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.

President Obama announced in September several initiatives to help and encourage Americans to save for retirement, including the ability for employers to let workers transfer the value of unused sick time and vacation time to their company retirement plan. What you have not used at the end of the year can be turned into cash and deposited to your 401(k) or profit sharing plan. The value of the contribution is still subject to the limits for retirement plans (example: $16,500 to 401(k) plans for employees under age 50) but may help some workers boost their account values and get a valuable tax deduction. (The ruling does not apply to IRAs or SEP-IRAs.)

Offering this benefit to employees may require the company to amend their plan provisions and, because it’s not required, is up to the discretion of the company. Therefore it may not be attractive to employers unless the company allows employees to roll over unused leave from year to year, creating an increasing liability to the company. If you “use it or lose it” the company would probably rather you “lose it” than have to pay it to you.

While this may boost the retirement accounts of some dedicated (or workaholic) employees who don’t use their available vacation time, I’d rather encourage you to take the paid vacation time to which you are entitled. The benefits in terms of stress reduction and rejuvenation can outweigh the dollar value. In addition if you are sick then stay home – especially this year with the H1N1 flu in the air. Yes, we do need to increase our savings rate but it won’t matter much if you work yourself into poor health.

When planning your retirement, don't forget that in many instances, your Social Security benefits will be taxed. This year, about one in three people receiving Social Security payments faces taxation on those payments. A decade from now, almost half of the people receiving Social Security could owe taxes on their benefits.

To learn more about the taxability of Social Security benefits, visit www.irs.gov and review IRS Publication 915. This publication includes a detailed worksheet which will tell you exactly how much of your benefit will be taxable.

In a nutshell, the formula involves calculating your adjusted gross income (AGI) and adding non-taxable interest and one half of your Social Security benefits. If these three items exceed $25,000 for single taxpayers or $32,000 for married taxpayeres, up to 50 percent of the your Social Security benefits will be taxed. If those three items exceed $34,000 for single taxpayers or $44,000 for married taxpayers, up to 85 percent of your benefits will be taxable.

Special rules exist for taxpayers who are married but filing separate returns -- if a married taxpayer lived apart from their spouse all year long, taxation of Social Security benefits is calculated as if the taxpayer were single. If the taxpayer lived with a spouse during the year, the base amount is $0 (not $25,000 or $34,000) and up to 85 percent of benefits received could be taxable.

My wife and I are in the process of starting our own consulting business. What is the appropriate tax treatment for the expenses that we incur to start the business?

Expenses that you incur from the genesis of your business until you begin operations are considered start-up costs. This is typically the planning stage of your business, prior to any revenue actually coming in the door. (A clear example might be a retail store. You are probably an active trade or business on the day customers can come through your store front.) These costs incurred to create a trade or business and might include the following:

As expected for some time now, the Social Security Administration (SSA) recently confirmed on their web site that there will not be an automatic cost-of-living-adjustment (COLA) for those who receive monthly Social Security and Supplemental Security Income benefits in 2010.

Under current social security laws, Social Security and Supplemental Security Income benefits increase automatically each year based on the inflation measure known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Each prospective year’s COLA is determined based on the change in the CPI-W from the third quarter of the prior year to the current year’s third quarter. Therefore, the COLA for 2010 is based on the change in the CPI-W from the third quarter of 2008 to the third quarter of 2009. Since there was no increase in the CPI-W for that period, there would be no COLA increase for 2010.

According to the SSA, this would be the first time since 1975 (when COLAs went into effect) that an automatic COLA will not be made. To make for the lack of the COLA increase for next year, some including the commissioner of the SSA, Michael Asture, are calling for the Obama Administration to make an additional $250 recovery payment to people who receive Social Security and Social Security Income benefits.

In addition to holding Social Security and Social Security Income benefits flat for 2010, the lack of an automatic COLA increase also prevents other amounts from increasing. For example, the maximum amount of earnings that are subject to Social Security taxes for 2010 will remain at the current 2009 amount of $106,800 dollars. Also, the retirement earnings test exempt amounts for 2010 remain unchanged. If you will not reach your Normal Retirement Age (NRA) anytime during 2010, you can year $14,160 dollars before your Social Security benefits are reduced. If you will reach your NRA during 2010, you can earn $37, 680 dollars for the months in 2010 prior to reaching your NRA, before your Social Security benefits are reduced.

For more information, visit the SSA’s web site at http://www.ssa.gov/.

This year Fair Isaac Corp introduced some changes to its FICO scoring system. This is nothing new - changes to the system occur periodically, the last having taken place in 2004. The goal is to stay on top of evolving credit risks and improve reliability as a predictor of borrower defaults. How will these changes impact your credit score?

Most people know that they are entitled to free copies of their credit reports but getting a copy of your credit score is trickier and can be more expensive. One easy and inexpensive way is to ask for your score whenever you apply for credit. For example, if you are applying for a new mortgage, refinancing an existing mortgage, buying a new car or even applying for a payment plan with an oil heat company, the organization extending you credit will have pulled your credit report and credit score. These individuals can easily tell you what your credit score is -- at no cost to you.

But what if you haven't applied for credit lately and don't intend to -- or you want a glimpse of your score before you bother applying for credit? You can certainly contact one of the major credit bureaus like TransUnion, Equifax and Experian and request your credit score but these agencies will charge you a fee. Similarly, the website that offers you your free annual credit report (www.annualcreditreport.com) will give you your score for a fee of $10 or so.

If you don't want to pay a fee for the score, you can get a pretty could idea of the range of your score by visiting www.credit.com and www.creditkarma.com. These sites also offer valuable information on how your score is determined and how you can improve it. For more information on your credit score, the various organizations that provide credit scores, and tips for improving your score, check out this recent Wall Street Journal article.

A few months backed I pulled together a checklist to help people looking to start their own business. Tomorrow at 1:00PM, I am doing a online chat for those looking to start their own business as well as for those fresh entrepreneurs looking to grow their business. I thought it was appropriate to republish that checklist in preparation for the chat. Here is the checklist:

Starting next year, taxpayers can elect to receive their tax refund in the form of Savings Bonds -- more specifically, in I-Bonds. This might be a good means of "forced savings" for those who would otherwise squander their refund, but is it a good idea for everyone else?

Probably not, that is because I Bonds carry interest rates that are tied to the inflation rate. With inflation very low or non existent in the past few quarters, the fixed interest component on these bonds is currently zero. While it is true that the rates are going to be re-set in just a few weeks (on November 1st), inflation has been a non-issue lately so it is probably a good bet that these bonds won't be carrying a high interest rate by the time taxpayers are deciding how to take their refund.

If you are thinking about replacing that old dryer or furnace, you might want to hold off for the moment. Now that the government has helped us get rid of our clunker cars they're turning their attention to our old appliances. As part of the economic stimulus program there is another "cash for clunkers" program coming - this one for old inefficent washing machines, refrigerators, air conditioners and other appliances.

New products with the federal Energy Star qualification are eligible - which bars cooking appliances from the program (they don't carry this rating) - but there is not much more known yet about the program. Unlike the car rebate this program will be administered individually by states, who will set their own terms such as what types of appliances are included, how much of a rebate you can earn and how to dispose of the old appliance. States have to come up with their program details by mid-October, although the federal funds will not be available until November 30th. Rebates will range from $50 to $250.

Stay tuned for more information in the coming weeks.

At the end of last year, President Bush signed a law waiving the required minimum distributions (RMDs) for 2009 from IRAs and employer sponsored defined contribution plans such as 401(k) plans, 403(b) plans, 457(b) plans and profit sharing plans. Despite the passage of the law before the end of the year, many IRA owners and plan participants ended up receiving their 2009 RMD because IRA custodians and plan administrators did not have enough information on how to comply with the new law.

Although RMDs are not generally eligible to be rolled over, the new law provides individuals (who received their 2009 RMD) with the ability to roll their 2009 RMD over into an IRA or other eligible retirement plan. Rollovers usually need to be accomplished within 60 days. However, many individuals failed to meet this deadline because of the confusion and lack of information surrounding the new law.

Recently, the IRS has issued a notice (IRS Notice 2009-82) providing additional time for individuals who received their 2009 RMD and failed to complete the rollover within the 60-day period. Under the notice, IRA owners, plan participants, and spouse beneficiaries have until November 30, 2009 to complete the rollover.

Keep in mind that this waiver does not apply to RMDs received in 2009 for 2008. In addition, the waiver does not change the one-rollover-per-year rule which only allows an IRA account owner one (non-direct) rollover per year from each IRA account.

For more information about this IRS notice, visit the IRS web site at http://www.irs.gov/pub/irs-drop/n-09-82.pdf