7 New Tax Breaks that Most People will Miss

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This coming tax season features more changes, deductions, and credits than any other year I have seen in my nine year career.  For that reason, many people who do not know of all the possible deductions and credits they are eligible for will cost themselves a significant amount of money.  I have listed six of those tax law changes below and included a brief description. 

1. Energy Efficiency Credit. If you purchased windows, doors, a furnace, boiler, water heaters, or insulation you may be eligible for a deduction up to 30% of the costs up to $1,500. Energy star ratings apply and more information/qualifications can be found at http://www.energystar.gov/index.cfm?c=tax_credits.tx_index -or- http://www.irs.gov/newsroom/article/0,,id=211307,00.html

2. Sales Tax Deduction on a New Vehicle Purchase. If you purchased a new vehicle you can use the sales tax you paid as a deduction on your tax return. Previously, sales tax was deductible but only if it exceeded your state income tax, so most people did not benefit from it. At tax time: bring your sales receipt(vehicle price, sales tax paid, and dealership information.

3. Excluded Unemployment Benefits. If you received unemployment benefits in 2009 the first $2,400 received will be considered excluded from your 2009 federal return (not Minnesota return).

4. Increased Education Credit. If you or your dependent paid qualified education expenses this year you may be eligible for an increased maximum Hope education credit of $2,500. The Hope credit has now been made available for four years of higher education as opposed to just two in the past.

5. First Time Homebuyer Credit. This credit has been extended until April 2010 and offers first time homebuyers a tax credit of $8,000 on their taxes. In addition, taxpayers who have lived in a home for five of the past eight years are also eligible for a credit of $6,500. A frequently asked questions page regarding these credits are available at www.bergersontax .com or more information at irs.gov.

6. Making Work Pay Credit. Individual with earned income may have received a tax credit of $400 or $800 for married filing jointly. They received this credit through their employer throughout 2009. This will have a negative result for the taxpayers at tax time as their refunds will be reduced by this much or their balance due will be increased.

7.       Conversion of IRAs to ROTH IRAs allowed in 2010.  Some individuals are given the opportunity to convert their traditional or rollover IRAS into ROTH IRAS thus creating after tax dollars allowing for tax deferred and tax-free accounts.  More information on this great opportunity is available on our website at  https://bergersontax.com/tax-form/2009/10/21/great-opportunity-to-save-taxes-thanks-to-legislation-changes/

A Rewarding New Years Resolution: Focus on Your Finances

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A Rewarding New Years Resolution: Focus on Your Finances

7 Tips to Help Boost Your Financial Situation


As 2009 comes to an end we look toward 2010 and if you are like me you begin thinking about your New Years Resolutions. Exercise more and lose 10 pounds, spend more quality time with our families, work harder and get that promotion at work, etc, etc.  How about creating a New Years Resolution to perk up your financial situation.  It is natural to put it off and say you will get to it next week, next month, next year but like most everybody, we never get around to it, much like getting that gym membership to start that exercise program and dropping that ten pounds.  I encourage you to make this the time and make it your New Years Resolution to address your financial situation and begin on your way to financial success.

I recently read an article that stated 70% of us consider financial issues the number one stressor in our lives.  This is unfortunate because a lot of the time it is a very easy issue to improve upon.  Improving your overall financial situation stretches far beyond just making more money at work, which is a good thing because, usually that is not within our control.  So what can we do since we do not have the power to just earn more money?  Well there are many things that you can do and I have compiled a checklist of the top 7 issues that when addressed can have a dramatic impact on improving your financial health. 

Much like when you hire a personal trainer who knows the most effective exercises to get the best fitness results, how to motivate you properly, and ultimately get you where you want to go physically.  A great financial planner will help you do the same for your financial health.  They will help you develop strategies to give you the most effective ways to reach your financial goals, help motivate you to achieve your most important aspirations, and ultimately get you where you want to go financially.

As always I am available to help you address any one or all of these issues below.  I have been able to help many of the people I work with save time, money, and taxes and help them avoid the common mistakes that most people make with their finances.   Feel free to contact me at 651-647-4935

•1.        Create a Budget.  This is the number one issue that people, including myself struggle with.  The use of credit cards has really hindered our ability to remain responsible with our spending as it never seems as though we are spending actual money.   It seems as though we are making enough money at work, and that we should be able to get ahead, but where does it go? One major problem that people have when creating a conventional budget is everything is looked at in the past. When gathering the information on your purchases it is too late, the money is spent.  I have begun using a cash flow management tool called First Step Cash Management with my clients.  This program allows people to make real-time decisions.  Let me know if you would be interested in finding more about this wonderful program.  One quick tip to help balance your budget a little better:  1) Use cash more.  It is much more difficult to part with cash than it is to charge your credit card.  I find that people decide against the extra drink at the bar or the new coach purse at Nordstrom if they have to fork over cash.   

•2.        Maximize Your Employee Benefits.  It can be very confusing to try and understand which benefits within your employers plan are most appropriate for you.  Between qualified retirement accounts, Flex savings accounts, Health savings accounts, dependent care benefits, stock options, employee stock purchased plans, health care packages, etc, it is very difficult to decide which fit into your financial plan the best.  The 40 page benefit summary does not make it any easier.  Often time’s people do not even realize what benefits they currently have or what is available to them.  Make sure to review your benefit statement or have a professional analyze exactly what is being offered and take advantage of it.  Some employers offer a retirement account matching benefit which means for every dollar you contribute to our retirement account they will match a certain percentage.  Since this is essentially free money it is important to make sure to contribute up to the matching amount if possible.  I read that only 30% of people actually contribute up to their employer’s entire matching amount.  Check to see what percentage your employer is matching and take the free money.

•3.       Pay Fewer Taxes.  Most of us have no problem paying our fair share of taxes to maintain our quality of life, but most of us distain the thought of our tax dollars going toward unnecessary spending and expensive entitlement programs.  As long as there are politicians and special interest groups that place their individual needs over the common good of this country as a whole, there will be wasteful spending.  Once we accept the fact that taxes will always be imposed, you can then logically create a financial strategy to ensure that you are not paying too much in taxes.  Lack of attention to the various ways investments are taxed can be the difference between being able to accomplish your goals and not being able to accomplish your goals.  Unfortunately some of the most popular accumulation vehicles in this country today are fully taxed including bank accounts, certificate of deposits, mutual funds, etc.  All interest, dividends, and capital gains outside of qualified accounts are fully taxable.  There are vehicles available though that do offer people an opportunity to defer income taxes or even eliminate them completely.  Some of these vehicles include qualified accounts (ROTH and Traditional IRA’s, 401k plans, self-employed plans, annuities, municipal bonds just to name a few) .  It is important to research which of these tools fit within your financial plan, or meet with your financial professional to explore the many options.    

•4.       Start Investment Accounts. (Just Get Started!)  No matter what your objective is whether its funding retirement or college education the biggest thing is to just GET STARTED.  It does not matter that you do not have a tremendous amount to contribute initially; the important thing is to get in the habit of saving something even if it is just a small amount every month.  I once heard an analogy of buying your first car that relates to this concept.  All of us remember needing a car when we were young whether it be to get to school, sports, or an after school job.  Just because we could not afford a Porsche (despite how bad we wanted one) didn’t mean that we did not buy anything.   Something is better than nothing, thus we purchased a used Ford Taurus. We might not be able to contribute a large amount to an investment account on a monthly basis, but something is better than nothing and the important thing is just getting started.  One key tip is to make sure to set up an automatic withdrawal from checking account every month.  It is much easier having it pulled out than you having to physically write out a check.

•5.        Determine Which Debt To Carry And Which To Pay Off.  Everybody has heard of good debt vs. bad debt, but what does that really mean?  Generally good debt would be considered debt with an interest rate that is tax deductible and lower than the rate you could achieve on funds invested elsewhere.  For example, let’s say you have a student loan, which is tax deductible at a fixed rate of 4%. Let’s also assume you can achieve between 8-12% in a well diversified portfolio based on long-term historical rates.  In this case it would obviously be wiser to keep the student loan and invest into the portfolio.   However, if you carry a balance on a credit card with a rate of 18% (and not tax deductible) you would most likely want to attack that first.   There are many types of debt including home mortgage, student loan, automobile, credit card, etc and which forms of debt should be kept or paid off should be analyzed closely. 

•6.        Review Your Insurance Coverages.  A lot has changed in the insurance industry over the past 5 years.  If you have not reviewed the amount in premiums you are paying for your insurance you may be costing yourself money.  I recently reviewed a gentleman’s life and disability insurance policies and found that he could save 30% in premiums for the same amount of coverage by switching carriers.  I am an independent agent and have the ability to shop several carriers and find the policy that gets you the most for your money.  Determining whether to buy additional coverage through your employer, invest into a permanent or term policy, length of term or how much coverage to have, and group discounts are all important issues that should be addressed.   In addition, most people have not reviewed their coverage in a long time and find that they are significantly underinsured and are putting themselves and their family at risk in the case of death or disability.  Keep in Mind: Your insurance through your employer is not portable, meaning it is only good while you are employed by them.  Having private policies in place that are in force no matter who your employer might be is a good idea. I am available anytime to review your insurance coverage and help you find the best policies available to you. 

•7.        Allocate Your Assets Within Your Accounts Properly.  It has been proven that 90% of investment performance is based upon asset allocation and diversification.  I ask most people that I meet with how they made their investment selections within their 401k.  The vast majority respond that they simply guess.  The second most popular response is that they copy co-workers holdings.  It is completely understandable that most people are not aware of the correct asset allocation or even the proper individual selections because they do not specialize in investments.  But are you willing to gamble with the money you have worked so hard to accumulate and that you are relying on for your retirement to just guessing?  Some employers are now offering target date funds which allocate your assets within your retirement plan according to your timeframe.  These are a big improvement over guessing and should be utilized.  Target date funds are not perfect however and you should work closely with a financial professional to see what the best decision is for you.

This is simply a checklist of important items that when addressed will help improve your financial situation and not an exhaustive list.  Meeting with a financial professional is advised to pursue any and all of these items.  I offer a complimentary 60 minute meeting to explore possibilities in which I can help people gain better control over their finances.  Give me a call and I would be happy to schedule a time which is convenient for you to get together so that you can be on your way to an improved financial situation.

Great Opportunity to Save Taxes Thanks to Legislation Changes.

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I recently read an article in the Wall Street Journal that said 80% of people were not aware of the upcoming legislation changes that will create a significant opportunity for some people to save on taxes. 

I wanted to make sure that my clients were aware of this opportunity, so if it is appropriate for them, they will be able to take action.  Whether you have heard bits and pieces of this opportunity or it is new to you now, this will help you understand this change.

Under the Tax Increase Prevention and Reconciliation Act , (TIPRA), all taxpayers will be able to convert all or some of their traditional IRAs or old 401ks into Roth IRAs, regardless of income.  This will allow people to convert accounts that will be taxable upon distribution down the road (conceivably when tax rates are higher) to accounts that will be taxable now, but then will grow tax deferred and will be completely tax free down the road when you take distributions. 

There are several reasons why this is such a great opportunity for some people and I have outlined those below.

If you would like to explore this opportunity please contact me anytime at 651-647-4935 to discuss if it is appropriate for you.  Many will be taking advantage of this legislative change and you should definitely consider it as a viable financial planning option to save money on taxes.

•1.    Potentially Higher Tax Rates In The Future

All of those stimulus package initiatives and government bailouts are going to cost money.  As a result, today’s tax rates might be the lowest you’ll see for the rest of your life. The consensus is that we may see taxes rise significantly – but no one knows how much.

If you are considering converting to a Roth IRA, you should get a move on, especially if you’re victim of a wage cut or layoff and are in the 10% or 15% tax bracket. In a year or two, you may be in a higher tax bracket because of a new job or salary increase, so it’s best to take advantage of the low tax rates now.

•2.     Ability to spread the conversion tax hit over two years.

Another new perk coming next year: deferred taxes.  Those who convert to a Roth IRA in 2010 can spread their tax liability out across 2011 and 2012, thereby reducing some of the immediate tax hit. They’ll pay half the income they convert in 2011 and the other half in 2012 at whatever tax bracket they’re in during those years.

•3.    Shrinking retirement portfolios

Seeing your traditional IRA or 401(k) shrink by 30% in a year isn’t much to smile about, but if you convert these accounts to a Roth IRA now, you will pay less in taxes.  When you convert part of your IRA or 401(k) balances to a Roth IRA, you pay taxes on the amount being converted.  Because account balances have shrunk, your taxable balance is likely to be considerably lower today than it was when the market was stronger. In effect, this is an opportunity to use the market downturn to your advantage.

     4.    Estate-Planning Benefits

For those concerned about reaching their 80s or 90s with enough cash to leave to their children, the Roth IRA offers some generous estate-planning benefits.

When a traditional IRA or 401(k) is passed on to a beneficiary, the beneficiary has to pay taxes on whatever is left in that nest egg based on their own tax bracket – not the tax bracket of the original account holder. With a Roth IRA, the beneficiary acquires the account without having to pay taxes on the cash that’s left. (The original holder had already paid taxes on the contributions.)

The Roth IRA also doesn’t require minimum withdrawals, so you could leave the entire nest egg untouched for a beneficiary. Typically, traditional IRAs require minimum withdrawals by age 70 1/2.

Jeff Bergerson, Financial & Tax Advisor

1452 Concordia Avenue

St. Paul, MN 55104


Top 7 reasons to Roll an Old 401k or 403b into an IRA

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Top 7 reasons to Roll an Old 401k or 403b into an IRA.If you know of anybody who has recently been laid off or has changed jobs, this would be extremely valuable to them.

If you have changed jobs, you might still have retirement accounts from your previous employers.  According to the Department of Labor, Americans move to a new employer once every four years and our collective trail of old 401k and 403b plans totals in the trillions of dollars.

While leaving your retirement account with your previous employer is a better decision then cashing it out to splurge on that little sports car you have always wanted, it is better to roll your old 401k or 403b plan into an individual retirement account (IRA) and here are the reasons why.

1.  Fees.  As with any investment there is some sort of cost of the investment itself.  However with employer-based plans those fees are often hidden so that you do not know how much in fees are actually being taken from your hard earned savings.  It is very difficult to track those fees, which are often higher than the fees if you held your funds in an IRA.

2.  Increased Options.  As you know, employer based plans are very limited in the investment options.  Often times you are limited to a dozen mutual funds or less out of the millions that are available out there. In an IRA you can invest in any mutual fund available, stocks, bonds, annuities, and even non-traditional options like real estate and venture capital. Nobody’s situation is the same and thus investment strategies vary tremendously so you should not be limited to a handful of options to try and accomplish your goals.

3.  Expert Advice.  How do you determine which mutual funds you invest in within your 401k?  Talk to your colleagues, follow a chart based on your age, or do what most people do and guess.  Shouldn’t the money you work hard to accumulate and that you will rely on to live in retirement be handled with more care than drawing straws?  Absolutely.  The choices you make with the asset allocations of your investments determine over 90% of your overall investment success.  An IRA can be managed by a financial advisor who knows your goals and objectives and can help make investment decisions based on all the important factors involved.  Although I will mention that if you are currently at an employer and rolling over funds is not an option, I do have the ability to assist you with your asset allocations within your plan as part of the financial planning services I offer.

4.  Greater Access.  If your former employer decided to change 401k providers, your plan assets will be temporarily unavailable to you due to a “blackout” period that occurs as funds are transferred from one plan provider to another.  That time frame can stretch from a few days to a few months.  You can always tap your IRA for retirement after 59 1/2 or before if it is used for a first time home or college expenses penalty free.

5.  Easy record keeping and organization.  Rather than having several accounts floating around, an IRA will help consolidate all of those accounts so that you have all of your investments in one place and can easily monitor them.

6.  Ability to convert to a ROTH IRA.  With the restrictions being suspended in 2010 allowing people to convert IRA’s into ROTH IRA’s and diversify the tax burden upon distribution, it makes the IRA more valuable than holding funds in a previous employers plan.

7.  Flexible Estate Planning.  IRA’s also offer more freedom as well as the potential for tax savings, in the estate-planning department.  If you want to name multiple beneficiaries or a charitable organization as your beneficiary it is best done with an IRA.  Most employer based plans do not accommodate sophisticated beneficiary designations.

If you would like to rollover funds from a previous employer plan, let me know and I can help set up an IRA for you.  If you know of anybody who has recently been laid off or has changed jobs, forward this email to them as it will be very helpful to them.  I can be reached at 651-647-4935 or at  jeff.bergerson@northstarfinancial.com.

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