Money Blue Book

Although it seems like we already cut a pretty good share of income from our paychecks to satisfy federal income tax demands, most of us had better brace ourselves for a rise in our 2011 federal tax returns as the federal deficit is on track to hit new highs.

Many tax cuts enacted by President Bush in 2001 and 2003 are set to expire in 2010. These cuts were designed to help all income levels: America’s low-, middle-, and higher-income workers. The Tax Foundation summarized some of the major changes to the tax code during the last decade:

• lowered key federal tax brackets (28% to 25%, 31% to 28%, 36% to 33%, 39.6% to 35%) and created the 10% federal tax bracket
• doubled the child tax credit to $1,000 per child
• made more married couples eligible for the earned income tax credit (EITC) and raised the standard deduction for joint filers

More Uncertainty Than in Years Past

As the United States budget deficit hits astronomical levels, we have good cause to worry about what “paying our fair share” means. Usually, a number of tax provisions are legally tied to inflation–and as there’s not been too much of that lately, you might think the projected tax provisions won’t move much.

That was the case for the 2010 income tax bracket projections. But for 2011, the triple whammy of the deficit, the recession, and scheduled expirations to previous tax code changes makes for some uncertainty. As of this writing, how Congress is going to address the expiration of those significant tax cuts and credits has not yet been resolved.

What’s the 2011 tax year outlook? Let’s take a closer look at what to expect in 2011 for federal tax bracket income ranges and other changes.

2011 Projected Federal Income Tax Brackets

Tax experts feel that the brackets we’ve grown accustomed to are going to increase to pre-Bush administration levels or at least begin adjusting in that direction, though the recession has put a dent in President Obama’s ability to simply let the tax cuts of the last decade lapse. Among the major changes proposed, is raising the top two federal tax brackets back to 36% and 39.6%.

Policy experts at groups like the Tax Foundation have come up with projections for 2011 federal income tax brackets for various filers. Here are their estimates for 2011 tax bracket income thresholds for married and single filers, assuming that the tax code supports what has been laid out in President Obama’s budget.

Federal Income Tax Brackets For 2011–Based On Taxable Income Ranges

Again, this assumes that the highest two federal tax brackets move back to their pre-Bush tax cut levels of 33% and 35%, respectively. We’ll make updates if the IRS comes out with different official numbers.

Other Federal Income Tax Projections for 2011

Other 2011 tax year predictions from experts, mostly based on scheduled changes, include:

• Standard deduction increase: The standard deduction should increase from $5,700 to $5,800 for single filers and from $11,400 to $11,600 for those married filing jointly.
• Revival of the estate tax: For people who die after 2010, the federal estate tax will be revived with an exemption of $1,000,000 and a maximum rate of 50%. But Congress is widely expected to take action on the estate tax issue in 2010–too late to catch some estates that have, by pure luck of timing (for their tax burden, anyway), escaped estate taxes entirely.
• Increase in long-term capital gains rate: The long-term capital gains rate had temporarily been decreased to 15%; it’s meant to go back up to 20%, though filers in the 10% and 15% federal tax bracket will likely be subject to a 5% capital gains rate.
• Qualified dividends: In 2011, dividends may be taxed as ordinary income based on your highest marginal tax rate; another likely scenario is that they will follow the long-term capital gains rate of 20% for federal tax brackets of the 25% marginal rate and higher.
• Child tax credit: The $1,000 credit per child may go back to $500 for 2011 unless the higher credit is extended.

How to Prepare for Your 2011 Federal Income Tax Return

Now is a good time to revisit your tax deductions. Planning ahead with more information means we won’t be left in a lurch come Tax Day, or the opposite pitfall, withholding too much.

The appropriate versions of tax prep software for the 2011 tax year won’t be out for a while, of course, but doing some research on the best tax preparation software can make it . Most software will automatically load in previous years’ worth of tax information, so if you can commit to one side in the H&R Block vs TurboTax debate (or have another favorite entirely), using that software for 2010 is one way to stay ahead of the game for 2011.

A balance transfer credit card can be a useful resource for a credit card debt elimination plan. It allows you to consolidate debt into a single account and may lower your overall interest rate, helping to reduce your monthly payments and pay off your debt more quickly.

Of course, opening a balance transfer credit card on its own won’t make your debt evaporate overnight and shouldn’t be an excuse to spend more–but if you understand what the balance transfer credit card is for and stay disciplined in your debt payments, it can be a very useful tool.

Ten Steps to Debt Reduction Using Zero Balance Transfer Credit Cards

1. Make a list of all of your debts–and add them up. This gives you a clear idea of how much you owe, how much the interest rate is on each debt, and what you are currently paying in monthly interest and minimum payments. Awareness is the first step toward being debt-free.
2. Review the terms of your current debt. If you currently pay little or no interest on at least some of your debt, you may not even need to transfer that part. However, if your existing low interest rate is for an introductory period that is ending soon, you may want to consolidate that debt with the rest.
   
3. Find a low interest credit card that can be used to transfer balances. If you don’t already have one that will work, apply for a new balance transfer card. If possible, select one with at least a 6- to 12-month introductory period, during which the card issuer charges reduced or even zero interest. Apply for a credit limit sufficient for all the debt you want to consolidate at this time.
4. Learn the fees associated with any balance transfer. There are two typical balance transfer fees: an upfront fee at the time of transfer, plus an interest rate to be charged monthly until the balance is paid off. Try to obtain a zero balance transfer credit card, if possible, which may charge only one type of fee during your introductory period–or possibly no fee during the intro period.
5. Read the fine print about your balance transfer terms. Many low interest transfer credit cards will charge you a higher-than-promoted rate if you make any late payments or otherwise violate their terms, especially during the introductory period. This can potentially cost you even more than before you transferred your debt–so be forewarned, plan ahead, and figure out a way to commit to paying on time.
6. Transfer your target debt to the low interest credit card, then review and update your list of debts. Create an overall debt repayment plan based on your budget and income, and commit to pay it all off within your chosen timeframe. Avoid adding new debt and making unbudgeted purchases–and use any unexpected income (a raise, overtime, a side gig) to pay it down even faster.
7. Pay more than the minimum required total payment. As long as you can pay more than just interest on all your debt, you can pay down your debt and eliminate it over time. But it will take more than just the minimum payment to pay off credit card debt within a reasonable timeframe. The Federal Trade Commission’s credit card calculator shows you just how much time you can save by paying down more.
8. Pay down any remaining higher interest debt first. If you were unable to consolidate all debt on your low interest credit card, pay only the minimum monthly amount on your lower interest rate debt, and then put the difference from your planned monthly debt payoff amount toward paying off your highest interest debt faster.
9. Don’t assume you can transfer debt balances indefinitely. When the interest rate on your consolidated debt goes up after the introductory period, you may consider a second balance transfer. While this strategy has worked for some, this usually means you’ll need to obtain a new zero balance transfer credit card. Be aware that too many new accounts can negatively affect your credit score, and that credit card companies may simply stop approving you for the new offers. Ideally, you should just select a decent zero balance transfer credit card with a low ongoing interest rate to begin with to avoid getting caught again in the cycle of perpetual new accounts and transfers.
10. Do something nice to reward yourself. Eliminating the burden of debt is a reward in itself–but don’t forget to find little ways to reward yourself inexpensively along the way. This will help you stay motivated and continue to enjoy life as you should. Once you pay off your debt, do something nice for yourself and your family–and pay cash! It took a lot of effort, but you’ve made it.

Debt Payoff: Keep Your Eyes on the Goal

The purpose of consolidating debt is to make it easier and faster to pay it off–instead of putting it off until it becomes overwhelming. Make paying off your credit card debt the number one priority in your financial life, after meeting your family’s basic needs and commitments. You’ll be relieved to finally live a life without overwhelming debt obligations.

In case you haven’t noticed, I’ve been taking somewhat of a financial blogging hiatus for the last few months. However, during this period of time, I’ve been spending my days productively – traveling overseas, tending to my other online and real world ventures, as well as scouting out opportunities in areas that remain yet untapped. It’s not easy spotting the next big thing, particularly in the realm of online money making ideas, but I have a few new interesting ideas in mind. Perhaps one of these days once I’ve worked them out in my head and actually tested them out, I’ll share a few of the better ones with readers.

Of course, until I find a way to definitively achieve financial independence or acquire a method to ensure a guaranteed passive income stream, I will inevitably have to end my extended vacation and return to my full time job sometime in the next few weeks. Thus I’ll be getting back to my regular full time day job as a self employed attorney and part time gig as a blogger very shortly. Blogging has been an interesting part time job for me for the last two years (bringing in a very steady and rather lucrative income stream), however at some point, the inevitable pangs of writer’s block and declined motivation inevitably creep. Thus it was nice to finally get away and get a multiple month breather after all this time. However, now that I’ve taken my sabbatical, spent time with the family, and pursued other extracurricular activities, I’m almost ready to get back on the horse again and retake the reins.

My Current Net Worth and Financial Status Update Compared To Last Month

Reliable Passive Online Income Through Blogging

Despite my multiple month absence from my normal blogging duties, I continue to rake in a steady monthly income via my small network on profitable blogs and affiliate websites. While I used to earn a significant portion of my monthly take via my small legal practice as an attorney, I have been undergoing a winding down process in recent months to slowly transition my way out of the whole trading hours for dollars routine that working as an attorney entailed. While the legal work and training has certainly been interesting at times, my heart has never been all that much into it. Pursing the viability of online businesses and trying to harness all that the Internet can provide has always drawn much more appeal for me. The lure of being able to make money online by blogging from the comforts of one’s home is what got me started in this industry years ago.

As my primary online blogs (most notably, the financial blog you are reading now) have grown to the point where their traffic levels are now inherently stable and the sizable income profits they now earn are now very reliably self sustaining, I am at the process of trying to decide where to go from here – call it a fork in the road if you will. Do I sell off a few major sites for instant income now and turn my entrepreneurial attention elsewhere, or do I put in the additional effort now and continue to grow these sites into something inevitably bigger?

While the nature of blogs and Internet businesses can be fickle at times, I truly believe that the future of media and information lies with the adaptive power of Internet. The web is continuously transforming how old and new information is consumed. While it would certainly be great to possibly sell off my most prized websites in terms of traffic levels and income, I am somewhat cautious about cashing out too soon when I think there is still tremendous upside to be had in the coming years. Of course, anything is possible and these things are just a handful of the issues that I’ll be pondering a lot about in the coming months as I slowly get back to my old blogging routine again.

Continue Investing In A Down Stock Market

Not much further needs to be pointed out about the stock markets beyond the truism that big wealth can be made during the worst of times. Markets have certainly been choppy and volatile recently, but given a sufficiently long period of time, they will almost always recover in spades. Despite having rather significant chunks of money invested into various index funds and individual stocks, I barely glanced at my holdings throughout the month. Perhaps it was because I’ve been traveling overseas, but more likely than not it was because I see my investments as appropriately geared for the long haul and I don’t want to be overly bothered by the emotional highs and lows of short term price swings. “Set it and forget it” is how I’ve been investing these past few months.

If you haven’t already opened up an investment account with a discount broker or opened up a retirement account with a Roth IRA broker, now is as good of a time as any.

My New Home Construction Is Nearly Complete

As long time readers may already know, my new house has been under construction since summer 2009. After months of construction activity and suffering through periodic pauses due to severe winter snow, the home is now nearly complete. With construction now projected to conclude by the end of March 2010 and with my home mortgage application paperwork eagerly waiting on the sidelines, I am preparing to close on the house by the end of March. It’s been an interesting ride in terms of my journey to become a first time homeowner. I went through spats of doubt, indecision, and even exuberance during my home purchasing process, so one can’t say that I didn’t fully think my decision through. I had and still have occasional doubts of the timing of my purchase, particularly in light of the reality that the real estate market is still lingering in the doldrums. However, I have faith that in due time, the home prices and sales numbers will recover, as early indicators do seem to be bearing that out. Particularly in the Washington D.C. suburbs of Maryland and Northern Virginia where I live, the housing market has been remarkably resilient. Living close to the epicenter of the federal government, which powers and maintains such a reliable supply of jobs definitely has its positive secondary benefits in terms of ensuring the need of a continuously growing housing supply.

The first month of the new year was a good month for me financially. Now you must be wondering to yourself – how can that possibly be – especially considering that my calculated net worth dropped in excess of $15,000 for the month of January. Well, because I only show a singular snapshot of my financial picture in each of my monthly net worth updates – they generally don’t reveal sufficient cash flow numbers to offer one a complete picture of my true financial health from all appropriate angles. Thus, the balance sheet numbers reflected on these reports can at times be somewhat misleading, as in this particular case. At first blush, my January numbers would seem to suggest that this particular month was a disappointing one. But truth be told, in terms of earnings stability and projected future income potential, January 2010 was yet another reliably steady month for me.

For January 2010, the combined income accumulated from this personal finance blog, the revenue generated by my other online affiliate ventures, and the part time income I earned from my small legal practice as an attorney – all saw slight increases. However, much of the income stats were gobbled up by the hefty estimated tax payments I had to make to the federal and state government during the month. Because I operate my small business and solo legal practice using a cash basis form of accounting, I don’t spread the estimated quarterly tax payments evenly throughout the year, but rather record them on my personal financial balance statements only when they are actually paid out – resulting in these precipitous drops in total net asset value that occur four times a year.

There was one major financial hit however which came from a furious stock market correction that reared its ugly head at the latter half of the month, which pretty much wiped out the hefty gains I would have been on track to record. But as far as the worth of my stock investments go, I don’t generally pay substantial attention to them – as I see them as long term investments that will ultimately pay off years down the road. Month to month dips in stock portfolio value don’t generally rattle me in any significant way (so long as there aren’t serious financial Armageddon type issues lingering in the market). On the whole, so long as I can continue to pull in a steady income with my online website businesses and small legal practice, I am generally content to stay the course. No one ever said becoming a millionaire would be easy, as there are bound to be unexpected bumps on the road. But so long as the rules haven’t changed to any major degree, the economic and financial landscape will inevitably improve in the long run, and such long term investments will ultimately enjoy much success.

My Current Net Worth and Financial Status Update Compared To Last Month

Paying My Quarterly Estimated Taxes As A Self Employed Taxpayer

For those not familiar with what quarterly estimated taxes are in general, or not sure as to why they took such a big bite out of my networth this month, here’s a quick explanation. Estimated taxes are basically the  income taxes that self employed individuals like myself  pay on income that is not subjected to withholding. This income includes everything  from self employment income, interest, stock dividends, rental income, and gains from the sale of assets, etc. It’s important to pay attention to this obligation, because failure to timely pay the quarterly assessed estimated taxes on time does result in a hefty penalty and associated interest charges, even in those cases where you are ultimately due a refund when you file the tax return.

Most people never have to deal with paying estimated taxes because their employers usually already withhold their federal, state, and social security taxes on their paychecks. But for self employed small business owners like myself, because we don’t have someone else to withhold these types of taxes for us, the Internal Revenue Service (IRS) has mandated that we do so ourselves – requiring us to make four projected pre-payments throughout the year at set intervals on April 15, June 15, September 15, and January 15 of the following year. One of these hefty tax payment dates occurred in January, which is why the vast bulk of the income I generated during the month was siphoned off to pay the Man. But next month, my networth will likely return back to its regularly anticipated upward growth trajectory.

Buy Low, Sell High – And Continue Investing In A Down Stock Market

Some are saying that we are up for another routine market correction after a somewhat furious run up from spring 2009, while others are running around in circles predicting another major collapse again. But once you cut past the rhetoric and emotional hyperboles, you realize that it’s really just business as usual. The economy naturally ebbs and flows and there is always bound to be good stock market days and bad ones as well. But if you are generally optimistic about the distant future as I am and are willing to make your long term investment bets today, I am confident that years from now, your investments will pay off quite handsomely.

While I keep a rather sizable amount stored away in my safe and secure FDIC insured high interest bank accounts for emergency fund purposes, the vast bulk of my savings reside in discount broker accounts – invested into a variety of long range investments. I intend to stay invested for quite a few years – at least 3-5 years before I plan to engage in any significant portfolio reshuffling. I think the market is currently at its low and that all indicators strongly suggest that there is only tremendous upside from hereon. It is certainly possibly for the market to continue getting spooked and experience a pullback, but I don’t think we are in for another financial Armageddon scenario or are on the verge of a serious economic depression – the likes of which were talked about during the early part of last year. We are definitely on the road to economic recovery – however, admittedly, the road is long, and heavily paved with pot holes and obstacles.

Cashing In and Taking Advantage Of Credit Card Rewards and Bonuses

This month I also happened to redeem a rather large chunk of the credit card rewards I’ve accumulated over the last many months – converting my various credit card reward points into usable currency – namely, gift cards. Overwhelmingly, the more lucrative card reward program I use at the present time is the Citi Thank You network, with the American Express Blue Cash program being a close second. Because I used reward credit cards to pay for pretty much everything I purchase, I tend to rack up a substantial amount of reward points in a very short period of time.

The amount of credit card reward points I had accrued after only a year of routine credit card spending was rather enormous (in my opinion) – an amount that exceeded a value of $1,500. Ultimately, I decided to convert the majority of them into gift cards to places like Marshall’s and Macy’s. I don’t go shopping for clothing very often, but I’ll probably go on a small shopping spree in the near future with my new found loot. I had the option to convert my accrued credit card reward points into a cash lump sum, but for those who are familiar with credit card rebates and rewards, the point to cash conversion rate is frequently pretty low – and you tend to lose a big chunk of your points during the conversion process. While pure cash back credit card rewards are more versatile and bypass the hassle of having to manually convert accrued points into usable gifts or rewards, I’ve found that point based reward programs tend to offer a higher purchase rebate percentage. If you don’t mind a little work or putting in a little effort towards micro-managing your points, you’re better off going with a point based reward program.

I know credit cards tend to get a very bad rap with many out there believing them to be the source of all evil as evidenced by the government’s recent crusade to regulate every aspect of how credit card issuers run their businesses. However, I personally feel credit card programs are what you make of them. If you spend responsibly and pay off your balances in full every month, the credit card usage incentives they provide can be extremely lucrative. Even those who persistently carry monthly balances are not without options – there are a variety of 0% balance credit cards and low interest credit card deals out there for the qualified applicants to take advantage of. Keep those FICO credit scores high and monitor them regularly with programs like MyFICO Score Watch like I do, and you’ll ensure that you’ll always have access to the best credit card offers according to your personalized needs.