Thursday, January 14, 2010

Best Tax Moves in 2010

Yahoo! Finance has an interesting feature article on taxes for 2010. While it may seem odd to think about 2010 when you are just gathering together your W2's, receipts, and all sorts of other documents for 2009, it's always best for Everyman to be proactive.

Some of the best on the list:

- Buy a Home

Not only can first-time homebuyers grab an $8,000 tax credit, but now current homeowners who have lived in their residence for 5 of the last 8 years can also qualify for a $6,500 tax credit. And remember, a credit comes straight off of the amount of taxes you pay, not off of the income that is eligible for taxation (thus, a credit is better than a deduction).

- Convert to a Roth IRA

If you think like I do, taxes will go no where but up from here. So why not pay the taxes now and avoid a higher tax bill later? That's what a Roth IRA can do for you. A traditional IRA allows you to contribute tax-free, but requires that you pay taxes upon withdrawal. A Roth does the opposite, allowing you to prepay your tax, but enjoy the ability to withdraw the money tax-free. Like I said before, I expect to be paying a higher share of my income in taxes in the future, so I'd rather pay it now at the lower share rather than waiting for the axe to fall later on.

- Take Your Capital Gains While Tax Rates are Low

The capital gains tax rate is between 0-15%, depending upon what tax bracket you fall in. However, in 2011, the top rate will be 20% - and everyone will pay at least 10%, so it may be in your interest to sell the stock before the end of the year. For example, say you have a number of shares of stock that you purchased when your child was born and sat aside for his/her college fund. Let's further assume (hope) that those shares have appreciated since that time and would be subject to capital gains taxes. Although your child may not need the funds for another year, it might be prudent to sell and be taxed at the lower rate rather than waiting until 2011 and then placing the money in a CD or other low-risk (can't say anything is risk-less any longer) investment instrument.

For the full list, click here.

Tuesday, January 12, 2010

Woman Takes on the IRS - And Wins!

In a story that should be encouraging to the Everyman out there, a Maryland woman has defied the odds and successfully challenged the IRS. The topic? Tuition for her M.B.A.

Why should you care? First, there is the obvious reason in that it may make it easier for you to deduct your own education expenses. However, I think it is also a step in the right direction for the empowerment of the Everyman in their ongoing battle to retain what they have rightfully earned.

Look, I'm not someone who advocates cheating on your taxes. By all means, give to Caesar what is Caesar's. However, if you can reduce your tax liability within legal parameters, why would you turn that opportunity down? Sure, the government has proven to be responsible investors and a fine example of financial responsibility (yes, that is sarcasm), but I have faith in you, the Everyman, to be able to do with your money what you wish.

Anyway, back to the story. It was ruled that the nurse from Maryland was correct in deducting her tuition expenses on her tax return for her M.B.A. from the University of Phoenix (nearly $15,000). What is more interesting is that she represented herself! Not only did she take on the vaunted Internal Revenue Service, but she did it without lawyers. There is a God!