By GoBankingRates.com

Though it was less than two years ago, the buzz surrounding national banks, Occupy Wall Street and Bank Transfer Day seems like a distant memory. Even so, one thing has lingered — Americans’ overall awareness and engagement surrounding the banking industry.

The move to local banking

According to the Huffington Post, at least 650,000 people joined credit unions between September 29, 2011 (the day Bank of America announced their proposed $5 fee for debit card purchases) and the first week of that following November — more new credit union members than in all of 2010. Further, Business Insider reports that in just the past year, over two million new members have joined credit unions, representing more than $1 trillion in assets.

And back to big banks?

Even so, the nation’s largest financial institutions, like the “big five” — JP Morgan Chase, Bank of America, Wells Fargo, Citigroup and Goldman Sachs — continue to enjoy massive customer bases. New data from JD Power and Associates even shows that satisfaction among national bank customers has been increasing since 2011.

Clearly, the nation is still divided. But we want to find out, a year and a half later, if local banks and credit unions are still considered the best choice, or if everyone has simply forgotten about the backlash over big banks.

Take the American Banking Preference Poll

So tell us: Which do you prefer? Are you sticking with your big bank or have you made the move to a community institution?

Whatever your choice, one thing is for sure: Since 2011, we’re all far more cognizant of bank fees, services, rules and regulations. We’re less hesitant to challenge the financial system or demand that our needs be met. Personal finance is no longer an afterthought, but a matter central to each of our lives. Let’s keep it that way.

By GoBankingRates.com

Whether you’re in the Baby Boomers generation or one of their children or grandchildren – Gen X, Gen Y or Gen Z – money matters weigh heavily on our lifestyles and decisions. According to the 2012 Scottrade American Retirement Survey, concerns about financial futures has made most Americans change their spending and saving habits. The survey found that to reduce their financial concerns:

• 69 percent are spending less, compared to 63 percent in 2011;
• 67 percent are using coupons, compared to 59 percent in 2011; and
• 65 percent compare prices to find the best deal, compared to 58 percent in 2011.

Which generation is better at saving money? It’s hard to say, as each has such a range of different situations and needs.

As a Financial Education Advocate with Generations Federal Credit Union, however, David Rodriguez has worked with members of each generation and has gotten know the different financial challenges each may face. We spoke with him to get his expert take on the topic. The following are some of the concerns and saving strategies each generational category faces in managing money.

Baby Boomers (Born 1945–1966)

Financial experts recommend having 70% to 80% of current income available to use annually in your retirement years. However, over the last few years, Baby Boomers have experienced a significant financial hit in their retirement savings. Job losses, caring for both elderly parents as well as children, college costs and home values have decreased this generation’s savings.

“The difference with [Baby Boomers] is they knew better,” Rodriguez says. “They spent their money and didn’t save, but they knew the concept of saving based on their parents and elders who lived through the Great Depression.”
The Scottrade American Investor Survey notes that:

• 11 percent of Baby Boomers are saving for their own or a family member’s education;
• 72 percent continue to name retirement as their primary reason for investing
• 36 percent are saving to build an emergency fund; and
• 21 percent are working to reduce their debt.

For those who wish to delay retirement and continue to working through retirement, there is still opportunity to replenish their retirement savings account.

Generation X (Born 1967–1982)

While the Baby Boomers may have had pensions and generous company retirement fund matching benefits to rely upon, Generation X is skeptical that they will receive projected Social Security and increased retirement plan benefits. The burdens of school debt, lack of adequate workplace benefits, high housing costs, and the potential for periods of unemployment have taken a bite out of the Gen X savings accounts.

However, the good news is the January 2012 Insured Retirement Institute Report indicated that one-third of Gen Xers are confident of having enough money to live comfortably during retirement, cover their medical expenses and pay for their children’s college educations.

On the other hand, the other two-thirds of respondents state that:

• 41% of GenXers have saved less than $100,000 for retirement;
• 15% made early withdrawals from their 401(k) plans;
• 23% stopped contributing to their retirement accounts, and
• 22% stopped contributing to college savings plans.

Generation Y (Born 1983–1994)

Generation Y has parents who are most likely Baby Boomers, but that doesn’t seem to be a help to them. The average university student graduates with an estimated $28,000 in debt. The country’s unemployment rate is still high, and workers in their 20’s and 30’s are generally the first to receive the pink slip at work. Additionally, a lot of people in this generation have had to find work as contractors – which means no benefits and paying more in self-employment taxes.

As a result, many Gen Yers have had to resort to living on credit cards and cashing out any of their savings. “Late X’ers and Y’ers are the worst of the four generations at saving, because of the easy access that both of those generations had to credit. ’Why save if you can get it now and make easy payments?’ is the attitude I see regularly with these two groups,” says Rodriguez.

Generation Z, a.k.a Millenials (Born 1995-2012)

Generation Z – those who are 18 into their early 20’s, also called Millenials – have seen their parents and grandparents move through the up’s and down’s of several recessions. As a result, a survey conducted by TD Ameritrade notes that Gen Z has a high understanding of today’s financial and economical realities.

This awareness of financial matters and the importance of saving money definitely works in Generation Z‘s favor, points out Rodriguez. “I think that the Millenials will be the best savers, because they have witnessed firsthand not only the recession, but also their own parents struggling to save for and pay for retirement.”

As the older range of Gen Z have probably only been working a few years at mostly minimum wage jobs, paying for transportation and cell phone expenses – and perhaps contributing to school costs or rent — it’s difficult to compare their savings strategies to the older generations’ financial strategies.

Whatever generation you fall into, financial experts agree that education is key. Whether you consult with a financial advisor or look for information online, learning the basics of budgeting, managing debt, how to invest and save for retirement is invaluable.

Article originally published here: http://www.gobankingrates.com/savings-account/baby-boomers-generation-x-y-z-best-saving-money/

Here are a few ways to fatten your wallet each month and reduce some monthly annuity costs:

Roku – Not sure about you, but one of the bills I despise paying the most is my monthly cable bill. Our household cable bill for the right to watch television laced with advertising is just about $100 per month. If you have a good wireless internet connection in the house, you might take a look at Roku (or other Internet TV providers). A Roku box is a little piece of hardware that streams entertainment to your television and claims to have access to over 750 channels. Some of these channels you have to pay for, but many are free. That is correct, after the initial cost of the hardware, about $65, you can get high definition television for free. This is definitely a different television viewing experience as Roku does not stream live television and trying to watch the Bruins is a difficult task. However, there is plenty of content available to keep you entertained at a much cheaper price. Add a subscription to Netflix or Amazon Prime, which run about $8 / month, which is much cheaper than cable, and there are plenty of television series and movies to watch commercial free. We have cut our household cable service down to a minimum and stream most of our entertainment via our Roku box.

Coffee makers – About a year and a half ago, my wife brought home a Keurig coffee maker. At first I resisted using it, but my love /addiction of coffee and its convenience were difficult to pass up. Soon, I became a rabid user. However, the cost of single serve coffee pods is a bit on the inflated side. Even when buying in bulk, the cost of coffee using single serve pods is about $0.75 per cup. Two or three cups a day, multiplied by two people and you can be spending almost $100 per month on single serve coffee pods. Finally I made a change. I bought a Hamilton Beach Single Serve Coffee Maker for $59 where you use regular coffee grounds without the need for pods or any special filters. By eliminating the single serve pods and just using regular ground coffee, my cost is about $.05 per cup. I have to say using this device is almost as convenient as using my trusty Keurig and makes a pretty good cup of coffee. It takes about three minutes and my coffee is ready. In addition to the monthly price savings, I placing a lot less plastic in the local landfill.

Insurance deductible – I can not recall a time in my life where I made a property insurance claim of any kind (knock on wood). If your claim history for home and auto is pretty low, then you might consider increasing your deductibles on your home and or auto policies. By increasing the deductible from say $500 to $1,000, your premiums will decline. The increased deductible reduces the risk for the insurance company and pushes more of that potential risk on to me. But if my future property losses are similar to my recent past, then this one will pay off.

Refinance the Mortgage – Most people have refinanced their mortgage already, but there is a pretty large number of folks that have not been able to take advantage of the low interest rates environment because their homes have been underwater. However, home values and appraisals have been on the rise of late and many of those underwater homes might be back on solid footing. It is certainly worth taking a look as you can save a lot more than $50 / month with this one. By refinancing over the last few years, my wife and I are paying about $600 less in monthly interest expense.

Private Mortgage Insurance (PMI) – Many people must pay PMI when they have less than 20% equity in the value of the home, i.e. they put less than 20% down on the home. However, once you pay down enough of your mortgage such that you have 20% equity in your home, your PMI requirement should cease. The lender will not typically end the PMI requirement, you will have to call them and inform them that it is time to discontinue the policy.

Dining out – Brown bagging your lunch a couple of times per week can easily save you $50 / month. As a bonus to the cash savings, you will likely save yourself a significant amount of calories as well.

Increase your 401(k) / IRA Contribution – By contributing another $200 or so per month into your 401(k) plan or Individual Retirement Account, you can probably save yourself about $50 in federal and state income taxes. Only about 5 percent of Americans contribute the maximum allowable amount to their 401(k) plan, so many can take advantage of this one.

Land Phone Line – It seems a lot easier to maintain just one phone number via your cell phone than have a couple of different phone numbers. Why not just move exclusively to the cell phone and ditch the land line. Verizon’s bundled billing practice is obviously one to confuse so you can not find the real cost of what you are paying for the land line, but you can be sure that the cost of the land line is real. Worth taking a look once your contract expires.

By Stuart Armstrong

As the US Supreme Court addresses two cases related to same sex marriage with decisions likely to be announced by the end of June, the financial implications could be far reaching for LGBT couples. What financial planning strategies should LGBT couples be thinking about now, regardless of the results?

• Get your basic estate planning documents in place: wills, health care proxies, living wills, and durable powers of attorney. Doing this is a smart idea for just about everyone, not just gay couples. And consider revocable living trusts which can help the settling of one’s estate with greater privacy and speed. When you do have these documents in place, carry copies with you when you travel, especially to places where your marriage might not be recognized.

• Analyze your needs in the event of disability or premature death. Even if down the road Social Security and pension survivor benefits can ultimately be available to the survivor of a same sex couple, your needs may still go beyond what these survivor benefits might provide especially if you also have children to consider.

• Review your intentions for long-term care needs as to how you’d want to be taken care of and how you would pay for the care. This is especially true for those over 50 years old as they begin moving into the age ranges more likely to need care. Government programs remain very limited in covering long-term costs for most US citizens, so planning ahead can help a lot here. And consider long-term care insurance if it makes sense for you.

• Review, reflect, and refresh your financial planning strategies across all areas of concern including cash reserves allocation, debt management, education and retirement planning above and beyond the topics listed above. The stronger you are as a couple/family, the better prepared you are in the event of an unexpected emergency or opportunity. And the more the capable you are to give back charitably to causes that are important to you.
• Align yourselves with financial advisers, accountants, and attorneys who are in the know on the planning needs and sensitivities of LGBT families. Even if same sex marriage becomes the law of the land there may still be a desire to work with a professional who will be fully comfortable with working with an LGBT family and you may want to interview several to find one you feel is a good fit for you.

Stuart Armstrong is a financial planner with Centinel Financial Group of Needham Heights and serves on the Board of Directors of PridePlanners, a national organization that provides a range of assistance to advisors of all kinds who work with LGBT families.He can reached at www.stuartarmstrong.com.

The increase in and expansion of the Medicare tax commenced January 1, 2013. The increase in the Medicare tax, as required under healthcare reform, has two significant components. The first component is an increase in the Medicare tax rate by 0.9%. This increase will be imposed on wages and self-employment income in excess of $200,000 for single persons and in excess of $250,000 for married couples filing jointly. The second component applies a new 3.8% Medicare tax to “Net Investment Income” when modified adjusted gross income is in excess of the $200,000 and $250,000 threshold amounts for single and married couples, respectively. Previously Medicare taxes only applied to wages and self-employment income and never to investment income.

There are lots of discussions coming out of Washington about simplifying the tax code. While, this sounds wonderful, the realities are the opposite. Beginning January 1, 2013 the tax code became significantly more complicated with these new taxes. The federal tax code already required taxpayers to go through two layers of tax computation, the regular income tax and the Alternative Minimum Tax. Calculating the Medicare tax on net investment income is an entirely new calculation that will be required by taxpayers. The IRS's proposed regulations related to this new tax exceed 140 pages. Include state income tax regimes, and many taxpayers will now have to calculate their income tax obligation under four separate regimes to determine their annual income tax liability. This certainly does not sound simple to me.

Some thoughts on the increase in the Medicare tax rate to wages:

• The highest marginal Medicare tax rate will be 2.35%, or 3.8% for self-employed persons.

• For married couples, wages are combined to determine if the additional surcharge is applied. For example, if a husband makes $175,000 and a wife makes $100,000, the additional Medicare surcharge will apply to $25,000 of the wages.

• Employers are required to withhold the additional 0.9% from an employee’s payroll when said employee’s salary exceeds $200,000. The employer does not have to determine wages earned by the employee’s spouse or from other jobs that the employee may have. As such, the tax witholdings will not likely match the amount of tax due. This may require taxpayers to make estimated tax payments.

• There is no additional payroll tax being assessed against the employer. All of the additional Medicare taxes under the law are paid by the employee.

• The new Medicare tax will not be reduced by one-half for self-employed persons.

• The wage thresholds of $200,000 and $250,000 are not inflation adjusted. As such, this law will apply to more and more taxpayers over the years.

• The tax revenue generated by the tax will be sent to the general fund, not to the Medicare trust fund.

Some thoughts on the application of 3.8% Medicare tax that applies to net investment income:

• The tax applies to the lesser of the taxpayer's net investment income or the excess of the taxpayers modified adjusted gross income over the threshold of $200,000 and $250,000, respectively. As an example, if a taxpayer has wages of $300,000 and interest income of $10,000, the Medicare tax will apply to the $10,000 of investment income.

• Net investment income includes income from interest, dividends, royalties, rents , annuities, income from a business that is a passive activity.

• Gains from the sale of property are included in the calculation of net investment income, unless the property was held by the taxpayer in a business where he or she materially participated. As such, capital gains from a brokerage account will likely be subject to the Medicare tax, but capital gains from the sale of a small business that you owned would not be subject to the Medicare tax.

• One of the few exceptions to the Medicare tax on net investment income will be on S-Corporation income, where the taxpayer has “active” participation. It appears that the IRS is taking the position that these earnings will NOT be included in the calculation of net investment income. Consequently, they will escape both self-employment taxes as well as the Medicare tax on net investment income. (Note this is not the S corporation owners wages, but the profits / dividends allocated to the partner on the form K-1.)

• Tax free municipal bond interest will not be included in the calculation of net investment income. With the new maximum tax rate at 39.6% and the additional 3.8% Medicare charge on top of that, these instruments have even greater benefits to high income tax payers.

• Income from all types of traditional tax qualified retirement plans will not be included in the calculation of net investment income and thus not be subject to the tax.

As it currently stands, much of the regulations from the IRS are still in draft format. So the rule writing process is still fluid. Additionally, there will be positions taken by the IRS that will be challenged in the court systems.

Small business owners have many concerns, not least of which is retirement benefits for themselves and their employees. Many employers offer a 401(k) plan to their employees to help address retirement needs. While many small business owners take advantage of the deferred compensation available to them under the 401(k) plan, there are ways to increase the benefit and value of these plans.

While employee contributions are limited to $17,500 for 2013, the annual tax deferral limit is $51,000 ($56,500 for those over age 50). The tax deferral limit is the maximum amount that can be contributed to an individuals 401(k) account in a single year, it combines both the employee’s contribution as well as the employer’s contribution. As an example, a small business owner might contribute the full $17,500 deferral available to herself in a year under the 401(k) rules. In addition, the business makes a profit sharing contribution of $33,500 to the owners account, for a maximum contribution to the business owner of $51,000. This is obviously a tidy sum to receive.

For small business owners looking to maximize their savings and minimize their taxes, utilizing a profit sharing option in a 401(k) plan can be a very good decision. Here are some of the benefits for small business owners:

- Employee contributions to the plan are not taxed by the federal and most state governments until they are distributed (usually at retirement age).

- Employer profit sharing contributions are an allowable business deduction. Contributions to the plan are not taxed until they are distributed.

- The small business owner can defer up to $51,000 to his / her 401(k) account in a single year. Significantly more than if they just maximize the $17,500 employee contribution limit.

- Flexibility – The profit sharing contribution is discretionary and can vary by year. If the business has a difficult year, the profit sharing contribution can be reduced.

- Attract employees – A well designed and funded profit sharing plan can help attract great employees.

- Administration and costs are generally low.

There are several different types of profit sharing plans. The one I see the most is called a New Comparability Plan. A new comparability plan is a profit sharing plan that divides employees into groups. A simple division between groups might be an owner group and a non-owner group. Each group receives a profit sharing contribution match based on a percentage of compensation. However, the match percentage for each group does not have to be the same. As such, profit sharing contributions can be allocated significantly in favor of the small business owner.

As an example, the non-owner group might receive a contribution based on 1.5% of their salary and the owner group might receive a contribution based on 4.5% of their salary. If there is one employee in the non-owner group and their compensation is $40,000, the company will make a profit sharing contribution of $600 to the non-owner. If the owner’s compensation is $100,000, the company makes a profit sharing contribution of $4,500. So for a total cost of $5,100,which is fully tax deductible, the owner will receive $4,500 into her account. The goal for a small business owner might be to reach the annual tax deferral limit of $51,000 in a given year. Deferring this amount of income annually will save significant tax dollars and should create significant long term wealth for the small business owners.

There are some restrictions, including discrimination testing. However, most of these restrictions can be overcome by contributing 5% to the employees’ accounts, then the small business owner should be able to defer the full $51,000 for herself. Additionally, you will need to engage someone experienced in creating these types of plans, which has an administration cost. However, for many small business owners, the tax benefits can be substantial.

One of my all around favorite books relating to money matters is Rich Dad’s Guide to Investing by Robert Kiyosaki. I was expecting this book to be something similar to Benjamin Graham’s Security Analysis, an in depth discussion of what to look for in buying stocks. However, the book is not so much about investing as it is about the investor. And it was filled with good ideas that were novel to me.

The concept that most stuck in my mind was how Mr. Kiyosaki measured wealth. He teaches that wealth should not necessarily be measured in units of dollars, but in units of time. This measure of time looks at how long your assets can carry you, without the need to work. In other words, if you stopped working today, how long could you survive financially with the assets that you have?

To determine this, you need to do a little work and create both a budget of your monthly expenditures as well as determine your net assets (value of what you own versus what you owe). Say your household expenditures are $4,000 per month and you have net assets that total $12,000. If you quit your job today, your assets could carry you for about three months, before significant financial hardship set in. Your wealth measure would be 90 days as you could survive that long under your existing lifestyle without working.

The “work” that Mr. Kiyosaki encourages is increasing ones portfolio and passive income. Portfolio income includes things such as interest and dividends. Passive income includes things such as rental income or royalties. Mr. Kiyosaki believes that you should spend some of your time trying to increase these types of income. Let’s say you are successful and after ten years, you can generate $5,000 per month in net rental income and still have only $4,000 per month in living expenses. In this case your wealth number is infinite. You could expect to be able to continue your lifestyle in perpetuity without the need to show up at the office ever again.

A good definition of financial independence might be when your assets generate more income that your household expenses consume. You no longer have to work for money, because your money works for you.

The tax code is ever evolving and 2013 will be no different for taxpayers. The following are some key facts and changes to the tax code for the upcoming year:

• There are seven income brackets; 10%, 15%, 25%, 28%, 33%, 35% and 39.6% individual tax rates for 2013.

• Standard deductions were increased to $12,200 for those married filing jointly, $8,950 for those filing as head of household, and $6,100 for those filing as single.

• The personal exemption amount has been raised to $3,900.

• The top estate tax rate is 40% with a estate tax exemption of $5.25 million.

• Section 179 deduction is up to $500,000 for capital assets acquired in 2013.

• 50% bonus depreciation is allowed for qualified assets placed in service through the end of 2013.

• An individual can contribute up to $17,500 to their 401(k) plan for 2013.

• The tax on capital gains and qualified dividends is 0% for those in the 15% income tax bracket or below, 15% for those in the 25%, 28% 33% and 35% income tax brackets and 20% for those in the 39.6% bracket.

• Required minimum distributions must begin in the year a participant turns 70 1/2.

• The IRA contribution limit increased to $5,500 or $6,500 if the participant is 50 or older.

• The social security taxable wage limit was increased to $113,700 this year from $110,100 for last year. Also changed, retirees under full retirement age now can earn up to $15,120 without losing benefits.

• The employee OASDI (Social Security) tax rate reverted back to 6.2%. Also, the OASDI tax rate under SECA (self-employment tax) reverted back to at 12.4% .

• Mileage rates for business and medical were increased to $0.565 and $0.24 respectively. The mileage rate for charity remains the same at $0.14.

For those of you who forgot a Valentine’s Day present for their significant other, I have taken care of it for you. I prepared a reference guide, the 2013 Tax Facts at a Glance, which highlights important tax rates and deductions for businesses and individuals. (If you want a laminated copy for your loved one, shoot me an email with your address and I can mail you one. I have about 50 leftovers.)

It’s the first big shopping event since the holidays, and Presidents’ Day is a great time to take advantage of all the big sales out there.

Personal finance analyst Jessica Patel, of Bankrate.com, said this is the perfect time to shop for bedding, mattresses, and linens, as well as winter apparel and even some furniture.

“The main tip I would offer is don’t overspend around Presidents’ Day just because there are sales going on,” she said. “Stick to things that are going to be on sale and known to be on sale.”

Jewelry is one thing that people will have trouble finding good deals on, Patel said. But although Valentine’s Day is over and sale signs will be posted, she explained that jewelry prices likely won’t drop drastically.

Patel said that if you are working on paying off debt from holiday purchases and don’t really need the things listed above, staying home might be the best option for you.

“Unless you desperately need new sheets or a new mattress I would shy away from going out to the stores,” she said. “There will be another sale coming up in a couple of months.”

But if you are venturing out for a certain product, remember to do some comparison shopping online before hitting the store.

The biggest downside to shopping online for linens is that you lose the chance to feel the material before buying it, she added.

And although there won’t be the mass hysteria that you see surrounding Black Friday or other big shopping days, Patel recommends doing your shopping earlier in the day to ensure the products you want will be in stock.

The last thing to remember is that if you have specific stores you plan to visit, make sure its sales are going on throughout the weekend, and not just on Monday.

What’s the number one thing on your Presidents’ Day shopping list?

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Governor Patrick has come out with a series of proposed tax increases. These increases will cover a wide spectrum of the Massachusetts tax base. There are some offsets, mostly the reduction on the state sales tax to 4.5% and an increase to the . However, the overall effect would increase the overall tax burden of residence and businesses of the Commonwealth by about $2 billion. Here are the tax increase proposals that will impact most tax payers in the Commonwealth.

Individual Tax Increases:

Individual income tax rate – The Governor proposed a 19% increase in the Massachusetts individual income tax rate from 5.25% to 6.25%.

Cigarette excise tax - Increase the state tax on cigarettes from $2.51 to $3.51 per pack, a 40% increase. This would raise $166 million per year. The increase also applies to smokeless tobacco products. Sales tax will continue to be assessed on the excise tax.

Expand sales tax – This one has been on the Governor’s agenda for a couple of years. He is proposing to expand the sales tax to apply to candy and soda. According to estimates, this would raise $53 million of additional sales tax.

Expand bottle redemption to bottled water and sports drinks – This is a tax although the Governor might not call it one. Since many residents discard their bottles without receiving their deposit back, it is effectively a tax. Yes, one can choose to return the bottles and cans, but only if they have nothing better to do on a Saturday afternoon, plus what is the cost of the gasoline to get to and from the bottle redemption center. In my hometown and most towns throughout the Commonwealth, there is curbside recycling. Most water bottles are recycled in this manner.

Raise gasoline tax – This adds a half cent to the gas tax and increases it annually by inflation. The crafty thing about this is that it allows the tax on gasoline to increase in perpetuity without any further votes by legislators. There is a reason this tax has not been raised for 20 something years, it is generally unpopular and legislators do not want to vote on it.

Raise tolls – This proposal would raise turnpike tunnel and bridge tolls by 5% every two years. See above on automatic increases without legislative votes needed. In addition, the Governor has requested tolls be reinstated on the Western part of the Turnpike.

Increase registry fees by 10% every five years. See above regarding automatic tax increases .

Elimination of Tax Deductions: There are 45 deductions or exemptions proposed for elimination by the Governor, each is effectively a tax increase. Here are the ones that will impact the most Massachusetts taxpayers. (Note – in cases where I have suggested the potential tax increase, it is assuming the higher proposed income tax rate of 6.25%. There would also be some potential offset to this by increasing the standard deduction, which has also been proposed.)

Repeal of exemption on capital gains on home sales – This one can really hit some people hard. Currently, Massachusetts conforms with the federal tax law in exempting up to $500,000 in capital gains on the sale of one’s primary residence. Governor Patrick has proposed eliminating this exemption. If you have been in a home for say 30 years or more, and your home has increased substantially in value, you could effectively see a new $30K tax liability on your home ($500K multiplied by the new proposed tax rate of 6.25%).

Social security and public pension deduction - Currently each taxpayer is allowed a deduction of up to $2,000 for payments made to Social Security or to a public pension plan. This has been proposed for elimination. For a dual income household, this would increase their Massachusetts income taxes by up to $250. Does any think it is unfair that the state is taxing monies that are being impounded by the federal government as Social Security taxes?

Dependents under age 12 – The current law allows for a deduction of $3,600 for each dependent in a household under the age of 12, to a maximum of two dependents, or $7,200. The Governor has proposed to eliminate this deduction. This will impact about 500,000 tax filers. A family with two qualifying dependents will pay up to $450 of additional taxes to the state.

Childcare expense deduction – Currently taxpayers are allowed a deduction of up to a maximum of $9,600 for employment related child care expenses, i.e. day care expenses. This is proposed for elimination. Additional Massachusetts income tax on families with two or more children in daycare would be up to $600.

Personal exemption – The parents of full time students 19 years and older currently receive a $1,000 deduction so long as that student is considered a dependent. The Governor has proposed elimination of this deduction. The increased state income tax per family would be $62.50 for each qualifying dependent.

Tuition deduction – Currently taxpayers can deduct tuition payments made toward a two or four year degree, to the extent those payments exceed 25% of adjusted gross income. This is proposed for elimination and will impact an estimated 255,000 taxpayers.

Employer education programs – Certain employers reimburse employees for undergraduate and graduate education tuition. Massachusetts currently allows up to $5,250 of this on a tax free basis to the recipient. The Governor has proposed eliminating this exemption such that all tuition reimbursements will be taxable to the employee. The Governor often talks about investing in education, but wants to tax tuition reimbursement made to employees looking to invest in themselves.

MBTA Passes – Currently employers can provide MBTA passes to employees and pay for parking and certain other commuting expenses without this being reported as income to their employees. The Governor has proposed that these benefits will be reported as income to the employees.

Group life insurance – Certain employers in Massachusetts provide group life insurance benefits to their employees. Under current law, the value of this benefit is not taxed to the recipient. The Governor has proposed that these benefits be taxable income to the employee. My suspicion is that some employers might start eliminating group insurance benefits, commuting reimbursements and employer education programs. This suspicion is not so much for the taxability issue, but because they will have the additional administrative burden of reporting these benefits on an employees’ W-2.

Health Savings Accounts - Currently individuals can deduct payments of $3,100, $6,250 for families, on payments made to a health savings account. The Governor has proposed eliminating this tax deduction. This would could cost a family up to $391 in additional state taxes.

Commuter deduction – The state currently allows a deduction up to $750 for Mass Turnpike tolls or MBTA monthly passes. This has been proposed for elimination and could cost some up to $47 in additional taxes. So someone on the Mass Turnpike corridor that commutes to Boston pays a significant amount in tolls, which is effectively a tax for which no deduction will be allowed.

Corporate tax increases:
There are various tax increases proposed on corporations. All are a bit complicated, but will raise about $500 million in additional tax revenue. One of the proposals expands the sales tax to customized computer software. This will generate some $265 million of additional tax revenue. Also, the Governor proposed repealing the FAS 109 deduction, which would bring in $76 million per year. There is also a proposal to change the apportionment rule relating to services, which would raise $35 million. Finally, a limit on the film credit will raise an estimated $40 million.

The recently passed American Taxpayer Relief Act of 2012 and the health care reform law which was passed back in March 2010 have various tax increases on upper income earners. These tax increases are all effective in the 2013 tax year. The five major tax increases are an increase in the Medicare tax by 0.9%, applying a 3.8% Medicare levy to net investment income, reinstatement of phase outs for itemized deductions and personal exemptions, an increase of the dividend and capital gains rate to 20%, and an increase to the top income tax bracket to 39.6%.

To add confusion, many of these additional new tax schemes become effective at different income levels. The following graph.pdf and discussion lays out the tax and the income level which it kicks in.

0.9% Medicare surtax on wages – This is a product of the healthcare reform law. It increases the Medicare tax imposed on wages by 0.9%. It applies to wages in excess of $250,000 for married couples. It applies to wages in excess of $200,000 for single filers. One should note that this applies to wages and not other forms of income. (Unfortunately, most other forms of income are addressed in the next bullet.)

3.8% Medicare tax applied to net income – Medicare taxes have historically only been assessed against wages. Effective January 1, 2013, Medicare taxes will now apply to one’s net investment income at a rate of 3.8%. Investment income includes: interest, dividends, capital gains, rental income, royalty income, and passive activity businesses. The tax is assessed on joint filers with a modified adjusted gross income (MAGI) over $250,000. For single filers it is assessed with a MAGI over $200,000.

Phase out of itemized deductions and personal exemptions – The phase out rules have been reinstated. For a married couple, these rules reduce the amount of otherwise allowable itemized deductions by 3% of adjusted gross income (AGI) in excess of $300,000. As an example, if a married couple has AGI of $400,000 they will lose $3,000 of their otherwise allowable itemized deductions. For single taxpayers the phase out rules become effective on AGI in excess of $250,000.

Personally exemptions are also subject to phase out rules beginning in the tax year 2013. Under these rules, the exemption that can be taken by a married couple is reduced by 2 percent for each $2,500 in which AGI exceeds $300,000. As an example, if a married couple earns $325,000, their exemption would be reduced by 20 percent. At $425,000, their personal exemptions is fully phased out and the couple receives no benefit. For a single person, the phase out of exemptions kick in at $250,000.

Increase in qualifying dividend and capital gains tax rate – Qualifying dividends and capital gains will be taxed at a rate of 20% on income in excess of $450,000 for joint filers, $400,000 for single filers. This is an increase from the previous 15% tax rate previously applied to this income. Combine this increase with the 3.8% Medicare tax on net investment income noted above, and certain upper income earners might see a 59% increase on taxes relating to this type of income; from 15% to 23.8%.

Increase in the federal income tax rate – As often discussed, an increased top federal income tax bracket of 39.6% has been added. This will apply to taxable income earned in excess of $450,000 for married couples and $400,000 for single filers.

Governor Patrick is also looking to increase the Massachusetts income tax to 6.25%, and reduce a series of tax deductions. This is still to be determined, but you can be sure that state tax increases are on the horizon.

Deborah Levenson, vice president of financial planning at Braver Wealth Management LLC, will take your questions live Tuesday, Jan. 29 at noon.

Deborah Levenson is vice president of financial planning at Braver Wealth Management LLC. She will be hosting a live Boston.com chat on Tuesday, Jan. 29 at noon.
January is a great time of year to put your financial life in order. It is often a busy time for financial planners, as many consumers reach out for help in getting organized and planning for the future. Here are five signs that you may need to seek professional help with your financial life:

1. You are counting the days until you can retire.
Can you really afford to retire and then live for another 30-40 years? Often it is difficult to know whether you are truly “safe” or just feeling optimistic.

A financial planner can help clarify where you stand by running realistic long-term financial projections. This will help you to clearly see whether you are on track to live the type of retirement lifestyle you are seeking or not. A planner can evaluate the impact of your working longer, if necessary, and can identify specific steps you can take between now and your target retirement date to improve your odds of retiring safely and securely.

2. Your life is changing.
If you recently were married or divorced, lost a loved one or brought a child into the world, then now is the time to pay attention to your finances. Decisions around buying life insurance to protect a new child, creating a post-divorce budget, or determining how to invest a recent inheritance are all areas where a good planner can provide real clarity and helpful next steps.

3. You can’t sleep at night due to worry about your investments.
The financial meltdown in 2008 left many investors unsettled. Even though the markets have come back strongly since then, many individuals have remained on the sidelines in cash. Working with a planner to understand your true risk tolerance and to design a prudent plan for getting back on track with your investing can help you reach your long-term goals.

4. You risk divorce if you can’t get on the same page as your spouse.
Couples often have trouble seeing eye to eye on decisions around spending versus saving -- experiencing short-term pleasure (i.e. an exotic vacation) or delaying gratification for long-term rewards (i.e. living more simply now to facilitate a more comfortable retirement). Finding a diplomatic planner who can listen to you both and then facilitate your collaboration around current and future financial decisions can definitely improve the quality of your relationship and home life.

5. You are taking financial advice from your hairstylist.
Watch out for hot tips and “can’t lose” investment propositions. Investing always involves some level of risk and different people should approach investing from different perspectives. Be careful about acting on any financial advice offered by someone who does not know your full picture. They probably mean well, but do they really understand your tax situation, your current cash flow needs and your long-term goals?

Working with a financial planner allows you to build a smart long-term saving, spending and investment plan that is customized to your specific situation and can be modified over time as your life circumstances change.

Besides an update in the 1970s, the state's antiquated alimony law dated back to the 16th century. That changed with a reform to the law last year, which was due in large part to Steve Hitner, the president and co-founder of the organization Mass Alimony Reform. Take a look at what's different.

Hitner will take your questions live on Friday, Jan. 11 at 2 p.m.

Yesterday, the US House of Representatives passed the “American Taxpayer Relief Act of 2012”, which is set to be signed by the President shortly. The bill’s volume of tax extensions is pretty extreme. It extends nine individual tax breaks, 31 business tax breaks, 12 energy tax breaks, as well as partially extending the current tax brackets. Much has already been written about the bill’s impact on individual tax rates. So here are the items most pertinent to Massachusetts businesses and small business owners:

Business Tax Extenders

Section 301 - Extension and modification of research credit – The research credit has been extended for two years, retroactively to January 1, 2012 and through December 31, 2013.

Section 308 – Extension of wage credit for employers who are active duty members of the uniformed services – This tax credit is provided to small business that provide wage payments to active duty members of the armed services. This credit has been extended through December 31, 2013.

Section 309 – Extension of work opportunity tax credit – The work opportunity tax credit is available to business that pay wages to a targeted group. The credit is available for wages paid in the first and second year of employment. There are various targeted groups, but the largest pool are qualified veterans of the armed services. This has been extended through December 31, 2013.

Section 311 - Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements - This creates a 15 year depreciation life for certain property. It has been extended for two years, retroactively from January 1, 2012 through December 31, 2013.

Section 315 – Section 179 increased expensing limitation – Businesses can deduct the cost of equipment placed in service under what is known as Section 179 deduction. This deduction was set at $139,000 in 2012 and $25,000 in 2013. This has been retroactively increased to $500,000 for 2012 and set at $500,000 for 2013. It is scheduled to revert to $25,000 in 2014.

Section 324 – Extension of temporary exclusion of 100 percent of gain on certain small business stock – Under certain rules, 100% of the capital gain on the sale of small business stock can be excluded from income. Various rules apply, but the stock needs to be held for more than five years. This has been extended for stock acquired in 2013.

Section 326 - Extension of reduction in S-Corporation recognition period for built in gains tax – For businesses that convert to an S corporation, the conversion is not a taxable event. However, following this conversion, the entity must hold the assets for ten years to avoid a tax on any built in gains at the time of conversion. This period has been reduced to five years for sales that occur in either 2012 or 2013.

Section 331 - Extension and modification of bonus depreciation – Bonus depreciation of 50% has been extended through the end of 2013.

Other Pertinent Sections

Section 101 - Permanent extension and modification of the 2001 Bush tax cuts – Amongst other things, this sets the estate tax rate at 40% for individual estates greater than $5 million. The gift tax exemption is also set at $5 million.

Section 102 - Permanent extension and modification of the 2003 Bush tax cuts - It extends the 15% capital gains rates, with an increase to 20% for upper income earners.

Section 103 – Extends of the 2009 Tax Relief – This extends for a period of 5 years the American Opportunity Tax Credit. This is a $2,500 tax credit on qualifying college tuition payments.

Section 104 – Permanent Alternative Minimum Tax (AMT) Relief – This permanently increases the AMT exemption to $78,750 from $45,000, then indexes the exemption to inflation. This is retroactive to the 2012 tax year. The increase in the exemption prevents many from falling under the AMT.

Time is running out in Washington for the country to avoid the fiscal cliff. If that happens, 8 or 9 percent budget cuts would hit the majority of the federal government and could throw the country back into a recession.

So what do you do?

We talked with J. Christopher Boyd, a leader in the Financial Planning Association of Massachusetts and the founder and chief investment officer of Asset Management Resources, LLC. He is a contributor to Boston.com’s Managing Your Money blog and the host of a financial radio show on WXTK 95.1

First things first, he said, “Don’t lose your head. It’s most likely that there will be some legislation after the New Year that will discount some of the tax increases.”
But it is unclear how long it will take for that legislation to go into place.

So Boyd advises people to revisit their W-4 document.

“Most people that work are going to have an increase e in payroll tax,” he said. “Make sure you’re not paying too much.”

He said that capital gains rates and dividends will both see increased rates, so “consider where you hold which investments.”

If a deal is not reached and the economy heads back into a recession an estimated 3.4 million people are expected to lose their jobs. With that in mind, it is a good idea to build up your savings, Boyd said.

Lastly, “You’ve got to be attentive to what’s going on,” he said. “It could affect your whole financial plan.”

But even with the fear of another recession, Boyd said that going through your finances around the new year is a good practice to be in the habit of anyways.

“It’s a good time to take a fresh look at what’s coming next year,” he said.

J. Christopher Boyd, a leader in the Financial Planning Association of Massachusetts, will take your questions live Friday, Dec. 21 at 1 p.m.

J. Christopher Boyd, CFP (Chris) is a leader in the Financial Planning Association of Massachusetts and host of a financial radio show on WXTK 95.1. He will be hosting a live Boston.com chat on Friday, Dec. 21 at 1 p.m.

With only 17 days until next year, the potential realities of the “fiscal cliff” are coming more clearly into focus. The bottom line, should we actually land in next year with no deal to avert the fiscal cliff, is a jump in taxes for many and reduction in the rate of government spending.

The prospective divergent implications on the US economy are pronounced. If we go over the cliff and there is no subsequent deal, a recession is expected by the Congressional Budget Office and many economists, resulting in an estimated 2% to 3% decline in the economy. If a deal comes out of Washington, many economists expect 1% to 2% economic growth. This has a meaningful impact for jobs, income, growth of wealth, and government revenues.

Given the uncertainty of whether there will be a compromise from Washington within the next couple of weeks, what’s an investor to do?

Cliff Proof Planning:
- First, don’t lose your head about the whole thing. Keep working, keep saving, keep investing. The best way to create wealth over time is to spend less than you earn, and invest for the long-term. Keep contributing to retirement plans or some manner of systematic investment, dollar-cost-averaging monthly and using any potential market declines as a buying opportunity.

- Plan for some short-term uncertainties by maintaining a sufficient amount of cash for emergency spending, and so you won’t need to sell securities at inopportune times. By keeping these reserves, you can allow yourself to ride out the bumps with the rest of your diversified portfolio.

- Revisit your estate plan in 2013 – estate tax rates and thresholds will likely change.

- Year-end Tax Planning this year is turned upside-down. Because of anticipated higher tax rates, realize long-term capital gains this year, rather than next year when there are higher rates. Save capital losses for next year, but if there are many, offset gains with losses and carry forward losses for future use.

- Contribute to a Roth IRA instead of a taking a tax deduction in 2012 for a contribution to a Traditional IRA. This can be done in 2013 prior to tax filing in April.

- Whether to convert an IRA to a Roth IRA is more complex and subject to various considerations. Primary considerations are: do you expect to be paying a lower tax rate now while earning or later in retirement? If the answer is now, then convert to a Roth IRA. Be sure to have cash on hand to pay the taxes caused by the Roth IRA Conversion. Check with a qualified tax advisor for the best tax tips.

- Do charitable giving. Because we don’t know what, if any, limitations to deductions may come with a deal, it seems reasonable to make charitable contributions sooner rather than later, particularly for the wealthy.

- Portfolio design revisions – Consider where you hold which investments. For example, it may make sense to hold income generating assets (dividend paying stocks, corporate bonds, etc.) in your retirement accounts, so that income is not taxed unless withdrawn. Conversely, focus on growth stocks, not dividend stocks, in taxable investment accounts. Tax-free municipal bonds may take on greater appeal for those in higher tax brackets.

- Tax Deferral will become more attractive for those in their peak earning years. Life insurance and annuity products can have higher costs and the potential for long surrender charges, so use of such products should be deliberate and well informed, however, these could be useful tools to postponing or even potentially avoiding some taxation.

Are markets poised for a tumble? It seems likely that uncertainty caused by Washington’s dysfunction may result in a temporary slowdown in the economy, but it is important to keep in mind the long view. Will companies continue to be profitable, and will market prices recognize that profitability? The likely answer is “yes.” Eventually, investors will benefit by taking risk. How long before they are compensated for those risks can vary, but as we look out several years, it certainly seems likely that taking risk will be rewarded, particularly with ownership of equities. It’s okay to be a bit tactical on the edges right now, but don’t just run scared.

With only a couple weeks remaining in the year, there is much to consider with your investments and planning. Take a little time now, the long-term results could pay dividends for years.

By John Napolitano, Financial Planning Association of Massachusetts

John Napolitano is president of the Financial Planning Association of Massachusetts and chief executive of US Wealth Management. He will be hosting a live Boston.com chat on Friday, Nov. 9 at 3 p.m.

We all eventually clean out a closet or basement, and find things that you forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. Living proof of this is your home state's unclaimed property list. In my home state of Massachusetts, it is estimated that one in 10 residents has unclaimed property.

John P. Napolitano, the chief executive of US Wealth Management, will take your money questions live Friday, Nov. 9 at 3 p.m.

Every month has its share of sales and seasonal buys. What should you go for in November?

John P. Napolitano, the chief executive of US Wealth Management, will take your money questions live Tuesday, Oct. 30 at 1 p.m.

Thinking of flying for the holiday season this year? You'll probably notice higher prices, if you are. But how can you get a cheaper flight? Here are some tips from George Hobica, founder of Airfare Watchdog. Some of his tips include setting up alerts for lower fares, looking at the early morning flights, and picking Thanksgiving Day (rather than the day before). What are your airfare tips?

Relay Rides is a car-share program that puts extra money in car owners' pockets. The program lets people rent out their cars for hours or days via the company's website. Relay Rides lets people rent cars for $7 an hour, $50 a day, or $250 a week. The whole transaction is done via Relay Rides, so people renting their cars don't need to be there to take the cash. What do you think? Is this a service you'd use?

Keeping up with all the shopping discounts on the web and in your favorite stores can be a challenge. But what if you had a mini personal shopper that sits in the palm of your hand to help remind you that your favorite pair of shoes is now discounted and just a click away? Buzz 60's Priya Desai takes a look at the apps and websites to help you save some cash.