Savvy Consumer Tips

How often do you hear about a kitchen remodel coming in under budget? How about never? I can proudly say I spent $15,000 less than I expected. For one thing, my starting budget was realistic. For another, I hired a contractor who understood my goals and objectives, and we communicated excellently.

Here are some other key things that helped me manage costs: 1) I set up a separate checking account for the kitchen project so I could keep track of the money every step of the way; 2) Whenever possible, I reused existing materials. For example, the contractor reinstalled my old disposer and molding, which helped save money for other items I wanted to splurge on; 3) This is a big one—I didn’t change my mind, forcing the contractor to undo and redo work. Change orders add to labor costs. I have enough leftover cash to do some landscaping!

Organizing your tax documents and receipts throughout the year is the key to having a less stressful tax time. Russell Barnett, a Diamond Certified Enrolled Agent, advises clients to use a consistent method on a monthly, or even weekly, basis. Your “system” can be whatever works best for you: a manila envelope, Quicken, a shoebox, or even an application on your smart phone. The idea is to keep up with the paperwork on a regular basis.

Mr. Barnett says some taxpayers are now scanning all their receipts in order to eliminate paper. If you’re self-employed and scan a business lunch receipt, make sure you note the guest and the business purpose for the meeting. Driving logs are important, too, and should be kept up daily if possible. Again, jot down the number of miles driven, the date and the purpose of the trip. Some mobile phones have great apps for this as well.

Most people don’t need an accountant’s help to prepare their taxes, according to Geoffrey Kulik, a partner of Diamond Certified accounting firm Sterck Kulik O'Neill Accounting Group, Inc. Even so, Mr. Kulik says many taxpayers sign up for too much or too little help in March and April because they panic and choose a professional based on who’s available rather than who can best help them.

Fall is the right time to decide how you’re going to prepare your taxes next spring. Taxpayers with complex returns can meet with CPAs to see if the firm is a good fit. Salaried employees with simple returns can interview preparers about their price and schedule requirements. For simple returns, you can even investigate home computer tax software. By selecting how you’re going to get help in the fall, you can intelligently match your tax situation with the different levels of assistance available without feeling pressured by deadlines.

This one could slip by you if you don't read your credit card agreements and statements carefully, and who does? Credit card companies are getting tougher on customers who make late payments. According to Liz Davidson, Founder and CEO of San Francisco-based Financial Finesse, if your payment is late, even by a day, you may not just get dinged with a late fee. Some creditors will also increase the rate you pay on your unpaid balances. These penalty APRs, as they're called, can be as much as 7% to 10% higher than the usual annual percentage rate. You could be punished for just a few billing cycles, or you may get stuck with the higher rate from then on. Credit card payers,

Are you fed up with paying too much for long-distance calls while traveling? Consumer Action's Linda Sherry says most pre-paid phone cards will save you money but the surcharges can add up. Use the card at a pay phone and you'll be charged an additional 24 to 75 cents.

Use the card to call a mobile phone and sometimes a different rate structure kicks in. Weekly and monthly maintenance fees are common. All these charges can eat up your minutes fast. Fees must be on the card itself or packaging, according to California law. The best deal I've found is the card sold at Costco.

The cost of calling directory assistance is skyrocketing as some phone companies dig deeper into your pockets, according to Linda Sherry, spokesperson for the non-profit group Consumer Action. In the latest survey, Ms. Sherry found that dialing the area code plus 555-1212 now costs $2.49 for MCI and Sprint customers. While AT&T and Verizon have not increased rates, the charges are high, $1.99 and $1.25 respectively.

It is almost always cheaper to get local and national directory assistance by dialing 411, and Sherry says don't pay the extra fee to have them connect you. Residential customers get 3 local numbers free each billing period. After that, you pay 46 cents per call and are allowed 3 listings per call. National directory assistance (any listing outside your service area) is $1.25 per listing and you never get any freebies. You're charged even if the number is not found or unlisted.

Significant tax changes in 2003 may be of substantial benefit to you, especially if you are a business owner and/or earn a significant portion of your income in dividends and capital gains, according to Daven Sharma of Davis and Company, a Diamond Certified public accounting firm. Mr. Sharma recommends that if you prepare your own tax return, you should review and understand the tax changes before completing the forms. You can find information on ’03 tax changes on finance-related websites and in specialized newsletter articles at www.daviscocpas.com. Click the link to newsletters on the homepage. Unless your tax return is extremely simple, consider having a professional review your self-prepared return before filing it. A professional may identify additional deductions as well as potential costly errors and areas of concern. It shouldn’t cost you a lot to get a review because you have already done most of the work.

People are reluctant to sell appreciated assets (Real Estate, Stocks, etc.) due to tax consequences. Taxes can be deferred via a 1031 exchange, or installment sales, but may not be appealing options. One lesser known strategy is using a Private Annuity Trust, according to professionals at Davis & Company, a Diamond Certified CPA and Financial Planning firm.

The process begins with the transfer of the property to a previously established Private Annuity Trust. The Trust pays the owner for the property, not in cash, but with a special payment contract called a private annuity that stipulates that payments from the sale go to the owner for the rest of his or her life, essentially in installments. The Trust then sells the property and invests the proceeds to make the annuity payments. Professionals with expertise in this area should be retained to set up such arrangements, as any mistake may have serious legal and tax consequences.

The key to mortgage matchmaking is being a careful listener. The Diamond Certified mortgage brokers I talked to say a good loan agent will ask the right questions first and then find a loan at the lowest interest rate that fits your particular needs. To get a good match, ask questions and expect informative answers.

The loan agent will pre-qualify you, evaluating your financial situation and credit scores. Here are some strategies to use when shopping for a loan. Don’t make large purchases, such as a new car, while you are buying or refinancing a home, as this new debt may affect your credit scores and therefore the interest rate you are offered. Speak to your loan agent before you pay off or close credit card accounts. Lenders often prefer that you have cash reserves available for your regular payments.

Do you want to handle your personal finances like a professional accountant? According to Charles Sterck, Managing Partner of Sterck Kulik O'Neill, one of the Bay Area Certified Public Accountants who's earned the Diamond Certified award, the most critical step in planning for your retirement is simply starting to save.

Get started by participating in your company's 401k program and put money into your IRA today. Don't wait until next April 15th when you're looking for a tax deduction to open an IRA. Put funds into this year's IRA as soon as you can so that your money will grow tax free starting right now. This account is not a rainy-day fund to be used for emergencies or to pay off credit cards. Treat the money in your retirement accounts as belonging to someone else: tell yourself that the account is owned by the future and not by you.

We had warned you last week that solar tax credits were set to expire at the end of the year. The good news is that, as part of the financial bailout package signed last week, these federal tax credits have just been extended and increased.  Bob Winn, owner of Sky Power Systems, a Diamond Certified company, says the changes will benefit both homeowners and businesses planning solar projects.

Mr. Winn says the 12/31/08 expiration has been extended to 12/31/16 and the $2,000 cap has been removed (effective 1/1/09), meaning residential customers will get a full 30% tax federal credit. That credit is not subject to the alternative minimum tax, like the current $2,000 credit.   This amounts to $9,000 for the average residential system!  The tax credit is calculated on the net cost of the project after a California Solar Initiative rebate from PG&E.  Commercial installations continue to get the 30% tax credit, which was also set to expire 12/31/08.

It’s a “be ready” game, according to Jay Sofnas, VP at First Capital Group, Inc., a Diamond Certified company. Anyone shopping for a loan right now could secure a great fixed rate under 5% if they are qualified borrowers, have their paperwork prepared, and have their mortgage brokers watching the rates closely as they fluctuate almost hourly.

Interest rates on 30-year fixed rate conforming loans up to $625,500 in most Bay Area locations are the lowest they have been since the 1960’s. To qualify for rates below 5%, however, you will need good credit scores (FICO score of 700 or higher), be able to verify your income with tax returns, and have 20% equity in your property. Interest only loans are not available with these historically low rates.

If you’re in trouble with your mortgage, Lisa Blaylock, a Diamond Certified  Coldwell Banker realtor and certified distressed property expert, suggests you look closely at all your options. It’s best to get legal advice before you stop making payments if at all possible.

Ms. Blaylock says homeowners should know the impact that a foreclosure or short sale will have on their credit. A foreclosure will make you ineligible for a Fannie Mae loan for 5 years, your credit score will be lowered anywhere from 250 to over 300 points for 3 years, and recorded on your credit report for 10 years. A short sale allows you to get a Fannie Mae loan after 2 years, your score will go down as little as 50 points, for only 12 to 18 months, and is not reported to credit bureaus. Your attorney can help you decide what your best course of action is, given your circumstances.