If you’re even slightly interested in the US economy, and, let’s face it, most of the world is, then you’ve likely been at least marginally following the last few weeks worth of debt ceiling news.  The quick and dirty of it is that the US government has a debt ceiling that puts a cap on how much debt the US federal government can carry.  If they reach that cap, they can no longer issue treasury bonds and the like to raise money to pay for things.  Based on what I’ve read, everyone would like us to believe that it’s a major crisis, and the world will end if we don’t raise that debt ceiling and allow for more debt.  But, is it really a crisis?

Let’s think about this just a little bit.  Replace “U.S. Government” with John Doe in everything I’ve just said, and all the news you’ve read.  If we were talking about an individual, we wouldn’t be talking about how the world would end if they weren’t allowed to accumulate more debt.  We’d be talking about how they need to radically cut costs, increase income, pay off debt until they can get their finances in order.  Would  it be called a crisis?  Maybe on a personal level, John Doe would believe it was a crisis.  But, it certainly wouldn’t be world ending.

I’ll admit that it is a bit different when it’s a government entity that we’re talking about.  If the US government goes bankrupt, there will be some pretty serious problems with the economy for a while.  Which brings up another issue altogether.  The US economy needs some diversification of it’s revenue streams.  Way too much of the economy balances on how much money the US government sinks into it each month.

It’s time we start asking the same questions of the US government that we would be asking of John Doe.  Do you really need that expenditure?  That service?  All three cars?  The McMansion?  Unfortunately, those that are in charge in Washington are playing political ball instead of really trying to solve the problem.  They think way to hard about what programs they can cut that won’t lose them votes in the next cycle, or how much they can raise taxes without losing votes, when, instead, they should be looking to make the US government financially solvent and stabilizing it’s fiscal situation.  You or I would start with a balanced budget, I don’t see any reason why the government shouldn’t do the same.

What do you think?  I don’t think I’m being to idealistic in asking that they carry a balanced budget each year.  Or that they cut costs until they can do that.  Yes, they’ll likely have to raise taxes some to pay off what they’ve got for debt, but if it doesn’t come with some pretty significant cost cutting, they’ll all be looking for new jobs in 2012 anyways.

photo credit: Public Notice Media

The 2010 year end is almost here, and hopefully most of us are looking at our finances and asking ourselves a question: “Are we ready for 2011? Is there something we need to do before 2010 ends?”

Most of us probably have already done everything from buying Christmas gifts and donating to charities to scheduling annual doctors visits to make sure our flexible spending accounts

are zeroed out. But for those people who (like me) are too busy with work and blogging, and too tired from Holiday parties or just too relaxed on their couches with a book in hand or a favorite movie on TV, I came up with the “Year End To Do List.”

During the Holidays, financial planning is obviously not a high priority on our holiday agenda. But if we do some planning right now, it might save us some money in the future. I am sure you already know all of the stuff I summarized in my list. But I think a refresher course might not hurt, and a summary below might be useful to consider.

Disclaimer: Aloysa is not your personal financial adviser. Please take this fact into consideration if you decide to follow the list below.

Year End To Do List:

1. Evaluate your portfolio. Do you have some deadbeat stock that you don’t want? Why hang on to it in anticipation of better times? Consider getting rid off them now. Why? Because you can use losses to offset gains (if you have any) to minimize your tax liability. You can use up to $3,000 in capital losses to offset your gains. Do you have any leftover? You can carry it over to the next year. Just make sure that you do not sell your deadbeat stock and buy the same or similar stock within 30 days in order to take advantage of the losses.

2. Don’t forget to max out your IRA contribution to the full IRA contribution limits (if you can). You can contribute up to $5,000 this year. Don’t forget your 401K too!

3. Some of us have traditional IRA accounts. I will not go into explanations of what it is because I assume that if you have it, you know what I am talking about. If you are clueless, skip this and move on to # 4. One of my friends is considering converting her traditional IRA accounts to a Roth. She anticipates that her income tax rate will increase significantly in 2011. I think everyone is given an opportunity to convert their traditional IRA to Roth in 2010. If you do the conversion in 2010, you will be able to delay paying taxes until 2011 or 2012. If later you are not sure anymore and think that the conversion was not a right move, you have until October 15 of the year following the year of conversion to change your mind.

4.  I believe that one of the proposed changes by the deficit commission was to reduce the tax benefits of charitable donations. If this proposal becomes law, our charitable contributions might be limited to whatever rate will be determined. If you are in higher tax bracket (Check your 2011 tax brackets) you might not get a full tax deduction on your charitable contribution. But this year you still may be able to take advantage of charitable contributions (subject to certain limitations). In the end, you will feel good too because you supported your favorite charity and a great cause.

5. You are finally totaling your receipts and looking at your flexible spending account balance. What do you see? There is some balance left! You decide to do an annual exam with your physician. Wait a second, don’t rush to see your favorite doctor. I’d recommend you consider putting your annual check up off because under health care reform, most employer insurance plans must offer free preventive care, starting in 2011. You might be better off making some flexible spending account changes and spending your flexible spending account balance on a new pair of glasses, contact lenses, or getting flu shots if you didn’t get them yet.

photo credit: bterrycompton

As we head into the new year, there is a wide range of expiring tax cuts that the former Congress and President approved back in 2001 and 2003. The tax cuts intended to help spur and strengthen the economy. To put it another way, there are a wide range of taxes that will be increased that will impact both the middle and upper classes unless Congress acts this year. During his campaign for presidency, President Obama was clear about his intention to let the Bush tax cuts expire at the end of 2010 to keep our growing federal deficit under control. Many argue that these tax increases will affect everyone in some way–you be the judge. Here is a list of the expiring tax cuts, and changes to credits and deductions in 2011 you may want to know about in order to mitigate any increased tax liabilities you may be facing. Many of these projections are based of off the proposed budget and are subject to change.

Income Tax Rates

Currently, the proposed budget intends to make some changes to the income tax rates or income tax brackets. President Obama’s 2011 budget will keep the previous tax breaks for single taxpayers making less than $200,000 and married couples making less than $250,000. In fact, the 28% tax bracket is expected to be expanded. However, the 33% tax bracket is expected to rise to 36% and the top 35% tax bracket should end up being 39.6%.

Capital Gains and Dividends

There will no longer be a 15% long term capital gains rate for those in the upper brackets. Their rates will go back to 20%. For individuals in the lower 15% income tax bracket, they might see their long term capital gains rate go to 10%. Under Bush, the lower 15% tax bracket had a 0% capital gains rate. In 2011, dividends (excluding mutual fund capital gain distributions) that were once taxed at a 15% tax rate are set to be taxed as ordinary income for the highest tax bracket. Obama’s proposed budget though only wants to increase the dividends tax rate for the top bracket from 15% to 20%. It remains to be seen what will happen but in any event the top bracket will be paying more taxes on dividends.

Estate Taxes

The estate tax (also known as the death tax) exemption will return to a $1 million exemption and is set to increase to 55% for estates over $1,000,000 dollars. This year (2010) happens to be the best year to die (that sounds horrible but true) because the estate tax was completely phased out this year (unless Congress acts to retroactively change this).

Mortgage Premiums

After December 31, 2010, Americans will no longer be able to deduct mortgage insurance premiums from their taxes if Congress fails to act. This was a special deduction for taxpayers/homeowners who were paying these insurance premiums for mortgage insurance contracts issued after December 31st, 2006. Although this deduction had an eligibility income cap at $100,000 for families (fully phased out at $110,000).

Child Tax Credit

Currently the child tax credit is $1,000 per child, but in the new year it will drop down to $500 and may not be refundable to all taxpayers. The tax credit for married couples (filing jointly) started to phase out at $110,000 (AGI) and for all other taxpayers (except married independent filers) it started to become phased out at $75,000. In the beginning of this year, Obama has proposed increasing this credit for middle-class families but nothing has been approved as of yet.

529 and Coverdell ESA Plan Changes

529 Plans allowed parents to invest after-tax dollars in an account which could grow with withdrawals being tax free if used for qualified education plans. In 2011, 529 plan (college savings plans or higher education plans) withdrawals will not be allowed tax free to pay for internet access or computers. Also, Coverdell ESA Plans will have changes. Coverdell ESA are similar in some ways to 529 Plans, except they are geared for elementary/secondary education expenses and have maximum contribution limits. After 2010, the max contribution limit will fall from $2000 a year to $500 unless Congress acts.

Business Taxes

There will be a few business taxes that will change including the section 179 expense deduction. The maximum expense deduction for 2011, with regards to the 179 expense deduction that applies to small firms and companies, will drop from $250,000 to $125,000 in 2011. There are limitations with this tax deduction as well.

Other Tax Credits

There will be limitations on the tuition credits and the earned income tax credit.

It is a tricky situation for the current Commander-in-Chief. If the cuts are allowed to expire, policymakers will be given gruff for raising taxes. If the cuts are extended for a longer term, the future of the deficit begins getting worse real fast. The situation leaves not much room for compromise between the government and the taxpayers, especially during a time of recession.

This guest post was provided by TaxDebtHelp.com, a company that provides IRS tax debt help through a collection of self-help articles that serve as a guide for taxpayers facing IRS tax problems. Moreover, articles are complimented and backed by a diverse team of tax professionals offering tax relief services for those taxpayers facing serious issues.

So, are you surprised by that news?  That new home sales dropped like a rock in May?  I can’t say that I am.  I try hard to keep my politics out of this site, but what the heck were they thinking?  If you look at the chart that CNNMoney has posted, you can clearly see that, not only did they drop, but they dropped below where they were before.

And obviously, there is a very nice spike for a while.  Incentives do make a bit of a difference.  And, in all honesty, if we had been in a situation where we felt we could afford a new home, we would have jumped at the opportunity to take advantage of those incentives.  But the spike was just that.  A small percentage of people taking advantage of an incentive that made it very attractive to buy a new house.  What it didn’t do was return home sales to anything like previous numbers.  In fact, it didn’t even get the numbers back to 50% of what they were in 2000!  And now, after the incentives have expired, they dropped 33% to an all-time new low. The last time the numbers were this low was in 1981!

I think everybody has the right to purchase a home.  You shouldn’t be dis-allowed from purchasing a home.  But, you still have to pay for it!  Owning a home is not a right.  The ability to purchase one if you can afford it is.  Years and years of politicians buying votes by pushing lenders to finance houses to people who couldn’t afford them is what caused the housing market (and our economy as a whole) to be in the condition it is in.  And that crashs’ ripples are still being felt throughout the country and the world.  Creating incentives to buying a home just extends that streak.  People see that $8000 and think that they can afford a home that they really can’t because they will get a nice $8000 check to help pay it down.  But, when that money comes around, what are they going to do with it?  Spend it.

And in five years, when those mortgages adjust, we’ll have a nice little mess to figure out again.  Sure, it won’t be anywhere near as bad as the current one, but it’ll be there.  If only we could teach people to be responsible consumers.  To not buy what they cannot afford, and to only spend what they earn or less.  If we could do that, then they wouldn’t need those incentives to buy a home.  They might actually be able to afford it without them.

As I mentioned before, part of what were doing with our tax refund is to remodel our kitchen.  Our kitchen was in a bit of rough shape, as some of it was likely original to when the house was built in 1950.  The linoleum had been added, as had the carpet and the counter-top, but there was little evidence that anything else had been upgraded in 60 years.  I don’t know about you, but that just screams for updating.  We’d put up with it for almost 6 years, and it was one of the “must do” items on our list of things that had to be done in order for us to eventually sell the house and upgrade to something a bit bigger.  When the opportunity came in the form of our tax refund, we felt that it was a justifiable usage of the money. Here, I’ll let the picture speak for me.  That’s all the old stuff.  Built in place.  The doors on the cabinets had been painted so many times (I counted 6 layers of paint) that they wouldn’t close.  The drawers had the same issue, except that they rubbed on their cases and dropped dust from that rubbing onto all of the pans and such that were in the lower cabinets.

Could we have lived with that for a couple of more years?  Probably.  But there’s a limit where saving, budgeting, and repaying debt become a true detriment to your happiness.  When you reach that limit, you can become truly miserable.  We could have used the money we spent on the kitchen on debt repayment.  That would have felt good, but not nearly as good as it is to not have that kitchen any more!  So, that just about covers the why of our kitchen remodel.  Let’s move on to the how.

We didn’t (obviously) want to spend a whole lot of money on the kitchen, but just merely update it.  We hit the not-so-local (100 miles) Menard’s and went about ordering the pieces for delivery.  Also, we managed to squeeze in a dishwasher that was on clearance.  It wasn’t really part of the original plan, but it was actually cheaper than the cabinet that would have had to go where it went.

Here’s how the cost on that broke down.

• Cabinets: ~$1700 (They are the budget models, but have solid Oak facing and doors and look quite nice.)
• Dishwasher: ~$180 (again, it was on clearance and was the last one they had.)
• Flooring: ~$450 (laminate that was on sale to replace the chipping linoleum and stained carpet.)
• Delivery: ~$180 (it’s a long ways, and it wouldn’t fit in our car.)

All told, that first trip cost us a shade over $2300.  I didn’t go out and compare, but I think that’s a pretty good deal.  Once all the parts and pieces were delivered, my dad came out to help out over a long weekend.  He lives about 950 miles away, so it was quite the trek for him.  And I must admit, the remodel would have likely turned into a small disaster had he not came.  He’s a contractor, so he’s done a few of these before. And there were a few unforeseen issues that would have caused me a huge problem without the knowledge and help.

In the end, the four day weekend turned into a 5 day weekend.  It was more like a 5 day workweek, but with far more physical labor than I normally do.  But, it got done.   There’s only a little bit of trim that I’ve got to put up, and it will be 100% finished.  I’m hoping that I can find the parts for that here in town this weekend and get that wrapped up.

And now, for the grand unveiling!  Here, in all it’s splendor, is our new kitchen.

What do you think?  Quite the change, isn’t it?  After it was all said and done, we added around $600 more to the bill with odds and ends that we needed throughout making the total bill come in at around $2900.  Of course, if we had had to pay for labor, it would have significantly raised the costs.  Yet another reason to at least try DIY.  You’ve got to know your limits of course.  I got lucky and my dad was able to come help, otherwise this would have easily turned into an example of what happens when you don’t know your limits.  But, it didn’t.  We’re extremely happy with the way it turned out and even though the space is still very small, the luxury of the new cabinets and drawers along with the dishwasher makes it all seem just a tad bigger.

Side note: While my dad was here, he was telling us a story about a remodel he recently worked on where the kitchen alone came in at about $100k.  Incredible.  The client put in solid granite counter-tops that cost $20k!  Even if I won the lottery, I don’t think I could bring myself to spend that much money on something like that.

I dislike getting a refund from the government. I don’t like having to look up the my tax refund status.  I don’t have any good reason to give them an interest free loan, but any changes I make to my W4 don’t seem to make any difference.  I keep getting a refund every year.  This year, the numbers were really off, because we added a dependent last march.  After all the numbers were entered, and the forms filed electronically, the IRS sent us a nice deposit of a little over $3000.  Combined with a bit under $500 from the state, and we end up with $3500 in the bank.

Now, before I go on to tell you what it is we are doing with that money, I need to say something.  For the last several years, we have spent nearly every spare dime we have on paying off debt.  We still have debt that needs to be paid off.  However.  Despite my hate for debt, I’ve come to realize that you cannot let other things slide in order to pay off that debt.  With that in mind, here’s how we’re spending our refund.

We’re getting a new kitchen.  The cupboards in our kitchen are original to the house (circa 1950) and have been painted so many times that they no longer close.  The drawers grind against their frame and the resulting paint dust and wood dust falls down from them onto anything in the cupboards below them.  We have to wash our pans before we can use them because of the dust.  The linoleum on the floor is peeling up.  The carpet is ancient, smelly, and stained.  If you took just the kitchen from our house, it would fit right in with many of the run down slum rentals in town.  We want to move up to a newer (read bigger) house soon, so we need to make this house sellable.  In my opinion, with the kitchen in this condition, it would not sell for what it is worth.  So, we went and bought all new cupboards, countertop, and flooring. Oh, and a dishwasher.  That’s a certifiable luxury, but it helps that we bought it all on sale.  All of the supplies came in at about $2300.  There’s still a few odds and ends that we’ll need to purchase, but we should be able to keep it at about $2700 or less.

This weekend, my father is coming to town to help me install it all.  With any luck, come Monday, it will be mostly finished and usable.

If the plan works, we’ll still have about $800 or so left over.  And with that, we’re buying a couch.  And maybe a loveseat.  Depends on the sale I suppose.   This could be classified as a luxury that we don’t need if it weren’t for the hole in the one cushion, the rips in the spring lining that allows everything to fall between the cushions and disappear into the couch, and the stitching that is coming out at all the seams.  The couches that we are replacing are in dire need of it.  We got them free and have used them for several years.  The couches we had before that were hand me downs and garage sale finds.  It’s time for something new.  And, yes, we could go to garage sales and find new used stuff, but we’ve been saying that for at least a year and haven’t done it, so we’re going to splurge a bit.

When we’re done with all of that, we’ll go back to trying to pay everything off.  My wife’s new business is growing well (that’s another post), and her income is leveling off some, so we can more properly budget for debt repayment.  We’re leaps and bounds from where we were when we got married, and with any luck, 2011 will be the last year we spend with any real debt aside from a mortgage.

What are you doing with your refund?

No matter what your point of view on the health care reform bill, there’s a pretty good chance that it will be law for at least a little while.  So, it makes sense to try and digest all the stuff that is in it.

I don’t know about you, but I don’t intend to read a 2000 page document.  Especially since I have little to no chance of understanding about 90% of the legal language involved.  So, it was nice to find this Health Care Reform graphic.  It’s got a nice timeline of the important dates and the important changes that happen on each date.

With the passage of the huge “stimulus” bill a couple weeks ago, one of the things that has been talked quite a bit about by both the media and the President is the reduction in the taxes that are taken out of our paychecks.  Some $13 or so dollars on average will be left in our paychecks each week for us to spend, spend, spend.  Isn’t that great?  (can you taste the sarcasm?)

What they aren’t telling you is that it isn’t really a reduction.  Sure, they’ll be taking less out of each paycheck.  But they didn’t reduce the tax bracket rates any.  All they’ve done is reduce the percentage of your wages that will be withheld from your paycheck.  You’ll still owe the same amount on your taxes at the end of the year.

Here’s how it will work.  If you got a return this year, and are planning on getting one next year, it will be reduced by the extra taxes that didn’t get taken out of your check.  $13 less withholding dollars means $13 (or more) less refund.  Where it could really hurt people is where the person is already expecting to send a check with their tax forms.  Their check will have to be much bigger because of all this.

Now, to avoid all of this, you could instruct your payroll department to take that $13/week out anyways.  You could adjust your withholding on your W-4 so that more is taken out.  Or you could take that $13/month and stuff it away in a shoebox so you’ll still have it to pay Uncle Sam with come next April 15.

Any way you shake it, it comes down to a publicity stunt to make all the other needless spending in the bill look better.  It’s the proverbial spoonful of sugar to make a whole lot of pork go down.

Have you done your taxes?  Or at least dropped them off at the accountant?  For the last several years, I’ve done my own taxes online.  There are several places you can go.  I use TaxAct.com, but I know people who’ve used the others.

In any case, I managed to get mine all finished up last week and filed them all.  Last year, I ended up short and needed to pay in so I waited until much later to file so I could hold on to my money a little longer.  This year, I made a few changes to my W-4, and as a result, ended up with a small return coming my way.  And there’s no reason to not file if they owe you money.

North Dakota was amazingly fast with the refund.  I got it back on Wednesday.  I filed on the previous Thursday.  Less than 4 business days to go from my computer to the state and back to my account.  And a EFT deposit takes at least a day from start to stop, so they had to have initiated the transfer on Tuesday.  Less than three days process time.  Very nice.  Of course, I haven’t really heard much from the Feds, so not sure if I’ll be seeing that back anytime soon or not.  I’m sure they’re a little more swamped than the state is, but you’d think they’d have a bit higher capacity too.

How about you?  Taxes done? Did you get a refund or did Uncle Sam drain you a little drier?

Jim at Blueprint for Financial Prosperity has a nice YouTube video posted on his site today.  Go and watch it.  (it’ll open in a new window)

They guy is horribly lucky, but am I the only one who’s first thought was to wonder how much the taxes are on something like that?  This is what being a frugal personal finance blogger will do to you!  It ruins all the fun stuff with reality!  Don’t buy into it!  Ignore your finances and spend like there is no tomorrow!  You’ll enjoy it a lot more than making a budget!

Ok, I’m just kidding.  You shouldn’t buy into it.  You should keep very good track of your finances and, while you likely won’t enjoy it too much, you do need to do a budget.  Besides, he’ll likely be able to pay most of the taxes with the 26k in cash, but I’m wondering if it isn’t going to be more than that.  Any experts in prize taxes out there?