Home Mortgages, Wells Fargo and PMI

There seems to be a ton of misinformation on the web on how the PMI interacts with the home mortgage and I thought I would blog about my experience, as it might help someone out there. The following are my experiences with Wells Fargo. So the applicability to your situation might vary

PMI – Private Mortgage Insurance, is insurance that I had to pay monthly, as my down-payment was less than 20%. (I have a conventional 30 year loan). The PMI is used to make up any difference in the home price, in case I defaulted on the loan and Wells Fargo had to fore-close the loan on me. The important thing here is that the PMI is required whenever your Home To Loan value ratio is greater than 80%. (LTV definition: (Current outstanding loan amount)/(Home Purchase Price)).

One of the laws that govern how long PMI applies to a loan is called the Home Owners Protection Act of 1998. It specifies for how long PMI can be charged to a home loan and in addition also governs automatic termination of the HOP as well as buyer requested termination. Unfortunately, the act is not easy to understand and it led to many questions for me (such as, will the PMI be dropped if I reached a 80% LTV and will it be dropped if I reached that point within one year of getting the loan).

Here are my specific experiences with Wells Fargo:

• I was able to call in and ask for a letter to be sent to me that specified how I could drop the PMI. The document specified that the PMI would be dropped when the loan reached 78% LTV. The letter also specified the exact amount (as of the date of the letter) that I could pay towards the principal so as to reach the 78% LTV to drop the PMI.
  In addition the document also provided other ways in which the PMI could be dropped. Specifically, by having the house appraised at a higher value (the %, etc was specified in the document). But in this economy, I was sure that my house would not have appraised for more (and probably would have appraised for less than my purchase amount). So this document told me exactly what I had to plan for, to get rid of the PMI.
• The day that I got the LTV to 78% I called Wells Fargo so that I could request cancellation of the PMI. To my pleasant surprise, they told me that it had been already been removed automatically. About 2 weeks after the LTV reaching 78% I got a PMI deletion notice letter from Wells Fargo. (Although, it looks like the PMI does get automatically deleted by Wells Fargo, I would suggest that you call Wells Fargo to make sure that the PMI will get cancelled).

Notes:

Wells Fargo FAQ on PMI: https://www.wellsfargo.com/mortgage/faq/privatemortgage

Money Girl’s Quick and Dirty Tips: http://moneygirl.quickanddirtytips.com/how-to-cancel-private-mortgage-insurance-pmi.aspx. This page has tons of in-depth information on PMI. I strongly suggest you read this article as it covers all the different situation under which the PMI can be cancelled.

Federal Reserve document on the Home owners protection act: http://www.federalreserve.gov/boarddocs/supmanual/cch/hpa.pdf

Disclaimer:

I am not a banker or a lawyer or a mortgage loan specialist. So the above information might not be 100% accurate. The above post is based only on my experiences.

Lending money to family and friends and the IRS

Came across an interesting article on CNNMoney, that talked about the fact that if you lend money to anybody at below a certain rate, then you could be assessed the difference as part of your income tax.

The minimum rate that you need to lend money at is determined by the Applicable Federal Rates (AFR). The rates are published monthly at http://www.irs.gov/app/picklist/list/federalRates.html

There are 3 sets of rates – short-term (under 3 years), mid-term (3 to 9 years) and long-term (beyond 9 years).

And here is the CNN Money article where I first came across this information: http://money.cnn.com/2009/09/14/pf/expert/family_lending.moneymag/index.htm?postversion=2009091505

Cost of living comparison tool from CNN Money

A Cost of living comparison tool from CNN Money http://cgi.money.cnn.com/tools/costofliving/costofliving.html

Credit Cards, Skimmers and what you need to know

Today, on TV I saw a report of credit card skimming using a scanner attached to an ATM that occurred here in Denver (NBC Denver (9News) : Skimming device found on bank ATM). Credit Card skimming is the act of extracting the information stored on the black magnetic stripe on the back of your credit and debit cards. The report reminded me of a presentation that I had seen on the Internet a couple of weeks ago that went into this very issue. The presentation is a good read and here is my take away:

• Be wary of ATMs that are located in unsecured locations (open areas, gas stations, malls, etc.).
• Be extra careful when you use ATMs late in the night or early in the morning.
• Before slipping your card into the slot, move your finger over the slot to feel for any loose parts or attachments.
• While typing in your PIN, use your other hand to cover what your typing. In most cases, the skimmers need to get the information in the magnetic stripe as well as the PIN number to be able to exploit your card. (Though, they could create a duplicate card with the information from your credit card and use it to go on a shopping spree).
• Finally, sign up for a service like Mint or Wesabe, which allow you to keep track of all the transactions occurring in your bank accounts, this in my opinion is the best way to protect yourself. The earlier you detect any fraudulent activity and report it to your bank and the police, the better you protect yourself from paying for someone else’s shopping spree.

9News report on Credit Card Skimming in Denver

Here is the Credit Card skimming presentation:

Skimmer Presentation

Squanderville vs. Thriftsville and the problem with Import Certificates

In a previous post SNL makes fun of the residents of Squanderville, I had excerpted Warren Buffet’s story about Squanderville vs. Thriftsville, a story that in 2003 showed the dangers of having years of trade deficit with other countries.

This problem is further exacerbated by the fact that for all the stuff that we buy from other countries, because of the trade deficit, we are paying for these commodities with assets from our country. Further, into the article, Warren Buffet goes on to describe his solution to this problem of a growing US trade deficit using an instrument called Import Certificates (ICs). Basically, other countries would have to buy (import) an equal amount in dollar terms before they would be able to sell (export) to us. I am not sure if Warren Buffet has changed his thoughts on how to fix the problem, but using an instrument that is nothing more than a trade tariff seems to be calling for trouble.

For one, using ICs seems to make the assumption that we will have stuff to sell to the rest of the world, that the rest of the world wants. This eventually might be possible, but in the short run – I am not sure how we will get over the fact that we currently have a trade deficit of $57.2 billion and that is being caused by the fact that we need to buy from other nations not just clothes, toys, electronic (consumer goods), but also industrial supplies and raw materials, foods, feeds all an important input for a lot of our industries. Another issue I have trouble figuring out is what about smaller, 3rd world countries like those in Africa. These nations might have important low cost materials to sell to us, but they might not have the money to buy from us; in such a case, we would have to stop trading with such a nation. Now one might say that there might be surplus ICs in the world, but I highly doubt that, because nations like China and India definitely would have more than enough stuff to export that the ICs would become an extremely important commodity to them. Another issue might be that some nations might have to export to us first, before they can begin importing from us – in which case how do we break the impasse? We would have to allow for a mechanism where-by the other nation would first be allowed to export to us and then we would have to trust that they will have the money in the future to import from us (clearly this can be a problem in times of world-wide economic recession, like we are seeing today). Finally, also note that in some cases – other nations might have to export to us for many years before we might come into a position where we can begin selling them something. A good example would be a car manufacturing plant – that needs building and raw materials from other countries to build the plant in the first place. Only once the plant is built (which can take from 2 to 5 years, not including design time for the car itself), will we have a car to sell to other nations to close the trade gap. 

Well, I don't have an economics degree – so what do I know when it comes to stuff thought up by the oracle of Omaha? But to me it just seems that the right way to fix the trade deficit (a real, present and clear danger) would be to figure out how to bring back the competitive edge back to the U.S. This economic crisis seems to me to be the ideal cauldron which can allow the country to cook up what it needs to make it a positive trader of goods that in general the world wants more off.

So given my lack of an economics background – is there something that I am missing in this proposed solution by Warren Buffet? Or do you have a link to some new information from the WB?

An inconvenient truth about our economy

I.O.U.S.A – is as the Huffington Post labeled it a documentary about the inconvenient truth about our economy. It is timely and thought provoking.

As Abraham Lincoln said “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.”

View the trailer for the film and then if you have the time, check out the 30 minute version (embedded after the trailer). Also, remember that CNN is airing the full movie with commentaries on January 10 and January 11 (2009)

A 30 minute version of the movie

Check out more clips on YouTube - http://www.youtube.com/user/IOUSAtheMovie

SNL makes fun of the residents of Squanderville

Who are the residents of Squanderville? It’s us Americans dummy.

Clip from I.O.U.S.A showing an animation of Squanderville vs. Thriftville.

Squanderville vs. Thriftville – an article by Warren Buffet – Fortune Magazine October 2003

To understand why, take a wildly fanciful trip with me to two isolated, side-by-side islands of equal size, Squanderville and Thriftville. Land is the only capital asset on these islands, and their communities are primitive, needing only food and producing only food. Working eight hours a day, in fact, each inhabitant can produce enough food to sustain himself or herself. And for a long time that's how things go along. On each island everybody works the prescribed eight hours a day, which means that each society is self-sufficient.

Eventually, though, the industrious citizens of Thriftville decide to do some serious saving and investing, and they start to work 16 hours a day. In this mode they continue to live off the food they produce in eight hours of work but begin exporting an equal amount to their one and only trading outlet, Squanderville.

The citizens of Squanderville are ecstatic about this turn of events, since they can now live their lives free from toil but eat as well as ever. Oh, yes, there's a quid pro quo -- but to the Squanders, it seems harmless: All that the Thrifts want in exchange for their food is Squanderbonds (which are denominated, naturally, in Squanderbucks).

Over time Thriftville accumulates an enormous amount of these bonds, which at their core represent claim checks on the future output of Squanderville. A few pundits in Squanderville smell trouble coming. They foresee that for the Squanders both to eat and to pay off -- or simply service -- the debt they're piling up will eventually require them to work more than eight hours a day. But the residents of Squanderville are in no mood to listen to such doomsaying.

Meanwhile, the citizens of Thriftville begin to get nervous. Just how good, they ask, are the IOUs of a shiftless island? So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville.

At that point, the Squanders are forced to deal with an ugly equation: They must now not only return to working eight hours a day in order to eat -- they have nothing left to trade -- but must also work additional hours to service their debt and pay Thriftville rent on the land so imprudently sold. In effect, Squanderville has been colonized by purchase rather than conquest.

It can be argued, of course, that the present value of the future production that Squanderville must forever ship to Thriftville only equates to the production Thriftville initially gave up and that therefore both have received a fair deal. But since one generation of Squanders gets the free ride and future generations pay in perpetuity for it, there are -- in economist talk -- some pretty dramatic "intergenerational inequities."

Let's think of it in terms of a family: Imagine that I, Warren Buffett, can get the suppliers of all that I consume in my lifetime to take Buffett family IOUs that are payable, in goods and services and with interest added, by my descendants. This scenario may be viewed as effecting an even trade between the Buffett family unit and its creditors. But the generations of Buffetts following me are not likely to applaud the deal (and, heaven forbid, may even attempt to welsh on it).

Think again about those islands: Sooner or later the Squanderville government, facing ever greater payments to service debt, would decide to embrace highly inflationary policies -- that is, issue more Squanderbucks to dilute the value of each. After all, the government would reason, those irritating Squanderbonds are simply claims on specific numbers of Squanderbucks, not on bucks of specific value. In short, making Squanderbucks less valuable would ease the island's fiscal pain.

That prospect is why I, were I a resident of Thriftville, would opt for direct ownership of Squanderville land rather than bonds of the island's government. Most governments find it much harder morally to seize foreign-owned property than they do to dilute the purchasing power of claim checks foreigners hold. Theft by stealth is preferred to theft by force.

So what does all this island hopping have to do with the U.S.? Simply put, after World War II and up until the early 1970s we operated in the industrious Thriftville style, regularly selling more abroad than we purchased. We concurrently invested our surplus abroad, with the result that our net investment -- that is, our holdings of foreign assets less foreign holdings of U.S. assets -- increased (under methodology, since revised, that the government was then using) from $37 billion in 1950 to $68 billion in 1970. In those days, to sum up, our country's "net worth," viewed in totality, consisted of all the wealth within our borders plus a modest portion of the wealth in the rest of the world.

Additionally, because the U.S. was in a net ownership position with respect to the rest of the world, we realized net investment income that, piled on top of our trade surplus, became a second source of investable funds. Our fiscal situation was thus similar to that of an individual who was both saving some of his salary and reinvesting the dividends from his existing nest egg.

In the late 1970s the trade situation reversed, producing deficits that initially ran about 1% of GDP. That was hardly serious, particularly because net investment income remained positive. Indeed, with the power of compound interest working for us, our net ownership balance hit its high in 1980 at $360 billion.

Since then, however, it's been all downhill, with the pace of decline rapidly accelerating in the past five years. Our annual trade deficit now exceeds 4% of GDP. Equally ominous, the rest of the world owns a staggering $2.5 trillion more of the U.S. than we own of other countries. Some of this $2.5 trillion is invested in claim checks--U.S. bonds, both governmental and private--and some in such assets as property and equity securities.

In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce--that's the trade deficit--we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.

To put the $2.5 trillion of net foreign ownership in perspective, contrast it with the $12 trillion value of publicly owned U.S. stocks or the equal amount of U.S. residential real estate or what I would estimate as a grand total of $50 trillion in national wealth. Those comparisons show that what's already been transferred abroad is meaningful--in the area, for example, of 5% of our national wealth.

More important, however, is that foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners' net ownership of our national wealth. As that ownership grows, so will the annual net investment income flowing out of this country. That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past. We have entered the world of negative compounding--goodbye pleasure, hello pain.

We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that's the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades.

The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary--and because we are so rich. Neither our capacity nor our intention to pay is questioned, and we continue to have a mountain of desirable assets to trade for consumables. In other words, our national credit card allows us to charge truly breathtaking amounts. But that card's credit line is not limitless.

A $7,500 interest free loan from the government towards your first home

This is a story that I havent seen much in the news, so I thought I would post it here for the benefit of others.

The federal government is offering a $7,500 tax credit towards a first home (its actually 10% of the purchase price or $7,500,whichever is lower – so a house above $75,000 will qualify you for the full tax credit). The house should have been bought between July 2008 and July 2009.

So, why is this a loan? Basically, the credit provided to you by the government needs to be recaptured over a 15 year period. You will end up paying the amount as an additional amount on each tax year, starting in 2010 for 15 years. (If you sell the house then you might have to close this loan from the government right away – special rules apply, so read up).

This tax-credit is available for tax filed for the year 2008. But, you can claim the credit even on houses that you bought in 2009 (up to July).

If you bought a home in the last 6 months, or plan on buying one in the next 6 months, this could be a great source of money for you.

Remember – to look at it as an interest free loan and not as an tax-credit.

More information is available at: http://www.federalhousingtaxcredit.com/

Google Search for more articles on the $7,500 tax-credit for 2008.http://www.google.com/search?hl=en&rlz=1T4GGLL_en&q=7500+tax+credit+first+time+home+buyer+2008

Ignore your assets and they could disappear.

FYI! - From a recent ING Direct mailing.

So you've put some money away. And you're just letting it sit there and grow. Or maybe you've stashed away some valuables in a safe deposit box. If you haven't touched either in three to five years, you may never touch them again. It's all because of state laws - called escheatment or unclaimed property laws - that require banks and brokerages to turn over unclaimed property, including un-cashed payroll checks, stock, bank deposits and more, to the State. Property is classified as "unclaimed" when a Customer doesn't contact the bank where his/her money is held over an extended period of time and there has been no activity.

The State government is then supposed to identify and contact the rightful owners, and reunite them with their property; however, each State has a "who's who" list of people who "couldn't be found" and whose property has been seized. For more info, visit ingdirect.com/unclaimedproperty.

ShipGooder: Find out the costs of mailing using different services and service types

It is immensely hard to determine the costs of mailing a package right now. Typically one has t o visit multiple service provider websites and keep track of the costs from each one.

Not anymore! ShipGooder allows you to specify the to and from zip codes and the weight of the package and shows you a matrix of mailing costs using different providers and service types (over-night, ground, etc).  Currently they seem to support all the large providers in the US - USPS, UPS, DHL and FEDex

ShipGooder

Save on Next Year's Taxes - TurboTax tips

These tax saving tips are courtesy of TurboTax - they come up once you have finished filing your taxes. There are some very good tips in here - so I decided to post them.

YOUR HOME

Whether you're a seasoned real estate investor or thinking about buying your first home, we have money-saving tips for you:

Homeowner's bible. Be a packrat with paperwork. Some costs associated with buying a new home affect your tax basis, the amount from which you'll figure your profit when you sell. You can deduct other costs in the year of the purchase, including any points you pay (or the seller pays for you) to get a mortgage and any property taxes paid by the seller in advance for time you actually own the home. Keep paperwork on home improvements, too.

Use your IRA to save for your first home. Sure, the R in IRA stands for retirement, but an IRA can be a powerful tool when you're saving for a home. Up to $10,000 can be withdrawn penalty-free for the purchase of your first home.

Don't underestimate the cost of home-equity debt. Generally, interest on up to $100,000 of debt secured by your home can be deducted, no matter what you use the money for. But if you are among the growing number of taxpayers who pay the alternative minimum tax (AMT), home-equity debt is only deductible if the loan was used to buy or improve your home.

Stay actively involved in rental real estate. Anti-tax-shelter legislation can prevent losses from real estate investments from being deducted against other kinds of income. However, if you are actively involved in a rental activity, you can deduct up to $25,000 of such losses, if your adjusted gross income is less than $100,000. You don't have to mow grass and unclog toilets to qualify as actively involved, but you should make sure you're involved in setting rents and approving tenants and management firms.

Take advantage of tax-free rental income. You may not think of yourself as a landlord, but if you live in an area that hosts an event that draws a crowd, such as the Super Bowl or a major golf tournament, renting out your home temporarily could make you a bundle, tax-free. A special provision in the law lets you rent out your home for up to 14 days a year without having to report a dime of the money you receive as income.

Convert a vacation home to your principal residence. It's perfectly legal to sell your home of two years, claim tax-free profit up to $250,000, and then move into a vacation property. After you have lived in that home for two years, you can sell and claim tax-free profit up to $250,000, including any increase in value from the days it was a vacation home. It is $500,000 for married couples.

Second homes can offer a vacation from taxes. If you're trying to decide whether you can afford a second home, remember that you'll get some help from the IRS. Mortgage interest on a loan to buy a second home is deductible, just as it is for the mortgage on your principal residence. Interest on up to $1.1 million of first- and second-home debt can be deducted. Property taxes can be written off, too. Things get more complicated - and perhaps more lucrative - if you rent out the place part of the year to help cover the bills.

Save energy, save taxes. Home improvements designed to save energy can reduce your tax bill, too. There is a tax credit worth 10% of the cost of new insulation, doors, windows, and high-efficiency furnaces, water heaters, and central air conditioning. The maximum credit is $500, with no more than $200 attributable to windows. A bigger credit is available if you install a solar energy system. These tax breaks are set to disappear after 2007.

MARRIAGE

Tying the knot can save you cash. Here are a couple of things for the newlyweds to consider:

Time your wedding. If you're planning a wedding near the end of the year, put the romance aside for a moment to consider the tax consequences. Tax law still includes a marriage penalty that forces some pairs to pay more combined tax as a married couple than as singles. For others, tying the knot saves on taxes. Consider whether it's in your best interest to have a December or January ceremony.

A tax shuffle for newlyweds: Whether you have one job between you or two or more, revise withholding at work to reflect the tax bill you'll owe as a couple. There's still a marriage tax penalty for some couples, but most couples get a marriage tax bonus and pay less than if they were single.

KIDS AND FAMILY

Oh, the joys of parenthood. Here are some money-savers for battle-worn parents and rookie moms and dads alike:

Pay child-care bills with pre-tax dollars. After taxes, it can easily take $7,500 or more of salary to pay $5,000 worth of child care expenses. But, if you use a child-care reimbursement account at work to pay those bills, you get to use pre-tax dollars. That can save you one-third or more of the cost, since you avoid both income and Social Security taxes. If your boss offers such a plan, take advantage of it.

Make the most of a child-care reimbursement account. If Mom and Dad both work and have access to a flex plan, it's worth more to a spouse whose salary is still subject to Social Security tax than to one who has earned enough to stop paying Social Security tax for the year. Money you run through a reimbursement plan avoids the Social Security tax, as well as the income tax. That saves an extra 6.2% for those still subject to Social Security tax. The maximum wage subject to Social Security tax is $97,500 for 2007.

Deduct interest paid by Mom and Dad. Until recently, parents had a good reason not to help their kids pay off student loans. If the parents were not liable for the debt, then no one got to deduct the interest. Now it's treated as if the parents gave the money to the debtor (who then paid it toward the loan) instead of the loan company. The child can take the tax deduction as long as the parents can't claim him or her as a dependent.

Save for college the tax-smart way. Stashing money in a custodial account can save on taxes. But it can also get you tied up with the expensive kiddie tax and gives full control of the cash to your child when he or she turns 18 or 21. Using a state-sponsored 529 college savings plan can make earnings completely tax free and lets you keep control over the money. If one child decides not to go to college, you can switch the account to another child or take it back.

Contribute to a Coverdell. You can contribute up to $2,000 a year per student to a Coverdell Education Savings Account. You don't get a deduction, but money you stash in a Coverdell for, say, a child or grandchild grows tax deferred and can be withdrawn tax free to pay education bills, including elementary and high school expenses. The Contributions for 2007 can be made as late as April 15, 2008, but the sooner the money is deposited the sooner earnings are sheltered from taxes.

Minimize the bite of the kiddie tax. The rule that taxes a child's income at the parents' rate now covers children up to age 18. You can minimize the damage by steering a child's investments into tax-free municipal bonds or growth stocks that won't be sold until the child turns 18.

Tally adoption expenses. Thousands of dollars of expenses incurred in connection with adopting a child can be recouped via a tax credit, so it pays to keep careful records. You may be able to deduct as much as $11,390 for 2007, and $11,650 for 2008. If you adopt a child with special needs, you get the maximum credit even if you spend less.

NEW JOB

Nailing a new job is difficult enough. Fortunately, with TurboTax it's easy to report your new income and save a few bucks along the way. Here are a few tips to keep in mind:

Tally your job-hunting expenses. As long as you're looking for a new position in the same line of work, you can deduct job-hunting costs, including travel expenses such as food, lodging and transportation, if your search takes you away from home overnight.

Keep track of the costs for a job-related move. If the new job is at least 50 miles farther from your old home than your old job was, you can deduct the cost of the move even if you don't itemize expenses. If it's your first job, the mileage test is met if the new job is at least 50 miles away from your old home. If you move after getting married, and either you or your new spouse has a job at the new location, you can deduct the cost of moving yourselves and your belongings (including all those wedding presents).

CHARITABLE CONTRIBUTIONS

Help your favorite charities and improve your tax picture with these tips:

Put away your checkbook. If you plan to make a significant gift to charity in 2007, consider giving appreciated stocks or mutual fund shares that you've owned for more than one year instead of cash. Doing so supercharges the saving power of your generosity. Your charitable contribution deduction is the fair market value of the securities on the date of the gift, and you never have to pay tax on the profit.

Be creative with your generosity. A charitable-remainder trust can avoid capital gains taxes on appreciated assets, allowing you to receive a tax deduction now for a charitable contribution made after your death. A charitable-lead trust can help you avoid taxes on appreciated assets, earn an immediate tax deduction, and still provide an inheritance for your heirs later on. A donor-advised fund can earn you a deduction for the full value of appreciated assets now, even though you won't have to determine who will benefit from your generosity until later

Tote up out-of-pocket costs of doing good. Keep track of what you spend while doing charitable work. This can include what you spend on stamps for a fundraiser, the cost of ingredients for casseroles you make for the homeless, or the number of miles you drive your car for charity. Add such costs to your cash contributions when figuring your charitable contribution deduction.

INVESTING

You need a break now and then, but we can help keep your money working year-round. Rest assured that TurboTax can handle your investment situation, from purchase to portfolio:

Make your IRA contributions now, not later. The sooner your money is in the account, the sooner it begins to earn tax-deferred or, if you use a Roth IRA, tax-free returns.

Avoid the wash-sale rule. If you sell a stock, bond, or mutual fund for a loss, and then buy back the identical security within 30 days, you can't claim the loss on your tax return. The IRS considers the transaction a wash, since your economic situation really hasn't changed. It's easy to avoid being stung by the wash-sale rule, though. Watch the calendar, or buy similar but not identical securities.

Think twice about selling stock for a profit if you're subject to AMT. Although long-term capital gains benefit from the same 15% maximum rate under both the regular tax rules and the alternative minimum tax, a capital gain can effectively cost more than 15% in AMT-land. The special AMT exemption is phased out as income rises. For example, a $1,000 capital gain can wipe out $250 of the exemption, effectively exposing $1,250 to tax. This means your tax bill rises by more than $150 for that $1,000 gain.

Don't buy a tax bill. Before you invest in a mutual fund near the end of the year, check to see when the fund will distribute dividends. On that day, the value of shares will fall by the amount paid out. Buy just before the payout and the dividend will effectively rebate part of your purchase price, but you'll owe tax on the amount. Buy after the payout and you'll get a lower price, and no tax bill.

Check the calendar before you sell. You must own an investment for more than one year for profit to qualify as a long-term gain and enjoy preferential tax rates. The holding period starts on the day after you buy a stock, mutual fund, or other asset and ends on the day you sell it.

Keep a running tally of your basis. For assets you buy, your tax basis is basically how much you have invested. It's the amount from which gain or loss is figured when you sell. If you use dividends to purchase additional shares, each purchase adds to your basis. If a stock splits or you receive a return-of-capital distribution, your basis changes. Be sure to keep all your paperwork in a safe place - only by carefully tracking your basis can you protect yourself from overpaying taxes on your profits when you sell.

Mind your portfolio for tax savings. Investors have significant control over their tax liability. As you near the end of the year, tote up gains and losses on sales to date and review your portfolio for paper gains and losses. If you have a net loss so far, you have an opportunity to take some tax-free profit. Alternatively, a net profit on previous sales can be offset by taking losses on sales before the end of the year.

Tell your broker which shares to sell. Doing so gives you more control over the tax consequences when you sell stock. If you fail to specifically identify the shares to be sold, the tax law's FIFO (first-in-first-out) rule comes into play and the shares you've owned the longest (and perhaps the ones with the biggest gain) are considered to be sold. With mutual funds, an average basis can be used when determining gain or loss, but that alternative isn't available for stocks.

RETIREMENT

You've worked hard. Now it's time your money started working for you. We can help:

Protect your heirs. Make sure beneficiary designations for your IRAs are up to date. If your IRA goes to your estate rather than a designated beneficiary, unfavorable withdrawal rules could cost your heirs dearly.

Time claiming social security benefits. If you stop working, you can claim benefits as early as age 62. But each year you delay - until age 70 - promises higher benefits for the rest of your life. And, delaying benefits means postponing the time you'll owe tax on them.

Dodge a 50% tax penalty. Taxpayers over age 70½ are required to take minimum withdrawals from their IRAs each year. Failing to do so subjects them to one of the toughest penalties in tax law: The IRS claims 50% of the amount that should have come out of the account. Contact your IRA sponsor to pinpoint the minimum required payout to avoid penalties.

Fund an IRA for your child or grandchild. As soon as a child has income from a job - such as babysitting, a paper route, working retail - he or she can have an IRA. The child's own money doesn't have to be used to fund the account (fat chance that it would). Instead, a generous parent or grandparent can provide the funds, or perhaps match the child's contributions dollar for dollar. Long-term, tax-free growth can be remarkable. Just make sure that whatever income a child earns is reported on the child's tax return.

Give it away. Money you give away during your lifetime won't be in your estate to be taxed at your death. That's one reason there's also a federal gift tax. However, the law allows you to give up to $12,000 ($24,000 with your spouse) to any number of people each year without worrying about the gift tax. For example, you and your spouse can reduce your estate $48,000 each year by giving $24,000 to your two children.

MEDICAL AND HEALTHCARE

A few quick changes and some long-term planning can help you stay healthy, physically and fiscally:

Go for a healthy tax break. Be aggressive if your employer offers a medical reimbursement account, sometimes called a flex plan. These plans let you divert part of your salary to an account which you can then tap to pay medical bills. Plan this carefully as money left in the account after your medical bills have been paid, will be forfeited. The advantage? You avoid both income and Social Security tax on the money, which can save you 20% to 35% or more compared with spending after-tax money.

Add in the value of deducting long-term care premiums. As you shop for long-term care insurance, remember that a portion of the cost is deductible. The older you are, the more you can write off. For employees, this is a medical expense, which means it only saves money if your medical expenses exceed 7.5% of your adjusted gross income. If you're self-employed, you avoid the 7.5% limitation and get this deduction even if you don't itemize.

Keep careful records of the cost of medically necessary improvements. You might be able to deduct some of the costs associated with medically necessary improvements to your home or vehicle. These improvements - such as adding a wheelchair ramp, lowering counters, widening a doorway, or installing hand controls for a car - can increase the value of your home or vehicle. The difference between the increased value and the cost is considered a medical expense.

Include travel expenses in medical deductions. In addition to the cost of getting to and from the doctor, you can deduct up to $50 a night for lodging if seeking medical care requires you to be away from home overnight. You can include lodging for a person traveling with the person seeking care. The $50 is per person, so if you travel with a sick child to get medical care, you can deduct $100 a day. As with other medical expenses, you get a tax benefit only to the extent your expenses exceed 7.5% of your adjusted gross income.

MORE WAYS TO SAVE

Check out these valuable tips to fatten your pocketbook:

Buy a hybrid. You can drive away with a tax credit if you buy a gasoline/electric hybrid car in 2008. The size of the credit depends on how fuel-stingy your new car is, but the tax savings can range from $250 to more than $2,000. Buy early since the tax credit is reduced after the manufacturer sells its 60,000th vehicle.

Give yourself a raise. The odds are high that you're having too much tax taken out of your paycheck every payday. The evidence is clear: If you have a big refund coming, too much is coming out of your paycheck. About 90 million of the returns filed in the U.S. last year called for refunds averaging more than $2,200. That's almost $200 each month. Filing a new W-4 with your employer (get one from your payroll office) will ensure you get more of your money when you earn it.

Ask your boss to pay for you to improve yourself. Companies can offer employees up to $5,250 of tax-free educational assistance each year. That means the boss pays the bills, but the amount doesn't show up as part of your salary on your W-2. The courses don't have to be job-related and even graduate-level courses qualify.

Don't be afraid of home-office rules. If you use part of your home regularly and exclusively for your job, you may be able to deduct some costs as home-office expenses, including part of your utility bills, insurance premiums, and maintenance costs.

Pay estimated taxes ... or not. If you receive significant income not subject to withholding - from self-employment or investments, for example - you probably need to make quarterly estimated tax payments to avoid an IRS penalty. However, if withholding will equal 100% of your 2007 income tax bill (or 110% if your income was more than $150,000), you don't need to make estimated payments, no matter how much extra income you make this year. For more help, check out TurboTax Estimated Taxes at www.turbotax.com.

The above article was taken from TurboTax.com

Other TurboTax articles:

Top 10 tax saving tips:
http://turbotax.intuit.com/tax-tools/top_10_year_end_tax_tips/article

Ten Tax Tips for After January 1, 2008
http://turbotax.intuit.com/tax-tools/ten_tax_tips_for_after_the_new_year/article