Radford & Emerson Personal Finance

Year End Tax Saving Tips for Tax Year 2011

2011-12-18T09:50:00.000-06:00

So folks, we are down to the wire, we are 2 weeks from the end of the year, and maybe saving on your income taxes is not foremost on your mind, there are probably thoughts of family, holiday dinners, gift giving - as it should be, but you may also want to devote some time to make sure that you have taken steps to reduce your tax liability as much as you can, of course, legally. As a reader of this personal finance blog over the years, you are familiar with the year-end reminders to do all you can to legally reduce your tax liability. This year I am going to point you to a number of columns with that information.

Sandra Block in a USA Today column talks about - weatherization, college tuition credits, deferring income, accelerating deductions, charitable contributions and taking advantage of sales tax particularly if you are in a state with no state income tax.

To see which consumer energy efficiency credits apply for the tax year 2011, click here.

Here is an article on CBS Money Watch which talks about the mortgage insurance deduction, enhanced adoption credits, educator expenses adjustment, plus 9 other tax tips.

"The TaxLady" blog has some tax tips on vehicles here.

Bill Lynott, freelance writer, gives some additional advice on saving on your taxes here and there is also a link to Part 1 of his post.

The Small Business Administration (SBA) has these tax saving tips for small businesses, and YAHOO Finance also has these small business tips.

If you are a small business owner and thinking of starting a 401K for your business, Stuart Robertson in a Forbes article has some ideas here.

Rande Spiegelman, Vice President of Financial Planning, Schwab Center for Financial Research has a host of tips that could apply to you here, from double checking your income records, tax-preferred education savings programs, to ways to gift without incurring the gift tax.

I quote directly from Rande here, because it is also my belief and practice, " After you decide what to do this year, resolve to make financial planning a year-round exercise going forward (you've probably got better things to do around the holidays). That way, it'll be easier to check your progress, update your plan and, if necessary, take action long before the ball falls in Times Square on New Year's Eve."

And remember as you locate your documentation to support your tax deductions, start cleaning out and archiving your 2011 information and set up your folders for 2012 - this way you will start the year off right, yep, I know, you say you will every year, this year you are actually going to do it, yeah!!!

Season's Greetings and a Prosperous New Year to everyone.

The Debt Ceiling Explained

2011-08-05T11:45:00.000-05:00

Confused about the debate about the Debt Ceiling and the Deficit here's a simplified explanation brought to you by the University of Texas at Austin's McComb's School of Business.

My intention was to simply place this over-simplified explanation for readers who wanted to understand the basics - but I started to browse the comments and so here's a link to the reference "article" itself as the comments section has a number of other references and links, because try as one might it seems impossible for folks not to get political and animated about an issue that fuels so much passion, and obviously it gives additional perspective.

The Consumer Financial Protection Bureau

2011-05-09T18:47:00.000-05:00

Hi everyone, if you have been wondering about what the "Consumer Financial Protection Bureau" does, sharing a quick link .

Financial Literacy and Financial Capability Summer Workshop

2011-05-05T21:22:00.002-05:00

You may not always agree with Alan Greenspan, but you probably will agree with this quote of his "No matter who you are, making informed decisions about what you do with your money will help build a more stable financial future for you and your family."

Financial skills last a lifetime, so giving your child the gift of financial intelligence and financial capability is something your child will forever be grateful for.

Join us this summer at the Greenhill School in Addison,Texas' Summer on the Hill program, we will be holding a week long Summer Workshop - "Money Management for Teens" starting on July 25th. To register, call 972-628-5490. Tell your friends.

Money Management for Teens - Summer Workshop - July 25th - 29th, 2011

2011-05-05T21:17:00.001-05:00

This compelling and fun program gives students the financial tools to develop their personal philosophy about money and establish money management skills early, a skill particularly indispensable in today’s economy.

Using interactive group activities, we’ll explore the money cycle, how to set smart financial goals and achieve them, why spending plans are important, how career decisions affect your earning potential, the part philanthropy can play in your financial life, and the fundamentals of credit, debit, debt, taxes, banking tools, earning, and spending. These are fundamental principles students can rely on throughout their financial lives.

Join us this summer - Call 972-628-5490 - Course ID: MONEYM

Didn't file an income tax return because you can't find your tax information?

2011-04-19T14:07:00.000-05:00

If you still didn't file an income tax return by yesterday (April 18th) the extended filing deadline, because you've moved recently and can't find your documents, or just can't find your tax documents because they are probably hiding under that pile of papers on your desk, why wait any longer - start contacting the companies that report your income (your job, unemployment agencies, brokerage houses etc.) to send you out another copy. It will take some time, so take action.

You can also contact the IRS and request a transcript which will detail the documents that they have received from the companies that report on your income. Order your transcript here. You can request a regular income transcript and you can also request an account transcript which will detail your account balances with them. It could take 14 days to receive this, so order as soon as possible.

Tax Tip: Late filing penalty

2011-04-19T14:03:00.001-05:00

Did you know that 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. Filing an extension by the due date (this year April 18th) avoids this late filing penalty. Remember though, the extension to file is not an extension to pay.

No need to pay that penalty if you can avoid it by filing an extension for free.

Troops Overcharged on their Mortgages

2011-02-02T16:27:00.000-06:00

Imagine being a member of our military, putting yourself in harms way. You cannot give full focus to your own safety and the safety of the country that you are fighting for, because your focus is divided on financial institutions that disregard the rules that allows your mortgage interest rates to be lowered while you are deployed. Your family at home has to deal with this ad nauseam.

No one wants to be overcharged on their mortgage, but when over 4000 troops are being overcharged and others are being unfairly foreclosed on, while serving to protect our freedom, you have to give pause.
Watch Lisa Myers' NBC News report on this issue and if you are so inclined lend your support to the cause here .

A Powerful Tool for Setting Your Goals Financial or Otherwise

2011-02-02T00:25:00.000-06:00

Hello everyone,

January is behind us and for many of us, so are many of those over exuberant New Year Resolutions, that some of us made. Well I spent yesterday at my annual planning session of Me, Inc. using a tool that I have used on an off for almost twenty years. A tool that is very powerful when you actually put it to use. Many years ago a mentor of mine shared this powerful tool with me, so as my New Year’s gift to you, I thought I would share this with you…and hope that you are able to reap the rewards that I have.

Every year in December, I take some time to have my personal annual planning session, this year I ran a little behind. My mentor suggested that I write a goal letter. The letter will be dated at least a year from today, so e.g. In December 2010, I would date my goal letter – December 31, 2011. The letter is written to a close friend (the letter is never mailed, it is for your use only) and the contents are stated as if you have already accomplished particular goals in as much detail as possible prior to December 31,2011. The logic of the process is that, once you have identified your goals, and have clarified in your mind what you are really seeking to accomplish, you write the accomplished goal down and the strategies that you used to accomplish it. Being able to put words to that goal actually etches that goal or desire into your subconscious. Your subconscious almost immediately starts to seek out opportunities for you to accomplish that goal. A major key to getting results is to ensure that you read your letter at least once a day. I found reading the letter to be quite effective, but for me, I was able to send my sub-conscious into turbo-charge when I recorded the letter on to a cassette tape and played it on awakening in the morning, generally while on the treadmill, as I went about my day while driving my car, and again at night before retiring to bed. The constant reinforcement into your sub-conscious gives you almost singular focus and attracts amazing opportunities to you almost magically, enabling you to accomplish your goals. Of course that cassette tape in subsequent years was replaced by a CD, but the regularity of review remains the same. For me, it was simply easier to listen to the letter rather than read it, but you may find that it works for you just fine if you read the letter.

As you write, remember to be as specific as you can, and include the timeframe for achieving your goal. Goals should be realistic and achievable, but give yourself some stretch room – don’t set your goals too low. State your strategies, the ways you went about achieving that goal. When you read or listen to the goal letter, you should be able to visualize the end goal that you achieved. If you cannot see that end picture spend some more time clarifying what you want and how you are going to go about achieving it, and then write that down. This is not a wish-list, it’s a set of goals that you are prepared to put the work into, in order to achieve them. Keeping the goal content visible and focused is where the magic or the power comes in. I will say that positive outcomes were commensurate to my level of focus (listening to the letter), straying from the process decreased my chances of accomplishment immensely.

February has started, make your action plan, write your letter and set it in motion - you'll be amazed.

I’d love to hear if this worked for you, and also please comment on what methods you have traditionally used to set and accomplish your goals, to achieve amazing results.

Quick End of Year (EOY) Record Keeping Tip - Mortgage Management

2010-12-31T11:29:00.000-06:00

Log on to your mortgage servicer's website and print a copy of your payment records for the past year, this will enable you to verify that all your payments were posted accurately as you move forward to the new year. Check to make sure that the dates and amounts actually match.

Also print a copy of your amortization schedule this will also help you ensure that the numbers that show up on your monthly statement are what they should be - it will also gives you an idea of how much or how little your interest payment is each month, relative to your total payment.    You will notice that your interest payment decreases ever so slightly and your principal payment increases ever so slightly each month. This schedule will also show you how your payments will be allocated through the end of your loan, if you make the regular payment at the stated due date.

Whenever you make an extra principal payment, use a separate check or a separate payment transaction and indicate clearly that you want that to be a principal only payment.   Verify on your statement and records that this is actually done.

Tax Tip: Medical Expense Deductions

2010-12-19T15:31:00.000-06:00

I know you have been told, “forget about keeping track of medical expenses, you have to have too many expenses for it to matter”. If you ask the question is that always true, the answer is no. Yes, they are right if you do not itemize your deductions. They are also probably right if you really have very minimal medical expenses. If you do however itemize your deductions, keeping track of your medical expenses could give your itemized deduction total a boost.

In all things numbers, folks often underestimate amounts that are not written down.

The reason that we are often told to forget about tracking medical expenses, is that, the only medical expenses that come into play for your itemized deduction calculation, are those expenses that exceed your adjusted gross income by 7 ½ %, so let’s say that your income totals $102,400 (for ease of calculation) and that income was adjusted down by a $2000 tuition deduction, and $400 in student loan interest so your adjusted gross income is now $100,000, you would have to have qualified medical expenses of over $7,500 for them to matter in the itemized deduction calculation and then only the amounts over $7,500 (7 ½%) will qualify.

$102,400 – ($2,400) = $100,000 x .075 = $7,500

Income – adjustments = adjusted gross income times 7 ½% = your 7 ½% number (limit)

So if you had $10,000 in qualified expenses then only $2,500 would apply towards the medical expense component of your itemized deductions amount.

$10,000 - $7,500 = $2500

Total qualified medical expenses - your 7 ½% number = qualified deductible medical expenses

Now, you say, well, I don’t have over $7,500 in expenses – remember that you really can only determine what your 7 ½% number is based on your income and your adjustments to income which is why keeping track of your expenses is important.

If the above example had an income of $52,400, with the same adjustments, your adjusted gross income would be $50,000 – then your 7 ½% number would be $3,750.

$52,400 – ($2,400) = $50,000 x .075 = $3,750

Income – adjustments = adjusted gross income times 7 ½% = your 7 ½% number (limit)

If you do not have many medical expenses, that’s a good thing. No one wants to be sick in order to take a tax deduction; however, if you do have those expenses, you want to be sure that you have used them all to decrease your tax liability.

If you have young children, you may have larger than average co-pay amounts, prescription amounts, and possibly surgery or procedure amounts.

If you are more mature, you may have more diagnostic procedures, surgical expenses, or medication expenses.

If you have a chronic illness, you may have high prescription amounts.

Qualified dental and optical expenses also qualify for medical expenses and folks often forget that.

If you are having a year where your medical expenses are already somewhat high but you probably haven’t exceeded your 7 ½% number, and you are scheduled for surgery or other procedure at the beginning of the next year, you may want to try to bring your surgery into the end of the current year so that your expenses are accumulated in one year pushing you over that 7 ½% limit, allowing you to take advantage of the tax benefits. Similarly, if you have an expensive or procedure surgery scheduled for the end of the year, and you know that you or your family may have some significant health expenses in the following year, you may want to delay the procedure or surgery to the beginning of the next year.

Caveat: You must have a discussion with your physician to make sure that pulling in or pushing out the date of your surgery or procedure doesn’t compromise your health.

A lot of people are not aware that medical mileage qualify as a medical expense (these are the miles you drive to medical facilities, including pharmacies).

Keeping track of all your medical expenses, will enable you to have the data to determine whether you qualify to include your medical expenses in your itemized deductions and of course is evidence in case of an audit.

You should also check with your human resources department, whether or not your health insurance premiums are deducted from your paycheck before or after taxes. If they are paid after taxes, then they also qualify as a part of your medical expense deduction. Make sure to let your tax advisor know that. Having some documentation from your HR department, or information from your company manual, will protect you in case of an audit. Many companies use income before taxes for employee’s premiums (which means that in that case you already got your tax break).

Important Note: The expenses that qualify are out of pocket expenses, so any portion of your medical costs that's paid for by your insurance company, does not qualify to be included on your tax return.

Stay well.

Preparing for Tax Season

2010-12-17T15:25:00.000-06:00

Just a few more weeks before the end of the tax year. Here Bob Meighan alerts you to some of the tips to help reduce your tax liability. Watch.

Repaying your Student Loans

2010-12-13T14:40:00.001-06:00

If you graduated from college or vocation/trade school this spring (2010), (considered your separation date from college), with student loans and a 6 month grace period, your loans are probably due this December 2010 or January 2011.   Its important that you make your payments on time.

Student loans are almost impossible to discharge, they have very few consumer protections, so you are at the mercy of your lender or servicer, so avoid late payments which will increase your interest rates or cause you to lose your incentives or discounts.  Paying late will cause the unnecessary compounding of interest and will add penalties and fees to your loans.

Not paying at all, will cause your loan to go into default. Defaulting on student loans can have dire consequences which could impact your entire life negatively.   Have I scared you? You'll thank me later.

Even if you haven't received payment requests from your student loan lender or servicer, it is your obligation to make your payment on time.  So call your lender, or visit their website, create an account and get the information.

Send this post link to a friend who graduated along with you and ask them to pass it on.

Consequences of Student Loan Default

2010-12-13T14:27:00.001-06:00

Defaulting on your student loan has some expected consequences such as being reported to the Credit Bureaus, which will definitely impact your credit score negatively.

You may also find yourself impacted by any or all of these other situations:

• Your federal or state income tax refunds or other federal or state benefits will be used to reduce your loan balance.

• Collection fees and costs, court costs and attorney fees will be added to your loan.

• If you have a state professional license you may lose that license, or be denied one. How ironic is that? You incurred all those student loans to gain a profession and now you will be at risk of losing your license and with it your ability to earn an income from that profession.

• You can lose your eligibility for any other federal student aid and most other federal benefit programs, which may leave you with private loans as your only option. These loans do not generally have as favorable an interest rate as federal loans.

• You can lose your eligibility for loan deferments or forbearance. If you cannot get a deferment or forbearance you will lose the ability to postpone your loan payments in periods of economic hardship or personal emergencies. You want to maintain this option.

• You may be required to repay your entire loan balance at once. Hope you won the lottery.

• You could be sued by your lender. Who wants a long drawn out legal battle which will probably not end in your favor.

• Your wages could be garnished, which means that payments will be forcibly taken from your paycheck.

• You may be unable to consolidate your loans, which means if you have multiple loans, you will have to make at least the minimum payments on each loan, which cumulatively may be an unwieldly amount, and which will increase the length of time to pay off your loans, and the amount of interest on your loan.

Play it safe and make your payments on time.

Today's Saving Idea (TSI): Health Care

2010-12-11T03:04:00.001-06:00

So you no longer have health care insurance or maybe your policy doesn't cover certain procedures. Inform your provider of your change in status and ask for a discount. Remember, your provider isn't a mind reader, and doesn't know what your insurance status is. Ask if recommended procedures are absolutely necessary. If they are, ask if there is a less expensive alternative that will produce similar results. For medication, ask your provider if they have samples. If you can get samples for one of every three months, that's a 33% savings right there. Always check to make sure that the medication has not expired however.

Also check with pharmacies like Walmart and Tom Thumb among others for their low-cost generic medicines. They carry a list of those prescriptions, which cost generally $4 for a month's supply and $10 for a 3-month supply. Sam's and Costco's are also known for being less expensive options for regular prescriptions. You can access Costco's pharmacy without being a member, simply inform them at the entrance that you are going to the pharmacy.

Don't keep these savings tips to yourself - tell a friend.

Save a Little Today, Save a Lot all Year.

Contemplation

2010-12-09T14:45:00.000-06:00

"Wealth consists not in having great possessions but in having few wants." Epictetus - Greek Philosopher.

Want a bigger refund this year?

2010-12-04T17:15:00.000-06:00

Trying to figure a way to increase your refund or at least break even on your taxes this year? Consider increasing your itemized deductions by making some charitable contributions. You know, there is no point in keeping all that stuff around if it really is no longer of any use to you. In one fell swoop you could kill three birds with one stone (animal lovers, this is figurative). You would be:

- providing goods for those who are in need in this recessionary period
- reducing your clutter and
- increasing the deductions on your tax return if you itemize, which could decrease your tax liability.

Now remember that just about anything that has to do with your taxes has some conditions attached, check them out below to see if some additional moolah/dinero/benjamins are in your future.

The organization that you contribute to, must be a qualified organization, for it to be deductible. They should be able to tell you if they are qualified, but for verification you can check or Search the IRS Publication 78 which lists most qualified organizations. If the organization can show you current 501(c)3 documentation, they should fall in the qualified category - and these include most churches, and public schools. An organization may have had its qualification revoked however, check here to verify.
You have to be able to use the Form 1040, Schedule A which means that your total itemized deductions must exceed your standard deduction amount.
Cash contributions are generally deductible, and for property, the fair market value is what is used. Donations after August 17, 2006 of household goods or clothing requires that they be in good condition or better. No more slipping those socks with holes, or blouses with permanent stains, into the contribution box. If you donate either a clothing or household item that has a fair market value of $500 or more - you may be required to prove that you had the item appraised for that value.
If you contribute to an event and your price of admission is included, or you receive goods and services in return, then your deduction is limited to the difference between your contribution and the fair market value of the benefit you received. For example, if you make a contribution to Public Radio or Public TV and you accept the "thank you" gift, your contribution will be reduced by the fair market value of the "thank you" gift.
You have to be able to prove your contribution, so KEEP good records. If you give "cash" - keep your bank records, credit card records, payroll records, and the dated receipts from the organization showing the amount contributed. Actual cash contributions, e.g. dollar bills and coins placed in the Salvation Army's bell ringer's bucket cannot be verified, so they would not qualify for a deduction. You could however slip in a check and that would be a part of your record once its cancelled.
Pledged amounts do not qualify for a deduction until they are paid, and only in the amount paid during the current tax year. So, if you pledged $300 in July but only paid the charity $150 by Dec. 31, your deduction would only be $150.
Now if you made a contribution by a credit card in October of the tax year, and you do not complete paying that credit card bill until the following year - you can definitely claim the full contribution amount made on the date you used your credit card. That also applies with a debit card - say you contribute an amount on December 29th of the tax year and your bank doesn't debit your account until January 2nd of the following year - you can still claim the full amount that you contributed on Dec. 29th.
Any contribution in the amount of $250 or more, requires written documentation from the receiving organization to substantiate your donation. Here's what you need to have in that documentation - the amount of cash you contributed or, a description of the goods and a good faith estimate of their value. The organization should also indicate whether you were provided any goods or services in return for your contribution. The document should be dated and should show the date your contribution was received by the charity.
If your items are valued at $500 or more you must complete and attach Form 8283 to your return.
If your item is valued at $5000 or more - an appraisal is generally required, and you do have to complete and submit Section B of Form 8283.

So if you no longer have a use for that boat, that car, that skeleton of the armadillo, your size 6 wardrobe that you have not worn in the last 8 years or the furniture set that is taking up expensive real estate in storage or in the attic, put it on your to do list to pass those items on before December 31st this year. Lets get that stuff moving!!

To help you figure out what your donated items may be worth, you can check out IRS information here. You may also want to take a look at the Goodwill Industries estimated value list of items most often donated. The list presumes your item is in good condition or better.

The IRS is on Your Side!

2010-12-04T10:08:00.001-06:00

Yes, I know, you never think the IRS is on your side, but it is. Maybe you noticed that a number of fraudulent tax preparers were apprehended over the last several years.   Tax preparers were creating fraudulent returns - often to their own benefit, while taking advantage of the taxpayer's lack of knowledge about their own tax situation, but at other times, it appeared that the taxpayer was in on the deal, accepting large refunds that they were not qualified for.   Like these guys..., this guy, and this guy...

Before, pretty much anyone could set up shop and prepare your taxes...resulting in the scenarios noted above.   Although the majority of paid tax preparers are honest and ethical, unfortunately there were fraudulent tax preparers in the ranks, who targeted among others, groups that may not have been savvy about their taxes, or may have wanted their money in a hurry, at any cost.   To make matters worse, these preparers were generally not accessible after tax season when the taxpayer had to respond to an IRS letter investigating the irregularities.

The IRS is now implementing new regulations that require tax preparers that are paid for their services to have a Preparer Tax Identification Number (PTIN) before they can prepare your 2010 taxes, including your CPA, your attorney, or enrolled agents. Even if they had a PTIN previously, they must re-apply. There is also a fee for obtaining the ID number, which should hopefully reduce the ranks of those who just shouldn't be preparing your taxes.

Now that you know that your tax preparer / tax advisor should have a registered ID number, it is in your interest to ask if they do.

Coming soon, tax preparers will be required to be certified.

We are still in the Woods!!!

2010-06-28T23:01:00.002-05:00

We all took a collective sigh of relief when we eluded the fall from the financial precipice almost 20 months ago. We all want to believe that the worst is over, but we all know that’s not true. It can’t be. We were about to fall off of a precipice not roll over a speed-bump, or speed cushion as some refer to it. If we have learned anything from hiding our heads in the sand for the last fifteen years, it’s that wallowing in denial cannot possibly end with the end we have in mind. So, no, no-one wants to scare anyone, but maybe we need to be scared into changing our mindset and our actions. Mind you this will be a difficult process, it’s a little like downsizing when your kid goes off to college and you feel some pain giving up a lot of what you love and have held on to for ten maybe twenty years, what you believe to be your right. In this vein, Rick Newman’s articles on How to Plan for a Double Dip Recession and 6 Strains on Your Financial Future are definitely worth a read. It's time to do some long-term planning, with the new-normal in mind. What your opinion?

Spring Cleaning and Taxes

2010-04-29T23:46:00.000-05:00

So your taxes are filed, (they are, aren’t they? or you filed an extension). What now?

Well I hope you had a refund, but if you had a balance due this year, take this opportunity to start your organizing for next year and doing some tax planning now. You can very rarely impact your tax situation after December 31st of the tax year, so in keeping with the season, do some spring cleaning and archive your 2009 documents and organize folders for the documents that you will need when you talk with your tax professional in 2011. Consider spending one of your money dates going over all the items that you jotted down while you were talking to your tax professional. You know, all those items that you hadn’t kept any documentation for, but which you could have made a valid claim if you had. Also, think about whatever life changes you expect to occur this year that may impact your tax situation either positively or negatively so that you may take defensive action to try to make it as positive as possible.

If you have a new child in 2010, you will be eligible for the $1000 child tax credit. If your child turned 16 in 2009 however, you will not be able to claim the child tax credit in 2010, so plan for the loss of that $1000 credit. Change your W4 to reflect your current situation, so that you do not have an unpleasant surprise when you go to prepare your taxes.

The better records you keep, the better chance you have of taking advantage of all the tax deductions that are legally available. I know, last year your tax professional said not to bother to keep your medical receipts, because you couldn’t itemize, or it was more advantageous for you to claim the standard deduction, but who knows, you may have enough to make a claim this year… and so it is with many items. Your tax situation is generally dynamic, your life events change, your life stages change, congress changes laws, so if you are expecting the same refund that you received last year, and your child turned 16 last year as mentioned above, it may not be possible without some planning.

Yet, for 2009, even if you couldn’t itemize you could still increase your standard deduction if you paid property taxes, or if you had purchased a new car after February 16th, 2009, (sales tax amount increased your standard deduction).

Keep track of your charitable contributions, and insist that you receive a receipt from the charity when you make your donation. If your donation is worth more that $5000, you will need to have it appraised, and keep that dated documentation. Churches will give you a receipt if you ask.

If you claim mileage for your business, medical miles, or volunteer miles, keep a log of your miles, location and purpose of the trip. Note your mileage on Jan1 and Dec 31. Also keep any documentation where a 3rd party validates your mileage, e.g. at an oil change, or when you take your car in for repair. If you claim the actual operating expenses for your business – keep track of all those items which include repair and maintenance (e.g. gasoline, oil, tires, car detailing, etc.), registration, inspections, parking and tolls.

You can claim the sales tax on your purchases if you itemize. Does that mean that you have to keep track of all your receipts, well no, you are allowed a calculated amount based on your income, and the sales tax rate of your state, called a safe harbor amount. You are also allowed to add to that amount the sales tax from vehicle purchases (including cars, boats, motor-bikes etc.) and home building materials. However, if you made large purchases on credit it is possible that your sales tax deduction could actually be more than the calculated amount – in this case you would have to track the sales tax on all your purchases, but the effort may be worth it.

If you are a teacher, keep track of the items that you purchased for your class – you can claim up to $250, but you must keep your receipts.

If your child is in college, and you are eligible for the American Opportunity Credit, keep all the receipts for books purchased and equipment purchased (including a computer). Also keep track of the actual amount of tuition that you pay, so you can validate the information that the school sends to you. If your numbers do not match the school’s numbers – contact them early to find out why.

Your tax-file will be different from everyone else’s – so take a cue from your 2009’s taxes and adjust as necessary. Please drop me a line and tell me how you organize for tax season.

Year End Tax Planning

2009-12-02T20:21:00.000-06:00

Hello everyone, it’s that time of year again, time to look alive. Sorry this post is so long but its important information and the post break on this system isn't working, Google claims it's working on it.

Yes, I know you are getting ready for the holidays and that alone can be overwhelming, but I want you to remember that you have less than 30 days to make any last minute decisions to positively affect your tax liability for the 2009 tax year. Yep, you’ve got to take action by December 31st for it to matter this year.

Review the items below to see whether you can direct things in your favor financially. Talk with your tax advisor to see if any of these items have a place in your financial position.

If you are one of the many people who
 receive unemployment benefits,
 receive retirement distributions like 401K or IRA distributions,
 receive social security benefits,
 are contractors, or
 are self-employed or has a small business,
and chose to or neglected to have federal income taxes withheld, you may be in for a not so pleasant surprise. You will probably owe taxes to Uncle Sam if your exemption amount wasn’t calculated accurately. Its always a good idea to do the W4 calculation exercise annually to make sure that any changes that you or your family will encounter during the current year is figured in your withholding calculations.

No one wants to have a negative tax liability, so here a few areas that you may want to take a look at to see if they can push you over to the “bright side” of tax refunds.

These items can increase your Schedule A deductions if you itemize:
 Increase your charitable contributions. Your charitable deductions cannot exceed 50% of your adjusted gross income. There is also a reduced limit of 30% and 20% in some cases for certain contributions. If your contributions exceed the limits in any year, you are able to carryover the excess amounts into the following year.
 If you think you may have a tax liability, consider paying January’s mortgage interest and /or real estate property taxes by the 3rd week in December so that they can be recorded as a deduction in 2009 (that way there is no chance that it doesn't get posted until 2010). Ensure that your providers document your payments as you request.
 In order for medical expenses to contribute to your itemized deductions number you have to have expenses in excess of 7 ½ % of your adjusted gross income. To this end a strategy to maximize the use and benefit of your medical dollars would be to try to batch major medical procedures inside of one year if you can. Also, if possible, delay non-urgent procedures to a period when you expect to have a lower adjusted gross income. It may already be too late to make this decision this year, yet you still have an option to put off medical or dental procedures until next year if it will benefit you. Of course it is never beneficial to delay medical or dental procedures for a tax benefit, if so delaying will cause a deterioration in one’s health.

Remember also, that the amount you can deduction is the amount you paid for during the tax year even though the medical procedure may have occurred prior to the tax year in question. Credit card payments count from the date you charged the expense, not the date you paid off the charge, Checks count from the date you mailed the check, so I would get some form of postal receipt – maybe certify the payment.
 You are able to deduct the state, local sales taxes, and excise taxes on new qualified vehicles purchased between Feb 16, 2009 and Jan. 1, 2010 – with a maximum purchase price of $49,500. The deduction phases out for higher-income taxpayers.
 You are also able to deduct your sales tax or your state income taxes on your itemized deduction. For sales tax you can use the actual amount if you kept a record, or the states sales tax table will be used. If you use the calculated table figure, you can also add in the sales tax on big ticket items such as a car (purchased or leased), boat, aircraft, home, or home building materials. It adds up.
Non-itemizers can also benefit:
 If you do not itemize – you can still get an extra $500 ($1000 if married filing jointly) added to your standard deduction for property taxes paid.
 You can take the sales tax itemized deduction on a new qualified vehicle above, even if you do not itemize, the qualifying amount is added to your standard deduction amount.
Credits:
 More people will now qualify for the Additional Child Tax Credit – as the earned income amounts used to calculate the qualification for this credit have been reduced from $12,550(amount it was expected to rise to in 2009) to $3000, and the amounts you may receive have also been increased.
 Earned Income Credit – new this year – the phase-out income amount for taxpayers, married filing jointly is $48,279 for three or more children.
 Energy Efficiency Credit– you are able to benefit from 30% of the cost of all qualifying improvements up to a maximum of $1500 credit for improvements placed in service in 2009 and 2010. The maximum of $1500 applies to the total for both years. Improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems (ARRA 2009 – American Recovery and Reinvestment Act of 2009).
 The First Time Home Buyer’s Credit has been modified, expanded and extended until 2010, so you may still be able to benefit (ARRA 2009).
 With the ARRA, for 2009 and 2010, your child now qualifies to take the old Hope Credit – now called the American Opportunity Credit (maximum annual credit of up to $2500 per child), for all four years, instead of only during freshman and sophomore year as you could previously. It is also available for many people who have higher incomes, and you are also eligible even if you have no tax liability. Tuition, related fees, books and other required course materials generally qualify.
Self-employed:
 If you are a self-employed person, you should be paying estimated taxes during the year to avoid penalties. Our system is still a pay as you go system, and the IRS expects to get their piece of the pie, just as soon as you make it.
 If you are a self-employed person, your health insurance premium (with some limitation) as a business expense can be claimed as an adjustment reducing your gross income.
GOTCHA's
 If your child turned 17 this year they no longer qualify for the $1000 Child tax credit so take that into account when estimating your potential tax liability. Since a credit decreases your tax liability dollar for dollar, this can be a nasty surprise when you lose this credit, and a very nasty surprise if you have 17 year old twins.
 If you had debts cancelled this year, e.g. credit card debts, mortgage reductions, repossessions etc. your situation may make some, or all of the amount that was cancelled, taxable income to you. Be sure to talk with your tax advisor about your situation to avoid a nasty surprise next year.
 Mileage records for business people & for employees who have unreimbursed expenses are being scrutinized more closely, so it is a good idea to keep your receipts and a log of your mileage with the purpose and people seen. Validation by a 3rd party is also required, so keep records when you take your car in for repair or an oil change where your odometer reading is documented. Of course, always note your odometer reading on January 1st & December 31st of each year.
 While the Recovery Plan put some additional dollars into your paycheck each pay-period – called the Making Work Pay Credit, you could possibly have a smaller refund or even a tax liability if you have not increased your withholding amounts. In addition, you may also have a larger liability if you have multiple jobs, or are married, as you may have received more Recovery money that you should have, and you know how that goes… you got to pay it back.
 If you took a distribution from your 401K or your IRA, and you did not have taxes withheld, you will probably owe quite a bit of taxes. If you took the distribution before reaching age 59 ½ you will likely also owe a 10% penalty. This does not apply to a direct rollover to another 401K plan or IRA. You will still be responsible for the ordinary income taxes on the distribution, but you may reduce or eliminate the 10% penalty using one of these exceptions.
Other
 The first $2400 you receive as unemployment benefits this year will not be taxed (ARRA 2009).
 A 529 (qualified education plan) plan can now be used to pay for colleges expenses that include computers, computer technology, equipment for internet access and related services, if used by the beneficiary of the 529 plan. Software designed for sports, games or hobbies will not qualify unless it’s mainly of an educational nature (ARRA 2009).
 Make sure you exhaust your FSA account. If you don’t use it, you lose it. Take into account your current year’s usage to help you determine your contribution amount for next year.
 Traditional IRA Contributions. This is one of the few decisions that you can make after December 31st and still affect your current year’s taxes. You may be able to make a contribution to your traditional IRA and qualify for a tax deduction. Remember you have until April 15th to actually make a 2009 Traditional IRA contribution – but waiting until then means your money isn’t working for you as soon as it could. Making a contribution early or in segments allows you to dollar-cost average. Ensure that your provider is aware which year your contribution should be allocated to.
 If you are over 50, take advantage of the catch-up amounts that are now allowed to fund your retirement plans - an additional $5000 to your 401K or an additional $1000 to your IRA.

Oh yes, I know your financial life is unique, so again, talk with your tax advisor to get more details and to determine if any of these tax strategies will be of benefit to you. The clock’s a ticking.

I’d love hear your questions and comments about the upcoming tax year. Please drop me a line below. Also, if you would like more information on some items that might impact your business, drop me a comment below also. Happy, Happy, Holidays to you and yours!!!

Retirement Distribution Penalty Exceptions

2009-12-02T20:10:00.000-06:00

       If during the tax year you took a distribution from your 401K or your IRA, and you did not have taxes withheld, you will probably owe quite a bit of taxes, as your distribution is taxed as ordinary income and, if you took the distribution before reaching age 59 ½ you will likely also owe a 10% penalty.
       If you made a direct rollover from one brokerage house to another (which is generally the safest way to do it), or if you took possession of the funds and rolled it over yourself, neither the tax or the penalty will apply, until you actually decide to have the proceeds distrbutable to you.
      So if you actually received a distribution before you were 59 1/2, you will still be responsible for the ordinary income taxes on the distribution, but you may reduce or eliminate the 10% penalty using one of these exceptions.

For either a 401K or IRA distribution:
a. If your medical expenses are over 7 ½ % of your adjusted gross income (you do not have to itemize to take advantage of this).
b. If you are totally and permanently disabled
c. If the IRS levied your account.
d. If you take equal periodic payments over your life expectancy
e. If the distribution was made after the death of the account owner
f. If you are a qualified reservist serving on active duty for at least 180 days.
For IRAs only:
g. If you used the amount to pay for higher education including room and board, for either yourself, your spouse or your dependent.
h. If you are a first time home buyer – a maximum amount of $10K applies here and is a lifetime limitation (each spouse if eligible).
i. If you paid medical insurance premiums and you were unemployed (see your tax advisor for details)
For 401K’s only:
j. If you separated from service of your company and if your were 55 or older (50 if you are a qualified public safety)

There are other less common exceptions, or see your tax advisor.

NOTE: You may have requested the brokerage house to deduct income taxes from your proceeds, and they may have done so, however, because they are not aware of the rest of your tax life for that year, it may not be enough, particularly if you are married filing jointly (your spouses income would not have been considered). Your tax liability is based on your total income. So you should keep some of the funds in reserve in case you do owe Uncle Sam.

Tired Of Being Jerked Around by your Credit Card Company?

2009-08-24T14:35:00.006-05:00

A friend called me up recently and said “OK, Ms. Personal Finance, what are these people doing? I have been paying down my credit card balance, but all the card company keeps doing is reducing my available credit.” I said, “Welcome to the new credit card world, if you can, you should try to find a new card company. Not only is the practice inconvenient, but it may even be hurting your credit score.”

The credit card companies are attempting to make as much hay as they can while the sun shines. They are scrambling to ensure they can eke out the maximum revenues possible from you, their “clients” before the new credit card reform goes into action full-force.

As I was doing some research to help my friend find a new card company, I stumbled upon Rob Lieber’s article in the New York Times “It May be Time to Find a New Credit Card” and since I agreed with him for the most part, I’ll let you read it yourself, via a link at the bottom of this article.

I do believe that this moment in our economic life, gives us the space to put better financial practices into place. One practice I would definitely suggest is reducing the grip of credit cards.

Folks who are considered “good credit card customers” by the credit card companies, are generally folks who have “bad credit card practices,” they make late payments, go over their credit limit, pay minimum balances – all the things that provide lots of revenues for the card companies. Yet, the card companies are clamping down on both good and bad customers alike. For instance, they are reducing the available credit on cards and they are closing down cards that you use infrequently. They are also hiking up your interest rates – putting into effect that “universal clause” that allows them to hike the rate on your credit card, even if you have never missed a payment on that card. The universal clause allows the card companies to raise your interest rate, if you are late on any other bill that is reported to a credit reporting agency. Sneaky, huh!

So why are the card companies clamping down on these people? Well, in a good economic climate, these folks would keep on paying their minimum payments, their late fees, their over the limit fees etc., while the credit card companies continued raking in big bucks, but in a more murky economic climate, there is a real possibility and lets say probability that many of these users may not be able to continue paying these extra charges, because with fewer dollars all around, who can keep up this practice long term. The card companies certainly do not want to be left holding the bag. Even for folks who do not abuse credit cards, by necessity, credit cards may become more of a life-line and less of a convenience, until this meager period passes on.

So lets get back to basics. Make a plan to get out of the grip of those credit cards. Pay those balances down, but also think about which card company you want to do business with. Make these changes work for you.

Ron Lieber's article: It May be Time to Find a New Credit Card.

Hurry, Last Day for DTV Converter Box Coupons

2009-07-30T23:32:00.005-05:00

This is it. Last Day for DTV Converter Box Coupons

If you still have analog TVs in your arsenal, today is the last day that your application for a subsidized coupon will be accepted. You can apply via FAX, mail, phone or online.
Mailed applications must be postmarked by today, July 31st.

Coupons expire 90 days after they have been mailed.

Here's a Way To Get That New Car

2009-07-30T11:49:00.010-05:00

Cash for Clunkers!!!

Update on 8/5/09: The House and Senate have passed a bill to increase the "Cash for Clunkers" program by $2 billion. Its now available for the President to sign. So you have a FEW weeks to cash in on this program. Remember, if you can privately get more than $4500 for your trade, you may be better off, selling your car outside of this program.

Update on 7/31/09: Oops... I was mistaken, it was $250m left, not used after just one week of the CARS program. The program will be extended by another billion dollars or so, but the restrictions may get tightened, so hurry in...

Woohoo!!! Here's a great opportunity to trade in that low gas mileage auto that you have had for years. The government program will give you a voucher for $3500 to $4500 if your old car or truck has a combined mileage of 18mpg or less.

You may be able to get further help in purchasing your more fuel efficient new car, or used car as many manufacturers and dealers are offering their own discounts and sales promotions. Check your local dealers to see what they have to offer.

But HURRY!!! as the budget for this program is limited to 1 billion dollars, it ends November 1st, or when funds are exhausted. $250m have already been used up...

Now you will have to give up on your sentimentality if you want to take part in this program, as “old Betsy” will be sent to the junk yard and will be crushed, to prevent her from being back on the road with her inefficient mileage. So bring a handkerchief and say your good byes, then say hello to a brand new or used car that promises to help reduce our dependence on oil.