Finance
3 pitfalls of choosing the wrong credit card
By Value Penguin
For many people, the convenience of not needing to carry a thick wallet filled with cash is often a good enough reason to have a credit card. Some others often just get whatever credit card their friends recommend, without really considering how such a card fits into their own unique set of needs.
However, believe it or not, choosing the wrong credit card can easily cost you hundreds of dollars. A card that works well for your friend may not always work out well for you.
Mismatch of Rewards and Spending Habits
For example, let’s say your friends all use Citibank Cashback Credit Card, and recommended it to you as the best deal you could possibly get. Thinking your current set of credit cards is suboptimal, you get the Citibank Cashback Card.
What you may not have realised when doing this, however, is that, while Citibank Cashback Card is easily considered one of the best cash back cards in Singapore, it is actually not that great unless you spend mostly on food, but not on other things like travel, entertainment or shopping. In other words, the “best” credit card for you really depends on how you spend your money.
For instance, Citibank Cashback card provides 8% cashback on all of your dining and grocery expenditures. However, for almost everything outside of these two spending areas, it only provides 0.25% of cash back.
Therefore, if you are spending about S$600 per month on food, but S$1,400 on other things, it will only earn about S$55 of cash rebate for you (do note that you can earn a lot more if you have a car and purchase petrol). If you have a more diverse spending habit outside of dining and groceries, a card like OCBC 365 with a more diverse set of rewards could be more beneficial.
For example, OCBC 365 card’s cashback program spans petrol, dining, groceries, online shopping and utilities. It’s also worth pointing out that OCBC 365 card waives its annual fee for anyone who spends S$10,000 on the card every year, a feature the other card lacks.
Mismatch of Spending Amount
How much you tend to spend every month also influences which card you should be using. For instance, UOB One Card, easily considered one of the best cashback cards in the country, requires a minimum spend of S$2,000 monthly to qualify for its S$300 of quarterly cashback (up to 5%).
If you spend less than that even for 1 out of 3 consecutive months, you only receive S$100 of cashback or less. Spending S$2,000 for 2 months and S$1,950 for 1 month, for example, will yield you S$100 of cash back at a rate of 1.7%.
Given that UOB One Card charges an annual fee of S$192.6 (waived for 1 year), you could do much better with a card like Standard Chartered Unlimited, which provides 1.5% of cash rebate no matter how much you spend, and also automatically waives its annual fee for 2 years.
Rewards Credit Card Gone Bad
Another scenario in which an otherwise great credit card could be poisonous is when your spending power is not sufficient for the card’s reward system. UOB One Card, for one, doesn’t even give you anything if you spend less than S$500 on the card per month.
Even worse, if you spend out of your budget for too long just to earn rewards, it could lead to your financial ruin.
For example, Citi PremierMiles Card, though highly rewarding, requires you to spend S$10,000 in your first 3 months of getting the card to get 15,000 bonus miles. Given that credit card debt carries an average interest rate of 25% in Singapore, spending more than you can repay can lead to a substantial amount of credit card debt that will cost you dearly.
Therefore, you always have to be very familiar with the minimum spending requirements of the credit card that you are using, and manage it to a level that you can easily repay in full at the end of every monthly billing cycle. A rewards credit card is only good for you so long as your budget can handle it; both of these cards can be phenomenally rewarding so long as you don’t spend outside of your means.
Parting Thoughts
Contrary to what many people believe, there is no single “best” credit card. In fact, even the few that are considered the best are not ideal for anyone. When you are choosing your next credit card, be sure that it fits very well with your monthly budget and spending pattern.
You should always be spending within your means. Otherwise, you run the risk of racking up a credit card debt that will cost you a significant amount regardless of how much cash back or miles you are earning on the card.
This article was first published in Value Penguin website.
Finance
CPF Special, MediSave, and Retirement accounts’ interest rate rises to 4.14% for Q4 2024
The Central Provident Fund (CPF) Board and Housing and Development Board (HDB) announced that the interest rate for CPF Special, MediSave, and Retirement accounts will increase to 4.14% in Q4 2024, up from 4.08%. The 4% floor rate will be extended for another year, providing members with stability amid a volatile interest environment, the announcement stated.
SINGAPORE: In a joint announcement on Friday (20 September), the Central Provident Fund (CPF) Board and the Housing and Development Board (HDB) revealed that the interest rate for CPF Special, MediSave, and Retirement accounts will rise to 4.14% for the fourth quarter of 2024, up from 4.08% in the previous quarter.
This increase, effective from October to December, comes as the pegged rate exceeds the established floor rate of 4%.
Finance
US taxation authority to pursue wealthy tax evaders with advanced AI tools
The Internal Revenue Service (IRS) of United States has announced a comprehensive initiative aimed at aggressively pursuing individuals and entities that owe substantial amounts in overdue taxes.
Under the initiative, 1,600 millionaires and 75 large business partnerships are the primary focus of the IRS’s intensified “compliance efforts.”
WASHINGTON, UNITED STATES: The Internal Revenue Service (IRS) announced last Friday (8 Sept), that it is embarking on an ambitious mission to aggressively target 1,600 millionaires and 75 large business partnerships that collectively owe hundreds of millions of dollars in overdue taxes.
IRS Commissioner Daniel Werfel revealed that with increased federal funding and the aid of cutting-edge artificial intelligence tools, the agency is poised to take robust action against affluent individuals who have been accused of evading their tax obligations.
During a call with reporters to provide a preview of the announcement, Commissioner Werfel expressed his frustration at the contrast between individuals who dutifully pay their taxes on time and those wealthy filers who, in his words, have “cut corners” when it comes to fulfilling their tax responsibilities.
“If you pay your taxes on time it should be particularly frustrating when you see that wealthy filers are not,” he said.
The IRS’s latest initiative targets 1,600 millionaires, each of whom owes a minimum of US$250,000 in back taxes, along with 75 large business partnerships boasting average assets of approximately US$10 billion.
These entities are now under the spotlight of the IRS’s renewed “compliance efforts.”
Werfel emphasised that a substantial hiring campaign and the implementation of artificial intelligence research tools, developed both by IRS personnel and contractors, will play pivotal roles in identifying and pursuing wealthy tax evaders.
This proactive approach by the IRS aims to highlight positive outcomes resulting from the increased funding it has received under President Joe Biden’s Democratic administration.
Notably, this move comes amid efforts by Republican members of Congress to reassess and potentially reduce the agency’s funding allocation.
IRS has introduced an extensive programme aimed at revitalisng fairness within the tax system
The IRS announced the groundbreaking move aimed at enhancing tax compliance and fairness, with a particular focus on high-income earners, partnerships, large corporations, and promoters who may be abusing the nation’s tax laws.
This initiative follows the allocation of funding under the Inflation Reduction Act (IRA) and a comprehensive review of enforcement strategies.
The new effort, which builds on the groundwork laid following last August’s IRA funding, will place increased attention on individuals with higher incomes and partnerships, both of which have experienced significant drops in audit rates over the past decade.
These changes will be facilitated through the implementation of advanced technology and Artificial Intelligence (AI) tools, empowering IRS compliance teams to more effectively detect tax evasion, identify emerging compliance challenges, and improve the selection of audit cases to prevent unnecessary “no-change” audits that burden taxpayers.
As part of the effort, the IRS will also ensure audit rates do not increase for those earning less than $400,000 a year.
Additionally, the agency will introduce new safeguards to protect those claiming the Earned Income Tax Credit (EITC).
The EITC is intended to assist workers with modest incomes, and despite recent years seeing high audit rates for EITC recipients, audit rates for individuals with higher incomes, partnerships, and those with complex tax situations have plummeted.
The IRS will also take measures to prevent unscrupulous tax preparers from exploiting individuals claiming these vital tax credits.
This move underscores the IRS’s commitment to fostering a fair and equitable tax system, ensuring that all taxpayers, regardless of income or complexity, are held to the same standards of compliance and accountability.
The initiative reflects a comprehensive approach to addressing disparities in tax enforcement and strengthening the integrity of the tax system for the benefit of all Americans.
“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe.
“The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come,”
“The nation relies on the IRS to collect funding for every critical government mission, from keeping our skies safe, our food safe and our homeland safe. It’s critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade,” Werfel said.
Major expansion in high-income/high wealth and partnership compliance work
Prioritisation of high-income cases: Under the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS is intensifying efforts to address taxpayers with total positive income exceeding US$1 million and recognised tax debts of more than US$250,000.
Building on prior successes, which resulted in the collection of US$38 million from over 175 high-income earners, the IRS is allocating additional resources to focus on these high-end collection cases in Fiscal Year 2024.
The agency is proactively reaching out to approximately 1,600 taxpayers in this category who collectively owe substantial sums in taxes.
Expansion of pilot focused on largest partnerships leveraging Artificial Intelligence (AI): Recognising the complexity of tax issues in large partnerships, the IRS is expanding its Large Partnership Compliance (LPC) programme.
Leveraging cutting-edge Artificial Intelligence (AI) technology, the IRS is collaborating with experts in data science and tax enforcement to identify potential compliance risks in partnership tax, general income tax, accounting, and international tax.
By the end of the month, the IRS will initiate examinations of 75 of the largest partnerships in the United States, encompassing diverse industries such as hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms, and more. These partnerships each possess assets exceeding US$10 billion on average.
Greater focus on partnership issues through compliance letters: The IRS has identified ongoing discrepancies in balance sheets within partnerships with assets exceeding US$10 million, indicating potential non-compliance.
Many taxpayers filing partnership returns are reporting discrepancies in the millions of dollars between year-end and year-beginning balances, often without attaching required explanations.
This effort aims to address balance sheet discrepancies swiftly, with an initial mailing of around 500 partnership notices set to begin in early October.
Depending on the response, the IRS will incorporate these cases into the audit process for further examination.
Priority areas for targeted compliance work in FY 2024
The IRS has launched numerous compliance efforts to address serious issues being seen. Some of these, like abusive micro-captive insurance arrangements and syndicated conservation easement abuses, have received extensive public attention. But much more work continues behind the scenes on other issues.
Among some of the additional priority areas the IRS will be focused on that will touch the wealthy evaders include:
Expanded work on digital assets: The IRS is continuing its expansion of efforts related to digital assets, encompassing initiatives such as the John Doe summons and the recent release of proposed broker reporting regulations.
The IRS’s Virtual Currency Compliance Campaign, which aims to ensure compliance with tax obligations related to digital currencies, will persist in the coming months.
An initial review has indicated a potential non-compliance rate of 75% among taxpayers identified through record production from digital currency exchanges.
The IRS anticipates the development of additional digital asset cases for further compliance efforts in early Fiscal Year 2024.
More scrutiny on FBAR violations: High-income taxpayers across various segments have been utilising foreign bank accounts to avoid disclosure and related tax obligations.
US individuals with a financial interest in foreign financial accounts exceeding US$10,000 at any point in the year are required to file a Report of Foreign Bank and Financial Accounts (FBAR).
The IRS’s analysis of multi-year filing patterns has revealed hundreds of potential FBAR non-filers with average account balances exceeding US$1.4 million. In response, the IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.
Labour brokers: The IRS has identified instances in which construction contractors are making payments to apparent subcontractors via Form 1099-MISC/1099-NEC, yet these subcontractors are, in fact, “shell” companies lacking a legitimate business relationship with the contractor.
Funds paid to these shell companies are routed through Money Service Businesses or accounts associated with the shell company before being returned to the original contractor. This scheme has been observed in states like Texas and Florida.
The IRS is expanding its attention in this area, conducting civil audits and launching criminal investigations to address non-compliance.
This effort is aimed at improving overall compliance, ensuring proper employment tax withholding for vulnerable workers, and creating a fairer playing field for contractors adhering to the rules.
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