Q and A with Denisa - Budgeting and Taxes :: Certified Financial Planner : Colorado Springs, CO

Dear clients, colleagues....friends

We are moving our COLORADO SPRINGS office location on June 1st

to:

The downtown PLAZA OF THE ROCKIES
121 S. Tejon, Suite 1107, Colorado Springs, CO 80903

Q and A with Denisa - Budgeting and Taxes

9. Budgeting and Taxes

And lastly, I want to share a great Money Saving Tip with you.

Tory and Elgin, young parents in their mid 20s shared with me that they wanted to buy a home. But with their current incomes and bills, they felt like they were not really moving forward toward reaching that goal. So they decided to move in with their friends and to set aside the extra saving from rent for the down payment for their home.

Great job! This takes a vision and financial discipline.

As many of you feel the weight of your credit card debt, you are most likely switching to using debit cards instead. The concept is simple. Debit card transaction pulls the money right out of your bank account. While using debit cards may sound like the ultimate solution, you need to be aware of couple of things.

When you use a debit card in certain transactions, the merchant can actually put a temporary hold on those funds. One such example is when you prepay for gas at the pump. You put in $50 worth of gas paying outside with your debit card but the bank freezes $75 for 2 days until they find out exactly how much gas you bought. This is especially important for those of you who live on a tight budget. To avoid this, make sure that you pay for your gas inside using your pin#.

Also know that your bank will no longer allow you to spend more than is in your bank account unless you give them permission to do so. This is done to eliminate overdraft fees but it can also lead to embarrassing situations when your card is denied. In either case, this is the time when old fashion balance tracking pays off.

The end of the year is around the corner; so let’s do a rundown of financial tips before the year-ends.

First, let’s talk about your investments and retirement plans.

I suspect your investments have been on a roller coaster ride this year, haven’t they. Some of your investments have done better, some worse and I am willing to bet that some are out of balance from where they began earlier in the year. So, if your goals have not changed, it is important that you restore them to their original allocation. It’s called rebalancing your portfolio and you should do it at least once a year with your financial advisor.

This is also the time to look at your budget for 2010. Adjust your monthly numbers to reflect the reality of your spending this past year. Don’t forget to include the odd stuff like car registration, gifts or school photos – things that don’t come up each month. This will give you a good projection moving forward into the new year with some control.

Finally, if you had to tap into your 401K to cover any shortfall in your budget or if you had any debt forgiven by your credit card company, talk to your financial advisor to get a quick estimate of any taxes or penalties that you may owe next year.

Tune in next week for another year-end tip around health savings accounts. This is going to be an important segment. Don’t miss it.

From:Arlene

Tax time is coming up and I have always used TurboTax to prepare my own taxes. But now I am not sure if I should use the services of an accountant so that I would not miss on any of the tax breaks offered in the newly approved stimulus. Any advice would be appreciated.

ANSWER:

You can certainly prepare your own tax returns, however, as you pointed out, the taxes can be confusing. Therefore, if you need assurance that you have thoroughly taken advantage of all the tax breaks, I would recommend developing a relationship with an accountant.

Last year has been full of new tax laws to put more money in your pocket. With the tax time almost here, let’s do a quick recap.

If you made a cash donation for the victims of the Haitian earthquake before March 1, you can choose to take that deduction for 2009!

If you bought a new car in 09, you can deduct the sales tax you paid on the first $49,500 of the purchase price.

For homeowners: There is an $8,000 tax credit for the first-time home buyers and $6,500 tax credit for the existing home-owners. You must have bought a new home after Nov. 6 of 09 or you have to be under contract to buy your home by the end of April, and close the deal by the end of June. The neat thing is that you can actually claim the credit on your 09 return.

College Education. You can claim up to $2,500 of the cost of tuition, fees, and books per child for the first four years of college. And 40% of the credit is refundable, so if you don’t owe any taxes you can get as much as $1,000 back in a refund.

With some of these tax breaks, there may be income limits or you may have to itemize. That is why you want to check with your accountant first.

Many of you sold your investments this year to meet your budget, which means that you probably had to sell your stocks and mutual funds at a loss. You asked me whether you could write off your investment losses.

First let’s clarify what taxable loss is. When your account statement shows that your investment has decreased in value - that alone does not constitute a tax loss. To claim your loss you had to actually sell your taxable investments.

Your taxable losses this year would be first used to offset any capital gains you may have. Then if you have any losses left over you would apply up to $3,000 against the tax from your ordinary income, such as your salary. The rest of the losses would be carried into the next year.

For example, if you had $5,000 of capital gains and $8,000 of capital losses, you would have enough losses to wipe out your capital gains entirely and you would be able to use the remaining $3,000 to reduce your income taxes.

Despite the complexity of this topic, I wanted to make you aware of this because it can generate some big tax savings for you. So, be sure to consult your financial advisor.

When you are strapped for cash, every little bit helps. Let’s talk about energy rebates, as a way of going green and helping you save some of your greens.

As part of the American Recovery Act, Colorado was awarded $4.5M to encourage people to exchange their energy guzzling appliances for new, energy efficient models. This applies to the purchases made after April 19, 2010. These funds are available on first come, first serve basis until the money is depleted.

Here is example of the rebates available to you for energy-friendly appliances. You can see that some services like energy audits or insulation can also qualify for a rebate.

Clothes Washers: $75
Dishwashers: $50
Refrigerators: $50-$100
Gas Tank-less Water Heaters: $300
Water Heaters: $200
Gas Condensing Furnaces: $500
Gas Boilers: $400
Energy Audits: $25-$100
Insulation and Air Sealing: up to $400
Duct Sealing: up to $75
AND MORE...

You can also claim a tax credit for up to 30% of the cost for any energy-related improvements to your home, on this year’s tax return.

But before you start spending money on brand new appliances, think about getting a comprehensive home energy audit first. If you are a low-income earner you may qualify for a free audit.

Make sure to visit KRDO.com and click on Ask Financial Planner link, and under today’s post you will find a list of websites to claim your rebate or to see if you would qualify for a free energy audit.

Recharge Colorado Program: www.rechargecolorado.com
Tips to do your own energy audit: www.hes.lbl.gov/consumer