Retirement 
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Best Investments for Retirement Accounts

Nest EggsWhen I started working after college, it was a bit of a stretch to contribute to both my 401(k), to get my employer match, fully fund my Roth IRA, and build up a small cash cushion (I would later learn these are called emergency funds). I pushed to do it because my parents drilled this lesson into my brain as a young adult – save money today because you never know what will happen tomorrow. (I thought I dodged a bullet by avoiding the dot com boom and bust but I was later rewarded for my diligence with the largest recession since the Great Depression!)

So… what do I do with the money in my Roth IRA or my 401(k)? You will never be able to predict the future with certainty so you will never know beforehand which investments will perform the best. You will, however, know the cost of owning those investments and the cost of taxes if you pick correctly. The best we can do is have a good plan, execute that plan, and pick investments that provide the most value for the price that you pay in fees and taxes.

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 Taxes 
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What’s My Tax Bracket?

In personal finance, you have to make a lot of decisions with imperfect information. You contribute to a Roth IRA because you like the tax free growth and you believe that you will be taxed at a greater rate in retirement (otherwise it may be better to contribute to a Traditional IRA). You buy a house because you want to hedge against inflation by fixing your housing costs, both of which you assume will go up in the future. You take on a new job with more responsibility and more pay because, well, it’s better to have more of both, right?

At the core of many of these decisions, as sad as it may be, are taxes. It’s obvious in the case of the Roth IRA and Traditional IRA and less obvious in the housing (interest, property taxes, and such are tax deductible), but it’s present in many money decisions. Do I take that new job? Well, how much do I really get to take home? That will, in part, depend on taxes.

In the same way that it’s important for you to know the value of your time, it’s important for you to know your tax bracket.

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 The Home 
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Mortgage Interest Deduction Myth

Farm House with Rising SunThe mortgage interest deduction is one of the most celebrated tax deductions in all of tax deduction-dom. It’s cited as one of the benefits of homeownership, right behind “you’re not throwing your money away,” and that fact is repeated over and over again. Unfortunately, I believe it’s misrepresented. It’s not as good as you think and I’ll explain why.

To claim the mortgage interest deduction, you have to itemize your deductions. For those who aren’t familiar with the idea of claiming itemized vs. standard deductions, you have two options when you file your return. You can either list all of your deductions, such as the mortgage interest deduction, or you can just claim the “standard,” which requires no proof.

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 Taxes 
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Claim Haiti Relief Donations on Your 2009 Tax Return

This week, President Obama signed into law a bill that lets taxpayers claim donations made to earthquake relief in Haiti on their 2009 tax returns. If you make a cash contribution between January 11th, 2010 and March 1st, 2010 towards relief aid for earthquake victims in Haiti, you can claim it on your 2009 tax return. Specifically, you are permitted to treat the donation as having been made on December 31st, 2009 for tax purposes.

All other normal donation rules apply such as the burden of proof/written documentation (though, as I’ll explain below, they’ve specifically called out a methodology for text message donations) and how to deduction charitable donations you must itemize your deductions. Unfortunately, non-cash contributions are not eligible for this speedy deduction.

Finally, you are not required to claim the deduction on your 2009 return. Based on your tax situation, it may be better for you to claim the deduction in 2010 rather than in 2009. For example, if will not be itemizing deductions in 2009, you will want to wait until 2010. You cannot claim the deduction for both years.

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 Taxes 
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9 Year End Tax Moves to Make by Dec. 31st

1040 Bobblehead DudeAfter last week’s Thursday post on adjusting your tax withholding, I thought that we needed a full blown post on the best year end tax moves. So who better to turn to than prolific tax expert Kay Bell, author of The Truth About Paying Fewer Taxes? She was kind enough to list not one, not two, but nine tax moves you can make before the ball drops.

It’s time to make your year-end tax list and check it twice to ensure that you give yourself the gift of tax-savings. Here are 9 ways this month to help make your 2009 tax bill as small as possible.

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 Government 
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HAPPY Act: $3,500 Pet Care Expenses Deduction (Proposed)

Jim & TobeyWouldn’t you throw your support behind something called the HAPPY Act? I know I would, it sounds so… cheery!

It exists and it’s a bill that has been introduced in the House of Representatives by Representative Thaddeus McCotter (R-MI). The Humanity and Pets Partnered Through the Years (HAPPY) Act, H.R. 3501, would offer a $3,500 tax deduction for qualified pet care expenses. A qualified pet is a “legally owned, domesticated, live animal” that isn’t used for research or business. Expenses cover pet products, service, veterinary visits, and basically anything that is related to the care of a pet.

It seems like a difficult time to be introducing this bill when we have so many other economic issues to deal with but it sure is sweet. :)

First reaction: Frivolous deficit spending? Or legitimate deduction we should entertain?


 Taxes 
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2010 Federal Income Tax Brackets (IRS Tax Rates)

Every year about this time, when the Bureau of Labor Statistics (BLS) releases inflation data, specifically the CPI-U, experts from a variety of magazines and newspapers try to predict what the tax brackets will be the following year. This is possible because many figures in the tax laws are based on inflation, such as the standard deduction, contribution limits for Traditional and Roth IRAs, and the size and placing of the tax brackets themselves.

This year, the Tax Foundation is first out the gate with their prediction that everything will essentially remain the same as inflation was a mere 0.19%. When they performed this exercise in predicting the 2009 federal income tax brackets, they were 100% correct. I’m fairly confident that these numbers will be accurate when the IRS officially announces the tax brackets for 2010.

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 Taxes 
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Deducting Miles for Charitable Volunteering

Starting next week I’ll be volunteering every Tuesday morning in the kitchen at the local Howard County Meals on Wheels facility. It’s less than five miles away one-way but I still wanted to research how to claim the driving mileage on my taxes to reduce my tax burden as much as possible. At ten miles a week and 52 weeks, we’re only looking at 520 miles for the entire year. The deduction for 2008 was $0.14 a mile (IRS standard mileage rates), so we’re only talking a $72.80 deduction… but every bit helps!

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