How to Avoid and Prepare For a Tax Audit by the IRS

How to Keep Your Credit Card Safe Online

Using your credit card to buy something online has become an almost daily habit for most people. Even so, there are many people who are still uncomfortable with submitting their credit card information online. Their fears aren’t completely unfounded. Scams are everywhere and the techniques scammers use are constantly evolving so it’s true that you are taking on a little bit of risk if you punch in your credit card number online.

Luckily, with some common sense on your part and some technological advances it is incredibly safe to shop online. That isn’t to say there aren’t potential dangers out there, but if you are able to follow a few basic tips and procedures you can make sure your credit card information is safe.

1. Just like you should be aware of your surroundings and be on the lookout for suspicious looking characters when withdrawing money from an ATM, you should know how to recognize the warning signs of online scams and take steps to avoid being a victim. Don’t just blindly click on links or emails and keep your eye out for things that just don’t quite seem right.
2. Ensure your browser and operating system are running the latest versions and you have applied all of the recent updates. These online scammers are constantly changing their tactics and companies must update their software over time to combat their attacks. If you’re running a version that’s a year old you may be vulnerable.
3. Watch for the padlock icon on the status bar at the bottom of your browser window, which indicates that the site is secure. You will also want to look for an ’s’ added to the usual http at the beginning of the web site’s URL when you get ready to submit your purchase information. The https indicates a secure server that is using SSL, which means your information is being encrypted. Without the https or other secure transmission you open yourself up to having your credit card information snagged by a thief during the transaction.
4. Before submitting personal information to a site, read their privacy policy to find out how the information may be used and whether it will be sold or shared with other businesses. If you don’t like what you read, shop somewhere else. Most sites will obviously have a solid privacy policy, but if it’s a site you’ve never used before it is worth double checking.
5. Don’t provide personal information such as address, telephone number, Social Security number, bank account number, or e-mail address unless you know who you’re providing the information to, why it’s being requested, and how it will be used. If an online store is requesting more information than you’re used to, stop and think about why it is asking.
6. Use a credit card, not a debit card, for online purchases. A debit and credit card may look the same, but they aren’t. You have more protection in the event of a fraudulent purchase if you use a credit card. Besides, your debit card is linked to your bank account, so if your information gets stolen you could find your account wiped out!
7. Carefully review your credit card and bank statement each month for unauthorized charges and notify your credit card company or bank immediately if you notice any charges you didn’t authorize. Not only that, but you should be monitoring your credit score and report on a regular basis. Sometimes the goal is to steal your information so that a criminal can create a fake identity, not necessarily steal your money. So looking at your bank statements might not alert you to identity theft.
8. Finally, make sure your computer is secure. If you use a wireless network at home you need to be sure you have it locked down with at least some sort of WEP or WAP protection. Avoid transacting business on wireless networks that are not your own. And make sure your computer’s anti-virus and spyware software is updated and keeping your computer safe. One way scammers can get your information is by loading trojans or other hidden programs on your computer that silently take your personal information even if you don’t realize it.

I just wanted to throw a quick reminder out there that I’ll be on the 401(k) Coach’s blog talk radio show today at 1 p.m EST hosted by Dean Voelker. Dean is an Accredited Asset Management Specialist based out of South Bend, IN, which is just a few miles from where I live. You can find him over at HelpMy401k.us. His radio show has featured some great personal finance names in the past, many of which you’re probably familiar with. People such as Jonathan Chevreau of the Financial Post, Eric Tyson who is the author of Personal Finance for Dummies, and Laura Rowley who writes a column for Yahoo Finance. In a few weeks Dean will also be having Trent from The Simple Dollar on the show.

So, if you have a a few minutes to spare on Tuesday I urge you to tune in. We’ll be talking about my site, retirement, personal finance, and much more. And if you can’t make it when it airs at 1 p.m. the show is always recorded and available on the show’s page to listen to at your convenience. Or you can simply use the player below and begin streaming automatically.

New Credit Card Law Puts a Hold on Over Limit Charges

As you have probably heard by now, the CARD Act takes effect on February 22nd. Many of these changes are part of the law, but a lot of banks are also making voluntary changes to their programs. There are a lot of changes to help credit card users stay out of trouble and avoid ridiculous fees. Most of these changes happen automatically, but there is one thing you may have to take action on if you’d like some of the services to remain in effect.

If you have ever been in a situation where you charged something on your credit or debit card and gone over the preset limit you may remember that the charge probably still went through anyway. That’s because in the past, most cards automatically turned on features that allowed you to go over your limit rather than be declined outright. Then, you got charged a stiff fee for this feature. Card companies billed this as a convenience since they said it would be better to allow you to purchase what you needed rather than flat out decline that purchases. The problem is that you could literally spend $1 over your limit and then get socked with a $35 over limit fee.

Being over the limit is also bad for your credit score. So, by ensuring you keep your balance under the limit you can effectively improve your credit score, even if by just a few points. That could translate into lower interest rates on other loans in the future that could end up saving you thousands.

You Now Have to Opt-In For This Service

To help curb the excessive fees that credit card companies were raking in off of this service the new law now makes this an opt-in service. Going forward, you will need to call your card company and request the ability to allow overdraft or over limit coverage or charges that go over your credit card limit will be declined. This is good news for the millions of people who unexpectedly get hit with these fees for an innocent mistake, but for those who may want to keep this safety net in place, it’s one more step that needs to be taken if you want to continue to use the feature.

Keep an eye on your mail in the coming weeks if you haven’t received a notice like this from your card company already. I know most people see an envelope with the name of a bank or credit card on it and it goes right to the shredder, but it may contain important information about the features on your account and changes that are important to you.

I just received a notice from Chase regarding the debit card overdraft coverage. It states that I need to call them to turn this feature on since it is no longer offered automatically. It also outlines how it works in plain English, which is surprising considering how confusing the fine print on these things usually are. But basically, it states that:

• It’s free to turn this feature on.
• If I overdraft my checking account with a debit card purchase and make a deposit to cover it the same business day there’s no fee.
• If I overdraft my account and don’t make a deposit there will be a $35 fee for each time I use the card over the limit, up to 3 fees per day.

For me, I don’t see a need for this service, so I don’t think I’m going to bother turning it on. I don’t regularly run my checking account balance that low, but more importantly, I already have true overdraft protection set up with a linked savings account. So, if I do accidentally overdraft the checking the money is automatically pulled from savings to cover the transaction and I’m not charged $35 to do so!

But this did get me thinking about my other credit card accounts and I do think I’m going to enable this feature on our credit card reserved for emergencies. While it’s one of those things we never hope to use, if it’s a true emergency and the only option available is to use a credit card for something I think it would be nice to know that the charge is going to go through if I’m a little over the limit instead of not going through at all. I’ll probably never need it, but it’s a small insurance policy just in case. Between our emergency fund in a high-interest savings account, regular checking and savings, and credit cards, we should be adequately covered in any emergency.

Do You Need This Protection?

I’d argue that most people do not need, and shouldn’t have the option for automatic overdraft and over limit protection on their cards. If you’ve never received an over limit fee before and don’t carry a balance on your credit cards, then it might make sense to have this on one of your cards for a rare emergency like I mentioned above. But if you’re someone who’s all too familiar with overdraft and over limit fees, keeps your checking account balance pretty low, or keeps a high balance on credit cards, then you should almost certainly steer clear. You should be focusing on how you can improve your finances so that you can eliminate the need to go over your limit, not continue to make it easy to go over the limit and get hit with stiff penalties.

Instead, create your own safety net. First, establish an emergency savings account. Use this as a source of funds if there is an emergency or if money gets tight. It won’t cost you anything and your money will actually be working for you and earning interest. Next, set up true overdraft protection on your checking account. You can almost always link a checking account with a savings account to use as protection in the event you go over your account balance. In some cases this may be completely free, but some banks may charge you something like $5 to $10 per overdraft. It’s still far better than the up to $39 they can charge you now. Finally, consider getting a 0% or low-interest credit card that you can transfer one of your balances from or simply keep that card tucked away for emergencies only. This way if you do find yourself in a bind you have a source of funds that’s available and you won’t have to worry about whether or not there’s enough room on the card or worry about getting hit with a big fee for going a few dollars over.

This week I wanted to kick off the Friday Finance Findings with a few fun pieces of trivia about money.

China was the first country to use paper money. Ancient paper money can be traced back to the Pai-Lu P’i-pi (white deer-skin money) of Han Dynasty (140 BC) and the Fei-Chien (flying money) of Tang Dynasty (618 AD). However, the Ming Dynasty notes are the earliest surviving paper money of which the 1 Kuan is the most common. Issued between 1368 and 1399, the note measures 222mm x 340mm.

The term “buck” relating to the slang for U. S. dollar originated from the Old West when buckskin was a common medium of exchange with Indians. Later as currency replaced the barter system, people still refer to a dollar as a buck.

The highest denomination note issued for public circulation in the United States is $10,000. The highest denomination currently in circulation is $100.

I hope you found that interesting, but if not, I’m sure you’re going to like this week’s links.

The Tax Filing Deadline is April 15th, but When Should You Mail Your Return? – A common question I get from readers has to do with taxes. Those who choose to mail in their returns are often confused by the deadline and whether that means when your return must be at the IRS office or if it’s just when it has to be postmarked. Here’s the skinny on the tax filing deadline.

9 Tips to Stretch the Life of Common Household Items – There are certain things that we all have to buy to keep things running smoothly around the house. Unfortunately, these things can begin to add up, so if there is a way to lengthen their usefulness it means less frequent purchases, and therefore money saved.

Wedding Invitation Etiquette: Should Kids Be Invited To Weddings? – This is a hot topic for those planning a wedding. Do you invite children or not? There’s no right or wrong answer as it will largely depend on what you’re looking for out of your wedding, but The Digerati Life has some tips on wedding invitation etiquette to help you weigh the decision.

Those Who Don’t A-S-K Don’t G-E-T – You’ve heard the phrase, “ask and you shall receive”, right? Well, it’s true in more ways than one. If you don’t ask for things you may have no chance in getting them.

New Mortgage Rules for Canadians – It isn’t just us Americans who are struggling with a tough real estate market and bad economy. Our neighbors to the north share many of our issues, and therefore they have some new mortgage rules as well.

2010 Federal Tax Brackets – Most of you probably just started to think about your 2009 taxes, but we’re already in 2010. Here are your tax rate brackets for this year so that you can plan ahead.

Frugal Living Could Change Your Life – Do you live a frugal lifestyle? If not, this post may make you think twice about it. Frugal living could literally change your life.

The Room that Craigslist and Yard Sales Built – I love Craigslist. I’ve found a handful of items for great prices. The problem is that I live in a very rural area so we don’t have the volume of people using the site like others have. But it’s still great. Here, Lazy Man shows us his room that Craigslist built.

How to Rise From Poverty – You don’t have to be stuck in poverty forever. Many of us have gone through tough times in our lives, but there is almost always a way out. If you look forward you can often find yourself in a better place.

Want to Work for Free? Start a Business – Having run a few businesses over the year I can completely relate to this one. Self-employment has many benefits, and working for free is often one of them.

How to Get Audited By the IRS – I’ve talked about how to avoid an IRS audit, but Flexo takes another approach and discusses how to get audited. Yikes!