Q: I sometimes sell items on eBay for extra money. Do I have to pay taxes on this money?

A: The answer is…it depends. If you sell items for more than their original retail value (for example, vintage toys), you’re supposed to declare that income. If you’re merely selling clothing or household items for less than what you paid for them, you’re in the clear. While a lot of people don’t declare or under-report this type of income, it’s better to be safe than sorry. If the IRS comes calling, more than just your current year’s income tax return will fall under scrutiny.

photo credit: NickStarr

With the year coming to an end in a few short months, it’s time to start thinking about your taxes.

• If you haven’t done so already, make plans to use all money in flexible spending accounts (FSAs) - dependent care and/or healthcare. You have until April 30, 2009 to submit claims against your 2008 FSA.

• Consider donating clothing or other unwanted items before the end of the year if you typically itemize your deductions.

• Use the IRS withholding calculator (online at www.irs.gov/individuals/page/0,,id=14806,00.html) to verify that you’re having the correct amount of taxes withheld from your paychecks. While you don’t want to give the government an interest-free loan, you don’t want to pay a penalty for not having enough withheld either. You will need a copy of your most recent paycheck stub as well as records of student loan interest, mortgage interest and charitable giving.

• Fund an IRA if you have not done so already. You have until April 15, 2009 to fund a traditional or Roth IRA for the 2008 tax year. The IRA limit for 2008 is $5000.

• Start gathering your tax records so you don’t miss out on all the deductions and/or credits to which you may be entitled. Now is the time to collect all essential paperwork in a folder to give to your tax preparer next year.

It’s not me though I am contemplating a giveaway in the future.  (Feel free to leave a comment and tell me what you’d like to see given away.)  Single Guy Money is giving away a copy of the Larry Winget book, You’re Broke Because You Want to Be.  So check out his blog to enter - http://www.singleguymoney.com/2008/10/fall-blog-giveaway.html

photo credit: doortoriver

Well, Sunday night I finally caved and turned on our heater.  The low was predicted to be in the upper 30s and there was a frost warning.  There were a few months when we had $200+ heating bills and the price of natural gas and heating oil is set to rise again this year.  Here are a few of the things we do in order to reduce our heating bill.

• Delay turning on the heat - While it has been somewhat cool at night, we haven’t used the heat.  We’ve just worn warm clothes (sweats and long-sleeve T-shirts) around the house.  68 degrees indoors isn’t unpleasant if you’re dressed properly.
• Clean or replace your air filters - Dirty filters make it that much harder for warm air to be circulated throughout your home.  Check your air filters monthly.
• Check the furnace - Along the same lines, be sure to check (or hire a professional to inspect) your furnace to ensure it’s in good working order.
• Don’t block the vents - Some homes have vents on the floor.  Be sure these aren’t under furniture or rugs.  These reduces the amount of warm air being circulated while causing your furnace to work harder.
• Close the vents and doors in unused rooms - There’s no reason to pay to heat rooms that you don’t use.
• Consider a space heater - The upstairs of our home is only bedrooms and the laundry room.  Because we’re a two person household, the only rooms we used upstairs are our bedroom and adjacent office.  Therefore, I keep the heat set low and run a space heater when I’m in the office.  This keeps me warm without running the heat all evening.
• Install a programmable thermostat - Using your heat only when you’re home and awake can save you lots of money.  We have our heat set to come on at 5:45am (so it’s warm when we rise at 6:00am) and turn off at 7:00am (when we leave the house).  Then it comes back on again at 5:45pm (in anticipation of our arrival at 6:00pm) and off again at 11:00pm (when we’re in bed).  Using the heat only 6.5 hours per day (an average weekday) is much more cost-effective than letting it run all day long.
• Lower the temperature - I’m fairly cold-natured but rarely find the need to set the heat above 70 degrees when dressed appropriately.  If you don’t think you can stomach that temperature, consider slowly lowering your thermostat by 1-2 degrees on regular intervals until you find your minimum tolerance level.  In addition, I set the heat to 62 degrees while we sleep.  It may sound frigid but we typically don’t get up in the middle of the night and I like to sleep under a comforter in addition to the sheet.
• Insulate - Last but not least, make sure you have sufficient insulation.  Cost-cutting measures aren’t very effective if a large portion of your heat escapes your home.  If you have an attic, consider an attic tent to seal the opening and prevent heat loss.  Also, consider increasing the amount of insulation in the attic.  Use caulk to seal around drafty window and door frames.

What steps are you taking to save on heating costs this winter?

photo credit: borrowed time | demi-brooke

I’ve decided to add a new ‘feature’ to this blog - answering reader questions.  Whether it’s a question about how to handle a particular situation or stock market terms or whatever, I will try my best to answer it for you.  You can leave a question in the comment section or send me an e-mail (see the sidebar to your left).  Whenever I get a question that I believe will benefit many people, I will post the question and the answer here.  Of course, if you’d like your question answered privately, I will do that as well.  So, ask away!

photo credit: New Internationalist

Mr. Savvy and I have decided it’s high time we got around to furnishing/decorating our dining room.  So we went to a local furniture store weekend before last.  We actually found both a rug and a dining set that Mr. Savvy liked…no small feat.  So we were all set, right?  Wrong when we saw the prices!  So we went home to contemplate our options - save up a little longer or look for something else.  We both really liked what we found and neither of us really likes shopping so we didn’t want to try to find anything else.  That left option C.  But I gave two options you say.  Well that’s right but I’m impatient.  So rather than save up a little longer, I decided to see if I could find the same thing for cheaper.

The rug was $869 plus tax at the local furniture store for a total of $921.14.  The salesman had written down the rug info for us so I googled the name.  I found a website that had the same rug for $689 with no tax and no shipping.  That’s 25% off, not bad.  We were ready to buy until…I decided to thumb through the Macy’s circulars that we’ve been getting lately.  And there was the same rug on sale for $689 with another 10% off.  That sounds like an even better deal!

So off we went to Macy’s on Sunday evening.  But we didn’t buy the rug.  While the price was lower, there was a $60 delivery charge which wasn’t mentioned in the ad.  The total price would have been $717.31, almost $30 more than the internet site.

However, yesterday I decided to call Macy’s to verify the price one more time.  I wasn’t too keen on making a large purchase from an unknown website.  This time the Macy’s price was $699 with $50 off plus the 10% off (Columbus Day sale).  There was still a $60 delivery fee but the grand total was $677.45, $12 cheaper than the internet site and a reputable company.  So I ordered the rug from Macy’s.  All’s well that ends well.

But the story doesn’t end there.  Shortly after I placed the order with Macy’s, Mr. Savvy told me he had an e-mail from Macy’s advertising free shipping on rugs on their website.  I told him I had previously looked at the site and the rug was more expensive ($716) so it would have slightly more money, even with the free shipping.  But something told me to check the website anyway so I did.  The rug price was $716 but there was a $100 off promotion (vs the $50 off in-store) plus the 10% off AND free shipping.  The total was $587.67, $90 cheaper than what I had just paid!  So of course, I called right back and explained the situation.  The saleswoman cancelled my previous order and re-rang it for the website price. 

So in summary, we paid $587.67 for a rug that was $921.14 at the first place we looked.  Over 30% savings for about an hour of my time.  Not bad, huh?  How have you found deals for furnishing your home?

photo credit: Casey Serin

I’m considering getting rid of my car.  To give some background, we are a two person, three vehicle household.  We previously had two cars but purchased a pickup earlier in the year to use for home improvement projects.  (I blogged about it here - http://www.msmoneysavvy.com/2008/04/08/evaluating-the-wisdom-of-a-purchase/).

Before we had the truck, Mr. Savvy drove ‘his’ car to work and I drove ‘my’ car to work.  Once we had the truck and gas prices increased, he drove the truck to work and drove his car (a bit of a gaz guzzler) only on weekends.  Then the water pump on the truck went out (and he’s replacing it himself which has turned into a multi-week project) so he went back to driving his car.

However, I started a new position in August and we started carpooling every day in my car and he only drove his car on weekends again.  Then we experienced gas shortages in Atlanta.  Once Mr. Savvy’s tank was empty (and we couldn’t find any gas), his car stayed garaged for two weeks straight.  We drove my car everywhere and coordinated our weekend schedules for using the car (since the truck was out of commission).  Living with only one car wasn’t that bad and really highlighted to me that we no longer need three vehicles.  So I’ve proposed to Mr. Savvy that we get rid of my car.

His car is a four door sedan so I’d like to keep it around.  Also, I want to keep the truck for hauling stuff.  My car is the fun car so it can go.  While I love my car, why pay to register, maintain and insure it if we don’t need it?  Mr. Savvy isn’t sold on the idea yet but we discussed it over lunch today and he’s going to mull it over.  I don’t think he likes the idea of ’sharing’ a car but it’s not really a big deal to me.  Has anyone else ever decreased the number of vehicles in their household?  How did you come to that decision?

photo credit: Latente § piove merda e dicono che è ciocolata

Like most of you, my 401(k) has steadily been declining despite the money I contribute with each paycheck.  When I checked my balance last night, it looked a lot like my 2005 balance!  So what am I going to do?  Nothing, or rather stay the course.  No one can predict the future so there’s no point shuffling money around and making matters worse.  So I will leave my contributions as is and evaluate my asset allocation at year end, as usual.  Then I will make any necessary adjustments.  Retirement is more than ten years away for Mr. Savvy and I so there’s no need to panic.

But enough about what we can’t do anything about, here’s what we CAN do something about.  As of yesterday, Mr. Savvy’s ‘hobby’ is now a business.  Therefore expenses he has occurred in the pursuit of such can now be written off against the income he’s bringing in.  Also, since he now has a business (a sole proprietorship, by the way), we’ll be opening a SEP-IRA in order to shelter some of that income.   So in addition to working to maximize our income, we utilize all possible (legal and moral) ways to keep as much of that income as we can.

We will also probably delay an upcoming major purchase.  We will still make the purchase but I’m comparision shopping in order to get the best price and I suspect there will be more deals to be had as the year ends.  What, if anything, are you doing differently during these financially trying times?

In my opinion, family and money generally shouldn’t mix.  I have a policy of not loaning money to family members.  In the rare event that I do, it’s never over $100 as I expect that I won’t be repaid. 

Last night, I finally got around to listening to messages on our answering machine and there was a message from a family member.  I had been expecting her to call in regard to helping her file a past-due tax return.  However, her message said nothing about taxes but she gave a semi-sob story about needing to borrow $1700, to be repaid at the rate of $100/month.  I don’t think so!

I don’t have $1700 to waste, especially in this economy.  And even if I did, I definitely wouldn’t have loaned it to this family member.  She said she needed the money to buy a car to get to a new job.  However, she has had at least one car, that I know of, repossessed and has had other family members cosign car loans for her (as recently as a few months ago).  She is the last person I would ever believe would pay me back.  So, I will let her know today that I will not be loaning her any money.  What would you do?