Two-thirds of global investors believe the U.S. should raise taxes. (Photo Credit: CC BY/Alan Cleaver/Flickr)

Recent results on the quarterly Bloomberg Global Poll of investors, traders and analysts indicate that global investors support the idea of the U.S. raising taxes to combat the budget deficit. Nearly two-thirds of investors polled believe that substantial deficit reduction will not be possible without additional tax revenue, a position that runs counter to the Republican stance on how to handle the federal deficit.

No easy agreement between Obama and GOP

Sixty percent of investors polled have significant doubt that President Obama and Republican lawmakers will be able to agree upon deficit-reducing measures before the start of the next fiscal year on Oct. 1. However, an even higher percentage of respondents (70 percent) are “confident” that Congress will raise the $14.29 trillion debt limit in order to avoid default that would send borrowing costs skyrocketing for everyone, eliminate millions of jobs and hurl stocks, home values and retirement savings into a financial abyss.

Obama’s reinvigorated popularity can’t change facts

Obama’s popularity ratings have risen globally since the death of Osama bin Laden, but that has done nothing to quell foreign investor fears over what could happen if something resembling the GOP’s plan to keep taxes low is put into action. While the majority of U.S. investors in the Bloomberg poll favored the GOP approach to the nation’s budget, 55 percent of them still don’t think it’s possible to cut the federal deficit “significantly” without raising taxes.

As it currently stands, the U.S. budget deficit will decrease slightly to $1.1 trillion in fiscal 2012. Fiscal 2011 will end with an approximate deficit of $1.5 trillion.

Taxation, without entitlements

Sacred cows like Social Security and Medicare-related programs, which make up more than 40 percent of the federal budget, have traditionally been off limits from spending cuts. This has prompted some to assert that higher taxes are the only way to make a deficit-busting difference. While unpopular, if a presidential administration were to be able to convince lawmakers and the electorate that tapping into such entitlements is a good idea, it could lower the national debt for future generations. Currently, Social Security, at 20 percent of the federal budget, receives $707 billion annually, according to the Center on Budget and Policy Priorities. Medicare and related programs receive $732 billion (21 percent).

Instead of dipping into entitlements, Harvard University economics professor Martin Feldstein suggests in a recent New York Times op-ed that a better alternative may be increasing tax revenue, rather than tax rates, by limiting tax deductions, credits and exclusions.

Higher interest rates

Bond market yields are at a 10-year low, according to Bloomberg. As there is an inverse relationship between bond values and interest rates, numerous experts fear that interest rates will become dramatically higher, a traditional result of a market crisis. The number of investors who believe another market crisis will hit the U.S. rose from 18 to 22 percent between the last two quarterly Bloomberg polls.

Sources

Bloomberg

Center on Budget and Policy Priorities

New York Times

Wikipedia entry for bond market

Cenk Uygur on taxes and the deficit

“Dearest, it's time to start repaying that $7,500 first-time homebuyer tax credit.” (Photo Credit: CC BY-ND/Tiffany Sly/Tiffany Sly and the City)

Taxpayers who claimed the $7,500 first-time homebuyer tax credit two years ago need to be ready to pay come tax day 2011, reports the Philadelphia Inquirer. That’s because the first repayment on stimulus is due with the 2010 tax return on April 18.

How the first-time homebuyer credit worked

A segment of new U.S. homebuyers were eligible to claim a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. According to the House and Economic Recovery Act of 2008, married individuals filing their taxes separately were eligible for a $3,750 credit, while unmarried homebuyers filing jointly could divide the tax credit. The credit applied to homes purchased after April 8, 2008, but before January 1, 2009.

Needless to say, this first-time homebuyer tax credit proved to be wildly popular. But calling it a “credit” was always problematic, as it was actually an interest-free loan. For the next 15 years, first-time homebuyers who claimed the tax credit will be repaying the government in equal installments each year. A $7,500 first-time homebuyer tax credit will break down to $500 per year, unless the home is sold before the total amount is paid off. At that point, the entire remaining amount comes due immediately.

More tax breaks for homebuyers

In addition to the first-time homebuyer tax credit, Congress extended two other tax credit opportunities to U.S. consumers. The first offered an $8,000 credit to first-time buyers who signed contracts between January 1, 2009 and April 30, 2010. As long as the contract had been signed by April 30, the sale could be completed by September 30, 2010, and the taxpayer could qualify for the credit. The second (for $6,500) applied to long-term homeowners who bought a new or existing home between November 7, 2009, and April 30, 2010.

Both of these additional tax credits require that homebuyers repay the entire amount – either $8,000 or $6,500 – if the home is sold within three years of the purchase date or the property becomes a secondary a secondary residence within the same time period. However, there’s a bit of an escape hatch if the property is sold within three years. If the profit on the sale (when compared with the original purchase price) is less than the amount of the tax credit, then homebuyers only need repay the amount of the profit.

IRS having trouble processing returns

Numerous glitches that affected tax refunds for married couples filing joint returns have caused frustration for the IRS, writes the Inquirer. Taxpayers who submitted Form 5405: “First-Time Homebuyer Credit and Repayment of the Credit” before February 22, 2011, forced the IRS to process their returns manually, creating slowdowns.

IRS projections indicate that about 1 million U.S. households will be repaying the $7,500 first-time homebuyer tax credit. Those taxpayers who haven’t gotten their refunds yet can check IRS.gov and click the “Where’s My Refund?” link for more information.

Sources

Housing and Economic Recovery Act of 2008

IRS.gov: First-time homebuyer credit

Philadelphia Inquirer

How Canada helps first-time home buyers

Student loans for middle-income students are available for those willing to put in the legwork. (Photo Credit: CC BY-ND/Federal Student Loan Debt)

Financial aid is a necessity for many low- to middle-income students and their families. Thankfully, there are student loan programs designed specifically for people who fall within the low- to middle-income brackets. Banknote suggests those looking for ways to pay for college use this three-pronged attack.

Aim high for need-based qualification

If a student doesn’t qualify for student loans at one college, it is quite possible that student could qualify at a more expensive university. Sally Donahue, Harvard’s director of financial aid, points out to Banknote that need-based financial aid is contingent upon income and assets, relative to admission costs. Thus, not qualifying at a $20,000-per-year school doesn’t mean a $60,000-per-year option is out of the question.

“We have probably 600 families with incomes over $180,000 receiving grant aid right now, and that’s usually because they have two or three students in high-cost colleges,” says Donahue. “It just depends on where you go.”

Harvard happens to be a “no-loan” school that enables students to obtain the necessary financial aid via grants, scholarships and work-study programs. The Institute for College Access and Success indicates that there are more than 50 such no-loan schools across the U.S. from which to choose. Keep in mind that most require family income to be below $50,000 annually.

Tax credits offer long-term help

Carol Stack, co-author of “The Financial Aid Handbook,” claims that 2011 is a banner year for student loan tax credits. Specifically, the American Opportunity Credit is one to watch. Extended through 2012, this credit can mean an extra $2,500 for families, as long as at least $4,000 is spent each year on college-related expenses. Intended for the first four years of post-secondary education, the American Opportunity Credit applies 100 percent to the first $2,000 spent during the tax year, and 24 percent to the next $2,000. At least half-time enrollment is required and family income must not exceed $160,000 per year. Check with the IRS for more information.

The Lifetime Learning Credit is great for part-time students and those who attend college for more than four years. Approved college expenses up to $10,000 are reimbursed at a 20 percent clip.

Good aid for good students

Merit-based aid exists for men and women who may not qualify for need-based student loans, grants or scholarships. Collegiate financial aid search engines, like College Navigator and Meritaid.com, state that $11 billion in merit-based aid is distributed annually. Thus, there are plenty of opportunities for good students to take advantage. Chris Long from Cappex, a Meritaid.com sister company, advises students to find schools outside their geographic area that would benefit from their test scores and GPA.

“You should also apply to schools where you’re at the upper end of the academic scale. You’re going to be very attractive to those schools because they want to increase their average GPA, SAT and ACT (scores),” he said.

Sources

Bankrate

Cappex

College Navigator

IRS.gov

Considering scholarships and grants

Find a good source of information

Finding a good source of information is the first step. If you don’t have the time to research the things you need yourself, then find someone who already knows what to look for and where to find them. Start working with them on ideas and new ways to cut your taxes. Having all your information in order and getting it in early gives you and your tax person extra time to come up with effective ways to save money. If you already have a tax preparer, but he or she does not discuss saving ideas with you, find a new one who will. Unfortunately, some tax preparers get confused and think they work for the IRS — the good ones remember that they work for you!

Resources online

There are many resources online that will help you investigate your options. You can even look them up in the comfort of your own home or office. If what you’re reading confuses you, dig deeper to find another source. Someone else may have the same information but in a more user-friendly format. Knowing ahead of time that there are ways to save money on your taxes will help you persevere until you find the right opportunity for you.

Business taxes

Big corporations hire full time attorneys, and doing taxes is generally their only job. They watch the income and suggest new ways to help the big companies save money on taxes. Many people assume that individuals don’t have the same options and end up using payday loans online, instead. But whether you find yourself a knowledgeable person or do the research yourself, getting ready now to do your taxes can help keep more money in your own pocket, rather than flying out the window unnecessarily, straight into the pocket of the IRS.

It’s time to file tax returns and as part of the stimulus bill the IRS is offering some new credits that could save you big money. Naturally, you the taxpayer are supposed to do your part for the “greater good” — not just of the United States but of all mankind — by spending the tax dollars you “save” out there in “our struggling economy” on “consumer goods” you don’t really need.

Or not

If, however, you’re sick and tired of that propaganda, perhaps you can simply use the money for day-to-day living expenses. Perhaps, if you qualify for a couple of these credits, you’ll be spared having to take out more secured loans or unsecured loans for quick cash just to tide you over between paychecks.

Five new tax credits

In either event, here’s the line-up: five money-savers to keep in mind when you file for 2009.

Homebuyer credits. Deadlines for home-buyer credits have been extended to include homes purchased by April 30, 2010. Qualified first-time home buyers can claim credits of up to $8,000 and repeat buyers who have lived in their present homes for at least five years can claim credits of up to $6,500. Income limits for the homebuyer credits have been raised. If your modified adjusted gross income is $125,000 or less, you may be eligible for the full amount of the credit. If your income is between $125,000 and $145,000 you may qualify for some reduced portion of the credit. Even if you’ve already filed your 2009 return, if you close on a house by April 30, you can amend it to claim the credit.

American Opportunity Credit. To lighten the burden of skyrocketing tuition costs, the IRS is offering a credit for college tuition, text books, computers and other educational expenses. The credit, which temporarily replaces the Hope Credit, can be claimed for the tax year 2009 or 2010 whether or not you owe taxes. Taxpayers with incomes of $80,000 or less may qualify for a credit of up to $2,500 a year. The credit can now be claimed for four years of post-secondary schooling, not just two.

Residential Energy Property Credit. This credit is designed to motivate homeowners to make energy-saving upgrades. The credit was originally supposed to expire in 2007, but has been extended through 2010. Under the new law, taxpayers can claim up to 30% of certain home-improvement costs. The maximum credit for improvements made in 2009 and 2010 has been increased to $1,500. Improvements qualifying for the credit include insulation, energy-saving windows, and high-efficiency heating and air-conditioning systems.

Making Work Pay Credit. This credit provides up to $400 for single persons with incomes of $75,000 or less, and up to $800 for joint filers with combined incomes of $150,000 or less. Most people will have already received the credit in their wages because of adjustments to their income-tax withholdings, but they still need to claim the credit in order not to end up owing the money back.

Vehicle Credits. On your 2009 return, you can deduct state and local taxes paid on new vehicles purchased between Feb. 17 and December 31, 2009. Qualifying vehicles include passenger automobiles, motorcycles, motor homes, and trucks weighing less than 8,500 pounds. The deduction is available for taxes and fees paid on a purchase price of up to $49,500. If you bought a car that time frame under the Cash for Clunkers program, you stand to save again with a vehicle credit.

In an effort to encourage car buyers to conserve energy, the IRS is also offering a new credit of up to $7,500 for certain electric plug-in vehicles purchased after Dec. 31, 2009. And don’t forget the other tax credit for buying hybrid and other low-emissions vehicles that has been offered since 2005.

Qualified first-time and repeat home buyers can still take advantage of the federal home-buyer tax credits. The credits are back, after a short hiatus, and prospective  home buyers stand to save thousands of dollars by taking advantage of them.  They should be used wisely,however. Here are a few things to keep in mind:

The deadline is approaching

The deadline for the federal home-buyer tax credits is April 30, 2010. That means that if you want to use the credit, you have to have your home under contract, or in escrow, by that date. In addition, the transaction must close within 60 days. Although 60 days may sound like a long time, consider that the average home takes just under that to close. Also, if you are a first-time buyer, you should start looking soon.

The amount of the credit varies

People need to understand that the amount of the tax credit is not set in stone. In fact, it’s actually 10% of the sale price of the home. Remember though that there is a maximum on the credit of $8,000 for qualified first-time buyers and $6,500 for qualified repeat buyers. For example, let’s say a first-time buyer finds a home for $75,000. Their tax credit would be $7,500. On the other hand, if repeat buyers find their dream home for $110,000, the maximum tax credit would be  $6,500.

Consult the experts

It’s never a good idea to try to sort through complex tax laws yourself, even if you do some research. Make sure you find the right people to guide you through the purchase and help you out. You want to have a mortgage lender who helps you find the right loan product, a realtor who can help you find homes with the right requirements and a tax preparer who knows the details of qualifying for the credit. Working together, they can create a sure-fire plan of action so you can take the tax credit and have all the necessary paperwork to prove your eligibility.

Be wise about lenders

Remember the lending boom? Part of the problem with it was that companies were lending via unscrupulous lending policies. They suggested people take out much larger loans than they reasonably could afford. They suggested people withhold certain information. They even doctored the numbers on loan applications. Don’t be a victim. If your lender suggests any of these practices, run. As Patti Ketcham, owner of Ketcham Realty Group, said in a Bankrate.com article, “It is critical that buyers educate themselves and that they not fall for the slick smoke and mirrors. Anytime you have found money, it brings out all the rats.”

Arm yourself with knowledge

In the end, it’s up to buyers to protect themselves from fraud or other unfair dealings. Take advantage of the federal homebuyers’ tax credit, but act wisely. Surround yourself with the right professionals who can guide you through the process and then enjoy the benefits. The credits are a great way to reduce the cost of moving into the home of your dreams.

Start saving for college at about this educational level

People who pay close attention to finances as well as the tax laws have discovered that under certain circumstances the government offers significant savings to people who plan ahead for college expenses. Many of these programs have made it easier for parents to save money for college tuition by providing tax credits and investment vehicles, such as Educational IRAs. Also, relatively new college savings-plans provide excellent ways to save on taxes.

Cautious investing

Parents should exercise caution when implementing college savings-plans, as some kinds of investments may affect a family’s eligibility for other financial aid programs. Circumstances such as marital status, family income, and state of residence are used to determine a student’s eligibility for financial aid, and so are available investment funds. If family funds are available to pay for a college education, the student may be barred from obtaining government-sponsored financial aid.

College savings options

For some parents, planning for college begins the minute a child is born. Others may not realize the importance of educational planning, or may be unable to start saving until well into a child’s adolescent years. When someone starts saving for college, however, no matter how late, it’s always a good idea. The important thing to remember, regardless of when the effort starts, is that it should be taken seriously and structured in an effective way. To that end, it’s important to know what the savings options are. Useful options include:

• Roth savings plans
• Educational IRAs
• 529 plans

Time will tell

For parents who have ten years or more to go before their child will be  ready to attend college, investing in special mutual funds, stocks or exchange-traded funds may also be a good idea. However, for those who have less time to invest, this may not be the best idea. Market fluctuations may make these kinds of investments too risky in the short run and little growth, if any, may be realized. Options for investors with fewer than ten years to go before college include:

• Treasury notes
• CDs
• Money market funds
• Bonds

Minimize the risks

When people start investing money to pay for college later rather than sooner, it’s a good idea to consider investing only a portion of available savings in order to minimize risks. Investment options and the risks involved with each should be discussed with a qualified financial planner.

Anytime is a good time to invest in a child’s education

No matter how or when a parent begins to invest in a child’s future education, it is always a good idea. If you can save money on taxes in the process of investing for college, it can be a tremendous help. Different families plan for college in different ways. For some, investments may be rewarded with tax credits or other tax savings, which are added incentives to prepare early for college expenses. Whichever strategy a family adopts, investing in a child’s future education is invaluable.