Anything that reduces your income or maximizes your credits and deductions will lower your tax bill. And now is the perfect time of year to make some moves that can help you shrink your tax liability for 2009 — and make key decisions about your employee benefits that can cut your taxes for 2010. Here are some ways to lower your taxes:

1. Increase your 401(k) contributions. Any money you contribute to a 401(k) lowers your taxable income. You can contribute up to $16,500 to a 401(k) in 2009 (plus an extra $5,500 if you’re 50 or older). You still have a few months to boost your regular contributions, or you can add any year-end bonus you receive to help max out your contributions before 2009 is over.

2. Make the most of your flexible spending account. Contributions to a flexible spending account avoid income tax and Social Security tax, which can save you 35% or more compared with spending after-tax money. Most employers require you to use your FSA money by December 31 or by March 15 of the following year, so make sure you’re on track to spend the money in your account before the deadline (otherwise it disappears). You’ll be making key decisions about next year’s FSA account over the next few months, and you may want to boost your contributions if your employer is increasing your out-of-pocket health-care costs for next year — as many of them are.

The maximum contribution limits vary by employer, but many let you set aside $3,000 a year in pretax money for a health-care flexible spending account and up to $5,000 in a dependent-care FSA.

3. Buy a house. The economic-stimulus plan provides a tax credit of up to $8,000 for purchasing a first home between January 1 and November 30, 2009. You’re considered a first-time home buyer if you (and your spouse, if you’re married) haven’t owned a home in the past three years. The credit begins to phase out if your modified adjusted gross income tops $75,000 (or $150,000 if married filing jointly), and it disappears if your income exceeds $95,000 if you’re single (or $170,000 if married filing jointly).

A special rule lets you receive the money quickly: After you close on the house, you can claim the credit for the 2009 purchase on an amended 2008 tax return. But unlike the 2008 version of the tax break, you don’t have to pay back the credit, as long as you live in your home for at least three years.

4. Buy a car. The stimulus plan also provides a tax break for new-car buyers. If you buy a new car between February 17 and December 31, 2009, then you can deduct state and local sales taxes and excise taxes paid on up to $49,500 of the cost of the car. If you live in a state that doesn’t have a sales tax, you still get a tax break if your state imposes a flat fee on the purchase of vehicles or a fee based on the price you pay.

The tax break applies to new (not used) cars, light trucks, motor homes and motorcycles. To qualify, your modified adjusted gross income must be less than $135,000 if you’re single, or $260,000 if married filing jointly (the deduction starts to phase out if you earn more than $125,000 if single, or $250,000 if married filing jointly).

5. Sell losing investments. Capital losses are first used to offset capital gains, and then up to $3,000 of the net loss can be deducted against income, such as your salary. Any excess loss is carried forward to future years.

6. Maximize your tax credits and deductions. Tax credits can lower your tax bill dollar for dollar. If you contribute to a 401(k), IRA or other retirement-savings plan, you may qualify for the retirement savers’ tax credit, which can trim your tax bill by up to $1,000 per person.

The dependent-care tax credit is also valuable — and often overlooked — if you pay someone to care for your child while you work. Keep in mind that even summer day camp counts if your child is younger than 13 and you or your spouse work.

And tax deductions are valuable, too, which lower your taxable income and in turn reduce your tax bill.

7. Pay college bills. The stimulus also improved the tax breaks for paying college bills. The new American Opportunity credit replaces the Hope credit for 2009 and 2010 and increases the size of the maximum credit from $1,800 to $2,500. The income limits to qualify have increased, too – from $58,000 to $90,000 if you’re single and from $116,000 to $180,000 if you’re married filing jointly.

You can claim the American Opportunity credit in the first four years of college (not just the first two years, as was the case with the Hope credit). Money you use to pay for college from a 529 or Coverdell education-savings account (both of which can already be used tax-free for college bills) doesn’t count toward the American Opportunity credit. You need to pay at least $4,000 in tuition, fees and course materials, such as textbooks, from a source other than a 529 or Coverdell to qualify for the full credit.

8. Give to a charity. You can write off charitable contributions if you itemize your deductions. But people often scramble in late December to decide which organizations to support. Now is a good time to start thinking about who should benefit from your largess.

When tallying up your charitable contributions for the year, don’t forget to count gifts of cash as well as appreciated stock and noncash donations. You can also include out-of-pocket costs to help a charity, such as 14 cents a mile in transportation costs to do charitable work or the cost of ingredients for a casserole you make for a nonprofit’s soup kitchen.

9. Max out tax breaks for the self-employed. If you’re self-employed or have just a little freelance income, be sure to make the most of the tax breaks. You’ll be able to deduct the cost of equipment you use in your business, such as a computer, printer, fax machine and copier, as well as a dedicated phone line, office supplies, business travel and advertising. You may even be able to deduct a portion of your rent or mortgage, homeowners insurance and utilities if you have a qualified home office.

You can also make tax-deductible contributions to a retirement plan for the self-employed, such as a Simplified Employee Pension or a solo 401(k), and can deduct your health-insurance premiums if you aren’t eligible for health insurance from an employer or your spouse’s employer. (You can’t deduct more than the net income of your business.)

10. Keep track of medical expenses. Incurring big medical expenses can result in a lower tax bill. But it can be tough to get much of a break for medical costs. You qualify for the tax break only if you itemize your deductions, and you can write off expenses only if they exceed 7.5% of your adjusted gross income. That means if you’re earning $50,000 per year, you can deduct out-of-pocket medical expenses beyond $3,750. If you have $5,000 of qualified costs, you’re left with a deduction of just $1,250. But even that partial deduction can make a difference. If you’re in the 25% bracket, a $1,250 deduction can lower your tax bill by $313.

It’s worthwhile to keep the receipts of money spent on medical bills in your tax file throughout the year because you could end up with a surprisingly large deduction if you have a medical emergency or a major expense that isn’t covered by insurance, such as fertility treatments, orthodontia, laser eye surgery, or any experimental medical procedures that your insurer won’t cover.

Prepare for taxes. If you dread doing taxes, take away your fear with a handy set of file folders or a single accordion file. Hang on to the receipts you collect during the day (jot a note on the ones that might be deductible), then slip them into the appropriate slots. If you make this a habit, all you’ll need is about 15 minutes to pull the information together to file your taxes next year.

Create an emergency fund. Life is full of surprises and ultimately unplanned expenses. Keeping a personal stash can save you from financial ruin in the event of an unforeseen illness, accident or layoff.

Make a will. If you haven’t already done this, stop putting it off! At the very least, you need a will and a Health Care Power of Attorney, which authorizes a person you name to make health care decisions for you if it becomes necessary. And if you have minor children, you need to name a guardian. It’s a simple process that will pay back with peace of mind. Make an appointment with an attorney who specializes in end-of-life issues.

Scan important documents to CD. Could you put your hands on all your important papers? Even if you know where they are, chances are your insurance policies, birth certificates and tax records are scattered about. Make life easier by taking time to scan all of your documents into your computer, then store them on CDs. Keep a copy for yourself and send one to a trusted friend or relative.

A big step to financial stability is to create an Emergency Fund. Start by saving $1,000 as emergency fund. You could put this money into a checking account, separate from your regular checking account, or in a Money Market account with check-writing privileges without fees. The emergency find is your financial cushion, your rainy day fund. In case life happens while you are on the path to debt freedom, you will have money to deal with the emergency without borrowing again.

It’s important to acknowledge that a lot of debt problems are a result of bad behavior, the bad habit of overspending and borrowing only to spend more. You simply have to change your behavior as it relates to money. First, stop spending money that you don’t have, plain and simple. What happened to saving money to purchase something you want? It’s what we did as children, saved up our weekly allowance until we had enough to buy that special toy or outfit. It’s time to get back to basics and spend only what we have and can afford.

Next you have to make a list of all your debts from smallest to largest balance. Start with the smallest debt and work your way down to the largest one. Pay minimum on every debt on your list except the one at the top; apply any extra money to that debt in the #1 spot until it’s paid in full. You may have varying interest rates, but don’t worry about the math.  Paying off your debts is 10% math and 90% behavior and emotion. What will drive you is the emotional rush you’ll get as you change your behavior, as you begin to knock out one debt after the other. The math will take care of itself if you stay intensely focused and follow this simple debt snowball plan.

It’s important to note, if you owe taxes to the IRS, list that debt first. Tax collectors have a lot of power over your financial life. They can do to you whatever they want whenever they want. The tax people can confiscate your car, house, other assets and auction them off in government auctions. Or they can garnish your wages, and there’s little or nothing you can to stop them. These people can inflict more harm on you and your household than the collection department of any bank or credit card company. You definitely want to pay off your tax debt first and fast.

As you pay your smaller debts, which may not take you long to knock out, you will pick up momentum for the next larger debt. This will motivate you to take on your debts. Every time you pay off one debt, roll over all the money you were paying on that debt to the next debt. As you move to the next debt on the list you will pick up additional cash to speed up the pay off process. That’s what gets your adrenalin flowing, fueling your intensity.

Make sure to reward yourself as you make progress towards debt freedom. When you pay off a debt, celebrate the victory, you are closer to the financially euphoric debt-free life that awaits you!

Nowadays we have to pay taxes on most things. We pay tax on the money we earn at work and this is called income tax. Income tax is applicable to business income, capitol gains, wages and salaries.

Some other forms of taxes include, inheritance tax, transfer tax, property tax, use tax, toll tax, excise tax, corporation tax, and others. These could all become confusing when it comes to determining which applies to you, therefore, you need tax help. Getting the right kind of advice is crucial if you are to save at least some of your dollars. It just makes sense to get some help.

When income tax time comes around each year, businesses and individuals seek tax help. Many people simply do not understand all aspects of filing their taxes,  so it makes sense to seek help from tax professionals in this matter. Income tax professionals can help you when it comes to preparing and filing your tax forms. You can get help from various resources, such as tax preparation professionals, tax software and the IRS. 

Tax Preparer

Tax preparers are individuals who are trained for the job. They are not difficult to find. You can find tax preparers in places such as H&R Block. Try hrblock.com. They can help you with filing your income taxes, and if you require it, they can provide you with software to help you prepare your taxes yourself. They also offer advice on other financial matter. The advantage of using a tax preparer is that the costs are relatively inexpensive. 

CPA

CPA stands for Certified Public Accountant. It’s not easy to obtain a CPA license. It requires significant study and the licensing test is very difficult. If you have a unique or complex financial situation, for example, being a small business owner, you might want to use a CPA. Usually CPAs can also make suggestions to significantly lower your tax bill. CPA services cost more. However, the savings can outweigh their fees. Accountants and lawyers are both able to advice on income tax matters. Your particular tax situation will determine which one would be the most suited to your needs. 

Just like in most every other profession, keep in mind that knowledge and quality of work varies from agent to agent. Some can be excellent. Others are less impressive. It’s helpful to get a referral from someone who is happy with their tax preparer. 

Tax Software

The technology of computers has minimized the risk of making mistakes. Tax software is now available for people who want their taxes to be done accurately and conveniently. There are different types of tax software you can use for different purposes. While you can buy tax software from local stores, the best place to find tax software is actually the Internet. Buying tax software from the Interest is very easy. For some software, you can usually download it onto your company and start using it right away. There is also other tax software that does not require any installation at all. You can finish the whole process on-line on their websites.

When it comes to tax prep software, there are many choices on the market. Many people choose to use the big three of tax prep software: Turbo Tax, Tax Act , and Tax Cut . They have all been around for many years and have a lot of experience handling new tax rules and finding deductions for their users. Besides, all three of them offer both free version (for simple returns) and paid version (for more complicated cases). 

Help from IRS

Don’t forget that you can get help from the IRS. You can go to its website http://www.irs.gov. This is the website of the Internal Revenue Service, where most of your tax dollars are dealt with. The IRS website can provide you with plenty of information when it comes to different areas of tax, information on which areas may apply to you, tax rules, tax forms and help on filling taxes.. It will also tell you where you can find help for specific problems.   On this site, you can also find answers to many questions in the Frequently Asked Questions and Tax Trails pages. If you can’t find the answer to your question,  you call their toll-free tax assistance line at 800-829-1040 for individual tax questions or 800-829-4933 for business tax questions.

An examination of how the economic stimulus plan will affect Americans.

Taxes:

The recovery package has tax breaks for families that send a child to college, purchase a new car, buy a first home or make the ones they own more energy efficient.

Millions of workers can expect to see about $13 extra in their weekly paychecks, starting around June, from a new $400 tax credit to be doled out through the rest of the year. Couples would get up to $800. In 2010, the credit would be about $7.70 a week, if it is spread over the entire year.

The $1,000 child tax credit would be extended to more low-income families that don’t make enough money to pay income taxes, and poor families with three or more children will get an expanded Earned Income Tax Credit.

Middle-income and wealthy taxpayers will be spared from paying theAlternative Minimum Tax, which was designed 40 years ago to make sure wealthy taxpayers pay at least some tax, but was never indexed for inflation. Congress fixes it each year, usually in the fall.

First-time homebuyers who purchase their homes before Dec. 1 would be eligible for an $8,000 tax credit, and people who buy new cars before the end of the year can write off the sales taxes.

Homeowners who add energy-efficient windows, furnaces and air conditioners can get a tax credit to cover 30 percent of the costs, up to a total of $1,500. College students — or their parents — are eligible for tax credits of up to $2,500 to help pay tuition and related expenses in 2009 and 2010.

Those receiving unemployment benefits this year wouldn’t pay any federal income taxes on the first $2,400 they receive.

Health insurance:

Many workers who lose their health insurance when they lose their jobs will find it cheaper to keep that coverage while they look for work.

Right now, most people working for medium and large employers can continue their coverage for 18 months under the COBRA program when they lose their job. It’s expensive, often over $1,000 a month, because they pay the share of premiums once covered by their employer as well as their own share from the old group plan.

Under the stimulus package, the government will pick up 65 percent of the total cost of that premium for the first nine months.

Lawmakers initially proposed to help workers from small companies, too, who don’t generally qualify for COBRA coverage. But that fell through. The idea was to have Washington pay to extend Medicaid to them.

COBRA applies to group plans at companies employing at least 20 people. The subsidies will be offered to those who lost their jobs from Sept. 1 to the end of this year.

Those who were put out of work after September but didn’t elect to have COBRA coverage at the time will have 60 days to sign up.

The plan offers $87 billion to help states administer Medicaid. That could slow or reverse some of the steps states have taken to cut the program.

Infrastructure:

Highways repaved for the first time in decades. Century-old waterlines dug up and replaced with new pipes. Aging bridges, stressed under the weight of today’s SUVs, reinforced with fresh steel and concrete.

But the $90 billion is a mere down payment on what’s needed to repair and improve the country’s physical backbone. And not all economists agree it’s an effective way to add jobs in the long term, or stimulate the economy.

Energy:

Homeowners looking to save energy, makers of solar panels and wind turbines and companies hoping to bring the electric grid into the computer age all stand to reap major benefits.

The package contains more than $42 billion in energy-related investments from tax credits to homeowners to loan guarantees for renewable energy projects and direct government grants for makers of wind turbines and next-generation batteries.

There’s a 30 percent tax credit of up to $1,500 for the purchase of a highly efficient residential air conditioners, heat pumps or furnaces. The credit also can be used by homeowners to replace leaky windows or put more insulation into the attic. About $300 million would go for rebates to get people to buy efficient appliances.

The package includes $20 billion aimed at “green” jobs to make wind turbines, solar panels and improve energy efficiency in schools and federal buildings. It includes $6 billion in loan guarantees for renewable energy projects as well as tax breaks or direct grants covering 30 percent of wind and solar energy investments. Another $5 billion is marked to help low-income homeowners make energy improvements.

About $11 billion goes to modernize and expand the nation’s electric power grid and $2 billion to spur research into batteries for future electric cars.

Schools:

A main goal of education spending in the stimulus bill is to help keep teachers on the job.

Nearly 600,000 jobs in elementary and secondary schools could be eliminated by state budget cuts over the next three years, according to a study released this past week by the University of Washington. Fewer teachers means higher class sizes, something that districts are scrambling to prevent.

The stimulus sets up a $54 billion fund to help prevent or restore state budget cuts, of which $39 billion must go toward kindergarten through 12th grade and higher education. In addition, about $8 billion of the fund could be used for other priorities, including modernization and renovation of schools and colleges, though how much is unclear, because Congress decided not to specify a dollar figure.

The Education Department will distribute the money as quickly as it can over the next couple of years.

And it adds $25 billion extra to No Child Left Behind and special education programs, which help pay teacher salaries, among other things.

This money may go out much more slowly; states have five years to spend the dollars, and they have a history of spending them slowly. In fact, states don’t spend all the money; they return nearly $100 million to the federal treasury every year.

The stimulus bill also includes more than $4 billion for the Head Start and Early Head Start early education programs and for child care programs.

National debt:

One thing about the president’s $790 billion stimulus package is certain: It will jack up the federal debt.

Whether or not it succeeds in producing jobs and taming the recession, tomorrow’s taxpayers will end up footing the bill.

Forecasters expect the 2009 deficit — for the budget year that began last Oct 1 — to hit $1.6 trillion including new stimulus and bank-bailout spending. That’s about three times last year’s shortfall.

The torrents of red ink are being fed by rising federal spending and falling tax revenues from hard-hit businesses and individuals.

The national debt — the sum of all annual budget deficits — stands at $10.7 trillion. Or about $36,000 for every man, woman and child in the U.S.

Interest payments alone on the national debt will near $500 billion this year. It’s already the fourth-largest federal expenditure, after Medicare-Medicaid, Social Security and defense.

This will affect us all directly for years, as well as our children and possibly grandchildren, in higher taxes and probably reduced government services. It will also force continued government borrowing, increasingly from China, Japan, Britain, Saudi Arabia and other foreign creditors.

Environment:

The package includes $9.2 billion for environmental projects at the Interior Department and the Environmental Protection Agency. The money would be used to shutter abandoned mines on public lands, to help local governments protect drinking water supplies, and to erect energy-efficient visitor centers at wildlife refuges and national parks.

The Interior Department estimates that its portion of the work would generate about 100,000 jobs over the next two years.

Yet the plan will only make a dent in the backlog of cleanups facing the EPA and the long list of chores at the country’s national parks, refuges and other public lands. It would be more like a down payment.

When it comes to national parks, the plan sets aside $735 million for road repairs and maintenance. But that’s a fraction of the $9 billion worth of work waiting for funding.

At EPA, the payout is $7.2 billion. The bulk of the money will help local communities and states repair and improve drinking water systems and fund projects that protect bays, rivers and other waterways used as sources of drinking water.

The rest of EPA’s cut — $800 million — will be used to clean up leaky gasoline storage tanks and the nation’s hazardous waste sites.

Police:

The stimulus bill includes plenty of green for those wearing blue.

The compromise bill doles out more than $3.7 billion for police programs, much of which is set aside for hiring new officers.

The law allocates $2 billion for the Byrne Justice Assistance Grant, a program that has funded drug task forces and things such as prisoner rehabilitation and after-school programs.

An additional $1 billion is set aside to hire local police under the Community Oriented Policing Services program. The program, known as COPS grants, paid the salaries of many local police officers and was a “modest contributor” to the decline in crime in the 1990s, according to a 2005 government oversight report.

Both programs had all been eliminated during the Bush administration.

The bill also includes $225 million for general criminal justice grants for things such as youth mentoring programs, $225 million for Indian tribe law enforcement, $125 million for police in rural areas, $100 million for victims of crimes, $50 million to fight Internet crimes against children and $40 million in grants for law enforcement along the Mexican border.

Higher Education:

The maximum Pell Grant, which helps the lowest-income students attend college, would increase from $4,731 currently to $5,350 starting July 1 and $5,550 in 2010-2011. That would cover three-quarters of the average cost of a four-year college. An extra 800,000 students, or about 7 million, would now get Pell funding.

The stimulus also increases the tuition tax credit to $2,500 and makes it 40 percent refundable, so families who don’t earn enough to pay income tax could still get up to $1,000 in extra tuition help.

Computer expenses will now be an allowable expense for 529 college savings plans.

The final package cut $6 billion the House wanted to spend to kick-start building projects on college campuses. But parts of the $54 billion state stabilization fund — with $39 billion set aside for education — can be used for modernizing facilities.

There’s also an estimated $15 billion for scientific research, much of which will go to universities. Funding for the National Institutes of Health includes $1.5 billion set aside for university research facilities.

Altogether, the package spends an estimated $32 billion on higher education.

The Poor:

More than 37 million Americans live in poverty, and the vast majority of them are in line for extra help under the giant stimulus package. Millions more could be kept from slipping into poverty by the economic lifeline.

People who get food stamps — 30 million and growing — will get more. People drawing unemployment checks — nearly 5 million and growing — would get an extra $25, and keep those checks coming longer. People who get Supplemental Security Income — 7 million poor Americans who are elderly, blind or disabled — would get one-time extra payments of $250.

Many low-income Americans also are likely to benefit from a trifecta of tax credits: expansions to the existing Child Tax Credit and Earned Income Tax Credit, and a new refundable tax credit for workers. Taken together, the three credits are expected to keep more than 2 million Americans from falling into poverty, including more than 800,000 children, according to the private Center on Budget and Policy Priorities.

The package also includes a $3 billion emergency fund to provide temporary assistance to needy families. In addition, cash-strapped states will get an infusion of $87 billion for Medicaid, the government health program for poor people, and that should help them avoid cutting off benefits to the needy.

Source: Yahoo!News – By The Associated Press – Sat Feb 14

The very factors that have many consumers worried about affording this year’s tax bill could actually work in their favor this tax season.

Taxpayers whose wages were slashed in 2008 — or worse, who were laid off — may be eligible for tax credits that weren’t within their reach in previous years. In addition, first-time home buyers and parents of children under age 17 may also be able to save a little money on their tax bill thanks to some new credits and thresholds.

“These overlooked credits are relevant in the current economy and could mean the difference in hundreds or even thousands of dollars in your tax refund,” says John Evans, Northeast tax director at BDO Seidman.

Here are four credits that can help boost your refund.

Recovery Rebate Credit

Feel like you got shortchanged last year when the government doled out its Economic Stimulus Act rebate checks? Well, if you didn’t qualify for the rebate before or didn’t receive the full amount ($600 per taxpayer and $1,200 if married and filing jointly) because your income was too high (or too low), you may now be able to collect.

The rebate checks that were sent out last year were based on information on your 1040 for 2007. This second chance to collect will be based on your 2008 1040. So if your income took a hit last year, it may be worth a shot. You can also qualify for this credit if you had a child in 2008, among other reasons.

First-Time Homeowner Credit

For those who bought a home last year or want to in the months ahead, Uncle Sam has a little present for you. This tax credit, essentially a temporary, no-interest loan, is being offered to those who bought — or will buy — a home between April 9, 2008, and June 30, 2009, and who didn’t own a home during the three years preceding the purchase.

The maximum amount of the credit equals either 10% of the home’s price or $7,500 ($3,750 if you are married, but filing separately), whichever is less. One hitch: Homeowners will have to repay the credit over 15 years by either owing more in taxes or receiving a smaller refund. So, if you claim the credit on your 2008 tax return, you’ll have to start repaying it when you file your taxes for 2009. (The 2009 tax return will include an extra line for this credit.)

Child Tax Credit

Many parents will be eligible to receive a tax credit of up to $1,000 per child this year as long as that child was under the age of 17 at the end of 2008. (This credit is in addition to the regular $3,500 exemption that you can claim for each dependent.)

The child tax credit begins phasing out for filers whose modified adjusted gross income is above $110,000 if they are married and filing jointly, above $75,000 for single filers, or more than $55,000 for married filing separately. In addition, the child (who can also be the filer’s sibling, stepchild, grandchild, niece or nephew) must have not provided more than half of his or her own support and, in most cases, must have lived with the filer for more than half of 2008.

The one catch: The amount you receive from the child tax credit is partly based on your income so you may not receive the full amount — or possibly anything. If you don’t qualify for any or all of the $1,000 child tax credit you’re still in luck. Try applying for the additional child tax credit, which also offers up to $1,000 per qualifying child. (Taxpayers who qualify for parts of both credits can only receive a maximum of $1,000 per eligible child.) Typically, this credit is reserved for low-income taxpayers, but a recent change in the way the IRS computes eligibility for this credit, will allow more middle-income taxpayers to qualify this year, says Eric Smith, a spokesman for the IRS.

Earned Income Tax Credit

This credit is typically geared toward low-income taxpayers, but given the rise in the unemployment rate and wage cuts, more people are likely to qualify for it this year, says Evans. (According to the IRS, one in six taxpayers currently can claim this credit.)

To qualify, families with two or more children must have made less than $41,646 in 2008, and those with one child must have earned less than $36,995. Also, individuals without children who make less than $15,880 are eligible.

The maximum credit for each of these groups is $4,824, $2,917 and $438, respectively.

Taxpayers who qualify to claim this credit on their federal income tax return may also be eligible for a similar credit on their state or local income tax return. Twenty-two states, including New York, Maryland and Iowa, offer residents an earned income tax credit.

Source: SmartMoney.com - by AnnaMaria Andriotis

1 This will be a good year to invest in stocks.

No one can tell you exactly when or where the market will bottom. But most business-cycle experts agree that the bottom will be found sometime this year, and that it probably won’t be too far below where the market is today.

So a smart strategy will be to put some money in the market today, and keep doing it over the course of the year. If you’re still shaken over massive losses from last year, this may be hard advice to swallow. But the biggest mistake you can make as an investor is to ride the market down, lose faith, pull out and miss the upturn.

Even in the Great Depression, the market bottomed out in 1932, with the Dow Jones Industrial Average at 41, down from a peak of 381 in 1929. By 1937, it had climbed back to a respectable 194. That didn’t make investors whole. But for those who stayed in, it certainly soothed the wounds.

2 It will be a good year to invest in real estate.

This one’s a bit trickier, since real-estate prices are “sticky” on the downside. Homeowners don’t like to admit that the value of their pride and joy has fallen by 30%. So they’ll put their house on the market at an inflated price and hope some fool will bite.

I was at a Vermont ski resort last month and noticed this oddity: Brand-new condominiums were selling at a price considerably below those of second-hand condos of roughly equal size and location. The reason? I assume it’s because the resort owners have a better sense of the market’s real value than the average person, still desperate to recoup a bad investment.

But here’s the thing: Fixed-rate mortgages are already at historic lows, and the government is going to use every tool in its bag to get them lower over the course of the year. So if you find a piece of property you want, if the seller is willing to recognize how far the market has truly fallen, and if you have good credit — three big ifs — you can benefit from a once-in-a-lifetime double bonus of low prices and low interest rates.

This strategy requires some patience. Just as real-estate prices don’t fall as precipitously as the stock market, they don’t rise as rapidly, either. You may have to wait a decade to reap the full benefits.

3 Americans will learn to live within their means.

Around our house, the crisis is already having a salutary effect. Our teenagers suddenly seem to understand that unlimited dinners out with friends aren’t a birthright, and that blue jeans don’t have to carry triple-digit price tags.

Multiply that by 300 million, and you have a nation that has rediscovered that you can’t spend what you don’t earn. Houses are no longer ATMs, and credit cards no longer come with each day’s mail.

That sudden realization, of course, is what’s causing the economy to swoon. But this reckoning was inevitable, so it’s best to get on with it. Let’s hope these lessons last for decades.

4 President Obama will have a historic opportunity to reshape public policy.

Speaking at the Wall Street Journal’s CEO conference in November, Mr. Obama’s chief-of-staff-designate, Rahm Emanuel, said the words that have become his team’s rallying cry for 2009: “You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before.”

The Obama team is busily preparing a stimulus package that, when all is said and done, wiltal between $750 billion and $1 trillion — far larger than any fiscal stimulus in the history of the world. And with the economy still sliding downward, it’s a good bet few politicians will want to stand in the way.

That will give the new president an opportunity to do things his predecessors could only dream about. Roads will be rebuilt, schools will be refurbished, medical records will be computerized, and windmills will be constructed, all across the land.

Will some of that money be wasted? Of course. But the sums involved are so huge that there’s a good chance someone, somewhere, will benefit.

5 Your (federal) taxes won’t rise.

Never mind those campaign calls for higher taxes on the wealthiest Americans. Truth is, no politician is going to push for general tax increases in the midst of a severe recession.

You may wonder: How is the government going to pay for that trillion-dollar stimulus package? Or the multitrillion-dollar bailout of financial institutions, auto companies and anyone else sideswiped by the current crisis? Or the continued wars in Iraq and Afghanistan? Or the (still) rapidly rising cost of the baby boomers’ retirement?

Well, that’s the sweet secret of the current crisis. While the American people are learning to live within their means, the new American government has discovered an unlimited (for now) line of credit. The United States may have led the world into this crisis, but the world now seems more than willing to lend us unlimited amounts of money to lead the way out.

This, too, is unsustainable. A reckoning will come. But that’s a problem for 2010 and beyond.

Source : The Wall Street Journal - By ALAN MURRAY

WASHINGTON – Barack Obama countered critics with an analysis Saturday by his economic team showing that a program of tax cuts and spending like he’s proposed would create up to 4.1 million jobs, far more than the 3 million he has insisted are needed to lift the country from recession.

Congressional Republicans reacted skeptically. Even the president-elect’s own economists acknowledged their two-year estimates could be wrong.

The 14-page analysis, which was posted online, says estimates are “subject to significant margins of error” — because of the assumptions that went into the economic models and because it is not known what might pass Congress.

“These numbers are a stark reminder that we simply cannot continue on our current path,” Obama said in his weekly radio and YouTubebroadcast address.

“If nothing is done, economists from across the spectrum tell us that this recession could linger for years and the unemployment rate could reach double digits — and they warn that our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world,” he said.

Obama has provided few details of his $775 billion plan so far. This fresh report does not include the specific construction of his tax cuts, the amounts dedicated to state aid or public works — key questions that Obama aides have closely held.

The analysis came out one day after news the unemployment rate had jumped to 7.2 percent, the highest in 16 years. The nation lost 524,000 jobs in December, bringing the total job loss for last year to 2.6 million, the largest since World War II.

GOP lawmakers have insisted on carefully targeting any aid and on a politically popular tax cut for the middle class, as well as loans to states.

“We want to make sure it’s not just a trillion-dollar spending bill, but something that actually can reach the goal that he has suggested,” said Sen. Mitch McConnell of Kentucky, the Senate’s top Republican.

Obama’s plan has met with lukewarm support from lawmakers in general, despite economic news that has dominated the new administration even before it begins.

In hopes of having the new president gain immediate access to bailout money already approved by Congress when he takes office Jan. 20, his economic team and the Bush administration have discussed the possibility that Treasury Secretary Henry Paulson would ask lawmakers soon for access to the $350 billion remaining in the Wall Street rescue fund.

The transition team also has asked the head of the rescue program at the Treasury Department to remain in that position for a short time after the inauguration to help assure a smooth transition, according to an Obama official.

If Congress fails to enact a big economic recovery plan, Obama’s advisers estimate that an additional 3 million to 4 million jobs will disappear before the recession ends. Obama’s team also noted that with or without the plan, the jobless rate by 2014 would be the same.

The president-elect agreed on Friday to modest changes in his proposed tax cuts. Democratic congressional officials said his aides came under pressure in private talks to jettison or significantly alter a proposed tax credit for creating jobs, and to include relief for upper middle-class families hit by the alternative minimum tax.

The new report is likely to intensify debate as economists outside the Obama team begin delving into the analysis. The report, for example, estimates that the unemployment rate at the end of 2010 would be 1.8percentage points lower if the plan is enacted.

Top Democrats on Capitol Hill say there is far more agreement than disagreement on the major parts of the recovery plan: aid to cash-strapped state governments, $500-$1,000 tax cuts for most workers and working couples, and a huge spending package blending old-fashioned public works projects with aid to the poor and unemployed and a variety of other initiatives.

But it needs restrictions, Republicans say, to ensure prudent spending.

University of Maryland economist Peter Morici said the analysis attempted an economic justification for a political decision. He said evidence suggests that working class families would spend the modest tax credits— $500 per individual or $1,000 per family — on low-cost, imported products that do little for the U.S. economy. He also said state and local governments don’t need as much aid as Obama is proposing.

“They should stick to the infrastructure spending” in the plan and jettison much of the rest, Morici said in an interview, because that is the most likely proposal to provide a short-term economic boost and long-term benefits.

The report provides detailed breakdowns of how many jobs each part of the plan would create, even going so far as to provide estimates that more than 40 percent of the new jobs would go to women and that 90 percent of them would be created in the private sector. It also provides estimates of how many new jobs would be created in each different sector of the economy.

“It’s not too late to change course — but only if we take immediate and dramatic action,” Obama said. “Our first job is to put people back to work and get our economy working again.”

Source: Yahoo!News - By PHILIP ELLIOTT, Associated Press Writer

WASHINGTON (AP) — It’s something any bank would demand to know before handing out a loan: Where’s the money going?But after receiving billions in aid from U.S. taxpayers, the nation’s largest banks say they can’t track exactly how they’re spending the money or they simply refuse to discuss it.

“We’ve lent some of it. We’ve not lent some of it. We’ve not given any accounting of, ‘Here’s how we’re doing it,’” said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. “We have not disclosed that to the public. We’re declining to.” 

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest?

None of the banks provided specific answers.

“We’re not providing dollar-in, dollar-out tracking,” said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.

Some banks said they simply didn’t know where the money was going.

“We manage our capital in its aggregate,” said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.

The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion — about the size of the Netherlands’ economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that’s happening and there are no consequences for banks who don’t comply.

“It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry,” said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.

But, at least for now, there’s no way for taxpayers to find that out.

Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.

“Those are legitimate questions that should have been asked on Day One,” said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. “Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?”

Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.

A few banks described company-specific programs, such as JPMorgan Chase’s plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.

But no bank provided even the most basic accounting for the federal money.

“We’re choosing not to disclose that,” said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.

Others said the money couldn’t be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money “doesn’t have its own bucket.” But he said taxpayer money wasn’t used in the bank’s recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn’t being tracked, Denham said the bank would have made that deal regardless.

Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: “We are going to decline to comment on your story.”

Most banks wouldn’t say why they were keeping the details secret.

“We’re not sharing any other details. We’re just not at this time,” said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.

Heine, the New York Mellon Corp. spokesman who said he wouldn’t share spending specifics, added: “I just would prefer if you wouldn’t say that we’re not going to discuss those details.”

The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.

Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending.

“What we’ve been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we’re doing this,” Paulson said at a recent forum in New York. “So we’re building this organization as we’re going.”

Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they’ve spent the money.

“It would take a lot of nerve not to give answers,” she said.

But Warren said she’s surprised she even has to ask.

“If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn’t be in a position where you’re trying to call every recipient and get the basic information that should already be in public documents,” she said.

Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went.

“A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal,” he said.

Source : Yahoo!Finance - By Matt Apuzzo, Associated Press Writer

Associated Press writers Stevenson Jacobs in New York and Christopher S. Rugaber and Daniel Wagner in Washington contributed to this report.

It was part of how Obama would pay for an overall net tax cut aimed at low- and middle-income taxpayers, and an effort to bring what he called “fairness” to the tax system.

No one is talking tax hikes now.

Over the weekend, Obama said he has charged his new economic team with devising a plan that would create or preserve 2.5 million jobs over two years. He said the plan would include broad spending plans as well as the middle- and low-income tax cuts he described during the campaign.

Aides later said the plan would not include any of the tax increases Obama, as a candidate, had said he would impose on taxpayers who make more than $250,000.

Asked Monday when those hikes might go into effect, Obama said, “Whether that’s done through repeal, or whether that’s done because the Bush tax cuts are not renewed, is something that my economic team will be providing me a recommendation on.”

If repealed early, Obama’s tax increase on the rich would have generated significant revenue, but not enough to compensate for the cost of his tax cuts. An analysis by the Tax Policy Center, based on January 2008 income projections, estimated that the increases would result in about $43 billion in revenue in 2009 and $45 billion in 2010. Those numbers would be smaller now, as the economy has lowered expected incomes.

Obama’s economic advisers say he will not propose any tax increases in the economic plan he unveils in January. It is to be focused entirely on job creation and economic recovery.

Source: By JIM KUHNHENN, Associated Press Writer