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

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.

I was recently looking through one of my wife’s magazines (obviously it was not a very exciting day in the Downey household). One of the articles I came across noted that it cost over $6,700 to raise a child in his or her first year of life. My daughter Madeline just turned one so I had a bit of knowledge on this subject. At first I thought the number was quite high, but as I started adding up the numbers, to my chagrin, I realized we had probably exceeded the $6,700 annual cost.

As first-time parents, we erred financially in many ways. However, we have learned a bit during this first year, and if the Lord blesses us with another child, we now know of a few areas where we can save some dollars. Here are some areas I think parents can save some money in the first year of a child’s life:

On June 24, 2009 President Obama signed into law the “Cash Allowance Rebate System”. This law is affectionately known as “cash for clunkers”. The program provides a US Government credit to new car buyers when they purchase a new more fuel efficient vehicle and trade in a less efficient vehicle. The program will run from July through November 1, 2009. Here are some of the details of the program:

If you are shopping for a used car and want to know more about the vehicle’s history, check out the NMVITS for a report on the vehicle’s title history and current and past condition. The National Motor Vehicle Title Information System (NMVITS) was created provided by the Department of Justice (DOJ) to provide consumers with information about a used vehicle’s condition and history. This resource can provide you with valuable information about a used vehicle before you purchase it and potentially save you a lot of money and aggravation.

The NMVTIS was created to protect consumers from fraudulent activity and from purchasing potentially unsafe or stolen vehicles. The NMVTIS reports include information about a vehicle’s title history, recent odometer reading, current and prior condition (e.g., junk, salvage, flood, etc.) and historical theft history. The information in this system is compiled from various sources including state motor vehicle titling agencies, insurance carriers, auto recyclers, junk yards and salvage businesses.

Today is the first day of Spring and I know for many of us it's been a long winter. But now the snow is (hopefully) behind us, the weather is turning milder and it's time for some rejuvenation. Here are some tips for spring-cleaning your finances:

Clean out your files: get rid of old bills, statements and other outdated documents. Keep tax returns and supporting documents for 7 years, and keep receipts or credit card statements for big ticket items that you still own. Be sure to shred anything you are discarding - never put anything with personal information on it into the trash.

Clean out your closets: take old clothes, toys and household items to a local charity: Bring canned goods to your local food pantry. If you get a receipt from the non-profit organization you can take a tax deduction for your donations.

The other day a friend forwarded me an email she had received from her friend (always a warning sign, right there). The email warned that cell phone numbers have now been released to telemarketers, and that I should call an 800 number to put my cell phone in the “Do Not Call” registry. I immediately went to www.snopes.com, a great place to check out rumors and urban legends. Sure enough, the “cell phone and telemarketers” rumor was mentioned right there on the home page. This one turns out to be pretty harmless, although some people have reported being charged a fee after calling the toll-free number. But it got me to thinking – what other ways are we being scammed, hoaxed or just nickel-and-dimed on our cell phones?

As part of this week's Spending Smart coverage on Boston.com, Andrew Chan, founder of Integrative Financial Advisors and Managing Your Money blogger, takes readers' questions today at 1 p.m.

According to the Giving USA Foundation™ charitable giving for 2007 exceeded $300 billion dollars for the first time in history despite the tough economy. Historically, a large majority of these donations occur during the last three months of the year. There are many good strategies to ensure that your donations are being made wisely and being used for your intended purpose. However, spontaneous and unplanned monetary donations can sometimes lead to giving beyond your means.

One strategy that can help to prevent this, especially during these difficult economic times, is to include your intended donations in your monthly budget. You can start by setting aside a certain amount of money each month that is earmarked for the charities that you will donate to. Once the money has been set aside you can let it accumulate and make the donation all at once or you can set up a periodic donation to the charity.

Including your charitable donations in your budget allows you to effectively treat it as a planned monthly expense. It spreads out the impact of giving over the entire year rather than just during the holiday season. This gives you better control over the timing and amounts of your donations while still letting you accomplish your charitable intentions. Regardless of the method you choose, you should make sure you still keep good records in order to receive the tax benefits for making those gifts.

Keep in mind that monetary gifts are usually best for charities because it allows them the most flexibility to accomplish their goals but donations of non-monetary items such as goods, services or your time are also excellent ways to give back.

Happy Thanksgiving!

The Christmas season is fast approaching. It's the busiest shopping time of the year and as you step up to the check-out counter, get ready for the inevitable offer to open a store credit card. The offers may be very tempting this year - as much as 25 percent off your first purchase. But a close look at the terms and conditions of the card may make you say "no, no no" instead of "ho, ho ho."

Be sure to take a few minutes to read the fine print before signing the account application. Step out of line if you have to - don't be pressured to act quickly. Look for annual fees - if you're saving $25 today on your $100 purchase, but will have to pay a $50 annual card fee, then you're not saving anything. Also take note of the annual percentage rate, which is often higher than 20 percent. You could end up with hefty finance charges if you are not able to pay off the card balance within the billing period.

Finally remember that too many credit cards can hurt your credit score. Stick with a few cards that you can use everywhere, give you rewards you can use and have reasonable interest rates.

It's that time of the year again -- time to start seriously thinking about how much you will spend on health care and dependent care expenses in 2009.

"Open Season" will be starting soon and that is the time period towards the end of the year when employers ask employees if they want to participate in flexible spending accounts. I am a huge fan of this employer benefit and it is always disappointing to learn that, on average, only a third of eligible employees sign up when such a plan is offered.

With flexible spending accounts, you can deposit pre-tax money in account that can be used to pay for out-of-pocket healthcare and chilcare expenses. Maximum contribution amounts can vary by employer but most permit contributions of $2,500 to $5,000.

If you are in the 33 percent tax bracket and you contribute $5,000 to a flexible spending account, you will save $1,650 in federal taxes. So, if you are considering laser eye surgery some time in 2009, consider paying for it using a flexible spending account -- its like getting a discount equal to your marginal tax bracket.

The "catch" is that you have to be very careful in estimating your 2009 expensense. You lose any money that you don't spend by December 31, 2009 ( or March 15, 2010 in some plans).

If you heat your home with oil like I do, now might be the time to look into a rate lock plan with your oil provider. Oil prices fell yesterday to their lowest level this year. Demand is dwindling and supply is increasing.

Prices for home heating oil are now at or close to $3.00 per gallon if you belong to one of the mass buying agencies like MassEnergy. That is more than a dollar less per gallon than the price in May, June and July of this year.

It is important to note that this is the "daily" rate, meaning that this rate will fluctuate during the heating season. The price could be $3 now, but $4 or more in just a few weeks or months. If you want to lock in a fixed price for the winter, you will probably have to pay more than this rate, probably something like $3.30 to $3.45, but then your rate will be guaranteed for a fixed number of gallons. Of course, it is also possible that prices will continue to fall. You never know. However, I do remember thinking that the $2.59 price I locked in last winter was outrageously high and now I only wish I could find a rate that low. My plan is usually to lock in a fixed number of gallons that will get me through the winter and then float to the market rate for the deliveries that will occur in the late Spring.

Checkout this website to compare oil prices in our region and visit this website to learn more about the MassEnergy program.

How many old gift cards are you carrying around in your wallet? And how many are at the back of the drawer in your kitchen? If you are like most people, you probably have a decent number of gift cards hanging around and, while you expect to use them some day, you never seem to get around to it.

But did you know that if a retailer enters bankruptcy proceedings, they probably don't have to honor your gift card even if the store is still open? It might surprise you to know that bankruptcy courts consider gift cards to be loans to the company. If a merchant wants to be able to honor gift cards while it is in bankruptcy proceedings, it has to petition the court to allow such an action. Shoppers can lose the value of the card if the merchant doesn't make the request or if the court denies the request.

Fortunately, these rules might be changing. The Consumers Union filed a petition last week with the Federal Trade Commission to require retailers to honor gift cards as long as the store is still open. For more information on this effort, check out this article in The Baltimore Sun.

The take-away from this story? Get out there and start spending those gift cards. You never know when a company might declare bankruptcy. The Sharper Image and Linens and Things are two high profile retailers who recently declared bankruptcy.

There is a lot of ground to cover with Flexible Spending Accounts (FSAs) so I have decided to make a two-part entry. Yesterday, I talked about how FSAs in general terms. Today, we tackle some specifics.

First, you would probably be surprised to learn how many things are considered eligible health care expenses. There are the usual expenses that everyone would expect to be covered, like office visit co-payments and glasses/contact lenses, but it might surprise you to know that the following are also eligible medical expenses:

Acupuncture
Dentures
Braille Books and Magazines
Chiropractor Expenses
Guide Dogs for the Blind
Hearing Aids
In-Vitro Fertilization
Laser Eye Surgery
Orthodontia, and
Smoking Cessation Programs

Examples of expenses that would not be covered would be:

Cosmetic Surgery
Health Club Dues, and
Teeth Whitening

Dependent Care FSAs would cover childcare expenses for children under the age of 13. In certain circumstances, expenses for older children would also be covered but generally the child would have to live with you and be incapable of self-care.

For a full list of eligible expenses, check out IRS Publication 502 and remember that your employer may omit some of the items on the list.

To participate in your company's FSA, you must enroll within 60 days of your date of hire, within 60 days of a qualifying event (usually a marriage, birth, divorce or loss of a spouse's insurance coverage), or during Open Enrollment (which typically occurs in October or November of each calendar year.)

Your annual election amount is taken evenly from each paycheck you will receive over the year and contributions automatically terminate when you end your employment. It is also important to note that coverage for qualifying expenses ends the month that your last contribution is made so you would be in trouble if you quit and then had your laser eye surgery the following month.

It is critically important that you very accurately predict your medical and dependent care expenses. This can be difficult because you are projecting into a future year and circumstances can change. However, you don't want to over-conribute to these types of accounts because you must forfeit any funds not used for valid expenses. Some plans offer a "grace period" and allow you incur eligible expenses through March 15th of the year after you elect coverage. Check with your benefits department for more details.

If you are thinking of contributing to an FSA for the first time, keep your eyes open since Open Enrollment could start in just a few weeks at your company. If you are already contributing to an FSA in 2008, now is the time to re-examine your expenses and make sure your spending is on target -- you don't want to find yourself short on eligible expenses at the end of the plan period.

From an investment standpoint is it better to put $3,000 in a flex account to cover my medical/child care or put the $3,000 in a tax deferred 401 plan? If I put it in the flex, I will save $900 in income taxes, but I don't know how to figure if that is really the way to go. Thank you.

I actually don't think this is an either/or question. You would only consider allocating $3,000 to a medical and/or dependent care flexible spending account (FSA) if you knew that you would have medical or childcare expenses that total at least $3,000. If it is a "given" that you have those costs, you will be paying $3,000 in expenses one way or the other. If you can use before tax dollars to cover the expenses by paying for them using an FSA, that is a pretty good deal because you will be getting a "discount".

Your question suggests that you might have $3,000 "extra" to invest. Contributing that amount to your traditional 401(k) would be great and doing so would reduce your taxable income by $3,000 -- just like contributing $3,000 to your FSAs. In addition, the $3,000 contributed to your 401(k) will grow tax deferred for many, many years

FSAs are a great employee benefit and nearly everyone who is eligible should consider participating. In a nutshell, FSAs are tax advantaged programs offered by employers that allow employees to pay eligible medical and childcare expenses using pre-tax dollars.

When you use an FSA to pay for these types of expenses, it is like getting a free discount on expenses you would be paying anyway. The discount is equal to the tax you would have otherwise paid on the money you contributed to the FSAs.

In this example, the person's taxable income is reduced by $3,000 and the "discount" they capture is equal to the tax they would have paid on that $3,000. The exact savings will vary from person to person depending on their marginal tax rate.

You can use a medical flexible spending account to get reimbursed for eligible medical expenses and you can use a dependent care flexible spending account to get reimbursed for qualified childcare expenses for children under the age of 13.

There are no statutory limits on contributions to medical flexible spending accounts, but employers often impose their own limits of $3,000 or $5,000. The limits for dependent care flexible spending accounts are $5,000.

These accounts really are worth the added headache of the associated paperwork. For example, have you ever considered laser eye surgery? This procedure can cost as much as $5,000 and it is not generally covered by insurance. If you can plan ahead and allocate $5,000 to your medical FSA, you can "save" $1,650 on this procedure if you are in the 33% marginal tax bracket. That's probably worth the cost of submitting the required reimbursement forms.

Volkswagen is introducing a new minivan to the US market next month and it is also introducing a fairly innovative incentive. If you purchase or lease a Routan minivan by August 31, 2008 and take delivery by November 30, 2008, Volkswagen will deposit $1,500 into an account held by its partner in this effort, Upromise. Money deposited into the Upromise account can then be moved into a Section 529 college savings fund. The cost of the brand new Routan ranges from $24,700 for the S model to $38,400 for the SEL. For more information on this offer, you can visit the Upromise website.

Volkwagen reports that 6,000 people have signed up for the offer so far, but is this really a great deal? Maybe, maybe not. Oftentimes, when dealers are running special promotions like this, they are less willing to "deal" on the price of the car. So, you might get a $1,500 contribution to a 529 plan but maybe if they weren't running a special, you would have been able to pay $1,500 less for the car simply by being an aggressive negotiator. You are probably still coming out a little bit ahead with promotions like these (and the ability to negotiate well) but you probably aren't really getting a $1,500 windfall.

That being said, are there really any "no brainer" ways to grab free cash for college? The Upromise program is probably as close as you will come. Upromise has been around for about 7 years and it has more than 8 million members. The company reports that its members have earned over $425 million in member rewards. Membership is free and you earn credits by shopping at grocery stores, drug stores, gas stations, and restaurants that are part of the Upromise network.

I also like the credit cards that credit a percentage of everything you charge to a 529 account. My favorite is the Fidelity 529 College Rewards Card. 1.5 percent of everything charged on this card gets credited to a Fidelity-managed 529 account. There is an annual maximum reward contribution of $1,500 but you would have to charge over $100,000 per year in order to bump into that limit. Grandparents and other relatives can also get their own cards and their credits can be directed to your child's 529 account. If you pay off your credit card bill each month, this could be a good card for you. With college costs rising so rapidly, every little bit helps.