Age has privilege based on certain, milestones like turning 65 and gaining eligibility for Medicare, health care at a reduced rate, and reduced real estate taxes. At age 59½ money can be withdrawn from retirement with no penalties. At 24 a student receives financial aid based on his own salary and not his parent’s income.

If income is too low, one can receive food, free medical costs, reduced rent, free tax money, free education, free day care, reduced utilities, and free legal aid.

If net worth is low and income is low, people can have many of the privileges outlined in the previous paragraph. In addition, one may be eligible for free nursing home care.

 Specific occupations also have privilege. For instance, individuals in the military or clergy do not pay taxes on the expense of housing. Veterans receive discounts at many retail stores and can also receive, if qualified, free health care, funeral expenses, education, financial counseling and can receive job preference. If one works for certain non-profit organizations or for the government, student education loans can be forgiven. Parents who work for the government also receive preference for their children on financial aid for college.

With the right knowledge, small business owners can structure income to their advantage from an income tax standpoint. There are numerous benefits that can be offered to employees structured to the advantage of the owner of the business. Profits of the company or business can also receive preferential treatment tax wise.

More recently we see first time home buyers, car buyers, union members, Congress, and attorneys receiving preferential treatment, even in the face of incompetence. Certain large businesses like banks, insurance companies, and auto companies have received advantages created by legislation coming out of Washington. The difficulty in having this preferential treatment is that by the time people discover what benefits are available, the time period to take advantage of these benefits has expired. As a result it benefits only those who keep informed or those who lobby help. In addition, it always results in taking from some people and redistributing it to others. Those who benefit receive value not by their own efforts, but by circumstances.

In United States societies of the past (50’s and 60’s) the check for business greed was customer service and customer satisfaction. The check mate for government is our Constitution; but Congress, as well as the judicial and executive branch of government, has over-reached its authority. The result will lead to socialism. It is not, nor has it ever been, the role of government to give charity, because it always leads to corruption. The church needs to take back it’s authority over feeding the poor, healing the sick, strengthening the weak, and providing clothes and shelter to those in need.

2. Leave the kids at home. Tired and cranky kids generally make shopping take longer and inevitably make you grab a couple things you normally wouldn’t have, just to keep them quiet.

        If the recession has touched your life financially, you might want to do some tax planning to either postpone or accelerate your tax deductions and/or income.   For those anticipating more income this year than next, it may be prudent to accelerate deductions and postpone income.  For those anticipating less income this year than next, consider postponing deductions and accelerating income.  Here are some ways to do that. 

        One example might be to do a conversion of a Traditional IRA to a Roth IRA. This will result in more income in the year completed, but will reduce taxes in future years, particularly after the Roth has been in place five years.  It will be necessary to look at how the additional income will affect your taxes this year before you do complete the process. 

        Another option is to review the assets you hold that have appreciated in value.  As we do anticipate higher capital gain taxes in the future, this may be a good year to sell and take the capital gain in a low income year.  Again, a review of the affect on your overall taxable income is appropriate before selling. 

        From a deductible expense standpoint, consider paying real estate taxes for the year either in December or January depending on which year you anticipate being in a higher tax bracket.  This can result in two real estate tax deductions in one year and none in the other year.  This strategy makes the most sense for those close to a threshold of a higher tax bracket or for those who have itemized deductions that barely exceed the threshold for the standard deduction ($11,400 for married, $5,700 for single).  For those who do not itemize but do pay real estate taxes, this year you can deduct $1,000 ($500 single) for real estate taxes in addition to the standard deduction.  You may have the opportunity to prepay other itemized expenses on your tax return as well.  

        This is a good time of the year to review whether you need to reduce or increase withholding of your taxes.  Most people over withhold and, as a result, they end up making interest free loans to the government.  Many of these same people are borrowing money at excessive interest rates with credit cards.  If you received a substantial refund this past year, file a W-4 form with your employer and increase your number of withholdings.

        Another tax strategy is to look for an opportunity to do income splitting with family dependents.  Many business owners hire their children, transferring income into the child’s lower tax bracket to be used for paying school tuition.  It can also be done for estate tax reasons when assets are substantial.

        This is a great time of year to look at charitable planning.  Presenting gifts of appreciated assets to avoid capital gain taxes may reduce taxes at the end of the year.  The savings and tax reduction is greater with the gifts of appreciated assets.

        First time home buyers or those who have not owned a home in the past three years have an opportunity to receive a substantial tax benefit ($8,000) by purchasing before December 1, 2009.  There has been talk of extending this tax benefit but a final decision has not yet been made.

        Finally, review benefits from your employment to make sure you are taking advantage of all the pre-tax living expenses offered by your employer.  I recently published an article that addresses these opportunities in more detail (click here).

 Robert Ostrander, CFP®

SWS Advisors, Inc.

        If you are healthy and have no chronic diseases, life insurance offered through your employer will likely be more expensive than what is offered through non-group coverage. Proper selection of the coverage for reduced rates and adequate coverage is necessary and we can assist in that process. Group insurance may be the best alternative for someone with chronic diseases. It should be noted that a loss of employment will also mean a loss of group coverage.

        If you are without credit card debt, we generally recommend that you take advantage of matching contributions by your employer to your retirement plan. This is why we encourage young people to avoid debt early in their careers. Money invested early and accumulating over many years grows dramatically. Time and compound interest is often referred to as the eighth wonder of the world.

        If your employer offers a flexible spending account (FSA or 125) sit down and review all your medical expenses that you anticipate for the next year. This should include prescriptions, chiropractic medicine, eye glass care, dental, medical costs not covered by health insurance, and any other related expenses. You can find a complete list through your employer or with a Google search of section 125 medical expense deductions. Some plans allow .14¢/mile to and from the doctor’s office with proper documentation. This benefit has tax savings of a minimum of 20% and as much as 40% for some people. Be accurate in your estimates because if you do not use it, you can lose it.

        Some benefit plans allow for pre-tax payment of mass transit deductions to and from work as well as pre-tax parking. This is offered under Section 132 of the IRS tax code. If the cap and trade agreements take place this may be the preferred method of travel because of the high cost of fuel. If your employer does not offer it, suggest to you human resources manager that he/she look into adding it to the options. This plan benefits the employer as well, saving the FICA tax for the mass transit expense.

        Another benefit offered is tuition reimbursement under Section 127 of the code. This benefit allows the employee to be reimbursed for successful completion of educational courses offered that will bring value to the employer. Often it requires a commitment to the employer for a stated number of years. The permissible amount is $5,250 each year. I almost always recommend long-term disability for employees because it represents a catastrophic risk potential. In some cases I recommend supplementing group long-term disability with an individual plan.

        I also recommend short-term disability for those with limited financial resources. I have never been a fan of accident policies or disease specific policies. They require specific risks to occur for collection of the benefit. Sometimes a family history of disease will sway my thinking.

        Dependent care benefits can also be taken pre-FICA and pre-tax for adults or children. Up to $5,000 annually is permissible as a payroll deduction. It is important to have a review of this benefit to see whether to take the pre-FICA benefit or the child credit. Your accountant can assist you with this decision.

        If you are planning an adoption this year, be sure to take advantage of the pre-FICA and pre-tax benefit that allows up to $10,390 to be payroll deducted. In addition, there is also a tax credit available for adoption. Be sure to discuss this option with your employer because this benefit saves your employer as well.

        Proper selection of benefits can be a significant benefit to employees. This is why planning is so important. Each year most of the benefits must be determined in October or November for the next year. It is worthwhile planning how to take these benefits. Be sure to call us if you need help.

Robert Ostrander, CFP®

SWS Advisors, Inc.

        The first option is to sell the home so as to have a more affordable housing expense. Many times homeowners are reluctant because the home would sell below what the family originally paid. This would obviously result in the seller losing money and leave the mortgage company with an unsecured loan for the remainder of the debt. We would call this type of sale a short sale. For such a sale to take place, the mortgage company would have to agree. The homeowner would then have to pay off the unsecured portion of the debt. The advantage would be to protect the family’s credit rating and avoid bankruptcy.

        In some cases the mortgage lender will take a hit on the unsecured portion of the debt, up to 100% of the unsecured amount, to avoid the cost of bankruptcy. If the lender does take a hit, it can result in the issuance of a 1099 to the homeowner for the phantom income, resulting in an income tax on the unsecured portion of the loan. The tax of course would be less than the repayment of the loan. On a positive note, there are some situations where the tax could be avoided.

        There are rescue funds of up to $3,000 available to those in Ohio. Not everyone will qualify, but for certain situations in which a family is behind on their mortgage payments, funds may be available. It is imperative that you can be rescued with the additional funds. They are not inclined to put good money into a bad situation.

        A third option is to file bankruptcy. What hurts the credit score most are multiple late payments. If this is an option to be considered, do not drag out the process if you see that you have no other choice.

        Another, and possibly a more fruitful option, is to take advantage of our Saving Without Sacrifice process. We recently had a riteree come in who was struggling to keep her home. Through our process we were able to identify savings of $500 a month on her $27,000 annual income. It was more than enough for her to avoid foreclosure but because she waited too long, some of the savings could not be realized for one year.

        These are tough times and with some of the proposed changes in government we can only see more difficult times ahead. We encourage you to be more proactive in reducing your living expenses. We would consider it a privilege to be part of your solutions to reduce your monthly costs.

Robert Ostrander, CFP

SWS Advisors, Inc.