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艘善祥屾壽衾tax tipsㄛ泂涴爵躺鼎湮模統蕉陛ㄐ

♂Tax Documents You Shouldn't Be Missing
♂6 Sources for Free Tax Help
♂12 Tempting Tax Tips to Save You Money for 2012
♂4 Tax Tips For Unemployed Workers
♂12 Tax Tips for January
♂5 Last-Minute Ways To Maximize Your Tax Deductions
♂5 Things to Know About the Payroll Tax-Cut Extension
♂Tax Deal: What's in It for You?
♂Will Congress extend key tax deductions?
♂Big Tax Mines That Could Blow Up Your Return
♂Is Interest on Credit Cards Tax Deductible?
♂5 Keys To Unlocking A Better Credit Score
♂5 Ways to Reduce Your Taxes for Next Year

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Tax Documents You Shouldn't Be Missing
Carmen Wong Ulrich | Yahoo! Finance

2011 may already be in your rear-view mirror, but, before saying a final buh-bye to last year, let*s look back and get straight with the IRS. Tax time doesn*t have to be a painful process. As a matter of fact, it*s easier than ever, especially with so much available online. However, there is still one part of the process that*s paperbound〞the beginning.

Here are some of the five most important documents to have on hand to start filing your taxes this year:

1. 1040 Tax Return Form

Your 1040 tax return form is where the filing happens. This form describes information about you, the taxpayer, your dependents, and all items as it comes to income. On this form you calculate your tax deductions as well as your tax credits and show what funds have already been withheld from your earnings. This is also where you*ll eventually complete how much tax is due (or refund!) given your adjustable gross income (your ※AGI§).

2. W-2 Form

For full-time employees, the W-2 is what you need to pull out of your mail pile and have on hand. This form lists your total earnings from each employer as well as what was deducted already from your paycheck, such as taxes withheld and healthcare premiums, for the year. If you*re a part-time worker or freelancer you*ll get a W-9 with similar information.

3. 1099 Forms

1099 forms are also tied to income but very different kinds. You*ll get a 1099 for interest earnings (such as from a savings account), as well as for investment earnings, any capital gains you made from buying, holding then selling stocks or other investments. Or, if you*re incorporated as a small business owner or independent contractor, this is how your payments get reported to the IRS as well. Have all of these on hand when you*re ready to file.

4. Mortgage Statement

Now that income statements are out of the way, don*t forget those mortgage statements. Mortgage statements show how much principle you paid toward your mortgage and just as importantly, how much you paid in mortgage interest. That interest is one of the biggest tax deductions that homeowners have.

5. 2010 Tax Returns.
Lastly, you*ll have to go back in time one more time and pull out your 2010 tax returns and copies of any additional payments you may have made. You*ll need all this to refer to when filling out your 2011 tax return.

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6 Sources for Free Tax Help
Reyna Gobel, MBA | Investopedia

Whether you are filing a simple tax return, trying to amend previous years' returns or owe money to the IRS, you may qualify for free tax help. From community-based services to free software, there are many ways to avoid doing your taxes on your own. In the following article, we look at six sources that will help you with your taxes - for free.

1. Free or Inexpensive Legal Clinics

Have you seen a bunch of commercials lately that are about settling past tax debt for a fraction of what you owe, yet you still can't afford the fees? The local university law school could help. It may have a free or inexpensive legal clinic that takes on tax settlement cases for free or a minimal fee, depending on your income.

The free or reduced-fee tax clinics are staffed with law students who have licensed attorneys as advisors. The law student gains experience while you gain free or inexpensive tax help.

If you have old tax debt and can't afford an attorney to negotiate with the IRS to reduce the amount you owe, call your local university's law school and ask if they have a tax clinic. If so, ask about maximum income levels to qualify for assistance, waiting time to get an appointment, what fees are charged and what kind of cases are handled. You may get lucky and hire a student attorney for $25 to take on your tax settlement case.

2. IRS Tax Offices

If you meet income requirements, IRS employees will help you file your current, amended or past year's returns. Check the IRS website for current income requirements, since it can vary each year. If you qualify, you will need to call your local IRS office to set up an appointment. To find the number for your local office, follow this link for the IRS local contact page.

When you go to your appointment, you will want to bring the following:
♂Your W-2s for the year(s) you need help filing
♂Two forms of ID, normally your driver's license and social security card
♂Bank statements
♂Investment or savings accounts statements
♂Mortgage statements

If you don't meet income requirements for an IRS representative to help you file your return, you can still make an appointment to ask unlimited questions without a charge. You just won't be able to have the agent file your return for you.

3. Community-Based Free Tax Preparation

The IRS trains volunteers to help you file your tax returns.The main benefit to this program versus getting help at the IRS tax office is that the location of the volunteer site may be closer to your home. While there is an income limit for most individual taxpayers for this programs, volunteers help current members of the Armed Forces for free. To find a location call the IRS help line.

4. IRS Help Lines

The IRS has a phone line where anyone, regardless of income level, can call with tax questions: 800-829-1040. You could call in a dozen or more times with different questions, but you would probably get transferred to several different representatives if you did. The IRS has specialists for different types of questions.

For example, let's say you just graduated college and wonder what education tax credits or deductions you qualify to claim on your taxes. The IRS operator would transfer you to a person who specializes in this issue. You can also order forms or have previous year's W-2s sent to you. This service is useful if you didn't file a past tax return or you want to amend an older return and misplaced your W-2s.

5. Taxpayer Advocate Service Office

The IRS's tax payer advocate service is for when you have a larger issue than filing return. This service helps businesses and individuals, regardless of income level, who are having long-term issues with a tax issue, such as trying to resolve a tax issue from the previous year.

6. Free Tax Software

No matter what your income level, several companies offer free, basic tax software: TaxACT, Free File, and TurboTax.

What can be expected from the free version? In the free version, you can expect the program to calculate your taxes, deductions and credits, and electronically file your taxes. State taxes are never available on a free version. You should always read the description of the program to make sure it handles more complicated tasks if you need them, such as business expenses for those that are self-employed. If the free versions don't include the features you need, you should compare prices over the internet for a product that does.

Conclusion

You don't have to file your taxes by yourself if you don't make enough to hire an accountant or pay for software. You may be able to get free help from the IRS tax offices and phone line, volunteer tax preparation centers and free versions of popular tax preparation programs.

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12 Tempting Tax Tips to Save You Money for 2012
Kay Bell | Bankrate.com

In recent years, as Congress crafted new laws such as housing bills, health care reform or extended tax provisions such as the Bush-era tax cuts, lawmakers were careful to make sure that no major taxes took effect in 2012.

Why? Because it's a presidential election year. No candidate wants to explain to voters heading to the polls why they are facing added taxes.

But there are still many tax considerations in the coming year. Here are 12 tax tips, reminders and planning tools for 2012.

Tip 1: Remember Roth IRA conversion taxes

Anyone, regardless of income, can convert a traditional individual retirement account to a Roth IRA. But when that option first became available in 2010, a special feature that year allowed individuals who converted to a Roth IRA to spread the taxes due on converted amounts equally over the 2011 and 2012 tax years. That means your first Roth conversion tax bill will be included on your 2011 return filed in 2012. Make sure you have that cash on hand, and plan now for the 2012 conversion bill.

Tip 2: Claim your American Opportunity

The American Opportunity Tax Credit was a centerpiece of the 2009 stimulus bill. The new education tax break expanded the existing Hope Credit, providing a credit of up to $2,500 of the cost of qualified tuition and related expenses, and up to $1,000 of the credit could come back to the taxpayer as a refund.

The American Opportunity Credit was originally supposed to end in 2010, but it was extended through 2012. However, this could be the credit's last year. Congress is looking for ways to cut the federal deficit, and allowing tax breaks to expire is an easy way to save some dollars. If you have eligible education expenses, be sure to claim the American Opportunity Credit while you can.

Tip 3: Note health care info on W-2

When you get your 2011 W-2, you might notice some new information on the form. Box 12 is where employers will report the cost of your workplace's group health insurance coverage. This amount is both the amount the business pays as well as the premiums paid via payroll deductions by the workers.

Don't freak out. The amount, which will be designated by the code DD, is not taxable income. It's informational only, designed to help Uncle Sam confirm taxpayers have coverage. Under the health care reform law, the Affordable Care Act, the data will help to enforce the eventual individual coverage if it survives a Supreme Court hearing as well as the so-called Cadillac tax on more expensive workplace insurance plans.

However, if you don't see anything in Box 12, don't freak out about that either. The IRS ruled that reporting 2011 health care data is optional for employers.

Tip 4: Pay attention to Form 1099-K

If you get a Form 1099-K in 2012, don't toss it. The new form records payments received in 2011 by credit card or through third-party networks such as PayPal. This added income reporting mechanism was created as part of the Housing Assistance Tax Act of 2008 and is finally taking effect for the 2011 tax year because of concerns that some small businesses do not report all of their income. Previously, the Internal Revenue Service had to take taxpayers' word that all income was reported because the agency didn't have access to credit card or online payment details. The 1099-K changes that.

Tip 5: Be ready for basis reporting

Beginning with the 2011 tax year, brokers must report an asset's basis, the value that is used to determine profit when you sell, to the IRS. That amount will show up on the 1099 forms you receive in 2012 for 2011 stock transactions. Additional basis reporting will be phased in, in 2012 and 2013. You might have heard of this new requirement when your investment managers asked which type of basis reporting you preferred they use. Generally, brokers must report the sale of securities on a first-in, first-out basis unless the customer specifically identifies which securities are to be sold.

Tip 6: Accelerate income

Most tax experts will tell you to pay no tax before its time. However, impending income tax rate changes might make 2012 the exception to that traditional tax adage. The top ordinary income tax bracket in 2012 is 35 percent of annual taxable income. If Congress doesn't act, the highest tax rate will go to 39.6 percent in 2013. So, if you're in the top tax bracket, you might want to accelerate income into 2012 and pay taxes at the lower rate.

Tip 7: Cash in winning stocks

Along with higher ordinary income tax rates, there's a possibility of higher tax rates on investment income. Through 2012, the top federal capital gains tax rate is 15 percent for most taxpayers, and no tax is due from investors in the 10 percent and 15 percent tax brackets. These lower rates apply to assets held for more than a year. If you believe capital gains taxes might go up, 2012 could be a good year to lock in profits on long-term investments.

Tip 8: Plan for the added Medicare tax

Higher-income earners always have a few more tax considerations, and that's true in 2012. In 2013, a new 3.8 percent Medicare tax is slated for collection on profits from the sale of investment property.

This includes capital gains, dividends, interest payments and, for those who own rental property, net rental income. The tax will apply to individuals with a gross income of $200,000 or more or married couples filing jointly with a combined gross income of $250,000 or more. If you're in the targeted income brackets, talk with your tax and investment advisers about steps you can take this year to prepare for the new tax.

Tip 9: Assess AMT danger

The alternative minimum tax, or AMT, is a continual tax trap for millions of middle-income taxpayers. This parallel tax system was created in 1969 to ensure wealthier taxpayers pay a minimum amount of taxes, primarily by disallowing several common deductions that are claimed under the regular tax system.

But because the AMT is not indexed for inflation, Congress must increase the income levels affected by the alternative tax.

It's possible that tax reform in 2012 could eliminate the AMT, a longtime goal of many lawmakers. But just in case that doesn't happen and you fear you might end up paying the alternative tax, talk with your tax adviser about ways you can limit your AMT exposure.

Tip 10: Give gifts

Giving to charity can help reduce an annual tax bill, but if you have a large estate, gifts also are important estate tax tools. Thanks to the resurrection of the estate tax in 2011, the unified gift tax also returned. This means you can give away $5 million during your lifetime without having to pay the 35 percent gift tax.

There's also an annual amount to note in giving away your estate's assets while you're still around to get thanks. In 2012, you can give up to $13,000 each to as many individuals as you wish without any tax costs to you or your gift recipients.

Tip 11: Evaluate estate tax implications

Speaking of the estate tax, the inevitable meeting of death and taxes will be a hot topic in 2012. If Congress takes no action, the current $5 million estate exclusion will fall to $1 million, and the tax on estates larger than that will be 55 percent on Jan. 1, 2013. If your estate will be larger than $1 million, talk with an estate tax adviser in 2012 about options to reduce any possible larger federal tax bite.

Tip 12: Hire a registered tax pro

The IRS is continuing its efforts to regulate tax preparers. The process began with the registration of return preparers and the issuance of a personal Preparer Tax Identification Number, or PTIN, to each. The IRS is ramping up its effort to hold tax preparers accountable and weed out unscrupulous tax pros, with proposals to fingerprint preparers and, in 2013, require them to pass competency exams. If you hire a tax pro, ask about his or her IRS registration status, along with your usual inquiries to verify the preparer's ability to meet your tax needs.

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4 Tax Tips For Unemployed Workers
Angie Mohr | Investopedia

As more U.S. workers find themselves unemployed for long stretches of time, solid tax planning becomes a more important habit. Unemployment can cause changes in your tax bracket and can result in both more and less allowable tax deductions. Understanding your tax status before the end of the year can help you avoid an unexpected tax bill and can help you know what information to gather during the year. Here are four important tax tips to employ if you are unemployed.

Calculate Taxes Before the End of the Year
If you are unemployed for part of the year and perhaps even change jobs, the amount of tax withheld from your paychecks and benefit checks may not be enough to cover your tax debt for the entire year. Employers don't take other income into account when figuring how much tax to withhold. In November or December, prepare a preliminary tax estimate, based on your income to date and your estimated income and deductions for the rest of the year. If your estimate shows that you will likely owe additional tax at the end of the year, you still have options, such as contributing cash or goods to charity and contributing to a qualified retirement plan in order to erase the extra taxes.

Track Medical Expenses
If your income drops substantially during the year due to unemployment, you may be able to claim some of your medical expenses, even if you haven't been able to in the past. Medical expenses must be more than 7.5% of your adjusted gross income to start claiming. If your income is lower this year or your medical expenses (including some travel costs for medical care) are higher, you may meet the threshold and be able to deduct some of your expenses, including doctor's visits, dental care and prescription drugs. Keep all of your medical expense receipts together so that you can add them all together when you are ready to prepare your tax return.

Deduct Your Moving Costs
Taxpayers who have to move from one home to another to be closer to a new job may be able to deduct moving costs. The new house has to be at least 50 miles farther from your old home than your old job was from that house. Deductible expenses include storage and transportation of your household items and travel expenses that you incur traveling from your old home to your new one. Track the number of miles you have to drive in the moving process, as well as any other moving expenses to deduct against the income from your new job.

Seek out Free Tax Filing Help
There are many options to get help with your year-end taxes if you qualify with a lower income. Many CPA Societies offer free clinics, where you can take your tax information and have professionals calculate and file your return. The IRS also offers a service called Free File Tax Service that will help you file your own return. To qualify for the IRS program, your adjusted gross income must be $58,000 or less.

The Bottom Line
Losing your job can mean new tax realities for you and your family. Being prepared for the changes in your tax situation early gives you options to plan your year-end taxes owing more effectively. You may be able to take advantages of deductions that you didn't qualify for before or you may be subject to a larger tax bill, depending on your particular situation.

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12 Tax Tips for January
MarketWatchBy Eva Rosenberg | MarketWatch

Most of us start the New Year with high hopes, enthusiastic resolutions and the determination to make this year better than any other. And one of the most common resolutions is to improve our finances.

Naturally, most of us lose interest or focus within a month or two, maybe sooner.

Checklists 邦ber alles

The most helpful tool to help you maintain your resolve is a checklist. Every single self-improvement course, study program 〞 even your job 〞 requires a checklist to keep you focused.

How many checklists are you working with on a daily basis? Consider consolidating them, so you can see your daily, weekly and monthly responsibilities at a glance.

Let*s build your tax checklist for January 2012.

1. Set up your 2012 tax file

Pull out your label-maker and make new labels on file folders, expanding files or drawers to start storing your 2012 records and receipts. Now you have a place where you can consistently put all relevant receipts and records for the year.

2. Set up your 2012 tax calendar

Individual filers, use IRS Publication 509 to help locate your deadlines for the year. Read Pub. 509, Tax Calendars, on IRS.gov.

Businesses have IRS*s colorful small-business calendar to set up 2012 due dates. Not only is it available online, there*s a desktop version and a tool to integrate it with a variety of personal electronic calendars. See the business calendar.

Alas, the print version of their calendar is sold out and won*t be reprinted again this year due to budget limitations.

3. Update your address

If you moved during 2011, be sure to update your address with everyone who is expected to send you tax-related documents.

That includes the IRS, your state tax agency, former employers (W-2s), banks (1099-INT), lenders (1098), brokerages (1099-DIV, 1099-B), clients (1099-MISC), investments (K-1s) and trusts (K-1s).

4. Update your name

New brides generally remember to change their names on driver*s licenses and paychecks, but often forget to notify the Social Security Administration. You won*t be able to e-file your tax return with your new name if it doesn*t match the Social Security record.

5. File a new W-4

Consider filing a new W-4 with your employer now 〞 and again in March. In a last-minute push, Congress extended the 2% reduction of Social Security taxes from paychecks. Alas, it was only extended for two months. Hopefully, they will find a way to extend this payroll benefit during their upcoming tug of war in January and February.

Increase your withholding if your deductions have decreased due to lower mortgage interest rates or payments, or because your children are no longer dependents.

Also, in 2012 there is no longer a deduction for the private mortgage insurance (PMI) payments, worth several hundred to several thousand dollars a year.

6. Send out W-2s this month

Have you been paying household employees? Although the IRS offers sort of a short-cut (Schedule H) for reporting and paying taxes for those workers, you*re still responsible for sending them a W-2 in January. Your state will require full, year-end payroll tax returns.

7. Send out 1098s this month

Folks collecting payments on private mortgages or loans need to send out Form 1098 showing the amount of interest paid by their borrowers.

Even if you don*t send out the form, be aware that your borrower will be reporting the interest on Schedule A. There*s an area on Schedule A to list your name, address and taxpayer ID number. So, remember to report the private mortgage interest income you receive.

8. Send out 1099-MISCs this month

Although owners of rental properties don*t need to send 1099s to folks who worked for them, all other business owners still must comply.

Send Form 1099-MISC to anyone who was paid $600 or more during the year for services. There*s no need to send it to vendors who supplied merchandise or supplies 〞 just service providers.

You don*t need to send 1099s to corporations, except attorneys and medical-care providers. When a company operates as an LLC, you don*t know whether or not they are filing as a corporation. So, get a Form W-9 from each vendor and have them tell you. In fact, it*s a good idea to send a new Form W-9 to each vendor in January, so you can have the information before paying them.

9. No need to send out 1099-Ks

Form 1099-K is titled ※Merchant Card and Third Party Network Payments.§ This is a new form for 2012. If you are an affiliate marketer on the Internet or run any kind of multi-level marketing organizations, you are not the third-party network referenced in the title of the form.

The third-party network in the title refers to a banking-related organization that settles the payments related to merchant credit-card transactions.

10. Use up your medical FSA

If you haven*t spent enough money on medical care to get all your flexible-spending account funds back, you might still have some time. Turn in your receipts from doctors, dentists, clinics, therapists, pharmacies, etc., immediately. Read: 11 tips to empty your flex-spending account.

If you don*t have enough receipts to get all your money back, contact your FSA administrator or payroll department to find out whether your plan gives you extra time. Some plans are set up to give you until March 31 to get the medical care and the related receipts. Naturally, if you get reimbursed by your FSA plan for these costs, you may not deduct them as itemized deductions.

11. Make your estimated tax payment

Jan. 17 is the due date for fourth-quarter estimated tax payments for 2011. This is important for folks who have investment income, unemployment income or any freelance income. If your business profits were over $400, you will owe self-employment taxes, even if you don*t owe any income taxes.

12. Tax resolutions

Remember to make your tax resolutions for 2012:
♂I resolve to pay no more than my share of taxes.
♂I resolve to pay no penalties and interest this year.
♂I resolve to take advantage of every tax credit and deduction legally available to me.
♂I resolve to make my tax return audit-proof.
♂I resolve to read MarketWatch*s TaxWatch columns year-round.

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5 Last-Minute Ways To Maximize Your Tax Deductions
InvestopediaBy Tim Parker | Investopedia

2011 is almost over and that means tax time is fast approaching. If you're like most, you probably said that you would do a better job at keeping track of receipts and making financial decisions with your tax liability in mind. If you once again fell short of that goal in 2011, don't worry. The year isn't over yet and you have plenty of time to make some tax-smart decisions before ringing in 2012.

Give to Charity
Giving to charity allows you to deduct some or all of your donation equal to your tax rate. If your tax rate is 28%, 28 cents of every dollar you donate will be counted towards your total deduction.

If you have stock that you have owned for more than one year, donating a portion of that allows for an additional tax advantage. If you purchased $2,000 worth of stock that is now worth $4,000, you can donate your original investment and not only receive a tax deduction of $2,000 but you also don't have to pay capital gains taxes on the money you made. This is a common way that higher net worth individuals make donations without paying any more out of pocket.

The IRS rules regarding charitable contributions are complicated. Make sure you're donating to approved charities and that you're not going over the maximum amount allowed.

Examine Your Records
The ball will drop on December 31 and it will be out with 2011 and in with 2012. It will also mean the end of your holiday season vacation and a return to the daily rituals that include long days at work and family responsibilities.

Don't procrastinate this year. While you have a day or two off from work, go through all of your bank and credit card statements as well as the receipts you actually did save and make a list of deductions you will itemize when you complete your 2011 taxes. Keep that list with you and add prior to completing your tax return.

If you're like most, you haven't done as good of a job as you would have liked keeping a running list of deductions. Don't cheat yourself out of deductions that you deserve because you didn't prepare for the tax season.

Fund Your Retirement
Although you can make contributions to your IRA through Apr. 16, 2012, the sooner you fund your IRA, the sooner your contribution can start working for you. In 2011, you can contribute up to $5,000, or $6000 if you are 50 years of age or older by the end of 2011, to your IRA without penalty and because the gains appreciate tax free, aim for the maximum each year.

Add up Your Miles
In the past, how often have you lost out on valuable mileage deductions because you didn't keep accurate records? You can deduct un-reimbursed miles that you drive for work, mileage for work that you do for a qualified charity, mileage associated with a long distance move and mileage for your business. Not all miles are deducted at the same rate, so check the IRS publication for the correct rates for each type of mileage deduction.

The Bottom Line
You certainly wouldn't be one of those people who over exaggerates his or her deductions, but some people do and the IRS is aware of that. The IRS publishes the average deductions claimed by American households. If you claim deductions more than approximately 20% higher than the average of households in your income bracket, make sure you have proper documentation in case of an IRS audit.

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5 Things to Know About the Payroll Tax-Cut Extension
Barbara Weltman | U.S.News & World Report LP

When Congress agreed to extend the payroll tax cut on December 23, it created an important holiday gift for 160 million workers. Here are five things to help you understand how this tax break applies to you.

1. The extension is temporary. For 2011, workers enjoyed a 2 percentage-point reduction in their Social Security taxes. Instead of paying 6.2 percent on earnings up to the annual wage base ($106,800 in 2011), they paid only 4.2 percent. This rate had been set to run only through the end of 2011, but Congress extended it for two more months. Thus, the rate applies through Feb. 29, 2012, on earnings up to the annual wage base of $110,100 in 2012.

Congress likely will extend the rate reduction for the balance of the year. However, nothing is certain from Washington until a bill is signed into law by the President.

2. The extension also applies to self-employed individuals. The rate cut is not limited to employees. It applies as well to the employee portion of the Social Security tax that is part of self-employment tax, which is paid by self-employed individuals. The tax rate for the employer portion of the self-employment tax remains unchanged.

Self-employed individuals are allowed to deduct the employer portion of the tax as an adjustment to their gross income. Before 2011, they deducted 50 percent of their self-employment tax, which was the employer portion. However, because of the rate reduction that began in 2011, the deduction is more complicated; it reflects the employer portion of the tax, which works out to more than 50 percent of the self-employment tax.

3. The rate reduction is automatic. To enjoy the rate reduction, employees don't have to do a thing. The employer will take it into account in figuring the withholding for Social Security tax.

Because Congress acted so late in the year, many employers and payroll services may not have had time to implement the change at the start of the year. The IRS says that employers should put into effect the new payroll tax rate as soon as possible in 2012, but not later than January 31, 2012. If an employer did not implement the change immediately, then any Social Security tax over-withheld from a paycheck during January will be refunded to the employee. Employers are instructed to make an offsetting adjustment in workers' pay as soon as possible but not later than March 31, 2012.

4. The reduction has no impact on your Social Security benefits. Even though workers are paying less tax into the Social Security system, they do not suffer any reduction in the benefits that will ultimately be collected. The federal government promises to pay the benefit that would otherwise have been received. The benefits are figured on the basis of earnings (up to the wage base limit for the year) and not on the taxes paid.

5. Higher-income earners are subject to a new recapture tax. Those who earn more than 1/6th of the wage base limit in the first two months of 2012, or $18,350 ($110,100 times 1/6) face a new recapture rule when they file their 2012 income tax return in 2013. The 2 percentage-point reduction applies to their actual earnings during the extension period, but any tax on earnings in excess of this amount will be included as an additional income tax on the 2012 return.

For example, say someone earns $12,000 per month ($144,000 for the year). This means that earnings in the two-month period will exceed the $18,350 cap by $5,650 ($24,000 - $18,350). This person must include $113 (2 percent of $5,650) as an additional income tax on the 2012 return.

In conclusion, enjoy your tax savings while you can. If the economy continues to improve, it is unlikely that the payroll cut will be extended beyond 2012. Also remember that there is no reduction in the Medicare tax, which remains at 1.45 percent for employees and 2 percent for self-employed individuals. If you have any questions about how the tax change affects you, consult a tax advisor.

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Tax Deal: What's in It for You?
Mary Beth Franklin | Kiplinger 每 Fri, Dec 17, 2010

Your tax rates won't go up next year and for most, a bigger paycheck

American taxpayers can breathe a sigh of relief -- for now. After months of uncertainty, it*s now guaranteed that federal income-tax rates will remain at the same level for two more years. Most working Americans will see their paychecks increase in January thanks to a temporary reduction in payroll taxes, and the long-term unemployed can count on continued jobless benefits through 2011.

After a failed attempt to reshape the federal estate-tax provision that the Democratic leadership considered a giveaway to the wealthy, the House approved a massive tax package 277 to 148. The Senate approved an identical measure on Wednesday by an 81 to 19 margin. President Barack Obama signed the bill into law on Friday.

The compromise package hammered out by the president and congressional Republicans has been hailed as a needed second stimulus to prevent the economy from slipping back into recession. But it comes at a steep price. The $850-billion agreement was crafted just weeks after a presidentially appointed bipartisan commission outlined recommendations for trimming $4 trillion from the yawning federal budget deficit over the next ten years and warned about the dire consequences if political leaders don*t reign in federal spending.

In the long term, it is taxpayers who will pay the price in the form of inevitable future budget cuts, probable higher taxes, and possibly a reduced standard of living. But for now, Congress and the White House are sharing the role of Santa Claus, and Americans can*t wait to rip into their gifts.

Here*s a glimpse of what you can expect to unwrap over the next two years. (Batteries not included).

Stable Rates on Investment Income

One of the biggest concerns among investors has been what would happen to tax rates on long-term capital gains and dividends if the Bush tax cuts were allowed to expire on December 31. Some had contemplated selling appreciated assets before the end of the year just to take advantage of current low capital-gains rates. Without congressional action, tax rates on the profits of assets sold after more than a year would have increased to 20%, and dividends would have reverted to being taxed at ordinary income rates as high as 39.6% starting in 2011. But now that it*s clear that tax rates will remain the same through 2012, it*s back to year-end tax planning as usual: defer income, such as bonuses, into next year when possible and accelerate deductions into the current year to minimize your taxable income.

Tax rates on long-term capital gains and qualified dividends will remain at a maximum 15% through 2012, and those in the two lowest income-tax brackets -- 10% and 15% -- will continue to enjoy a 0% capital-gains rate. So if you decide to rebalance your portfolio before the end of the year, follow your usual course of action: If sales and capital-gains distributions to date have produced a net gain, consider selling assets that will produce a loss to offset the profits . . . and the tax bill that goes along with them. If you wind up with net long-term gains, you*ll pay just 15% on your profits. If your losers outweigh your winners, you can use up to $3,000 of losses to offset ordinary income, such as wages, and carry over any excess losses to future years.

Bigger Paychecks for Most

One of the major elements of the tax package is a one-year reduction in the payroll tax that funds Social Security. FICA taxes will drop from 6.2% to 4.2% for most workers. Since the tax applies to up to $106,800 in 2011, the tax cut is worth as much as $2,136 for a worker or $4,272 for a working couple. (The self-employed will pay 10.4% on income up to the cap, down from 12.4% in 2010.) The 1.45% portion of payroll taxes that funds Medicare will continue to apply to all earnings with no cap.

But not everyone will benefit from the payroll-tax holiday. Workers who do not participate in the Social Security system, such as some public-school teachers and many civil servants, will see no reduction in their payroll taxes. And some federal employees will get hit with a double whammy: no break on payroll taxes and a wage freeze next year.

Some lower-income workers may also feel as if Santa left them a lump of coal in their stocking. Although they will benefit from the lower payroll tax, the tax break will not be as generous as the Making Work Pay credit that reduced their taxes by up to $400 for individuals and up to $800 for married couples in 2010 (subject to income limits).

For example, a married couple making $36,000 will see their payroll taxes reduced by $720 in 2011. Compared to the $800 Making Work Pay tax credit they enjoyed in 2010, their taxes would increase by $80 next year. But for an individual earning $36,000, that same $720 reduction in payroll taxes in 2011 will represent a $320 tax cut compared to the $400 tax credit he or she enjoyed in 2010.

In general, higher income taxpayers will benefit across the board from the payroll-tax reduction. For example, a married couple earning $75,000 per year will pay $1,500 less in payroll taxes in 2011, nearly twice the size of the $800 tax credit they benefitted from in 2010. And a couple earning $150,000, who were not eligible for the Making Work Pay credit this year, will see their Social Security payroll taxes decline by the maximum $2,136 in 2011.

No Cap on Exemptions, Deductions

Upper-income taxpayers will also benefit from no limit on their itemized deductions and the personal exemptions that they claim for themselves, their spouse and dependents. In the past, those tax benefits were reduced above certain income levels. Caps on both deductions and personal exemptions were eliminated for 2010, and the legislative package extends those valuable tax breaks through 2012.

Middle Class Dodge the AMT

The compromise tax package boosts the exemption levels for the alternative minimum tax, protecting more than 20 million middle-income taxpayers from being snagged by the parallel tax system that disallows most tax deductions and exemptions. The AMT, designed 40 years ago to ensure that the loophole-savvy wealthy paid at least some taxes, has never been indexed for inflation. So over the decades, the AMT has morphed from a class tax into a mass tax, prompting Congress to approve temporary patches each year to lift the AMT exemption level and spare millions of middle-class taxpayers from becoming unintended victims of the stealth tax. The package increases the AMT exemption levels for 2010 and 2011.

More Breaks for Education Costs

The popular American Opportunity tax credit, worth up to $2,500 to offset the high cost of college, was scheduled to expire at the end of 2010. Now it has been extended through 2012. The full credit, which reduces your tax bill dollar-for-dollar, is available to individuals with incomes of up to $80,000 and married couples with joint income of up to $160,000. The credit phases out above those income levels, disappearing at $90,000 for individuals and $180,000 for married couples.

The tax package also extends more-generous contribution levels and qualified tax-free distributions for Coverdell Education Savings Accounts, which can be used to fund elementary- and secondary-school expenses in addition to college costs. Maximum contribution levels had been slated to drop from $2,000 to $500 per year beginning in 2011, and tax-free distribution would have been limited to college expenses. The package extends existing funding and distribution rules through 2012.

Two-Year Reprieves

A host of other popular tax breaks that had expired at the end of 2009 have been reinstated for 2010 and 2011. You*ll appreciate them when you file your taxes next spring. They include:
♂a choice between deducting state sales taxes or state income taxes;
♂a tax deduction of up to $4,000 for college tuition costs available to some taxpayers whose incomes are too high to qualify for the American Opportunity credit;
♂a deduction of up to $250 that teachers can claim for our-of-pocket expenses for classroom supplies, even if they don*t itemize their deductions;
♂and the ability of taxpayers who are age 70½ or older to donate up to $100,000 of their IRAs directly to a charity and exclude the amount of their donation from their taxable income.

More-Generous Estate Tax

The most controversial element of the tax package is a reinstatement of the federal estate tax, which had temporarily disappeared in 2010, with a higher exemption level and a lower rate than in the past. Beginning in 2011, estates valued at $5 million or less ($10 million or less for married couples) will escape the federal estate tax completely, and estates above those thresholds would be taxed at a 35% rate. House Democrats, who had been excluded from negotiations on the package, railed against the deal, which they claimed is a giveaway to the rich. But in the end, they failed in efforts to ratchet down the exemption to the $3.5 million level that had been in effect in 2009 before the estate tax expired and to increase the tax rate to 45%.

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Will Congress extend key tax deductions?
CNNMoney.comBy Jeanne Sahadi | CNNMoney.com

It may be a new year, but when Congress returns from its winter break it will be all old business that lawmakers failed to finish before Christmas.

The fight over a temporary extension of the payroll tax cut and long-term federal unemployment benefits sucked up all the oxygen on Capitol Hill. And it will suck up more between now and the end of February, when the two-month extension Congress managed to pass expires.

In the meantime, lawmakers left more than 50 expiring business and individual tax breaks hanging in the balance, along with an expanded mass transit break for workers.

Officially, of course, they expired on Dec. 31. But like Lazarus, they may be risen from the dead by Congress, which could choose to extend them and make the breaks retroactive to the start of this year. That way they'll be in effect before taxpayers have to fill out their federal returns for this tax year in early 2013.

The value of keeping the so-called tax extenders on the books is debatable. Tax experts argue that many should be ditched.

But the everlasting question mark punctuating these and other tax breaks is a source of frustration for anyone who takes tax and financial planning seriously.

"Taxpayers are very unhappy because they don't know what's going to happen; they can't plan," said David Mellem, who is certified to represent taxpayers before the IRS.

Expanded mass transit break: For three years, workers whose employers subsidized their commuting costs were entitled to receive the same amount of money whether they took mass transit or drove to work and paid for parking.

The parity in the benefits, which are tax-free to workers, meant mass transit commuters got more than they had in previous years.

But now Congress has let the mass transit expansion expire. As a result, those who take mass transit may only receive up to $125 a month tax-free, whereas those who drive to work can receive $240 a month.

Congress = Uncertainty, Inc.

State and local sales tax deductions: Taxpayers are allowed to deduct their state and local income tax on their federal return. But in recent years, lawmakers gave them a choice: They either could deduct their income tax or the state and local sales taxes they paid in a given year.

The choice benefits residents of the nine states that don't actually have an income tax.

As of now, those residents won't have that choice for this tax year.

Mortgage insurance deduction: In addition to deducting the interest they pay on their mortgage, taxpayers whose adjusted gross income doesn't exceed $110,000 have been allowed to treat the premiums they pay for mortgage insurance as deductible interest too.

What the payroll tax cut deal will do

But that may not be an option for tax year 2012.

School teacher tax deduction: Many K-12 teachers pony up their own money to buy supplies and equipment for their classrooms. Unless Congress acts, they will no longer be able to deduct up to $250 a year for those expenses.

Higher education tuition deduction: For tax year 2011, taxpayers are allowed to deduct qualified tuition and related expenses paid on behalf of anyone in their household to a college or university. The deduction is available regardless of whether one chooses to itemize or not.

The deduction is worth up to $4,000 for someone whose adjusted gross income doesn't exceed $65,000 if single ($130,000 if married filing jointly). Those making between $60,000 and $80,000 ($130,000 to $160,000 if married), however, may only claim up to $2,000.

Tax year 2012 may be a different story. But look on the bright side. While the tax break hasn't been renewed, it means one less complicated deduction for taxpayers to figure out.

Larger AMT exemption amounts: To protect more than 20 million middle class households from having to pay the Alternative Minimum Tax, Congress typically passes an AMT "patch" every year.

They have yet to do so for 2012, but because most Americans don't have to file their returns until early 2013, lawmakers could pass a patch at any point this year and have it apply in time for the 2013 filing season.

The AMT was intended primarily for high-income taxpayers. But in recent years, it has threatened to engulf the less affluent because the income thresholds determining who must pay the tax were never adjusted for inflation.

The patch increases the amount of income tax filers may exempt from consideration when calculating whether they need to pay the AMT.

Without the AMT patch, tax filers would only be able to exempt $33,750 in income if single or $45,000 if married filing a jointly, according to CCH, a tax information publisher. That is considerably less than the $48,450 that single filers and $74,450 joint filers may claim on their 2011 returns.

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Big Tax Mines That Could Blow Up Your Return
By Andrea Coombes | MarketWatch 每 Fri, Jan 27, 2012 3:47 PM EST

Most people don*t have tax returns as complex as Mitt Romney, Newt Gingrich or Barack Obama, but even if you aren*t reporting a Cayman Island account or many millions in S-corp. profits or book sales, there are brand-new pitfalls to watch for as you go to do your 2011 return.

Congress*s relative gridlock last year means there aren*t a slew of complex tax changes to deal with when you file this year 〞 but there are some doozies that may trip up taxpayers.

For instance, thanks to a law passed in 2008, investors now face new rules and a new form for reporting cost basis for stocks sold in 2011. And now that brokers are reporting your cost basis to the IRS, too, it*s all the more crucial that you get it right.

Also, taxpayers with financial assets overseas need to make sure they*re on the right side of new rules, and a new form, for reporting those assets. The penalty for failing to file the new Form 8938 starts at a flat $10,000 and rises to as much as $50,000, and that doesn*t include other potential penalties.

1ㄝPayback time

Meanwhile, the tax breaks for homeowners who made energy efficient improvements shrank last year, and those rules are labyrinthine and easy to get wrong. Plus, homeowners who took part in the 2008 first-time home-buyer tax credit 〞 for that year, that tax break was an interest-free loan, not a grant 〞 face their second year of loan repayments.

And taxpayers who converted their individual retirement account (IRA) to a Roth IRA in 2010 and chose to spread the tax payment over 2011 and 2012 (that was an option thanks to a one-time tax break) must pay one-half of the income taxes owed on that conversion on their 2011 return.

※That conversion you did? Now the chickens are coming home to roost,§ said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based tax publisher and unit of Wolters Kluwer.

※People seem to have fairly short memories, and something they did in 2010, they*ve forgotten about by 2011 and tend to assume it*s a dead issue,§ he said.

While making an honest mistake doesn*t necessarily land you in hot water or steep penalties, why risk a letter or call from the IRS?

2ㄝThe payroll tax cut

One major tax issue going forward is the payroll tax cut and whether Congress will extend this tax break 〞 a two-percentage-point reduction in the Social Security taxes paid by workers 〞 beyond the two-month extension through February that lawmakers enacted in December. The payroll tax cut essentially replaces the Making Work Pay credit 〞 that credit expired, and is no longer reflected on Line 63 of Form 1040.

While there*s no tax-return pitfall here to worry taxpayers, some workers are confused by their changing paycheck amounts. And since employers have until Jan. 31 to implement the two-month extension, workers may see additional paycheck adjustments.

※If I had to pick one thing that we*re hearing grousing about, it*s the payroll changes,§ said Cynthia Jeanguenat, an enrolled agent in Virginia Beach, Va. ※People want to know, &How come my check changed this week? I worked the exact same hours.*§

Be prepared for more changes as Congress revisits this tax break.

3ㄝNew rules to report foreign assets

You*ve heard about the IRS going after money held in offshore accounts? That*s related to taxpayers failing to file the Report of Foreign Bank and Financial Accounts, or FBAR.

But this year, some taxpayers need to steel themselves for a new, broader reporting requirement, thanks to the Foreign Account Tax Compliance Act, or FATCA, passed by Congress in 2010.

This new requirement is in addition to the fact that taxpayers with accounts overseas worth $10,000 or more generally are required to report those funds to the U.S. Treasury on the FBAR form.

Put simply, the new rules require that if you have overseas accounts worth more than $100,000 if you*re married filing jointly, or $50,000 if single, you must report those assets on the new Form 8938 and attach that to your tax return. And the new rules encompass more types of financial assets than the FBAR.

※This was actually passed to, in essence, catch a bigger potential group of taxpayers,§ said Ryan Losi, a certified public accountant and partner in charge of the international practice at Piascik & Associates in Richmond, Va. ※They want to expand the web of reporting.§

The failure-to-file penalty for this new form starts at $10,000 and can rise to as high as $50,000 for people who fail to come into compliance, Losi said.

The rules are complex and more detailed than described here, so find a tax professional with expertise in this area. Read more about FATCA on this IRS.gov page.Also see "Do I need to file Form 8938?" on IRS.gov.

See this IRS page for more on when and where to file the FBAR.

4ㄝCost-basis confusion

Investors reporting their capital gains and losses face new reporting requirements this year. And your broker must also report your cost basis to the IRS.

The goal of the new rules is to make sure taxpayers pay their capital-gains taxes, and this way the IRS will be able to compare and contrast your claims to your broker*s.

The new rules phase in over three years, so brokers are required to report cost basis on only a limited number of stock-sale transactions for the 2011 tax year. As part of the changes, the IRS now requires that investors fill out a new form, Form 8949, and Schedule D has been revised.

And that new form is not easy to decipher.

5ㄝSurprise tax hit on inherited assets

Speaking of capital gains, people who inherited assets from someone who died in 2010 may find themselves with a bigger-than-expected tax bill, Luscombe said.

In 2010, when reporting the cost basis of assets, estates could opt for the usual stepped-up basis; that is, the asset*s value at the time of death. (That date-of-death cost basis is then subtracted from the sale price to calculate a capital gain or loss.)

Or estates could opt out of the estate-tax rules and go with rules that used carryover basis 〞 that is, put simply, the price the decedent paid for the asset. That means a much higher tax bill, potentially, than a date-of-death basis; if, say, the person purchased the asset decades earlier the cost likely was much lower.

Traditionally, if heirs sold the assets soon, Luscombe said, ※they*d have limited gain because they have a basis for date-of-death value.

※But because of the way 2010 was handled, with people being able to elect to not be subject to the estate tax and therefore subject to carryover basis,§ he said, ※the heir could be subject to a very significant gain on the sale of the inherited asset.§

For 2010 deaths, executors soon will send out Form 8939 noting the basis, Luscombe said. Some taxpayers may be surprised how low that basis is 〞 and how much capital-gains tax they owe.

Also, that cost-basis figure noted on Form 8939 might not be enough to satisfy the IRS if you get audited. Heirs ※might want to go back to the executor and get any support the executor has for determining that basis so if they get audited they*ll have that to show the IRS,§ Luscombe said.

6ㄝPayments due

Remember that IRA-to-Roth conversion you did back in 2010? Taxpayers had the option then of spreading out their income-tax hit over 2011 and 2012. Time*s up, at least for the first half of that bill.

It*s a similar story for anyone who took a 2008 home-buyer tax credit, which was really an interest-free loan rather than a credit. Taxpayers had to start paying back that loan in 2010 (15 equal payments over 15 years).

This year, at least, those home buyers don*t have to fill out Form 5405 again, as long as you filled it out last year and your situation hasn*t changed. (Generally, that means you still own the home and it*s your main residence.) There*s a new line on Form 1040 to report your loan payment: Line 59b.

7ㄝEnergy efficient home improvements

Making your home more green with energy efficient windows and appliances used to pay off at tax time 〞 as much as $1,500. But that tax credit shrank considerably in 2011.

In 2011, the maximum credit for eligible projects is $500 〞 and that*s essentially a lifetime total.

If you tapped the credit in previous years, ※you may not have anything left to take in 2011,§ Jeanguenat, the enrolled agent, said. ※I don*t think people generally are aware that this was a cumulative credit.§

Until 2016, there is still a separate tax credit in effect for bigger-ticket home-improvement projects, such as installing solar panels, wind turbines or geothermal heat pumps. Homeowners can reap up to 30% of their materials and installation costs back at tax time 〞 and there*s no dollar limit on the credit.

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Is Interest on Credit Cards Tax Deductible?

The IRS allows you to deduct certain expenses from your total income to arrive at taxable income, which is the portion of your earnings that is subject to tax. Some of these expenses include your payments of interest on a mortgage and for business loans. However, when you use a credit card for personal purchases, the interest you pay is nondeductible personal interest.

What is personal interest

Personal interest is interest you pay for goods and services you don't use for work or business-related purposes. Although not an exhaustive list, common examples include buying clothes, electronic equipment, cars and food using a credit card. When you make monthly payments that include interest, it is always nondeductible personal interest. This remains true even if you use the credit card to subsidize the purchase of your home.

Deductible credit card interest

One exception to the rule is if you use a credit card for business purposes. Generally many companies, whether a corporation or sole proprietorship, use credit cards to purchase equipment for use in the business, to buy necessary supplies and for many other daily transactions. When you use a credit card in this way, the interest payments you make on the credit card are deductible as a business expense. This means that you can reduce the amount of your business earnings that are subject to tax for these interest payments. However, if you use the credit card for both business and personal purposes, you need to insure that you only deduct the interest that accrues on the business-related purchases.

History of credit card interest deduction

The Tax Reform Act of 1986 changed many provisions in the Internal Revenue Code. One of the most notable was the elimination of the personal interest deduction. Prior to this, you could deduct all credit card interest payments, regardless of what you purchased.

Ways to avoid nondeductible credit card interest

Sometimes it may be possible to claim an interest deduction for your purchase by using a payment method other than credit cards. For example, instead of using your credit card to pay your school tuition this semester, you may want to look into student loans first. When you use a student loan, the IRS allows you to deduct the interest payments you make on it until it's paid off. Additionally, taking out a home equity loan may provide the cash you need to make personal purchases and also allow you to deduct the interest as part of your mortgage interest deduction.

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5 Keys To Unlocking A Better Credit Score
Glenn Curtis

Sometimes people get in over their heads. They rack up so much debt that they're unable to make consistent interest and principal payments. When you're late or unable to make payments, your credit rating suffers. This reduces creditworthiness, and ultimately, it inhibits your ability to access financing.

The good news is that there are things consumers with less than stellar credit can do to improve their standing among lenders and to rebuild their credit score. In this article, we will look at techniques you can use to improve your stats.

Credit Score? What's That?
A credit score is the key to understanding how creditworthiness is evaluated by lending institutions, as a good credit score can unlock the vault to help obtain financing.

Your payment history, loans outstanding and a general indebtedness are statistically evaluated by the credit bureaus. The big three of the industry are: Equifax, TransUnion and Experian. Based upon a compilation of that data, your profile is assigned a number between 300 and 850, with 300 being the least credit worthy and 850 being the most credit worthy.

It is this number that lending institutions use as a basis for determining whether you qualify for a mortgage or a quick escort out the lobby doors. So, now that you understand how the score works, let's look at five tips that will help you raise a bad score and win favor with those stern-faced bankers.

Tip No.1 - Pay More Than the Minimum
If possible, always make payments over and above the minimum interest payment that is due. Credit bureaus not only look at the amount of debt an individual has outstanding, but also the length of time it takes to pay off the debt.

Unfortunately, there's no calculation that can be used to measure exactly how much this will boost your score. There are a myriad of factors that go into computing a credit score, but accelerating payments and satisfying debts on a timely basis is recommended as a means of repairing credit by lending institutions and well-known credit counseling agencies such Credit Guard of America.

Tip No.2 - Work Out a Plan
Most people don't realize that if they are behind on their debt payments and are going through some trying times, their lenders will often consider negotiating a revised payment plan or possibly forgiving a portion of the debt. For lenders, negotiating is cheaper than either hiring a collection agency or risking that the individual might have their debts cleared in a bankruptcy proceeding.

If you need a reprieve, approach the lender and ask for more time to make payments. You can also present a revised payment structure. If you can develop a plan that works for you and makes sense for the lender, there is a good chance they will accept it. If and when a deal is struck to forgive a portion of your debt, be sure that the major credit bureaus are aware of it and that they make the appropriate notations on your credit report. Less debt and timely payments equal a higher credit score.

You can check to see if the appropriate notations have been made by accessing your credit report, which will document your borrowing and any material changes made to these reports. You are entitled to one free report every 12 months. For more information on getting your free report see the Federal Trade Commission Website.

Tip No.3 - Switch from Credit to Debit Cards
Credit card debt is no friend to your credit score. One of the best ways to avoid credit card debt is to pay the debt right away, through the use of a debit card.

Debit is different from credit. With a debit card, you deposit money into an account and then use the card to charge against the money. There is no credit bill to rack up, and you can only spend what you actually have.

It is important to note that credit reports don't typically factor debit card payments into the credit score equation. But by disciplining yourself and using a debit card to settle debts on the spot, (rather than racking up huge credit card balances) you will, by extension, have a better credit score.

Tip No.4 - Cut Up Those Store Cards
Many people are just one more card away from witnessing the tragic death of their wallets. The leather strains and stretches to hold in all that easy credit. It's hard not to have an overstuffed wallet when every retailer you visit now has an in-house credit card they'd be ever-so-happy to sign you up for. While these cards often give bonus points, free merchandise or favorable rates, the bad news is that the more open accounts you have, the lower your credit score will be.

From a credit bureau's perspective, the logic behind this is that you could theoretically tap all of these credit sources to the max at one time and rack up a huge amount of debt. In other words, credit agencies and lenders are worried about your potential for taking on high interest debt, as well as the likelihood that you probably maintain small balances on each of those cards. If they don't have an outstanding balance the easiest solution is to simply call and cancel the cards.

If you have balances on numerous cards right now, one excellent solution is consolidating your debt. A personal loan at 12% is still better than the 20%+ rates some cards charge. However, if consolidation doesn't sound attractive, consider paying off the debt that has the highest interest rate first, and close out your accounts one by one as you pay them down. (For advice on debt consolidation, check out Digging Out Of Personal Debt.)

The goal should be to reduce your card count to one or two credit cards. It will make reviewing monthly statements and paying your bills much easier. It will provide discipline as your overall credit limit will be lower, and finally it will keep your wallet from exploding in your pocket, which can be very messy.

Tip No.5 - Add Comments to Your Credit Report
Often when you peruse your credit report you'll find an error. Perhaps you've paid off a particular loan that isn't reflected on the report, or there are legitimate reasons why a particular debt hasn't been satisfied, such as a temporary disability. In these instances your first recourse should be to contact the credit agency and request they make the appropriate changes. Fibbers beware: you will probably have to provide some documentation.

Few people realize this, but credit reports typically have a space for you to provide your comments at the bottom. This section is another area of recourse that can be used. It lets you comment on why a particular debt hasn't been paid or to point out any factual errors. To do this, the individual must contact the credit bureau directly and again may have to provide some documentation to support the claims.

To be clear, adding comments to the credit report won't necessarily boost your credit score. However, some lenders may take your comments into account when deciding whether to grant you a loan. This little-known space can be invaluable if you are fighting an incorrect rating.

Bottom Line
A low credit score is not the end of your financial world. Discipline and responsibility can help rebuild even the lowliest of scores. Paying more than the minimum, reducing the number of cards in your wallet, negotiating a payment plan and taking advantage of the comments section on your credit report can all help boost your score and improve your odds of success the next time you need a loan.

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5 Ways to Reduce Your Taxes for Next Year

Taxes are unavoidable, but you can minimize the impact they have on your bottom line. Every scenario is different, of course, but one thing is universally true: ※Planning is the key to taxes,§ says Carol W. Thompson, a tax professional in the Portland, Maine, region. ※If you don*t plan, then you*re not going to get anywhere.§

It's also important to understand that taxes are not based on your gross income, but rather on a "taxable income" that can be reduced by deductions or "write-offs." While people with many deductions will itemize them on their tax returns to maximize their refund or lower the amount of taxes they must pay, those without a lot of write-offs will use the standard deduction provided by the government to calculate the tax. Either way, the result is that your taxable income will be lower than your gross income 每 which means you*ll pay less in taxes.

"Planning is the key to taxes. If you don*t plan, then you*re not going to get anywhere."
- Carol W. Thompson, federally licensed tax professional

1. Feed the IRA, Lower Your Taxes

One reason that financial advisers consistently recommend contributions to a retirement plan as the best way to reduce a tax bill is that most of those contributions 〞 depending on the type of plan 〞 are essentially tax write-offs that don*t require itemization.

Because the money you contribute to a traditional IRA is a pre-tax contribution, it lowers your total taxable income. This means you will owe less in income taxes, regardless of whether you itemize or take the standard deduction. And because in recent years contributions made until the April 15 tax deadline have been applied to the return for the previous year, they have been popular among people who scramble to soften the blow of a large tax bill.

It*s great advice, said Thompson, who teaches continuing education courses for tax practitioners and 〞 as an enrolled agent 〞 has earned the privilege to represent taxpayers before the Internal Revenue Service.

Thompson, however, is quick to offer a reminder that traditional IRAs are tax-deferred 〞 not tax-exempt. Deferred taxes eventually must be paid, presumably at retirement. Alternatively, there are non-traditional IRAs, such as the Roth IRA, that don*t soften the tax bill today but could really lighten the burden in your golden years.

2. Flex Your Spending Power

Sometimes, to save money on the tax bill, you must spend money elsewhere. Many employers offer a benefit that allows people to chip away at the tax bill using money they had planned on spending anyway, such as dependent care or medical expenses.

Flexible spending plans are pre-tax plans that allow certain expenses 〞 such as dependent care, medical expenses and health insurance 〞 to be paid with tax-exempt dollars. Employers deduct pre-determined, tax-free amounts from paychecks and place them in an administered account that releases the funds when the expenses are incurred. And, because contributing to a flexible spending account also reduces your gross income, your taxable income becomes even lower 〞 keeping more in your wallet.

Thompson raises two warning flags. The first is the "use it or lose it" stipulation, which comes into play if the pre-tax funds aren't used in accordance with the rules. Let's say that Mom deducts pre-tax money to pay the day-care center, but then Grandma starts to take care of the baby. Unless Grandma operates a licensed, approved day-care center and charges for the care of the baby, any pre-tax money Mom set aside for day-care is lost. Second, you can't use child care as an itemized expense. Because the tax benefit was given in the flex-spending plan, that money cannot be used as a deduction unless the amount spent exceeds what was deducted pre-tax. Other child-care expenses, such as some summer camps, would not be impacted.

3. Give Back

Charitable contributions offer a tried-and-tested way to reduce the tax bill 〞 and there are a number of ways to give back beyond writing a check. Toys, books, clothes and other used household items may be donated to shelters or other charitable organizations that support the needy.

Expenses stemming from volunteer work can also be a tax benefit, but be careful about what you try to deduct: Your time itself is not deductible, but if you absorb the cost of travel to an event where you represent the charity 〞 whether as a convention delegate or as a scoutmaster driving scouts to a campground 〞 those expenses may be deductible. If you buy an item such as a printer and donate it to a charity for its own use, that also may be a write-off. And remember, your total tax deductions must exceed the standard deduction before they may be applied

4. Bundle Contributions

For taxpayers who need extra tax savings, there's a nice little tactic that Thompson recommends as a way of itemizing deductions every other year. By "bundling" some contributions, taxpayers can put what is essentially two years' worth of deductions into a single year, vaulting their deductions over the standard threshold and thereby allowing the use of all of the smaller, otherwise-forgotten deductions.

Take, for example, the person who makes a gift to a church on a weekly basis. One approach might be to take the amount donated over the course of a year and 〞 at the end of the year 〞 match it with a lump-sum amount representing what would have been the next year's donations.

And now that the bundled contribution has taken you beyond the standard deduction, feel free to start piling on all of those other smaller write-offs, too. Start with your wardrobe: Don't forget to clean out your closet and donate clothes in the latter part of the year to take advantage of as many donations as possible. It's a smarter idea than opening your wallet in order to save taxes. Thompson notes, ※It*s a far more sensible approach than going out and buying equipment."

5. Buy Stuff (but Only if You Need It)

There*s a common misconception that buying ※stuff§ at the end of the year 〞 something like a new laptop computer for a home-based business 〞 is a quick and easy deduction.

It may be, but make sure it's something that you needed to buy regardless of the tax write-off potential, Thompson said. The amount that*s actually a deduction for "stuff" is usually only a fraction of its true cost. Because many products have a life expectancy of several years, the value is depreciated, and the deduction is calculated over several years. In reality, a $500 computer might save only a few dollars in taxes.

Those with home-based businesses also may have some write-offs for the use of their homes, but there are plenty of rules defining what is and what is not deductible here. Only a fraction of home expenses 〞 such as utilities or insurance 〞 is covered, because the expense is only applied to the portion of the house where you work.

Thompson warns those who work from home but have an actual office somewhere else that home office deductions don't apply. You qualify for a home office deduction only if your employer requires you to work from home. The same goes with the purchase of a smartphone or any other gadget that many consider to be a reasonable business expense. If the device is used primarily for business, however, in many cases it may be deductible.

Remember, when you use TurboTax, we*ll help you determine what*s deductible and whether the standard deduction or itemizing will give you the best results. We*ll also give you suggestions for lowering your tax bill next year.

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