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avatar You are viewing an archive of articles by Luke Landes. Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View 's Google Profile.

Luke Landes

Ah, taxes. They’re unavoidable, often painful to think about, and take a nice chunk out of everything that we earn. (Thanks, Uncle Sam.) If you are a W-2 employee, your employer skims your taxes off of your paycheck, so you never even see that money — but what if your income sources are more, ahem, unconventional?

In general, if you have to ask whether you need to report certain income to the IRS, the most likely answer is, “Yes.” Here are some less-than-typical (we hope) examples where you’re going to need to pony up, courtesy of MSN Money.

Q. I hosted a party to sell products to my friends (using my social circle for multilevel marketing for some corporation), and the company’s representatives brought me gifts. Do I have to report this?

A. Yes.

If you host a party at which sales are made, any gift you receive for giving the party is a payment for helping a direct seller make sales. You must report it as income at its fair market value.

See Publication 463.

Q. My sugar-daddy (er… loving husband) died and I had to pay to collect the reward (er… life insurance). Do I have to report this?

A. Yes.

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.

Learn More: How to Avoid Estate Taxes on Life Insurance Proceeds

Q. This year, I’ve been taking bribes to keep the caviar smuggling ring off the FBI radar. Do I have to report this?

A. Yes.

If you receive a bribe, include it in your income.

Q. I ran for office this year and used campaign contributions to pay for my second cousin’s bodyguards and my daughter’s wardrobe. Do I have to report this?

A. Yes.

These contributions are not income to a candidate unless they are diverted to his or her personal use. To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns… Excess campaign funds transferred to an office account must be included in the officeholder’s income on Form 1040 in the year transferred.

Q. Instead of buying a Hummer for $70,000, I paid $80,000 for the vehicle and received a $10,000 rebate. Do I have to report this?

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The concept of the Latte Factor is one of the most divisive in personal finance. Money gurus get so worked up over whether the Latte Factor is a valuable lesson in money management, that one might think the issue were as important as the national debt. Most of the time, passionate responses pertaining to the Latte Factor are based more on book sales and page views than any rational consideration of the issue, though.

latte

The Latte Factor is a term coined and trademarked by financial author and guru David Bach. He posits that small, repeated savings — of which people can make into habits — can aid the growth of wealth over time. The math supports this as truth: Assume you spend five dollars every weekday on a fancy, coffee-related drink on the way to your office. Now, imagine you cut out the coffee, or replace it with a $1.50, less-fancy drink. You would save at least $20 a week, or about $1,000 a year.

Take it a step further and put that money in a bank or invest it. Then, assume that you can earn a return from interest, dividends, or investment gains on that cash. Over the next ten years, you’ll have somewhere in the neighborhood of $15,000 more to your name than you would have, had you continued buying your daily gourmet drink.

Take it a step furtherLatte Factor Coffee

This concept isn’t limited to expensive coffee-related drinks, though. Any habits that result in spending money that could be deemed unnecessary can qualify for elimination due to the Latte Factor. Cook your own food rather than dining out once a week, and you could save just as much money (or more) over the same period. Cut out your premium cable package in exchange for Netflix or Amazon Prime streaming, and tuck that cash away.

Most people, however, don’t bridge the gap between reducing spending in one area and increasing savings with the difference. Unless there’s a concerted, conscious effort to transfer money from a checking account to a savings account or an investment, the money formerly spent on lattes or other repeatable expense will often just be spent on something else.

Furthermore, families that have already reduced their spending due to personal or economic situations may not have much room left to scrape the barrel. Finding additional savings can be too much to ask.

Yet another criticism of the Latte Factor is that it minimizes the importance of reducing large expenses. If a family gets into the habit of saving money ordinarily spent on lattes and uses that attitude to justify buying a more expensive car, all the work will have been for naught.

Well, I take that back: the work would have been for a more expensive car. But, in my opinion, there are about 100 better uses for that extra, squirreled cash.

Do what works for you

All spending is a choice. It’s easy to remember this when a friend refuses to spend time with you, citing the expense of the activity, while they continue to purchase unnecessary electronics equipment, for example. You can identify someone’s priorities by looking at how they choose to spend the money they have and the time they have available. If you look at your own priorities, your budget should match.

Whether you realize it or not, you’re broadcasting your priorities to the world. Spending money and time in one area of your life, at the expense of another area, is really all the evidence you need. If there’s incongruence between the priorities you think you should have and how you spend your time and money, consider changing something. Or maybe, you need to accept the idea that your priorities may not be what you expect. Your real priorities are evidenced by how you spend your limited resources.

So, what if the pick-me-up you receive by drinking a fancy latte in the morning is important to you? As long as you realize that your habit results in a hypothetical “loss” of $10,000 or more over the course of ten years, spend the money. Sure, buying a practical car that requires little care, uses fuel efficiently, and will last a long time can save money over the course of several decades. But if buying a less practical car makes you feel happy and won’t be a financial hardship — even if it means leasing a new car every three years — then go ahead.

Just remember, though: Your spending reflects your priorities.

I see this in my own spending. For example, I still drive my old Honda Civic. In one respect, I haven’t purchased a new car because I see it as an unnecessary expense. I’m more than comfortable with keeping the money I would need to buy a new car in my savings account. Meanwhile, I spend money on things other people would see as frivolous, such as photography classes and equipment, hiring a maid service for my apartment on a bi-weekly basis, coin collecting (though not much recently), and travel.

Is the Latte Factor relevant to your personal finance experience? What does your spending say about your priorities? 

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Along with losing weight, getting out of debt is the most popular New Year’s resolutions in the United States. This resolution, like all others, unfortunately tends to be forgotten within weeks. Well, if you resolved to get out of debt this year — and haven’t yet abandoned that idea now that we are at the end of January– here are some ideas for not losing sight of the goal.

CLIMB DEBT

Don’t focus on zero debt, focus on financial freedom

Debt is at worst slavery; at best, it’s willful indentured servitude.

Say your family takes home $2,500 per month from your job after taxes, but your credit cards, loans, and rent/mortgage total $2,000 each month. This means that you work only one-fifth of your hours for yourself. The remaining four-fifths of your time at your job is exclusively for your creditors. You might as well just hand your paycheck over or work off your debt directly with the credit card companies.

Unlike slavery, though, you are free to leave this arrangement (your job) at any time. You just need to simply quit and look for another job with a pay increase. However, that is not always a simple or practical solution.

If it motivates you, think about what you would do with your freedom from debt. Without having to pay credit card companies, you would have the freedom to choose where your take-home pay goes. If you want to save up for a vacation, place pictures of your favorite getaway spot around your house.

Replace bad habits

Excessive shopping can be a habit. Many compulsive shoppers who go into debt do so because shopping helps them deal with difficult emotions like anger, frustration, and stress. The excitement of shopping helps to temporarily improve a person’s mood. But this habit can be replaced with a healthier alternative.

If starting a shopping trip helps you deal with difficult emotions, replace shopping with jogging, running, or another physical activity. While the act of spending money improves the mood of habitual shoppers, physical activity improves anyone’s mood. This is due to endorphins — natural, mood-altering chemicals released by the body in both situations.

Make getting out of debt fun

The concept of “fun” is personally subjective. One thing that I find fun, someone else might find mundane.

For example: when I was in debt, I liked watching the colorful monthly reporting graphs in Microsoft Money get close to crossing the x-axis of $0 net worth. I fully understand that might not motivate everyone the same way.

Related: How and Why to Track Your Net Worth

Rewards can be great motivators, too — just make sure they aren’t big rewards that will impact your finances negatively. Paying off a student loan and then blowing $200 on a steak and lobster dinner, for example, isn’t very smart. Do something small, yet still enjoyable. You could treat yourself to a movie night every time you pay off a credit card, or plan that weekend hike that you’ve been meaning to do. Celebrate at every possible milestone, but within reason.

Visualize your debt reduction

Losing weight is easy to visualize. Improving finances? Not quite so easy. I’ve seen videos posted online involving time-lapse photography to illustrate weight loss over time. One photograph is taken each week at the same location and in the same position, so when played consecutively from start to finish, the change over time is apparent. You may not realize it, but you can do the same with your debt.

Here are a few visualization tips:

  • When you pay off a credit card, cut it up using a shredder. Save the plastic confetti in a bag and watch it expand as you blow through card after card.
  • Look at your credit card statements before you go to sleep each night. The bad dreams you have will subside when your statements are small enough that they don’t cause anxiety.
  • Here is an extreme option, for those who REALLY need a motivator: If you’ve paid off 20% of your mortgage, paint 80% of your house in a color you don’t like. Once a year, determine how much more you’ve paid off, and paint the corresponding amount in a color you do like. You’ll be encouraged to pay off your mortgage in full just so you can live in a house painted the way you prefer.

Learn More: Should You Ever Cancel a Credit Card?

Do something positive every day. The key to making a resolution stick is to keep it in front of you every day. If your loan or credit card allows you, and if you are not charged an extra fee, make small payments every day before you go to work. Look at your net worth in Mint if it reminds you of your goal. Work an extra hour if it means you’ll get more money for paying off your debt.

Recruit your family and friends. Having a support system is vital, but many people don’t want to let people know about their financial troubles. I think it’s important to have at least one person you trust to talk to about financial issues. It helps to share goals like this because they are often not real until they are spoken out loud with a witness. If no one is aware of your goal to pay off debt, it’s easier to admit defeat without first offering 110 percent of your effort.

Consider your financial options. To truly get started you need to make some financial decisions. It is true that anything you do is better than nothing, but you need to have a plan. First, can you consolidate your debt onto one low-rate card? Call your credit card issuers and ask; the phone numbers are on the back of each credit card. Do you qualify for a loan through a peer-to-peer network? If you have a good credit score, you might find favorable loan terms.

Decide how fast you want to get out of debt and how much you want to pay. If you want to pay the least and succeed the fastest, you’ll want to examine the Debt Avalanche method. If you believe that a small success earlier on the path is important to keep you motivated, check out the Debt Snowball. Research your options and give it thorough thought.

What tips do you have for keeping a resolution to get out of debt?

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With W-2s and other tax forms now appearing in our mailboxes (or inboxes) daily, chances are that taxes are on your mind. If you believe you’ll owe money to the government, it makes sense to put off filing as long as possible, up to this year’s filing deadline. If you expect to receive a refund, however, file your taxes early to receive your money faster.

tax

Previously, H&R Block offered a product that allowed customers to get their refund even faster than the few weeks the IRS takes to process. However, they no longer offer these (though, you can sign up here to be first in line when they begin offering the Emerald advance lines of credit again). While you can find anticipation loans through third-party companies, these are typically accompanied by high fees. So, as of now, the least expensive and quickest way to receive a refund is to allow the IRS to deposit your refund directly into your bank account.

Regardless of how you receive your refund, you can file online using H&R Block’s system if you’d prefer to not visit a local office in person (buying a software package is one more option you have, too!). Here is what you need to know about filing online.

Different editions available

H&R Block offers three tiers of their online filing system in 2017 (for filing your 2016 taxes).

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Would You Rather Receive a Refund or Owe More Taxes?

by Luke Landes
owe-more-refund

If you haven’t noticed, it’s tax time. I have noticed, not only because of the endless emails I receive reminding me of this grand celebration, but also because of the people with whom I interact. As those I know complete their tax returns, I observe their pure joy as they realize they’ll be receiving a […]

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Year End Reminder: Change Your 401(k) Contribution Level Now

by Luke Landes
Winter Snow

At the end of the year, most people in the United States are thinking about the holidays and the potential credit card bills for gifts and family visits. One good way to control this potentially stressful month is to take some time to breathe and get your own finances in order. There are several actions […]

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Will a Bonus Make You Pay Higher Federal Taxes?

by Luke Landes
bonus

With the holidays approaching, many companies are preparing their bonus checks. However, some employees who are looking forward to their bonuses are also concerned about tax consequences. I gave up this “extra” part of my corporate pay, in exchange for the benefit of working for myself, when I left my day job a few years […]

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401(k) Contribution Limits for 2017

by Luke Landes

The 401(k) contribution limits and maximums are increasing in 2015, and there are other tax changes to 401(k) to note.

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2017 IRS Standard Deductions and Exemptions

by Luke Landes
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Most taxpayers can choose between itemizing tax deductions to reduce taxable income, which requires accurate record-keeping and support, and taking the standard deduction. The standard tax deduction is a fixed amount that reduces the amount of money on which year-end taxes are calculated. Generally, if you can show that you’ve had more deductible expenses than […]

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The Best Cash Back Credit Cards of 2017

by Luke Landes

Cash back credit cards can help consumers practice responsible spending while earning a little extra for their efforts when used properly. The days of earning 5 percent cash back on all credit card purchases may be just a memory, but the smart use of credit cards can still be profitable for diligent consumers. You may […]

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