Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.


2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.



3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?


  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.



4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.



5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%



6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.


7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.


8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.


9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.



Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance




29 Biggest Tax Problems For Married Couples

Preparing your annual income tax return is a chore. It’s even more complex when you’re married. You might have two sets of income, assets, debts and deductions. Further, if you were separated, widowed or divorced during the year, you might have a thorny tax situation.

A qualified accountant can advise you on the basic tax problems that married couples face. For a brief introduction, read through to see 29 of the most significant tax problems married people might encounter. Understanding these challenges can help you get more tax breaks this year.



When preparing taxes, you first need to determine your marital status. It might seem like a straightforward task. However, life is not always so simple.

The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2016, you were married to your spouse for the entire year in the eyes of the IRS. The laws of the state where you live determine whether you were married or legally separated for the tax year.



Married, same-sex couples are treated the same as married, heterosexual couples for federal tax purposes. However, same-sex couples in a registered domestic partnership or civil union cannot choose to file as married couples, as state law doesn’t consider those types of couples to be married.



If you weren’t married on Dec. 31 of the tax year, the IRS considers you to be single, head of household or a qualified widow(er) for that year.

If you were married, there are three filing possibilities:

  • Married filing jointly
  • Married filing separately
  • Head of household

If more than one category might apply to you, the IRS permits you to pick the one that lets you pay the least amount in taxes.



If you’re married and don’t qualify to file as head of household, you typically have two choices: filing jointly or separately. It’s best to choose the one that allows you to pay the least amount in taxes, which all comes down to your particular circumstances.

Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities,” he said. “So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa.”

If you file jointly, you can’t later uncouple yourselves to file married filing separately. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly, within three years,” Zimmelman said.



Even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing singly or jointly will give you the best tax result.

Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately, or vice versa.



The Patient Protection and Affordable Care Act — more commonly known as “Obamacare” — requires that you and your dependents have qualifying health care coverage throughout the year, unless you qualify for an exemption or make a shared responsibility payment.

Even if you lose your health insurance coverage because of divorce, you still need continued coverage for you and your dependents during the entire tax year.



If you want to change your last name after a marriage or divorce, you must officially inform the federal government. Your first stop is the Social Security Administration. Your name on your tax return must match your name in the SSA records. Otherwise, your tax refund might be delayed due to the mismatched records. Also, don’t forget to update the changed names of any dependents.



If your spouse died during the year, you’ll need to figure out your filing status. If you didn’t marry someone else the same year, you may file with your deceased spouse as married filing jointly.

If you did remarry during that tax year, you and your new spouse may file jointly. However, in that case, you and your deceased spouse must file separately for the last tax year of the spouse’s life.

In addition, if you didn’t remarry during the tax year of your spouse’s death, you might be able to file as qualifying widow(er) with dependent child for the following two years if you meet certain conditions. This entitles you to use joint return tax rates and the highest standard deduction amount.



If you use the status married filing jointly, each spouse is jointly and severally liable for all the tax on your combined income, said Gail Rosen, a Martinsville, N.J.-based certified public accountant. “This means that the IRS can come after either one of you to collect the full amount of the tax,” she said.

“If you are worried about your spouse and being responsible for their share of their taxes — including interest and penalties — then you might consider filing separately,’ she said.



Although filing separately might protect you from joint and several liabilities for your spouse’s mistakes, it does have some disadvantages.

For example, people who choose the married filing separately status might lose their ability to deduct student loan interest entirely. In addition, they’re not eligible to claim the Earned Income Tax Credit and they might also lose the ability to claim the Child and Dependent Care Credit or Adoption Tax Credit, said Eric Nisall, an accountant and founder of AccountLancer, which provides accounting services to freelancers.



To include non-reimbursed medical and dental expenses in itemized deductions, the expenses must meet a threshold of exceeding 10 percent of your adjusted gross income. However, when you file jointly — and thus report a larger combined income — it can make it more difficult for you to qualify.

A temporary exception to the 10 percent threshold for filers ages 65 or older ran through Dec. 31, 2016. Under this rule, individuals only need to exceed a lower 7.5 percent threshold before they are eligible for the deduction. The exception applies to married couples even if only one person in the marriage is 65 or older.

Starting Jan. 1, 2017, all filers must meet the 10 percent threshold for itemizing medical deductions, regardless of age.



Many people complain about the marriage tax penalty. “Married filing jointly may result in a higher tax bill for the couple versus when each spouse was filing single, especially if both spouses make roughly the same amount of income,” said Andrew Oswalt, a certified public accountant and tax analyst for TaxAct, a tax-preparation software company.

However, you might have an opportunity to pay less total tax — a marriage tax break — if one spouse earns significantly less. “When couples file jointly with largely differing income levels, this may result in a ‘marriage tax benefit,’ potentially resulting in less tax owed than when the spouses filed with a single filing status,” Oswalt said.



If your divorce became official during the tax year, you need to agree with your ex-spouse on your filing status for the prior year when you were still married. As to whether you should file your final return jointly or separately, there is no single correct answer. It partially depends on your relationship with your ex-spouse and whether you can agree on such potentially major financial decisions.



Tax laws about who qualifies as a dependent are quite complex. Divorcing parents might need to determine which parent gets to claim the exemption for dependent children.

Normally, the custodial parent takes the deduction, Zimmelman said. “So if your child lives with you more than half the year and you’re paying at least 50 percent of their support, then you should claim them as your dependent,” he said.

In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” said Zimmelman. Or if you have two children, each parent can decide to claim one child, he said.



If you want to deduct alimony payments you made to a former spouse, it must be in accordance with a legal divorce or separation decree. You can’t deduct payments you made on a voluntary basis.



Even if you don’t take the standard deduction and instead itemize your deductions, you can’t claim child support payments you paid to a custodial parent.



Do not report court-ordered child support payments as part of your taxable income. You don’t need to report it anywhere on your tax return. On the other hand, you must report alimony you receive as income on line 11 of your Form 1040.



Unlike child support that isn’t tax deductible, you are permitted to deduct court-ordered alimony you paid to a former spouse. It’s a deduction you can take even if you don’t itemize your deductions.

Make sure you include your ex-spouse’s Social Security number or individual taxpayer identification number on line 31b of your own Form 1040. Otherwise, you might have to pay a $50 penalty and your deduction might be disallowed.



Saving for retirement is important. Contribute to a 401k plan and you will both save money for your golden years and lower your taxable income now. If your employer offers a 401k plan, you can contribute money on a pretax basis, subject to certain limits.

However, nonworking spouses can’t contribute to a 401k because they don’t have wages from an employer.



Single or married, you might have to pay quarterly tax payments to the IRS, especially if you are self-employed. Make sure you know how to calculate estimated taxes. If you are required to make such payments but do not do so, you might have to pay an underpayment penalty, Rosen said.

All taxpayers must pay in taxes during the year equal to the lower of 90 percent of the tax owed for the current year, or 100 percent — 110 percent for higher-income taxpayers — of the tax shown on your tax return for the prior year, Rosen said. “The problem for married couples is that often they do not realize they owe more taxes due to the combining of the two incomes,” she said.

You should be proactive each year. “To avoid owing the underpayment penalty, make sure to do a projection of your potential tax for 2017 when you finish preparing your 2016 taxes,” she said, adding that you should make sure to comply with the payment rules outlined above.



Crystal Stranger — a Los Angeles-based enrolled agent, president of 1st Tax and author of “The Small Business Tax Guide” — said she sees a lot of married couples who have issues with passive loss limitation rules.

“With these rules, if you have a passive loss from rental real estate or other investments, you are allowed to take up to $25,000 of passive losses against your other income,” she said. “But this amount phases out starting at $100,000 (of) adjusted gross income, and is fully lost by $150,000 (of) adjusted gross income.”

Married filers lose out, as the phaseout amount is the same for a single taxpayer as for a married couple. “This is a big marriage penalty existing in the tax code,” Stranger said. “It gets even worse if a married couple files separately. The phaseout then starts at $12,500, meaning almost no (married filing separately) filers will qualify.”



You are not obligated to claim your kids as dependents on your own tax return. In fact, it might be beneficial not to claim them.

“High earners lose the personal exemption after crossing certain income thresholds,” said Nisall. So in some cases, it might make more sense to let working children claim the exemption for themselves on their own return, he said.



Married couples might be able to claim the Child Tax Credit up to a limit of $1,000 for each qualifying child.

“The Child Tax Credit phases out starting at $55,000 for couples electing to use the married filing separately filing status, and (at) $110,000 for those choosing the married filing jointly status,” said Oswalt. “But married couples receive twice the standard deduction that individuals receive, so the phaseout limitations may not negatively impact a married couple’s return if they choose to file jointly.”



The IRS provides a tax break when you sell your home, subject to certain conditions. Generally, you must meet a minimum residency period by owning and living in the house for two of the five years previous to the sale.

A single person who owns a home that has increased in value can qualify to exclude up to $250,000 in gains from income, said Oswalt. However, married people can exclude up to $500,000 in gains. This rule can become tricky if one person in the couple purchased the house prior to marriage.

“If you are married when you sell the house, only one of you needs to meet the ownership test for the $250,000 exclusion,” Oswalt said. “You both must meet the residency period to exclude up to the full $500,000 of gain from your income, however.”



Married tax filers might be eligible for the Child and Dependent Care Credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a dependent and who can be a care provider are strict. This credit is not available if you file separately.



If you’re paying back student loans, you might be looking forward to taking the student loan interest deduction. However, if you’re married, it might not be so easy to do that.

“For a single filer, the deduction begins to phase out when the taxpayer’s adjusted gross income is greater than $65,000,” said Oswalt. “This amount is doubled to $130,000 when filing jointly.”

“So if both spouses are making $65,000 or less, then their deduction will not be affected by the phaseout,” he explained. “However, if one is making $60,000 and the other $75,000, the deduction begins to phase out, which will ultimately result in a larger tax bill.”

Young woman playing slot machines at the Casino


Imagine a married couple where both spouses like to gamble in Las Vegas. He’s not so lucky and has losses, while she has winnings. If they file a joint return, they might have to report the gambling winnings as taxable income. Meanwhile, the losses might be deductible if the couple itemizes their deductions instead of taking the standard deduction.

However, they can’t take the amount of gambling winnings, subtract the losses and claim the net amount as winnings. Instead, they must report the entire amount of gambling winnings as income, whereas the losses are reported as an itemized deduction up to the amount of the winnings. The IRS requires you to keep accurate records of your winnings and losses.



Identify theft is a financial nightmare, no matter how it happens. Tax identity theft happens when someone files a tax return using one or both of the spouse’s Social Security numbers in hopes of scooping up your legitimate refund. If this happens to you, “contact the IRS immediately and fill out an identity-theft affidavit,” said Zimmelman. “You should also file a complaint with the Federal Trade Commission, contact your banks and credit card companies, and put a fraud alert on your and your spouse’s credit reports.”



The IRS and state tax agencies work to develop safeguards to avoid identity theft related to tax returns. In 2017, they will be particularly concerned about the implications of taxpayers who file using tax software.

The IRS has alerted taxpayers that they might need to have their 2015 adjusted gross income handy if they are changing software products this year. This number might be required to submit your return electronically.

Getting your 2015 adjusted gross income might be difficult if you are a member of a divorced couple that is not on positive terms, or that hasn’t even been in contact the past few years.

However, you still have options. You might be able to get the information if you go to the IRS website and use the Get Transcript service.



Written By: Valerie Rind
Source: GOBankingRates

Tax Changes for 2017: A Checklist

Welcome, 2017! As the New Year rolls around, it’s always a sure bet that there will be changes to current tax law and 2017 is no different. From health savings accounts to tax rate schedules and standard deductions, here’s a checklist of tax changes to help you plan the year ahead.


For 2017, more than 50 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion.

While the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2016, tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, “Tax Brackets, Deductions, and Exemptions for 2017,” below.

Alternative Minimum Tax (AMT)

Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2017, the exemption amounts are $54,300 for individuals ($53,900 in 2016) and $84,500 for married couples filing jointly ($83,800 in 2016).

“Kiddie Tax”

For taxable years beginning in 2017, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,050 (same as 2016). The same $1,050 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” For example, one of the requirements for the parental election is that a child’s gross income for 2017 must be more than $1,050 but less than $10,500.

For 2017, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,100.

Health Savings Accounts (HSAs)

Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2017, a qualifying HDHP must have a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,550 for self-only coverage and $13,100 for family coverage.

Medical Savings Accounts (MSAs)

There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

  • Self-only coverage. For taxable years beginning in 2017, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 and not more than $3,350 (same as 2016), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,500 (up $50 from 2016).
  • Family coverage. For taxable years beginning in 2017, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,500 and not more than $6,750 (up $50 from 2016), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,250 (up $100 from 2016).

Penalty for not Maintaining Minimum Essential Health Coverage

For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.

AGI Limit for Deductible Medical Expenses

In 2017, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2016) of adjusted gross income (AGI). Prior to January 1, 2017, if either you or your spouse were age 65 or older as of December 31, 2016, the 7.5 percent threshold that was in place in earlier tax years continued to apply. That provision expired at the end of 2016, however, and starting in 2017, the 10 percent of AGI threshold applies to everyone.

Eligible Long-Term Care Premiums

Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2017, the limitation is $410. Persons more than 40 but not more than 50 can deduct $770. Those more than 50 but not more than 60 can deduct $1,530 while individuals more than 60 but not more than 70 can deduct $4,090. The maximum deduction is $5,110 and applies to anyone more than 70 years of age.

Medicare Taxes

The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which went into effect in 2013, remains in effect for 2017, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.

Foreign Earned Income Exclusion

For 2017, the foreign earned income exclusion amount is $102,100, up from $101,300 in 2016.

Long-Term Capital Gains and Dividends

In 2017 tax rates on capital gains and dividends remain the same as 2016 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $418,400 ($470,700 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Pease and PEP (Personal Exemption Phaseout)

Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2017, affect taxpayers with income at or above $261,500 for single filers and $313,800 for married filing jointly.

Estate and Gift Taxes

For an estate of any decedent during calendar year 2017, the basic exclusion amount is $5,490,000, indexed for inflation (up from $5,450,000 in 2016). The maximum tax rate remains at 40 percent. The annual exclusion for gifts remains at $14,000.

Individuals – Tax Credits

Adoption Credit

In 2017, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,570 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit

For tax year 2017, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,318, up from $6,269 in 2016. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credits

For tax year 2017, the child tax credit is $1,000 per child. The enhanced child tax credit was made permanent this year by the Protecting Americans from Tax Hikes Act of 2016 (PATH). In addition to a $1,000 credit per qualifying child, an additional refundable credit equal to 15 percent of earned income in excess of $3,000 has been available since 2009.

Child and Dependent Care Credit

If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2017.For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Individuals – Education

American Opportunity Tax Credit and Lifetime Learning Credits

The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA but was made permanent by PATH in 2016. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return; however, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.

Interest on Educational Loans

In 2017 (as in 2016), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($135,000 joint filers).

Individuals – Retirement

Contribution Limits

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $18,000. Contribution limits for SIMPLE plans remain at $12,500. The maximum compensation used to determine contributions increases to $270,000 (up from $265,000 in 2016).

Income Phase-out Ranges

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $62,000 and $72,000, up from $61,000 to $71,000.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $99,000 to $119,000, up from $98,000 to $118,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $186,000 and $196,000, up from $184,000 and $194,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Saver’s Credit

In 2017, the AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $62,000 for married couples filing jointly, up from $61,500 in 2016; $46,500 for heads of household, up from $46,125; and $31,000 for married individuals filing separately and for singles, up from $30,750.


Standard Mileage Rates

The rate for business miles driven is 53.5 cents per mile for 2017, down from 54 cents per mile in 2016.

Section 179 Expensing

The Section 179 expense deduction was made permanent at $500,000 by the Protecting Americans from Tax Hikes Act of 2016 (PATH). For equipment purchases, the maximum deduction is $510,000 of the first $2,030,000 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold (adjusted for inflation beginning in tax year 2017) amount and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.

The 50 percent bonus depreciation has been extended through 2019. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016, and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.

Work Opportunity Tax Credit (WOTC)

Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

Research & Development Tax Credit

Starting in 2017, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.

Employee Health Insurance Expenses

For taxable years beginning in 2017, the dollar amount is $26,200. This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.

Employer-provided Transportation Fringe Benefits

If you provide transportation fringe benefits to your employees, in 2017 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $255 and the monthly limitation for qualified parking is $255. Parity for employer-provided mass transit and parking benefits was made permanent by PATH.

While this checklist outlines important tax changes for 2017, additional changes in tax law are more than likely to arise during the year ahead.




Source: Abedian & Totlian

How China Could Trigger a Global Crisis


When China sneezes, the rest of the world might not catch a cold, but it does feel bad for a couple of days. The question, though, is whether China is sicker than it seems and how contagious that would be for the global economy.

In other words, is China’s latest stock market selloff — the Shanghai index lost 15 percent of its value in the past six days — and currency devaluation just a blip or the beginning of a bust? I say latest because the same thing happened in August. That was our first real inkling that Beijing might not have as much control over its economy as it seemed. And now we know: it doesn’t. It’s made one ham-handed attempt after another to prop stock prices up to unsustainable levels—buying shares itself and banning others from selling—which only works as long as it keeps doing so. But more than that, it’s the fact that the government either can’t decide whether it wants a cheaper currency or can’t stop it from happening that hints at bigger problems under the economic hood. It’s enough that no less an authority than George Soros thinks this could be like 2008.

What’s going on? Well, China is trying to manage a slowdown that was always going to happen at the same time that it deflates a credit bubble that it wishes hadn’t happened. Either one would have been hard enough on its own, but together they might be too much for even the most competent government to deal with. That’s because Beijing needs to intervene even more to keep the economy growing today—at least as much as it wants—but loosen its grip on it to keep it growing tomorrow. So there are two dangers. The first is that a tug-of-war within the government leads to half-measures that don’t solve either problem. And the second is that fears over a tug-of-war might make these problems harder to solve than they already are. Still, we shouldn’t overstate this. It’s not like China’s economy is about to collapse. Its growth is real, if not as spectacular as it was before. It just might slow down further or faster than we thought, grinding down to 3 or 4 percent growth instead of 6 or 7 percent.

But let’s back up a minute. Why was it inevitable that China’s economy would shift down to a lower gear? Simple: its old growth model had run out. There are only so many people you can move from the farms to the factories—especially when you only let them have one kid—and so much infrastructure you can build before you run out. Now, China hasn’t quite reached that point, but it has gotten to the one where there aren’t as many people moving to the cities as before. And that’s enough. It not only makes it harder for the economy to grow as much, but also makes it harder for companies to export as much now that, without a steady stream of would-be workers holding down wages, they have to pay people more.

You can probably see where this is going. If workers are making more, they can spend more—and that, rather than selling things to foreigners, can power the economy. But that’s a lot harder than it sounds. First, you need a stronger safety net so people feel more comfortable splurging. Then, you need to give them time for their habits to change. But, most importantly, you need to keep adding higher-paying jobs.

It’s this last part that would force Beijing to do what it doesn’t want to: give up at least some of its control over the economy. Think about it like this. In the short-term, wages are going up because workers have more bargaining power, but, over the longer-term, that will only continue if productivity increases. Workers, in other words, have to make more or better stuff to make more money. How do you do that? Well, the government would have to start deregulating the economy so businesses could expand where they had to and stop supporting zombie companies that were blocking the way. Beijing has actually talked about this quite a bit, even commissioning a rap song about supply-side reforms, but, as we’ve seen with stocks, this determination to give markets a “decisive” role in the economy has only lasted as long as they give the “right” answer.

That brings us to problem number two. Everything we’ve been talking about, this shift from a saving to a consuming society, well, takes time. So what is China supposed to do until then? Beijing’s answer has been for everyone to run up a lot more debt—and by “a lot,” I mean four times as much. Indeed, between 2007 and 2015, China’s total debt, including the government, households, and corporations, increased from $7 trillion to $28 trillion. That’s 282 percent the size of its economy, which is more than we have relative to ours.

Now, most of this hasn’t directly been on Beijing’s books, but has rather come at Beijing’s direction. The idea, at least, made sense. That was to replace all the foreign customers who disappeared during the financial crisis with even more infrastructure spending until Chinese customers were ready to take their place. In practice, though, it hasn’t worked out that well. Developers built cities where nobody lives, companies built factories that nobody needs, and local governments built airports that nobody uses. It hasn’t all been wasteful—and who knows, 10 years down the line, what is today might not be—but right now it sure looks like a bubble not all that different from the one we had. Consider this: more than half this debt is tied to a property market that, since 2008, has gone up more than 60 percent in the 40 biggest cities. So far Beijing has been able to keep prices from falling too far, but only by letting people pile new debt on top of the old. That is not a long-term solution.

But it’s hard to tell how much this will hurt. It’s not just that nobody believes China’s official numbers. It’s that even if you did, they might not be worth that much anymore. As Larry Summers points out, about 20 percent of China’s growth the past year has come from financial services despite the fact that it was already a pretty big share of the economy. That’s as close as you’ll get to a flashing red warning sign saying “bubble”, as we found out with our own.

So what’s a better way to tell how China’s economy is doing? Well, how about how much people are willing to bet on it—or not. The simple story is that money has been pouring out of China the past year or so, and that actually accelerated in December. Part of this is probably due to wealthy Chinese moving their ill-gotten gains out of the country to stay a step ahead of the government’s corruption crackdown. But a bigger part is probably that people who thought they could make a quick buck investing in China are changing their minds now that it’s slowing down—which is contagious. Here’s why: when people move their money out of China, what they’re really doing is selling their yuan to buy, say, dollars. But that’s just another of way of saying that there isn’t as much demand for yuan—so its price falls. And if that happens, other people who hadn’t wanted to get their money out of China might decide that they better do so before it loses any more value.

That’s why, Beijing has actually been trying to stop its currency from falling too much. It has allowed the yuan to depreciate modestly, but if it was left up to the market, it would have fallen a lot more, given the economy’s fundamentals. The only problem with this strategy is that might be the worst thing it could have done. The best way to think about that is to think about what would have happened if it’d just let the yuan fall as far as markets wanted it to. And the answer, as Paul Krugman explains, is that it would trigger a trade conflict with the United States (where politicians are quick to claim China is manipulating markets) and elsewhere. It would be a big drop, probably bigger than the fundamentals say it “should,” but then people might see it as properly valued and perhaps even expect it to start rising—which it then might.  And it’d be over. And best of all, Beijing wouldn’t have to spend any of its war chest of reserves. That, after all, is how the government tries to prop up its currency: by buying yuan with some of the dollars it’s stored up.

But by buying just enough to keep the yuan from falling suddenly, while still allowing it to trend slightly lower, the government is telling people that they’re right to move their money out of the country since it will, in fact, be worth a little less if they wait. That puts more pressure on the yuan to fall, and more pressure on the government to keep it from falling by spending its reserves. The end result is that the currency might fall just as much as it would have if you let it fall all at once, but at the cost of a lot of its war chest. And that is a real cost. It sucks even more money out of the economy, which, in turn, forces the government to cut interest rates just to keep growth from slowing down even more. The lesson, then, is that you’d be better off either spending so many reserves that your currency doesn’t fall at all, or just letting it go. A controlled fall is the most expensive kind.

China’s economy might be a riddle wrapped in a mystery inside an enigma of dodgy data, but its currency is telling a clear story. The people who have the most on the line—that is, ones with money in the country—are worried that the economy is going to slow down a lot more than the government says. The worry is that if, after spending down its reserves, China is forced to let the yuan slide, other countries might follow so their exports don’t lose competitiveness—and emerging markets that borrowed in dollars might found their debts too hard to pay back. That wouldn’t quite be 2008 all over again, but it’d be close enough for a global economy that is still struggling to recover from the last one.

The rest of the world will be okay if China is just sneezing, but not if it’s more than that.

Written by Matt O’Brien of The Washington Post

(Source: The Washington Post)

Weekly Market Commentary: January 11, 2016

Provided by geralt/Pixabay
Provided by geralt/Pixabay

The People’s Bank of China (PBOC) started the New Year with a downward currency adjustment and fireworks followed.

Last week, three distinct issues affected China’s stock market. First, the PBOC’s devaluation of the yuan (a.k.a. the renminbi), along with the knowledge the central bank had been spending heavily to prop up its currency in recent months, led many analysts and investors to the conclusion China’s economy might not be as robust as official reports indicated, according to the Financial Times.

Not everyone was surprised by this revelation. During the fourth quarter of 2015, The Conference Board’s working paper entitled Global Growth Projections for The Conference Board Global Economic Outlook 2016 reported:

“China’s economy grew much slower than the official estimates suggest in the recent years. During the last five years, our estimates suggest an average growth of 4.3 percent, which is substantially lower than the official estimate of 7.8 percent. In 2015, we project China to see an average growth of 3.7 percent, which is indeed lower than the official target of 7 percent.”

Second, state-run media made it clear the Chinese government would not step in to spur growth. Allowing market forces to play out is a requirement of the reforms international investors have been demanding of China, according to Barron’s. The publication suggested Chinese President Xi Jinping is the victim of a Catch-22. The Chinese government took steps toward reform and international investors responded by selling shares in a panic:

“Weaning China off excessive credit, investment and import-led growth in favor of services means slower growth. Markedly slower, in fact, than the 6.5 percent Beijing is gunning for this year. But Monday’s 7 percent stock rout shows international investors want it both ways. The rapid growth, innovation, and disruptive forces that capitalism produces? Yes. The downturns and volatility that come with it? Not so much.”

The third factor was China’s new and very strict stock market circuit breakers, which were introduced on January 4. The circuit breakers were intended to calm overheated markets, but they sparked panicked selling instead. When the Shanghai Shenzhen CSI 300 Index falls 5 percent, Chinese stock trading stops for 15 minutes. When the index is down 7 percent, trading stops for the day. A similar mechanism is employed in U.S. markets, which are far less volatile. However, trading is not delayed until the Standard & Poor’s 500 index has fallen by 7 percent, and it does not stop until the index is down by 20 percent. Last week, China’s stock markets closed twice as investors, who were worried the circuit breakers might kick in, rushed to sell shares.

China suspended its circuit breakers on Thursday, and the PBOC set the value of the yuan at a higher level. That helped China’s stock markets, and others around the world, settle. China’s markets gained ground on Friday, although U.S. markets finished the week lower. Markets may continue to be jittery next week as “a tsunami of negative psychology driven by China” works its way through the system, reported Reuters.

Data as of 1/8/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -6.0% -6.0% -6.8% 9.7% 8.7% 4.1%
Dow Jones Global ex-U.S. -6.1 -6.1 -11.1 -2.6 -2.0 -0.5
10-year Treasury Note (Yield Only) 2.1 NA 2.3 1.9 3.3 4.4
Gold (per ounce) 3.7 3.7 -9.4 -12.7 -4.2 7.4
Bloomberg Commodity Index -2.3 -2.3 -26.0 -17.8 -13.5 -7.6
DJ Equity All REIT Total Return Index -3.0 -3.0 -4.6 8.8 11.1 6.5

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

It Wasn’t Just About the Budget


Last week, the bipartisan budget bill was signed into law, averting a U.S. default and deferring further battle over debt and spending levels until presidential and congressional elections are over, according to U.S. News & World Report.

The new law includes provisions that CBS Money Watch said are likely to strengthen Social Security and Medicare by improving the programs’ finances. Since the provisions also have the potential to reduce benefits for some Americans, they may not prove to be all that popular. Here are two of the changes that affect Social Security benefits:

  • File-and-suspend strategies will be limited in 2016. This change could cost some Americans up to $50,000 in lifetime Social Security benefits, according to PBS News Hour. The strategy entails having a husband or wife file for Social Security benefits at full retirement age and then suspend the benefits immediately. This allows a spouse to claim a spousal benefit, while the husband or wife receives delayed retirement credits.

Effective May 1, 2016, no one will be able to voluntarily file and suspend benefits to make a spousal benefit available to a spouse or to protect the right to file for retroactive benefits.

  • Restricted application strategies will not be an option after 2015. Restricted application also is a Social Security claiming strategy. It allows an applicant to receive spousal benefits while earning delayed retirement credits until age 70. Americans who meet age requirements in 2015 can employ the strategy; younger Americans cannot.

If you are currently employing these strategies, you are probably grandfathered. We’ll know more when the Social Security Administration offers some insight as to how the new rules will be interpreted. That’s expected to happen before the end of the year. In the meantime, if you have questions about how this may affect your retirement plans, please contact your financial advisor.

When the Debt Collector Poses as a Pizza Delivery Guy

stevecoleimages—Getty Images
stevecoleimages—Getty Images

When the phone rang, the message on the caller ID display was a surprise. Sometimes it said, “Flower Shop.” Or “Pizza Delivery.” Or the name or number of a family member. Or “Repossession Services.”

When consumers answered the phone, the ruse continued. An operator gave the impression that flowers or pizza were on the way, but more information was needed — such as the consumer’s location or the location of their car.

In reality, the operators were debt collectors working for auto lenders Westlake Financial Services or Wilshire Consumer Credit, alleges the Consumer Financial Protection Bureau. The tactic was among the revelations made public last week in a consent order signed by the bureau and the collection agencies. Westlake, based in Los Angeles, services auto loans — often for borrowers with poor credit. Wilshire, a wholly owned subsidiary of Westlake, both offers and services auto title loans.

The firms used a tool called “Skip Tracy” (“skip tracing” is a term used by collectors to mean searching for updated information on consumers) to falsify Caller ID data and trick borrowers into answering the phone or returning calls. The system was efficient, and went beyond the telephonic hacking. It helped employees keep the story straight, the CFPB said.

“When call recipients returned a call to one of the phone numbers associated with Caller ID information that had been changed using Skip Tracy, that system showed … employees the Caller ID text associated with the original outgoing call,” the consent order says. “When (employees) put these phrases into the Caller ID information … collectors usually pretended during the call that they worked for businesses or departments matching those descriptions.”

The CFPB alleges that Westlake/Wilshire used Skip Tracy to contact consumers with over 137,000 accounts from 2010 to 2014.

In a statement emailed to by Chief Compliance Officer Robert Engilman, Westlake said it consented to the issuance of a consent order “without admitting or denying any of the findings…and did so in order to avoid lengthy and costly litigation.” The statement also said the allegations relate to practices “that were ceased long ago,” and that the firm is committed to meeting all regulatory and legal requirements.

Fear & Money

The alleged practices include convincing borrowers that their cars were on the verge of being repossessed when that wasn’t true, the CFPB says.

“When (Westlake/Wiltshire) made debt collection calls and changed the Caller ID text to display ‘Repo,’ ‘Repossession Services,’ ‘Asset Recovery,’ or other names suggesting repossession, or when (they) told borrowers they were calling from repossession companies or similar third-party businesses, they gave borrowers the false impression that they were in the process of repossessing the borrowers’ vehicles,” the consent order says.

Such misrepresentations violate the Fair Debt Collections Practices Act, the CFPB said.

The CFPB also claims that employees pretended to be family members.

“(The firms) also used Skip Tracy to manipulate the information on Caller ID and make it look like the call originated from a family member or friend of the borrower … In fact, the Borrowers’ family members or friends played no role in originating these calls,” the order says.

Even after borrowers’ cars were repossessed, the firm continued to use Skip Tracy illegally, the CFPB said.

“Westlake and Wilshire called consumers whose vehicles had already been repossessed and used Skip Tracy to make it appear the calls were coming from a party associated with the word ‘Storage.’ During some of these calls, the companies’ debt collectors implied that the vehicles would be released if the borrowers made a partial payment on the account,” the CFPB claims. “However, the companies would actually only release a repossessed vehicle after a borrower paid the full amount due. As a consequence, some borrowers paid the amount agreed upon during the phone call, but their vehicles were not released.”

The CFPB also alleges that Westlake unfairly altered the terms of borrowers’ loans.

“In some cases, the companies changed the due dates or extended the terms of loans without borrowers’ permission, causing more interest to accrue, while telling consumers that the extensions would have a positive effect,” the bureau said.

The Bureau ordered the companies to overhaul their debt collection practices and to provide consumers $44.1 million in cash relief and balance reductions. The companies will also pay a civil penalty of $4.25 million.

“There’s no excuse for lying to your customers, and today’s action will provide millions of dollars in relief for borrowers caught up in Westlake and Wilshire’s deception,” said CFPB Director Richard Cordray. “Consumers struggling to pay their bills deserve to be treated with respect, not subjected to illegal threats and deceptive phone calls. We will continue to clean up the debt collection market and root out these illegal and inexcusable practices.”

Written by Bob Sullivan of

(Source: Time)

Recession Buzz is Heating Up on Wall Street

Provided by CNBC

Wall Street is getting increasingly nervous about the prospects for recession, both on a global and domestic level.

Slowing global growth has been one of the predominant investing themes in 2015, causing enough turmoil to send both the S&P 500  (.SPX) and the MSCI World Index  (.WORLD) down about 4 percent.

The $73.5 trillion global economy is expected to grow 3.1 percent in 2015 and 3.6 percent in 2016, according to the latest International Monetary Fund projections. Those numbers, though, are heading lower and could be revised even more before all is said and done.

Citigroup economist Willem Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession. With that in mind, he said the chances of a global recession in 2016 are growing.

“We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening,” Buiter said in a note to clients. He added, “from an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis.”

Recessions aren’t necessarily a bad things for investors.

In the 12 recessions after World War II, the S&P 500 has gone up six times afterwards and down the other six times. The average has been a decline of 3.1 percent, followed by a 12.9 percent increase six months out and 15.3 percent gain a year after, according to figures from Sam Stovall, U.S. equity strategist at S&P Capital IQ.

Economists look at global recessions a bit different than national ones. Though there is no strict definition of the word, a country is generally thought to be in “recession” if it registers consecutive quarters of negative growth.

On a global scale, though, the standard is different. Absolute growth less than 3 percent, or GDP adjusted for market exchange rates below 2 percent, is generally good enough to call a recession. By either measure, the world is teetering on the line, with 2015 adjusted growth pegged at 2.5 percent and 2016 at 3 percent.

Closer to home, the prospects for recession seem low, though worries have increased in recent days.

Liz Ann Sonders, the often-bullish chief investment strategist at Charles Schwab, generated some talk on Wall Street this week when she announced that the firm, which manages $2.46 trillion for clients, has turned neutral on stocks.

Her worries are twofold, and both involve recessions: One, the much-discussed potential for an earnings recession, the other a “relatively low” chance for an outright economic recession that she nonetheless believes should be considered.

Corporate earnings on the S&P 500 are expected to decline just over 5 percent in the third quarter, according to estimates from both FactSet and S&P Capital IQ—Estimize puts the decline closer to 2.2 percent—and projections for the fourth quarter are coming down at a steady clip as well. Where at one point the final three-month period was expected to show 12 percent earnings growth, the estimate now is for a nearly 1 percent drop. Full-year earnings growth is now projected to be -0.75 percent, according to S&P Capital IQ.

On balance, Sonders believes employment and income growth are “still relatively healthy” despite the dismal September nonfarm payrolls report showing just 142,000 new jobs for the month and flat salaries. She also points to strength in housing, car sales and construction spending.

However, weakness in earnings and profit margins, widening credit spreads and slowing global trade remain significant headwinds, she said.

“We believe an economic recession remains unlikely near-term, but we are on watch,” Sonders said in a note. “We are maintaining our more cautious ‘neutral’ rating on US equities, which means investors should not take any additional risk above and beyond their long-term allocation to equities.”

Written by Jeff Cox of CNBC

(Source: CNBC)

Policy Makers Skeptical on Preventing Financial Crisis

Pat Greenhouse/The Boston Globe, via Getty Images
Pat Greenhouse/The Boston Globe, via Getty Images

BOSTON — The 2008 financial crisis convinced most people in the world of central banking that it would be a good idea to try to prevent that kind of thing from happening again.

But policy makers have made little progress in figuring out how they might actually do so, a troubling reality highlighted at a conference that ended over the weekend at the Federal Reserve Bank of Boston.

The Fed has publicly committed itself to a strategy of so-called macroprudential regulation, meaning it is now focused on maintaining the stability of the financial system as well as the health of individual firms. But senior Fed officials at the Boston conference described that as more of a goal than an achievement.

Crises remain hard to anticipate and prevent, and the available tools could cause significant economic damage.

“My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States,” William C. Dudley, president of the Federal Reserve Bank of New York, told the conference.

In the meantime, the importance of prevention has only increased because the Fed’s ability to respond to the outbreak of a crisis has diminished. The 2010 Dodd-Frank Act prevents the Fed from repeating some aspects of its 2008 actions. More important, the Fed expects interest rates to remain below historic norms for the foreseeable future, leaving less room to cut rates, which has long been its first line of defense.

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Donald Kohn, a former Fed vice chairman, said he was troubled by the gap between perception and reality. “If you ask people who is responsible for financial stability they would say, ‘The Fed,’ ” said Mr. Kohn, a senior fellow in economic studies at the Brookings Institution. “But the Fed doesn’t really have the instruments. It doesn’t really have the tools.

“And I think this is a dangerous situation if people perceive that it has the responsibility and it doesn’t have the tools.”

The obvious reason to prevent bubbles is that crises are bad for the economy. Seven years after the peak of the 2008 crisis, the Fed still has not been able to drive unemployment or inflation back to normal levels. The unemployment rate has fallen to 5.1 percent — a level usually associated in the past with a robust economy — but that figure overstates the current health of the labor market.

Prices, meanwhile, rose just 0.3 percent in the 12-month period ending in August, far below the 2 percent level the Fed would like to achieve to support healthy spending and investment.

The basic problem for regulators is that crises are hard to predict. A 2012 study by the International Monetary Fund concluded that only about one-third of credit booms ended in crashes. Many instead produced permanent economic benefits. And even in retrospect, the researchers found it hard to identify clear warning signs.

So popping bubbles probably means curtailing some beneficial booms, too.

“We’ll have to make a choice about how much growth we are willing to give up in good times to limit the likelihood of a future financial crisis,” said Loretta J. Mester, president of the Federal Reserve Bank of Cleveland.

Other officials and experts also share Mr. Dudley’s doubts about the Fed’s power to pop bubbles. American regulators have fewer tools than some of their European counterparts, and those tools are distributed among a number of agencies that have little history of cooperating either quickly or effectively.

“The current U.S. institutional setup is likely to fail in a crisis and will do less to prevent a crisis than it should,” said Adam S. Posen, president of the Peterson Institute for International Economics. “And we are likely to suffer from this.”

Frederic S. Mishkin, a former Fed governor, noted that financial firms tend to resist increased regulation, often with considerable success. “They’re going to hire a lot of lawyers to figure out how to get around these regulations and undermine them,” Mr. Mishkin, a Columbia University economist, said.

These constraints on the Fed’s ability to recognize and respond to problems as they are developing has led officials to emphasize measures that strengthen the resilience of the financial system. A prominent example: stricter limits on banks’ reliance on borrowed money. Mr. Dudley said progress in this area should provide “considerable solace” to those worried about the slow progress of macroprudential regulation.

Some officials, however, argue that a more drastic shift may be necessary. They want the Fed to use its most powerful tool — raising and lowering interest rates — to help maintain the stability of financial markets.

The Fed might curb speculative excesses by raising interest rates. Similarly, it could soothe fragile financial markets by holding rates steady, as it is doing now, or by cutting rates, as it does during downturns.

Janet L. Yellen, the Fed’s chairwoman, has generally resisted this suggestion, arguing in a 2014 speech that monetary policy should remain focused on moderating inflation and minimizing unemployment. Raising interest rates across the economy to limit speculation in a particular area is the rough equivalent of weeding a garden with a bulldozer. Ms. Yellen has suggested she would consider it only as a last resort.

But Ms. Yellen’s deputy, the Fed vice chairman Stanley Fischer, said on Friday at the Boston conference that the use of monetary policy for such goals deserves consideration. “There may be times when adjustments to monetary policy should be discussed as a means to curb risks to financial stability,” he said.

Jeremy C. Stein, a former Fed governor, has argued that the broader effects of raising interest rates actually numbers among its virtues, because it potentially enables the Fed to discourage risky speculation it has not even managed to identify.

Eric S. Rosengren, the Boston Fed president, argued in a paper that opened the conference that financial stability should join inflation and employment as explicit objectives of monetary policy. Moreover, Mr. Rosengren and his co-authors presented evidence that the Fed already treats financial stability as a goal. They showed that the movement of the Fed’s benchmark rate tracks discussions of financial stability at Fed policy-making sessions.

Others, however, said it was not clear that raising rates was a more effective means of addressing risks to the financial system than sensible regulation.

“I’m a skeptic,” Mr. Kohn, of Brookings, said. “I think that monetary policy, changes in interest rates, are likely to be not very effective in damping a lot of these cycles.”

The current discussion is largely framed by the details of the last crisis. Mark Gertler, a professor of economics at New York University, said he saw little reason to think the Fed could have curbed the rise of housing prices in the years leading up to the 2008 crisis by raising interest rates more quickly. He noted that Britain had higher rates than the United States and just as severe a housing bubble.

Instead, Mr. Gertler said, “We can certainly imagine that some kind of restrictions on the subprime market might have been a more effective way to contain this mess.”

Nellie Liang, director of the Fed’s office of Financial Stability Policy and Research, presented a study showing that changes in interest rates have a limited effect on credit booms in the early stages, and then even that fades away. That suggested that macroprudential measures had a role to play.

But the skeptics held sway.

Luc Laeven, director general for research at the European Central Bank, provided a fitting, if disheartening, summary of the conference.

“Both monetary policy and macroprudential policy are not really very effective,” Mr. Laeven said.

He added a plaintive question. “Do we have other policies?”

Written by Binyamin Appelbaum of The New York Times

(Source: The New York Times)

6 Money Lessons Every College Student Needs to Learn

For new college students who don’t know financial basics, Money 101 classes are easy. The homework, though, can be a killer — a credit killer, that is — if you don’t practice your lessons.

Overspend and run up too much debt, and you’ll flunk. And it will go on your record — and stay there for a long time.

But mastering these lessons will not only get you through your college career, they’re also going to help you long after you graduate.

Lesson 1: Track your expenses

A student making notes.

© apomares/Getty Images

“I spent how much?” asks any college student who runs out of money by the weekend.

“The first step to savings is understanding where your money is going,” says Todd Pietzsch, spokesman for BECU, Washington state’s largest credit union. BECU recently launched an online and mobile app called Money Manager. Money Talks News partner PowerWallet offers a similar service.

With these or other free aggregating apps, you can view all of your checking and savings accounts in one place. They let you set up budgets and track your spending by category. You’ll learn quickly that in the absence of home-cooked meals, a couple of pizzas and those Taco Bell runs really do add up.

Making a plan for your money before it’s deposited into your bank account reduces the risk of money mismanagement. Discipline also is required to make a budget or spending plan work for you. But these tools will help avoid spending sprees that you cannot afford.

When you do shop, look for stores, theaters and concert venues that offer student discounts, which may require your student ID. When you sign up for an apartment lease, a gym membership, a cellphone contract or a spring break vacation package, be sure to read all the terms to avoid a ripoff.

Lesson 2: Pick the right bank

A credit union building.

© Steve Shepard/Getty Images

Look for banks or credit unions that offer low or no fees for college-student account holders. Also, you may need a bank that has branches at home and at school — or at least one with free ATM service in both places.

Joining a credit union has many benefits. As member-owned, not-for-profit institutions, they may be more customer-oriented than the big banks. Unlike many banks, credit unions frequently offer free checking accounts with no minimum balance requirement to maintain each month.

Credit union benefits may include:

  • Higher return on a savings account.
  • Lower interest rates on loans.
  • Less stringent loan qualification criteria if you’re already a member. But don’t rack up too much debt.

Lesson 3: Debt is not your friend

A student on the campus of San Francisco State University.

© REUTERS/Robert Galbraith

Don’t borrow any more than you absolutely have to on student loans. College is expensive, even before you start paying interest on borrowed money.

The average price of attending a public undergraduate institution in the 2013-14 school year was $12,894; for a private nonprofit, $24,433, according to figures from the National Center for Education Statistics.

In 2010, outstanding student loan debt surpassed credit card debt, and the gap continues to grow. Outstanding student loan balances totaled $1.19 trillion at the end of the first quarter of 2015, up $78 billion from a year earlier, according to the New York Federal Reserve Bank.

While it’s important to establish credit by getting a credit card, think before you borrow. Don’t use new credit unless you can pay it off or if it is an absolute emergency (which does not include the urge for late-night pizza or lattes).

Know this: Nearly 900 colleges have lucrative debit and credit card partnerships with financial firms, according to the U.S. Public Interest Research Group. The deals enable banks to target and profit from over 9 million U.S. students.

A typical trap: A popular sub shop near campus partners with a major credit card issuer to offer a free combo in exchange for signing up for a shiny plastic card that could take years to pay off if misused.

Credit card debt can lower your credit score, limiting your chances of obtaining loans or other lines of credit. A poor score can even get you rejected from an apartment rental.

Lesson 4: If money is tight, get a job

Vivian Pham, 20, wipes down tables during her summer job as an associate at Yogurtland in Huntington Beach, Calif. Pham is a second-year student at Golden West College.

© Kevin Sullivan/Orange County Register/MCT 

If you work a part-time gig while going to school, not only will you make money, but you’ll have less time to spend it.

College is likely to be the only time you can afford to explore career options without putting yourself into too much of a financial crunch. So pick up a part-time gig, work-study job or internship to find out which fields interest you. A low-level job in the accounting department may pay peanuts, but it may enable you to shadow professors and get a feel for the industry.

Lesson 5: Keep an emergency fund

A car mechanic in San Diego, California.

© REUTERS/Mike Blake

Even if it’s just a little bit, an emergency fund will give you a cash cushion when things go wrong — and they will. A cash stash may be all that separates you from debt.

Among the unanticipated situations you may face:

  • Delayed financial aid payments: Mistakes occur, and they can hold up the process.
  • Auto repairs: If your car breaks down and you rely on it for transportation to school, you’ll need the cash to get it back up and running.
  • Medical expenses: Unless your insurance coverage comes with a low deductible and small co-pays, expect to fork over a nice chunk of change if you need medical care.

 Lesson 6: Don’t be stupid

“Keeping up with the Joneses, trashing your credit, spending money you don’t have. It only takes a few seconds to blow it, and it takes years to fix it,” advises Stacy Johnson, Money Talks News financial expert.

Written by Jim Gold of MoneyTalkNews

(Source: MoneyTalkNews)