Having success is often related to avoid deadly wealth destroying mistakes.  In this ebook, I share ten of the most common mistakes I have seen people make over the past 16 years of my financial advising career.  Come lean and make sure you avoid these mistakes like the plague!

Big Mistake #1: Paying too much $$$ in fees

Big Mistake #2: Getting advice from the wrong places

Big Mistake #3: Choosing the wrong places to store wealth

Big Mistake #4: Failing to plan ahead

Big Mistake #5: Failing to properly account for inflation, taxes, and long-­term health care

Big Mistake #6: Spending more than you make

Big Mistake #7: Failing to properly understand risk

Big Mistake #8: Failing to save regularly

Big Mistake #9: Using debt to consume rather than to conserve

Big Mistake #10: Gambling with your assets instead of investing

Download the ebook here:

10 Mistakes Ebook

A last-minute gift to 160 million Americans.

• Prior to 2011, wage-earners were paying 6.2% in Social Security taxes. If Congress agrees to lengthen the payroll tax holiday across 2012, workers will merely pay 4.2% on the first $110,100 of wages next year.
• The latest extension in jobless benefits means that about 1.8 million Americans out of the workforce will keep getting unemployment checks averaging about $296 per week.
• Medicare payments to physicians will not diminish by 27% come January.

The stopgap measure is both a relief and a prelude to much more debate. In total, the new legislation is projected to cost the federal government about $33 billion.

Who will pay for these extensions? The direct answer: Fannie Mae and Freddie Mac. The indirect answer: American homeowners and homebuyers.

Title IV of the new law (“Mortgage Fees and Premiums”) notes that Fannie and Freddie will be boosting guarantee fees on new loans next year. If the payroll tax holiday is approved for all of 2012, anyone who buys or refinances next year will end up giving back about 20% of the approximately $1,000 tax break.

Instead of collecting from borrowers directly with a fee hike, the twin GSEs will increase fees for banks and other lending institutions starting in January. The Congressional Budget Office projects that this will raise $35.7 billion across 2012-2021, with the revenue going to the Treasury rather than to Fannie and Freddie.

Comparatively speaking, this means that mortgage costs will be about $17 a month higher for someone purchasing a $200,000 home next year.

What about that pipeline? Yes, the proposed 1,700-mile Keystone oil pipeline that would run from Alberta to the Gulf of Mexico. House Republicans had wanted it as a sweetener to the bill, contending that it would create tens of thousands of jobs.

The newly passed legislation requires President Obama to either approve or kill the controversial project by March 1. The State Department says it can’t manage a required environmental review by March 1 and therefore won’t be able to recommend the project; citing White House sources, the New York Times says the President will abide by the State Department’s guidance. However, that doesn’t prohibit TransCanada (the company behind the pipeline) or any other energy company from introducing a similar idea.³

The new agreement is effectively a postponement. When Congress returns to Capitol Hill next month, the debate over the yearlong extension of the payroll tax reduction should intensify. There will be three points of contention:

• How to pay for the full-year extension. Democrats wanted a new tax on millionaires, while House Republicans preferred a federal pay freeze. The projected cost of the yearlong payroll tax cut is $112 billion.
• Rethinking long-term jobless benefits. House Republicans have talked about ending benefits at 59 weeks, something Democrats do not favor.
• Consideration for the health of the Social Security trust fund. If Americans do end up paying 2% less in Social Security taxes for all of 2012, how does the trust fund make up the slack? Some legislators want the Treasury to take care of the shortfall; others worry that the payroll tax will be permanently set at the current level and open the door to reduced Social Security benefits in the future.

Payroll taxes are reduced through February; in terms of the drama surrounding his issue, it’s only an intermission.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Having a plan in place for your beneficiaries is something many fail to consider.  What if you are the beneficiary?  Do you know how to be properly protected?

If your loved ones have invested, saved or insured themselves to any degree, you may be named as a beneficiary to one or more of their accounts, policies or assets in the event of their deaths. While we all hope “that day” never comes, we do need to know what to do financially if and when it does.

Legally, just who is a “beneficiary”? IRAs, annuities, life insurance policies and qualified retirement plans such as 401(k)s and 403(b)s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary, usually an individual named on a contractual document that is filled out when the account or policy is first created.

In addition to the primary beneficiary, the account or policy owner is asked to name a contingent (secondary) beneficiary. The contingent beneficiary will receive the asset if the primary beneficiary is deceased.

Some retirement accounts and policies may have multiple beneficiaries. Charities, schools and nonprofits are also occasionally named as beneficiaries. If you have individually listed one (or more) of your kids or grandkids as designated beneficiaries of your 401(k) or IRA, that designation should override a charitable bequest you have stated in a trust or will.

A will is NOT a beneficiary form. When it comes to 401(k)s and IRAs, beneficiary designations are commonly considered first and wills second. If you willed your IRA assets to your son in 2008 but named the man who is now your ex-husband as the beneficiary of your IRA back in 1996, those IRA assets are set up to transfer to your ex-husband in the event of your death. Sometimes beneficiary forms are revised; often they are never revised.

If a retirement account owner passes away, what steps need to be taken? First, the beneficiary form must be found, either with the IRA or retirement plan custodian (the financial firm overseeing the account) or within the financial records of the person deceased. Beyond that, the financial institution holding the IRA or retirement plan assets should also ask you to supply:

• A certified copy of the account owner’s death certificate
• A notarized affidavit of domicile (a document certifying his or her place of residence at the time of death)

If the named beneficiary is a minor, a birth certificate for that person will be requested. If the beneficiary is a trust, the custodian will want to see a W-9 form and a copy of the trust agreement.

If you are named as the primary beneficiary, you usually have four options regardless of what kind of retirement savings account you have inherited:

1)    Open an inherited IRA and transfer or roll over the funds into it.

2)    Roll over or transfer the assets to your own, existing IRA.

3)    Withdraw the assets as a lump sum (liquidate the account, get a check).

4)    Disclaim as much as 100% of the assets, thereby permitting some or all of them to be inherited by a contingent beneficiary

However, these options may be influenced or limited by four factors:

1)    The kind of retirement plan you have inherited.

2)    Whether the named beneficiary is a spouse, non-spouse, trust or estate.

3)    The age at which the account owner passed away.

4)    The resulting tax consequences.

Before you make ANY choice, you should welcome the input of a tax advisor.

What if you are a spousal beneficiary? If that is the case, you may elect to:

• Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA or SIMPLE IRA into your own traditional or Roth IRA, or an inherited traditional or Roth IRA
• Withdraw the assets as a lump sum
• Roll over or transfer qualified retirement plan assets from a 401(k), 403(b), etc. into your own retirement account, or take them as a lump sum
• Disclaim up to 100% of the assets within 9 months of the original account owner’s death

What if you are a non-spousal beneficiary? If this is so, you may elect to:

• Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA
• Withdraw the assets as a lump sum
• Disclaim up to 100% of the assets within 9 months of the original account owner’s death
• Leave the assets in the plan (sometimes permissible with qualified retirement plans)

What if a trust, estate or charity is named as the beneficiary? If that is the circumstance, there are three choices:

• Transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA
• Withdraw the assets as a lump sum
• Disclaim up to 100% of the assets within 9 months of the original account owner’s death

The next calendar year will be very important. Inheritors of retirement accounts have until September 30 of the year following the original account owner’s death to review and remove beneficiaries, and until December 31 of that year to divide the IRA assets among multiple beneficiaries. Usually, December 31 of the year after the original retirement plan owner’s passing is the deadline for the first RMD (Required Minimum Distribution) from an inherited traditional or Roth IRA.

Now, how about U.S. Savings Bonds? If you are named as the primary beneficiary of a U.S. Treasury Bond, you have three options:

• Redeem it at a financial institution (you will need your personal I.D. for this).
• Get the security reissued in your name or the names of multiple beneficiaries. You do this via Treasury Department Form 4000, which you must sign before a certifying officer at a bank (not a notary). Then you send that signed form and a certified copy of the death certificate to a Savings Bond Processing Site.
• Do nothing at all, as the primary beneficiary automatically becomes the bond owner when the original bond owner passes away.⁷

What about savings & checking accounts? Bank accounts are often payable-on-death (POD) assets or “Totten trusts.” All a beneficiary needs to claim the assets is his or her personal identification and a certified copy of the death certificate of the original account holder. There is no need for probate. (Some states limit charities and non-profits from being POD beneficiaries of bank accounts.)

How about real estate? Lastly, it is worth noting that about a dozen states use transfer-on-death (TOD) deeds for real property. If you live in such a state, you have to go to the county recorder or registrar, usually with a certified copy of the death certificate and a notarized affidavit which informs the recorder or registrar that ownership of the property has changed. If the deed names multiple beneficiaries and some are dead, the surviving beneficiaries must present the recorder or registrar with certified copies of the death certificates of the deceased beneficiaries.

Some year-end moves might allow you to do just that.

The fourth quarter of 2011 is passing by quickly and taxpayers now find themselves in the “stretch drive”, with just a few weeks left to make those moves that could help them address tax issues this year and next.

Here is a list of some year-end tax moves to consider, and a few items you might want to review before 2011 ends.

Of course, you should consult a qualified tax or financial professional before taking any action.

Part 1 … some ideas for everyone.

1 Think about estimating your 2011 taxes.

Have you ever tried to estimate the tax you will pay next April? It does take time, and very often it is time well spent. Estimating your taxes will give you some clues about where you can potentially save some tax dollars before 2011 ends.

If you know roughly how much you will owe or receive from the IRS for 2011, then you can act on that information. If hundreds or thousands of dollars might be coming your way, you can start thinking about the destiny of that money – how it might be invested or used to accomplish a goal. If you’re going to be writing a check next April, you can make a payment before the end of 2011 or adjust your withholding to bring you tax bill down.

Download the 12 page guide below:

2011 Stretch Drive Tax Guide

Avoid investment scams contact Jay Peroni today at 866-594-9919 for a 2nd opinion on your investment strategies.

Many new retirees assume that Social Security income is tax-free. That is not always the case. The Social Security Amendments of 1983 opened the door to taxes on some SSI, depending on the amount of income someone earns in a calendar year.

How much of your SSI is potentially taxable? As much as 85% of it, under certain conditions. Four factors determine how much of your SSI will be taxed:

• The total amount of income that you earn.
• Where it comes from.
• Your taxpayer filing status.
• Your provisional income – a MAGI calculation which you can figure out by using Worksheet 34-1 in IRS Publication 915 or the Social Security Benefits Worksheet in the instruction booklets for IRS Form 1040 and Form 1040A.

How is provisional income determined?

In simple terms, this is calculated using your AGI, minus one-half of your Social Security benefits. (Tax-free interest from investments such as muni bonds also becomes provisional income.)

How much income can you earn before your SSI is taxed? The 2011 limits are pretty straightforward:

• Single person: up to 50% of your SSI can be taxed if your provisional income is greater than $25,000, and up to 85% of your SSI can be taxed if your provisional income exceeds $34,000.
• Married/head of household: up to 50% of your SSI can be taxed if your provisional income is greater than $32,000, and up to 85% of your SSI can be taxed if your provisional income exceeds $44,000.

Who doesn’t have to worry about this? If your only source of income is Social Security or equivalent retirement railroad benefits, it is unlikely that your SSI will be taxed and you may not even need to file a federal return. In 2011, Social Security benefits are tax-exempt for single taxpayers with provisional incomes under $25,000 and married/head of household taxpayers with provisional incomes under $32,000.

What can be done to reduce (or avoid) the tax? If you are close to hitting either the 50% or 85% tax levels, you may want to think twice about moves that could take your provisional income over the threshold – for example, receiving a sizable chunk of profit from selling a stock, or converting a traditional IRA to a Roth IRA. Here are some common moves people make with the input of a qualified tax or financial professional:

• Delaying some investment income, rental income or pension income until the following tax year
• Shifting assets from accounts or investments producing reportable income (like CDs) into tax-deferred alternatives
• Working less
• Ramping up pre-tax contributions to an IRA, 401(k) or 403(b)
• Lowering interest income (such as income from CDs)
• Lowering tax-exempt interest income (from muni bonds, federal tax refunds, veteran’s benefits, gifts and other sources).

The Bottom Line

Before April rolls around, it might be wise to consider the different ways to manage taxes on your Social Security benefits. Some new SSI recipients may be taken aback by the tax they end up paying; alternatively, you can plan to reduce it.

Could you end up paying higher taxes in retirement?

Do you have a lot of money saved in a 401(k) or a traditional IRA? If so, you may be poised to receive significant retirement income.

Those income distributions will be taxed. As federal and state governments are hungry for revenue, you may see higher marginal tax rates in the near future.

Poor retirees with meager savings may rely on Social Security as their prime income source. They may end up paying less income tax in retirement, as up to half of their Social Security benefits won’t be counted as taxable income. On the other hand, those who have saved and invested well may retire to their current tax bracket or even a higher one.
Given this possibility, affluent investors would do well to study the tax efficiency of their portfolios. (Some investments are not particularly tax-efficient – REITs and small-cap funds, for example.) Both pre-tax and after-tax investments have potential advantages.

What’s a pre-tax investment?

Traditional IRAs and 401(k)s are classic examples of pre-tax investments. You can put off paying taxes on the contributions you make to these accounts and the earnings these accounts generate. When you take money out of these accounts come retirement, you will pay taxes on the withdrawal.

Pre-tax investments are also called tax-deferred investments, as the invested assets can benefit from tax-deferred growth.

What’s an after-tax investment?

A Roth IRA is a prime example. When you put money into a Roth IRA during the accumulation phase, contributions aren’t tax-deductible. As a trade-off, you don’t pay taxes on the withdrawals from that Roth IRA (providing you have followed the IRS rules for the arrangement). These tax-free withdrawals lower your total taxable retirement income.

As everyone would like to pay less income tax in retirement, the tax-free withdrawals from Roth IRAs are very attractive. As federal tax rates look poised to climb for obvious reasons, after-tax investments are starting to look even more attractive.

As anyone can now convert a traditional IRA to a Roth IRA, many affluent investors are considering making the move and paying taxes on the conversion today in order to get tax-free growth tomorrow.

Certain tax years can prove optimal for a Roth conversion. If a high-income taxpayer is laid off for most of a year, closes down a business or suffers net operating losses, sells rental property at a loss or claims major deductions and exemptions associated with charitable contributions, casualty losses or medical costs … he or she might end up in the lowest bracket, or even with a negative taxable income. In circumstances like these, a Roth conversion may be a good idea.

Should you have both a traditional IRA and a Roth IRA? It may seem redundant or superfluous, but it could actually help you manage your marginal tax rate. If you have both kinds of IRAs, you have the option to vary the amount and source of your IRA distributions in light of whether income tax rates have increased or decreased.

Your marginal tax rate might be higher than you think

Consider that about 25 different federal tax deductions and credits are phased out as your income increases. Quite a few of these have to do with education. If your children (or grandchildren) are out of school when you retire, good luck claiming those deductions.

Smart moves can help you lower your taxable income & taxable estate

An emphasis on long-term capital gains may help, as they aren’t taxed as severely as short-term gains or ordinary income. Tax loss harvesting – selling the “losers” in your portfolio to offset the “winners” – can bring immediate tax savings and possibly help to position you for better long-term after-tax returns.

If you’re making a charitable gift, giving appreciated stock or mutual funds you have held for at least a year may be better than giving cash. In addition to a potential tax deduction for the fair market value of the asset, the charity can sell the stock later without triggering capital gains. If you’re reluctant to donate shares of your portfolio’s biggest winner, consider this: you could give the shares away, then buy more shares of that stock and get a step-up in cost basis for free.

The annual gift tax exemption gives you a way to remove assets from your taxable estate. In 2011, you can gift up to $13,000 to as many individuals as you wish without paying federal gift tax. If you have 11 grandkids, you could give them $13,000 each – that’s $143,000 out of your estate. All appreciation on that amount is also out of your estate.

Are you striving for greater tax efficiency?

It is especially important today – and worth a discussion. A few financial adjustments could help you lessen your tax liabilities. Give us a call today at 866-594-9919 to look at your options!

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

What are the best (and worst) states for business? Well, CNBC has ranked all 50 states based on 43 criteria including quality of work force, cost of doing business, quality of life, state economies and access to capital. Coming in at #1: Virginia. Number two is Texas, number three is North Carolina. The state with the lowest cost of doing business – Iowa – ranked 9th. The bottom three? Hawaii (48th), Alaska (49th) and … Rhode Island? Yes, it was dead last. CNBC cited its 10.9% jobless rate and a corporate tax rate nearly as high.

What are the best (and worst) tax states for retirees? Kiplinger sees four “tax hells” in the Northeast. Vermont is ranked #1 (high property taxes along with state levies of up to 8.95%) and Maine, Connecticut and New Jersey also make the bottom ten. Minnesota is #2, Nebraska #3, Oregon #4 and California #5. As to the best, Wyoming ranks #1 among the “tax heavens”, followed by Mississippi, Pennsylvania, Kentucky and Alabama. Wyoming has no estate tax, no state income tax, and only a 4% sales tax; the state collects abundant revenues from oil and mineral firms.

What cities may be especially attractive for a retiring baby boomer? Fortune offers 4 “great places”, citing ideals among four types of retirement destinations. It ranks Athens, GA as the best college town, Seattle as the best big city, St. George, UT as the best town for outdoors lovers and San Rafael, Argentina as an ideal foreign city for retirement.

Where could I live well and prosper in my career or business? Kiplinger has ranked its Best Value Cities – metro areas featuring “vibrant economies, a low cost of living, and plenty of lifestyle amenities.” The #1 place to be is … Omaha. Then we have Charlotte at #2, Nashville at #3, and respectively 4th-10th we have Colorado Springs, Knoxville, Lexington, Little Rock, Wichita, Cedar Rapids and Cincinnati. It also identifies the metro areas with the largest household income growth between 2005-09: Midland, TX (+31.3%), Grand Junction, CO (+24.8%) and Jacksonville, NC (+21.8%) came in 1-2-3, while the three biggest household income declines were in St. George, UT (-11.2%), Muskegon-Norton Shores, MI (-11.4%) and Albany, GA (-11.9%).

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

The Internal Revenue Code is around 700 pages thick – not as long as War and Peace or Remembrance of Things Past, but much drier reading and it won’t earn any five star ratings. However, some very nice tax breaks may be found within its pages and amendments. Not all are well-known.

Reducing America’s debt

If you write a check to the federal government to help decrease the national debt, it counts as a deductible charitable contribution for that year’s federal return. You can do this by writing a check payable to “Bureau of the Public Debt” and mailing it to Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. (The check doesn’t have to be mailed independently of your federal return – it can also be mailed with your return.) If you have $14 trillion lying around, you can personally wipe out the ridiculous mismanagement by our fearless leaders.

Hosting an exchange student

Do you have a student living with you under a formal agreement with a qualified organization that exists to provide educational opportunities for that student? Is that student a full-time student at a U.S. high school or secondary school? Is he or she not your dependent or relative? If you host an exchange student, all of this may apply. If it does apply, you are eligible for a tax credit of $50 for each month that the student lives with you (15 or more days of a month count as a full month).

Personal expenses related to volunteering

Volunteer work in itself will not provide you with a tax break, but you may be able to deduct 14¢ per mile on your 2011 federal return for charity-related mileage or the cost of the gas you paid for your driving on behalf of the charity, whichever is greater. You can also deduct the costs of tolls and parking related to your driving. Away from the driver’s seat, you can also characterize the out-of-pocket expenses you pay on behalf of a charity or qualified non-profit organization as charitable deductions (if the organization hasn’t reimbursed you for them). Buying equipment for the charity, buying office supplies or stamps, buying and cleaning uniforms – these are just some of the expenses that are deductible.

Travel expenses related to medical care

IRS Publication 502 states that you may deduct 16.5¢ per mile on trips you take to obtain medical care for yourself or your dependents. The trip has to be “primarily for, and essential to, medical care”. Bus, taxi, plane and train fares and ambulance service fees all count as expenses toward the deduction as long as the travel was for medical care. Parents transporting children who need medical care and nurses traveling with a patient can also claim the deduction. Also, some who qualify for this deduction may also get a tax break of up to $50 per night for lodging related to trips taken for health care.

Local & state income taxes

Did you buy a house, an RV or a boat in 2010? You may be able to exploit state or local income tax deductions. Only 7 states don’t have state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). Tennessee and New Hampshire merely tax forms of dividends and interest.

Private mortgage insurance

This deduction is still around – it is scheduled to sunset at the end of 2011. Assuming you bought your home with less than 20% down, you probably have PMI – and you can deduct the premiums you paid in 2010 on your 2010 return. To get the break, your home loan must have been originated after 2006. If you refinanced your home after 2006, you are allowed to deduct PMI for that mortgage. However, phase-outs kick when your adjusted gross income exceeds $100,000 ($50,000 for those married and filing separately).

Health insurance premiums

In 2010, did you spend in excess of 7.5% of your AGI on healthcare and other medical-related expenses? You can then deduct the amount you spent (but to do this properly, the expenditures should be itemized). You can’t deduct pre-tax insurance premiums. See more at www.irs.gov/taxtopics/tc502.html.

Safe deposit box rental

In certain cases, you can deduct this cost. The IRS says you can if you rent the safe deposit box to store taxable income-producing stocks, bonds or investment-related papers and documents. If you store tax-exempt securities, jewelry or other personal items in the box, you can’t exploit the deduction.

The Saver’s Credit

This is the up-to-$1,000 tax credit that you may be able to claim if you contributed to an IRA or qualified employer-sponsored retirement plan like a 401(k) or 403(b) last year. Your AGI has to fall below a certain level to claim it. For 2010, those levels were $55,500 (married filing jointly), $41,625 (head of household) and $27,750 (single, married filing separately or qualifying widower). The credit can be as large as $2,000 for joint filers.

Tax preparation costs

In 2010, did you pay a tax professional to prepare your 2009 tax return? The IRS commonly lets you deduct the fees you paid to such professionals. The cost of tax preparation software and tax publications counts toward the deduction, and so do e-filing fees.

Many more deductions are out there

For a long list of potential tax breaks, see IRS Publication 529 (irs.gov/publications/p529/ar02.html). See your tax professional to determine whether some of these obscure credits might give you a break.

The Tax Relief Act of 2010 will give many of us the equivalent of a 2% raise in 2011. Employee payroll taxes have been cut from 6.2% to 4.2% this year.1 So if you pay into Social Security, you are looking at a rise in your take-home pay.  

What are your plans for that extra money?

How about directing it into your retirement account? That 2% “raise” will show up in your paychecks throughout the course of the year – it will come to you incrementally rather than as a lump sum. Still, 2% is nothing to scoff at – if you make $50,000 in 2011, you’re looking at $1,000 of found money.

What could $1,000 do for you over 20 or 30 years? Well, let’s see. If you invest $1,000 today and simply let it sit there for two decades with a 6% annual return, you end up with $3,207.14 in principal and interest. If the initial grand just sits there for 30 years at 6% interest, it turns into $5,743.49. (That’s using annual compounding – if you plug in 30 years of daily compounding, it becomes $6,048.75.)

Let’s say you take this one step further and direct an extra $1,000 into your retirement accounts for 30 straight years beginning in 2011. Let’s be reasonably optimistic and assume an 8% annual rate of return across that time. Under those conditions, your $30,000 aggregate contribution would turn into about $125,000 with compounding.

The money is significant for a couple. If you and your spouse each make $70,000, that’s an extra $2,800 coming to the two of you in 2011 (assuming you and your spouse don’t work for the government, the railroads or in some capacity where you don’t pay into Social Security). Everyone wants a little more retirement income, and directing 2% into your retirement plan for one year or multiple years could help.

While we’re on the subject of retirement income, the White House says that the payroll tax cut will have no effect on a worker’s future Social Security benefits.

Other options for the 2% tax break. Most Americans will simply spend the money resulting from this tax break. That’s not exactly a negative: the Obama administration visualized this as a way to pump up consumer spending.

Yet if you don’t devote the money to a retirement account, you have a number of alternatives besides spending it.

·               You could open a Roth IRA with the money.

·               You could create a rainy-day fund. Set up an auto-transfer of the money from your checking account to your savings account. Let that $800 or $1,000 or $1,600 or whatever accumulate during the course of the year.

·               If you have a rainy-day fund, you could put the money auto-transferred to your savings account across 2011 into a CD at the start of 2012 (when interest rates just might be higher).

·               You could use the found money to pay off credit card debt or other consumer debts.

·               You could even make an extra home loan payment at the end of 2011 (should it make financial sense to do so).

This tax holiday could even be prolonged. In recent decades, we have seen some “temporary” tax cuts stick around. If the jobless rate stays above 8% through 2011 (and it might), voices in Congress might push to extend the payroll tax cut for another year. It could happen, provided the federal government finds a way to direct more money into Social Security.

After a 277-148 passage in the House and an 81-19 approval in the Senate, President Obama signed the 2010 Tax Relief Act into law on December 17, extending the Bush-era tax cuts.1 Here is the impact of the new legislation:

Current federal income tax rates are preserved for everyone. The federal income tax brackets will remain at 10%, 15%, 25%, 28%, 33% and 35% for 2011 and 2012.

Unemployment insurance extends for 13 more months. This is retroactive, so the federal extension of long-term jobless benefits applies from December 2010 through December 2011.

A payroll tax holiday occurs in 2011.

The payroll taxes that employees pay will drop from 6.2% to 4.2% next year. (There will be no payroll tax cut for employers in 2011, only employees.) As envisioned, this will result in a savings of about $1,000 next year for a wage earner bringing home $50,000. This replaces the Making Work Pay credit.

Estate taxes

Estate taxes will be milder than at any time in the past 80 years. For 2011, the federal estate tax drops to 35%. The estate tax exemption rises all the way to $5 million. President Obama had earlier characterized these parameters as too generous, but he and Congressional Democrats ultimately accepted them.

Tax breaks

Tax breaks for middle-class and working-class families won’t sunset. As a result of the new law, the child credit, the child and dependent-care credit, the EITC, and a $2,500 tax credit for higher education expenses will all be around in 2011.

No marriage penalty. The new law wards off the comeback of the marriage penalty so that married couples may take a more generous standard deduction.

Taxes on capital gains and dividends top out at 15%. Passage of the 2010 Tax Relief Act means rates will top out at 15% through 2012.

Businesses may expense 100% of their investments in 2011. In fact, qualified investments made after September 8, 2010 and before January 1, 2012 are eligible for this bonus depreciation. In addition, 50% expensing will be available for qualified property placed in service during 2012, and so-called “long-lived” property and transportation property may be eligible for 100% expensing if it goes into service prior to 2013.

The tax break for IRA gifts to charity returns. The IRA charitable rollover, as it was informally called, was much beloved by non-profits and IRA owners, but it went away in 2010. In basic terms, it allowed someone 70½ or older donate up to $100,000 in IRA assets annually to one or more qualified charities.

This opportunity is back for 2011

The especially good news is that Congress included a special rule in the new tax bill allowing IRA gifts made in January 2011 to count for 2010.

An AMT patch, of course. Congress decided it might as well take care of that. It passed an AMT (Alternative Minimum Tax) fix as part of the 2010 Tax Relief Act, thereby exempting about 20 million middle-income households from a potential $3,900 average leap in federal income taxes.

What’s the price tag of all this short-term tax relief?

It is sizable. The federal deficit is projected to increase by about $858 billion over the next two years as a consequence. For many this is good news in the short run.  However the U.S. debt situation is still VERY troubling heading into the new year!