Tax Wrap 2011

Another tax season is in the books and I’m wondering what the Liberty Tax guy that has been standing on the side of Route 40 for the past two months is doing today…  At one point a month or so ago, I rolled by with the window down and must have unintentionally had either the “are you kidding me?” look, or the “I feel sorry for you look” on my face.  I’m not sure which, but the guy leans toward the window and says “hey, I’m just a business man, trying to make a living.”   I suspect that business is tough for these guys — which got me started thinking about how the tax filing season has changed so dramatically in the past decade.

For all our criticisms of the IRS, the agency seems to embrace technology to make its operation more efficient and to better serve the public.   Some readers will certainly disagree — but I find it absolutely amazing that the agency will process over 82 million returns in what amounts to about 80 days.   And the public has embraced the techonology too.  About 80% of returns (either self-prepared or prepared by a professional) are now e-filed.   And, despite our image of the midnight run to the post office in Baltimore, most people file early — with about 3/4ths of returns in before April even hits.   I’m not sure the government loves this, though.  With the filers receiving an average refund of about $2,970, this is, in essence, a 244 billion dollar little loan from 2010 that the American public is calling due.

Ever wonder how the government is spending your taxes?  Here’s a great little tool/illustration:  Plug in your income and roll over the pie chart. 

Last, I can’t sign off from this post without adding the old two cents on that refund the average household will receive.  I’m seeing news stories about giddy retailers hoping that (unlike last year when consumers held onto their refunds) we’re all going to enjoy some retail therapy after the tough economic times the past couple of years.   Given sky-rocketing gas prices (not to mention the resulting price increases on food), we all need to think twice about how we spend that refund.   Perhaps a good strategy would be to put the refund into savings for a few months before allowing yourself to spend it.  A few months of delayed gratification can offer a ton of perspective.  Alternatively, let yourself spend a small portion of it — perhaps 10% — on a splurge, and put the rest into an IRA or college savings account for your child.  I wonder how the Liberty Tax guy will spend his refund?  Maybe on a warm March day in 2012, driving down Route 40, I’ll have the chance to ask him. 


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Politics, paychecks and being prepared…

Needless to say we were all relieved to hear that a government shutdown was avoided late on Friday.  Here in Maryland — and particularly in Howard County — the economic stability of our community would have been shaken to the core if there were a prolonged standoff.   Just look around at your own friends and neighbors to count the number who are federal employees, contractors, or receive services that might be affected.  How well would they (or you) be able to withstand a period of time without pay?  And that got us to thinking…  What can you do to be ready?

Got savings?

Far too many don’t.  (Or don’t have nearly enough.)  The standard for emergency savings used to be 3-6 months of expenses.  These days the recommendation is to have at least six months.  Unfortunately, this typically means finding a way to accumulate tens of thousands of dollars — a daunting task to say the least.  But in the end, finding a way to start funding your savings for emergencies will likely mean the difference for your ability to successfully withstand crisis.  Start small and start today.  Ask your employer if you can direct deposit into two accounts.  Then, open a small savings account and begin allocating 5-10% of your take home pay into this account.  For most folks, putting the money directly into the separate savings account is an easy way to save — and most find they don’t even miss the money!

Pay down your debts!

You’ve got some credit cards with a big balance, right?  But, you pay at least the minimum every month and you pay on time — so no dings on the credit report.  So what’s the big deal?  Well — besides the obvious money flying out the door toward interest on the debt — there’s another, even greater risk.  By maxing out on the cards, you don’t leave yourself any cushion to use the cards in times of crisis.  That’s right — if you have a sudden loss of income, you’re going to need to be able to use those cards without going over the limit to pay for necessities like food and fuel.  The rule of thumb says you should never carry a balance more than 30% of your available credit.  And, although we always suggest limiting the number of credit cards you carry, it’s probably better to spread your balances out over a couple of cards — even if it means having 1-2 extra accounts.  The key is to avoid the temptation to spend the extra cards up to the limit. 

Don’t be fooled when they say… “You CAN afford this…”

Whether it’s a house, or a car — or any big purchase you borrow for — recognize those tricky words.  Just because you CAN afford it, doesn’t mean you SHOULD buy it.  Your house payment shouldn’t be more than 30% of your take home pay.  (And, perhaps only 30% of the net income of just one of the earners in the house for extra security.)  Your total transportation costs (car payment, plus gas and maintenance) shouldn’t be more than 12-15%.   The housing costs are particularly tough in Howard County — but keeping the guideline in mind will help you shop smarter. 

Student Loans

During times of crisis you may be eligible for deferment of your student loan.  Contact the lender who holds the loan to inquire.  This should only be undertaken for short periods of time.  According to FinAid, deferring a student loan for 3 years, doubles the cost of the loan — so this should only be a short, stop-gap measure.  It is, however, critical that you not just ignore your student loans in times of crisis.  Student loan debt appears on your credit report and will stick with you forever — it’s one of a just a few types of debts that even bankruptcy will not dissolve.

Be Reflective…

This is probably the toughest one for most people.  Go through your monthly expenses and write them down — ALL OF THEM!  Then, multiply them to see how much you are spending on the little stuff over the course of a year.  This may be just the reality check you need.  How much of your money is going to Comcast or Verizon?  How much is going to Starbucks or Panera?    Once you add all this up — you may find that the $5,000 a year you are paying for TV’s and phones just isn’t worth it.  Are you really creating fulfillment for you and your family with the choices you are making?

While it’s great to start taking action to prepare for a crisis today.  Chances are you’ll not only sleep better at night knowing you have a solid plan in place to deal with emergencies, but you may make different choices that make the days more enjoyable too.  And, the next time Congress decides to play political badminton your paycheck — and we know they will  — you’ll be ready.


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Making Money Fun!

The Money Matters financial education event hosted by Council Chairman Ball on Saturday was a huge success.  The event grows every year and this year was nothing short of fantastic.  The hands on activities by each of the participating organizations were a hit with both kids and parents.  If you didn’t have a chance to attend, check out the pictures on the library’s flickr stream at:

We offered a scavenger hunt for kids at the fair this year – and thought you might enjoy testing your money trivia skills on a few questions.  Might be a fun way to celebrate Financial Literacy Month at the dinner table with the kids tonight!

1) Which President’s face is on the dime?

2) What building is on the back of the nickel?

3) What materials are used to make a one dollar bill?

4) Where are U. S. coins made?

5) Where is the best place to keep your money?

6) The amount you pay to borrow money is called…

7) Where did the piggy bank get its name?

8 ) A U.S. $1 bill usually lasts how long in circulation?

9) According to history, the first banks and loans were recorded in what century?

10) Who made the first credit card?

11) All U.S. bills (any dollar value) weigh the same.  How much?

12) How many out of every 10,000 U.S. bills are counterfeit?

13) On an original Monopoly game board, what is the total value of all the property? (No houses or hotels.)

14) How many times does the phrase “The United States of America” appear on a $100 bill? (Note this is the pre-2010 issue of the $100)

15) True or False? It costs more than a penny to create a penny at the mint.

16) The highest value U.S. bill currently printed is the….

Answers here: Money Trivia Answer Key

So how did you do??? 


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No foolin’…April is Financial Literacy Month in Howard County!

In a rare mid-week post, we couldn’t resist taking a moment to celebrate April’s arrival as financial literacy month.  We know that there are many who made that long since abandoned New Year’s resolution to improve their finances months ago.  Never fear – this is the time to get refocused! 

First, let us highlight the AMAZING line up of events being offered by the Howard County library system this month.  Schools are off early tomorrow, why not pack up the kids and head over to Are You Cents-Able at Glenwood?  It’s a great opportunity to instill good money sense at an early age.  And, believe me, there’s nothing that will keep you sticking to a resolution like having your kid looking over your shoulder!

Saturday is the flagship financial education event for our community.  Founded by Council Chairman Calvin Ball 5 years ago, the Money Matters event is offering a host of great activities for kids and adults.  When was the last time you reviewed your credit report, set a savings goal, learned about financial aid or saving for college, had your tough tax questions answered, reviewed your insurance, asked questions about scams?  Yep, they’ve got an expert for that!  Plus the kids will enjoy a variety of crafts, activities and games at the event too.  New this year, the event is featuring a pilot VITA (Volunteer Income Tax Assistance) site.  For families that qualify , the VITA program offers FREE tax preparation and filing AND ensures that they are connected with a variety of available tax credits (details at:  Also at the event, families that may be struggling financially can check in to determine if they are eligible for help from the Community Action Council, receive financial and housing counseling from the Office on Aging, and learn about a variety of helpful housing assistance programs from the Department of Housing.    

During the event, at 11 o’clock a Joint Proclamation declaring it Financial Literacy Month in Howard County will be read and we will be joined by Comptroller Franchot and Congressman Cummings.  Also at that time, we’ll be presenting the award to our own winner of the Passport to Financial Literacy Reflections Essay Contest. 

The Money Matters event on Saturday is just the start of a great series of financial literacy programs for all ages during April.  On April 7th, noted columnist Michelle Singletary will join us at the East Columbia Library at 7 pm to discuss managing money in the new economy.  Other events will focus on saving for college, buying a car and a host of programs for kids and teens.  On April 14th our friend Robert Wasilewski, the D-I-Y Investor will help you Maximize Your Investing Power at the Glenwood Branch at 7PM.

So, what’s in your wallet?  Certainly with all these great (free!) programs around the county this month to help you develop the skills to better manage your finances, there’ll be MORE in your wallet at the end of April!

Know of any other great financial education programs we’ve missed????  We want to hear!


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Money Matters Event – Making a Difference!

“Income may feed people’s stomachs, but assets change their heads.” Michael Sherraden

This is so true.  Families struggling with economic instability are often consumed with the earn it and spend it cycle.  They often find it difficult to set financial goals, let alone save for the future.  Building assets through saving seems a completely insurmountable challenge for a few reasons. 

  • First, many low-income (and moderate-income) families truly have so little left over each month after their expenses. 
  • Second, our system penalizes the practice of saving.  (Yep – you read that right.  Fairly low asset threshholds are set, and if crossed the family loses certain public assistance benefits.)
  •  Third (given the first two factors) the opportunity to buy into the “American Dream” — be it college education, homeownership, or business ownership — seems so distant and impossible that individuals lose hope for their financial future. 

There are many communities around the nation that have created great models for fostering asset development.  The results of these programs suggest that there are successful ways to help families begin to build assets and move toward self-sufficiency.   For example,  families earning less than $45,000 often qualify for the Earned Income Tax Credit (EITC).   Eligible families receive, on average, a $2,000 tax credit in addition to their tax refund.   This amount can open doors for education, money down on a car to be able to get to a job, or security deposit and first month’s rent for a family struggling with housing.  Unfortunately, almost 2 million families miss out on taking advantage of the EITC each year – perhaps many in our community.  

Many communities have used the VITA (Volunteer Income Tax Assistance) Program to connect low-income families with the EITC.   The VITA program provides free tax preparation for families earning less than $49,000 by IRS certified preparers.  Unfortunately, Howard County is one of only a handful of counties in Maryland without a permanent VITA site.   We’re hoping that’s soon to change!   The IRS SPEC (Stakeholder Partnerships, Education, and Communication) Office in Baltimore is coming to Howard County to host a pilot VITA site on April 2nd at the East Columbia Library.

For the past 5 years, Councilman Calvin Ball hosts an annual community financial literacy event.  The program, entitled Money Matters:  A Fresh Start is scheduled for this Saturday from 10AM-1PM and will include the pilot VITA site this year along with a host of other activities for all ages.  (See below for more details on what you’ll find at the event!) 

Please spread the word about this pilot VITA site to your colleagues and friends in our community who work with families that earn less than $49,000.  (For details:   This program — and its power to connect people to tax credits that will start them on the path to asset building — is just one important step our community can take to help empower people to become economically independent. 

Other great stuff at the Money Matters event on Saturday April 2nd:  

  • Obtain your credit report and review it with an expert. 
  • Bring your tax return and have your questions answered (in English and Spanish). 
  • Ask your tough financial questions to an expert. 
  • Learn how to save for college and take advantage of financial aid. 
  • Get your housing and reverse mortgage questions answered. 
  • Understand whether you are covered with your insurance. 
  • Learn about your career potential.  
  • Understand how to protect yourself from scams.  And much more! 
  • Also – kids will have fun exploring a variety of games, activities and crafts available!   

For more information, go to


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Which came first…the stressed out chicken, or the indebted egg? And, who’s paying the price?

Recently I was a little frustrated by a colleague who discounted the connection between personal health and financial health. In reality, the two are inextricably connected and we need to recognize the direct impact that indebtedness and economic insecurity have on health issues.

I had been tossing around the idea of writing a post on the topic for a few weeks, but wasn’t convinced until last Monday evening. After a long day I decided to surf through our 687 television channels to find something to watch. Not surprisingly, 686 channels later I gave up and settled on a rebroadcast of the Dr. Oz show. That day he had joined forces with Suze Orman to demonstrate the correlation between debt and weight. He cited that people deeply in debt were twice as likely to struggle with obesity and the health issues that follow. It seemed the time was right for us to address the topic on the blog as well.

I won’t go into the details of the show or Suze’s advice (we’ll save Suze for another post). Let’s just put a few research findings on the table to start…

  • In a 2007 study by the American Psychological Association, 73% of respondents cited money as a significant source of stress in their life.
  • Financial worries have been cited as the leading cause of chronic stress, causing 25% of Americans to miss approximately 16 days a year of work.
  • Stress can lead to a number of unhealthy habits including smoking, consuming excessive amounts of caffeine, drinking, over-spending, and obesity.

The challenge becomes where to start…money troubles and health troubles seem to be circular – a “which came first, the chicken or the egg?” conundrum. We’ll delve into just a few examples.


For instance, an average smoker might spend $1,200-$1,500 per year on cigarettes. For a low- or moderate-income family, this expense can drive them further into debt and may wipe out their opportunity to save. This financial tension leads to ever increasing stress and makes the process of trying to quit smoking even more difficult. And, of course, the habit increases the likelihood of suffering from cancer, heart disease, stroke, pulmonary disease and a host of other costly and devastating illnesses.


Studies have shown that in many people, the act of making a purchase releases serotonin in the brain giving the feeling of euphoria or a “high”. People under stress, including stress resulting from debt or economic uncertainty, crave that rush and can often spend themselves further into trouble. Financial stress is at its height for individuals who have lost their job, have significant debt, or do not have health insurance. Stress can be linked to a number of conditions including ulcers, migraines, back pain, anxiety, depression, and heart attacks.


The connection between economic insecurity and weight/nutrition is much more complex and involves not only the connection between financial stress and weight, but also issues of access and psychology.

For years our government has subsidized farmers producing crops that become the ingredients for low cost, high calorie foods with little nutrition. For families in economic crisis, these are the foods that fit in their budget. Additionally, for individuals struggling with limited transportation options, these are the foods that are readily available at local convenience stores when a supermarket is out of reach.

Further, workers struggling to achieve self-sufficiency are often working non-traditional hours or multiple jobs. This leads to an increased reliance on fast food and convenience foods which are again, cheap, provide little nutrition and are highly caloric.

In addition to access issues, the psychological factors behind our food habits link economic insecurity with over-eating and obesity. For many of us, our childhood woes were often soothed with sweets. Our images of holidays and celebrations often revolve around a dinner table. No doubt, food (and usually unhealthy food) is tied to our vision of happiness. As a result, many people use food as a way to “fill their emotional tank” when they are stressed – and as the statistics show, people are stressed about money. Not surprisingly then, studies suggest a deep correlation between obesity and financial distress.

The impacts of being over-weight or obese are far reaching. A host of health issues can be tied to weight including:

  • Heart disease and stroke.
  • High blood pressure.
  • Diabetes.
  • Cancer.
  • Breathing problems, such as sleep apnea and asthma and many more.

Beyond the health issues, people who struggle with obesity face many other challenges. Women classified as obese earn, on average, 6% less in wages. ( Expenses are also often higher for insurance, healthcare costs, etc.

There are so many other issues we haven’t even touched on here that link economic crises to personal health. Availability of insurance, preventive care, quality health care providers, healthy homes, fitness resources, are just a few of the other factors that connect our financial and physical health. To be sure, as we address the opportunities to move families from economic insecurity to self-sufficiency, we will be making a positive impact on both their financial and physical health.

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Headline hooey…

Seems time to celebrate if you believed the headlines this week:

“Families Slice Debt To Lowest In 6 Years”. (Wall Street Journal)
“Households Grow 2.1 Trillion Richer”  (CNN Money)

You just can’t help but feel all warm and fuzzy inside with a headline like that, right?  Hmmm — we’re skeptical.  We all know that despite some signs of recovery in the economy, the day to day struggles for consumers haven’t really eased up much.  Reading between the lines offered what was actually pretty dismal news – and some alarming predictions.  So what gives you ask?

First off, stock performance has been pretty positive lately so portfolio values have grown — thus driving up the household asset values.  Remember though, this doesn’t necessarily signal a change in savings behavior just the benefit of riding the generally upward trend in the market.  And, these gains could quickly be lost if the market derails with turbulence in the middle east, rising commodity prices, or any number of other potential crises.

Well, even if asset growth isn’t directly tied to consumer savings behavior, we’re still experiencing a reduction in household debt, right?  Not so fast on that one either.  The household debt numbers are going down, but not because consumers are choosing to use their extra cash to pay down their bills.  Rather, debts are going down as a result of real estate short sales and foreclosures and the charging-off of significant amounts of credit card debt.   Yes, less debt all right — with a healthy helping of lower credit ratings for consumers.   Celebrating yet?

The final prediction in the Wall Street Journal article suggested that with all this good news, we could expect to see “better consumer spending” in 2011.   I guess I can agree that we’ll be spending more… $73 dollars to fill up the tank this week.  Food prices will rise too, no doubt.   I’m not sure I would paint this as positive news, though.   I wonder how the press will make rosy headlines from that news.  Any ideas?

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