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March 2017 E-Newsletter

Spring Cleaning: Finances

Spring is just around the corner! That means it's time to open up the windows, sweep out the garage, and do some spring cleaning. As you scrub and organize, don't leave out your money. Tidying up your finances can help reduce stress during tax season, too! Here are a few tips to keep in mind:
Dispose of old records
Go through all of the paper files and receipts you've saved over the past year and place everything into either the "File/Save" or "Toss/Shred" pile. Items that should be shredded include ATM receipts, bank deposit receipts and credit card statements, once the accounts are current. Utility statements can also be discarded after they've been paid. This helps protect you against identity theft as well as clutter. If possible, switch to e-statements to reduce the amount of paper lying around. Save pdf files or copies of the e-statements until they have been paid, then archive or delete them. Note: Tax information should be kept for seven years, so be sure to put those in the "Save" pile.
Update your beneficiaries
Look back at insurance and retirement account policies to make sure the beneficiaries are current. If your marital status recently changed or you experienced the loss of a spouse or child it is especially important to update your beneficiary information. Make sure the money will go where you want it to go if it gets distributed today, not where you wanted it to go when you first signed the policy. This is also a good time to reassess your insurance coverage - is the amount you originally signed up for still enough to protect you and your family?
Cash in your rewards
Go through any credit card points, airline frequent flyer miles, store credits, loyalty club memberships, etc. Schedule when you'll need to use these benefits by before you lose them. If you're currently paying a fee to participate in these programs (such as an annual fee for a credit card) do the math to figure out if the reward outweighs the fee. If it doesn't, consider dropping the program.

Organize your credit cards
Cut up and cancel cards that you haven't used in six months or more, especially if they carry an annual fee or have a higher interest rate than your other cards. You'll have more space in your wallet and fewer bills to worry about. If you're trying to eliminate debt, try to stick with just one or two credit cards or a debit card. If you're carrying debt on multiple cards, talk to your local bank about the possibility of consolidating that debt into a single payment so you can close the extra card accounts.
No matter what areas of your personal finances need a little dusting off, taking a little extra time this spring to work on your money issues will make budgeting throughout the rest of the year much easier.

Source: WBA Consumer Column E-Newsletter

Business Corner: Do's & Don'ts of Home Office Tax Deductions

If you run a business from your home or telecommute for your employer, you may be eligible to claim some expenses on your federal income taxes. Home office deductions can be tricky, and many people have gotten into trouble with the IRS for being too liberal with these deductions. However, the IRS has simplified the rules over the past couple of years to make it easier for people working from home.
Follow these do’s and don’ts to maximize your deductions and minimize your risks:
Do make sure that what you’re claiming as your home qualifies as a home. According to the IRS, this includes renting or owning a house, condominium, apartment, townhouse, boat or mobile home. It doesn’t include a hotel, motel or inn.
Don’t file using the 1040EZ tax form if you want to itemize your business use deductions. You can use the 1040 Schedule A, 1040 Schedule C and Form 8829 to claim home office expenses.
Do claim a tax deduction if you work at home as your “principal place of business,” you’re a self-employed contractor or a small-business owner and you have a designated space at home that you use “regularly and exclusively” for conducting business. If you have another place you work but also regularly work in your home, you can claim a home office tax deduction.
Don’t claim a home office tax deduction if you’re an employee whose home is your “principal place of business” unless you work at home for the “convenience of your employer.” You also must use at least a part of your home regularly and exclusively for work. You can’t rent any space to your employer while you’re working as an employee, though, and you can’t work at home just because it’s “helpful.”
Do calculate the percentage of your home used regularly and exclusively for business. First, determine the number of square feet your home has. Next, establish the square footage that’s eligible to claim. One option is to measure the space you use regularly. This might be a bedroom converted into a fully furnished home office, the corner of a room with a desk and a chair, or a dedicated workshop in your barn or garage. The other option is to calculate a percentage of your home’s space. For example, if your home has five rooms and you use one for business, it’s 20% of the total square footage.
Don’t claim more than the maximum allowance of 300 square feet for business space. You can deduct $5 per square foot. If you provide day care or use your home for storage, this amount may be less. Check IRS Publication 587 for deduction guidelines.
Do keep records for business expenses if you plan to take a deduction. According to the IRS website, you can deduct necessary and ordinary expenses such as advertising, vehicle usage, travel, office and work supplies, business taxes and salaries. These are fully deductible.
Don’t fabricate business activity expenses, records or information so you can pay less in taxes. If you’re caught, you can be charged with tax fraud. Upon conviction, sentences and penalties for individuals can be as much as 12 months in prison and $100,000 for a misdemeanor, or up to five years and $250,000 for a felony. You may also have to pay the cost of prosecution if you’re found guilty.
While preparing your taxes, seek help from a professional or consult the IRS if you’re unsure how to fill out the forms. If you guess at the answers and make a mistake, you could get into trouble. You could also fail to take a deduction and miss out on tax credits.
© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Coulee Bank's Q-Tip: How to Stay Safe & Secure Online in 2017

One of the few industries in the world that will never see budget cuts is security. As the world grows ever more complex and connected, our valuable information is increasingly exposed to malicious actors around the world.
However, there are experts around the world working behind the scenes to fight the good fight, thwarting the hackers with ingenious new technologies such as the self-healing BIOS, self-encrypting drives, and pre-boot authentication.
But while these guardians are feverishly battling on our behalf, all too often we turn out to be our own worst enemy. Cutting corners, clicking suspect dodgy links and downloading untrustworthy materials – we honestly do bring it on ourselves.
So, here are a few good habits that will help prevent you from falling prey to today’s cyber-villains:
1. Mum’s the word: Good, strong passwords. We’re all too familiar with the concept, but the truth is it can’t be understated and a couple of tweaks can turn an easy password into a tough nut to crack. Try adding a few numeric characters into a favorite phrase (like turning DangerZone into d@ng3rz0n3).
2. Never too much: Two-step verification is fast becoming the new standard for security, and that’s a good thing. With a simple tap on your phone or 'yes' on your email you can ensure it’s really you. Also, always use a VPN when in public places – it encrypts all incoming and outgoing data.
3. Locked up tight: Many people use the same password or a slight variation on it for multiple accounts, meaning one breach can leave all your accounts open. Try using a secure password manager (such as LastPass) to create unique passwords for each account – and keep track of them.
4. Go ahead, make my day: Those with nothing to lose have nothing to steal. Ransomware is one of the most prevalent and profitable forms of cybercrime out there right now, but it can be circumvented very easily – with backups. Ransomware works by holding your valuable data to ransom, but if your files are securely backed up they don’t have a lot of value to a hacker.
5. Click in haste, repent at leisure: Lots of malware requires users to open files or follow links, so users should always take care what they click on – if a link or file looks suspect, it probably is.
6. In this season: And finally, perhaps the most obvious – keep your software up-to-date.
Software providers are continually patching new bugs in their systems as they appear, but these fixes can only help if you let them in.

Q-Tips are provided by Coulee Bank's IT Network Risk Manager, Quentin Fisher. He is always on the lookout for ways to keep our customers' information safe, here at the bank, at work and home.

Why Payday Loans Don't Make Financial Sense

Life happens. The washing machine dies in the middle of a load, or you discover that your last visit to urgent care wasn’t covered by insurance. It’s not always possible to pay for these surprise expenses on the spot. This is when payday loans may become tempting.
Here’s what you need to know about payday loans and why they shouldn’t be part of your financial strategy.
What’s a payday loan?
Payday loans are small, short-term loans, often of $500 or less. They’re usually due within two weeks, or on your next payday. Many borrowers choose them because they’re so easy to get: Lenders don’t require collateral and rarely run credit checks. But you will pay for the convenience.
Most lenders charge a fee of $15 per $100 borrowed, according to a study done by the Pew Charitable Trusts. To be approved, you must allow the lender access to your checking account or submit a post-dated check for the amount you’re borrowing, plus the fees.
What’s so terrible about 15%?
Maybe you’re wondering what the big deal is: 15% sounds comparable to credit card interest. With payday loans, though, that 15% is due by your next payday, making your annualized interest rate almost 400%. If you can pay it back on time, one payday loan won’t bankrupt you, but if you don’t have that cash in two weeks, you can easily get trapped in costly ongoing debt.
In fact, more than 80% of payday loans are renewed or followed by another loan, with the borrower paying additional fees. This creates a vicious cycle of debt for those who can least afford it.
Statistically, people who take out payday loans are more likely to have relatively low incomes and long-term cash flow challenges.
Are there alternatives?
Payday loans are a bad deal, and if you need fast cash, you often have better options:
  • Church-backed loans: Your church, temple, synagogue or mosque might offer small, low-interest emergency loans.
  • Life insurance loans: You might be able to borrow against an existing cash-value policy at low interest. You have your whole life to pay back these loans.
  • Family/friend loans: Someone close to you might be willing to help.
  • Payroll advances: Your employer might offer a cash advance on your salary.
  • Personal loans: These installment loans are available through credit unions, banks and lending companies. They generally have fixed interest rates, don’t require collateral and provide comfortable repayment terms.
  • Retirement accounts: The government allows you to withdraw funds from your IRA or 401(k) penalty-free, provided you put the money back within 60 days. This option only makes sense if you’re absolutely sure you can pay it back in time.
  • Account or credit card advance: Your bank, credit union or credit card company might provide cash advances. Interest rates tend to be high, but are still lower than those for payday loans.
  • Peer-to-peer lending: These online loans usually have high interest rates, but they’re also more affordable than payday loans.
Expenses often pop up at the worst possible times, but you don’t need a payday loan to bail you out. By exploring more affordable alternatives, you really can make it through today without stepping all over tomorrow.
© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Coulee Investment Corner: 529, Coverdell or Custodial Account? How to Choose...

The cost of a college education continues to rise. The projected average total college costs for a child born in 2015 are nearly $550,000 for a four-year private college and $240,000 for a public college.1 If you are looking for tax-advantaged ways to get ahead of the curve, you have several choices -- 529 plans, Coverdell Education Savings Accounts, and custodial accounts created under the Unified Gifts to Minors Act (UGMA) or Unified Transfers to Minors Act (UTMA) -- but which ones may be right for you?
Generally, 529s, Coverdells, and UGMA/UTMA share the following characteristics:
  • Earnings accumulate free from taxes.
  • Qualified withdrawals are federally tax free. Nonqualified withdrawals may be subject to income taxes and a 10% additional federal tax.
  • Contributions are treated as gifts for federal tax purposes (although contributions may be capped below the annual limits set by the IRS).
  • Contributions are not deductible for federal income tax purposes (however, some states offer state tax credits or deductions).
Yet there are significant differences between the account types, including the definition of qualified expenses, contribution limits, income limits, ownership of the account, and other restrictions. Keep these in mind as we examine each option.
The Lowdown on 529 Plans
Named after the section of the federal tax code that governs them, 529 plans are generally sponsored by individual states or, in some cases, by qualified educational institutions. They are administered by investment companies, which also oversee the underlying assets.
There are two types of 529 plans. The more familiar one, the college savings plan, allows for the investment of contributions into portfolios of mutual funds or similar financial instruments. Most are national plans -- that is, residents of one state may use a plan sponsored by another state.
Other key features of 529 college savings plans include:
  • Generous lifetime contribution limits that often exceed $200,000 per beneficiary.
  • Tax rules that let anyone give up to $14,000 in 2016, free from federal gift taxes, to as many individuals as they choose. Donors also have the option of averaging a single lump-sum contribution over five years, effectively allowing them to give up to $70,000 at one time, gift tax free.
  • No income restrictions on contributors to a 529 plan.
  • Money in a college savings plan may be used at any eligible college or university for qualified expenses such as tuition, books, and computer equipment.
  • Qualified withdrawals may be exempt from state taxes as well (tax rules vary from state to state).
  • The individual who creates a 529 plan account on behalf of a beneficiary generally maintains complete control over the account.
  • Account owners may also change beneficiaries.
  • Contributions to 529 plans may provide a state tax deduction for residents of the sponsoring state. If your state or your designated beneficiary's state offers a 529 plan, you may want to consider what, if any, potential state income tax or other benefits it offers before investing.
The second type of 529 plan, called a prepaid tuition plan, lets you pay future tuition at today's rates, essentially taking inflation out of the equation. These plans are, in general, available to residents of the sponsoring state for in-state tuition only, although some state schools offer them to out-of-state students, too, and some private schools offer them as well.
Coverdell: New Name, Better Benefits
Coverdell Education Savings Accounts, known previously as Education IRAs, allow tax-free withdrawals for elementary and high school expenses in addition to college costs.
  • Contributions are capped at $2,000 annually per beneficiary and are made with post-tax money. Excess contributions are subject to a 6% federal excise tax.
  • Contributions are not deductible from income for federal tax purposes.
  • The deadline to contribute to a Coverdell is generally April 15, the same deadline that applies to IRAs.
  • Account owners may also change beneficiaries.
  • You cannot contribute if your modified adjusted gross income is more than $110,000 if you file singly or more than $220,000 if you file jointly.
  • Qualified withdrawals may be used to pay for an elementary, secondary, or college education.
  • The beneficiary can take withdrawals at any time, but any amounts in excess of his or her qualified education expenses will be taxable as income. A 10% additional federal tax may also apply.
  • Assets must be used before the beneficiary's 30th birthday.
UGMA/UTMA Accounts
UGMA/UTMA custodial accounts are not college savings accounts, per se, but do offer gift tax and estate tax benefits to contributors as well as income tax benefits to the minors for whom they are established. Under the guidelines of UGMA or UTMA -- nomenclature varies by state -- adults may establish and contribute to a custodial account in a minor's name without having to create a trust or name a legal guardian.
Other key features include:
  • No limits on contributions.
  • No withdrawal restrictions as long as the money is used for the benefit of the minor.
  • Ownership of the assets by the minor, not the contributor
  • Investment earnings accumulate tax free for the contributor, but the minor may be subject to taxation at the kiddie tax rate.2
  • Upon reaching adulthood, the child gains complete control of the UGMA/UTMA and is not required to spend the money on college.
Choosing a college investment vehicle is not necessarily a "one or the other" decision -- it may make sense for you to contribute to more than one type of account simultaneously. Speak with a financial and tax advisor about your particular needs.

1Source: ChartSource®, DST Systems, Inc. Estimates are based on average total costs (including tuition, fees, room and board, and other expenses). Projections are based on 2015-2016 costs of $47,831 for a four-year private college and $24,061 for a four-year public college, as reported by the College Board, and assume annual increases of 6%.
2During 2016, the first $1,050 is tax free, the next $1,050 is taxed at the child's rate, and any excess is taxed at the greater of the parents' rate or child's rate. Once the child reaches age 19, or 24 if a full-time student whose income does not exceed half of his or her annual support, all income is taxed at his or her rate.

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Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

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