KNS Financial

Personal Finance From a Biblical Perspective

4 Reasons Why I Will Not File For Bankruptcy

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Most of the people who I talk to have debt. Debt is one of the major reasons behind this country’s economic growth over the past 40 or 50 years. Many people use credit cards to buy gas, computers, clothing, and a host of other items. On top of that, many people will borrow money to buy furniture, education, cars, and houses at some point in their life. It has pretty much become a way of life in this country, and I am no different.

When counseling clients (or just speaking with friends & acquaintances) about their finances, I will sometimes mention that I am currently paying off over $100,000 in debt. Oftentimes, the topic of bankruptcy will come up. They want to know why someone who doesn’t own a home, or other expensive assets, wouldn’t simply file for bankruptcy and get a “fresh start”.

Why I Will Not File For Bankruptcy

There are four basic reasons that I have for choosing not to file for bankruptcy (for the record, my wife agrees with this decision, but I will just speak of myself in this article)…

Integrity (I Gave My Word)

The main reason why I won’t file for bankruptcy is because of my word. When I signed up for all of those loans, I not only received the money (or line of credit), but I also received an obligation to repay that money according to the terms of the various agreements!

All of those agreements have a few things in common. I asked (sometimes begged) for money, they said ‘yes’ as long as I agreed to pay the money back, I gave them my word by signing a contract, I gladly spent the money, and now I’ve been paying it back every since.

By signing those agreements I put my word and integrity on the line. If I try to get out of those obligations, I will fail to keep my word and end up dishonoring God in the process!

To me, that is the strongest argument against filing for bankruptcy. I knew exactly what I was getting into when I signed those agreements, and I have an obligation to pay them back. It really bothers me when I see people trying to weasel their way out of an arrangement which they not only agreed to, but from which they also greatly benefited! They enjoyed all of the benefits of the arrangement, but when it came time to “pay the piper”, they claim that they should not be held responsible to keep their word! I don’t want to be one of those people if I can help it.

Protection Against Making The Same Mistakes

I have known plenty of people who have either filed for bankruptcy or have taken out debt consolidation loans, and have gone right back to their old habits once their credit cards were cleared. It takes time for most people to change their horrible money habits, and taking the time to pay off debt in a more conventional manner can give one a chance to develop good financial practices.

By not taking the easy way out, I have been forced to develop and revise a budget, look for ways to reduce my expenses, try to develop other streams of income, and set guidelines for evaluating purchases. Had I been given a clean slate directly after feeling the full weight of my debt, I may not have acknowledged and changed my horrible financial habits, which got me into this mess in the first place (most of our debt is from student loans, but we made some bad decisions along the way as well).

This concept not only works with finances, but it also works with our health, and even our ability to learn. Going on a quick, fad diet may help us drop weight pretty quickly, but it is usually harder to maintain the weight loss once you return to a more normal way of life. Likewise, it is much more beneficial to study a subject over time in order to let the foundational topics sink into our thinking, and then build upon that. If we decide to cram a day or two before we need to use the information, it will be much harder to incorporate it into our normal thought process.

So, by forcing myself to take the hard way out, I not only can identify what I did wrong, but I get a chance to develop a system that will benefit my family for decades after we become debt free!

Satisfaction (I Love A Challenge)

As I think about it, I think that even if I wasn’t convinced of my obligation to repay the loans, I would still choose to pay them back. I love a challenge, and having to pay off over $100k in debt is definitely a challenge!

I want the satisfaction of being able to look back over time and seeing the amount of progress that I have made. This is the same reason why I would never have surgery to lose weight (besides the very serious health risks) – I want to get into shape through discipline and making wise choices!

I want to pay off debt by making sacrifices, exercising discipline, making wise choices, and honoring all of my commitments. Since it won’t be easy to pay off this much debt – especially with one income – I feel that it is more of a challenge than if I only owed $10k or so.

To Serve As An Example

I also feel that I can point to my own situation to be an example for others in my situation. I managed to pay off a huge chunk of debt when I was younger (and making a little more than minimum wage), and I can look to that experience to give me confidence that I can do it again.

I want others (especially some of my clients) to see that I was able to overcome a mountain of debt, and avoid filing for bankruptcy to do it, and have them be able to use a small part of my experience as motivation. If I am telling them not to take the easy way out, I want to be able to assure them that it is worth it!

For some reason we humans are better able to take advice from someone if they have been through what we are currently going through. So if I want to convince someone that bankruptcy isn’t the answer, I need to be able to show them that the alternatives work!

Is This The Only “Right” Decision?

Keep in mind that this article is more about expressing my views on the subject, rather than giving a generic, one-size-fits-all piece of financial advice. Every situation is different, but for the most part, bankruptcy is a quick fix with a huge downside.

Of course there are people who are so crippled by their debt, that bankruptcy seems to be the only option to stop them from being homeless. Each case is different, but please be sure to make this decision with a lot of prayer, reflection, and wise counsel.

I plan to take a more detailed look at the subject of bankruptcy, from a biblical point of view in the near future. You may be surprised by how much the bible has to say about this topic, even though the actual word is never used.

Reader Questions

  1. Have you even been in a situation where filing for bankruptcy seemed to be the best solution?
  2. If you refused to file, what was your reason?
  3. Have you ever declared bankruptcy? If so, was it a struggle to make that decision?
  4. Also, how long was it before you recovered financially?

photo courtesy of FreeDigitalPhotos.net

Need More Time to File Your Tax Return? Here Is How To File For An Extension

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For many people, meeting the IRS’s April 18th tax return deadline for filing and paying the 2010 taxes will prove impossible. Unfortunately, the IRS did not automatically extend the deadline because of the tax filing delay!

Fortunately, the IRS allows taxpayers to file for an extension of the deadline to October 17th. The process for requesting an extension is fairly easy, however, there are a few things that you must consider regarding this option.

What Happens When You File For An Extension?

Filing for an extension gives you an additional six months to submit your tax return. For tax year 2010, that means that your tax filing deadline would be extended from April 18, 2011 to October 17, 2011.

An extension allows you to submit your tax return after April 18th, but it does not extend the amount of time you have to make a payment. This means that you will owe interest on any amount not paid by the original April 18th deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. In order to avoid all interest and penalties, you must pay the full amount due by April 18th.

How To File For An Extension On Your Tax Return

In order to request an extension, you must file Form 4868 (PDF) with the IRS before April 18th. You can electronically submit Form 4868 through IRS Free File. Using this service to prepare and electronically submit Form 4868 is free to everyone, regardless of income.

Actually, since I offer professional tax preparation services, I can also electronically submit Form 4868 for you – just use the contact form on the linked page.

What If You Can’t Pay Your Taxes By The Deadline?

Since extending your filing deadline doesn’t push back the deadline for payment, what can you do if you can’t pay the full balance by April 18th? Here is what the IRS recommends:

If your return is completed but you are unable to pay the full amount of tax due, do not request to extend your filing deadline. Submit your tax return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov and click “Online Payment Agreement Application” at the left side of the home page under Online Services. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.

If I Still Have To Pay By April 18th, What Is The Benefit Of Filing For An Extension?

By filing to extend your deadline, you are able to avoid the failure-to-file penalty. This penalty is usually larger than the failure-to-pay penalty, so by filing to extend your deadline, you are able to avoid paying the larger penalty.

Also, if you are able to pay at least 90% of your tax liability (remember that for a large amount of taxpayers, your withholdings may cover this amount already) by April 18th, and request to extend the deadline, you will be able to avoid paying penalties, as the IRS explains:

  • The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
  • You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
  • If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if  you file by the extended due date and pay the remaining balance with your return.
  • You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

So the bottom line is that if you have already completed your return and you know that you can’t pay the entire balance, it is better to just submit your tax return, pay what you can, and set up a payment plan with the IRS.

You should only request to extend your deadline if you are unable to complete your tax return by April 18th!

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How Do I Know Which Filing Status To Use On My Tax Return?

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Since tax filing season is upon us (after waiting for the tax filing delay to be over), many people will have questions regarding which filing status to use when completing a tax return. Because of that, the IRS has given use several tips/facts that can help us to choose the proper status:

Tax Filing Status For Married Taxpayers:

  • Your marital status on the last day of the year determines your marital status for the entire year.
  • A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
  • A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

Filing Status Options For Unmarried Taxpayers:

  • “Single” generally applies to anyone who is unmarried, divorced or legally separated according to state law.
  • Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

Filing Status Options For Widow(er)s:

  • If your spouse died during the year and you did not remarry during 2010, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
  • You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2008 or 2009, you have a dependent child and you meet certain other conditions.

As you can see, there are a few options available for each type of taxpayer. If you find that there is more than one option that applies to your situation, you are free to choose the one that gives you the lowest tax obligation!

If you still require more clarification, you can read more about determining your status in IRS Publication 501 (opens a PDF).

If you decide to file your own taxes, we recommend using TurboTax to do so. If you have already filed a return, you can check your tax refund status.

Be sure you are aware of the tax filing delay, as well as the fact that the tax filing deadline has been extended this year. To get the most out of your tax situation in 2011, you should know the IRA Contribution Limits, 401k Contribution Limits, and the Income Tax Rates for 2011!

photo by Arvind Balaraman

This article was featured in the following carnivals:

Tax Carnival #82: The Tax Awards

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Why You Should File A Tax Return Even If You Are Not Required!

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In a previous article, we discussed the fact that many people are not required to file an income tax return. However, there are some instances when you may want to file a tax return even though you are not required to do so.

Why You Should File A Tax Return:

Recently, the IRS gave seven reasons for doing so:

  1. Federal Income Tax Withheld – You should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.

  2. Making Work Pay Credit – You may be able to take this credit if you had earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

  3. Earned Income Tax Credit – You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.

  4. Additional Child Tax Credit – This refundable credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

  5. American Opportunity Credit – The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.

  6. First-Time Homebuyer Credit – The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. To qualify for the credit, taxpayers must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010. If you bought a home as your principle residence in 2010, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.

  7. Health Coverage Tax Credit – Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2010 tax return.

Well, there you have it…seven reasons why you should file a tax return even if you don’t have to do so.

If you have determined that you have to prepare a return, then be sure to contact us to set up an appointment for tax preparation. If you decide to file your own taxes, we recommend using TurboTax to do so.

Be sure you are aware of the tax filing delay, as well as the fact that the tax filing deadline has been extended this year. Also, you should know the IRA Contribution Limits, 401k Contribution Limits, and the Income Tax Rates for 2011!

photo by JD Hancock

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Do I Need To File An Income Tax Return?

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By this time, most people should have received all of the necessary tax forms in order to prepare their income tax return. Many people have questions about various deductions, credits, and exemptions. However, there are a large number of people who never get that far, because they have one major question: Do I need to file an income tax return?

Well, the IRS has provided a couple of resources to help you understand if you need to prepare a tax return.

What Determines If I Need To File An Income Tax Return?

According to the IRS, “you must file a federal income tax return if your income is above a certain level”. How do you know what that “certain” level is? Well, that varies depending on a few factors:

  • Your Filing Status

  • Your Age at the End of the Tax Year

  • The Type of Income You Receive

Is There An Easy Way To Determine If I Need To File An Income Tax Return?

There are two main methods that the IRS lists that you can use to figure out if you must prepare a return:

  1. Check the Individuals section of the IRS website or consult the instructions for Form 1040 (opens PDF), 1040A (opens PDF), or 1040EZ (opens PDF) for specific details that may help you determine if you need to file a tax return with the IRS this year.

  2. Use the Interactive Tax Assistant available on the IRS website to determine if you need to file. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

If you have determined that you have to prepare a return, then be sure to contact us to set up an appointment for tax preparation. If you decide to file your own taxes, we recommend using TurboTax to do so. Also, keep in mind that there are many benefits when you file a tax return, even when you are not required to do so.

Be sure you are aware of the tax filing delay, as well as the fact that the tax filing deadline has been extended this year. Also, you should know the IRA Contribution Limits, 401k Contribution Limits, and the Income Tax Rates for 2011!

photo by JD Hancock

To Keep Up To Date With The Latest Tax News And Regulations, Sign Up For Our Email Updates:



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