applications for four years, so you can’t artificially reduce your income for four whole years. But getting that first year aid package off to a good start can help set the tone for the next four years.

Posted on February 7, 2014May 31, 2016 by Jan Roberg

Roth IRA Facts

Roth IRA distributions are tax free (as long as you’ve met the requirements.) Earnings on your Roth are tax free. If you die, your heirs inherit the money tax free. I just love things that are tax free!

________________________________________________________________________

I write about ROTH IRAs quite a bit, but someone recently asked me to explain ROTH IRAs so here we go:

A ROTH IRA is best defined by how it’s different from a regular (Traditional) IRA. Here are the differences:

You cannot deduct contributions to a ROTH IRA, so whatever money you invest into a Roth—you’re going to pay income tax on the year you invest it.
If you satisfy the requirements, your ROTH distributions are tax-free.
You can still make contributions to a Roth IRA even after you reach age 70 and ½.
You can leave your money in your Roth IRA as long as you live. (This is important for people who want to leave behind money for their heirs. It also means you don’t have any required minimum distributions (RMDs) like you have with Traditional IRAs. )
You must designate the IRA as a Roth when you set it up (the default IRA setting is for a Traditional IRA.)

So why am I so gung ho about Roth IRAs? I like things that are tax free. The distributions are tax-free, the earnings are tax-free, and if you die, they go to your heirs tax-free. That’s a lot of tax-free going on there.

Here’s another thing I really like about the Roth IRA—not only are the distributions tax-free, but the distributions don’t count towards your Adjusted Gross Income. I realize I’m going into Tax Geek Speak here, but hear me out, because this is important.

Let’s say you’ve got a kid in college. You haven’t saved enough money for tuition and you need $10,000 for the tuition payment. Now you can take that money out of your Traditional IRA and not pay a penalty (because you won’t pay the penalty for early withdrawals when you use it for tuition), but you’ll still have to pay the regular income tax on it. So if you’re in the 25% tax bracket, you’ll pay an additional $2500 in taxes to take that $10,000 out of your Traditional IRA.

Now, if you need the whole $10,000 then you’ll need to actually take $13,333 out and withhold $3,333 in order to have the $10,000 and still pay your taxes on it. Plus, the IRA money that you take out goes on your tax return as income. So if you’re applying for financial aid, your aid will be reduced because you’re showing $13,333 more in income than if you didn’t take any money out of your IRA. (And you could use the financial aid—you couldn’t afford the tuition, right?)

Now, if you had a Roth IRA, you’d take out that $10,000 tax-free. The $10,000 wouldn’t have an impact on your tax return and therefore, wouldn’t have the same negative impact on your FAFSA application. See why I like the Roth IRA?

Here’s another example of where it’s useful. Let’s say you’re retired and receiving Social Security income. If your money is all in a traditional IRA or pension, your extra income can make your social security taxable—up to 85% of your Social Security income can be taxed. But if you take money out of your Roth IRA, that will have no effect on whether your Social Security gets taxed or not. The more you have in your Roth IRA, the more opportunity you’ve got to maneuver.

If you’re looking for a place to put some retirement money, my first choice is a Roth IRA. Start saving today, you’ll be glad you did.

For more information about Roth IRAs, here’s a link to the IRS website: http://www.irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs

Posted on March 6, 2012May 31, 2016 by Jan Roberg

Getting Your Tax Return Information for Your FAFSA

Photo by Cryostasis on flickr.com

One thing that I spend a lot of time on is helping people prepare their FAFSA forms for college. (FAFSA stands for Free Application for Federal Student Aid.) Well, the IRS has a “data retrieval tool” that you can use to just import your tax return information right into your FAFSA application. How cool is that?

This is the information that I received from the IRS:

Use the IRS Data Retrieval tool when applying for a student loan

If you are a student or parent you can now access your IRS tax return information using the 2012-2013 IRS Data Retrieval Tool. This is an easy and secure way to access and transfer your tax return information directly into your Free Application for Federal Student Aid form.
If you are eligible to use the IRS Data Retrieval Tool, we highly recommend using the tool for several reasons:

It’s the easiest way to provide your tax data.

It’s the best way of ensuring that your FAFSA has accurate tax information.

You will not need to provide a copy of your or your parents’ tax returns for your financial aid application.

Who can use it?

If you or your parents meet the following criteria, you’ll be given the option to retrieve, display and transfer your federal tax information:

If you filed a 2011 tax return

If you have a valid Social Security Number

If you have a Federal Student Aid PIN

If you do not have a PIN, you will be given the option to apply for one

If your marital status has not changed since Dec. 31, 2011.

Who should not use it?

If any of the following conditions apply to you or your parents, you should not use this tool:

If you filed an amended federal tax return for 2011

If you did not file a federal tax return for 2011

If your 2011 federal tax filing status is married filing separately

If you filed both a federal tax return and a foreign return

If you do not use the IRS Data Retrieval Tool to provide tax information and your college requests a copy of your tax return or your parents’ tax return, you may be required to obtain an official tax transcript from the IRS. To order tax transcripts, go to Order a Return or Account Transcript at www.IRS.gov.

Okay, it’s back to me talking again. One last thing about the FAFSA – it’s free! Make sure you go to the right website to complete your FAFSA application; this is it: http://www.fafsa.ed.gov/. There’s a fake FAFSA website where they charge you money to apply, so make sure that you’re on the official website. The IRS will only link with the real FAFSA site, so that’s another clue you’re in the right place. And good luck with college!

Posted on November 8, 2011May 31, 2016 by Jan Roberg

Everything You Wanted to Know About FAFSA But Were Afraid to Ask

Photo by Jeff Ozvold on Flickr.com

Whether you’re a parent or a student, if you’re going to college next year (parents-you’re staying home, it just feels like you’re going to college) you need to know about the FAFSA. FAFSA is the Free Application for Federal Student Aid. A very important word here is FREE. You see, there are a lot of websites that will say they’ll do the FAFSA for you, but you have to pay them. The real FAFSA application is free.

The first thing you want to do is make sure that you’re using the correct website. Here’s the address: http://www.fafsa.ed.gov/index.htm. Notice that it doesn’t have a .com or .org in the address. Make sure you go to the right place.

When you complete the FAFSA application, you’re going to want to have all of your information ready. It’s a pain in the behind to get started and then stop and start a million times. Do yourself a favor and print out a copy of the FAFSA application before you start. Here’s a link to that too: http://www.fafsa.ed.gov/fotw1112/pdf/PdfFafsa11-12.pdf

Did you look at that application? That’s for last year. If you’re looking to do the FAFSA for starting school in September of 2012, you won’t be able to complete that form until after January 1. You’re going to need your tax information for 2011 also, so you should really do your tax returns before you file your FAFSA. You can submit them with estimates based upon last year, but you’re really much better off doing your taxes first if it’s at all possible.

Look at the state deadlines listed to the right of the application. Don’t ignore those. For example: I’m in Missouri, it says April 1 is the date by which the application should be received and has a little # meaning that priority is given to applications received by that date. But make sure you check the deadline for the school you’re applying to as well. Missouri as a state has a deadline of April 1, but if you’re applying to Washington University here in St. Louis, they’ve got a FAFSA deadline of January 30th. Make sure you know those deadlines.

Part of the application process that confuses people is the sections about the student and the parents. FAFSA asks questions with the assumption that the student is filling out the form. The whole first section is for the student. This really messes up parents who are completing the form because it asks questions like, Are you married? Do your children receive more than half of their support from you? As a mom myself, I’m answering, yes, I am married and of course I support my children. Oops! Those are all in the section for the student to fill out. My daughter is not married and she has no children to support—big difference. Don’t make my mistakes! Remember, not all people applying to college are kids in still high school.

Parents will get to answer questions starting on page 6. But it’s all asked like the student is filling out the form—what is your parent’s address? And things like that. Outside of the address part, your kids aren’t going to know most of those answers, especially the financial information. They’ll need your help with that.

One question that I have been asked a few too many times is, “Should I just lie about my income?” No, you shouldn’t. The colleges have a verification process for granting financial aid, in most cases you’ll be asked to provide an actual copy of your income tax return. By lying on the FAFSA, not only do you risk losing your potential financial aid—you could also risk losing admission to the school as well. It’s just not worth it.

When you’ve finished the FAFSA application and submitted it, you’ll get your SAR report which basically tells you how much they think you are able to pay towards your college tuition this year. Let me give you a fair warning: whatever you think you are able to pay for tuition, your SAR score will be about twice that amount. Be prepared for that shock, but don’t let it deter you from applying for college. Remember that even though the FAFSA report might say you can afford more than you think you can—the different schools have different programs so you have a good chance of finding a school that has a more generous financial aid program.

One final thing, you might think that your income is too high for you to receive financial aid and so you shouldn’t even apply. The year my son started college, we didn’t really qualify for financial aid, but had submitted the FAFSA application anyway. Later, my husband lost his job and we were afraid that we wouldn’t be able to pay the tuition. Because we had completed the FAFSA, our son’s school adjusted his scholarship based upon my husband’s new situation. They would not have done that if we didn’t have the FAFSA filed. Even if you think you don’t qualify, it could very well be worth your while to do the application.

Posted on January 14, 2011May 31, 2016 by Jan Roberg

IRS E-File Starts January 14th

The IRS will begin accepting e-filed individual income tax returns on January 14th. Many people are anxious to file their returns, especially if they have big refunds coming to them. But I’d like to issue a caution to those eager filers: don’t rush. Here’s some common sense tips to help you hold out just a little.

1. Do not try to file your tax return until you have all of your necessary paperwork–that means your W2s and 1099s. It’s against the law for a professional preparer to file a return just using your check stub. (Some companies will do a “loan” against your tax refund, that’s different, but you’ll pay a hefty fee for that.)

2. If you file your return without reporting all of your income, you will receive a letter from the IRS later. It won’t be friendly either. The headache of correcting a mistake like that is much worse than waiting a few weeks to have everything together and doing it right the first time.

3. Your employer is required by law to send out your W2’s by January 31st. You should have everything in your hands by February 5th.

4. Even if you have all of your paperwork, some returns won’t be able to be filed until mid to late February because of delays. When Congress changed the tax laws in December, it messed up the IRS’ ability to process some people’s returns. If you itemize your deductions on a Schedule A frm, if you claim the teacher deduction, or if you claim the tuition and fees deduction; then you can’t file your return yet anyway. (Other education credits weren’t affected.)

5. If you’re doing direct deposit, there is no difference between whether you file on January 14th or filing on January 19th as far as how fast you get your refund. It’s all related to the IRS cut off dates for issuing checks and direct deposits. No difference. It might make sense to hold off a day or two to make sure you’ve got everything you need.

For you FAFSA filers. You want you tax return done as soon as possible so that you can include the information on your FAFSA application. If you’re one of the many people whose return will be delayed because of itemizing, it’s okay to go ahead an prepare your return now and use the tax return information in your FAFSA and then file the actual return later once the IRS starts accepting them.

Posted on November 9, 2010May 31, 2016 by Jan Roberg

How to get a Copy of your Tax Return

Many people need a copy of their federal income tax return in order to get a mortgage or file for financial aid. You can order a copy of your return from the IRS for $57, but most people can get everything they need with a tax return transcript.

I was just looking at another website that offered to get your transcript for you, for a fee of $99. But you can get that transcript directly from the IRS for free and it’s easy to do. Here’s how:

Call the IRS main phone number: 1 (800) 829-1040

You’re going to hear a computerized woman’s voice asking you questions. You will select “2” for information on your personal taxes.

Next, you will select “1” for information about your tax history.

Next you’ll enter “2” to get a transcript.

[Just so you know, you can call the IRS at 1 800 829-1040, type in 2, then 1, then 2 and it will take you to this next part. You don’t have to listen to the whole computerized menu offerings.]

After that, you’ll be asked for your social security number. If you’re married, use the social security number of the spouse listed first on the return. They’ll be questions to verify your address. They’ll ask what year you need the transcript for, but it’s all computer automated and you respond with your telephone keypad. You can order up to 10 transcripts if you need them.

See how easy that is? It will take 5 to 10 days for your transcripts to arrive at your address. And you won’t have wasted any money!

If you must have a photo copy of your tax return, you’ll need to file form 4506. It will cost you $57 and can take up to 60 days to receive. Before you spend the money, be sure to check with the bank and see if a transcript won’t be acceptable. Here’s a link to the form if you need it. Form 4506