Ten Things You Can Do Now To Save Taxes in 2009

Jane M. Young, CFP, EA

Whew!! The 2008 tax season is finally over and we can relax. Well not exactly; this is a great time to prepare for 2009 taxes. A little effort now can help you save in 2009 and will make the process a whole lot smoother. Below are some ideas to help save taxes in 2009.

1. Create a folder for your 2009 tax documents and receipts. Create a file right now, and keep it somewhere convenient, to keep track of all those expenses and donations as they occur.

2. Start going through your old clothes and junk in the garage and donate it to a charity of your choice, if you itemize this can provide a sizable deduction. Remember, keep a log of everything you donate and get a receipt!

3. If you anticipate a substantial change in your 2009 income or if you owed a lot in 2008, now is the time to adjust your withholdings or your estimated payments. There is nothing worse than owing an unexpected $5000 at the end of the year.

4. Maximize your contribution to tax deferred retirement plans. Limits on the 401k, Simple and SEP have all increased this year. If you turned 50 this year you can now make catch-up contributions to your retirement plans including your IRA (assuming you are otherwise qualified).

5. Do you anticipate a decrease in income this year? You may be eligible to contribute to a Roth IRA or for a conversion from a Roth IRA to a traditional IRA. The recent drop in the stock market has made conversion to a Roth IRA very appealing. You can pay income taxes on your account now, while the balance is low. Then during retirement, when the market has recovered, you can take tax free withdrawals. In 2009 your AGI must be less than $100,000 to be eligible for a conversion.

6. Will you be paying college expenses sometime soon? If you live in Colorado you can invest the money you will be spending on college expenses in a 529 plan and deduct the contribution from your state income tax. If you have a couple kids in college this can be significant. Don’t worry; you can invest the money in something very safe within the 529 if you are worried about market volatility.

7. If you are a first time homeowner you may be eligible for a 10% credit up to $8000 if you buy a home by December 1, 2009. This is really more like an interest free loan because it must be paid back over 15 years. Additionally, it is subject to income limits. The credit begins to phase-out for joint filers with modified adjusted gross income of $150,000 or more.

8. Are you thinking about buying a new car? You may be able to deduct the sales and local tax if you buy the car this year. This is subject to an income phase out if your adjusted gross income exceeds $125,000. I know they take all the good stuff away from middle class wage earners.

9. If you own a business or work as a consultant, be sure to keep accurate and complete records. Don’t forget to track your mileage, the current deduction for business mileage is $.55 per mile. This is frequently overlooked or understated due to poor record keeping. Additionally, if you work in your home and have a dedicated work area you may want to claim a home office deduction.

10. Take advantage of the drop in the stock market to do some tax harvesting. Tax harvesting is taking advantage of a market decline to sell some of the dogs in your investment portfolio while taking a capital loss or reduced capital gain. Prior to the market drop, the sale of a particular security may have been prohibitive due to capital gains. Now you can take advantage of the drop in the market to clean up your portfolio or do some re-balancing of your asset allocation.

10 Ways to Save Money on Food

Jane M. Young, CFP, EA

1. When grocery shopping, select items from the lower shelves, the more expensive items are usually placed at eye level.

2. Stock up when durable goods that you always need go on sale. Don’t buy something you wouldn’t otherwise buy just because it’s on sale.

3. Reduce impulse purchases at the grocery store – go less frequently, make a list and eat before you go. I know, I know, those strawberry shortcake cookies, with the cream filling and chocolate swirls looked so good. But a few days later …… what was I thinking??

4. When comparing prices check the unit price not the total price. You may pay less but you are probably getting less for your money.

5. Eat smaller portions of meat – you might even lose a little weight. Meat is very expensive, use more vegetables and less meat in you recipes.

6. When eating out, eat half of your meal at the restaurant and take the rest home with you. Most restaurants serve very large portions.

7. When eating out limit yourself to one glass of wine or drink tap water instead of coffee, tea or soda. Beverages can be very expensive relative to the cost your food.

8. If you are having an entrée avoid ordering appetizers or desert at the restaurant. Have drinks and appetizers at home before you leave or coffee and desert at home after dinner.

9. Eat something at home before you go out to meet friends. Limit your order to an appetizer or a side salad to be sociable.

10. Rather than celebrating at a restaurant, organize a potluck or take turns hosting a dinner party.

Does the Stimulus Make Gold Shine? (part II) – How to Buy Gold

If you decide to buy gold as a hedge against inflation there are several options. One can invest in gold through mutual funds, exchange traded funds (ETF), gold bullion, gold coins, gold mining stock and gold futures. In selecting an investment vehicle keep in mind your reason for purchasing gold – it’s a doomsday investment. If the entire financial world is crumbling around you, your gold needs to be secure. If you buy gold, consider investment in gold coins. Some options include the American Eagle, the Vienna Philharmonic or the Canadian Maple Leaf. With gold coins you have possession, they come in commonly accepted denominations and they are portable.

An exchange traded fund (ETF) may seem like a convenient way to buy gold. However, when you purchase an ETF, you own shares in the ETF, you don’t have physical possession of the gold. If you decide to purchase a gold ETF make sure the company has gold reserves to cover 100% of the investor deposits. Some of the largest ETFs have recently come under scrutiny for this issue. Finally, be cautious with investments in gold mutual funds, gold mining shares and ETFs that may become inaccessible in times of extreme market distress or collapse.

Painless Money Saving Ideas

I am starting a new on-going feature that will provide money saving ideas.   My goal is to contribute something on saving money about once a month. In the current economy we need all the help we can get. If you have any money saving ideas please send them to me and I’ll include them in the blog. I’ll start with a few ideas that have worked for me.

• Start shopping for clothing at consignment stores. I love good quality clothing but hate to pay the price. For years I’ve been meaning to stop by this cute little boutique on the west side of town and I finally did. Three hours later and two hundred dollars poorer, I walked out with what would have cost me at least $1000 in a regular retail store.

• Save your change. Do you have loose change all over your house and car? I started putting all my loose change in a jar and I had over a hundred dollars saved up in no time!

• Identify and focus on one or two problem areas. We all have areas in our lives where we spend too much. Mine is spending too much eating out. I am trying to focus on this area by keeping groceries in the house, taking breakfast and lunch to work, going to restaurants when they have special deals, sharing a meal and going to a nice restaurant and eating at the bar (same chef ).

• Lengthen the time between personal care appointments such as hair-cuts and manicures. I used to get my hair cut every 4-5 weeks. I found I could go about 6-8 weeks without any problem. Do some of your own personal care and limit that professional manicure or pedicure to once a month or to special occasions.

• Take the time to really shop around for airline tickets. We recently saved $400 per ticket by shopping around and checking numerous different possibilities. Take advantage of opportunities to get airline miles on your credit card. I have two cards that give me airline miles and I make a point to put all of my large purchases on a credit card to get the mileage credit.

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