Finance Guardian

How to Handle Business Financial Stress Tactfully

2013-02-18T10:00:00.000-05:00

Did you know that it is possible to turn financial stress into business success with good financial planning, business management skills and by doing the right thing at the right time?

By being realistic and by using the best business finance management techniques, you can exercise control over your business situation before your money starts controlling you. Even though there are signs within the economy that might seem to turn around, the small business organizations are still going through tough financial situations. They’re still drowning in a sea of high interest debt and too many business owners are spending sleepless nights wondering about the steps that they might take for managing debt settlement with regards to their business firms.

Identify the real problem that is affecting your business: You will find most entrepreneurs saying that they need more credit or sales but this is not always the ultimate panacea to your business financial problems. Often business debt arises from bad management, bad marketing and poor fiscal management skills of the business owners. You might even take the opinion of an expert professional in order to analyze the situation that you’re in and to identify the actual problem that is hurting your business organization.

Re-evaluate your long term goals. You must have set some realistic goals that are manageable within a short period of time. But when you’re already drowning in business debt, you should reevaluate your long term and short term financial goals so that you might be able to see the company at a particular position in the long run. Break up your short term financial goals and your long term goals so that you can take the right steps in the long run.

Hire an expert. You can get an accountant or an experienced project manager so that you may get the assistance of a professional in order to rearrange your business finances. A professional and third-party accountant can help you study your financial goals and you can also take better steps through which you can get back a firm grip on your business finances.

Educate yourself on money matters. Being a business owner, you require enough knowledge on the way you should deal with monetary problems. As a business often goes through ups and downs, you should know how to separate fear from anxiety. Attend small business seminars where there will be experts advising you about effective business financial management.

Accept and take on more responsibilities. Remember that there is no one to point fingers at and when you’ve incurred debts, it is you who has to take on the responsibility of getting out of it. Figure out how you can make things work and know how you should take on the responsibilities of your staff and execute them in the best way possible.

Therefore, when you’re wondering about the steps in which you can tackle your business debts, you can take into account the steps mentioned above.

Learn How Credit Card Frauds Take Place

2013-02-18T09:00:00.000-05:00

Recently, credit card frauds made front page headlines. In some cases, the credit card of someone in India was used in the US, despite the fact that the card was with the customer in India.

Though fraudulent transactions are reported on lost or stolen cards, the factor contributing the most to fraudulent transactions is duplication---copying the data on the magnetic strip in a card, when it is used for a valid transaction.

So, does this mean you should stop using your card? No. Come July, cards with an embedded chip and a compulsory pin (like that used for ATM transactions) will be made mandatory in India. This would make your credit card transactions more secure.

Till then, here are a few things to keep in mind. If you do not use your credit card much, reduce its credit limit. Most banks have this facility. The original limit can be restored whenever you need it. If you need a higher credit limit, split the amount by taking multiple cards from the same bank. If the bank doesn’t allow this, take a card from another bank as a back-up and reduce the limit on the card you use frequently. Memorise and scratch out the three-digit CVV (card verification value) code on the back of the card. Note down the bank’s call centre number, as well as your card number, and carry this with you. This way, you can block a card whenever the need arises.

When abroad, keep your India number in use, even if you are using a local number. This will allow access to text messages from your bank. Ensure you read all messages sent by the bank carefully and promptly block the card if any transaction is not authorised by you. Avoid using credit cards outside India, as such transactions are expensive (3.5 per cent foreign exchange surcharge is levied on all foreign exchange transactions) and the card is prone to duplication in certain countries. Instead, use foreign exchange debit cards or traveller’s cheques.

Online frauds

Using credit cards online has become more secure after the Reserve Bank of India mandated an independent password, known only to the customer, in addition to credit card details. If you are providing your credit card details on the phone to any establishment, the requirements are more stringent---you have to use a PIN generated specifically on a request through your registered mobile number.

To prevent online fraud, never go to your bank or credit card account online by clicking on links from an e-mail. Save the link to your online account in Mozilla ‘bookmarks’ or Internet Explorer ‘favorites’ if you use these browsers for online operations. Whenever you log on to net banking accounts, use the virtual keypad. This way, even if your computer is virus-infected with a keystroke logger (it keeps track of your keystrokes), your password would be secure.

While using the card at a merchant outlet, use the message facility available on the verification programme. You can enter a message while verifying your credit card for the first time in the ‘verified by Visa’ or ‘MasterCard Secure’ programme, such as “if this phrase is displayed, I will know this is a genuine website”. Use the net card facility offered by a few banks. Through this, while shopping on websites that charge foreign currency amounts on your credit card, banks provide a temporary one-time virtual credit card.

These steps will ensure credit cardholders remain relaxed, even as the regulator tries to make the overall environment more secure.

Tips to Avoid Credit Card Frauds

2013-02-11T10:00:00.000-05:00

What can you do to prevent various types of frauds? We have a few quick answers.

Understand: The first thing to understand is that there are two types of transaction you have on your credit cards. One is card-present transactions (where you actually use the card), like shopping in a mall, or paying a restaurant bill. Second is called the card-not-present transaction, that’s when you use your card for online shopping. What this means, is that your card has the potential to be exposed to two types of frauds. Online and offline and here are a few tips that address both those modes.

Online transactions: These tips may seem obvious one, but use it as a check list to prevent online frauds.

1) Use the card only on websites which has https as starting web address and not http. Here “s” stands for “secured”.

2) Also look for a lock sign in the address bar or right hand side at the bottom of the screen.

3) Online transactions in Indian has two step authentications, where apart from using the card number and CVV (three digit number on the reverse side of the card) you need to use password a one-ime password provided by your bank and the secured access password via Verified by Visa and Master secure code, depending on your card service provider. If the website does not ask for authentication do not go ahead with the transaction.

4) Check the security certificates on the payment gateways sites. A number of payment gateways have mushroomed of late and unless you are sure don’t go ahead.

5) Avoid using credit cards online, instead use virtual credit cards. A virtual card is a new 16-digit number, generated on the basis of your physical credit cards. You also get a CVV2 number and expiry date. You can generate a virtual card by doing a one-time registration with your bank. You get a unique login and password. You will need to specify the amount you want to spend with your virtual card. This ensures your entire credit limit is not exposed to the online transaction. Read more here.

6) Pre-paid cards, or e-wallets, are an alternative.

7) Get yourself another card with a smaller credit limit, and dedicate this card for use in online transitions alone. That way you would decrease the risk of exposing a high credit limit online.

Offline transactions: There is not much you can do about frauds that happen on your physical card. For instance, when you have a meal in a restaurant, you hand your physical card to the waiter. He then moves out of your sight to the billing area where he swipes the card into an EDC machine aka swipe machine. Now if this waiter is a fraudster he could also swipe the card on a skimmer as well without you knowing. Skimmer is a machine which captures your card data, the data is then used to make clones of your card. The clone card then can be used online (on international sites, where only card details are needed and no two-step authentication) or physical transactions. Here are a few things you could do.

1) In a restaurant, walk to the billing area and don’t let your card be out of site even for a second. However, this is not a practical solution. Also, instances have been know where the fraudsters have attached the skimmer to card reader itself. Another possibility is that perpetrators have hacked into swipe machines to steal the card holders’ data. In such a case there’s nothing much you can do. On any occasion, if you have the slightest doubt that your card’s data has been compromised, simply call your bank and block the card. And, ask them to issue a new card. It might cost you a few hundred rupees, but it’s worth it.

2) Move to a chip-and-PIN-based card. This card has a sim-card like chip on the front of the card and can be used only with a four digit PIN. So, unless you punch the PIN into the EDC machine, the card transaction won’t go through. Read this. Also chip-based card, the account information is stored on the chip and that too in an encrypted format. Since chip-based card stores the data in an encrypted format, the data cannot be skimmed.

3) Also ensure that you blacken the CVV number (the three digit number at the reverse of your card) with a permanent ink marker. And, memories the number instead. That way, the fraudster won’t have access to this sensitive information.

The truth is that fraudsters are getting sophisticated by the day. So you have no option but to be careful. A fraud expert told us that the government should have banned the imports of skimmers a few years back. But, now even if they do so it is too late, there are enough skimmers floating in the market to wipe a lot of credit cards clean.

Things That Can Hurt Your Financial Reputation

2013-02-11T09:00:00.000-05:00

With the excesses of Christmas behind us and the New Year sales over, some of us may have bitten off more than we can financially chew and are only now feeling the pain.

In fact, in Western Australia, just over a third of us are currently affected by debt stress.

If struggling with debt leads to late credit card or phone payments – or any other financial ‘sins’ – a person’s credit rating may suffer without them even realising it which could in turn seriously affect their financial plans.

Credit rating is the assessment of a person’s ability to borrow and repay money based on their credit history – it’s tantamount to a person’s ‘financial reputation’ and is what the banks and other lending institutions will consider when deciding whether to approve a loan.

So, if you’re putting pen to paper to create a financial plan for 2013, be sure to include a credit rating check – it’s well worth the time.

Late repayments and unpaid debts are just a few of the things that can result in ‘black marks’ on a person’s credit history. Other things include:

1. Being rejected for loans, mortgages and credit cards multiple times.

Each time a loan, mortgage or credit card application is rejected, it is recorded by the lending institution. Each time a new application is lodged, even with a different lender, past rejections will resurface. The best way to avoid being rejected based on previous rejections is to stop applying for loans or credit cards until the reason for rejection is resolved – this can be achieved by talking directly with the lending institution.

2. Defaults, late payments and ‘maxing out’ at a single institution.

A late payment or maxed-out credit card may be fixed simply by bringing payments up to date. These problems may not be severe enough to cause ‘black marks’ on a person’s credit rating, however, they will all be recorded at the particular financial institution. Consistent issues over an extended period may damage a person’s financial reputation at the institution which spells bad news when it comes to applying for a loan or mortgage.

3. Moving from a rental property and leaving bills in your name.

With the stress that often comes with moving rental properties, it can be easy for some loose ends to go unnoticed. However, there is one thing that must not be forgotten: close any household accounts in your name. If the water, gas, electricity or phone bills continue to arrive in your name, and they are not paid, it will be your credit rating that suffers. Put any account closure requests in writing to the relevant institution, so that if the account is not closed, you have proof of when and how your request was made and the institution will be liable and not you.

4. Unpaid parking fines, video rental fees, and library fines.

It may be surprising, but most official unpaid fines are recorded on a person’s credit history. Outstanding accounts at video stores, unpaid parking tickets and library fines can cause black marks on a credit rating, so always return those videos on time!

5. Being written off as a bad debt.

It is not uncommon for an institution to give up on chasing payment on a debt if, for example, it becomes too costly to keep pursuing it. This is called ‘writing off’. The institution will stop contacting the person owing them, but just because the debt has been written off does not mean that it has not been recorded on the person’s credit history.

If you felt your pulse racing just reading this article, don’t panic. Contact a credit report agency and get a personal credit report free of charge. It is wise to access your credit file before applying for any loan, mortgage or credit card and resolve any issues.

If black marks appear on the credit report, contact the institution creating the mark. Many institutions will help resolve the issue if you work with them. It can sometimes be removed simply by repaying the money owed.

A recent debt study found that few people who struggle with debt seek help2, so if the problem is causing ongoing financial strain, consider seeing a financial planner who can help to bring your credit rating back on top.

Credit Card Cashback Rewards and Airline Miles: Are They Taxable?

2013-02-06T10:00:00.000-05:00

You’ve been diligent about using the right credit cards for larger purchases to earn those cashback rewards and airline miles, but did you consider whether those freebies and rewards are taxable? By law, you’re required to pay taxes on all types of income including lottery winnings, sweepstakes prizes, and other high-value goods received. Is cash earned from using a credit card, or airline miles you’ve racked up over the year, also considered to be a taxable item? Here’s a closer look at the ins and outs of taxation on cashback rewards and airline miles:

Taxation of Credit Card Cashback Rewards. Whether you’re using a personal credit card to earn rewards on high-end purchases or using a small business credit card to pay for business expenses, the IRS says credit card cashback rewards are not taxable—for the most part. Clarence Kehoe, executive partner of accounting firm Anchin, Block & Anchin, points out that in the eyes of the IRS credit card cashback rewards are considered to be a “purchase price reduction” instead of income. Just like any rebate offers you might be able to cash in for a large purchase, a cashback reward only deducts the price you paid for a particular item.

However, there may be situations where the IRS could see cashback rewards as income, says Kehoe. For example, if an employee was using their personal credit card to make business-related purchases and then was reimbursed by their employer —while earning rewards points or cash on their purchases—the IRS could see this as an abuse of the system if the individual was “earning” cash for tax avoidance purposes.

Kehoe says the IRS looks for abusive patterns when it comes to reporting income and business-related expenses. If you’re a small business owner or are self-employed and are using a cashback credit rewards card to pay for inventory or business-related expenses, you will need to make sure you are reporting the reduction in your purchase price because of any cashback received. Not doing so may be a potential abuse of the system.

The Bottom Line: Credit card cashback rewards are not considered to be a taxable award or prize. However, a taxpayer would be responsible for reducing the amount of any deductions claimed for expenses paid using a rewards credit card for the amount of the cashback received.

Taxation of Airline Miles. If you’ve been busy collecting airline miles with all of those credit card purchases over the course of the year, the good news is that airline miles are tax-free. However, if you accepted frequent-flier miles as a bonus or award for opening an account with a partner company, you would be responsible for paying taxes on those miles because the IRS views them as taxable income.

In 2011, Citigroup’s Citibank ran a special promotion to encourage people to sign up for a checking or savings account. The promotion involved awarding frequent flier miles to new customers signing up for an account. Customers who signed up ended up receiving 1099-MISC tax forms because they are responsible for paying 2.5 cents for every mile “earned” through the agreement. Two customers filed a federal lawsuit about this issue with Citibank. However, the IRS has not created any new guidelines about the taxation of frequent flier miles since 2002.

There are some instances where the IRS isn’t enforcing tax collection on airline miles. According to the 2002 IRS announcement about taxation of frequent flier miles, “There are numerous technological and administrative issues relating to these benefits on which no official guidance has been provided, including issues related to the timing and valuation of income inclusions and the basis for identifying personal use benefits attributable to business (or official) expenditures versus those attributable to personal expenditures. Because of these unresolved issues, the IRS has not pursued a tax enforcement program with respect to promotional benefits such as frequent fliers miles.”

The Bottom Line: Even if the IRS is not enforcing taxation of this ‘income,’ that doesn’t necessarily mean it shouldn’t be reported. In the event airline miles were converted to any type of cash reward or benefit, they would have to be reported as taxable income. Receiving a 1099-MISC form may prompt many taxpayers to simply report the income on their tax returns so they can reduce the risk of being audited.

Smart Tax Refund Tips

2013-02-06T09:00:00.000-05:00

Like any sudden in-flow of cash, your tax refund presents an opportunity to spend your money wisely or foolishly.

And while it would be easy to blow the cash on fleeting fun, like a shopping spree or a slew of the latest gadgets, experts say the money would be best used to pay down debt and invest in saving plans that can help you grow your nest egg.

Here are some ideas to help you make the most of your refund this tax season:

Eliminate Debt

Interest can build quickly, so consider using your tax refund to pay off a portion of your outstanding debt. Whether it be credit card debt, student loans, or a mortgage, opt to pay off the obligation with the highest interest first. Or, eliminate an entire smaller debt in full if possible. Doing so will give you a sense of accomplishment and motivate you to keep going.

You can use financial calculators online to help you calculate where your refund would be most beneficial.

Budget

Budget and plan how you will use your refund. Once you know the amount you’re due to receive, spend time planning how you wish to allocate the money. Free online services like www.Mint.com can help you establish a budget for your goals. Or use personal finance desktop software, like Quicken, to help you manage the sudden cash flow.

Remember to budget in a little fun. Treating yourself to a small reward that you can afford responsibly may help you stay on track with your more serious priorities.

Invest

Consider investment options that can help you grow your wealth. A no-fee, self-directed IRA that provides predictable returns with tax advantages is a decent choice for long-term savings. Experts say that with the right investment tools, you can expect to grow your wealth substantially over time.

“The key to doubling and redoubling your money is avoiding mistakes and investing smarter,” says financial advisor, Brendan Ross of Ross Asset Advisors, Inc.

More tax refund ideas and tips can be found at www.Mint.com/blog.

Just because your tax refund arrives in a big lump sum, doesn’t mean it’s any different than your regular income. Use the money responsibly to meet goals that matter to your future.