I recently bought a laptop over the Internet. Shopping online, I found a great price and I didn’t have to drive around to different stores to compare products and features. But is it fair that I didn’t have to pay any sales tax because I bought the laptop online?

Retailers say the playing field should be leveled out with an Internet sales tax that would be collected at the point of purchase. Now I am not fan of paying more taxes, but the thought of helping put a local company out of business because I like to shop in my pajamas doesn’t sit well with me either.

Taxing e-commerce

During President’s Clinton administration, the Internet Tax Freedom Act was signed into law to protect commercial aspects of the Internet. The law prohibits federal, state and local governments from taxing access to the Internet or adding taxes that would limit Internet usage. The Internet Tax Freedom Act (ITFA) has now been renewed through Nov. 1, 2014, but the law does not address the collection of sales tax. So a few states have made it mandatory for online retailers to charge a sales tax, while a few others left the burden on the consumer to self-report their sales tax.

The latest twist is that some states have now decided that large retailers like Amazon or Overstock should be forced to collect sales tax even if the sale is run through an affiliate or if the retailer is merely deemed to have a competitive presence in the state. This goes against the spirit of Supreme Court rulings that say only an entity with a physical presence in a state should be forced to collect sales tax. Several lawsuits are now challenging the constitutionality of how the Internet tax is being applied, but for now these laws are on the books.

States making a money grab

For over 10 years the argument for an Internet tax has been advocated back and forth. States argue that they need the extra money to pay for the basic services that we all use. The anti-tax movement has pushed back and tried to keep the Internet free from taxes. What has evolved from this is a hodgepodge system of Internet taxes in a few states, with consumers never really knowing until their e-commerce checkout if they will be charged a sales tax.

Now the Internet tax issue is hitting the headlines and political discussion again. The reason is pretty simple: State governments are broke. Record budget deficits have pushed legislators to examine new ways or re-examine old ways to increase tax revenue. In Illinois, lawmakers recently passed Tax Bill HB 3659 that forces merchants located out of state to charge sales tax if they run an affiliate program within a state. At least four other states also have legislation pending.

What an Internet tax would mean to you

If you live in a state where an Internet sales taxes has been enacted, there are a few things to consider. Right off the bat comes the obvious fact that you may pay more for some of your online purchases. Remember that laptop I purchased online? If I bought from an online retailer or an affiliate based in Illinois, I would now have to pay an extra $75 in sales tax.

It doesn’t stop there though. The reality is that as long as some states have the tax and other states don’t, online retailers will play a game of hide-the-tax and some consumers may still avoid paying the tax. Amazon has already ended affiliate relationships in several Internet tax states. Other companies are considering moving their operations across a state line to avoid collecting the tax. Reports say that FatWallet, an online business based in Illinois, will move their operations out of Illinois to survive the Internet sales tax.

If your state adopts an Internet tax, it could threaten local jobs. At the very least, it punishes local companies that compete online. Politicians like to project how much extra income the Internet tax might generate. Yet when the tax has been enacted, so far the extra revenue has fallen short of projections.

One thing is clear: Once you are hooked on the convenience and lowers costs of shopping online, it is doubtful you will want to go back to pounding the pavement for deals. You also won’t be crazy about paying sales tax on an item, when others do not. Hopefully the politicians get it right and fix the Internet sales tax mess they are creating.

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Source URL: What an Internet Tax means to you

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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I have always thought of banks as the bad guys. They charge too much on my credit card balances. They pay too little interest on my savings. And they charge me fees for every little thing. In the last couple of years we even had to endure our tax dollars going to bail out banks that went a little crazy with their lending.

Lately, though, I have started to look at banks differently. In the last year, banks have become more responsible with their lending and have implemented features and services that are useful to me. And it looks like that is just the tip of the iceberg. I think 2011 is the year that banks become the good guys again.

Here are six banking innovations to look for in the coming year that can help make life easier:

1. Social savings accountsI realize now that reaching a savings goal when interest rates are low can be tricky. You lose the power of compounding interest and inflation can actually decrease the worth of your money. To help you save in spite of these problems, a new form of savings, called a social savings account gaining steam. The account helps you increase your savings by publicizing your savings target with a widget or personal message on a social network, blog or website. This allows friends and family to hear your story and contribute to your goal.

   Savings is now a higher priority for Americans. The question is how to save enough for college, a family vacation or a wedding. Social savings accounts may be the answer. It’s the modern day version of your grandparents buying you a savings bond. Look for the best online banks to start offering this product in 2011.

2. Remote depositThe ability to cash a paper check without ever going to the bank is a feature I know will save me time and money. You can accomplish this with a relatively new banking service called remote deposit. With this service, a digital image of your check is scanned by a computer and is sent electronically to the bank for processing.

   Remote deposit makes a lot of sense for a business with a large volume of checks. The problem for consumers is that the service fees and the cost of the scanner is high. But a currently emerging form of remote deposit–one using a cell phone–is taking this economical concern away.

   If you use mobile remote deposit, your phone takes a picture of your check and sends the image electronically to the bank for deposit. Other advantages include less check float and the ability to easily track your deposits. Best of all, the service is free when included as part of your mobile banking app.

3. Mobile text bankingI can call my bank, go online, or use my mobile phone browser or banking app to retrieve my account balance. All seem reasonably fast, but now there is something new on the scene that is even faster.

   Text banking services allow bank customers to send SMS text messages to retrieve an immediate answer from their bank regarding balances, transaction history or bill payments. No fees are charged by most banks for enrolling in the program, but check your phone’s service plan to make sure these texts are free.

   The first bank to roll out a sophisticated text banking service was Wells Fargo Bank. Bank of America even plans to roll out a text banking service in 2011 that includes the ability to move money between accounts and instantaneously respond to fraud alerts. Expect to hear much more about text banking services in 2011 as more advanced features are developed by banks.

4. Inflation-indexed CDsI knew that certificates of deposit with variable rates had been around for a long time, I just couldn’t figure out how a variable rate CD could be better than a fixed rate CD when interest rates are so low. Then it hit me.

   A CD that is actually indexed to inflation, as measured by the Consumer Price Index (CPI), could be an exciting product. Why? First, inflation reflects your actual cost of living, so a CD that is indexed to inflation will protect you from rising prices. Second, the Fed has already announced that they plan to hold rates low for an “extended” period. This means your CD rate could stay low, even if inflation is increasing, unless you have a CD indexed to inflation. Finally, bank high yield savings accounts compete directly with Treasury products for your deposit dollars. The Treasury Department already offers the Series I bond and TIPS securities for investors worried about inflation.

   Banks aren’t likely to sit on the sidelines if inflation becomes a buzzword. Look for at least a few banks to realize the value of an inflation-indexed CD for consumers. We hope to see them sooner, rather than later.

5. iPhone, iPad and Android banking applicationsIn the beginning mobile banking left a lot to be desired. I remember when mobile browsers were primitive and features were very limited. Some mobile banking applications did nothing more than tell you where the closest ATM machine was located. Those days are gone.

   Today, applications written for the iPhone, iPad and Android-powered devices are taking mobile banking to the next level. Users can pay bills, see transaction history and send third-party payments. The next wave of banking applications will add even more money management features and tighten up security issues.

   You probably don’t need to switch banks to find a mobile banking app. The app will find you. 2011 will see a large number of new banks and credit unions develop their iPhone, iPad or Android app–just sit back and let the app wars begin.

6. Mobile paymentsI still have a wallet, but the days of the wallet are numbered if something called mobile payments takes off. This form of payment uses information stored on your phone that can be scanned to immediately purchase an item, make a person-to-person (P2P) payment or provide identification. Think of a checking account, credit card and driver’s license all rolled into one. Sound far-fetched? Don’t bet against mobile payments being the wave of the future.

   There is a furious battle raging between phone carriers, banks and credit card companies like VISA, Discover and Mastercard on the issue of mobile payments. No one wants to be left behind. Earlier this month, Google bought the mobile payment company Zetawire, a company that uses near-field technology to allow consumers to make payments with their Smartphones. There are also strong rumors that Apple will bring mobile payments to the next version of the iPhone.

   Whether or not you decide to be one of the first pioneers to start moving money by pointing your phone at a cash register, one thing is for sure: we will be hearing a lot more about mobile payments in 2011.

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Source URL: 6 banking innovations to look for in 2011

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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If you are like most people, you probably cringe when it is time to pay the bills. It is a chore almost as dreaded as spending a Saturday afternoon at the post office and dry cleaners. Perhaps the most frustrating and stressful bills to open are those from credit card companies.

If you carry a balance like most of us do, every month you may be battling the disappointment of a cemented balance. This means that you are actively trying to reduce your credit card debt by sending more than the minimum payment each month, and have vowed to no longer use your cards unless absolutely necessary, but your balance does not budge – it seems to be stuck in the cement. In fact, it may even increase due to steep interest rates that outrank the amount you are paying every month.

Several years ago, the credit card bills stuffed in your mailbox were probably accompanied by an equal number of offers to transfer your higher-interest balances to zero interest credit cards with no balance transfer fees. This could have certainly helped you chisel your balances out of their concrete cells.

While those zero percent balance transfers are no longer weighing down your mail carrier’s bag like in years past, there are still a few out there that can help you pay down your balances more quickly.

Zero interest credit cards – not zero risk

While there is no doubt that zero percent credit cards can benefit your budget’s bottom line in the long run, there are several important things to keep in mind before accepting any balance transfer offers:

• Zero interest balance transfers are, in fact, less available then they once were. If one does come your way, take out your magnifying glass and read the fine print – carefully! Pay special attention to the consequences of defaulting on a monthly payment. Missing a due date by just one day has the potential to lead to a dramatic jump in your interest rate, maybe up to a whopping 30 percent. Also, inquire about the interest rate you will be paying following your interest-free period. Unexpected expenses have a way of popping up and, even if you have the best intentions, you may not be able to pay down the entire balance before the zero-percent term expires.
• Balance transfer fees are another trap many of us get caught in. A dangerous transfer fee is usually one that calculates the amount you will pay based on a percentage of the amount you are transferring to the new card. Ideally you will want to find zero interest credit card offers that feature no balance-transfer fees. In today’s market, this may be tough to find. Your next best bet is to find an offer that caps the transfer fee at a certain dollar figure. For example, three percent of the balance but not more than $400.
• Once you have been approved for a zero interest balance transfer, be sure to confirm the credit limit before actually transferring the money from your higher interest card or cards. If the amount you are transferring puts you over the limit, you will face over-the-limit fees that can keep appearing until your balance falls. Even if the transfer will not put you above the approved credit limit, beware of balance transfer fees that, combined with the card balance, have the potential to push you over the limit.

Finding the right zero percent balance transfer options can help you knock out credit card debt, manage large balances and even improve your credit score. Many resources are available to help you find the right card for you, such as MoneyblueBook’s list of zero balance transfer credit cards–a great perk considering zero percent offers are no longer crowding mailboxes.

Lisa Tortorello has been a Director of Public Relations and Marketing within a large East Coast health care system for more than 11 years. She has an associate’s degree in Liberal Arts and a bachelor’s degree in Public Communication.

Image: Salvatore Vuono / FreeDigitalPhotos.net

Source URL: Pay off debt with 0 interest balance transfer credit cards, but read the fine print

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It’s almost that time of year again. I’m not talking about gingerbread houses, cocoa, and caroling; I’m talking about shopping, impulse-buying, digging ourselves into more credit card debt, and raiding our savings accounts.

We undoubtedly lose a bit of sanity, self-control, or both when it comes to holiday spending. For most Americans, the nature of the season already implies we’ll part with our money quicker than Santa can shoot up a chimney. The key, however, is not to spend it out of desperation, impulse shopping, or simply because you don’t have a plan.

Plan spending ahead of time

Your biggest safe-guard against excess or unplanned holiday spending is (are you ready for this?) making a plan.

This means you actually create a budget…and stick to it. Decide how much you’re willing to spend and then decide what you’re going to buy from there. The more items you decide on ahead of time, the better. This saves you from making a decision in the heat of the moment, surrounded by all those shiny, new things, and potentially can keep you from overshooting your budget.

This will take some sleuthing on your part, but the research will pay off and keep money in your pocket. Once your list is made up and in your hand, it’ll be so much easier to avoid those impulse buys.

Work to build up your holiday budget a little each month throughout the year. Using cash you already have will reduce your “spending stress” dramatically and help you stay more committed to working within that allotted amount. Let the plastic sleep snug in your wallet and you won’t be holding your breath for that credit card statement, come January.

Find great shopping deals

With these components in place, you’re prepared to take on the holiday madness of the stores. So the next question is: Where should I shop?

The answer’s simple: Make wise spending decisions. You want to buy a new outfit for the baby? That’s fine. But does it need to be designer, boutique, or made out of some ridiculously expensive fabric? The kid is going to grow out of it in a month. My point is, weigh the importance and the significance of that item. Will they remember or use it three months from now?

Lastly, remember that it never hurts to shop discount. Hit up the dollar store, thrift store, or local outlet as much as possible. They’re a great source for simple, quirky gifts, not to mention all those holiday extras you’ll need, like stocking stuffers, gift wrap, or party decorations.

Holiday shopping can be naughty or nice, depending on how you prepare for it. Create a budget, keep your list close at hand, and make sure your purchases are really worth it. Do this, and you might actually have time to relax and enjoy the holidays.

Jesse Mecham is the founder of “You Need a Budget” (YNAB) ynab.com, a budgeting software that helps you get out of debt, save more money, and stop living paycheck to paycheck. Jesse lives in Utah with his wife, Julie, and their four children.

Source URL: How to Survive the Holidays without Wiping Out Your Savings Account

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Today, when a bank fails people might feel anxiety, but it doesn’t cause the blind panic of the crash of 1929 – when people lined up to pull their money out of banks.

Most of us alive today don’t remember – but history books will tell you – that before the government insured your bank-deposited money, there was absolutely no safety net if something went wrong. If a bank failed it was your own tough luck and the bank took all of your hard earned money down with the sinking ship.

As a result, in 1933 Franklin D. Roosevelt created the FDIC, the Federal Deposit Insurance Corporation, to insure that this kind of crazy rush on banks would never happen again.

If it wasn’t for Roosevelt’s foresight, you can bet the bank panic of 1929 would have happened again in 2008 when the stock market took a nosedive and banks started dropping like flies.

How the FDIC protects your money

The FDIC web site asserts that, “no depositor has ever lost of penny of insured deposits since the FDIC was created in 1933.” So how does it work?

1. Bank must be FDIC insured. To get the benefits of insurance, your bank must be insured by the FDIC (an insured bank will always display an official FDIC sign at each teller window). Deposits at credit unions are insured by the National Credit Union Administration. The insured bank pays insurance premiums to the FDIC. Not only are brick and mortar savings banks insured, but your high interest online savings account may also be FDIC insured – be sure to check for the FDIC symbol when signing up.
2. If the Insured bank fails, the FDIC pays. If a bank or savings institution goes belly up, the FDIC steps in and pays depositors their money. You get all your money back – including principal and any accrued interested up to the date the bank closed.
3. Limits to Insurance. Before 2008 that insurance limit was $100,000. On Oct. 3, 2008, Congress raised the FDIC insurance amount permanently to $250,000 – per depositor, per insured bank.
4. High worth individuals must spread wealth. If you are fortunate enough to have more money than $250,000 in one bank you need to spread the overflow money out among separate banks since deposits in separate branches or accounts at one bank are not separately insured.
5. Different categories can be separately insured. It is possible to have more than $250,000 at one bank and still be fully insured says the FDIC. While single accounts (owned by one person) are limited to $250,000 per owner, joint accounts allow $250,000 per co-owner (so a couple could have in total $500,000 that is insured. For more info see the FDIC’s brochure, “Your Insured Deposits.“

What is insured, what is not

Not every account or investment made at your FDIC-insured bank is actually insured. Here’s a list of what is, and isn’t, covered:

Covered by FDIC:

• Checking accounts
• Savings Accounts
• Money Market Accounts
• NOW (or Negotiable Order of Withdrawal accounts)
• Certificate of deposits

Not covered by FDIC:

• Anything in your safe-deposit box
• Annuities
• Bonds
• Money market mutual funds
• Stocks
• Treasury securities
• Investment products (through your bank or a broker)

Not sure if your bank, savings institution, or online high interest savings account, is FDIC insured? You can use the FDIC’s “Bank Find” at or call toll-free 1-877-ASK-FDIC. If you’re not sure whether your bank account or assets in one bank are below the qualifying $250,000, use the FDIC’s free calculator to check what’s covered.

Marcia Passos Duffy is a freelance writer and author based in New Hampshire. Her articles have appeared on Yahoo Finance, CNBC, Fox Business News, and The Weather Channel’s Forecast Earth, among other online and print publications. She also publishes two online magazines, The Heart of New England.com and Home Office Weekly.com, and is the author of the book, Be Your Own Boss.

Source URL: How the FDIC protects your bank savings

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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You say tomatoes…

Do you think the Federal Reserve should be more like the Bank of England? No, I’m not suggesting it should employ people with funny accents or lose most of its international influence. But perhaps its people could learn something from their opposite numbers in London about plain speaking. The Daily Telegraph, a UK-based newspaper, reported at the end of September 2010 some remarks by the deputy governor of the Bank of England. He told British savers to, “stop moaning and start spending.”

Well, that’s blunt, and you can’t imagine a senior Fed official coming out with anything like it. However, if you look at what the Fed does, rather than what it says, it’s hard to escape the conclusion that it’s trying to send a similar message to Americans. Perhaps it should just come clean like the Brits.

Saving accounts that lose you money

Partly thanks to the Fed, interest rates right now are generally at or near historic lows. That’s great if you need a mortgage, but bad news if you’re saving up for the down payment you’ll need to get that home loan – or for anything else for that matter. Indeed, if you factor in fees and inflation, you can actually come out at a loss by keeping your money in some savings accounts.

But don’t despair. It may be a long time before we again see the sorts of high rates for savers that were common a few decades ago, but a bit of research and lateral thinking could soon see you accessing yields that make saving worthwhile.

High yield savings accounts a joke?

Recently, The New York Times said that in July 2010 the average rate paid on interest-bearing deposit accounts fell to 0.99 percent. It was the first time that it had been below one percent for 60+ years. And that 0.99 percent is an average! So for every smart person earning, say, 1.7 percent annual percentage yield (APY), there’s probably a sucker getting by on 0.3 percent or less.

The key point here is that just because your bank calls one of its products a “high yield savings account”, that doesn’t mean that the account necessarily returns a high yield. Many bankers are better at marketing than banking, and, unless you’re very lucky, chances are that yours is paying a truly awful rate.

The easiest way to find a genuine high yield savings account (and, remember, that’s a relative term) is to shop around for one online.

Interest-bearing checking accounts can rock

Probably the majority of banks now have interest-bearing checking accounts, and most of them are useless as savings vehicles. But shop around for long enough, and you could find some real gems. For example, one credit union has – at the time of writing – an interest-bearing checking account that’s paying a rate plus dividends that comes in at better than five percent APY, though only on balances below $25,000.

It’s unlikely that you’ll find something as good as that, not least because you’d have to be eligible for membership of that particular credit union, and also jump through some hoops to qualify for the rate. However, there are checking accounts out there that deliver better returns than many savings accounts, money market accounts and even certificates of deposit, and it’s well worth researching this market.

The downside? Well, most of them cap the balance on which high rates are paid, though usually in the tens of thousands of dollars. You’re likely to need to have a high opening deposit, maintain a minimum balance, and comply with other requirements as well.

Certificates of deposit and crystal balls

Unless you’re fortunate enough to find a great interest-bearing checking account, you should probably look at certificates of deposit (CDs). For most banks, these pay the highest interest rates.

So why doesn’t everyone put their money in certificates of deposit? There are three main reasons:

1. You invest a lump sum, so this doesn’t suit those who want to put aside a little every month
2. You have to tie up your savings for a set period, and pay a steep penalty if you need to make an early withdrawal
3. To earn the best rates, you must be prepared to tie up that money for a long period: three, five, maybe even ten years

That last one is the killer. Suppose you were to choose a CD with a five-year term. At the moment, you might get as much as 2.75 percent APY, which is a more than respectable rate in the current market. But what happens if the economy turns around in a couple of years’ time, and interest rates suddenly rocket? You’re stuck with your cash tied up at 2.75 percent for another three years, while much better rates are available elsewhere.

Save anyway

Life’s long and economic downturns tend to be short. Most personal finance advisers say that saving is a good habit to get into, even when rates are low. The money you put aside now could well position you to take advantage of the upturn when it arrives, or – at worst – spare you at some point in the future from the tender mercies of a collection agency.

By all means, shop around for the best rates you can find, but save anyway.

Peter Andrew has been writing about – and for – business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

Source URL: Savings accounts – nest egg builders or wastes of time?

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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When people ask me if they could be successful at day trading, my first response is, “Do you know what day trading is?”

Most people don’t. You might think day trading is about finding the best online brokerage, grabbing a stack of financial reports, arming yourself with financial blogs and news and then diving in.

What many would-be day traders don’t realize is that success doesn’t come from the uncanny ability to analyze balance sheets and fundamentals like Warren Buffett. And even if you have the ability to interpret charts and price action–the primary skill for day trading–this is secondary to having the strict discipline of adhering to specific rules and guidelines.

Without these rules in place, day trading is like a child playing with a chainsaw.

I’m not judging the merits of day trading. I know both very successful day traders and those who blew themselves up financially with day trading. (For what it’s worth, I know many more of the latter variety.) But if you’re going to succeed at this kind of investing, you’d better understand what it takes.

What it takes to succeed

Here are observations from my experience as both a professional trader and money manager about what it takes to succeed at day trading:

• Hard work. Brains don’t hurt, but day trading is a skill, and that skill needs to be developed by treating this as a business. A lot of people day trade as a side avocation or hobby, maybe because it seems like an easy road to riches. Don’t fall for that mentality. I’ve known people with a gambling mentality who have been drawn to trading, only to be chewed up because they treated the markets as a casino and not a business.
• Discipline. Do you ever see the same people wandering around your gym who have no noticeable changes in their appearance from a year ago? It’s from lack of discipline and goal-setting. Trading is no different. People jump from strategy to strategy, or worse, have no strategy at all. The importance of discipline to day trading can’t be overstated. You may think you have discipline, but the true litmus test is your results.
• A keen grasp of probabilities. The best baseball players–the ones who get paid the most–hit the ball around three times for every 10 at-bats. A guy who hits it four times for every 10 at-bats is the best in the business. Put another way, even the best baseball players in the world achieve an undesirable result most of the times they get up to bat. Great traders are the same. Making money through day trading doesn’t mean you make the right call most of the time. The key is to lose a little when you are wrong (which is often) and make a lot when you are right.
• Letting go of the need to be right. Some people would rather be right than make money (or would rather be right than be happy, but that’s another blog post!). This personality trait makes for lousy day traders. In day trading, you will be wrong more than you are right, but that is not failure, it’s probability.

Defining your day trading personality

On a recent episode of “America’s Got Talent” (I admit it, I somehow got hooked on a summer reality TV show) judge Piers Morgan told one performer that he did not know how to define his act and asked the performer how he would define himself. The entertainer looked completely bewildered, and it’s no surprise that his act fell flat.

Ask 100 people to define their “investment personality,” and you’re going to get 90 blank stares. Lacking a clear description of your investment personality–are you a trader, gambler, investor or saver?–is a common error, one that can make or break your results.

In the broadest sense, everyone’s financial goal in investing is to make money. But that’s not enough. You have to find a strategy and set of rules that you’ll stick to and will keep you from an expensive labyrinth of mistakes.

Spending some time doing a little self-discovery can yield a strategy that is more in sync with your personality type, which may help reduce some of the emotional impulses that often lead people astray.

Still think you have what it takes to be a successful day trader? You’re the only one who can really know. But if you lack any of the key traits or a strong investment personality, don’t be surprised if you’re in for a long grind–or a financial meltdown.

Marc Pearlman is the author of the Positive Money Mindset and host of the popular radio show Your Money Matters! For more about Marc, visit marcpearlman.com or www.Yourmoneymattersradio.com.

Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Marc Pearlman, Representative. Your Money Matters! radio show and the Securities America companies are unaffiliated.

Source URL: Day trading: Do you have what it takes?

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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To keep this stagnating economic train running, President Barack Obama has recently signed a new bill – extending the duration and expanding the coverage of the federal housing tax credit. Previously, the economic stimulus package only provided free tax credit assistance to first time home buyers and was slated to expire in late 2009. But with economists and pundits still doubting the ability of the economy to recover without additional stimulus intervention, the federal government has now officially extended the deadline of the federal homebuyer tax credit program until April 30, 2010 for new home contracts, or until June 30, 2010 for the final closing. The home’s closing can occur by June 30, 2010 and still qualify for the free tax credit, but the contract  to buy the home must be completed by April 30, 2010 at the latest. Those looking for a further extension after early 2010 might be disappointed as current indications suggest that this extension may be the final one.

To incentivize and encourage continued homebuying activity (as much of our economy is intertwined with the housing industry – example: banks, construction related services, home equity based spending), the new federal legislation will not only extend the current program’s eligibility deadline for new home buyers, but it will also add additional tax credit incentives for qualifying existing home buyers who choose to move out of their present homes and trade up for new homes. While the whole motivation behind the federal government’s approach towards providing housing tax credit assistance is to jump start and spur on sluggish housing sales, it really remains to be seen whether this will ultimately have a sustainable long term impact on the economy. Hopefully, the government’s well meaning emergency actions today won’t drive us into irreparably dire deficits and higher tax brackets down the line. After all, it’s been said that the road to hell is often paved with good intentions.

Buy A New Home Not For The Tax Credit, But Because It’s A Good Investment

As a new first time homebuyer myself, I recently purchased a new construction home in August 2009. Despite the fact my high income precludes me from qualifying for the housing tax credit, even if I qualified for it, it’s unlikely the tax credit alone would have been the primary impetus for my home purchasing decisions. In almost all of the reputable surveys I’ve seen on the subject, including ones conducted by the National Association of Realtors (NAR), only a tiny portion of first time home buyers cited the tax credit as the primary reason behind their recent decisions to purchase a new home. I think the strongest encouragement to buy a home now comes not from the federal government’s tax credit incentive, but rather from the innately driven love of the American people to own their own homes, and the current prevalence of favorable market conditions in the way of super low mortgage rates and depressed home prices that have plummeted 25-30% from their previous year 2005/2006 highs. I know the primary reason I decided to pull the trigger now and purchase a home for the very first time was not because I wanted to take advantage of any federal housing tax credit, but due to the fact that home prices in my target neighborhood have dropped into incredible lows and now sit at once-in-a-lifetime levels of affordability. For those of you who have been contemplating the prospect of buying a new home for the very first time or even for those of you who are long time homeowners pondering the idea of swapping up for a new and improved home – now may be the time to do it. The free housing tax credit carrot that the federal government is now dangling as an incentive for qualifying individuals might be just what you needed to push you over the decisional edge.

For both the $8,000 tax credit for first time home buyers and the newly expanded $6,500 tax credit for existing homeowners looking to buy a new home, there are a few restrictions in the way of income limits and what type of home may qualify. Buyers claiming the tax credit must be at least 18 years or older, and no individual or couple may receive the credit if he or she may be claimed as a dependent on someone else’s tax return. For both housing tax credits, the credit gradually phases out for individual single filers with $125,000 and $145,000 of modified adjusted gross income (MAGI). For married couples, the income range phaseout is between $225,000 and $245,000. Beyond $145,000 for single filers and $245,000 for married filing jointly couples – the tax credit is completely phased out.

How To Qualify For the $8,000 First Time Home Buyer Tax Credit

To be considered eligible, you must first and foremost be a first time home buyer – defined as an individual who has not owned a principal residence home in the past 3 years prior to the present purchase. This definition of “first time home buyer” also includes both partners of a married pair. There is some flexibility as to which tax return year the tax credit must be claimed. Under the new law as was the case under the old, a first time homebuyer who purchases a home in year 2009 may opt to claim the federal tax credit on either their 2008 or 2009 tax returns. Similarly, one who purchases a new home in year 2010 may opt to claim the tax credit on either their 2009 tax returns or on their 2010 tax returns.

In terms of how much money you are permitted to get back on your tax return in the way of tax credits, first time home buyers are permitted to claim up to 10% of the home’s final purchase price, up to a maximum tax credit limit of $8,000. One great feature of the first time homebuyer tax credit is that it’s a dollar for dollar reduction of tax liability and is completely refundable. What this means is that even if you don’t owe the Internal Revenue Service (IRS) sufficient taxes to completely offset the housing tax credit, you can still qualify for a free tax refund check of the difference. Thus if you qualify for the full $8,000 housing tax credit and ultimately only owe the IRS $6,000 in taxes – you can still qualify for a $2,000 tax refund check.

Additionally, there are a few other limitations on who may qualify for the tax credit. The first time homebuyer may not purchase the home from a descendant such as one’s children or grandchildren, and the home may not be purchased from a lineal ancestor, such as a parent. The same restriction also applies to purchasing from one’s spousal ancestors and descendants as well. Furthermore, for home purchases made after November 6, 2009, the price of the purchased home may not exceed $800,000. Homes priced in excess of that amount are not eligible for the tax credit. Basically, the government doesn’t want rich folks to profit from this middle class based credit.

How To Qualify For The $6,500 Repeat Homebuyer Tax Credit

This is an exciting new addition to the federal homebuyer tax credit program. To be considered eligible for the $6,500 existing homeowner’s tax credit, the homeowner applicant must have owned his or her current home for at least 5 consecutive years out of the past 8 years, and must purchase a new home by April 30, 2010. The purchase of the new home can include a new construction home, but the purchasing contract must be signed by April 30, 2010, and the final closing date must be on or by June 30, 2010. The income qualification restrictions are the same as that of the first time homebuyer’s credit – for single filers, the tax credit phases out between $125,000 and $145,000 of modified adjusted gross income, and for married filing jointly couples, the income range phases out between $225,000 and $245,000.

While there is no explicit requirement that the homeowner must ever pay back the $8,000 or $6,500 housing tax credit to the federal government, the obligation to pay it back does arise if one claims the tax credit but then sells the house or condominium (or otherwise stops using the home as the principal residence) within 3 years (36 months) after the purchase.

Source URL: Tax Credit For First Time Home Buyers Extension

Copyright Protected © 2009 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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One of the most introductory ways to plan for the effects of income taxes is to recognize how the various marginal rates are applied to the corresponding tax brackets. Because the United States does not yet currently engage in a flat tax system, our taxable incomes are broken down into different taxation ranges with specific taxation percentages assessed depending on where they fall along the tax bracket spectrum. Although our 2010 tax returns won’t be filed until April 15, 2011, for planning purposes, it’s always good to find out the new changes to the tax code as early as possible. Let’s examine some of the upcoming tax rate changes that are being projected for 2010 and compare them to the previous year’s 2009 tax brackets.

Projections Of New IRS Tax Rates Have Historically Been Extremely Accurate

Year after year, even before the official IRS income tax brackets are released, a select number of tax experts have gotten together and crunched a determinative number of officially released statistics by governmental agencies – to project and extrapolate the upcoming year’s tax brackets. Year after year, the tax rate predictions released by these groups have yielded results in advance with near 100% accuracy. Such an income tax bracket projection ahead of time is possible because many of the major tax code numbers are pegged to officially released inflation statistics – including the standard deduction, the personal exemption, the actual income ranges of the tax brackets, and contributions limits for the investment retirement accounts (both the Traditional and Roth IRA account).

One of these tax prognosticating groups is the Tax Foundation, a Washington D.C. think tank which collects data and publishes research studies on federal and state tax policies. The other notable group operates under the auspices of the Wall Street Journal and is comprised of a merry band of private tax professionals and economists – namely William E. Massey, a senior tax analyst from the Tax and Accounting arm of Thomson Reuters; George Jones, a senior federal tax analyst from CCH; and James C. Young, an accounting professor from Northern Illinois University. For numerous years now, both the Tax Foundation and the Wall Street Journal group have consistently released to the public very accurate, albeit unofficial, early bird peaks at the following year’s projected income tax brackets based on available financial data – well in advance of the official IRS releases. If you’re eager to get a head start on tax year 2010, read on.

IRS Tax Rate Schedule Updates For Tax Year 2010

This year, citing a very sluggish economy and extraordinarily low inflation rates for 2009 to which upcoming 2010 tax rates shall be pegged to, the Tax Foundation and associated experts are predicting very little year to year change for the 2010 federal tax brackets. If there’s anything good that came out of this global economic recession that has been plaguing us for the entirety of 2009 – it’s that the combination of low gas prices, depressed consumer spending, and high jobless numbers with so many people filing for unemployment – have enabled inflation rates to stay quite low during the span of 2009 – at a mere 0.19%. Just compare that to the incredibly high inflation rate of 4.26% during the previous year of 2008 when gas prices were skyrocketing, and it’s clear the recent sudden and precipitous drop in inflation has been extremely unprecedented.

As a result of low inflation, for the most part the 2010 tax bracket ranges will likely stay relatively unchanged. As noted by the tax pundits, for the very first time since the IRS started to index the official federal income tax rates to inflation during the mid 1980’s, taxpayers will get virtually no significant benefit from inflation in 2010. As such – year 2010 tax brackets, standard deductions, personal exemptions, and even retirement account contribution limits will see very little (if any) alterations from prior year numbers.

I will update the table below to reflect the official IRS tax rates for 2010 if decidedly different numbers are ultimately released by the IRS. However, with tax bracket projections by the experts having enjoyed a near perfect accuracy rate for quite a few years now, I don’t have any reason to doubt that the displayed figures below will ultimately wind up as official.

Federal Income Tax Brackets For 2010 – Based On Taxable Income Ranges

Beyond some slight numerical shuffling of the taxable income ranges, there will not be too many significant tax changes from 2009 into 2010. Here is a breakdown of the projected changes (if any) for 2010 as they compare to the prior year:

• Personal Exemption: No change. For the very first time, the standard exemption for 2010 will not be going up and will stay unchanged at $3,650, the same as it was in 2009.
• Standard Deduction: No change, except for Head Of Household filers. The standard deduction for married couples filing jointly will remain unchanged at $11,400. For those filing as single, the standard deduction will remain at $5,700 as well. However, Head of Household filers will see a slight increase by $50 – from $8,350 (year 2009) to $8,400 (year 2010).
• Overall Tax Bracket Thresholds: Will increase across the board for all tax filing statuses, albeit at a significantly lower amount compared to past tax year increases.
• Annual Gift Tax Exclusion Amount: No change. For tax year 2010, the current gift tax exclusion limit of $13,000 will stay the same. Often overlooked by most taxpayers, the gift tax stipulates that gift givers must pay a special tax on gift amounts that exceed a certain amount per year.
• Traditional and Roth IRA Contribution Limits: No change. Despite the fact that IRA and Roth IRA contribution limits did not rise in 2009 in response to strong inflationary pressures in 2009, there will still be no corresponding change in the maximum contribution limits to individual retirement accounts for 2010. The standard IRA contribution limit for 2010 will remain unchanged at $5,000. The catch up contribution limit for those 50 or older will remain at $6,000 as well.

Source URL: 2010 Federal Income Tax Brackets (IRS Tax Rates)

Copyright Protected © 2009 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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