Message from CFP Board

All the changes to the 2009 tax return may make it harder to file. If your 2008 tax return stopped with a Schedule K, get ready for the new Schedules L and M! But at the end of the day, 2009 should be a less taxing year for many American taxpayers.

Many Americans did not see increases to their wages in 2009. However, their tax bill may go down just by standing in place, as a result of various changes from 2008 to 2009. Take, for instance, a married couple with taxable income of $75,000, who can save as much as $300 due to changes in tax brackets. But there may be even more savings over last year:

• If the couple has, say, two dependent kids, they will pay about $75 less than in 2008 because of the increase to the personal exemption.
• If the couple claims a standard deduction rather than itemizes, they will gain approximately $125 as a result of the increase in the standard deduction amount.
• That standard deduction amount could be even more, because they may now be able to add up to $1000 of real estate taxes to this standard deduction to get a new higher amount. The potential savings: about $250.
• It gets even better if the couple bought a car in 2009: they may be able to pad their standard deduction even further adding by the amount of state or local sales or excise taxes on the car purchase.

Those paying Alternative Minimum Tax (“AMT”) should take note: If you fell into the AMT status as a result of itemizing, try figuring your taxes using the standard deduction with the allowable add-ons. You may be better off. The IRS does not require you to itemize if you don’t want to.

Seniors, too, should take note of the super-charged standard deduction since many may have paid off their mortgages, or live in low income tax states (such as Florida) where they don’t have much to itemize.

The biggest savings is available to buyers who bought homes in 2009 and who had not been owners of principal residences for three years prior. Many recent homebuyers can receive a tax credit of $8000, which is a dollar-for-dollar savings of $8000 in taxes. You can even decide if this credit would be better applied against your 2008 taxes or your 2009 taxes. Because the credit is phased out for high-income taxpayers, those who have had a decrease in their income in 2009 may be better off by taking it against 2009, and those with a big increase in 2009 income may be better off amending their 2008 returns. (There are somewhat complicated eligibility requirements – be sure to do your research or have a qualified tax preparer check this for you.)

Finally, here are some savings you may not have been aware of, but which you could be eligible for:

• You can deduct contributions to the Haitian relief effort on your 2009 tax return for payments made between January 11 - March 1, 2010.
• If you are self-employed, but forgot to get expense receipts for your meals on the road, you can use standard per diem amounts without substantiation.
• If you made an IRA or ROTH IRA contribution, or had elective deferrals to your employer’s retirement plan, and your income is below a certain amount, you can get a credit for these contributions even if you also took an above-the-line deduction in the case of the IRA or made your elective deferrals pre-tax. It’s called a qualified retirement plan savings credit, and could be available for all you who, even in this year of dwindling income generally, still made those plan contributions. GOOD for you – you deserve that credit!
• Finally, for the hard-core fitness fanatics who bike to work, and who have employers who provide parking or transit passes as tax-free fringe benefits to employees, it’s time to get in line and ask your employer for a tax-free $20 reimbursement a month for being so eco-friendly. $240 in extra income could be waiting for you there.

As with any other important financial decision, when it comes to filing your income tax return, it pays to be objective and diligent. Be sure to do your research before claiming any special deduction, using the resources available on the Internal Revenue Service Web site, www.IRS.gov. Or better yet, seek out a qualified tax professional to assist you with advice or income tax return preparation.

-Eleanor Blayney, CFP^® Consumer Advocate, CFP Board



LifeTuner.org, a new online personal finance community for young adults, has launched an educational campaign called "Don't Get Swiped" that aims to shed light on how credit cards affect young consumers and how credit card debt can impact their finances into the future.

The campaign features three short videos that offer a humorous look at how unwitting consumers fail to read or understand the fine print that can trip them up. An article explaining how new laws impact consumers and highlighting the new “gotchas” to look out for is another feature. A third feature of the campaign is a tool that invites people to consider what they could have in the bank if they weren't paying credit card interest every year. In addition, financial experts have offered tips for avoiding the most common misuses of credit cards.

LifeTuner is using the campaign to:

• Raise awareness of the misuses of credit cards;
• Raise awareness of the cost of credit card interest over time;
• Raise awareness of how new laws affect consumers and how credit card companies are responding;
• Motivate young adults to understand how credit cards work and to avoid falling into a downward debt spiral.

Please visit the Don't Get Swiped Web site at www.lifetuner.org/dont-get-swiped

Top News Stories

Social Security to See Payout Exceed Pay-In This Year
New York Times (03/25/10) Williams Walsh, Mary

The economic recession has hurt employment, real estate, and now Social Security. In 2010, the fund will provide more in benefits than it receives in payroll taxes, an action that was not supposed to occur until at least 2016, according to the Congressional Budget Office (CBO). Social Security Administration chief actuary Stephen C. Gross says that while the CBO's prediction will likely occur, the change will not affect benefits in 2010, and retirees will continue receiving checks. The system's payout will be higher than the pay-in because payments have increased more than expected during the recession, with more people unemployed and applying for Social Security benefits sooner. The program's revenue has also dropped because there are fewer employees from whom to collect taxes. This problem highlights the desire to determine when Social Security will use all of its funds, and experts currently believe this will occur in 2037. President Obama has developed a bipartisan commission to review the nation's debt, including Social Security. The panel will make recommendations on how to reduce the country's deficit. Alan Greenspan, former chairman of the Federal Reserve, says the government has three options to protect the Social Security fund: raise taxes, lower benefits, or bail out the program by using general revenue. "Even if the trust fund level goes down, there's no action required, until the level of the trust fund gets to zero," says Greenspan. "At that point, you have to cut benefits, because benefits have to equal receipts."


Check Bank Accounts Carefully as Fee Changes Begin
San Jose Mercury News (03/27/10) McGuire, Kara

New rules intended to protect consumers from unfair or overly high bank fees will take effect Aug. 15, and banks are working to find new ways to recover that lost revenue. Many are likely to start charging fees for writing checks and paper statements to encourage the use of debit cards, and may offer new fee-based services such as personal financial management software that analyzes spending patterns. This means consumers will have to scrutinize their bank statements to discover any new fees that are being imposed, and decide whether their current account is the best place to keep their money.

Personal Finance News

Debunking Common Tax Myths: E-Filing Won't Trigger an Audit
USA Today (04/05/10) Block, Sandra

Many people erroneously believe that e-filing or requesting an extension increases the likelihood of a person being audited. In reality, e-filing may actually reduce a person's chance of an audit because these returns tend to be more accurate, says Internal Revenue Service (IRS) spokeswoman Michelle Eldridge. Similarly, filing an extension may reduce a person's chance of leaving out key information, such as a Form 1099 from banks, says Maureen McGetrick, a tax partner at BDO. Another common misconception is that filing an extension gives a person additional time to pay. In reality, even if a filer's paperwork is not ready, he or she should estimate the amount they owe and submit the payment with the extension request by April 15, or face penalties and interest. Many people are also unaware of the limits on what a self-employed worker can write off. They can deduct business-related expenses but not expenses that are reimbursed by another party or those that are not business-related, McGetrick says. To claim a home office deduction, there must be a place in the home that is used "regularly and exclusively" for a business, says McGetrick, who adds that self-employed workers must maintain good records of their business expenses because the IRS is becoming more vigilant about self-employed workers. Many people are also unaware of the existence of certain thresholds that could cause Social Security to be considered a part of a person's income, notes financial planner Joseph Montanaro, CFP^®.


At Tax Time, Adding Up Medical and Dental Receipts Pays Off
MarketWatch (03/17/10) Martin, Anya

Accountants recommend that consumers add up their medical and dental receipts to save money during tax time. They believe that an increasing number of Americans will qualify to take medical and dental deductions on Schedule A of their individual tax returns due to declining incomes and rising insurance premiums. To qualify for the deductions, eligible medical and dental expenses must be greater than 7.5 percent of a person's adjusted gross income, says Mary Canning, dean of the School of Taxation and Accounting at Golden Gate University. Consumers who have employer-sponsored health insurance should find out if they pay their premiums on a pretax or after-tax basis. Only premiums paid on an after-tax basis are eligible for the medical-expense deduction. The first step in taking the deduction is itemizing instead of using the standard deduction. Only the amount above the 7.5 percent threshold can be deducted. For people subject to the alternative minimum tax, however, that limit rises to 10 percent of adjusted gross income.


The 15 Money Rules Kids Should Learn
Wall Street Journal (03/28/10) Opdyke, Jeff D.

Statistics released by the Jump$tart Coalition for Personal Financial Literacy show that many children do not grow up learning the basics of personal finance. In a recent study of 12th graders, Jump$tart found that roughly half could not pass a test on basic personal financial management. In addition, Jump$tart found that many of the students were unable to balance a checkbook. The results of this study underscore the need for parents to teach their kids about how to handle money, beginning when they are young and impressionable. Among the lessons that parents should teach kids is that spending money only takes place after it is earned by getting good grades or helping around the house. Parents should also limit kids from spending more than 50 percent of the money they have saved. In addition, parents should allow their children to make financial mistakes, but they should also make sure that there are consequences for their behavior. For instance, parents should forbid children from using their debit cards for at least a week when they fail to balance their checking account each month. The goal of these lessons should be to make children comfortable with managing all the aspects of money, including spending, saving, investing, and giving to charity.


Skipping Life Insurance for Women Can Endanger Family Finances
Philly.com (03/16/10) Gutierrez, Brenda

Experts say women are less likely than men to have life insurance, which could trigger financial hardships for their families if they die. "Underinsuring the female, whether she is a working or stay-at-home mom, makes no more sense than underinsuring the male," says Beth Wood, assistant vice president of business and women's markets at Massachusetts Mutual Life Insurance Co. "There are just too many uninsured couples putting their families at risk." However, many families feel they cannot even afford the basics in today's economy. Wood says it is important that women have insurance because even if the father supports the entire family, it might not be sufficient. For instance, if a woman becomes disabled or passes away, her husband might have to reduce his work hours or hire someone to look after the children. The Bureau of Labor Statistics estimates that nearly two-thirds of families currently depend on two incomes to be financially secure. Wood recommends getting started as early as possible because insurance rates are typically based on the age and health of the insured.


Saving for College Takes Some Homework
MarketWatch (03/11/10) Openshaw, Jennifer

Choosing the right 529 college-savings plan might be more difficult than finding the right mate. States, as well as investment and brokerage firms, offer 529 programs, and the plans offer a wide range of investment options. When searching for the right 529 college-savings plan, you should first look into your state's program, which is likely to offer tax breaks such as a state income tax deduction for your contributions or even a tax credit. However, your state might not offer the best investment options. There might be investment options elsewhere that offer better returns, even without the tax break. When looking at plans outside your state's offering, consider features such as whether the program is fully managed, whether the investment mix is in line with your appetite for risk, and whether the investment strategy works for the age of your child today and in the years to come. Delving further into the details of potential plans, you should consider whether there are any restrictions on transferring ownership, whether you are comfortable with the investment manager, and whether similar options can be found at a lower cost.

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