Industry analysts are predicting that a tangible change in the economy won’t be seen until mid-2010, but there are still some things you can do to lessen your tax liability this year.

• Increase 401k contributions. Any money you are allowed to pay into a 401k lowers your tax liability. Taxpayers can contribute up to $16,500 if they are under 50 years old and $22,000 if they are over 50 years old. There are still a few months left to increase contributions and cut down on taxes.

• Consider homeownership. It’s a buyer’s market and with a tax credit of up to $8,000 for first-time homebuyers from January 1 through April 30 of 2010, now is the perfect time to buy.

• Pay for college. The federal stimulus plan created tax breaks for college expenses. The American Opportunity Credit, which replaces the Hope Credit, lowers tax liability when taxpayers to meet certain requirements.

• Buy a car. The stimulus plan also included a tax break for new-car purchases. Anyone who buys a new car this year can deduct state and local sales taxes and excise taxes paid on a purchase price of up to $49,500. Car.com expert Miles Bradman said, “This is the perfect time to get a new car and not just from the purchase price standpoint. In former years a consumer may have needed a large loan to cover a down payment, whereas now small unsecured personal loans could very well do the trick.”

• Give to charity. Taxpayers who itemize deductions can sometimes write off charitable contributions. Industry analyst Martin Berg of Money.com stated, “A lot of people forget to count their cash gifting when calculating donations. Always include cash and appreciated stock and noncash donations. They can also count out-of-pocket costs to help a charity like 14¢ per mile in travel costs to do charitable work.”

• Self-employed tax breaks. For self-employed there taxpayers are many additional ways to decrease taxes. The cost of equipment like printers, fax machines and computers can often be deducted from, along with home-office expenses such as percentages of rent, homeowner’s insurance, and utilities.

• Medical expenses. For those who itemize deductions, medical expenses can lower a tax bill substantially. A taxpayer qualifies for this deduction if expenses for medical costs exceed 7.5% of adjusted gross income. Tax experts advise that you should keep track of medical bills and be ready to use them when tax time comes.

Use the various deductions wisely

In the end, it is possible to decrease tax liability by using any or all of the above tools. For any taxpayer who believes that he or she may have a large tax liability for 2009, it’s useful to know what the rules are for taking deductions. They can make the difference between having to come up with a substantial amount of money, breaking even, and even getting a refund.
Before you make any decisions concerning tax reporting or the claiming of tax deductions, be sure to get advice from an experienced tax professional.

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Analysts and political pundits are watching closely to see how the economic stimulus package affects consumer debt relief and the unemployment rate. The $767 billion stimulus plan Obama unveiled promised to do a lot of good for the struggling economy.

One of the main pledges was the creation of 3.5 million new jobs by the end of next year. The focus on job creation, Obama maintained, would help consumers find debt relief and in the recession, this would be the best way to invigorate the market.

What the critics say

Many critics say that Obama’s stimulus plan and promise to create jobs are unrealistic. Newt Gingrich calls Obama’s constant reference to creating jobs “meaningless metric.” Tony Fratto, former spokesman for former president George W. Bush, said Obama’s intent is nothing more than a political trick.

Economic assumptions

At the heart of Obama’s job creation formula are the following two economic assumptions:

Assumption No. 1: Every dollar spent by the government trickles down through the economy, creating a greater effective value. For example, if the government funds the building of a highway, it channels money to contractors. The contractors pay workers, who then pay rent or mortgages and buy food and other goods and services. Landlords, banks, grocers, and movie theaters, in turn, enjoy increased revenues. The government estimates that every $1 it injects into the economy will have a $1.50 effect, overall.

Asumption No. 2: For every 1% increase in the economy, approximately 1 million jobs are created.  Reinvigorating the economy by about 3.5%, which will achieve the goal of 3.5 million additional jobs.

The job creation plan assumes that savoir-faire politicians can literally estimate the creation of 3.5 billion jobs, and then extrapolate further to make debt relief approximations.

Mathematical flaws

Critics believe that Obama’s math is flawed because his assumptions are wrong. In reality, they say, cutting $250 billion in taxes might create more jobs, while spending $500 billion might create fewer jobs. One critic stated, “Think of Obama’s formula as reliable as a weather forecast. Obama is using it like a thermometer.”

Christina Romer, chairwoman of the Council of Economic Advisers, who also helped to create the formula, stated that it was always intended as a prediction. To get a real number, specific numbers have to be entered such as unemployment figures, manufacturing rates, building and construction data, and county-specific job reporting. She added, “Once we’ve spent the money, we can’t just assume the model was right. The proof is going to be whether or not the overall economy recovers.”

Time will tell

The question remains whether or not Obama’s job creation promise — and concomitant consumer debt relief — is valid. With the unemployment rate expected to continue increasing in the near future, it’s difficult to say whether or not the promise of new jobs will be fulfilled. Experts agree, however, that the Obama administration’s superficial usage of the formula is not what its creators intended. Only time will tell if the stimulus plan will bring the much-needed job reinvigoration the American public is hoping for.