Advertiser Disclosure

Consumer Watchdog, News

Consumer Bureau Loses Fight to Allow Class-Action Suits Against Finance Giants

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Senate Republicans on Tuesday killed a new rule that would have made it easier for Americans to file class-action lawsuits against big Wall Street banks. 

Vice President Mike Pence cast a critical vote to break a 50-50 tie, giving the Street its first major victory since the Trump administration took office in January.  

Implications for consumers 

In the regulatory overhaul following the housing slump, Congress directed the Consumer Financial Protection Bureau (CFPB) to write the rule preventing financial firms from imposing arbitration when consumers wished to band together in class-action cases to resolve disputes. 

For years, financial companies have included class-action waivers in new contracts offering a consumer financial product or service. The arbitration clauses forced consumers to waive their rights to join class-action lawsuits. 

CFPB’s proposed rule, issued in July, would have banned financial institutions from inserting such clauses in standard contracts. Consequently, it would have restored individuals’ ability to pool resources and fight against banks and credit card companies in court.  

“Tonight’s vote is a giant setback for every consumer in this country,”  Richard Cordray, the director of the consumer bureau, said in an emailed statement to MagnifyMoney. “Wall Street won and ordinary people lost.” 

He added, “As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.” 

What’s arbitration? 

When a company includes a mandatory arbitration clause in a contract, it generally means disputes will be handled as individual cases in small claims court or settled outside the court system, through arbitration. A neutral third party — an arbitrator or panel of arbitrators — listens to the arguments and decides on a resolution.  

Arbitration is said to be faster, simpler and cheaper than litigation. But opponents of arbitration say its downsides include questionable neutrality on the arbitrator’s part, a lack of transparency and a lack of recourse. For example, in a court case, a losing party could appeal — an option that doesn’t exist in arbitration.  

The CFPB argues that reducing consumers’ options to private arbitration or an individual lawsuit makes it easy for companies to avoid accountability for actions that can affect thousands or millions of people. 

Why now? 

The Trump administration and Republicans have pushed to curtail the CFPB as part of a broader effort to weaken the Obama administration’s tighter federal grip over financial institutions.  

The arbitration rule had sparked a political firestorm in Washington. Over the summer, members of the Senate Banking Committee pledged that they would take the unusual step of filing a Congressional Review Act Joint Resolution of Disapproval to overturn the CFPB rule.  

Rep. Jeb Hensarling, D-Texas,  introduced a companion measure in the House. 

Under the Congressional Review Act, Republicans had about 60 legislative days to overturn the rule. In ensuing months, financial institutions and their Republican allies in Congress joined forces, making serious efforts to block the arbitration rule.  

The Treasury Department on Monday released a report against the rule. “The Bureau failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest — its two statutory mandates,” according to the report. 

On Tuesday, the White House applauded the move by Senate Republicans. 

“The evidence is clear that the CFPB’s rule would neither protect consumers nor serve the public interest,” the White House said in a statement. “Rather, under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes.” 

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.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS: , , ,

Advertiser Disclosure

News

Should You Itemize Your Taxes in 2018?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Deciding whether or not to itemize your taxes can be tricky, and changes to tax law implemented by the Tax Cuts and Jobs Act, signed into law by President Trump on Dec. 22, 2017, may have you asking, “Is it even worth it?”

To help you decide whether it makes sense for you to itemize your 2018 taxes, we looked at the pros and cons of itemizing versus taking the standard deduction, break down changes to commonly itemized deductions, and help you think through your itemizing strategy for 2018.

Itemized vs. standard deductions

When filing your taxes, you usually have a choice to use standard deductions (a portion taken from your income before taxes) or to itemize (deduct various expenses, such as charitable donations and medical bills), in efforts to pay less in taxes. In 2017, the standard deduction for single households was $6350 while married couples who file jointly could claim $12,700. Fast forward to 2018 and the standard deductions have increased significantly. Single households are now set at $12,000, while married couples are at $24,000. This means you have to itemize a lot more to pass the standard deduction threshold.

How the Tax Cuts and Jobs Act will impact your decision 

While some things will stay the same under this new act — this includes deductions for teachers, electric cars, adoption assistance and student loan interest — there are changes to common deductions that will make it more difficult to meet the increased threshold. Let’s break down some of the most common items you are used to itemizing and how the new bill will impact each.

Medical expenses: Last year, you could deduct medical bills that were paid out-of-pocket and exceeded 10 percent of your adjusted gross income. This year, that number has gone down to exceeding 7.5 percent.

State and local tax (SALT): You used to be able to deduct state and local property tax along with income and sales taxes. Now, you can only claim up to $10,000 in these types of taxes combined.

Miscellaneous tax deductions: In 2017, you were able to itemize many miscellaneous items, like CPA fees that were charged while preparing your taxes. This year, most miscellaneous items cannot be itemized, including tax preparation fees, certain work-related costs and investment fees.

Personal and dependent exemptions: Your ability to claim personal exemptions on your taxes has been suspended until 2025. However, you can still claim dependent exemptions. In fact, the child tax credit has doubled from last year, rising up to $2,000 per child under the age of 17.

Estate taxes: These are the taxes that come from a large estate inherited after a death (usually by a family member). In previous years, you would not have to pay estate tax for anything up to $5.49 million, but this year it has gone up to nearly $11.2 million.

Pass-through business: Those who own their own business can now deduct 20% of their business income when they file their taxes. They don’t necessarily have to reach a minimum income either, just as long as they can show they made money. And the more they make ($157,500 for individuals and $315,000 for married couples), the better the deduction.

What should consumers consider when deciding whether or not to itemize?

There’s no question that the new tax bill is going to bring some major changes to just about everyone this year. To help you prepare, let’s consider those who might be better off itemizing than others.

The wealthy may have more opportunities to itemize. These are likely the taxpayers that can itemize the most, including any large charitable donations (think: $10,000 per year or more) they made throughout the year.

Homeowners can itemize interest and taxes. As we mentioned above, you can now only deduct up to $10,000 for state and local taxes. However, those who own their own home and pay significant mortgage interest may still exceed the standard deduction limit.

Taxpayers with children have an advantage. Let’s not forget taxpayers with several children under the age of 17, who are looking at a deduction of $2,000 per child.

When it all comes down to it, Howard Wurzel CPA, CGMA, based in New York City, stated that if you can itemize, you should. While it can be a hassle, you may reap the benefits of a lower tax liability.

“If you are actually incurring the expenses, and they exceed the standard deduction, than you should always itemize,” says Wurzel. “There is always a possibility of being audited (whether you itemize or not) so as long as you’re being truthful with your expenses you won’t have any problems.”

One way to stay on top of this is by saving your receipts. This provides proof of your expenses in case the IRS needs to see them.

Other changes to keep in mind

While we outlined some major changes to to consider when decided whether or not to itemize your taxes this year, these are not the only updates to the law. Other changes include 529 college savings plans, moving expenses, corporate taxes, alimony, and alternative minimum tax. For a detailed overview of the Tax Cuts and Jobs Act and all its changes, view our guide.

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.

Carissa Chesanek
Carissa Chesanek |

Carissa Chesanek is a writer at MagnifyMoney. You can email Carissa here

TAGS:

Advertiser Disclosure

News

7 Signs You Need a Pro to Do Your Taxes

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

man advising clients
iStock

Completing one’s annual tax return can be a fairly straightforward process. You simply get your W-2 or 1099 forms and other necessary documents in the mail or online, then file using one of the many online software tools available.

But for some taxpayers, completing an annual tax return can cause an immense amount of stress. If your employment status and/or financial picture is complex, you might fall into this category. In addition, if you’re unsure about how the recent tax law changes might impact you, it might make sense to consult a professional this year.

Below, you’ll find seven common reasons why you should consider hiring a pro to do your taxes.

1. You had a major financial event in the previous year.

If your financial picture changed significantly in some way in the previous year, you might want to consider hiring a professional to do your taxes.

“If you’re used to doing it yourself, but you have a big tax income year with a lot of complexity, it makes sense,” said Andrew Rosen, a CFP at Diversified, LLC in Wilmington, Del.

Major financial events could include things like taking money out of a retirement account; having a significantly higher earning year; transferring jobs during the year, getting a large bonus, purchasing a home or having children who started college.

2. You’re self-employed, work as a freelancer, own a business or have a side hustle.

Perhaps you’re a freelance graphic designer. Or maybe you’re a self-employed consultant. Whatever your job may be, if you’re self-employed, you should definitely consider meeting with a pro when it’s time to do your taxes.

“If you are self-employed, I think it’s a really good idea to use [an accountant],” Rosen said. “If you’re self-employed, typically you have a lot of write-offs and there’s a lot of gray area. You want to make sure you’re categorizing things.”

One added benefit of consulting a professional if you’re self-employed is that you’ll have added protection from being audited.

“Generally, if the IRS sees that a return was done by a tax preparer, it’s less likely to be audited,” said Gary Schaider, a certified public accountant and manager at Weiss & Company LLP in Glenview, Ill. “And you have the firm’s signature behind your return, so they have some responsibility and stake in making your return correct and helping you with any IRS inquiries.”

Schaider said this protection is often why people consult a professional to do their taxes in the first place. “I think the audit risk for someone is pretty low, unless you’re amazingly wealthy,” he said. “But if you do have that signature of the CPA, that definitely gives you a better score on your tax return.”

3. You have children.

If you have children or claim other dependents, it might be worthwhile to consider hiring a professional to do your taxes. Rosen said that if you have children and everything else in your financial picture is normal, you might not need a pro. But if there’s any level of complexity to your finances, you should consider it.

If you have college savings planned for your children or monthly payments for school, for example, it could be beneficial to hire an accountant. In addition, if you have stepchildren or children from a previous relationship, you should consider hiring an accountant, as this may add a level of complexity to your tax return.

Plus, Rosen jokes, parents often don’t have the bandwidth and energy to complete their taxes.

“[Parents] typically don’t have a lot of time with their children, and taxes are complex,” he said. “I’m a firm believer in figuring out where you want to spend your time. Do you want to spend it doing your taxes and looking for receipts or do you want to dump it on someone else’s plate?”

4. You have many things to itemize.

Most people get everything they need to complete their tax return in the mail: 1099s, W-2s, mortgage interest, etc.

“I think that makes it relatively simple,” Schaider said. “But if you have anything else outside of what generally might come in the mail from the IRS, such as your own business [or] charitable expenses … you might want to consider using a professional to help you make sure they’re presented best on the return.”

Things you might be able to itemize include: mortgage interest, charitable donations, business expenses, interest on investments and medical expenses. If you plan on itemizing any of these deductions come tax season, hiring a professional can make it simpler.

In light of the recent tax law changes in 2018, you may also have questions about your itemized deductions that may not be fully deductible this year. An accountant can help you navigate these changes.

5. You had a major life event in the previous year.

If you had a significant life event in the previous year, consider consulting a tax professional to ensure you complete your tax return efficiently. Some major life events could include a death in the family, marriage, divorce or the birth of a child.

“If there’s anything unusual that sticks out, I think you should consult a professional,” Schaider said.

6. You have multiple investments accounts.

If you have investment accounts, such as college savings funds, stocks, bonds, annuities or individual retirement accounts, your financial picture is likely more complex. Consulting a professional to do your taxes can help ensure you abide by all of the tax rules that accompany these types of accounts.

7. You don’t have the time or energy, or you feel overwhelmed by the process.

If none of the above statements applies to you, that doesn’t mean you have to do your own tax return.

“Why would I tell people to have someone do their taxes? First is if you just don’t have the time or the bandwidth,” Rosen said. “I think there’s a power in outsourcing a lot of things in this world and, quite frankly, getting your taxes done has become a bit of a commodity. You can get it done fairly inexpensively.”

If you decide to consult a professional to do your taxes this year, Rosen advises looking for a certified public accountant, or CPA.

“If you’re going to seek tax help, I would look for a CPA,” he said. “You don’t have to be a CPA to do taxes. For instance, H&R Block and most [tax preparers] aren’t CPAs. If you’re going to pay for [your taxes], you’re not paying very much for a premium with most CPAs anyway. Might as well have someone who has a firm understanding of taxes.”

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.

Jamie Friedlander
Jamie Friedlander |

Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

TAGS: