Don't Miss These Tax Breaks

Unemployment benefits

Unemployment benefits up to $2,400 received in 2009 are tax free for unemployed workers. Every person who receives unemployment benefits can exclude the first $2,400 of these benefits on their return. All benefit amounts over $2,400 are taxed.

Relief for cancellation of debt

If you foreclosed on or reduced the mortgage on your principal residence through restructuring in 2008, the reduction in your debt is excluded from your gross income in determining your federal tax. In the past, it had been subject to federal tax. See IRS Form 4681.

Standard property-tax deduction

Nonitemizers can take an additional standard deduction for property taxes paid: $500 for single filers and $1,000 for joint filers.

First-time homebuyer credit

The Worker, Homeownership and Business Assistance Act of 2009, extended and expanded the first-time homebuyer credit. Under the new law, to claim the credit on Form 5405, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. The full credit, up to $8,000 is available only to first-time homebuyers. The new law also provides a "long-time resident" credit of up to $6,500 for buyers who have owned and used the same home as a principal or primary residence for at least five consecutive years of the first eight The credits begins to phase out when adjusted gross income reaches $125,000 for singles and $225,000 for joint filers.

State sales tax deduction

Itemizers can deduct either state and local sales tax or state and local income tax, whichever is greater. Residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, which have no income tax, stand to benefit the most.

Educator expense deduction

Teachers, administrators, and other professionals working with grades K through 12 can deduct up to $250 for out-of-pocket job expenses, even if they don't itemize.

Tuition and fees deduction

Itemizers can deduct up to $4,000 used toward college. To be eligible, modified adjusted gross income can't exceed $80,000, or $160,000 for joint filers. See IRS Publication 970.

Child tax credit

The earned income generally required for this credit has been reduced to $3,000 for 2009. You may be eligible for up to $1,000 for every child under age 17 that you can claim as a dependent. For joint filers, the credit is reduced when modified adjusted gross income hits $110,000 ($75,000 for singles and heads of household). See Publication 972.

Earned Income Tax Credit (EITC)

This credit is for low-income working individuals and families. It’s a refundable credit, meaning you can get it even if you owe no tax, and even if no tax is withheld from your paycheck. But you must file a return to be eligible. For 2009, single workers with earned and adjusted gross income (AGI) of up to $35,463 with one or more qualifying children are eligible. For married couples filing jointly, the qualifying AGI is $40,463. The maximum EITC to be paid this tax season is $5,028 for people with three or more qualifying children, up from $4,824. For more information, go to the EITC Assistant at www.irs.gov.

source - consumerreports.org

Recalculating Retirement Needs

According to a recent Gallup poll, 54% of Americans say they are either very or somewhat worried about having enough money for retirement. To get on track it's a good idea to frequently recalculate your retirement needs.

Take a look at future Social Security earnings and other retirement accounts such as pensions and 401(k) or 403(b) accounts. Also look at:

• Savings accounts or share certificates (certificates of deposit)

• Annuities or insurance plans

• Home equity plans

• Stocks or mutual fund investments

Is this a good time to buy a new car?

Car manufacturers have cut production, but dealers are hungry for sales, so it's still possible to buy a new car at a good price. Here are some things to consider, according to the Credit Union National Association's Center for Personal Finance:

• Be skeptical of low-rate financing. Carmakers' offers of 0% to 2% financing are often limited to the least popular models. In addition, you'll typically need a premium credit score - 720 or better - to qualify.
• Take the rebate. Automakers are likely to continue to offer cash back as an alternative to low-rate financing. In many cases, the rebate is the better deal. That's because the rebate reduces the amount you have to borrow. A smaller loan, even at a higher interest rate, can cost less overall. For example, with a four-year loan, the total cost of borrowing $18,000 at 6.5% is less than the total cost of borrowing $20,000 at 2%. If you accept a rebate, just be sure you negotiate the lowest possible purchase price first. Run the numbers on the "When a Rebate is Better Than a Low-Rate Auto Loan" calculator in Home & Family Finance Resource Center to see which option makes more sense.
• Compare lease vs. loan carefully. Monthly lease payments can be lower than loan payments at first glance, but make sure you compare apples to apples. At the end of the lease, you'll need to enter another lease or go carless. But at the end of a loan, your payments stop and you can continue to drive the car. For example, to drive a $23,000 car for six years, compare the total cost of two three-year 6% leases ($27,940) vs. one three-year 6% loan ($24,094).
• Talk to your credit union loan officer first. Getting pre-approved for a loan puts you in a better bargaining position at the dealership because you know how much money you have to spend. In addition, a credit union loan rate is likely to be better than a bank loan rate - on average, 6.4% vs. 6.8% respectively, according to Kiplinger's Personal Finance (March ).

Take care with text donations

Haiti's Jan. 12 earthquake triggered a seismic response in cell phone giving to support aid relief thanks to tweets, social networking sites such as Facebook, and TV specials.

Within a week more than $25 million was donated to causes via text messages, and the money is still coming in. The Mobile Giving Foundation, a nonprofit that facilitates texted donations, reported processing 10,000 text messages per second at one point (Smartmoney.com Jan. 22).

Within days, text-based fundraising became an established - and successful - form of charitable giving. You simply send a single word message to a designated number and your donation is billed to your monthly phone bill. But no matter how quick and easy it is to give by phone, donors still need to do their due diligence to ensure their donations are going to trustworthy charities.

The Better Business Bureau's Wise Giving Alliance offers these guidelines on giving via text:

• Check the number with the source before you send. For example, visit the American Red Cross website to confirm the "text to" number and word to enter to avoid being scammed by a fraudulent site.
• Understand the delay. Text donations can take up to 90 days to reach the designated charity. If you want your donation to be received immediately, go directly to the charity website, call, or send a check.
• Read the fine print. When you give by text message, you could be signing yourself up to receive future e-mails from the charity. A reputable charity posts its text campaign details on its website so you know what you're agreeing to and how to opt out.
• Research the charity. Is it best equipped to help and use the money for its intended purpose?

Legitimate charities send a text immediately after your donation that verifies you really want to give a specific amount. When you confirm, the amount appears on your cell phone bill, which can serve as your receipt for tax purposes if the charity name and donation are listed. Websites processing donations are working toward better receipt recordkeeping for donors. In the future, expect to be able to use a PIN code to obtain a separate receipt.

Five tips for the new credit card era

While the Credit Card Accountability, Responsibility and Disclosure (CARD) Act's next phase of consumer protections goes into effect Feb. 22 (and the final phase on Aug. 22), loopholes are surfacing.

Here are a few ways to stay on top of your credit cards (Bankrate.com Feb. 2):

1. Beware the advance notification exceptions. On Aug. 20, 2009, a provision that requires 45 days' advance notification of "significant" terms changes took effect. It applies to fees and finance charges, as well as some rate increases. There are some exceptions. For instance, the law doesn't require 45 days' advance notification for credit limit decreases, or for rate hikes triggered by a 60-day late payment or expiration of a promotional rate. Read notices from your issuers, and verify the rate and credit limit each month when you get your statement.

2. Don't fall into retroactive rate-hike loopholes. Come Feb. 22, existing balances will be protected from a rate increase in most circumstances. If you miss the due date by two months or more, however, the annual percentage rate applied to that debt can skyrocket. And you can't control the index if you have a variable-rate card, but you can make sure your payment arrives on time. Consider setting up automatic payments.

3. Weigh the pros and cons of opting out. Along with any required advance notice of a change in terms, issuers must include an opt-out disclosure. Opting out closes the account, but issuers must provide a repayment method "no less beneficial" than either a payment plan that spans at least five years, or a new minimum payment percentage that is no more than twice the previous percentage.

4. Get permission to go over limit. Under the CARD Act, a purchase that exceeds the credit limit can't trigger an over limit fee unless you have opted in to allow over limit transactions. If you need to go over limit for whatever reason, you can switch on your over limit privileges at any time by making the request in writing, orally, or over the Internet.

5. Watch for annual fees. Even if your card doesn't carry an annual fee now, keep in mind that issuers only have to provide 45 days' advance notice before implementing one.

Overall, the best practice is to watch your monthly statements closely and carefully read any communications from your issuer. If you don't like the new terms on your current card, shop for a new one; credit union cards average one and a quarter percentage point better rates than bank cards.

Also a survey commissioned by the Consumer Federation of America and the Credit Union National Association revealed that 61% of consumers are aware there are new credit card protections, but most (65%) don't know they take effect later this month and don't understand the specific protections Congress approved last year.

Be a Better Online Coupon Clipper

When shopping online, be on the lookout for boxes where you can enter a "promotional code," "discount code," or "coupon" at checkout. If you don't know the code, do a quick Web search using the name of the retailer and the same catchphrase you saw on that retailer's site. Check the dates because many codes expire quickly. Visit CurrentCodes.com and DealHunting.com for updated codes.

Other reputable coupon sites include FatWallet.com, CouponChief.com, CouponMountain.com, Rather-Be-Shopping.com, RetailMeNot.com, Offers.com, CouponShack.com, and Valpak.com.

Don't forget.....

Need a car loan? Be sure to check with us first. Because when you get your car loan through LifeWay Credit Union, we'll put your name in the hat to draw for a 32" LCD HDTV each month! Call us for details.

Fast, free tax filing from your friendly IRS

You still have to pay, but at least the government is making it easier to report what you owe. The Internal Revenue Service (IRS), working with selected vendors, is making tax preparation software and electronic filing of the federal tax returns available to most taxpayers at no charge.

"Free File is a great choice for either the novice taxpayers who need some assistance or the experienced taxpayers who prefer to do the work themselves. It's fast; it's safe; it's free," said IRS staffer David R. Williams.

Visit IRS.gov/freefile 24 hours a day through April 15 for two basic options:

• Traditional Free File. This software option covers tax preparation, which includes guiding users with questions, doing the math, and entering the results on the proper forms. It also includes free electronic filing of your return and its supporting documents.

The IRS provides Traditional Free File through a partnership with the Free File Alliance LLC, a group of about 20 private sector tax software companies. Each company sets its own eligibility criteria, such as state residency, age, income, or military service. However, an individual or family whose adjusted gross income was $57,000 or less in 2009 will find some tax preparation software they can use. This includes approximately 70% of the nation's taxpayers, or about 98 million people, according to the IRS.

Several companies offer their software in Spanish. Several also offer state tax preparation, although fees may apply. Taxpayers are under no obligation to make any purchases from the software companies.

• Free File Fillable Forms. This option is for taxpayers who are comfortable preparing their own tax returns. Almost everyone is eligible for this service, which provides electronic versions of IRS paper forms. Taxpayers complete the tax forms online and file electronically. The fillable forms perform simple math functions, but do not use the question-and-answer guidance format that the software does. There are no income limits and almost all tax forms are available. The Free File Fillable Forms option does not support state forms or state electronic filing.

  Traditional Free File can help you identify new tax credits or deductions you might be eligible for, such as new and expanded benefits for energy conservation, new car purchases, college tuition, and first-time homebuyers.

  If you are eligible for a first-time homebuyer credit, however, you will not be able to e-file because you must attach proof of purchase to your tax return. In that case, you still can use Free File to prepare your tax forms, then print and mail them to the IRS.

Additional benefits from free e-filing with the IRS include:

• Quick acknowledgement--within 48 hours, telling you that the IRS has received and accepted or rejected your return;
• Reduced error rate--typically 1%, compared with 20% on average for a paper return;
• Fast refund--as few as 10 days when you use direct deposit;
• Electronic tax payment scheduling and the ability to apply for an automatic extension of time to file your federal return (IRS Form 4868). For taxpayers who request an extension, Free File will be available through Oct. 15.