Posted: 07 Nov 2010 01:58 AM PDT

Posted on Sun, Nov. 7, 2010

Normally at this time of year, taxpayers would be busy following tried and true ways to cut their taxes before the year ends.

They'd be trying to solidify as many deductions as possible while also trying to push some income, such as bonuses, into the following year.

But this is no normal year, because the nation's tax rates are in limbo. Tax reductions enacted in 2001 and 2003 will end this year if Congress does not act before Jan. 1. And in that case, taxes will go up on every taxpayer.

Political leaders have been sending mixed messages. Some claim they will make sure they renew the Bush cuts before the end of the year so the middle class does not face higher taxes next year. Others say higher-income people can live without tax cuts, and still others say all Americans need to keep tax cuts while the economy heals.

Regardless of the positions, taxes will remain in limbo until Congress makes a move. Financial advisers expect some action by Congress after the November elections, but they say it could come so late in the year that taxpayers will have little time to plan their best moves in the few days remaining before 2010 ends.

Rather than guess now, Mark Nash, a financial planner and certified public accountant with PricewaterhouseCoopers L.L.P., suggests clients make contingency plans so they can adjust fast to whatever occurs. "Make plans, but don't pull the trigger until we see what Congress does after the election," he said.

While few expect middle-income clients to face higher taxes next year, advisers say people with incomes of more than $200,000 and couples with incomes of more than $250,000 need to be ready to protect themselves from higher taxes in 2011 if Congress moves in that direction.

Under measures discussed by President Obama, people in today's 33 percent tax rate could see their tax rate climb to 36 percent, and the current 35 percenters would jump to 39.6 percent. Also, capital gains taxes could go from 15 percent to 20 percent; the zero percent capital gains rate for low-income people could disappear. High-income people could end up with dividends taxed at 39.6 percent.

If Congress decides this year to increase taxes on the affluent in 2011, then the normal practice of moving income from 2010 to 2011 could be a mistake. Also, deductions might be more helpful in 2011 than 2010. Basic contingency plans would involve delaying deductions and taking income this year rather than next.

For example, if you were going to make a large contribution to a charity, you might wait and do it after Jan. 1, when it might reduce a higher tax bill than this year's. Likewise, if you have a business, and typically wait until the end of the year to bill a client, you might send out the bill now and hound the client to pay before the end of December. That way you can pay taxes at this year's lower rates to avoid higher rates in 2011.

Keep in mind, however, where you stand on income. Financial advisers are still telling middle-income people, who are not likely to have a tax increase next year, to think about cutting taxes this year with these steps.

If you are more affluent, consider these steps, but weigh 2010 and 2011 trade-offs:

Find clothing and other items for charitable donations. Get a receipt stating the value.

Try to meet the threshold of 7.5 percent of adjusted gross income for a deduction on medical expenses by bunching dental work, eye care, prescriptions, or other nonemergency procedures in a single year.

Consider selling stocks, bonds, mutual funds, or property that have increased in value since it was purchased, but only if that makes sense for investments as well as taxes. Pay property taxes and January mortgage payments in 2010 to reduce 2010 taxes, but wait if you can until 2011 if you think your taxes will go up then.

Finish off energy-saving improvements on your home or buy one of the few cars that qualify for energy tax credits that will expire.

Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

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Personal Finance: It's time to review your job's medical plan - Sacramento Bee

Posted: 06 Nov 2010 09:34 PM PDT

Ah, November: one of those special-occasion months. No, we're not thinking elections or holidays. We're talking something far more unexciting: health plans.

For those lucky enough to be working for an employer offering group health care coverage, now's the time to make your health plan choices for next year.

The so-called "open enrollment" period, which typically runs for several weeks in November, is your chance to tweak and tune up your health care plan for 2011.

And this year, with health care costs climbing for employees and employers alike, it could be more financially beneficial than ever to review your options.

(Even if you're not covered by an employer's health plan, I'll cover some new health care provisions that could affect you.)

For starters, we're all going to pay more. For large employers, the average total health care premium – per employee – will be $9,821 in 2011, up nearly $800 from this year. Employees, on average, will be asked to contribute $2,209 of that cost, a 12.4 percent increase from 2010, according to a recent analysis by Hewitt Associates, a global human resources consulting firm.

By 2011, employees' health care costs – including premiums and out-of-pocket expenses – will have more than tripled in the last decade, according to Hewitt.

So when signing up for next year's health care plan, "don't just go on autopilot," said Wendy Barnes, consumer health insurance expert at eHealthInsurance.com. "Pay attention to what you're paying. It's not just the premium, but check to see what may have changed with the deductible, co-pays, prescription drug costs."

Too much or too little?

Are you paying for benefits you never used last year? Did you set aside too much – or not enough – in a medical savings account?

It can take as little as 60 minutes to review your medical expenses, said Tracey Baker, a certified financial planner in Fairfax, Va., and co-author of "Navigating Your Health Benefits for Dummies."

Check to see how many doctor's visits you and your family had and how much you paid out of pocket for prescriptions, co-pays and other medical expenses.

Then look for ways to save. For instance, with prescriptions, consumers can shave a big expense by opting for generics or mail-order renewals through their health plan. If you go to a three-month refill, for example, you might only have to pay two months of co-pays.

"That one extra $50 co-pay every quarter could save you $200 a year," said Baker. "Mail-order prescriptions are highly underutilized but they save time and money."

Another saving: If you typically only visit the doctor for annual checkups, it may make sense to go to a higher-deductible plan and pay a lower premium. But be mindful: If a medical emergency occurs and you have a $5,000 deductible, you would be responsible for the full amount before insurance kicks in.

Also, check to be sure your doctors are still considered "in-network"; many plans charge more if you see doctors who aren't covered by your health plan.

"For every benefit, there's a cost," noted Baker. "If you've got benefits you're not using, don't pay for them. Maybe it's time to get a more pared-down package."

What's new

Under the federal health reform bill signed in March, consumers will see a number of changes, including:

• Starting Jan. 1, co-payments or deductibles are eliminated for most preventive care, including annual checkups, vaccines, cancer or diabetes screenings, blood-pressure checks and cholesterol testing. The idea is to cut medical costs by helping people stay healthy. (For a complete list of eligible procedures, go to: www.healthcare.gov.)

• Adult children up to age 26 can now be covered on their parents' health plan, even if they're not a student or are married. (This does not apply if the child is working and eligible for individual health care through an employer.)

If your child lives out of state, check to be sure your health plan provides coverage, Barnes said. If a California health care provider doesn't operate in New York state, for instance, you might need to make other health care arrangements.

• Starting Jan. 1, if you're using a Flexible Spending Account (FSA), over-the-counter drugs (allergy and cold medicines, acne treatments, etc.) will no longer be eligible for reimbursement, unless you have a physician's prescription. Other standard eligible expenses – contact lens, eyeglasses, bandages, etc. – can still be reimbursed.

What to anticipate

Don't be surprised if your employer conducts a "dependent audit," asking you to verify that your spouse, children and other dependents are eligible for health care coverage. It's part of efforts by employers nationwide to curb rising costs.

If you have a grandchild living with you or an adult child under 26 whose job provides health coverage, for instance, they're likely not eligible under your plan. Same for ex-spouses.

Additionally, some employers are dropping other types of dependent coverage, such as dental and vision for children over 18.

You also could see more "cost sharing" by employers: higher deductibles, larger limits on out-of-pocket costs and higher charges for using out-of-network doctors, according to Hewitt. Other potential changes: some employers could add a surcharge for covering a spouse or shift from fixed-amount co-pays to "co-insurance," where employees pay a percentage of costs for health care services.

Take advantage

Don't overlook wellness programs and other stay-healthy incentives offered by health care providers, such as programs for losing weight, managing diabetes, quitting smoking or preparing for childbirth/parenting. Some plans offer subsidies for health clubs or gym memberships.

"Go to open enrollment meetings and ask about what your company offers. It really makes sense to tap into those programs," said Barnes, who discovered during her pregnancy that her company's plan offered a month-by-month pregnancy book and a 24-hour advice line staffed by a nurse that was sometimes more accessible than calling her obstetrician's office in the middle of the night.

Set it aside

Consider using either an FSA (Flexible Spending Account) or an HSA (Health Savings Account), which let you set aside pretax dollars to pay certain medical costs.

An FSA lets you set aside up to $5,000 for qualifying medical or "dependent day care" expenses. You submit receipts or use a debit card to get reimbursed. A note of caution: This is a use-it-or-lose-it account. If you set aside too much money and don't use it all or forget to file your claims by the deadline, you don't get it back.

And note: If you're currently using an FSA account for medical or day care expenses, you have until Dec. 31 to incur expenses. You'll have a grace period – usually a month or two into 2011 – to submit claims for those costs.

An HSA, however, does roll over and is considered a savings account that can grow over time. It's paired with a high-deductible plan and lower premiums. You open an HSA through your employer or at a financial institution, up to $3,050 for individuals or $6,150 for a family.

Baker recommends setting it up with automatic, pretax payments from your paycheck and fund it to at least cover your deductible. "If you're younger and healthy with no chronic medical conditions, it's a way to keep your costs in line and build a savings vehicle," Baker said.

Above all, ask questions. Attend your company's open enrollment sessions. Use comparison tools and health expense calculators at websites such as www.hmohelp.ca.gov, www.planforyourhealth.com or eHealthInsurance.com, among others. (For additional resources, see accompanying box.)

"Everyone's financial situation and everyone's health situation is different," said Barnes, the EHealthInsurance expert. "It pays to look at what's out there."

Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968.

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Personal Finance: Daring to turn back to stocks - Philadelphia Daily News

Posted: 31 Oct 2010 03:25 AM PDT

Posted on Sun, Oct. 31, 2010

People have had it with the stock market.

Collectively, they have pulled about $18 billion out of stock funds this year and poured more than $200 billion into bond funds, which can be safer. Market watchers are shocked, having figured investors would get braver once stocks began to look friendly again. And though some have stuck a toe back into the market, lured by the best September for stocks in 71 years, investors largely remain unconvinced.

Many continue to mourn what they have lost and coddle what is left from one of the worst bear markets in history. The full stock market, the Dow Jones Wilshire 5000 index, remains down about $4.8 trillion from its October 2007 peak, even after having climbed $6.4 trillion from its March 2009 low. But your investments probably have not been as cruel as you think. With help from Ibbotson Associates Inc., I ran various scenarios. And the results show that while people close to or in retirement might still be hurting if they panicked and ran in the downturn, most people who held on have at least regained what they lost.

Of course, that is little comfort for those counting on having more for retirement by now, but it is not the disaster they might have imagined. Take a look:

Euphoria-induced excesses

Step back to 2007, when you probably felt pretty good about your money. That is typical just before a nasty downturn. Major collapses generally are fed by people feeling cozy about their money and often putting more into stocks or real estate than is wise - even borrowing to up the ante.

It is those euphoria-induced excesses that position a market to topple. Just before the most recent downturn, for example, one in four people within 10 years of retiring had put 90 percent of their money in mutual funds invested exclusively in stocks. It was misplaced confidence, and it backfired.

Yet, even that oversize bet on the stock market did not turn out as badly as imagined amid the excruciating slide. Let's say you put life savings of $10,000 in the stock market or a Standard & Poor's 500 index fund in 2007. That $10,000 would have turned into about $4,980 close to the low point in the market in March 2009. But by the end of last quarter, Sept. 30, you would have roughly $8,000.

Of course, having $8,000 to show for your retirement when you started with $10,000 is still not pretty. But let's look at how you would be sitting if you followed the nagging that goes with good investment principles.

Going forward

If you had put 70 percent of your money in a stock-market-index mutual fund and 30 percent in bonds, you would have been following the precept of diversification. At the market's low point, you would have had less than $7,000 of your $10,000 - not as protected as you thought but in much better shape than the all-stock investor. Now, because stocks have climbed, you would have roughly $10,090.

If, however, you put half your money in the stock fund and half in a long-term U.S. Treasury bond fund, you would have had about $7,700 at the scariest time and about $11,300 now.

That is a lot better than the person who got scared and pulled out money after it plunged to $7,700. Parked in a savings account, the $7,700 would have climbed to only about $7,800.

What now?

If the stock market continues to rally into the end of the year - as some forecast - more people might feel daring and give stocks a try once again.

In fact, financial advisers have been pushing this. But they are not telling investors to try to catch up by putting oversize portions of money into stocks. Rather, they are suggesting that people afraid of losing money again consider the balanced approach, combining stocks and bonds in maybe a 50-50 mixture. They suggest using the past as a guide: Different proportions of stocks and bonds behave differently, and people who do not go overboard do regain what is lost.

Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

Personal Finance

Sunday, November 7, 2010