Photo: dizznbonn

“There’s one for you, nineteen for me,” wrote George Harrison of The Beatles. He was talking about the taxman.

If you’re a single person with no dependents, you might feel the same way come April 15, 2010. Because single people with no dependents don’t get to take advantage of some of the richest deductions and credits that help lower your overall tax bill.

Unless you work for yourself, most of the taxes you pay to the federal government come right out of your paycheck. Some people think the IRS does them a favor when the government sends that big tax refund check every year. What they don’t realize is that a refund is just another way of the government telling you they collected too much. That’s like going to the grocery store and giving the checkout guy a $20 bill for $10 worth of stuff and having him tell you he’ll send you the change next year.

Whether you get a refund or end up owing in April is irrelevant. Go back to last year’s 1040 and get a good look at what you ended up paying to the government. And follow the steps below to try to take a smarter approach in your dealings with Uncle Sam.

Sign up for a Flexible Spending Account at work

If you work for a company that offers a Flexible Spending Account (FSA) you should sign up for it. An FSA allows you to set aside a portion of your income tax-free to pay for qualified medical expenses such as deductibles, co-payments and coinsurance for your health plan. It also includes medical expenses not covered by the health plan, such as dental and vision expenses and over-the-counter drugs and medical supplies like contact lens solution. So how much can you save? Check out the calculator at the Federal Flexible Spending Account Website. It will give you a good idea as to how much money in tax savings an FSA will put in your wallet.

Resume your retirement plan contributions

2008 was a nightmare for the stock market. How bad? If you lost 30% of your 401(k) then you did better than a lot of people.

So many people scrapped their retirement savings like that old used car they kept pumping money into. If you did, that’s a shame. 2009 gave us some big gains in the market and if you bought in during the lows of 2008, you made a pretty nice return through the end of this year. You might not be back to even yet, but this isn’t money you’re going to spend in the next five years. For most of us, this is money we’re going to spend decades from now. And a diversified portfolio of stock and bond funds still gives us the best chance for the kind of growth we need to outpace the rising cost of goods.

Those short-term losses also don’t look so bad in light of the fact that a good bit of that money would have gone to the IRS anyway. (When you put it that way, it almost makes you feel good.) If you have a 401(k) at work, your contributions come out of your gross pay. So it ultimately lowers your income for federal tax purposes. It’s the easiest, smartest way to lower your tax bill.

If you don’t have a 401(k) at work, look into a traditional IRA. If you qualify, contributions are tax deductible

Consider buying a home

In case you haven’t noticed, the federal government still wants you to own a house. Here are a few of the incentives they’re offering:

* Generally, the interest you pay on your mortgage is tax deductible.
* The local real estate taxes you pay are tax deductible.
* They’ve extended the $8,000 first-time home buyers tax credit until April 1, 2010. And they’re giving a $6,500 tax credit to current owners if they buy a new home by April 1, 2010.

Now don’t go out and buy a home just to lower your taxes. But if you have some money saved for a down payment, you’re tired of renting and you’re getting killed in taxes, then buying makes sense.

It’s also a good buyer’s market. Don’t get spooked by the nightmare foreclosure stories over the past few years. Remember, the vast majority of people in our country continue to pay their mortgages on time. (And most of the ones who didn’t were in Florida, California, Nevada, and Arizona.) A good home in a good neighborhood will hold its value.

Take a second look at the home office deduction

It used to be a little-used deduction that was designed for self-employed people. In the past, many people were reluctant to take it as it was often viewed as a “red flag” for an audit.

But new technologies mean more and more people are working from home. So even if you work for a big company and your primary office is in your home, then you could be eligible for this deduction. And changes to the rules in recent years mean it isn’t looked on as the audit trigger it used to be.

You’re eligible for the deduction whether you are an owner or a renter. But keep in mind, you can’t just set up a computer in a corner of your bedroom and call it your office. There’s got to be a space in your home that is exclusively and regularly used for your office. (Hint: If there’s a pool table in the room it probably won’t qualify. Unless you’re a billiard ball wholesaler.)

Consider a Roth IRA conversion

This is the one tip that will actually increase your tax bill in 2011 (and possibly 2012), with the goal of decreasing the taxes you pay years down the road.

Let’s say you have money sitting in a traditional IRA. (Maybe it was a previous employer’s 401(k) that you rolled over.) If you convert that IRA to a Roth IRA, you will have to pay income taxes on the amount that you convert. But all earnings you receive on that money will be tax-free when you take it out (so long as it’s a “qualified” withdrawal, which generally means you’re over 59 1/2.)

And the restrictions on making such a conversion ease up in 2010. Currently, if you make $100,000 per year or more then you are ineligible for an IRA conversion, but that rule is being suspended in 2010. If you make a conversion in 2010, you will be able to pay half of the tax you owe in 2011 and the other half in 2012.

It’s not necessarily right for everyone. But if you think you may end up with a lot of money in retirement that hasn’t been taxed yet (like your 401(k) or traditional IRA money), wouldn’t it be nice to have cash that you’ll be able to take out income-tax-free?

2010 Tax Planning Guide Provided by AskMen.

In last week’s State of the Union address, President Obama announced proposed tax cuts and other programs aimed at easing the financial burden on the middle class. The proposed changes were the brainchild of the Middle Class Task Force (MCTF), chaired by Vice President Biden.

The MCTF released a fact sheet addressing some of the proposed middle class assistance. Here’s a breakdown of some of the proposed changes that may impact you.

The Saver’s Credit

The ‘Saver’s Credit’, also known as the Retirement Savings Contribution Credit, would be expanded and refundable. This change might have the broadest impact on middle class families overall, since it hits those without dependents.

Expansion: In its present state, the Savers Credit ranges from 10 to 50 percent on the first $2,000 of contributions made to a 401(k), IRA, or other qualified retirement plan. The current income limit for receiving this credit is $55,500 for a married couple and the credit percentage fades out up to that limit.

The new proposal would allow couples making up to $65,000 a year get a full 50% credit on the first $1000 they each contribute for a maximum $500 credit per individual. Couples making up to $85,000 would now become eligible for a partial credit.

Refundable: The credit would be made refundable, meaning that those have no tax liability will get the additional credit added to their tax return versus a non-refundable credit, which only subtracts from your tax liability.

The Child & Dependent Care Tax Credit

The value of the tax credit nearly doubles, from 20 to 35%, for all families making under $85,000 a year. A family that makes between $85,000 and $115,000 would also see a tax credit increase. This means that a qualified family that claims the max amount of $6,000 in expenses will see a tax deduction of $2,100 instead of $1,200.

It may also force a strategic switch to claiming the Dependent Care Tax Credit instead of funding a dependent care flexible spending account, which has a maximum funding amount of $5,000.

Unlike the Savers Credit, the Child & Dependent Care Credit is non-refundable (meaning you won’t get a check from the government if you are already owed a refund).

This credit may be long overdue since it had only been increased once in the prior 28 years and is not indexed to inflation. Meanwhile, child care costs have increased at twice the rate of the median family income over the last decade.

Student Loan Payment Cap, Automatic IRA’s, Support for Elder Care

Obama’s middle class task force also proposed several other initiatives relating to student loans, automatic IRAs, and elder care.

Student Loan Caps:

Two big changes here: A student loan borrower’s payments would be limited to 10% of discretionary income above a standard living allowance. All remaining debt will be forgiven after 10 years of payments if in public service and 20 years otherwise.

Automatic IRA’s:

78 million working Americans are not offered an employer based retirement plan. Under the change, all employers would have to offer a direct deposit IRA to employees, who could opt out, if they chose to. Contributions to the IRA would be voluntary and matched by the Savers Credit for eligible families.

Elder Care Support:

$102.5 million in additional funding will be available for counseling, training, respite care, and more to help families care for seniors in the home.

Your Thoughts?

It remains to be seen whether these proposed changes will pass upcoming budget revisions. If they do and you fall into the ‘middle’ class, how would these proposed changes impact you and your family?

For more of GE Miller’s writing, visit 20somethingfinance.com, a personal finance blog geared towards young professionals.

A friend asked me how he should save for his daughter’s college education. (His daughter was born in 2009, which means probably I should be asking him the personal finance questions, but whatever.) “A 529 college savings plan,” I said.

529s are great, I explained: you put in after-tax money and it grows tax-free. You can put a lot of money into them; the money can be used for tuition, room, board, textbooks, and other fees; there are no age or income limits; and you can change the beneficiary if your kid decides to attend the school of hard knocks instead of college. (Although, heck, these things are so flexible, the School of Hard Knocks is probably a qualified educational expense.) If you have a child, you should have a 529.

“Okay, but which 529?” asked my friend, who lives in Vermont. “The Vermont one?”

“Uhhh,” I replied. Not only did I not have a good answer to this question, but I realized that I didn’t know whether my own six-year-old daughter’s 529 was any good. Answering my friend’s question turned out to be pretty easy. As for my own child’s future, well, I’ll tell you what I’ve figured out so far.

A messy system

You’re familiar with the Roth IRA, right? Maybe even have one of your own? Part of what makes the Roth such a handy investment vehicle is that it’s just a generic tax-advantaged box for putting your savings in. You can open a Roth with any financial institution and put any kind of investment or deposit account in it. Easy.

Now, imagine if the Roth IRA system were administered by the state governments, and each state could implement its Roth in an entirely different way. Imagine further that you didn’t have to invest with your own state’s fund, that you could choose nearly any of the 50 state Roths. Fifty states, 50 different (sometimes wildly different) plans.

Given this absurd situation, I’m guessing you’d do one of two things: go with your state’s Roth, regardless of whether it was a good investment, or throw up your hands and vow to choose a good plan someday, but not today.

Roth IRAs aren’t like that, but 529s are. The morass exists because 529s were invented by the states about 20 years ago and eventually blessed by the Internal Revenue Code in their current form in 2001.

“It does create a messy system,” says Joe Hurley, CPA and founder of savingforcollege.com.

It sure does. Choosing a 529 is harder than getting a group of friends to agree on a restaurant. So let me help narrow it down for you.

Choosing a 529: the basics

• If you pay state income tax, check whether you can get a tax credit for contributing to your own state’s plan. A list of those states can be found on FinAid.org. If you qualify, it’s like having the state drop a sack of doubloons onto your porch. “In Oregon, for example, we have a 9% state income tax rate, and so if you put $10000 into a plan, you’re going to get $900 back,” says Eric Lochner, a certified financial planner at McDonald Franceschi in Portland, Ore. “You can think of that as an immediate 9% return on your investment.” My Vermont friend gets a $250 tax credit every year for socking at least $2500 into the Vermont 529. It’s a no-brainer. Bonus: Some states, such as Pennsylvania, give you a tax deduction for contributing to any 529 plan. Check the Finaid.org page linked above.

• Otherwise, look for a plan with low fees. Some 529s have such a high expense ratio, they should be called the Cash Under the Mattress Fund. Lochner recommends the Utah or Nevada plans, which offer low-cost Vanguard funds.

• Conservative investors should consider the Montana 529, which lets you invest in a CD whose interest rate is pegged to the tuition and fees inflation rate at private colleges. You can’t lose principal, and if average tuition skyrockets, so do your earnings.

Prepaid tuition plans

This is the plan that resembles a pension, and it’s the plan my family is in right now. My wife and I both graduated from University of Washington. We would like our daughter to go there, too. It’s a good school and it’s near our home, so she could visit us anytime.

Washington’s 529 plan, which is called Guaranteed Education Tuition (GET), lets us buy credits at UW now. For every 100 GET units we buy, our daughter gets a full year at UW, guaranteed. You’re not buying the credits at today’s rate, however. Right now, a year at UW costs $7700; a year’s worth of GET units is $10,100. You can use the money to attend other schools, but it always pays out at the current UW tuition rate.

What do the experts think of prepaid plans? “In theory, they should work great, because they satisfy a need that many families have simply to put the money away now and not have to worry about tuition inflation,” says Hurley. “But they come with a lot of rules. It’s very difficult to understand exactly what you’re paying for and how much it’s costing.”

Lochner is even more skeptical. “Every time I read about them, it sounds like they’re riddled with problems,” he says. “They can run into underfunding problems and unfunded deficits in the future.”

A prepaid plan is a good idea if you want to buy exactly what it’s selling: tuition at the colleges listed on the back of the box. If my parents had expected me to attend a specific college, though, I would have told them to bite me. Since Washington has no state income tax and I have no interest in biting anyone, I’m going to invest with either the Nevada or Montana 529 in the future.

Matthew Amster-Burton, author of the book Hungry Monkey, writes on food and finance from his home in Seattle.

Photo: Mike Fillion

With only two weeks left in 2009, you might think that it’s time to throw
in the towel on your 2009 taxes. Not so fast! This is the prime time of year
to implement some smart tax deduction strategies. With minimal effort, you
can still have a huge impact on your 2009 tax return by decreasing your
realized income. If any of these strategies appeal to you, speak with a tax
adviser, pronto.

Strategy #1: Fund your Retirement:

You may still be able to add more contributions for your 401k in 2009.

Additionally, you will be able to make tax deductible contributions to a traditional IRA up until the 2009 tax filing deadline (April 15, 2010) for the 2009 tax year. The IRS maximum allowed 401k limit is $16,500 in both 2009 and 2010. For those 50 and over, the catch-up contribution brings you up to $22,000 both years. For IRA’s, the limit is set at $5,000, while the catch-up is $1,000 for both years. Check with your employer ASAP to see if it’s not too late to kick up your contributions.

Strategy #2: Hold Off on the Roth IRA Conversion:

Owners of traditional IRAs can convert all or a part of their accounts to a Roth IRA if their 2009 modified adjusted gross income is under $100,000.

Any amount converted is taxable income, but is thereafter eligible for the
potential tax-free distribution rules of Roth IRA’s. The big news is that
starting in 2010, the $100,000 income threshold is removed – anyone can do a conversion. For 2010 only, you also have the option to spread the income from conversion over the following two years (2011 and 2012). Many have been waiting for this opportunity.

Strategy #3: Sell Losing Investments (and Big Winners):

The S&P 500 index went from the low 900’s to a low of 666 (funny number,
right?) in March, back up to a 2009 high of 1,119. That’s one heck of a
volatile year. All in all, the market is up over 22% for the year. Depending
on when you’ve bought and sold, you might want to consider unloading big
winners to offset your losers, or big losers to offset your winners. First,
you must subtract your losses from any capital gains you’ve made. Next,
additional losses can offset up to $3,000 of your 2009 ordinary income.

Have larger net losses than $3,000? Losses above and beyond what you used to
offset your capital gains and ordinary income can be carried over into
future tax years. Before implementing investment loss strategy by selling
mutual funds, make sure that you won’t incur any penalty for holding shares
for too short of a period of time.

Strategy #4: Capital Gains Tax Cuts:

Under the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005,
US taxpayers in the two lowest tax brackets (10% and 15%) will pay no
capital gains taxes on long-term investments sold in 2009 and 2010.
Long-term capital gains result from profit made via appreciation of a
security (stock, fund, etc.) held for more than one year.

Strategy #5: When you Donate to a 501(c)(3), Everyone Wins:

Tax deductions for charitable donations can be claimed for the year in which
the donation is made. Perhaps it’s time to rummage through your house to
find valuables you no longer need or want that others can gain value from.
You may obtain fair market value on these items. Or, simply open your
checkbook or donate cash.

Donations of $250 or more must come with a written receipt or letter from
the 501(c)(3). When submitting your donation, ask for and keep all of the
appropriate documentation and receipts associated with all donations so that
you are safe in the event of a possible future tax audit. If you are
donating goods, document a description of everything given.

Strategy #6: Prepay your January, 2010 Mortgage:

If you’re a homeowner, you may want to consider making your January mortgage
payment in December, which will give you one more month of interest to
deduct from your 2009 taxes. Check with your mortgage provider to see if an
early payment is possible. It may be a great way to offset extra income
windfalls in 2009.

Strategy #7: Get Healthy on your Medical Bills:

If you have have large and predictable medical and/or dental bills that need
to be paid, consider making all the payments before the year is over. The
IRS allows families to itemize and deduct medical and dental expenses that
exceed 7.5% of their adjusted gross income, so if you’re close to going over
that percentage it may be wise to pay the bills to be able to make the
tax deduction.

It won’t affect your 2009 taxes (since it was already deducted), but don’t
forget to use up the rest of your 2009 FSA funds if you are in danger of
losing them in the new year.

Strategy #8: Prepare for 2010:

Using Mint.com to classify all of your deductible expenses in 2010, can allow
you to tag anything as tax related. Download your transactions to a
spreadsheet and send it to your accountant. If you’re doing your own taxes,
this info will give you a big head start in using online tax software, such
as TurboTax, which offers federal
filing free. If you expect that you’re due a hefty refund, file asap, so
that you can get back your return and re-invest it. Also, speak with your
employer about your withholding taxes if you have found that you owe too
much taxes or are getting a large refund.

Using TurboTax’s TaxCaster can help you estimate your tax burden and see the impact of any last-minute deductions.

For more of GE Miller’s writing, visit personal finance blog
20somethingfinance.com.

(KevinDooley)

With tax season upon us, most people are concerned with just one thing: figuring out a way to not pay Uncle Sam any more than they have to. Some, however, take the concept of tax avoidance further than the rest of us. The quest to outwit the government has produced tax deductions, loopholes, and write-offs that boggle the mind, defy common sense and sometimes seem too outrageous to be true – and yet they are (ie., body oils, pet food, breast augmentation….). But be that as they may, there are other deductions, from around the world that might be even more unusual. The following are five of the most bizarre.

Bribes in Germany

You read right – according to BusinessWeek, it is actually permissible to deduct private business bribes in Germany. While the deduction is reportedly “rarely used”, it is nonetheless available to any German business person who discloses both his or her identity and the recipient of the bribe(s.) Many will no doubt be surprised that bribery is legal in Germany at all – much less tax deductible – and General Motors has come under fire for “…allegedly securing kickbacks from suppliers who help build their plants.” For its part, BusinessWeek recommends that Germany “…end the bribery deduction” (claimed to add 20-30% to the cost of public contracts) in its ongoing quest to cut down on corporate fraud.

Big Babies in Italy

(MichaelMX5TX)

We all know someone who refuses to leave the comfort of their mother’s home despite pushing 30. In Italy, however, the problem is apparently so bad that a third of all men over 30 live at home. Italy’s “mama’s boy” epidemic caught the attention of lawmakers in 2008, including Economy Minister Tommaso Padoa-Schioppa, who exclaimed, “…we must send those we call ‘big babies’ out of the house!” According to Reuters‘ article “Uproar Over Tax Breaks For Big Babies,” Padoa-Schioppa’s solution was a €1,000 tax break for twenty and thirty-something Italian renters. Speaking in support of his proposal, Padoa-Scioppa elaborated, “…with the budget, we’ll help young people who don’t marry and still live with their parents get out of the house.” Critics of the break cite Italy’s, “…increasingly geriatric society where the best jobs are often occupied by those over 50″, rather than generalized laziness, as the source of a problem far too complex for a €1,000 tax credit to solve.

Whiskey in Japan

(Organic.Matter)

Nothing sparks accounting ingenuity quite like tax avoidance. A case in point was the Japanese practice of “watering down” brandy and whiskey bottles in 1993. In order to qualify for tax rates, “…approximately one-fifth of that which would apply to the same amount of undiluted whiskey,” Japanese whiskey makers added water to bottled alcoholic beverages, taking advantage of the fact that European Community members were prohibited by their own tax laws from following suit. The European Business Council’s Alcoholic Beverage Committee was quick to protest Japanese beverage makers’ sneaky tax dodge, declaring that, “…it is impossible for European whiskey to compete” in an interview with the UK’s Independent.

Witches in the Netherlands

(Dennis Defreyne)

Most of us wouldn’t name witchcraft as an activity that ought to be subsidized with tax breaks, but the UK’s DailyMail begs to differ. Meet Margarita Rongen, a Dutch “tax-verified witch.” According to DailyMail, Dutch witches were, “…guaranteed a financial treat when the Leeuwarden District Court reaffirmed their legal right to write off the costs of schooling” up to several thousand dollars in deductions. The controversial write-off provoked serious criticism back in 2005, but according to Rongen, (clad in “…flowing black velvet robes, a chain of stone amulets and a wicca star”), the tax break had actually been around for quite a while. The only difference, Rongen said, is that the deduction now has the support of a judge. Still, it’s easy to see why Dutch citizens might be unhappy about tax breaks going to support, “…healing with herbs and stones, making potions, divination and fortune telling with crystal balls and hieroglyphs.”

“Culturally British” Games

(McClave)

The video game industry hardly seems in need of tax break stimulation, but according to Joystiq, they’ll get it anyway – at least in Britain. As recently as June 2009, word out of the UK was that the government “…has committed to work with the industry to collect and review the evidence for a tax relief.” But here’s the rub: in order to reap the write-offs, the game(s) in question will need to qualify as “culturally British.” How cultural Britishness will be determined is unclear, but some have suggested a criteria similar to those used by the UK’s Film Council which requires films to score at least 16 of 31 points on “…cultural content, contribution, hubs, and practitioners.”

Recent news articles have brought to light the fact that almost 47% of households in the US currently have zero or negative federal tax liability. We take a closer look at this lack of liability across each income level, highlighting the percentage in each range that will not pay any taxes. Also shown is a full breakdown of who is paying the bulk of all taxes collected by the Federal Government each year.

Embed the above image on your site
<a href="http://www.mint.com/blog/wp-content/uploads/2009/11/MINT-TAXES-R4.png"><img src="http://www.mint.com/blog/wp-content/uploads/2009/11/MINT-TAXES-R4.png" alt="MINT-TAXES-R4" title="MINT-TAXES-R4" width="900" height="1100" class="alignnone size-full wp-image-7243" /></a><br /><a href="http://www.mint.com/">Personal Finance</a>Software – Mint.com

Photo: oskay

The opportunity to convert an existing regular IRA to a Roth IRA may be the single biggest upside to the stock market’s extended slide. The younger you are and the more aggressive your investment strategy, the more likely it is that a conversion to a Roth IRA will make sense for you.

You may already be aware of the key difference between a regular IRA and a Roth IRA.  At a very high level, a regular IRA provides for tax-deferred growth whereas a Roth IRA gives you tax-free growth. All else equal, we’d all prefer tax-free growth, of course. Here’s everything you need to know about Roth Conversions

Contributions to a Roth IRA are limited and are not deductible

Trouble is, income limitations prevent everyone from being eligible to contribute to a Roth IRA. During 2009, if you’re single and make more than $120,000 ($176,000 combined with your spouse, if you’re married), you can’t contribute a dollar to a Roth IRA. Furthermore, those who can make a Roth IRA contribution can’t deduct it – that’s your key upfront sacrifice for the many future years of tax-free growth.

A Roth Conversion allows everyone access to a Roth IRA

Let’s first define what a Roth conversion is: the transformation of your retirement account from tax-deferred to tax-free status. You effectively move money from an existing regular IRA or former employer’s 401k account into your Roth IRA. The cost to do this conversion is the payment of regular income tax on virtually the entire amount you convert.  (You’ll pay tax on 100% of the converted amount unless you previously made non-deductible contributions).

Roth Conversion restrictions are going away

Through the end of 2009, conversions are only available to those people who earn less than $100,000 and have filing statuses other than married, filing separately. However, both of those restrictions are eliminated at the end of the year. As a result, anyone who wishes to contribute to a Roth IRA but whose income level is too high can make a 2009 contribution to his/her regular IRA and simply convert part of their account in 2010.

Why converting your Roth IRA could make sense today

If you’re confident your 2009 adjusted gross income will be less than $100,000, you don’t have to wait until 2010 to convert.  Furthermore, you can take advantage of market downturn, as I referenced earlier.  Here’s a simple example:

Say you invest in stock and you accumulated 300 shares of Johnson & Johnson stock (JNJ) over the years. If you converted your shares during April of 2008, when JNJ was trading at about $67 per share, you’d have converted $20,100 of stock. Assuming you were in the 25% tax bracket, you would have owed about $5,000 in taxes on the conversion.

In April 2009, JNJ was trading at about $51 per share. If you converted the stock then, you would have converting $15,300. If you were in the same 25% tax bracket, you’d owe just over $3,800 in tax, not $5,000, for a permanent tax savings of $1,200. In either conversion, you retain ownership in the long-term potential price appreciate of JNJ, yet in the latter case you’ve successfully timed the market from a tax perspective.

It’s certainly possible that stock prices could go lower from here and that a further delayed conversion could be even more lucrative from a tax perspective.  Nonetheless, a conversion could make more sense for you today than at any time previously.

Take advantage of your youth

The big upside of voluntarily paying taxes (since you don’t have to convert), is the tax-free appreciation of your converted investments.  The longer the amount of time you have until you plan on taking your money out (ideally retirement), the greater the odds that a Roth IRA conversion will make sense.

In addition, the better your investment performance between now and retirement, the greater the upside of converting to a Roth IRA. Still, it makes sense to run the numbers.  Importantly, it seldom makes sense to convert to a Roth IRA if you don’t have the money available to pay the tax on conversion.   Using money from your IRA to pay the tax almost never makes financial sense.

Keep in mind that it’s not an all-or-nothing proposition. If you want to convert your retirement account but just don’t have the funds set aside to pay all the taxes, consider converting some of your account.  You can always do some more next year.

Michael B. Rubin is the author of Beyond Paycheck to Paycheck and the blog of the same name. He is the President of Total Candor, a financial planning education company.

You know what they say, there are two things in life you can’t avoid: death and taxes. So you’d better make sure you understand both. Death & Taxes 2010, the infographic, will show you exactly how the Obama administration is planning to spend your money. Completely updated and newly released, it contains over 500 programs and departments and almost every program that receives over 200 million dollars annually. The data is straight from the president’s 2010 budget request and will be debated, amended, and approved by Congress to begin the fiscal year. All of the item circles are proportional in size to their spending totals and the percentage change from 2009 is included to spot trends and disproportion.

If you pay taxes, then you have paid for a small part of everything you see here. “Death and Taxes” is essential reading for any responsible citizen or information junkie.

For more personal finance visualizations see: WallStats.com

Use this code to embed the image on your site
<object width="600" height="450" classid="clsid:d27cdb6e-ae6d-11cf-96b8-444553540000" id="ZoomBrowser_478"><param value="http://demo.zoomorama.com/zml/DT/browser.swf?indexURL=http://demo.zoomorama.com/zml/DT/zml/index.zml?indexURL=http://demo.zoomorama.com/zml/DT/zml/index.zml" name="movie"/><param value="window" name="wmode"/><param value="true" name="allowfullscreen"/><param value="always" name="allowscriptaccess"/><embed width="600" height="450" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" wmode="window" src="http://demo.zoomorama.com/zml/DT/browser.swf?indexURL=http://demo.zoomorama.com/zml/DT/zml/index.zml?indexURL=http://demo.zoomorama.com/zml/DT/zml/index.zml"/></object><br />For more <a href="http://www.mint.com">personal finance</a> images visit Mint.com's <a href="http://www.mint.com/blog/">Financial Blog</a><br />

(NathanFromDeVryEET)

Tax season is almost over but there’s still time to maximize the tax benefits of your 401k(s) and IRA(s). Before you can begin reaping the potential benefits however, you’ll need to ask yourself a few questions relating to your current station in life and where you’d like to be come retirement age.

1. Do you plan on working to the age when you can withdraw retirement funds penalty free or retire early?
2. Do you need the benefit of tax deductions right now due to a tough financial situation?
3. Are you in a higher tax bracket right now than you think you will be in retirement?
4. Do you think your lifestyle will be less or more expensive in retirement?

Without an answer to these tough questions, it is very challenging to know whether to invest your retirement savings through the traditional or Roth options available to you. And what about an SEP IRA? When can that come into play?

When it comes to choosing the retirement account that makes the most sense for you, there are some general tips you can follow. Your answers to the previous four questions will only enhance your ability to get the most out of these tips.

1. Get Free Money First
Before considering an IRA, you should first make sure that you are getting the maximum benefit out of your employer’s 401k plan. What this means is that before contributing funds to any IRA, you should get the maximum match from your employer in your 401k. If you’re not sure what that amount is, you have some homework to do. Once this maximum match has been achieved, you can move over to IRA’s.

2. Know Your Limits
They can change annually so it’s worth checking. For 2009, the IRS maximum allowed contribution per individual for 401k’s is $16,500, with an additional catch-up contribution for those 50 and older. For both IRA’s, it is $5,000 (combined per individual), with a catch-up contribution of an additional $1,000. In 2010 and beyond, limits are indexed to inflation.

3. Understand What a Tax Deduction is
Every dollar you contribute to a traditional 401K or IRA is a dollar taken off the top of your taxable income for the present year. For instance, if I earned $40,000 this year and maxed my traditional IRA and 401k contributions, my taxable income would be $18,500 versus $40,000 ($40,000-$16,500-$5,000 =$18,500). If I’m in the 15% tax bracket, this would shave $3,225 off of my $6,000 tax obligation for the year.

4. Understand the Term ‘After-Tax’
Both the Roth 401k and IRA options are ‘after-tax’. This means that your contributions are after taxes have already been subtracted. You are getting taxed today, for the benefit of not being taxed when you start getting distributions later on. With the traditional options, you are getting the benefit of not being taxed today, but you will be taxed on your distributions later on.

5. Understand the Trade-offs
If you plan on retiring early, opting for the traditional options versus the Roth can allow you to save your tax cuts towards this goal, if you are disciplined enough to do so. But there is always a catch, right? You will have less money in retirement because you are taxed on your distributions through the traditional.

6. Know Yourself
If you plan on traveling the world and living lavishly in retirement, it makes sense to take the tax hit now with the Roth options so that you have more money in retirement. If you plan on living humbly in retirement (after all, any mortgages should be paid off by then), then you may want to take the tax hit down the road.

7. Understand Your Current Situation
If you are making a fair wage but are drowning in debt and will be in the red for the year, then it would rarely make sense to opt for the Roth options when you could be getting the tax benefits of the traditional options today, which could be a life saver for you.

The Third Option

We’ve discussed Roth and traditional options fairly extensively, but have not yet discussed the SEP IRA. The circumstances allowing you to contribute to an SEP IRA differ from the traditional and Roth IRA options. You may open an SEP IRA if you have self-employment income from freelance or other work. Other than contribution limits, SEP’s pretty much operate in the same way as traditional IRA’s.

As we discussed in the previous IRA article, SEP’s are a highly desired option for the self-employed who have already maxed out on their traditional and Roth contributions, yet still want additional tax deduction benefits. The maximum dollar allocation is $49,000 in 2009.

For more of GE Miller’s writing, visit 20somethingfinance.

To learn more about contributing to an IRA, visit Mint’s IRA Advisor.

If anxiety over doing your taxes has reached a fever pitch, you’re not alone. The vast majority of taxpayers wait until dangerously close to midnight on April 15 to file. And one of the biggest contributors to this procrastination is a lack of understanding around exactly which form to file. We can’t necessarily making filling out your tax forms any less boring but we can give you the information you need. Here is a summary of the forms you will most likely need and what each form reports.

The most commonly used tax forms are 1040, 1040A and 1040EZ. The individual income tax return form 1040 is a standard; it is used across the board whether you make $20,000, $150,000 or more in annual income. Form 1040 is used to report wages, salaries, filing status, exemptions and itemized deductions. Form 1040A is similar to 1040 except it does not report items such as alimony received, business income, rental real estate, royalty income and other taxes such as unreported social security and Medicare tax. 1040EZ is the most basic tax return; it is primarily for single and joint filers with no dependents. The Internal Revenue Service website is the best and most reliable place to obtain all the tax related information you need. It has all the forms you need to properly file your taxes. Publication 17 is the best resource provided by the IRS to assist tax preparers. The publication summarizes important tax changes that took affect within the last year and discusses these changes in detail. Another publication that details tax law changes is Publication 553, Highlights of 2008 Tax Changes. Both of these publications can be obtained through the IRS.

W-2’s are the tax forms most of us receive. These come from our employers and report wages, tips, social security, Medicare, withheld income taxes, severance pay and other types of compensation. For the lucky ones who have won the lottery or received any type of gambling winnings of $600 ($1,200 from bingo or slot machines) or more in the past year, they will receive Form W-2G from the place that awarded the funds. Form 1099-MISC reports other forms of income such as rent or royalty payments of $10.00 or more. It also reports prizes and awards from TV and radio of $600 or more. The form can be used to report payments made to physicians or other types of medically related expenses or income from contract or freelance work. If you made any donations to a charity throughout the year you should receive a statement from the charity stating the date of the donation and the amount you contributed. This will be used as proof for your tax deduction. If you don’t receive any statement from the charity, make sure you have a canceled check or a copy of one with the name of the charity, the date and the amount donated.

Companies paying out dividends report dividend and distributions such as capital gain distributions or non-taxable distribution for those who have investments on Form 1099-DIV. Interest obtained from bank savings, checking or other interest bearing accounts is reported on Form 1099-INT which is provided by your financial institution. Commonly used schedules which are attached to tax returns are Schedules A and B (reports itemized deductions, interest and ordinary dividends), Schedule C (reports profit and loss from a business), Schedule D (reports capital gains and losses) and Form 2441 (for child and dependent care expenses).

This year, there are additional tax credits you may be eligible for. The Recovery Rebate Credit is for people who did not get a Stimulus Payment or if other circumstances changed during the previous year. If it was your first time or you will be buying a home between April 8, 2008 and July 1, 2009, you may qualify for the First-Time Homeowners credit. Also, if you earned less than $41,646 in 2008, you may qualify for the Earned Income Tax Credit. Find out more on the IRS website or talk to your accountant to see whether you qualify.

If you are the type who likes to do your own taxes, you can start by signing up for Mint.com. Mint.com automatically categorizes your transactions and allows you to tag expenses and income as tax related. Don’t forget to tag health care expenses, unreimbursed business and any interest you’ve earned. Mint.com can export your transactions so they can be imported into a spreadsheet that you can use to estimate your taxes.

Three popular software programs for doing your taxes are TaxCut from H&R Block, TaxAct, and TurboTax from Intuit. TaxCut is more for people who are already comfortable filing their own taxes or are familiar with concepts such as tax-exempt dividends and cost basis. TaxACT handles both simple and complex returns, offers a free deduction examiner, and lets you prepare, print and file your federal tax return for free. TurboTax is perhaps the most comprehensive, with easy to understand explanations that help clarify over 350 possible deductions and credits. The IRS also provides a Free File service. It allows those who earned $56,000 or less in 2008 to use their tax software and e-filing for free in either English or Spanish.

If you feel more comfortable having someone else prepare your taxes, make sure you select someone you trust professionally. This is a long-term relationship and one that is nearly as important as choosing a doctor or a lawyer. You’ll want someone who has a few years under their belt preparing tax returns for people in your particular situation. Be leery of any tax preparer who guarantees a certain amount of refund or who bases fees on a percentage of the amount of the refund. These types of tax practitioners are not working for your best interest. As the taxpayer, you will ultimately be responsible for what is on the tax return, it is extremely important to select the right person. Researching an individual through your local Better Business Bureau will reveal whether the person has had any questionable history or complaints filed against them. You can also look for individuals who are Enrolled Agents (EA), Certified Public Accountants (CPA) or Tax Attorney’s. These professionals provide tax preparation, representation before the IRS, tax planning and other financial services. For individuals who are 60 years of age or older, trained volunteers from non-profit organizations provide free tax counseling and basic income tax return preparation through the Tax Counseling for the Elderly Program (TCE), sponsored by the IRS. AARP also offers an IRS sponsored tax aid counseling program for seniors. The Volunteer Income Tax Assistance Program (VITA) also offers free tax help to low- to moderate-income (generally, $42,000 and below) people who cannot prepare their own tax returns.

Armed with this information, you can make this year the year you won’t stress out at the mere mention of tax returns. Let this year be the one where you will have all your paperwork ready, file your return early or on time and keep a smile on your face as you await a hefty refund.