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8 Things You Should Never Try Deducting From Your Taxes

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The tax filing deadline is fast approaching, and taxpayers have limited time to reduce their 2019 tax bills. Thankfully, classic tax write-offs like contributing to your IRA are still available until April 15.

But with recent changes to the tax code, certain expenses that seem like legitimate write-offs (or had been in the past) aren’t deductible on 2019 filings. Before you dig through your proverbial box of receipts to find tax deductions, take a look at these eight surprising expenses you shouldn’t even bother with this year.

Commuting costs

The average American spends nearly 27 minutes commuting to work every day. And that’s just one way — counting the return trip, employees may spend close to an hour just driving to and from work. But time isn’t the only cost associated with a commute. The financial cost of driving adds up.

According to research from AAA, a person who drives a small sedan 10,000 miles per year will pay $16.60 every single day to keep their car on the road. That’s over $6,000 in driving costs annually.

Despite the toll to your pocketbook, you cannot deduct commuting costs from your taxes. Employees with a flexible work schedule may be able to work from home full or part time to help lower the costs, but everyone else will have to pay with after-tax dollars.

If you are a business owner and your home is your office, you can deduct legitimate business-related travel. That includes trips to client sites or sales calls. The standard mileage rate for 2019 is 58 cents per mile. As long as business owners keep a mileage log that shows how they used their vehicle, they can claim their business travel expenses.

Unreimbursed travel expenses

Another type of commute that can’t be deducted? The miles employees put on their vehicle during work hours. While salespeople, construction workers and others who drive from site to site for work used to be able to deduct associated expenses, that is no longer the case under The Tax Cuts and Jobs Act of 2017. If you’re regularly driving for your employer, try negotiating for reimbursement instead.

Political contributions

With election season in full swing, you may be considering a contribution to your favorite political candidate. Unfortunately, that contribution won’t be tax deductible even though political campaigns are considered nonprofit organizations.

The fact that political contributions aren’t deductible may seem confusing. After all, some charitable contributions are deductible when you itemize your taxes. The difference between deductible and non-deductible contributions has to do with the tax status of the organizations.  Political organizations, including campaigns, are organized under section 527 of the IRS tax code. Organizations that are set up for charitable, religious or educational purposes (among other ideals) are organized under section 501(c)(3) of the tax code. Contributions to those charitable organizations are deductible.

Business entertainment

In general, you cannot deduct business entertainment from your tax return. That means bringing a valued client to a box suite for an NBA game is not a deductible expense in most cases, nor is taking employees on a hunting trip.

However, there are a few deductible forms of entertainment. Business owners can deduct the cost of a holiday party or employee event from their taxes. Additionally, expenses associated with attending professional events, business conventions and similar meetings can be deducted.

Interest from a HELOC used to pay off credit card debt

Prior to 2018, interest from home equity lines of credit (HELOCs) was deductible, but that also changed after the Tax Cuts and Jobs Act was signed into law at the end of 2017. Now, HELOC interest is only deductible if the HELOC was used to buy, build or substantially improve a home.

If you used the HELOC to pay down credit card debt, finance a child’s education or pay for another major expense, the HELOC interest isn’t deductible. If you’re thinking of itemizing your deductions, consider whether your interest qualifies. If you’re not sure, consult a tax professional.

Moving expenses

If you took a job across the country, the expenses associated with moving are no longer deductible, even if you paid for them out of pocket. Employer-paid moving expenses are also taxed under the new tax reform.

In general, the only people who can still deduct moving expenses are active duty military members who are moving to a new permanent station.

Alimony for divorces after 2018

During a divorce, your debt and your assets get split up. In some cases, the courts order one person to pay ongoing alimony to their former spouse. Historically, the alimony payments were always deductible for the payer. But under the Tax Cuts and Jobs Act, the tax treatment of alimony depends on when the alimony agreement was executed.

If your divorce agreement was finalized before the end of 2018, alimony payments are generally deductible. The alimony tax shelter stays in place unless an alimony modification specifically eliminates the deduction for the payer.

However, newer divorcees paying alimony don’t get the benefit of a tax deduction. Individuals who entered an alimony agreement after December 31, 2018, will see a double blow to their budget. They’ll have to pay alimony and foot the tax bill for those payments, too.

Tax prep fees

Whether you pay an accountant or use tax prep software, your tax preparation costs are no longer deductible, even if you itemize your taxes. That said, business owners who pay for accountants or bookkeeping software can deduct expenses that are directly associated with operating the business. An accountant or lawyer can help you determine whether their services are deductible under the tax code.

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Pay Down My Debt

Help, I’m Drowning in Debt! What Can I Do?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When debts start piling up and income runs short each month, it can feel like you’re suffocating under the weight of financial responsibility. But you have options to make it through the financial squeeze. Below are tips and strategies you can use to take on overwhelming debt.

1. Take stock of your debts

To start, list all your debts, including their current balances, minimum payments and interest rates, on a single piece of paper or spreadsheet. Additional details, such as whether the debt is unsecured or secured and its remaining repayment term, can also be useful as you begin your research.

2. Prioritize your debts

When you’re struggling to keep your head above water, it’s important to make a detailed plan for how you’ll use your money. That includes prioritizing expenses and debt payments so you can minimize the likelihood of default.

Consider prioritizing your expenses in this order:

  1. Basic living expenses: Before making payments on debt, use your income to cover basic expenses such as rent, utilities, groceries, transit to work, and medical costs.
  2. Car and home loans: Most car loans (including vehicle title loans) are secured by your car, which means you could lose your car if you don’t pay your loan — and you’ll probably need your car to get to work to earn an income. Likewise, your mortgage is secured by your house; if you stop paying your mortgage, you could lose your house. Paying these loans should take priority over other forms of debt.
  3. High interest debt: Credit cards and other forms of high-interest lines of credit make it difficult to get out of debt. But these kinds of debt are commonly unsecured, meaning that if you fall into default, you won’t lose your home or other property; the lender would have to go through a collections agency or the courts to collect.
  4. Federal student loans: Federal student loans can rarely be discharged through the bankruptcy process, so you’ll have to pay these at some point. But you may decide to deprioritize paying off your federal student loans until you can take care of more expensive forms of debt. You may also qualify to cut your payment and work toward loan forgiveness by enrolling in an income-driven repayment plan. Payments can be as low as $0 per month, since they are based on your income.
  5. Debt in collections: If you’ve already defaulted on some debts, it may be best to wait on repaying them until you get a handle on your current or delinquent accounts. That’s because with defaulted debt the damage has already been done.

No matter what, you want to avoid defaulting on debt, no matter the type. Loan delinquency and default can massively hurt your credit score and make it difficult for you to pursue some of the debt repayment strategies below, as well as access other forms of credit.

If you’re unable to make the minimum payments on each of your debts, it’s time to call up your creditors.

3. Call your creditors and ask these 7 questions

Once you have a clear understanding of the debts you owe, there are steps you can take to cut your monthly payment and stay current on your bills. These are a few questions that can help you find ways to cut your bills with creditors or get help when you’re drowning in debt:

The U.S. Department of Education allows borrowers to go on income-driven repayment plans where monthly payments are as low as $0 per month depending on your income. Mortgage lenders may also have some room to help you cut your monthly payment. Cell phone companies, utility providers, and other companies may have lower cost plans available, as well.

Call your utility and phone providers to ask if you qualify for discounts for low and moderate income earners. Some companies can connect you to local governments that help low income people pay for basic utilities. Internet or phone providers offer discounts to low income people. If you don’t qualify for low-income programs, you may be able to lower your bill by asking for new customer rates.

If you have medical bills in collections, your provider may be willing to lower your bill. You can negotiate the bill or ask about charity care. When speaking with your provider’s billing department, be frank about your financial situation so they have a good understanding of your struggles.

Some credit card companies will be willing to cut your interest rate if you show financial need. Lower interest rates can help you gain traction on paying off debt.

Lenders may be willing to extend your repayment term, which means you’ll have a longer amount of time to pay off the same amount of debt. You’ll pay more in interest over the long-haul, but the immediate monthly payment will be more manageable.

If your debt load puts your home in jeopardy, you may qualify for a mortgage modification program. Mortgage modification programs are designed to cut your loan payment and bring you current on your loan. Call your lender to ask about your options.

Mortgage, student loan or credit card lenders may offer to pause loan payments through forbearance. Loan forbearance, or hardship forbearance, happens when a bank reduces or stops your payments for a limited period of time. During forbearance, interest continues to accrue on your loan. You will have to repay the missed payments and the added interest later on; however, despite the added costs, this option can make a lot of sense if you think your income situation will improve soon.

If you’re returning to school or entering active duty military service, your federal student loans may also be eligible for deferment. Deferment allows you to pause loan payments during specific times. If you have a subsidized student loan, interest won’t accrue during deferment.

4. Consider ignoring debt in collections for now

Creditors may be hounding you about debts in default, but those debts may need to wait. When you initially defaulted on the loan, the default damaged your credit score. Recovering from a defaulted loan takes time, but repaying the loan won’t help you build credit. These tips can help you if you have debts in collections. Plan to deal with defaulted debts when you’ve dealt with higher priority debts.

Above all, know that you have rights when it comes to dealing with debt collectors. For example, collectors can only call between 8 a.m. and 9 p.m., and you can request that they not contact you at work. If you want collectors to stop contacting you, send a letter via certified mail that explains you don’t want to be contacted. Once the collections agent receives it, they can only contact you to let you know they have seen the letter, or if they intend to sue you.

5. Explore your debt relief options

While there are many ways to handle overwhelming debt, these are some of the most popular options. Consider all your options before committing to one.

4 ways to handle bills when you’re drowning in debt

What it is

Pros

Cons

Make monthly payments to a credit counseling agency that will negotiate interest rates, fees and repayment schedules with creditors and make payments on your behalf.

  • Single payment each month
  • May lower fees and interest rates
  • May pay a monthly maintenance fee
  • Debt load doesn’t shrink

Combine several debts with a new loan. Many people consolidate using a debt consolidation loan.

  • Only one payment per month
  • May lower your interest rate
  • Can extend your repayment term to lower your monthly dues

  • Total balance of debt remains the same
  • Best for borrowers with strong credit
  • A longer term means higher overall interest charges

Negotiate a lump sum payment for less than the amount you owe. In exchange for taking the lump sum, the creditor resolves your debt.

  • May pay less than you owe
  • May help you avoid bankruptcy

  • Can severely damage your credit score
  • Lenders have no obligation to negotiate with you

Work with the courts to help you dispose of debt to create a viable repayment plan for your debts.

  • With Chapter 7 bankruptcy, 99% of filers have debts wiped out
  • Allows you to deal with most debts through a single process

  • Bankruptcy stays on your credit report for 10 years
  • Average bankruptcy cases cost $1,000 or more (depending on complexity)

Debt management plans

A debt management plan is a debt repayment option where borrowers work with a credit counseling agency to repay debt. On the plan, the borrower pays the agency, and the agency repays creditors on an agreed upon schedule. The agency will negotiate with your creditors to lower interest rates, waive late fees, and arrange a repayment schedule that works for you.

In general, you’ll need to make monthly payments for 48 months or longer to pay off all the debt on the debt management plan. To make your success more likely, the credit counseling agency will ask you not to open any new credit cards while you’re on the plan. You’ll also have to close the credit cards that are on the plan.

Debt management fees vary by agency, your state and the amount of debt. One agency, GreenPath Financial Wellness, charges a $0 to $50 setup fee. On top of that, you’ll pay $0 to $75 monthly fee for the company to manage your debt payments. To find a reputable nonprofit counseling agency, use the National Foundation for Credit Counseling’s member database.

Debt consolidation

When you consolidate debt, you refinance all your debts into a single new loan, to be paid once a month. To keep interest costs low, some borrowers choose to consolidate debt with a home equity line of credit (HELOC), a credit card with an introductory 0% APR or a debt consolidation loan.

When you consolidate your debt, you may lower your monthly payments by extending the term of your loan (for example from five years to 10 years) and/or by finding a lower interest rate. If you choose a longer repayment term, you will generally pay more interest over the life of the loan. However, if you’re struggling with monthly dues, you may be comfortable with this tradeoff.

To qualify for the best refinancing options, you’ll generally need a strong credit score.

Debt settlement

Settling your debt means you resolve debts by paying your creditors an agreed-upon lump sum. The settlement amount is usually less than the full amount you owe. Debt settlement sounds great, but it can be risky and expensive, especially if you work with a debt settlement company.

If you work with a debt settlement company, the company will generally charge you around 20% of the original value of the debt you owed — that means when the company settles $40,000 of debt, you should expect to pay $8,000 for the service. According to the Federal Trade Commission, it is illegal for a debt settlement company to charge its fee before you pay your creditor, so this fee will be paid after your debt is paid.

Aside from the high costs, working with a debt settlement company poses these other risks:

  • Debt settlement companies may ask you to stop paying debts, which erodes your credit score.
  • Some debt settlement companies are scams and fail to deliver on their promises.
  • Debt settlement can take three years or more, so many people drop out of the program before their debts are resolved.
  • There’s no guarantee creditors will work with you, which means you may spend time and money for nothing.

If debt settlement still seems like your best option, the Consumer Financial Protection Bureau recommends that you should consider working with creditors on your own. Call your lender’s customer service department, and work on negotiating a settlement. Be sure to get any changes to the payment in writing.

Bankruptcy

Bankruptcy is a process where an individual or a married couple has their debts discharged or modified through the courts. To start the bankruptcy, you’ll usually file Chapter 7 (liquidation) or Chapter 13 (payment plan) bankruptcy.

With Chapter 7 bankruptcy, most of your loans will be discharged once the process is complete. However, you may have to sell certain assets (including a home or a car in some cases) to pay off existing debts.

With Chapter 13 bankruptcy, you’ll go on a payment plan that lasts three to five years. At the end of the payment plan, most debts are discharged, and you’ll still own all your assets.

However, bankruptcy stays on your credit report for as many as 10 years, and makes it very hard to get new credit to buy a home or car, so you should only pursue bankruptcy as a last resort.

Bottom line

Whether you’re facing bills in collections, struggling to make minimum payments, or overwhelmed by the amount you owe, you have options. Take stock of your choices, so you can move towards financial health.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Life Events, Pay Down My Debt

9 Ways to Get an Engagement Ring Without Going Into Debt

A marriage proposal can lead to much happiness, but it also can mean having to purchase an expensive engagement ring and, subsequently, getting into debt. If the diamond industry has anything to say about your engagement ring purchase, you’ll spend anywhere from one to three months’ salary on a diamond engagement ring. On average, couples spend a whopping $5,900 on engagement rings, according to a 2019 report by The Knot.

However, a little forethought and some creativity can lead to significant savings and even a debt-free engagement ring. Think of it this way: It can be far more romantic to propose with a paid-for ring than to drag the equivalent of a car payment into your marriage. Here’s how you can purchase that ring without breaking your bank.

iStock

#1 Set a budget

The first step you should take in the ring-buying process is setting a realistic budget for yourself. Don’t just go shopping with no maximum price in mind, as that may lead to you making a purchase you can’t really afford. If you know what you want to spend beforehand, and make sure you stick to that, you are already showing the kind of discipline that can help you avoid serious debt.

#2 Heirlooms are a wallet’s best friend

Jewelry passed from generation to generation denotes sentimentality and fiscal prudence. Ask your family, or your future spouse’s family, if they have any heirlooms they would like to pass on. Keep in mind: Heirloom jewelry will be free, but the service and upgrades can run from a few hundred to several thousand dollars. If you do obtain an heirloom ring, consider these three options.

2. Leave the ring intact (except for resizing and repair).

3. Create a new setting for an heirloom diamond.

4. Incorporate a new band into the old ring design.

#3 Buy your diamond on the cheap-ish

Real diamonds are never truly inexpensive, but knowing what and when to buy can save you a bundle.

Shop in the summertime. Because winter proposals are very popular (think Valentine’s Day), it can make a lot more financial sense to buy your diamond in the off-season. The summer months can offer stable pricing at a discount.

Buy diamonds shy of critical weights. If you want a full-carat diamond, look for something around .9 carats instead. You’ll get close to the same look at a nice discount.

Look before you buy. Compare diamonds at various areas of the color and clarity spectrum. If you can’t tell the difference in the diamond’s appearance, choose the less-expensive option. Also, be sure to comparison shop at different retailers; don’t just go with the first ring you love, as you may find something very similar, for less, at another shop.

#4 Replace the diamond, save the difference

Thanks to the diamond industry’s multi-decade, multi-billion dollar advertising campaign, diamonds remain the most popular stone in engagement rings, but forgoing the traditional gem can save you thousands. Consider these emerging trends.

Choose synthetic diamonds. Diamonds created in labs share the same properties as mined diamonds, but they cost up to 75% less than traditional diamonds, and they are a great choice for those seeking to avoid conflict diamonds.

Replace a diamond with moissanite. A gemologist will never tell you this, but moissanite (a synthetic material) is the hardest gemstone used in jewelry next to diamonds, and it ranks high on clarity and color scales, too. It’s not a valuable gem, but it is beautiful and easily could pass for the real thing. (Pro tip: Ask your future spouse before you go this route. Many people do prefer authenticity.)

Pick an alternative gemstone. Pearls or jade are popular choices outside of the United States, and garnet and topaz are gaining popularity stateside. If you want something out of the ordinary, consider alternative gemstones, but be aware that some gemstones are actually even more expensive than diamonds.

Skip gemstones altogether. Ornamental rings (especially knots) are popular choices for those who want to skip traditional gemstones. Handcrafted gold rings can be purchased for as little as $200 on Etsy.

#5 Forgo tradition

Some of the best ways to save money on engagement rings involve breaking tradition, and some couples are more open to an alternative ring style than others. These are a few ring choices that definitely buck tradition.

Wooden rings: Wooden engagement rings occupy a large niche in the market, and can be a cost-effective alternative to precious metals. Wooden rings run anywhere from $50 for simple bands to several thousand dollars for rings that include ornate details and gemstones.

Tattooed rings: Some couples chose to get tattoos instead of rings, citing that nothing says forever quite like a tattoo. Keep in mind that this may be a dangerous option, as you will have a much harder time removing a tattoo than a ring if your relationship ends (either before or after the marriage).

Leather rings: Leather rings can include braiding, engraving and colored beads, among other stylings, and will certainly save you a bundle compared to a diamond. If you don’t want to go with real leather, faux leather can work as well.

Go dutch. If the ring in question is outside of your price range, consider asking your sweetheart to split the cost with you. As you’ll be combining finances after you’re married, this may actually lead to some great money-focused conversations.

#6 Save money now, upgrade later

If your partner has a big diamond taste, but you’ve got a small budget, then consider upgrading later on. Here’s how.

Propose with costume jewelry. If you think you can save up for the real ring by the time of your wedding, an inexpensive piece of costume jewelry may be just right for the proposal.

Build as you go. Start with a simple band and stone, and add more or bigger gems for anniversary milestones, or upgrade when you can afford it.

#7 Buy used

Consider buying a ring that already has a history. You can have the ring professionally cleaned to give it new beauty and make it “yours.”

Visit pawn shops. You may be buying the ring of a recent divorcee, but the savings can be irresistible.

Search estate sales. If you regularly shop estate sales, you might uncover a vintage ring at a spectacular price. Rings that aren’t presented with a certificate of authenticity will give you room to negotiate on price, but you may accidentally buy overpriced junk. This technique is best for people with an eye for authenticity.

Shop on eBay. Pre-owned rings from eBay can represent about a 30% discount over identical new rings, and many owners provide certificates of authenticity.

#8 Creative ways to get cash

Whether you’ll spend a few hundred dollars or thousands, an engagement ring doesn’t have to mean big debt. Consider a few creative ways to save the cash you need to pay for a ring in full.

Sell your memorabilia. Your partner may not be too enthusiastic about your KISS memorabilia, or your 27 signed hockey jerseys. Selling these to help pay for an engagement ring will be a double sign of your love.

Save up, way in advance. If you’re not currently in a serious relationship, but you think you’re the marrying kind, consider setting aside some cash for a future ring purchase. While some people may find this a strange thing to do, there is no harm in being over-prepared. If you don’t end up using the money to buy a ring, it will be on-hand for other potential purchases (think a wonderful vacation, or a luxury item you really want).

Get a side hustle. People are increasingly taking on side hustles to earn extra cash, even if they have full-time jobs. This can include selling your artistic creations on Etsy, becoming an Uber or Lyft driver or writing freelance articles. Then you can put all the extra money you earn into an account for a ring.

#9 Consider a personal loan

It is definitely ideal to be able to purchase an engagement ring without going into debt at all. However, if you simply have to finance at least part of the ring’s purchase, you might consider a personal loan, as you may be able to get a better interest rate than with a credit card, depending on your own credit and where you are able to obtain your loan.

Bottom line

Getting married can be an expensive undertaking, and you don’t want to put yourself in a difficult financial place just by purchasing the engagement ring. Keep in mind the alternatives to the traditional pricey diamond, and also remember that the love you share with your partner should be far more important than buying a ring with a sky-high price tag. Avoiding debt as much as you can also means you’ll be starting off your new marriage on a financially healthy note.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.