Fast forward 10 years later, Bitcoin is now priced at $49,000 per token as of this writing so imagine if you had invested just US$100 (100 tokens) 10 years ago and held them, your investment would have been worth $4.9 million by now.

New Crypto Token

There is a new crypto player in town and itâ€s not in the exchange yet as it is currently conducting a pre-sale by INVITE ONLY. It started at $0.10 on 10/29/21 and it is currently being sold at $0.4575. When it hits $1 in around 4 to 6 weeks (or maybe less depending on how the limited presale goes) this will then be sold at Pancake Swap Crypto Exchange to make it available to the public. If you bought this new token today, it will double in value when itâ€s sold to the public in a few weeks!! In addition, the company will pay you 9% monthly rate (that’s an equivalent of 108% annual rate) by not withdrawing.

So who is this new player! Itâ€s Punk Panda with the symbol PPM .

Whatâ€s so great about this token?

Good question. For a token to increase in value, it must have a utility, meaning someone will use this to pay for a tangible object or service. There should be a demand for it and a lot of people are using it.

Just a month ago, the company launched a free messaging app (similar to viber and whatsapp) and it pays the users in crypto tokens every 30 minutes (that’s 48 times a day) just for using and referring it to others. Could you name another product that does that? It is dubbed as the first military grade encryption messaging app in the world that pays you! This first product launched will establish the user base for the upcoming revenue generating products.

Other Upcoming products:

• Panda Meet – encrypted video conferencing call like Zoom.
• Panda Post – encrypted file sharing like Drop Box.
• Panda Vault – secure/encrypted file storage
• Panda Play – NBA fantasy league and other mobile app games

The token will be used as a means of currency to purchase product and services from the list above. It follows the same “freemium” model used by Zoom and Drop box but the payments will be in PPM currency.

Risk vs Reward

The biggest question is: is this investment right for you?

Just like any speculative investment, there is a risk that you will lose 100% of your money since this is a start up company and may fail at any time. But the rule of thumb in investing is you need to weigh the pros vs cons or risk vs reward principle. How much money are you risking? How much is the potential reward? Is the potential reward so much greater than the risk? Only invest money you are willing to lose and not the money for your food or your child†college tuition. 

Going back to the token, assuming you invested just the minimum US$50, you would have 100 ppm tokens. If you hold it and forget it and come back to it in 10 years, this could be worth what bitcoin is today, who knows? Even If the token is priced just a fraction of what bitcoin is today, let’s say 2% or US$1,000, that’s still US$50,000. What can you do with that US$50,000? If it does not pan out, itâ€s only $50.

You have to ask yourself, what have you spent with your $50 lately?:

• 10 Starbucks coffee in a month
• Gamble it at a casino
• Bought a pair of shoes
• Bought a purse
• Bought US$50 worth of lottery tickets to hit the jackpot (how are you doing with this by the way?)

The point is, if you can blow that US$50 easily, why not take a chance on something with a potential greater reward that can change your life financially!

One good strategy to minimize your financial risk is withdraw your initial investment as soon as you’re allowed to do so and then just leave the earnings. This way, you are just playing with house money! As mentioned earlier, your money can potentially double in a few short weeks. The drawback is you are forfeiting your opportunity to earn!

There are no guarantees in life even for this type of investment no matter how good it sounds. Ten years from now, you will either thank me or I will be hiding from you so please invest responsibly. If you are interested in investing, contact me and will give you the invite code.

https://punkpandafarm.com for info on the token pre-sale, road map and other products.

https://punkpanda.io for the first free military encrypted messaging app that pays you for using and referring others.

Terms and Conditions: By the way, the pre-sale offer is not available to the citizens and green card holders of the United States of America. Everyone else from around the world is welcome to invest during the pre-sale!! 

Please consult your attorney, financial advisor and tax professionals before investing and expect that you will lose all your money when you do because this is a start-up company. Invest responsibly and Invest at your own risk. I strongly recommend just investing the minimum amount and no more than that just to get some skin in the game!

Affiliate Disclaimer: I am an associate/affiliate of this company and I will earn commission when you invest or use the app.

Payment History

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
• Number of past due items on file
• Number of accounts paid as agreed

Amounts Owed

• Amount owing on accounts
• Amount owing on specific types of accounts
• Lack of a specific type of balance, in some cases
• Number of accounts with balances
• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

• Time since accounts opened
• Time since accounts opened, by specific type of account
• Time since account activity

New Credit

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems

Types of Credit Used

• Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Source: Myfico.com

The Roth IRA is fairly new as the plan is only 13 years old (inception is 1998 as a result of the Taxpayers Relief Act of 1997) while the traditional IRA has been around for quite some time. While there was quite a benefit for the taxpayer, the government’s intention is also to try to generate current tax revenues since Roth IRA contributions are made after paying taxes. In addition, the federal can also receive additional revenues through roll-overs from qualified retirement plans or conversions of traditional IRA to a Roth IRA.

• Individual Retirement Arrangement (IRA): A Quick Overview
• Traditional Vs. Roth IRA: What Are The Similarities
• Traditional Vs. Roth IRA: What Are The Differences

Contributions

Current Year Tax Benefit – Roth IRA contributions are made using after-tax dollars, thus, no current year tax benefit. While on a traditional IRA, you may be able to reduce your gross income, thus, reducing your current year taxes as well.

Limit on contribution when you reach 70 1/2 – On a Roth IRA, you can still continue to make contribution even if you are 70 1/2 years old.  On the other hand, 70 1/2 years is the age where a mandatory distribution must be made on a traditional IRA so the government does not want you make any contributions since it would be counter productive.

Phase-out Limitations – When your modified adjusted gross income is more than the IRS limitations, the contributions for both the traditional IRA or Roth IRA may be reduced or phased-out. However, the Roth IRA has a higher phase-out limits than the traditional IRA.

For example, for married joint filers and qualified widower, the IRA contribution is phased out if your modified adjusted gross income (MAGI) is between $169,000 and $179,000 in tax year 2011. On the other hand, the phase-out for traditional IRA is only between $89,000 and $109,000.

Distribution

Tax Consequences on Early Withdrawals:

When you take your money out before you reach the age of 59 1/2 years, it will be considered as an early withdrawal and you may have to pay penalties on that.

• Roth IRA: Penalty for non-qualified distribution only applies to the earnings and not to the whole amount. This means that if you withdrew your original investment, no taxes or penalties are assessed. However, you won’t get penalized on the early withdrawals of the earnings if you meet certain conditions.
• Traditional IRA: The early withdrawals of the traditional IRA are included in the taxable income no matter what reason you have. In addition, you have to pay a 10% penalty for the early withdrawals unless it meets one of the exceptions.

At Retirement Age: – When you reach the 59 1/2 years old, the distributions on a Roth IRA are no longer taxed. On the other hand, all distributions are taxed on a traditional IRA.

The Roth IRA is fairly new as the plan is only 13 years old (inception is 1998 as a result of the Taxpayers Relief Act of 1997) while the traditional IRA has been around for quite some time.

Although, these two types of IRA differ in many aspects, there are also a few similarities that they share.

Feature Similarities of the Two IRAs

Contributions must be from earned income

Only earned income from employment, self-employment, alimony, combat pay, commissions, etc. qualifies as income for the contributing in the IRA. Unearned income such as interests, pension or annuity, income from a partnership for which you do not provide services that are material income producing factor,  rental property income, royalties or dividend, and any amounts you exclude from income such as  foreign earned income or housing cost DO NOT QUALIFY.

In addition, individuals can contribute up to the lesser of $5,000 or your earned income. So if you make $5,000 or more, you can contribute up to $5,000. However, if you only make $3,000, you can only contribute $3,000 even if the maximum IRA contribution is $5,000.

IRA Contributions for Non-working  Spouse

Generally, you can only contribute to your IRA if you have earned income. However, if your spouse work and you stay at home to take care of the kids, you can still contribute even if you do not have earned income. You can do this if you and your spouse file a joint return and as long as your joint gross income does not exceed the limitations discussed above.

If  you are saving for a traditional IRA, your full contributions may be deductible without any phase out limitations even if your spouse has a retirement plan at work.

Eligible for Saver’s Credit

Roth IRA and Traditional IRA qualifies you for the Saver’s credit if you are within the IRS income threshold limitations. You can take as much as $1,000 ($2,000 if married joint filers) in credit.

Maximum of $5,000 Combined Contribution for Both Roth and IRA

If you have both an Roth IRA and a Traditional IRA and you are contributing funds to both, the maximum combined contribution that you can make for both accounts is only $5,000. For example, if you already put in $3,000 on the traditional IRA, you can only put in $2,000 on your Roth IRA. You cannot contribute $5,000 in your traditional and $5,000 in your Roth IRA in the same tax year.

Earnings Are Tax Deferred

Another similarity between the two is that the earnings are tax deferred, which means that you do not have to pay taxes on the earnings. As you know, you must pay taxes on any earnings unless the IRS tells you don’t. Well, guess what, the IRS says that you do not have to pay taxes on the earnings of your IRA and this would allow you to invest your money back in on the money that you would otherwise use to pay taxes. This way, your money will grow faster, see the article the Power of Investing in a Tax Deferred Account. However, come retirement age, the tax deferment of a Roth IRA has a distinct difference with the traditional and this will be discussed on the next article.

Income Limitations On How Much You Can Contribute

If make a certain amount of money, your contributions will be phased-out or reduce and this applies to both the traditional IRA and Roth. However, there are differences on the range of the income threshold.

Over 800 million have shopped online worldwide and the number of internet shoppers has grown by almost 20% every year. The internet is becoming the virtual mall for the consumer and a gold mine for an internet marketer or online business owners.

The online world has offered various business models and opportunities as well. You can make money even if you are not selling a physical product. If you have a blog or website, you can make money by selling advertising spaces, selling digital/downloadable products or from joining affiliate marketing programs. Others may be interested in selling tangible products, which requires shipping and handling. These are normally sold via online stores such as their own websites or the use of forums such as eBay, Amazon.com, Yahoo stores, sulit.com, craigslist,  etc. A lot of people can save money  in paying hefty office space rents since most of these online business can actually be conducted at home. You can also save a lot of taxes by taking advantage of the tax deductions that are usually only available to business owners.

Anyways, below are the top 4 reasons why people start an online business:

1. It is very easy to start

It is very easy to start since most online businesses require only a website to start with.  Even if you do not know how to build a website or any coding/programming knowledge, there are a lot of website builders or templates that are available out there that you can use. It has gotten much easier for people nowadays because of the easy access to these business tools and software. In fact, there are a lot of online business owner who are not programming experts yet they make more money than those who are. Moreover, even if you do not own a website, you can still set-up your online stores through virtual mall or online forums like eBay, Yahoo! Stores, Amazon.com, etc.

2. It is very Inexpensive to start

For some online business, the expense would be just the cost of designing and hosting a website. But for the most part, you may need to incur start-up expenses such as licenses, permits, office supplies, advertising, etc. Others may involve carrying an inventory if you are selling a product. Some businesses can be started for as little as $100 while others may spend around $1,000 or more. However, the overall start-up expenses are chump change compared to starting a brick-and-mortar business.

3. Can reach worldwide customers

One thing I like about the online business is that your customers may come from various part of the world. You are not limited locally and you don’t even need to spend a lot of money for tapping a huge market base. Talk about a global business without even setting foot in your customer’s country! You can sell products like e-books, online training videos, informational membership for a fee sites, other digital/downloadable products, or you can even create a blog that generates worldwide readers and earn money through advertising. Tangible items that require shipping are usually feasible domestically due to logistics reasons but others have thrive selling and shipping to worldwide customers. Again, it all depends on your business model.

4. Flexibility on the Location

Yes, it is more likely a home-based business, and as you know, operating a home-based business comes with a lot of advantages. It works for a lot of people so they can stay at home and spend time with the kids or just have flexibility as opposed to being an employee and getting stuck in a cubicle. In addition, you are not limited to just one place. Some online venture, such as blogging or informational websites, can be done every where you go. You can be in a vacation in Bahamas and still be able to update your website or blog as long as you have your laptop and internet connection.

What about you? Do you have an online business venture? What’s your top reason on why you started it?

Most college students use some sort of financial aid to help pay for the costs of college such as student loans, grants, scholarships, IRA accounts, and other educational tax savings programs.

Among all the financial resources, scholarships and grants are probably considered the best resource because students do not have to pay these back.

Scholarships are based on merit and these are determined on a case by case basis. It is a common misconception that scholarships are only available to those with financial need. This is not really the case since students coming from well-off families are still able to take advantage of them as long as students pass the qualification requirement. A perfect example is the athletic scholarships offered by universities.

For the most part If you are a member of the following minority population, you can take advantage of the various scholarships programs that they offer. It is best to visit the websites and check the availability of scholarship programs and find out on how to apply and qualify. In fact, most of the private scholarships for the minority population are administered by the following organizations:

1. United Negro College Fund

Website: www.uncf.org

The United Negro College Fund (UNCF) focuses on the educational status of African Americans of all ages from pre-school through adulthood. The Institute seeks to understand and expand the multiple pathways leading to educational attainment and serves to positively impact public policy and improve local education.

The Program Services Department administers various scholarship programs. Each program has its own eligibility criteria, open/close dates and required documents. In order to apply for a UNCF Program Services Scholarship, you must apply through the online application process. Below is the list of all programs currently accepting applications:

Sample Scholarships Administered:

• Arlene Benton Nolan and John Nolan Scholarship
• Catherine Roberts Bridgeman Scholarship
• Central Florida Black, Nurses Scholarship
• Central Florida Scholarship
• Dallas Independent School District Scholarship
• Deborah L. Vincent/ FAHRO Education Scholarship
• Fort Worth Independent School District Scholarship
• Google Scholarship
• Hausman
• Family Charitable Trust Scholarship
• Hershey Company
• Jethro Pugh Scholarship
• John Walter Bridgeman Scholarship
• MCCA Lloyd M. Johnson Jr. Scholarship
• Northwest Indiana Scholarship
• Ossie Davis Endowment Scholarship
• Red Hot & Snazzy Gala Scholarship
• Richardson ISD Scholarship
• Rosa E. Blackwell Scholarship Fund
• Sprint Scholars Program
• St. Petersburg Golf Classic Scholarship
• UNCF/Sororities of Broward and Miami-Dade Florida Scholarship
• Youth Gala Scholarship

2. The Asian &  Pacific Islander Scholarship

Website: http://www.apiasf.org/

The Asian & Pacific Islander American Scholarship Fund (APIASF), established in 2003, is the nation’s largest non-profit organization that provides scholarships to Asian and Pacific Islander Americans (APIAs) with financial need. APIASF is currently based in Washington, DC.

The vision of the organization is to ensure that all APIAs have access to higher education and resources that cultivate the students’ academic, personal and professional success regardless of their ethnicity, national origin or financial need.

In addition, the organization seeks to make a difference in the lives of APIA students by providing them with resources that increase their access to higher education which serves as the foundation for their future success and contributions to a stronger nation.

Scholarships Administered:

• AT&T Foundation Scholarship
• Coca-Cola Foundation Scholarship
• Darden Restaurants Foundation Scholarship
• Farmers Insurance Scholarship
• Frances Sonn Nam Memorial Scholarship
• FedEx Scholarship
• Gates Millennium Scholar
• Hilton Hotels Scholarship
• Honda Scholarship
• MassMutual Scholars Program
• MetLife Foundation Scholarship
• Sara Lee Foundation Scholarship
• Southern California Edison Scholarship
• Target Scholarship
• Thai Alliance in America Scholarship
• United Health Foundation Scholarship
• USA Funds Scholarship
• Verizon Foundation Scholarship
• Wachovia Wells Fargo Foundation Scholarship
• Walmart Foundation Scholarship

3. American Indian College Fund

Website: http://www.collegefund.org/

The American Indian College Fund provides scholarships and other support for the American Indian students. Tribal colleges, the vast majority of which are located on or near reservations, provide opportunity and access to post-secondary education. Tribal colleges are changing the face of Indian education by providing accredited degrees and keeping Indian culture and tradition at the heart of their curriculum at the same time.

The Fund disburses approximately 6,000 scholarships annually for American Indian students seeking to better their lives through higher education. The Fund also provides support for tribal college needs ranging from capital support to cultural preservation activities.

Scholarships Administered:

• Tribal College Scholarship Program
• Tribal College Special Scholarships
• Graduate Special Scholarships and Mainstream Scholarships such as Austin Family Scholarship Endowment
• Ecotrust Native American Scholarship Program
• Ford Motor Company Scholarship
• Morgan Stanley Scholars Program
• Nissan North America Inc. Scholarship
• Traveler’s Foundation
• Sovereign Nations Scholarship Fund
• United Health Foundation Scholarship

4. Hispanic Scholarship Fund

Website: http://hsf.net/

The Hispanic Scholarship Fund’s (HSF) mission is to strengthen America by advancing the college education of Hispanic Americans. The organization delivers a range of programs to Hispanic families and students through community outreach and education, affordability via scholarships, college retention and career opportunities.

HSF supports a successful path for Latinos to attain a college degree – creating an increasingly valuable asset for a stronger, more competitive America in the 21st century.  HSF has awarded over $300M, resulting in close to 100,000 scholarships to students in need.

Scholarships Administered:

• HSF/General College Scholarship
• ALPFA Scholarship
• AT&T Foundation Scholarship
• Bakersfield Scholarship
• Budweiser Cup Tournament Scholarship
• Cummins Scholarship
• Coca-Cola Live Positively and Hispanic Scholarship Fund Essay Contest
• Exxon Mobil Scholarship
• Freddie Mac Scholarship Program
• Gold Standard Scholarship
• Goldman Sachs 10,000 Women Business Leadership Award
• HACEMOS Scholarship
• Honda Award Scholarship
• Hormel Scholarship
• HSBC-North America Scholarship
• Macy’s College Scholarship
• Marathon Oil Corporation College Scholarship Program
• MassMutual Multicultural College Scholarship
• McNamara Family Creative Arts Grant Project
• Morgan Stanley Foundation Scholarship
• Nissan North America, Inc. Scholarship
• President Obama/STEM Teacher Scholarship
• Procter & Gamble Company Scholarship
• Qualcomm Q Awards Scholarship
• Sendero al Futuro Scholarship
• Shell Scholarship
• Telemundo Scholarship
• Travelers Foundation Scholarship
• Winchell’s & Yum Yum Donuts Scholarship.

The IRS considers any withdrawals from your retirement plan an early withdrawal or distribution if made before you reached the age of 59 1/2 years.

In general, the early distributions from most retirement plans will be included in your taxable income. In some cases, this may put you in a higher tax bracket and you may end up paying at a higher tax rate.

In addition to this, you will have to pay a 10% early withdrawal penalty unless you meet the IRS exemption criteria.

Thinking of taking money out of your Roth IRA before reaching the age of 59 1/2 years?

Before you do, you should understand the various rules in order to minimize the tax consequences of early withdrawals on a Roth IRA.

The one unique distinction of the Roth IRA among other retirement plans is that the contributions to the plan are made using your after-tax dollars. The key advantage is you won’t get taxed at all when you start receiving distributions come retirement time. However, it is a different story if you are making an early withdrawal.

Tax Consequences of An Early Withdrawal

• Original Contributions – Unlike the traditional IRA, there are no tax and penalties imposed when you are withdrawing the original contributions on the Roth IRA. This is because you already paid taxes on it so the IRS does not care. You can take the money at anytime for any reason tax free. This is similar to putting your money in a regular savings account without any restrictions on the withdrawals.
• Earnings – when you make an early withdrawal on your earnings, you may have to pay taxes and penalties on it unless you meet the conditions for the tax-free exemption as discuss later on this article.

How do you know if your withdrawals are return of contributions or earnings?

On a Roth IRA, it is important to know which ones are classified as your original contributions, conversions or earnings in order to determine if the withdrawals are taxable or not. One big question that most people ask is how do you determine which one is which?

The IRS does not want to make it complicated so they made a rule that when you make a withdrawal, it will be treated as withdrawals of your original contribution first then followed by the conversions (from traditional IRA or other qualified plans), if you made any.  The only time that it will be classified as Roth IRA earnings is after you have exhausted the balance of your original contribution and conversion or roll-over amounts.

• Example 1: You have just opened your Roth IRA five years ago and have contributed a total of $25,000. In addition, your Roth IRA earned $5,000 putting your Roth IRA balance to $30,000. This year, you have made an early withdrawal of $10,000 so you can use it to purchase a brand new car. Because you still have $25,000 of your original contribution in the account, the full $10,000 withdrawals will just be treated as return of your original contribution. Thus, you won’t get taxed nor penalized even if the reason for the withdrawal is not one of the exceptions as discussed later.
• Example 2. Same situation as Example 1 but instead of withdrawing just $10,000, you decided to withdraw the whole $30,000 Roth IRA balance in your account to purchase the car. In this case, the withdrawals will be classified as $25,000 return of your contribution and $5,000 earnings. You do not have to pay taxes and penalties on the $25,000. However, you will be taxed and penalized on the $5,000 withdrawal of your earnings because it did not meet the exceptions discussed on the next section.

Exceptions to the Early Withdrawal Penalty on Roth IRA Earnings

Once your withdrawals have been classified as earnings, you need to determine if you are going to pay taxes on the earnings. There are two requirements that you need to meet before your earnings withdrawal qualifies for the exemption (hence the term “Qualified Distribution” as defined by the IRS): the holding period and the use test.

However, you need to meet both requirements for it to be called a “Qualified Distribution.“

Holding Period Test – In order for you to avoid paying the 10% early withdrawal penalty and the regular income tax, you must make the withdrawals after the 5-year period beginning with the first taxable year for which you set-up your Roth IRA and made the first contribution.

The way it works is the clock starts on the the beginning of the year and not on the day you actually started making your first contribution. As an example, if you began making a regular Roth IRA contribution on July 1, 2009, the 5-year holding period begins on January 1, 2009 and not on July 1, 2009. The same rule applies for the conversion. If you converted your traditional IRA on May 12, 2007, the holding period starts on January 1, 2007. So in essence, you have been given more time if you made your first contribution in the middle of the year.

Use Test – In addition to this holding period, you must also meet one of the following conditions:

Although most hobbies are done just for leisure such as listening to music, playing sports, playing video games, reading books, traveling, or what have you, there are hobbies that can generate a little income on the side such as blogging, collecting and trading baseball cards or stamps, painting, craft-making , etc. In some cases, people have turned their hobbies into a very profitable business.

Going back with the hobby issue, income may not be consistent every month but it is still extra money. In most cases, there are expenses involved and these could be more than the income you’ll receive.

So, the question is what are the tax implications of your hobbies?

Reporting Hobby Income

Unless the IRS says it is exempted, all income are taxable and this includes income you receive from your hobby. One key advantage of hobby income is that since you are not running a business, hobby income is not subject to self-employment tax. You are only subject to your regular tax rates.

However, just like with reporting gambling losses and winnings, you cannot offset the expenses from your hobby income and report only the net earnings. You have to report hobby income and expenses separately on your tax return.

Where to report hobby income

Hobby income must be reported in line 21 of Form 1040. You also need to write the description on that line and in this case you need to write “hobby income.”

Reporting Hobby Expenses

Restrictions or Limitations

There are many restrictions or limitations when deducting your hobby expenses:

• Separate Reporting With Income– As stated previously, you cannot offset the expenses against the income and report only the net earnings. Hobby expenses must be reported separately from hobby income.
• Deductible Only if itemizing – Hobby expenses are only deductible if you are itemizing your return. This means that if you are just claiming the standard deduction, then you cannot deduct any of your expenses at all.
• Limited to the amount of income – You can only deduct up to the amount of the income. So, if the expenses exceed the income, you cannot claim the excess expenses on your tax return. As an example, if your hobby generated $500 in revenue and your expenses is $850, the amount of the expenses that you can report is only $500, the $350 will be forfeited
• Subject to the 2% of AGI (Adjusted Gross Income) limitations – Another catch is after factoring in the maximum limit on expenses based on income, the allowable expense  is also subject to the 2% of AGI limitations and is included as part of the Miscellaneous Expenses. The 2% AGI is called the “floor” amount and you can only deduct the amount that are in excess of this floor amount. As an example,  if your AGI is $50,000 then your “floor” amount for the miscellaneous expenses is $1,000 (2% x $50,000). If the aggregate total of all your miscellaneous expenses is $1,300, then you can only deduct $300 ($1,300 less $1,000 floor) on your tax return.

What exactly can you deduct?

Just like the rules used for the business, the expenses that you can deduct must be ordinary, necessary and directly related to  your hobby. As an example, if you love painting, then any expenses that you used for your painting that are ordinary and necessary can be included as hobby expenses such as the paint brush, paint, binders for your portfolio, and even travel expenses if you go to paint exhibit shows.

Where to report expenses?

Expenses must be reported in Schedule A line 23 and write hobby expenses on the appropriate description.

Source: IRS Publication 17 and 535.

However, the key advantage of this type of IRA is if you start receiving distribution come retirement time, you will not have to pay taxes on that. In addition, you can make an early withdrawal of the original contribution at anytime and there are no taxes and penalties imposed, which is not the case with a traditional IRA or any other tax deductible retirement plans.

A Roth IRA is a great option than a traditional IRA if you anticipate to pay a higher income when you retire. This means that either you have a huge retirement plan provided by your employer, or you are expecting other non-retirement income as well such as residual income from a business, lottery winnings or other investments.

In addition, kids who are in the lower bracket and are earning at or below the standard deduction for the tax year may be able to take advantage of a double tax benefit: contributions and distributions are both tax-free!

Below are the seven quick facts when making contributions to your Roth IRA:

1. You must have earned income to make a contribution

For both the traditional and Roth IRA, you can only make contributions if you have compensation or earned income. The IRS defines compensation as money you have earned from working. Examples are wages, salaries, commissions, self-employment income, alimony, and non-taxable combat pay.

Income received from pension, annuity, deferred compensation, rental income, dividend income, interest income, income from partnership for which you do not provided services that are material income producing income, and any amount you exclude from income (except for the non-taxable combat pay) are not considered compensation.

2.You can contribute towards your spouse’s Roth IRA even if spouse does not work – Spousal IRA

The only exception to fact #1 is if you are married and your spouse is the only one earning a living. In this case, you can still contribute for as long as your spouse has earned income AND you and your spouse are filing a joint tax return.

3. Generally, the maximum contribution to a Roth IRA is $5,000 in 2011

There is a limit on how much you can contribute to your Roth IRA. In general, your contribution is limited to $5,000 for the tax year. The limit applies annually per individual and not per IRA account for those who have more than IRA accounts set-up with multiple financial institutions. For example, you may have three IRA accounts established from your bank or mutual fund companies but you cannot contribute $5,000 on each account in the same year. Thus, $5,000 must be allocated into the three Roth IRA accounts.

However, the following are the exceptions to the $5,000 maximum limit:

• Catch-up Rule for 50 years or older – $6,000 maximum – If you are 50 years or older, your maximum contribution is increased to $6,000. This rule is made to allow late savers who did not save enough early put in additional money on their retirement funds.
• Maximum Limited to Your Earned Income – If your earned income is less than $5,000, your maximum contribution is limited to your earned income.  As an example, you recently just graduated from college but you did not start working until the last week of November. For that year, you are a student and worked part-time earning just $3,000 for the year. Since your income from work is only $3,000, this is the maximum amount that you can contribute to your IRA.
• Maximum Limits Applies to Both Roth & Traditional IRA – The maximum contribution that can be made for both IRAs is only $5,000 if you are contributing to both accounts in the same tax year. This means that if you have already contributed $2,000 in your traditional IRA, you can only contribute $3,000 to your Roth IRA. You cannot contribute $5,000 to both accounts in the same tax year.

4. Your Roth IRA contributions will be phased out (or reduced) if your income exceeds the IRS income limits.

• For married joint filers and qualified widower, the IRA contribution is phased out if your modified adjusted gross income (MAGI) is between $169,000 and $179,000 in tax year 2011. You can no longer contribute to your Roth IRA if your MAGI is more than $179,000.
• For married separate filers not living with the spouse at anytime in 2011, single, and head of household filers, the Roth IRA contribution is reduced (or phased out) if your MAGI is between $107,000 and $122,000 for tax year 2011. You can no longer contribute if your MAGI is more than $122,000.
• For married separate filers but living with spouse at anytime in 2011, the Roth IRA contribution is reduced if your MAGI is between $0 and $10,000. No contributions are allowed if MAGI is more than $10,000.

5. If you contribute more than the maximum amount, you have to pay an excise tax.

If you contribute more than the limit, you have to pay a 6% excise tax for each year on the amounts that remain in your account for the tax year. However, if you have excess amount in the current year and you withdrew the money before the tax deadline, you do not have to pay the 6% excise tax.

6. You can make contributions during the year up to the tax year deadline.

You can make a contribution during the year towards your traditional IRA and you have until the tax year deadline to do so. For example, for tax year 2011, you already contributed $1,000 in March 2011, $3,000 in July 2011. You can still make a $1,000 contribution (to complete the $5,000 maximum) up to the 2011 tax return deadline (April 2012).

7. Unlike the traditional IRA,  you can still make contributions even if are already 70 1/2 years or older.

Once you reach the age of 70 1/2 years, you can still contribute towards your Roth IRA accounts. There is also no mandatory minimum distribution when you reach this age. You can keep the money there for as long as you want.

Source: IRS – Publication 590

Your tax filing status determines what tax bracket you’re going to be at. Generally speaking, married people filing jointly (MFJ) usually receives the best tax rate.

The United States tax system is progressive, which means that as your income increases, your tax rate increases as well. But the good thing is that the highest tax rate is not applied across all of your income as different tax rate applies at each level of income. Thus, the word “tax bracket” became a common jargon and this just means  tax rate bracket your total income falls into.

Below are the 2011 tax brackets and how taxes are determined for single, Head of Household, Married Filing Joint, and Married Filing Separate.

SINGLE

HEAD OF HOUSEHOLD

MARRIED FILING JOINTLY

MARRIED FILING SEPARATE