Many taxpayers who owe taxes believe tax extensions protect them, but they are only partially right. Do you know the rules and deadlines for filing corporate and personal tax extensions? For companies it is March 15 and for personal tax returns it is April 15.

Here’s the ugly truth about tax extensions, but first if you need to file one, do it before midnight on the deadline by using Form 7004 for a company that you can get here: http://www.irs.gov/pub/irs-pdf/f7004.pdf or Form 4868 for personal extensions that you can get here: http://www.irs.gov/pub/irs-pdf/f4868.pdf

Penalty for not filing tax returns on time

The IRS is much worse than any credit card company, charging a 5% PER MONTH penalty up to 25% of what you owe for late filing that compounds DAILY. That’s a whopping 60% per year, even if you did file an extension!

Interest charges for late filing of tax returns

As of midnight on tax deadline day, the interest on any taxes you owe, but do not pay, with your return accrues at the rate of 3% PER MONTH up to 25% of what you owe for late filing that compounds DAILY. That’s a whopping 36% per year!

The total? A unbearable 8% per month (96% per year) compounding daily. Another “Pay For Life” program.

If you can’t pay what you owe, ask for a payment plan by filing Form 9465 Installment Agreement Request that you can get here: http://www.irs.gov/pub/irs-pdf/f9465.pdf

Note: the caution on the form that states: Do not file this form if you are currently making payments on an installment agreement or can pay your balance due in full within 120 days. Instead, call 1-800-829-1040. And yes, unfortunately, interest and penalties continue until it is paid in full.

The remedy is paying quarterly estimated tax payments if you owe taxes each year. At least what you pay in these payments cannot accrue penalties and interest.

The best money management remedy would be to join the grass roots movement to get Congress to get the FairTax Act passed. To find out more about what you can do to get involved and make that happen, visit www.fairtax.org today.

If you are in debt, claim your free copy of the Debt Reduction Solutions Guide here: http://www.thedebtreductionsolution.com/

If you have anything to say about taxes, leave a comment.

Sandra Simmons, President of Money Management Solutions (www.moneymgmtsolutions.com) specializes in helping business owners and individuals manage their money and do tax planning to achieve their financial goals.

I recently received an email from a visitor to my Money Management Solutions website who wants to learn how to pay off her mortgage quickly without having to attend expensive seminars or buy expensive software to do this trick.

I realized that this was a question a lot of people might have, especially during this current economic crisis. I decided to share my answer here for that reason.

Brenda asked Sandra Simmons:

Is there some sort of “mortgage accelerator” program where your mortgage gets paid off in a fraction of the usual 30 years time? I want to learn how I can do this myself for my mortgages. — Brenda B.

Answer:

Brenda: You can do this yourself by making extra principal payments each month.

Example if your mortgage payment is $2,000:

 If, when you make the payment for 8/1, you include an extra payment for the principal due 9/1 of $302 then you don’t ever have to pay the interest of $1,698 that was due 9/1.

Your next payment due, which you will pay on 9/1, is actually the 10/1 payment.

Then on 9/1, when you make the 10/1 payment, if you also pay the principal payment from the 11/1 payment, then you save that interest. If you do this you will cut your mortgage payoff time in half.

Write on your payment coupon “Extra Principal Payment $302” so there is no question of where you are directing the funds, and keep a copy of the coupon and the check for your records.

If you want to accelerate it even faster, say cut it by 2/3rds, if on 8/1 you make the payment and include the principal amounts for the payments due 9/1 and 10/1, then you don’t pay the interest on the 9/1/and 10/1 payments.

Then on 9/1 when you make the next payment you would pay the payment for 11/1.

Ask your mortgage lender for an amortization statement of your loan so you can actually see the correct principal and interest amounts broken down for each payment. They may not want to give you one so you can’t do this as they lose interest income, but you have a right to have it. Even if you have to pay them for it, it is worth it. Typically they charge $25 – $75 for an amortization statement.

Sandra Simmons is the President of Money Management Solutions, Inc. She specializes in helping business owners and individuals manage their money to achieve financial freedom. Claim your FREE Debt Reduction Solutions Guide.

I find I cannot withhold my comments any longer on this topic of budgeting software. I see too many articles that pretend to be about budgeting software when the author knows nothing about what the word budget actually means. I don’t like it when incorrect information is served up to the public.

Here are some examples of what I find offensive:

A recent article posted on the internet states that “Budgeting software is a computer program that creates a profit or loss plan from data entered into the software. Some of the data to be entered may include earnings and expenditures.” Sorry, but that is NOT budgeting software, that is accounting software.

The correct definition of the word BUDGET is: the amount of money it takes for the organization or household to function, and to attain its goals.

Here’s the good news: living on a budget does not mean you have to cut back on the quality of the things you buy or deny yourself anything fun. What it does mean, is that you have to figure out how to make enough money to afford the things you want, now and in the future, and to keep your spending within the limits of your income.

Therefore, a correct budget is partially a computation of what you have spent in the past and partially a calculation of how much money you will need for specific items in the future to achieve your financial goals. Budgeting is a useless activity unless you use it to do income planning and spending planning. Accounting software does not do that for you. It only records what happened in the past and cannot help you predict the future or plan future actions.

That same article states, “There are many different types of budgeting software…” I challenge the author of that article to name three or four budgeting software products on the market that are not, in fact, accounting software. I can name one; Money Management Solutions, and it is NOT accounting software, it is what its name implies, money management software.

And yet another useless statement pretending to be good information is this one from that article, “Any sort of budgeting software can be used to keep track of a personal budget…” Well, it is a useless activity to keep track of a budget, unless you add the useful steps of using the information to plan your financial future and manage your money in a way that guarantees you will achieve your financial goals. Just keeping track of what you spent is a waste of time, unless you use it as part of the whole money management equation of planning the steps to take to reach those goals.

And finally this statement which has nothing to do with budgeting software, and everything to do with accounting software, and so becomes a misrepresentation of the facts to the reader, “Money management software is some of the most comprehensive software on the market today. Products such as Quicken and Microsoft Money will keep track of individual account information with various types of accounts such as checking, savings, and investments. These programs can also track credit card spending and alert you when you have overspent on your monthly budget.”

In fact, Money Management Software is PLANNING software which is used to plan and execute the actions you can take to reach your financial goals. Therefore, you won’t need an alert that you overspent your budget; you’ll know BEFORE you are going to overspend and make the necessary adjustments so that doesn’t happen. Accounting software, like Quicken and Microsoft Money, is RECORDING software and can only tell you what happened in the past.

Making financial decisions for the future based only on what happened with your money in the past is a dangerous activity. For example, if you read an article in Money Magazine that is raving about some stock that had double digit increases over the past 5 years, and you bought that investment based only on the record of past performance, you could lose your money the next day.

What should you do BEFORE you make that investment decision? You should do your own research into the stock and make an investment decision based on YOUR belief that the future plans of that company will continue to deliver double digit increases.

Bottom line, don’t believe everything you read about budgeting software that is really accounting software. Accounting software serves its purpose to record what happened so we can file our tax returns. I use it myself. If we ever get the FairTax passed and we don’t have to file tax returns any more, I’ll still use my Money Management Software because it is my planning tool to make sure I stay on the road to achieving Financial Freedom.

Lenders might be monitoring your money management behavior via your credit card spending — and certain purchases could cost you.

By BusinessWeek 

Most borrowers know a late payment or high outstanding balance can hurt their credit. But what about frequenting a massage parlor, retreading a tire or visiting a marriage counselor? Such activities count, too, according to a suit filed June 10 by the Federal Trade Commission in Atlanta federal court against card issuer CompuCredit.

Lenders, insurers, and other financial firms use credit scoring systems to make a host of decisions about consumers, including the interest rate on their mortgages, the limits on their credit cards and the monthly premiums for their auto coverage. Some rely heavily on FICO, a three-digit score developed by Minneapolis-based financial firm Fair Isaac, while others use proprietary models developed by statisticians. But companies don’t disclose what’s baked into their formulas, leaving many borrowers to wonder what factors determine their financial fate.

The FTC suit against Atlanta’s CompuCredit for allegedly “deceptive” marketing practices offers a rare look inside the opaque business of credit scoring. It reveals mechanisms that consumer advocates and politicians have long suspected exist — in which purchasing behavior, not just payment history, matters.

Punished For Purchases

The allegations, in part, focus on CompuCredit’s Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn’t properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls and marriage counseling offices.”The company touted that cardholders could use their credit cards anywhere,” says J. Reilly Dolan, assistant director for financial practices at the FTC. “What they didn’t say was that you could be punished for specific kinds of purchases.” The Federal Deposit Insurance Corp. is also seeking $200 million in penalties from CompuCredit in the matter.

It’s not the first time CompuCredit has come under scrutiny from authorities. In 2006, the credit card issuer and another financial firm agreed to fork over $11 million to consumers and reform their marketing and billing procedures as part of a settlement with then-New York Attorney General Eliot Spitzer, who had launched a probe in 2005 after receiving various consumer complaints.

CompuCredit maintains that the FTC’s lawsuit is without merit, and defends its practices. “Every time a consumer accesses their credit, a new decision to extend a loan is being made,” says Rohit H. Kirpalani, CompuCredit’s general counsel. “These scoring models are commonplace across the industry.”

Video on MSN Money

Protection from credit card companies
If new rules proposed by the Fed are enacted, some of the credit card companies’ favorite sleazy tactics will be taken off the table.

With competition increasing, databases improving and technology advancing, companies can include more factors than ever in their models. And industry experts say financial firms increasingly are looking at consumer behavior, as CompuCredit did.The worry is that companies may tweak the credit scoring systems in unfair or biased ways, weeding out or limiting borrowers based on race, gender or sexual orientation. (In the case of CompuCredit, regulators are taking issue with the lack of disclosure, not specifically its use of behavior-based scoring.)

“We as consumers should become aware that behavior is used to determine our creditworthiness,” says consumer advocate Karen Gross, president of Southern Vermont College. “What CompuCredit portends is the (use) of information to create a more robust and potentially nefarious credit scoring system.”

This story was reported and written by Jessica Silver-Greenberg for BusinessWeek.com.

Published Aug. 8, 2008