Help for Pandemic Credit Woes

Your Economic Impact Payment was spent a long time ago, your work hours were cut, and your bills are getting harder to pay. Well, you are not alone. Widespread unemployment and economic hardships from COVID-19 are anticipated by financial experts to create a financial and credit crisis. My regular readers have already been alerted to the many scams out there to take advantage of vulnerable people. Those scams include “help” with credit and debt issues. 

Good news! Reputable (and often free) help is out there to help with your pandemic credit woes. Here are three options for credit and debt counseling that really help:

  • Nonprofit Credit Counseling

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free financial education. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your entire financial situation with you, and help you develop a personalized plan to deal with your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. The Federal Trade Commission offers tips on finding an agency and questions you should ask before you start. https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor

  • Credit Union Membership

Credit unions are nonprofit financial institutions, while banks are for-profit, meaning they are either privately owned or publicly traded. Credit unions have lower fees and are all about community. They often provide free financial wellness and other services to help their members make good financial decisions, stay on top of bills and payments, and manage a budget. Check out Bank Rate to find a credit union near you and how to become a member. https://www.bankrate.com/banking/best-credit-unions/.  

  • Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are banks and credit unions that focus on serving people in low-income communities that have historically been locked out of the financial system. Unlike other financial institutions, CDFIs rely less on credit scores when providing loans and other products. In addition, they emphasize developing long-term relationships with members of the community to help them gain financial literacy, establish savings goals, build credit, and access affordable loans. Check out the official CDFI website to locate a certified financial institution near you. https://www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx 

Millions of people are suffering financial woes due to the coronavirus pandemic. If you or someone you know is impacted and needs help, nonprofit credit counseling, credit union financial wellness services, and CDFIs are some of the reputable resources that are out there for you. It might be difficult to take the first step, but that debt burden will feel lighter after you do. 

Are you Eligible for the EITC?

Everything you hear about the new tax law is bad news – state and local taxes capped at $10,000 and miscellaneous deductions eliminated. It seems like a lot of tax benefits are gone or reduced. Isn’t there any good news?

Yes, there is good news about taxes! Some tax benefits have been retained, including one that helps hard-working people who deserve a financial break. It’s called the Earned Income Tax Credit, or EITC, a valuable benefit for working people with low-to-moderate income. Eligibility for the credit and the credit amount depend on your earned income and number of children in your household.

A tax credit is even better than a tax deduction because it’s a dollar-for-dollar reduction of your tax liability, not a reduction of your taxable income. Even better, the EITC is a refundable credit. The EITC could take your tax liability to a “negative” amount, meaning that your refund is even more than just paying back all of your federal taxes due for the year.

To qualify for EITC, you must have earned income (e.g., wages or self-employment income). Your income cannot exceed a specified amount that is adjusted annually by the IRS. To get the credit, you must file an income tax return, even if you do not owe any tax or are not required to file.

Some people don’t know about this credit or do not know that they qualify. Not taking a credit you qualify for? That’s just like giving away money! Who wants to do that?

Don’t miss your EITC refund. Don’t let your friends and family miss their EITC refund. Each year, 30% of the EITC-eligible population is new to this valuable tax credit, many of whom don’t know about it.

Need help? Get details about income limits and credit amounts at www.irs.gov/eitc. Made less than $55K in 2018? Check if you qualify for a larger federal tax refund at www.irs.gov/eitc.

Did you get the hint that you should look into the EITC on the IRS website? Great! Make sure you check it out and keep your friends, family and neighbors from missing a tax credit because they don’t know about EITC. They will thank you.

Save for Retirement and Get a Tax Credit

Saving on your 2017 income tax bill while saving for retirement could be an even better deal than you thought. In addition to reducing your taxable income by funding an IRA or employer-provided salary-reduction arrangement, eligible taxpayers could also get a Saver’s Tax Credit.

 

A tax credit is a dollar-for-dollar reduction of your tax bill, as opposed to a tax deduction, which reduces your taxable income. A tax deduction reduces your tax bill based on your tax rate – the higher your tax rate, the higher your tax savings.

 

Figuring out whether you could receive a Saver’s Credit depends on the answers to three questions:

 

  1. Who is eligible for the credit?

    To claim the Saver’s Credit for 2017, the taxpayer must be at least 18, cannot be a full-time student, and cannot be claimed as a dependent on another person’s return. Her or his adjusted gross income cannot be more than specified limits, based on filing status (i.e., $62,000 for married filing jointly, $46,500 for head of household, or $31,000 for single, married filing separately, or qualifying widow(er).

  2. What 2017 contributions are eligible for the credit?

    Eligible contributions include funding a 2017 traditional or Roth IRA made by April 17, 2018. Salary reduction plan contributions, such as to an employer’s 401(k), SIMPLE IRA, SARSEP, 403(b), or 457(b) plan, are also eligible. Rollover contributions of any type are not eligible for the Saver’s Credit.

  3. How much is the Saver’s Credit?

    The amount of the Saver’s Credit is based on a percentage of the contributions that were made for 2017. The credit rate is between 10 and 50 percent, depending on income and filing status. For example, a single taxpayer with earned income of $31,000 who makes a $1,000 IRA contribution for 2017 is eligible for a $500 Saver’s Credit.

Funding Business Growth

Business owners need funds to grow. Adding a service, product or program means investing in whatever it takes – materials, staff, space, marketing, etc. Most businesses don’t have extra funds piled up, waiting around to be spent!

 

So what options exist to fund business growth? Picking the best option depends on the circumstances, available resources, creditworthiness, and risk tolerance. How do you choose?

 

Start by considering these four funding options:

 

  1. Get a Line-of-Credit

Every business should have a line-of-credit, in addition to a business credit card. Get approval before you need the funds so you are ready to act when the time is right. No interest is charged until it is used, unlike a traditional loan. This option is attractive for business owners with a strong banking relationship and a good credit rating.

 

  1. Add a Partner or Investor

Involving a partner or investor could mean sharing ownership or decision making. With the right person and situation, it can be mutually beneficial. Adding a partner or investor requires a legal agreement that details each party’s responsibilities. It can also change tax reporting.

 

  1. Launch a Crowdfunding Campaign

Funding from a “crowd” does not involve giving up any ownership or control. Generally, successful campaigns are launched by those who know or have access to a large population of potential contributors. Avoid technology and compliance headaches by using a crowdfunding site vendor, who will charge a fee and/or a percentage of receipts.

 

  1. Tap your Personal Resources

Commingling business and personal finances is a bad idea. However, lending personal funds to your business could be a viable option, under the right circumstances. Treat it like any other business loan by documenting the details, charging interest, and setting up a payment schedule.

 

Business growth takes planning and funding. When it’s time to act on your plan, it’s crucial to have funds to invest. Having your funding options lined up and ready to go will help your business grow.