Credit Vendors Target the Colleges
QUESTION: I was visiting my son’s college earlier this month and was appalled to see that American Express had taken out almost a dozen pages of advertising in the college magazine. My wife and I have tried hard to preach the hazards of credit, and I know other parents of college-age children who do the same. So I really resent what these credit card companies are doing. Why do they have to go after people so young? I always thought credit card companies stayed away from teen-agers because they were poor credit risks.--H. W.
ANSWER: That philosophy changed when credit card companies and retailers discovered that college students have become big spenders. American Express and other big credit card companies estimate that college students have $45 billion in discretionary cash to spend every year.
That is why you will find an average of 10 pages of American Express ads in campus magazines and why Citibank tries to tempt college students to use its credit cards by promising that “no parent must sign” the application forms.
Nor are credit card companies alone in this effort. Chrysler, for example, offers students who buy Plymouths a four-month grace period between the time they buy the car and the date their first payment is due.
Q: I have been told that my son’s college scholarship may no longer be tax-exempt because of new rules brought about by tax reform. Can that be true? I thought that tax exemption was guaranteed once the scholarship was granted.--S. C.
A: Your son’s scholarship may still escape the tax collector. But it must meet certain tests.
Under the new tax law, any scholarship money intended to pay tuition fees is still exempt from taxes. But any non-tuition portions are now taxable on all scholarships awarded after Aug. 16, 1986.
If your son’s scholarship was awarded before that date, its tax status is less clear. The rules vary depending on whether the amount of the award was set at the outset.
Say your son’s scholarship grants him $5,000 in non-tuition money for each of his four college years. Since the amount for each year was set before he began receiving the money, the scholarship remains free from taxes.
But if his scholarship reads that he is to receive $5,000 the first year and unspecified amounts for the remainder of his college years, he would be taxed on any amounts exceeding $5,000 a year.
Q: Is there a rule of thumb for how long to keep tax records?--H. Y.
A: Tax preparers usually suggest that individuals keep their receipts for three years and that companies or individuals who are self-employed keep them for four. For extra protection, though, consider keeping them for six years. If that much time has elapsed since you filed the return, you are no longer subject to criminal prosecution.
Q: You wrote . . . about starting a new franchise. I’m trying to get up my nerve to start a small business on a shoestring, but I don’t want to franchise. Does any government agency offer instruction books or cheap advice of any other kind for would-be small businessmen? I’m particularly nervous about all of the tax ins and outs.--L. L.
A: The most obvious government agency is the Small Business Administration, whose mandate is to help the self-employed and budding entrepreneurs. You can swing by any SBA office and pick up free brochures, booklets and forms. Or call them about free workshops.
For a more detailed examination of the tax side of starting and running a small business, explore the IRS small business workshops. They are free and examine a wide range of topics, including accounting practices, record keeping, tax form completion and filing procedures, and the pros and cons of various types of business organizations--sole proprietorships, partnerships and corporations.
To enroll in an IRS course, call your local IRS office and ask for the taxpayer education coordinator. In Los Angeles and other large cities, the agency generally holds classes once a month.
