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Last Minute Advice and Answers to Tax Questions; How to Avoid Common Credit Card Traps; The Best Online Freebies

Aired April 10, 2010 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

STEPHANIE ELAM, CNN HOST: The tax deadline is five days way and we've got last-minute advice and answers to your tax questions. How do to avoid common credit card traps. We'll show you how to boost your xo and better manage your credit. And on top of all that, it's a total free for all. Score some great online freebies with a click of the mouse. The show that saves you money. It starts right now.

All right, now that health reform is a done deal we're getting a closer look at some of the lesser known measures in the law, like a new national strategy for prevention and wellness. And here to break it down for us, as always, Andrew Rubin, vice president of Medical Center Clinical Affairs and Affiliates at New York University Langone Medical Center.

So, Andrew, thanks for joining us again.

ANDREW RUBIN, NEW YORK UNIVERSITY: Good to be here.

ELAM: How aggressive is this strategy?

RUBIN: This is pretty aggressive. I mean, it's never done before and I think the president and Congress decided they're going to put some real money and real effort into coordinating a national wellness program to keep people healthy rather than waiting until they get sick.

ELAM: Right, and I think that's what a lot of people say. What can we do to make things better on the front end instead of just looking at the back end? How does this play into people who are using Medicaid and Medicare?

RUBIN: So, right away there's going to be some immediate benefits for Medicare and Medicaid beneficiaries by eliminating some of the co-pays and co-insurance amounts starting next year that Medicare beneficiaries receive for preventative services. So, the theory behind it, if you don't have to spend money to take care of yourself you'll actually go to the doctor and get some of those services.

ELAM: Right, and what about the group health plans, because they're now going to have to address these measures as well, right?

RUBIN: So, new group health plan, these are large employer group health plans, starting in the next few months, any new group health plan will actually have to offer the same benefits and the then down the road, when insurance is actually sold to individuals and small businesses and starting in 2014, they, too, will have to offer the same preventive services with no co-pays and co-insurance amounts benefits.

ELAM: All right, and so when you take a look at this overall, obviously to get people to go into the doctor before something's wrong is going to cost money. How is this all going to be funded?

RUBIN: So, the government has done a couple of thing. One, is by -- they're going to coordinate all of these efforts. Currently there's a lot of prevention efforts around the country right now, state and federal. So, they're going to try and coordinate some of this.

Secondly, they're putting $7 billion into this over the next five years and then $ 2 billion a year thereafter to actually seed some grant programs and get money into the system to actually create programs that have preventive benefits.

ELAM: This is such a new territory, something that hasn't been done before, so how is the government going to actually decide which plans are working, which of these little initiative are actually working and which aren't?

RUBIN: That's a great question. They've actually -- they've decided through the legislation to create a -- process a task force, if you will, to look at what works and doesn't work. Listen, there's a lot of good information out there now. I've talked about it on this show.

A lot of private companies and corporations have invested some good money into wellness programs and they've seen a reduction in premium costs on their employees who take better care of themselves. So, they're look at federal prevention efforts, I'm sure they'll look at some data from these large corporations and they'll see what works.

ELAM: So, more changes ahead. Still breaking it down for us. Andrew Rubin, thanks as always for helping us today.

RUBIN: Good to be here.

ELAM: All right. Next up, answers to your last-minute tax questions plus a check on your credit. We'll help you improve your score and avoid those pesky traps.

(COMMERCIAL BREAK)

ELAM: So, it's no secret both banks and lenders profile credit card holders to determine potential risk, fraud and revenue. Consumer who have strong credit, they're still profiled, but the results are probably less meaningful, that's to say less likely to work against you. John Ulzheimer is president of ConsumerEducationforCredit.com and he is here to tell us how to manage our credit a little better.

John, thanks for joining us this morning.

JOHN ULZHEIMER, CONSUMEREDUCATIONFORCREDIT.COM: Thank you.

ELAM: All right, so explain to me. You're saying store credit cards, stay away from them?

ULZHEIMER: Absolutely. Think about them. Very low credit low limit, very high interest rates, regardless of what king of credit risk you have. So, it makes it very, very expensive to revolve balances from month to month and even modest purchases on those cards are going to get you very, very closer to limit, which is very, very dangerous. Do not ever exchange access to your credit reports for the 10 and 15 percent discounts. Absolutely not.

(CROSSTALK)

ELAM: OK, all right, so let's talk a little bit about the debt to credit ratio, because you're if don't have a big balance or big credit limit on your card but then you go out and buy something big that can look bad.

ULZHEIMER: Absolutely right. Credit scoring models love to see separation between your balances and your credit limits. So, it's sort of open to buy, it's the ratio between balances to limit. You would like to keep it that ratio to 10 percent. Which means if you have address 1,000 credit card, try not to charge over $100. Which I realize makes the card hard to use, which is why you'd like to stick to cards that have very, very high credit limits.

ELAM: But, what if do that, I mean, you pay it off before the month is over?

ULZHEIMER: That's fine because the balance doesn't persist for many, many months. Now, if you're about to apply for a mortgage or you're about to apply for a car loan, something where you really, really need the best credit score possible, don't make that major purchase, wait until after you've closed on the loan.

ELAM: And it's OK to make payments, but do not make a late payment, right? No excuse?

ULZHEIMER: The due date is not a suggestion. It is a hard and fast date. And the card act has guaranteed all of us at least a 21- day grace period on our credit card bills, there really is no excuse for making late payments anymore. You've got get at least the minimum payment in by the due date.

ELAM: Yeah, I think that's a basic one. But, you're also saying you've got to know when to take on the fight and when to just save your credit score?

ULZHEIMER: I think that's a very, very good point. Look, I talk to so many consumers who have argued with creditors about things like cell phone charges, their last utility bill. These types of thing are not on your credit reports yet, but if you decide to take a hard stance against them and not pay it, guess what? They go to collections and then the collections go on your credit reports for seven years. Choose to lose that battle and continue to win the credit war.

ELAM: So, if it's a small $144 balance, just pay it to keep your credit safe or whatever you have...

ULZHEIMER: Pay it, be done with it, and move on with your credit life.

ELAM: OK, and then this one is a little counterintuitive because people are thinking I want my credit to be good, I paid off this balance, I want to get rid of this card and close it out? Don't do that.

ULZHEIMER: Very counterintuitive. Common sense says I should close it because it's going to hurt my credit, or someone could steal it and use it as a form of identity theft. Absolutely not. Leave it open.

If you're scared of it getting stolen, shred the card or stick it in the freezer or hide it, put it in a lockbox. Your liability for fraudulent charges is very, very low anyway, in some cases zero dollars. Remember, credit scoring models like to see a lot of available credit and an unused credit card helps provides that unused credit.

ELAM: It looks pretty even though it doesn't feel right at all?

ULZHEIMER: You know, it's like that really nice sculpture you have. There's not a whole lot of value, it looks nice.

ELAM: But it looks good. John Ulzheimer, thanks so much for breaking it down for us. Helping us understanding how to keep our credit looking good.

ULZHEIMER: My pleasure.

ELAM: All right next, it's time to get on your taxes. We've got just five day, five days, until your returns are due. Lucky for you, we're your one-stop shop for free advice. So stay with us.

(COMMERCIAL BREAK)

ELAM: So in case you missed it or have yet to celebrate, yesterday was tax freedom day, that's because according to the tax foundation's annual calculation it took the average Joe 99 days to earn enough money to pay their state, local and federal taxes this year. And in case you're wondering, that's actually one day more than last year.

So, now that you've made the money to pay your taxes, it's actually time to pay them and with less than a week to get your taxes done it's time to kick things into high gear, so joining me now with some advice on how to do just that are two ladies who know their way around the 1040 form. Roni Deutch is a tax attorney and Donna Rosato is from "Money" magazine.

Ladies, thank you so much for coming in this morning to talk about this. I want to make sure we help people at much as possible. So, Roni, first question I have is for you. You say be strategic about your taxes. What does that mean?

RONI DEUTCH, TAX ATTORNEY: It means that you've got to know the difference between a deduction and a tax credit and you've got to know what filing status to choose this year. Let's face it. With millions unemployed you have more multigenerational households, which means one thing, good news. There'll be more deductions for you to claim and more credits that you will qualify for. But again, you can't be strategic unless you know tax laws.

ELAM: I guess that's true. Now of course, some people are going to say, you know what, I need some more time, I'm not going to be able to do it by the 15th. Donna will you take a look at that? What should they know about applying for an extension?

DONNA ROSATO, "MONEY" MAGAZINE: Well, first of all, if you're not ready to file your taxes, don't panic. You can file an extension and the IRS doesn't even look for an excuse for you to do that. You can file an extension by the 15th, that will give you six months to do your taxes. But it only gives you six more months to file your return.

If you think you're going to owe money, you have to make your payment. You have to estimate how much you're going to owe and make that payment along with filing for your extension. And you have to get up to about 90 percent of what you think you owe and pay that. If you don't do that then you're going to owe late payment penalties and interest is going to accrue on what you owe. So, you can file for an extension, but you've got to pay.

ELAM: So, don't go out on the spring fling thinking you can pay taxes later. Get something to the IRS right away.

ROSATO: That's right.

ELAM: All right, so I want to hit back on something you said, Roni. You're saying deductions good, but credits are better. Why?

DEUTCH: Certainly. A tax deduction merely reduces your income, whereas a tax credit, Stephanie, is dollar for dollar like gold, because it reduces your liability literally dollar for dollar. When you and I think tax credit what has got to jump out (INAUDIBLE), the Home Buyers Tax Credit, the American Opportunity Tax Credit, the Going Green Energy Efficient Tax Credit. Again, so again, these are wonderful tax credits, Stephanie, that will absolutely save you money dollar for dollar on your tax returns.

ELAM: And let's say you put them all those credits in there, you've got your deductions, but you still think you're going to owe and not think you're going to able to make that payment by April 15. What should do you?

ROSATO: Well, you should contact the IRS and you can always file an extension to come up with another plan, but if you can't come up with it, you can come up with a payment plan. The IRS, the worst thing you can do, is to ignore the IRS. They will come and find you.

ELAM: They'll find you.

ROSATO: So contact the IRS explain that you don't have -- they will help you come up with a payment plan, you can extend it and you can come up with a partial payment plan.

ELAM: All right, last point. You both have said this. File online. Why is that better than going to the post office and standing in line?

DEUTCH: You and I know that we are creatures of habits. We love to go to 11:59 p.m. on April 15 to file. I say get over your habit, let's start eFiling. We know it's the safest, fastest, most efficient way to insure that your tax return arrives on time so you get your refund faster.

ROSATO: Yes, I think that's a good point. More than 80 percent of people file their taxes electronically. It is secure, it's faster and you're going to make fewer mistakes, too, because it walks you through it. I think that's re important.

ELAM: And the math is done and you're just secure. All right, Roni and Donna, thanks so much for the good advice there. We're talk more about some of these issues with taxes coming up, but we want to talk a lot more about the cost of college.

So, it comes as no surprise that one of the many requests for tax advice that came in to the CNN money team was on that very topic. In fact, let me give you an example, here. There are few tax credits available for college tuition, but what are the differences and which ones should I take? The answer to that question and many more, next.

(COMMERCIAL BREAK)

ELAM: Before the break we shared just one of the many questions of last-minute procrastinators still have about their taxes. Roni and Donna, they're back to field some of your questions, and we're just going to go through as quickly as we can.

Roni, I'm going to start with you. Question No. 1 is, there are a few tax credits available for college tuition. What are the differences and which ones should I take?

DEUTCH: First of all, the two credits that we are discussing is the American Opportunity Tax Credit, which is worth $2,500 a year for four years. There are income thresholds that you got to be aware of, $80,000, single, $160,000 married. The other is the Lifetime Learning Credit which is only worth $2,000. So I would say automatically, on a mathematics' basis, I would go for the American Opportunity Tax Credit because it's worth $2,500 and Stephanie, it applies not only to tuition and fees, but supplies, books, et cetera.

ELAM: So, it's broader. All right, question No. 2, Donna, this one's for you. I'm buying a home and closing at the end of April. This is not my first home. Do I qualify for the homebuyer tax credit on my 2009 taxes and can I file electronically? Do I have to close on the house before April 15?

ROSATO: Good news. For the first-time home buyer the tax credit has been extended, so if you're an existing homebuyer and you want a new home, you will that. You will get up to $6,500 tax credit if you are buying a home and you close on it by July 1 of this year. You can write it off on your 2009 taxes.

There are income thresholds, again, with that -- $125,000 for singles, $225,000 if married but you cannot file electronically for that. There's a lot of paperwork that goes along with it. So, to claim that home buyer tax credit you have to file a paper return along with the right paperwork.

ELAM: All right, so going on now to the third question we have here. Roni, this one I want to say is for you. If I was unemployed for part of 2009, is any of my income tax-free?

DEUTCH: I've got good news and I've got bad news. Let's go straight to the good news. The first $2,400, Stephanie, is tax-free. Let's face it, if you live in California, that means you save about $800 in federal and state taxes. But anything above that is taxable income and let's face it, 15 million unemployed, they have no idea that their going to get a 1099G and have to pay taxes. Make sure you're aware of this because the IRS knows exactly how much income you received in unemployment compensation.

ELAM: They'll know, they'll find you.

All right, Donna, question for you this time. I made donations to support relief in Haiti and Chile this year, can I duct these on my 2009 taxes?

ROSATO: The great news is if you made a contribution to Haiti, yes you can. They did (INAUDIBLE) something very similar to the tsunami back in 2004-2005. So, if you made a donation to help out the folks in Haiti by the end of February, you can deduct it on your tax year of 2009. There is a bill in Congress that would help people to deduct their donations to Chili, but it's not passed yet, so for now it's just for the Haiti donations.

ELAM: That's the focus, right now. I'm sure you've helped a lot of people out there who are tackling their taxes today, Ronnie Deutch, and taking a look at Donna Rosato all the information that you guys gave us today, thank you so much.

DEUTCH: Thanks, Stephanie.

ROSATO: Thank you.

ELAM: And while we're talking about last minute filings, we want to let you know about a flaw first reported by "New York Times" in the most recent version of TurboTax. It seems that some medical deductions may be counted twice, leading to an incorrect tax return.

We also want to let you know that we had a guest from TurboTax booked to talk taxes this week, but they canceled after learning we would be alerting our viewers to this flaw. They did however send us a statement, insisting TurboTax doesn't have a calculation error or glitch.

They went on to say, "We do believe that it's possible that a small number of customers, less than 1/10 of one percent, may have inadvertently entered that their health insurance premium information twice. We take this very seriously. We have already updated the TurboTax interview to include additional clarifying language and have posted information about this for customers on the TurboTax blog, and in TurboTax support channels."

TurboTax says it's ready tole assist customers who may have been impacted by this and that they stand behind their accuracy guarantee.

Of course, no one likes to hear from the IRS that they owe more than they thought they would or should, so if you don't want to pay up, just how does the IRS come and knock on your door? CNN senior correspondent, Allan Chernoff is here to tell us how.

Hi Allan.

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Hi Steph. It actually will be the postman who knocks on the door, first with a 30-day letter from the IRS saying that you owe, you better pay within 30 days or else appeal, then they'll send you another her, a 90-day letter of deficiency and you can appeal to the IRS Office of Appeals that is a totally separate office than the rest of the IRS, they will hear your appeal -- Stephanie.

ELAM: All right, so what can you do if you don't like what the IRS is saying that you owe. I mean, I'm sure a lot of people feel that way.

CHERNOFF: Yes, you can actually go to court and we have a special U.S. tax court. So, if you feel strongly about your case, let's say you have a yak farm that produces milk, yak milk, you say it's deductible, the IRS say no way, go to tax court. And in tax court you do not have to pay before you actually go to the court. So that's a real plus. The judges there are absolute experts in tax law and they will make a decision. Now, the judge will be in charge, no jury trial over there.

If you've got a small claim, under $50,000, then it's very informal, you don't really need to have a lawyer representing you, but in small claims tax court, then the decision by the judge is final. You have other options, as well. You can go to regular court, U.S. District Court, for example. Now, there you have to pay the tax first. That will be a regular jury trial, the judge will not be an expert in expert in tax law, that might be to your advantage.

And then the third alternative that is the U.S. Court of Federal Claims. Over there, again, you have to pay the tax first, the judge sits only in Washington, D.C., so you better make sure you really feel strongly about this. You're going to have to travel to D.C., and there again, no jury, the judge will make the decision. Stephanie, you can appeal, but don't expect to get all the way up to the Supreme Court. They really don't want to hear tax cases.

ELAM: Yeah, yours is probably not on their level, anyway. Allan Chernoff, thanks so much for coming in this morning.

Nearly 90 percent of Americans are set to receive refunds this year at an average of $3,036. That's up 10 percent from last year. That's a lot of extra cash in your pocket especially if you're barely scraping by or don't have any income at all. So next week on the show that saves you money, smart ways to spend your tax refund. And coming up next, online freebies, no catches, no hidden fees and they're all just a click away.

(COMMERCIAL BREAK)

ELAM: Have you ever felt like you've reached the end of the Internet? Well, you may have actually missed some things along the way, including some great free stuff. "All You" magazine has compiled a list of the very best online freebies and their senior style editor, Elizabeth Blake is here to tell us all about them.

Elizabeth, thanks for joining us today.

ELIZABETH BLAKE, "ALL YOU" MAGAZINE: Thanks for having me.

ELAM: All right, so this is good info for people out there. You know, we're getting into that end of school year time, parents are trying to help their kids out with homework, but a lot of times, they don't remember how to do the things that their kids need to do. So, there's a Web site to help out, right?

BLAKE: There is a Web site and you know, first we just want to say that these are all Web sites that offer legitimate services. We know you're busy, we want to cut through the junk and just give you the best of what's out there. So, Cramster is an online homework helper site. And what's really great about this is that you don't have to shell out big bucks for a tutor. If you're a student or your child has a question they can log on. There are real educators there to answer the questions. There are also peers that are all helping.

I was exploring this Web site last night and it's really a learning community. So, you get a lot of help, you get a lot of instant answers, and there's also resources such as study groups, quizzes, there's even sources for parents that want to brush up on some subjects they may be a little bit rusty on, so they can help their student.

ELAM: That's really useful, especially for it to be free. All right, and what about someone maybe if they're going back into the job force, trying to find a job, learning another language could be a good way to give them that advantage in the hunt. You got a Web site about that, too.

BLAKE: We sure do. It's livemocha.com and they way this works is you go on, you plug the language that you natively speak and the language that you're looking to learn along with your skill level, and they'll match you up with native speakers around the world, beginning learners and they'll also suggest courses that are appropriate for your skill level. So you really...

ELAM: It's for everybody.

BLAKE: It really is. However you want to learn, there's an option for you on that site.

ELAM: And maybe you just want to get a book, read a good book and necessarily don't want to pay for it, there is a Web site that has a ton of titles, it's not just like rare ones that you've never heard of.

BLAKE: No, absolutely. This is questia.com and they have over 5,000 of the classics in their entirety, on this Web site. So you know rather than shell out for a Kindle or an expensive electronic reading device, if you're comfortable reading on your computer screen, and I think many people are, because that's what we do these days, you know, you can read an entire novel in its entirety on the screen. And it's also great for students that maybe need to pickup Jane Eyre and don't have time to run to the bookstore or it's out of the library. It's on your screen.

ELAM: Then you've already do it. all right, tell me quickly about Cozi, because I think a lot of people have this issue with how do we keep the family calendar honest at all times.

BLAKE: Yeah, it's kind of hard to do, but Cozi's really simplified it. It's essentially -- it's a Web site that's basically an online hub for your family's schedules. So, what you do is upload your schedules, your children's schedules, you can ever color code them, your grocery list, to-do lists, all that information and then say, for example you're out at the store, and you need to pick up groceries, you forget what you have on the list, you can call Cozi from any cell phone, it does not need to be a Smart Phone, and they'll either text you or read your entire grocery list.

ELAM: That's pretty amazing.

BLAKE: So you don't have to do home, you can just get right on with the process.

ELAM: And for all those people who just have a whole bunch of free time, you know a site that you can go on and just play a whole bunch of games, right?

BLAKE: Got some time to kill, you want to head to Pogo.com. There's no need to pay for downloads or go to the toy store, these are free games that are available instantly. And they range really from traditional favorites like Scrabble and Monopoly over to newer things like Sudoku even card games and strategy games, even arcade games. What I love about this site, I discovered last night is that certain games allow you to play for tokens and if you play well enough you can actually accrue tokens and potentially win a prize of up to $1,000, so you can actually get paid to play.

ELAM: Get paid to play. And of course, see your entire day just disappear because you don't know what you did, because you were gaming all day.

BLAKE: Absolutely.

ELAM: Elizabeth, thanks so much for joining us.

BLAKE: Thank you.

ELAM: All right, we'll see you right back here next week for YOUR BOTTOM LINE, the show that saves you money. Same time, 9:30 a.m. Eastern on Saturday, but right now it's time to get a check of your top stories in the CNN "NEWSROOM." Have a great weekend.