The Score That Really Matters

While your SAT, GRE, GMAT, MCAT, or LSAT scores will cease to matter once you have graduated from college or graduate school, there is one score out there that will follow you the rest of your life: your FICO credit score.  This number is used by various parties,  from prospective landlords and employers to institutional lenders to insurance agencies, to determine your credit riskiness.  A higher score (850 is the maximum) shows that you are fiscally responsible, making you less likely to default on monthly payments.  This translates into lower interest rates and a higher credit line, and may mean you don’t have to give as much in security deposit or down payment.  Most people don’t go past 800, so any score above 750 is generally considered to be pretty good.

Your FICO credit score is calculated by weighing different types of credit data, such as payment history, amounts owed, length of credit history, number of recently opened accounts, and types of credit used.  Therefore, some of the easiest ways to improve your credit score is to pay your bills on time (even if just the minimum), lower the ratio of your outstanding debit to your credit limits, try to keep an older credit card active by using it to make a purchase every so often (even if the credit card doesn’t provide much rewards), and not open new credit cards that you don’t need.

Unfortunately, your credit report does not come with the score for free.  The best way to get your credit score is through www.myfico.com.  For $16, it will give you your credit score, tell you whether it is good or bad, and simulate how it may change.  And you should try to purchase your score from all three credit bureaus (Experian, Equifax, and TransUnion) at least once, since each bureau calculates the score slightly different.

The Quick & Dirty Guide to Paying Taxes on Foreign Income

If you are a U.S. citizen and have landed a job overseas, you still have to pay U.S. income taxes but you will be eligible for the Foreign Earned Income Exclusion.  In order to claim this tax benefit, (1) your main place of business or employment must be in a foreign country, (2) you must have earned foreign income, and (3) you must have established a bona fide residence in a foreign country for an entire tax year or have been physically present at the foreign country for more than 330 days.  For 2009, the foreign earned-income exclusion is $91,400, an amount adjusted each year to reflect inflation.  This means you can exclude up to $91,400 in foreign earned income from your total income.  If you have earned more than this amount, you will have to pay U.S. taxes on the difference.   However, you can also deduct any foreign tax you have already paid on your income.

In addition, you may also be eligible to claim the Foreign Housing Exclusion and/or the Foreign Housing Deduction.  This part gets a little tricky.  First, you have to determine your “housing amount” by subtracting the base housing amount ($91,400 x 16% /365 days x number of qualifying days) from your total housing expenses.  Then you have the following three options:

  • This is the entire amount you can exclude if all of your housing expenses were paid by employer-provided income (i.e., your company pays your salary and you use part of your salary to pay your housing expenses).
  • This is the entire amount you can deduct if all of your housing expenses were paid by self-employment income.
  • BUT if your foreign earned income includes both employer-provided income and self-employment income, you will have to figure out what percentage of your total foreign earned income originated from each source and use that to determine how much housing amount to exclude and deduct. For example, if 70% of your total foreign earned income is from an employer and 30% is from self-employment, then 70% of your housing amount is eligible for the Foreign Housing Exclusion and 30% for the Foreign Housing Deduction.

The total amounts of your Foreign Earned Income Exclusion, Foreign Housing Exclusion, and Foreign Housing Deduction, however, cannot exceed your total foreign earned income.  When filing your tax return, you will fill out the Form 2555-EZ or the Form 2555 and attach it to your Form 1040.  See Publication 54 for more information and if you have any questions, please leave a comment.

An Added Benefit for Biking to Work

If you ride your bike to work or are thinking of doing so – be it for your health, to save money, as a hobby, or any other reason – you may be able pick up a tax break along the way.  As of January 1 of this year, qualified bicycle commuting reimbursements of up to $20 per month (a total of $240 a year) are eligible for income exclusion, alongside qualified parking and highway vehicle transportation and transit passes.  That is, your employer can reimburse you for “reasonable expenses,” including bicycle purchase, improvement, repair, and storage, and the value will not be reported in your income, up to $20 times the number of months for which you are eligible for this benefit.

To receive this benefit you cannot receive any other qualified transportation fringe benefit on the same month.  It is ok, however, to receive different transportation fringe benefits throughout the year, such as a bicycle commuting reimbursement during the summer and a parking reimbursement in colder months.  To qualify for the bicycle commuting reimbursement exclusion on a given month, you must “use the bicycle regularly for a substantial portion of the travel between your residence and place of employment”.  The terms “regularly” and “substantial portion” are not explicitly defined anywhere in the Emergency Economic Stabilization Act of 2008 through which it was passed or in IRS documents, however.

But here’s the catch: unlike the other two qualified transportation fringe benefits, employees cannot choose to receive the benefit through pre-tax contributions [though a bill (H.R. 863) was proposed in February to change that].  Either your employer reimburses you or it does not. It may be in its interest to reimburse you, though, as a lower income reported for you means lower taxes for it, too.

Let your employer know if you want this benefit.  To learn more  and get information for your employer on how to set up a commuter solution for bike riders, visit The League of American Bicyclists’ webpage on the initiative.

Burn the Fat, Not the Cash

The recessionary lifestyle has led many folks to trim the gym membership from their budgets.  But it is precisely now that everyone should focus on preventative care and stay as healthy as possible, because it doesn’t take much more than a trip to the emergency room to drain your rainy day fund.  And while most health insurance coverage leave a lot to be desired, several offer a benefit that very few people take advantage of – discounts and savings for health club memberships.  The Blue Cross Blue Shield PPO Plan, for example, reimburses up to $150 in membership fees  for each calendar year.  CIGNA also offers numerous discounts to various health clubs, such as the Sports Club and Bally Total Fitness.  A one year membership at Bally with nationwide access will cost around $590, while the same membership will cost around $395 with CIGNA’s discount.  This is a huge $200 in savings.  So check out what kind of healthy club membership discounts and savings your health insurance has to offer before you decide to quit or join a gym.

Take Advantage of Your Corporate Credit Card

When I first started working, my firm gave me a corporate credit card from Diners Club, to which I can charge business expenses, such as plane tickets, overtime meals, and taxi cabs.  Over the past the three years, however, my corporate credit card has been my primary credit card.  Here are the reasons why:

  • Two month grace period – For each billing cycle, I get a two month grace period to pay off the complete balance before the credit card starts charging me interest.  More times than not, expenses, especially those involving international travel, take more than a month to get reported to and approved by accounting, after which a check is cut to reimburse me.  The two-month grace period feature has helped me out on more than one occasion for such these reasons, but it also served as a safety net in case I ever find myself too cash-strapped to pay the full balance right away.
  • Rewards program – I have to pay a $75 annual fee to gain access to the rewards catalog, but it has been completely worth it.  After three years ($225 in annual fees), I was able to exchange my points for $425 in Amazon credits, $100 in statement credits, and a $20 gift card to California Pizza Kitchen.  This is more than a 200% return.
  • Customer service – The Diners Club has great customer service, in that I have never once spoken to a machine.  Further, when a hotel in Spain charged me for a night’s stay after claiming that I did not email to cancel my reservation, I was able to dispute the charge with Diners Club and they credited me the amount I was charged.  Considering that it was an international purchase, where euros had to be converted to dollars on my statement and there was a foreign exchange fee, I was grateful that Diners Club made the process so painless.
  • Credit report – Lastly, the Diners Club does not show up on my credit report.  So while I don’t get rewarded for paying my balance on time and in full, should I ever lose the credit card, I never have to worry about someone charging it and ruining my credit score.

If you are lucky enough to get a corporate credit card, whether Diners Club or the American Express Corporate Card, do a little investigating.  The best source of information will probably be your colleagues, so ask them about their experiences and see if using the corporate credit card as your primary credit card will be worth it for you as well.