If you converted IRA to Roth in '08, you can still save on taxes

If you converted your individual retirement account to a Roth last year, you probably feel like someone who got married during a weekend in Vegas. It seemed like a good idea at the time, but now you're having serious second thoughts.

When you convert to a Roth, you're required to pay taxes on all pretax contributions and gains. The taxes are based on the value of your IRA at the time of the conversion. That makes an IRA conversion a smart move in a bear market — unless the market continues to plummet after you convert. When that happens, you could end up paying taxes on money you no longer possess.

For example, suppose you converted an IRA valued at $100,000 last spring. On April 15, you'll owe taxes on $100,000, even if your Roth is now worth less than half that amount.

Fortunately, reversing an ill-timed IRA conversion is a lot easier — and less expensive — than getting out of a madcap marriage.

You can undo the damage by "recharacterizing" your Roth. That process turns your Roth back into a traditional IRA, wiping out your tax bill.

If you don't think you can get the job done by Wednesday, you can buy yourself some time by filing for a six-month extension to file your 2008 tax return, says Barry Picker, an accountant and financial planner in Brooklyn, N.Y. After you recharacterize, you can file your tax return, and you won't owe taxes on the conversion, he says.

Just make sure you recharacterize by Oct. 15, which is the deadline for reversing IRAs converted in 2008. Otherwise, you'll be subject to steep penalties.

Back to the future

Recharacterizing doesn't mean you have to abandon your quest to convert your IRA to a Roth. If you recharacterize an IRA you converted last year, you can convert back to a Roth once 30 days have elapsed, says Ed Slott, an IRA expert and certified public accountant in Rockville Centre, N.Y.

Converting your IRA back to a Roth is a smart move, Slott says. Tax rates are likely to rise in the future, he says, so converting now will allow you to take advantage of current tax rates.

Once you convert to a Roth, withdrawals are tax-free, as long as you're at least 59½ and have owned the Roth for five years or more. "If the market comes back and values go way up, all of those gains will be tax-free forever," Slott says.

And converting now — or reconverting if you recharacterized your IRA last year — is a risk-free strategy, Slott adds. If the market continues to slide, you have until Oct. 15, 2010, to recharacterize your Roth.

Income limits lifted

Unfortunately, if your modified adjusted gross income exceeds $100,000, you can't convert a traditional IRA to a Roth.

That cutoff applies to both single taxpayers and married taxpayers who file jointly. Married couples who file separately are ineligible to convert.

But next year, the income restrictions on Roth conversions will disappear. Taxpayers who convert will also be allowed to postpone the tax bill. If you convert in 2010, you'll be allowed to pay half the tax bill in 2011 and the other half in 2012, Slott says.

Picker says he's advising his high-income clients to stash as much as possible in non-deductible IRAs this year so they'll have more money to convert in 2010.

Non-deductible IRAs are the only IRAs available for taxpayers who don't qualify for a Roth or a deductible IRA.

Many financial planners aren't big fans of non-deductible IRAs because withdrawals are taxed at ordinary income rates.

And if you own a non-deductible IRA, you're required to take minimum annual withdrawals once you turn 70½.

But once you convert your IRA to a Roth, those drawbacks disappear. Withdrawals are tax-free (as long as you meet the aforementioned requirements), and Roths aren't subject to the required minimum withdrawal rules.

You have until Wednesday to invest in a non-deductible IRA for 2008, Picker says.

You have until April 15, 2010, to invest in a 2009 IRA, but investing now will give your money more time to grow.

You'll still, of course, have to come up with the money to pay taxes on any gains you earn on your IRA. But allowing investors to postpone the tax bill — and then spread out the payments — will make that aspect of converting a lot less painful, Slott says, adding: "The government is giving everyone an interest-free loan to build a tax-free savings account."

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.

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comment:

I wonder why in the world financial advisors tell investors to open qualified accounts and then wait for a bear market (LOSE money) to convert to roth? Or I'm slow? Say you have $100K @25% tax is $25k so you get to convert $75K. Wait, now there is a bear market and you are down to $70K value @25% tax is $17.5K so you get to net 52.5K. - How in the world is that BETTER?

READ MORE - If you converted IRA to Roth in '08, you can still save on taxes

Adjust withholding on W-4 to keep tax credit on track

Your next paycheck will probably be a little fatter than usual, but it's not because your boss thinks you're swell. Instead, the increase reflects the Making Work Pay credit, part of the economic stimulus package enacted this year.

Most taxpayers will receive a credit of about $400, or $800 for married couples. Unlike last year, you won't receive a check in the mail. Instead, the credit will be spread out over the year. Most taxpayers will receive an extra $10 a week.

That's not exactly a windfall, but a little something extra in your paycheck sure can't hurt, right? Well, actually, it could. Some taxpayers could end up with a smaller-than-average tax refund next year or — horrors — discover they owe the IRS money. You can avoid problems down the road by adjusting the withholding allowances on your W-4. Consider reviewing the number of allowances you claim if:

•You're a dual-income couple. The IRS withholding tables are designed to provide a maximum tax credit of about $400 for single taxpayers, and about $600 if you are married and file jointly, says Bob Trinz, senior tax analyst for Thomson Reuters. That could cause some working couples to receive a larger combined credit than allowed by law.

For example, suppose you earn $75,000 a year, as does your spouse. Both of you claim two withholding allowances. You'll each get a $614 credit, for a combined credit of $1,228, according to Thomson Reuters. However, the maximum credit a married couple is eligible to claim is $800. Unless one or both of you increase the amount of taxes withheld from your paychecks, you could end up owing the IRS money when you file your taxes next year, Trinz says.

Conversely, Trinz says, if only one spouse works, the couple could end up with a smaller credit than they're entitled to. Here's an example, from Thomson Reuters: A married man earns $100,000 a year and claims four withholding allowances. His wife is a homemaker. He'll receive a credit of $614, even though the couple are entitled to an $800 credit. This couple can claim the balance of the credit when they file their taxes, or they can get the money sooner by reducing their withholding.

•You have more than one job. If you're working two jobs, both of your employers will adjust your take-home pay to reflect the new credit. The combined credit from both jobs could exceed the maximum $400 credit for individual taxpayers, says Michael O'Toole, director of government relations for the American Payroll Association.

•Your total income exceeds the thresholds for the credit. The Making Work Pay Credit phases out for single taxpayers with modified adjusted gross incomes of more than $75,000, and married couples with modified AGI of more than $150,000. Singles with modified AGI of more than $95,000 and couples with MAGI of more than $190,000 are ineligible for the credit.

Your employer will base the withholding calculation on the amount of income from your job. But if you have other sources of income — from a second job, for example — your total income could "bump you out of the range to be eligible for the full credit," says Amy McAnarney, director of H&R Block's Tax Institute.

Likewise, some dual-income couples could run into problems if one spouse receives the credit but the couple's combined income exceeds the income cutoff.

Reviewing your W-4

Even if you have no tax-credit worries, take a look at your W-4 anyway. Tax preparers recommend reviewing the number of allowances you claim on your W-4 whenever you have a major life change, such as the birth of a child, marriage or a home purchase. But a recent survey by H&R Block found that 44% of workers haven't adjusted their W-4s in at least three years.

If you had to write a big check to the IRS this year, that's a sign that you're not having enough withheld and need to reduce the number of allowances on your W-4. Likewise, taxpayers who receive a large refund should consider increasing the number of allowances they claim.

Many taxpayers resist this idea because they like receiving a check from the IRS. But in these economically challenging times, giving the government an interest-free loan makes no sense, says David Bergstein, a tax analyst for CCH CompleteTax, an online tax software program. When you file your taxes, he says, "You should break even."

There are several Internet calculators to figure out how many allowances you should claim. CCH offers one at completetax.com/calc.asp.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.

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comment:

Letting the government have use of your hard earned money, interest free, for a whole year is STUPID. Through adjusting my own W4 and having a few dollars each pay additional withholding taken out - I and the government break even at tax time. It's great as far as I'm concerned.

READ MORE - Adjust withholding on W-4 to keep tax credit on track

Stimulus benefits could end up costing retirees at tax time

When lawmakers enacted the economic stimulus package this year, they included benefits for seniors. Smart move: Many retirees also have been hit hard by the economic downturn, and they vote in large numbers. Unfortunately, some of the tax headaches we discussed in an earlier column could also affect retirees.

Some examples of potential problems:

•Taxpayers who receive a pension and have taxes withheld from their payments could end up owing money to the IRS next year.

In March, the IRS adjusted withholding tables to reflect the Making Work Pay credit, which is worth up to $400 for single workers, and up to $800 for married taxpayers who file jointly. The adjustments will apply to wages, but they'll also affect the amount withheld from pension payments. And that's a problem, because pension payments are ineligible for the credit, says Mark Luscombe, federal tax analyst for tax publisher CCH.

This won't be an issue for retirees who pay taxes on their pension payments each quarter instead of having their taxes withheld, Luscombe says. Likewise, individuals who receive a pension but also have a job may still qualify for the credit because they have earned income, he says. But retirees who have taxes withheld from their pensions and don't have any earned income may need to adjust their withholding to avoid owing money next year.

For information on how to avoid unpleasant surprises at tax time, go to www.irs.gov and search for Publication 919, "How Do I Adjust My Tax Withholding." The section titled "Retirees Returning to the Workforce" includes information for pensioners, and is relevant even if you're not going back to work.

•Social Security beneficiaries who have earned income could end up receiving a larger credit than they're entitled to.

Next month, the Social Security Administration will deliver a one-time payment of $250 to more than 55 million Americans who receive Social Security benefits or Supplemental Social Security Income. For most beneficiaries, this won't create any problems. But seniors who receive Social Security benefits and also have a job could also end up owing the IRS money next year.

Here's why: If you're employed and have taxes withheld from your paycheck, you'll also receive the Making Work Pay tax credit. But the maximum amount you can receive from both programs is $400, says Michael O'Toole, director of publications and government relations for the American Payroll Association.

"If a single person is getting $400 in reduced withholding from a job, and getting the $250 economic recovery payment because they're collecting Social Security, they're going to be underwithheld by $250," he says.

As a result, Social Security beneficiaries who have jobs may also need to adjust their withholding.

About that $250 check

Millions of retirees don't have to worry about adjusting their withholding because they don't have a pension or earned income. More than a third of retirees rely on Social Security for more than 90% of their income, according to AARP. If you fall into that group, you could probably use $250 and are wondering what you need to do to get your money. The answer, according to the Social Security Administration, is nothing.

The Treasury Department plans to send out the checks by the end of May, and they'll be delivered in the same manner beneficiaries receive their regular Social Security benefits. If you receive your monthly benefit in the mail, you'll receive a check. If you have direct deposit, the payment will go directly into your bank account.

However, the stimulus payment will be delivered separately, Social Security says. It won't be added to your monthly benefit payment.

If you're married and your spouse also receives Social Security, you're each eligible for a $250 payment. Individuals who receive Supplemental Security Income (SSI), railroad retirement and veterans benefits are also eligible for the payment. However, if you receive a combination of these benefits, you won't receive more money. You're only eligible for one payment, regardless of how many benefits you receive, the Social Security Administration says.

If you don't receive your payment by June 4, call 800-772-1213. However, Social Security is asking beneficiaries to hold off calling before that date.

You can find more information about the one-time payments at www.socialsecurity.gov.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.
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comment:
Private sector retirees receive $250 with their SS checks which is taxable.
Federal government retirees receive a $250 credit which is not taxable.
This was by design.

READ MORE - Stimulus benefits could end up costing retirees at tax time

Obama Touts Plan to Change College Loan System

WASHINGTON (AP) — President Obama, saying the country has to be more competitive in the world, called anew Friday for overhauling the system of college lending.

The cost of higher education "has never been higher," said Obama, joined at the White House by University of Maryland student Stephanie Stevenson of Baltimore and her mother, Yvonne Thomas. The president said that tuition costs in America have skyrocketed, "putting new pressures" on families already hard-pressed in economically difficult times.

Specifically, he called once more for ditching a system in which the federal government for years has in some measure essentially acted as a middleman for banks and lending institutions making college loans to the young.

"There are few things as fundamental to the American dream or as essential as a good education," he said, adding that "the stakes could not be higher for young people like Stephanie" at a time of growing international competitiveness.

Yet, Obama said, "we have a student loan system where we are giving lenders billions of dollars in wasteful subsidies." He called the system "a paradox of American life" that threatens to widen the gap between the haves and have-nots.

The president said that by the end of the next decade, he wants to see America have "the highest percentage of college graduates" in the world, noting that it "used to have that" edge, but doesn't enjoy it any longer.

Obama wants to end the decades-old, dual system the federal government uses to advance loans to students to pay for college.

Under that system, students at some colleges borrow directly from the government, while others get loans from banks, non-profits or state agencies who in turn receive subsidies from Washington.

The president's proposal would switch the federal student loan system entirely to direct lending from the government.

Obama has claimed that the change would save at least $48 billion over the next 10 years — money that could be funneled to student aid. But Republicans are concerned about the costs of that and even some Democratic lawmakers oppose the switch.

Higher education groups are divided. They welcome more money for student aid, but about two-thirds of colleges use the subsidized lending program and some want to keep the program.

Lenders are also fiercely lobbying against the proposal, which would end a historically lucrative business

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I understand the fear of the government being too invasive and too bloated. On the other hand, it's a fact that cutting out the middle men will reduce total net costs. The government may be less efficient than the private sector for doing a particular job, but the sum of government plus private sector middle man is more expensive than government alone and more fair and reliable than private sector alone.

READ MORE - Obama Touts Plan to Change College Loan System

GM gets another $2B in taxpayer loans, expected to scrap Pontiac

General Motors got another $2 billion emergency loan, the U.S. Treasury department said Friday, and is expected to announce soon it will kill its slow-selling Pontiac brand as it scrambles to slice underperforming units.

Treasuary said it made the loan Wednesday, bringing taxpayers' investment in GM to $15.4 billion.

GM has until June 1 to complete restructuring plans that satisfy the government's auto task force.

GM has been saying that it would shrink to "core brands" — Chevrolet, Cadillac, Buick, GMC — and would make Pontiac a niche brand, possibly selling a single model. It hadn't suggested it would discontinue the brand.

The first quarter, Pontiac sold just 40,887 cars and trucks, according to industry tracker Autodata. Only GM's Saturn, Hummer and Saab brands did worse, and they've been up for sale for months.

Trade publication Automotive News reported Friday that GM will announce the death of Pontiac when it gives the Obama administration's auto task force its updated viability report in the coming week. Automotive News said the information was from anonymous soucres who know details of GM's planning.

GM and Pontiac wouldn't comment.

The automaker's CEO, Fritz Henderson, said last week that GM would need $4.6 billion during the second quarter — another $2.6 billion after the recent loan.

The automaker's financial arm, GMAC Financial Services, has received $5 billion in government aid, plus GM received a $1 billion loan to buy more equity in GMAC.

GM said in a statement that it appreciates the Obama administration's support "as we undertake the difficult but necessary actions to reinvent our company."

Meanwhile, with a government-imposed deadline for restructuring less than a week away, Chrysler and Treasury Department officials are still holding out hope they can reach deals to keep the automaker out of bankruptcy courts.

Chrysler is living on $4 billion in government loans and could get another $500 million in temporary financing. Chrysler must take on Fiat Group as a partner, cut debt and reduce labor costs by Thursday if it wants another $6 billion.

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I suppose so. Really, who can predict what might happen? I think the best we can do is try to shoot for the best outcome. I would hope GM manages to survive and bring successful electrics and plug-in hybrids to market. In my mind that would be fair payback for them having contributed greatly to the demise of public transportation after WWII, but at any rate, it seems to me that anyone arguing against GM bailouts has to be doing so based more on personal political ideology or a shade of self-centeredness rather than an honest look at the big picture. I suppose in the long run, if GM were allowed to fail, people would recover and someone would fill the niche, but I think the point o trying to save them is that we want to avoid the massive disruption such a thing would undoubtedly bring in the short run.

READ MORE - GM gets another $2B in taxpayer loans, expected to scrap Pontiac

7 Home Selling Moves to Avoid This Spring

Amid falling home prices, near record-low mortgage rates, and even an $8,000 tax perk from Uncle Sam, prospective buyers have plenty of reasons to dive into the real estate market. But with the teetering economy and financial markets, real estate experts don't anticipate an aggressive bounce in sales this spring. "I don't think [home] sales will really pick up until the job market has stabilized—and that won't be this spring," says Mark Zandi, chief economist at Moody's Economy.com. Despite some encouraging housing data, buyers will continue to have the upper hand in this home selling season. But that doesn’t mean your house won't sell; It just means you'll have to make smarter moves to land a buyer. With the help of several experts, U.S. News compiled a list of seven home selling moves to avoid this spring.

1. Thinking your home is the exception: It's natural to be emotionally attached to your home, especially if you've lived there a long time. But allowing this affection obscure the realities of today's real estate market is a serious mistake. If your local market is declining in value, you'll need to price your home at a compelling level. That will require a painful decision: to price the property at or below comparable homes in the area, even if the price point is less than what you feel your home is worth. "There are still sellers out there who think that their house is the exception," says Judy Moore of Re/Max Landmark Realtors in Lexington, Mass. "They think that the other houses that are on the market are really overpriced, yet when you get to their house, they think that it should have a higher price because it is better." Overpricing a home because of an emotional attachment only makes selling it that much more difficult.

2. Not scouting the competition: Another reason sellers might price a home too high is that they're simply unaware of the dynamics of their real estate market. To sell your home, it's essential to have a firm grasp on the conditions in your area. Sellers should study the pricing trends and sales data in their local market. But the data only tells half of the story. To fully understand the market, sellers should get a first-hand look at the nearby homes that are also up for sale. "I would recommend my sellers go look at open houses so they see how [their homes] really compare," says Ron Phipps, a broker with Phipps Realty in Warwick, R.I.

3. Not checking your agent's references: An effective, experienced real estate agent can be a big help in selling your home in today's sluggish market. But finding such a broker may not be easy. "[Real estate] agencies these days are pinching pennies too," says Joshua Dorkin, founder and chief executive of BiggerPockets.com, a real estate networking and information site. "A lot of them think you can just put something on Craigslist and it [will] sell, and that's not how it works anymore." To ensure you're doing business with a solid real estate professional, contact some of his or her previous clients and ask about their experience.

4. Not prepping the property: Since buyers have many options these days, home sellers need to ensure that their property is in tip-top condition for showings. That means making any and all home repairs, ensuring that the indoor and outdoor portions of the property are immaculately clean, and removing clutter. "It is a very picky buyer right now, and they are ready to seize on any little thing that they see," says Elizabeth Blakeslee of Coldwell Banker Residential Brokerage in Washington, D.C. "You want your house to look cared for."

5. Being present during open houses: It's important for the sellers to be away from the home during open houses, as their presence can be unnerving to would-be buyers. "Some sellers have the mistaken idea that they are the best people to sell their house, and that is absolutely not the case," Blakeslee says. If a seller remains at home during an open house, she says, "buyers will have an uneasy feeling, and that is the feeling that they will take away from the house."

6. Taking negotiations personally: The negotiation process can be tough on sellers, as buyers may demand concessions such as price reductions or help with closing costs. Although such requests might be irksome, it's important that sellers consider them just another part of a business transaction. "It is not meant to be personal; the buyer is looking to buy as carefully as they can and pay as little as they can," Phipps says. "It is not about you, it is about them."

7. Sneering at offers: Even if you aren't crazy about a buyer's offer, don't dismiss it out of hand. "You need to be willing to negotiate with anyone and everyone who puts in an offer, even if it is one of those low-ball offers," Dorkin says. "Don't ignore it because those people might really want the property."

By Luke Mullins

READ MORE - 7 Home Selling Moves to Avoid This Spring

Why Obama Faces Grumbling From the Left

Democratic strategists are concerned that some of President Obama's recent policy decisions may end his honeymoon with his party's liberal activists. "His problem will be, how can he convince the left to let him be pragmatic?" says a prominent Obama supporter.

Obama has unsettled liberals by delaying his promised withdrawal of U.S. combat troops from Iraq by a few months and by defending some of the Bush administration's antiterrorism policies, including the protection of "state secrets" in a way that some liberals believe goes too far. Some liberals are also upset at what they consider the administration's waffling on whether the Justice Department should prosecute senior Bush administration officials who authorized harsh interrogation techniques or whether a special commission should investigate the matter.

"Overall, the irony is we have more troops now in Iraq and Afghanistan than we did under Bush and the deficit has doubled," says the Obama supporter.

He adds that Obama's problems will be even worse if the economy fails to improve in the next few months. At that point, everyday Americans and people on the left may not give him the benefit of the doubt anymore. A prominent Obama advocate says, "He's getting a pass now, but at the end of the summer, people will say, 'Why doesn't my brother have a job yet?' "

By Kenneth T. Walsh

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I am an Obama supporter and I believe the lieral faction of the Democrats in congress are just as detrimental to ability of President Obama to get the policies thru congress as the Republicans due to their continued stubborness in their desire for revenge against the previous administration. They lack common sense when the continue to attack them for revenge sake. We need to lower the narrative and the attacks. We want to have President Obama to succeed.

READ MORE - Why Obama Faces Grumbling From the Left

Don't Let Rush to File Taxes by Deadline Lead to Errors

Gentlemen (and ladies), start your engines. Tax Day is less than a week away.

But as you race toward the finish line, be mindful of common tax-filing errors. Some mistakes could cost you money. Others could raise red flags at the IRS. Tax software will do math and point out tax breaks you might overlook, but these programs are only as good as the information you enter.

Here are some common last-minute blunders, and how to avoid them:

Automatically not itemizing.

A 2002 study by the Government Accountability Office found that more than 2 million taxpayers who claimed the standard deduction could have lowered their tax bills by itemizing.

Deductible expenses include interest on your mortgage, property taxes, charitable contributions and unreimbursed medical expenses that exceed 7.5% of your adjustable gross income.

Ordinarily, that threshold puts the medical-expense deduction out of reach for most taxpayers who have employer-provided health care.

But the economic downturn has led employers to shift more of the cost of health care to their workers in the form of higher deductibles, co-payments and co-insurance. That means more taxpayers could rack up enough unreimbursed expenses to claim the deduction, says Mary Canning, dean of the schools of taxation and accounting at Golden Gate University in San Francisco.

Automatically itemizing.

Some homeowners assume that they should always itemize because the interest on their mortgage is deductible, says David Bergstein, tax analyst for CCH CompleteTax, an online tax software program. But if you've paid off most of your home loan, your mortgage-interest deduction may be so small that you're better off taking the standard deduction.

For 2008, the standard deduction is $5,450 for single taxpayers and $10,900 for married couples who file jointly. If you're 65 or older or visually impaired, you're entitled to $6,800, or $13,000 for a married couple (assuming that both spouses qualify).

The general rule is that if your deductions exceed those amounts, you should itemize.

But this year, there's a new twist. The foreclosure rescue bill enacted last summer allows homeowners who don't itemize to increase their standard deduction by the amount of their property taxes. The maximum property tax deduction is $500 for single homeowners and $1,000 for married couples.

This could make the standard deduction a better deal for folks who usually itemize. If you've gotten out of the habit of saving your property tax bills — perhaps because your home is paid off and you no longer itemize — dig out those records so you can take advantage of this tax break, Bergstein says.

That's not the only way taxpayers will be able to increase their standard deduction this year. If you suffered casualty losses last year in a presidentially declared disaster area, you can increase your standard deduction by the amount of your unreimbursed losses.

To determine whether you live in a federally declared disaster area, go to www.fema.gov.

Claiming a deduction instead of a credit.

A recent survey by tax publisher CCH found that less than a quarter of taxpayers realize that tax credits are actually more valuable than tax deductions.

Tax credits provide a dollar-for-dollar reduction in your tax bill. Deductions only reduce your taxable income. For example, if you're in the 25% tax bracket, a $2,000 tax credit will reduce your tax bill by $2,000. A $2,000 tax deduction will lower your tax bill by $500.

Confusing deductions and credits could cost you, particularly when it comes to tax breaks for college.

In the CCH survey, 41% of taxpayers said that the $4,000 tuition and fees deduction was more valuable than the Hope or Lifetime Learning credits.

In fact, though, a parent in the 15% bracket who claims the full tuition and fees deduction would save $600, vs. up to $2,000 from the Lifetime Learning credit.

Incorrectly deducting property taxes.

Taxpayers who itemize can deduct real estate taxes, but only in the year they were paid. Often, though, taxpayers pay property taxes in installments that cross calendar years, Canning says, which can lead to filing errors. For example, if you paid the first installment on 2008 property taxes in December 2007 and your second installment in 2008, only the second installment is deductible on your 2008 tax return. However, the first installment toward 2009 taxes would be deductible on your 2008 tax return, if you paid it in 2008. Advance or late payments can further complicate matters, Canning says.

Fortunately, many counties now post property tax records on their websites, Canning says. You can use these websites to find a record of how much you paid in property taxes and, more important, when you paid them, she says.

Not reporting self-employment income.

The sharp rise in unemployment has forced many out-of-work taxpayers to go into business for themselves. If you did freelance or consulting work last year, make sure you report all your income on Schedule C when you file your tax return, Canning says. Don't rely on 1099s from clients or customers because not all payers are required to send you that form, she says. Review deposits in your bank or checking accounts for income that wasn't reported on a 1099, Canning says. If you're audited, she adds, "That's what the IRS will do."

At the same time, don't overlook deductions that will reduce taxes on your self-employment income. Potential deductions include everything from the cost of office supplies to transportation expenses when you visit clients. If you work in a dedicated space in your home, you may also qualify for a home-office deduction.

Some self-employed taxpayers worry that claiming the home-office deduction will increase the chance they'll be audited by the IRS. But if your deductions are legitimate, you shouldn't fear the feds, Bergstein says.

"Tax avoidance is perfectly legal, he says. "Tax evasion is not."

By Sandra Block, USA TODAY

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READ MORE - Don't Let Rush to File Taxes by Deadline Lead to Errors

Obama Gets Tough on Abuses by Credit Card Industry

President Obama pledged Thursday to support legislation that protects credit card borrowers from unfair rate increases and cracks down on issuers who engage in deceptive lending practices.

Obama said that while credit cards are an important source of liquidity for consumers and small businesses, "The days of any time, any reason rate hikes and late fee traps have to end."

His remarks were made after a White House meeting with 14 leading credit card executives to discuss the impact of issuers' practices on consumers and the economy.

As credit card issuers grapple with ballooning loan losses, they've raised rates and fees for millions of consumers. From March 2007 through February 2008 alone, about 70 million credit card accounts — nearly one in four accounts — had their rates raised, costing consumers at least $10 billion in additional finance charges, estimates Pew Charitable Trusts, a public policy group.

Obama said he wants to make sure that credit card companies "are able to make a reasonable profit — but they're doing so in a way that is responsible." Issuers who engage in illegal practices will "feel the full weight of the law," he warned.

The administration's efforts lend momentum to pending bills in Congress. Already, the Federal Reserve has issued a rule that would restrict issuers' ability to raise interest rates on existing debt. But the rule doesn't take effect until July 2010. The White House said it's looking for stronger protections than provided by the rule.

Also Thursday, Sen. Charles Schumer, D-N.Y., and Sen. Christopher Dodd, D-Conn., called on the Federal Reserve to impose an "emergency freeze" on issuers' ability to raise interest rates on existing debt. USA TODAY's research has found that for a growing number of consumers, credit card rate increases — rather than mortgage troubles — are pushing them into economic distress.

Ed Yingling, CEO of the American Bankers Association, says that issuers raise rates based on risk. If regulation "goes too far, it would undermine the availability of credit when we're in a credit crisis," he warns.

But Adam Levitin, law professor at Georgetown University, says that absent strong regulation, issuers will devise new ways to boost profits at consumers' expense. "I worry that all this leads to is a game of whack-a-mole, where Congress says, 'Don't do A, B and C,' and the card industry is popping up with another set of practices," says Levitin.

Levitin believes the regulatory system needs a "structural change." Instead of telling issuers what they can't do, regulators should tell them the only things they can do, he says.

By Kathy Chu, USA TODAY
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READ MORE - Obama Gets Tough on Abuses by Credit Card Industry

US Airways, Alaska Air add checked bag fees

US Airways (LCC) and Alaska Airlines (ALK) said Thursday they were imposing new charges on passengers to check their bags, adding to a growing array of fees to fly.

US Airways passengers must pay $5 extra for each bag checked at an airport beginning with flights on July 9. The $5 fee, which can be avoided by checking in online within 24 hours of departure, would be in addition to $15 for the first checked bag and $25 for a second one.

TODAY IN THE SKY: More airline news

Alaska Air Group said subsidiaries Alaska Airlines and Horizon Air would "join nearly all major domestic carriers" in charging for a first checked bag. Beginning May 1, the airlines will charge $15 for a first checked bag for flights on or after July 7.

The new fees, which can generate millions of dollars in revenue, were announced as most major U.S. airlines post big losses during the first three months this year. The recession has caused a drop-off in passengers despite cheap fares.

"The additional fees are one weapon in the airlines' arsenal to effectively raise total ticket prices," says Rick Seaney, CEO of FareCompare.com, a website that compares fares for consumers.

Seaney says a sharp drop in passenger demand and hefty first-quarter losses "certainly make it easier for airlines to make tough decisions on raising irksome checked-bag fees."

US Airways Group said Thursday it lost $103 million, or 90 cents a share, during the first three months this year. Alaska Air Group reported a loss of $19 million, or 53 cents a share.

On Tuesday, Delta Air Lines said it would impose a $50 fee for a second checked bag on an international flight starting with flights on July 1. The move will raise about $100 million annually, Delta said. Delta reported a $794 million loss for the first quarter.

Airlines "are looking for ancillary revenue in an effort to return to profitability," says David Castelveter, spokesman for the Air Transport Association of America, an airline trade group. "It is either that or more downsizing and cost-cutting."

READ MORE - US Airways, Alaska Air add checked bag fees