It’s not even Thanksgiving yet, but the Christmas season is in full force as evidenced by the commercials, ads and catalogs I’ve seen in the past two weeks. Retailers are hoping that consumers will not scrimp on holiday giving, as this time of year often determines a company’s profit, especially small companies. Many families are on tight budgets or feeling financial constraints, but no one wants to disappoint their family at Christmas. If you’re on a budget this year, here are some tips for keeping the holiday giving in check:

Last week, Congress made some significant changes to the first-time homebuyers tax credit. The changes will benefit many homebuyers but Congress did tighten up a few of the existing rules. Here are the key changes:

* Extended through April 30, 2010 – The Nov. 30 deadline has been extended through April 30, 2010. This means that you must have purchased a home by April 30, 2010 and must close on that purchase by June 30, 2010.

* Higher Income Limits – Prior to these changes the tax credit phase-out range was a Modified Adjusted Gross Income (MAGI) of $75,000 - $95,000 (for single taxpayers) and $150,000 - $170,000 (for married taxpayers). Under the new legislation, the MAGI ranges change to $125,000 - $145,000 (for single taxpayers) and $225,000 - $245,000 (for married taxpayers).

* Expansion of the tax credit – The credit is not limited to first-time homebuyers any more. Homebuyers who have owned a home for 5 of the last 8 years can qualify for a tax credit of as much $6,500. The 5 years of ownership must be consecutive years and the home must be the buyer’s principal residence. The credit is available for purchases made after Nov. 6, 2009 and before May 1, 2010.

* Home purchased for more than $800,000 after Nov. 6, 2009 do not qualify for either the $8,000 or the $6,500 tax credits. Also, homes purchased from in-laws after Nov. 6, 2009 do not qualify for either credit.

* Dependents of taxpayers under the age of 18 do not qualify for the tax credits.

* These credits are still refundable and can be claimed on your amended 2008 tax return (for 2009 purchases) or your 2009 tax return (for 2010 purchases). Buyers will also be required to submit a copy of their settlement statement to claim the tax credit.

The cost of many prescription and over the counter drugs, specifically generics, has declined in recent years. I give full credit to Wal-Mart for this wonderful price reduction. When they introduced prescription drugs for $4 / month, everyone thought they were crazy. Now every major drug retailer has followed there lead and has a similar program in place. No federal government program was needed to bring down the costs, just a great retailer like Wal-Mart. (As a side note - it amazes me that Mayor Menino wants to keep Wal-Mart out of Boston. Apparently his union supporters take precedent over low cost, life saving medicine for the citizens of Boston.)

However, prescription drugs that maintain their patent protection are still very expensive. Methods to cut cost are not so apparent. Nevertheless, I recently heard of a method that in some cases can cut and individual’s drug cost in half. Furthermore, it is so simple; I am ashamed it never had crossed my mind. The process is as follows: simply ask your doctor to prescribe to you two times the required dose of the drug you need. Then, simply cut the pill in half. The single pill becomes two pills and you get twice the drugs for usually the same price. My understanding is that most drugs cost the same amount regardless of their dosage. If you need 30 milligrams of a drug once per day, ask for a 60 milligrams prescription. Obviously, you need to confirm with your doctor that this is an option and will not reduce the efficacy of the drug. For certain drugs, i.e. those in capsule form, extended release, etc. it is not an effective option. However if the doctor agrees that the drug can be split without reducing efficacy, it may be worth a try.

It has been particularly unnerving for parents to watch their children's college savings accounts lose money during the current recession. Parents usually don't have as much time or ability to make up for these losses as they might their own retirement funds. So the reaction of many has been to run to safety by switching to conservative investment options. In an effort to address this several states have expanded their 529 plan options to include FDIC-insured accounts that invest in savings accounts or CDs. According to InvestmentNews Arizona, Ohio and Montana now offer FDIC-insured accounts. Are they a wise choice for you?

Open enrollment for those covered by a Medicare health plan and prescription drug plan begins on Nov 15 and ends on Dec. 31. This is Medicare’s annual enrollment period that allows you to make changes to an existing plan that you are enrolled in or to choose a different plan. While you have until Dec. 31 to make any changes, you should do them sooner rather than later so you can ensure that everything is in place before your coverage starts on Jan. 1, 2010.

Choosing a Medicare health plan can seem daunting so focus on the following factors when evaluating your options: cost, benefits, doctor and hospital choice, convenience, prescription drugs, pharmacy choice and quality and performance.

It’s a good idea to review your plan even if you are happy with your existing coverage. Changes in premiums, alone, warrant a fresh look at your current plan. Health care costs seem to increase every year and Medicare premiums are no exception. The average premiums for Part D and the Advantage plans have gone up by about 7% and 22%, respectively.

Keep in mind that premiums are only one of the cost factors to consider when evaluating a Medicare plan. Other important cost factors include changes in deductibles and co-payments. As with premiums, these costs are increasing in many plans as well.

To learn more visit the Centers for Medicare and Medicaid Services on the web at www.medicare.gov for more information and tools you can use to evaluate and compare your existing plan with the other options available to you. You can also get Medicare information by calling 1-800-MEDICARE (1-800-633-4227).

I have an income property our daughter rents from us. I wanted to sell it to her last year but was told that she was excluded from the tax credit because she is immediate family. Is this still the case under the new housing tax credit law?

The first time home buyer credit was extended last week. Furthermore, as discussed in the Managing Your Money section of boston.com last week, the bill was expanded to include those people that already own a home. However, the new law does not adjust the rules relating to sales to related parties. Under both the original law and the extended law, sales of properties between related parties are not eligible for the housing tax credit. So, if you sell the property to your daughter, she will not be able to claim the $8,000 credit.

Lately, all the new car related news has centered on the "Cash for Clunkers" program. That incentive has now ended but it can still be a good time to buy a new car. The reason is that the deduction for the sales tax paid on a new car purchase continues until the end of this year. Here are the specifics:

You can deduct all the sales tax paid on a car costing up to $49,500.

The deduction can be used multiple times if you buy more than one car.

The deduction phases out for single filers with adjusted gross income (AGI) higher than $125,000 and married filers with AGIs over $250,000.

This deduction can be claimed even if you don't itemize your deductions -- simply add the amount of taxes paid to your standard deduction.

And while we are on the topic of cars, remember that in most cases, if you are considering donating your old car to charity, the amount of your deduction is limited to what the charity can sell your car for. (The exception to this rule is if the charity is going to keep your car and use it themselves.)

Years ago, you used to be able to deduct the blue book value of your car but now, the deduction could be significantly less. Under the new rules, which went into effect with the 2005 tax year, the charity will send you a recepit for the amount they were able to receive at an auction. It might take a while to get the receipt and you can't be sure what your deduction will be until you get the receipt. Keep that fact in mind when trying to decide to trade in or donate your old car and if you do donate your car, be sure to file Form 8283 when you file your taxes.

“I’m concerned about identity theft. Should I issue a credit freeze or a fraud alert to protect myself?”

A fraud alert is a message attached to your credit report, asking potential lenders to verify your identification before they issue a new loan or other credit in your name. So if you are in the department store and want to sign up instantly for a credit card the store will have to wait while the credit bureau calls you to verify that it is indeed you that is applying for the new card (so you better have your cell phone on.) You set up a fraud alert by calling each of the 3 credit bureaus – Experian, Trans Union and Equifax. The alert expires every 90 days and has to be resubmitted. The problem is that lenders are not required to call you even though you have requested it. They can ignore the message. One of the benefits of the alert is that your name will be removed from pre-approved credit card and insurance offers for 2 years.

Flexible Spending Accounts (FSA) are a great way to reduce your taxes but you can lose money if you don’t spend it before the end of the year. FSAs allow you to set aside money on a pre-tax basis for deductible medical expenses that are not covered by your health insurance plan. However, any funds left in your FSA account are forfeited if not spent by the end of the coverage period which is typically Dec. 31. Some plans will allow you to get reimbursed for expenses incurred after Dec. 31 but it depends on your particular plan so be sure to check with your employer.

FSAs are employer-sponsored accounts that allow employees to make pre-tax contributions. The contributions can be used by the employee to pay for out-of-pocket medical expenses (i.e., deductible medical expenses that are not covered by the employee’s health insurance plan). Employee contributions in a FSA are “use-it-or-lose-it” meaning that the employee needs to spend the money in the account before the coverage period ends otherwise the unused funds will be forfeited. The coverage period depends on your employer’s specific plan however, many plans follow the calendar year.

If your coverage period ends on Dec 31 and you have not used all of the funds in your FSA here are some medical expenses that are typically covered.

* Deductibles and co-pays for medical and dental visits and treatments.
* Medical expenses for dental treatments including fees paid to dentists for X-rays, fillings, braces, extractions, dentures, etc. Generally, teeth whitening expenses are not deductible medical expenses.
* Fees for acupuncture or chiropractic treatments.
* Medical expenses for an inpatient's treatment at a therapeutic center for alcohol addiction. This includes meals and lodging provided by the center during treatment.
* Fees for ambulance services.
* Medical expenses for breast reconstruction surgery following a mastectomy for cancer.
* Medical expenses for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent.
* Contact lenses needed for medical reasons and the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. You can also include expenses for eyeglasses and laser eye surgery or radial keratotomy.
* Medical expenses for in-patient care at a hospital or similar institution if a principal reason for being there is to receive medical care. This includes amounts paid for meals and lodging.
* Insurance premiums you pay for policies that cover medical care.
* Medical expenses for psychiatric care and psychoanalysis.
For more information about deductible medical expenses, visit the IRS’ web site and review Publication 502. http://www.irs.gov/publications/p502/ar02.html#en_US_publink100014786

With 2009 coming to a close, I am now meeting with clients, looking at their projected financial results for the year and considering some ideas to minimize their taxes. All businesses should do some tax planning right now and consider some tax avoidance (as opposed to tax evasion) strategies. Here are a couple of ideas:

If you are the parent of a child in high school, be sure to check out the Massachusetts Education Financing Authority (MEFA) website. This site tells you all you need to know about saving for college, applying for financial aid and getting loans.

One of the most valuable services MEFA offers is an email notification system that will send you reminders about what you need to be doing and when. For example, if you are the parent of a senior in high school, the email service reminds you when you need to file important documents like the FAFSA form. If you are the parent of a junior, the service will remind you when to register for college entrance exams. (A great thing for those of us who already have too many dates on our calendars.)

The website also has printable "Recommendation Request Forms" that students can fill out and give to the teachers who are writing recommendations for them. There is also an "Application Deadline Manager" for tracking which parts of the application process have been sent to each school. Finally, there is also a "FAFSA4Caster" which gives you an early estimate of your eligibility for federal student aid.

If you plan on buying mutual funds before the end of the year you may want to wait until January and avoid some taxable distributions.

When you buy a mutual fund any interest, dividends and capital gains earned by the fund is payable to you, the shareholder. These earnings must be paid out by the end of the year. Most equity funds wait until sometime in November or December to pay out distributions (bond mutual funds pay the interest monthly.) At the same time they are paid out the share price of the fund drops by a corresponding amount. So in essence you are not gaining anything through these distributions. But if you hold the fund in a taxable account, you’ve incurred taxable income. Therefore you may want to avoid buying shares of a mutual fund and having a distribution made a few days or weeks later.

Many mutual funds will post their estimated distributions on their website along with the date of the distribution (look for the “Tax Center” or other references to “year-end distributions”.) If the information isn’t there now keep checking back, or call the company. To avoid the income you will want to buy shares of the fund after the “ex-dividend” date. Remember, this is only an issue in taxable investment accounts. In tax-deferred account, such as IRAs, one does not pay income tax on distributions as they are incurred, only at the time a withdrawal is made.

Congress is currently working on legislation to extent the first-time homebuyer tax credit. In order to be eligible for the current credit, prospective buyers need to purchase and close on a home by Nov. 30. Under the proposed bill, the deadline is expected to be extended into 2010. The details of the extension are currently being worked on and a vote is expected as early as this week -- some say that a vote may occur today. Therefore, you may have some breathing room with your closing if you already purchased a home and are trying to beat the Nov 30 deadline. If you are a prospective first-time homebuyer who missed the opportunity to take advantage of the current credit, you may have a second chance.

In addition to the extension, Congress is said to be working on a bill to expand the current tax credit to prospective homebuyers who already own a home. Under this proposal, existing homeowners who purchase a home after this bill is enacted may receive a tax credit of as much as $6,500 dollars. This would apply to prospective purchasers who have owned a home for 5 of the last 8 years.

Although we will not know the exact details of these proposed bills until Congress completes their work, we do know that they need to act quickly if they expect to extend the current credit before it expires. Stay tuned...

I am often asked by my clients where they can learn more about finances and investing. It’s a shame that basic financial planning is not taught in our school system from an early age. Without knowledge about how to make sound financial decisions individuals must either pay for advice or make decisions blindly. The economic events of the past year have left many investors frustrated and feeling they lack control over their own well-being.

The best remedy is to educate yourself about money and investing. I recently learned about a website that is a great resource for all kinds of financial related information. The site, www.investoreducation.org is sponsored by the Alliance for Investor Education, an organization dedicated to helping investors gain a better understanding of finance. Their members include many top financial organizations including AAII (American Assoc. of Individual Investors), the Financial Industry Regulation Authority and the Council for Economic Education. There are regular articles about financial planning topics, and links to other websites and resources for a long list of financial topics. For instance under the “Investing Basics” category if you click on “Save For Retirement” you will be taken to a website calculator that helps you estimate how much you need to save. There are topics geared towards young investors and seniors and an area with specifics on investor scams and fraud. Also you can set up an automatic feed to receive their daily article. This website is chock full of information to improve anybody’s financial knowledge.

Are funds in my 401(k) plan protected from creditors if I file personal bankruptcy?

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (a.k.a. the Bankruptcy Reform Act) tax-exempt retirement plan accounts (including qualified plans, traditional IRAs, Roth IRAs, 403(b) plans, 457(b) plans, SEPs, and SIMPLE plans), are protected from an employee's creditors in the event of bankruptcy. With the exception of the Traditional IRA and Roth IRA assets, all of these tax-exempt retirement assets are protected without a dollar limit.

Traditional IRAs and Roth IRAs are protected up to $1 million dollars under the federal law. However, some states may provide additional protection beyond the federal limits. Additionally, the language in the federal law seems to suggest that any funds rolled over from an employer retirement plan are fully protected even if the amount exceeds the $1 million dollar limit.

Keep in mind that there are exceptions to the protection provided under the Bankruptcy Reform Act. Certain liens and debts are not discharged or fully discharged under this law. These include:

• Tax liens,
• Debts for luxury goods/services,
• Cash advances,
• Judgments against you for death or injury caused while intoxicated,
• Domestic support obligations,
• Educational loans,
• Debts incurred to pay taxes, fines and penalties,
• Debts from divorce or separation,
• Homeowner association, condominium, and cooperative fees,
• Fees on prisoners,
• Pension or profit sharing debts, and
• Debts or liens incurred from interference with lawful provision of services.

Not too long ago, a friend of mine was in the process of starting his own business. His idea was sound, but he needed to raise some money to help get the venture off the ground. Raising money from investors or a bank requires many things, and a sound business plan is one of the most important. He asked for my help and we wrote a pretty good business plan. Subsequently, he pitched the plan to the right audience and they gave him the necessary funds to get the business off the ground.

For start-ups and business ventures without much operating history, a good business plan will include most of the following items:

We all know that the first time homebuyer credit has been very popular -- but so popular that a four year old would use it? A recent Wall Street Journal article reported that the Treasury Department had found at least 19,000 people who applied for the credit but had never purchased a home. The total amount of money received by these fraudulent filers was $139M. The Treasury also found that 74,000 people who claimed the credit probably owned a home within the previous two years and therefore do not qualify for the credit. The total amount paid to these people was $500M. The credit has no age restriction and more than 500 people under the age af 18 have applied for the credit -- including a four year old.

People who claim the credit when they are not entitled to it will have to pay back the credit and they may also face civil penalties. Criminal fraud charges would also be a possibility so before you file for the credit, make sure that you qualify. The credit is only available to single filers earning less than $75,000 and married filers earning less than $150,000. You are eligible if you purchased your home since April 9, 2008 and the credit is ending on November 30, 2009. To qualify as a first time homebuyer, you can not have owned a home in the previous two years. If you are uncertain about whether you qualify, consult a tax professional.

If you are considering making charitable contributions before the year ends, you may be able to use IRA money. The IRS allows individuals over age 70 1/2 (those subject to the Required Minimum Distribution rules) to transfer money directly from an IRA to an eligible charitable institution. However there are some rules to be aware of:

1. The money must transfer directly to the charitable organization
2. Distributions from SIMPLE-IRAs and SEP-IRAs are not allowed
3. No deduction is allowed on your tax return for the contribution, since it came from pre-tax money (non-deductible contributions are eligible for a charitable deduction)
4. Not all charities qualify – donor-advised funds are not eligible recipients
5. The maximum amount that can be transferred is $100,000.

This option is available only through 2009. This is an appealing strategy for those who don’t itemize deductions and therefore cannot take advantage of the charitable deduction. Also if you normally take money out of your IRA for living expenses, which include charitable deductions, you can reduce the amount of your taxable income.

For more information see IRS Publication 590 or consult your tax accountant.

With the first time home buyers credit set to expire shortly, we are seeing more questions about how to tap Individual Retirement Accounts (IRAs) to help make a downpayment. Here is a quick review of the rules:

You (and also your spouse if you are married) can take a withdrawal of up to $10,000 from your IRA to buy or build a house and there won't be any penalty assessed on the withdrawal (typically, a 10 percent early withdrawal penalty would be imposed on distributions if you are under age 59 1/2). The money must be used for a first time home purchase. For the sake of avoiding penalties on the withdrawal, the person withdrawing the money must not have owned a home in the past two years. In addition, the money must be used to buy the home within 120 days of the withdrawal. Be careful to meet the 120 deadline and be sure that you qualify as a "first time homebuyer". If you miss either the deadline or don't meet the definition of first time homebuyer, you will owe a penalty on the withdrawal. Also, when you file your tax return for 2009, be sure to include Form 5329. While no penalty will be imposed on withdrawals from a traditional IRA, you will still owe taxes.

Finally, if you are considering taking a withdrawal from a Roth IRA to help pay for a new home, be aware that you can always take out the contributions that you have made to the Roth and no taxes or penalties will be owed. It is only once you starting withdrawing earnings that you run into complications.

What is the deal with the plan I heard about for a "cash for clunker-appliances" scheme? Is it or is it not for real, and being implemented as part of the Mass income tax filings?

In mid-July the U.S. Department of Energy (DOE) announced $300 million dollars of funding for the Cash for Clunkers Appliances program. This program is one initiative under the American Recovery and Reinvestment Act of 2009 (ARRA). The program is expected to begin in late 2009 and earlier 2010 and will provide consumers with rebates of as much as $250 dollars for the purchase of energy efficient appliances.

Each state and territory that chooses to participate will administer their own rebate program. All 56 states and territories have agreed to participate however; it is unclear how many of them have submitted proposals to the DOE detailing their individual programs as of the Oct. 15 deadline.