RE: 2009

by Andrew D. Schwartz, CPA

Good riddance to an extremely crappy financial year.  During 2008, real estate values plummeted, credit markets froze, and stock markets around the globe tanked.  Plus, we taxpayers are now borrowing in excess of a trillion dollars to bail out some of the most prestigious names in corporate America due to the greed and/or mismanagement of these icons.

Hello 2009.  Hopefully this year won't be nearly as financially crappy as 2008. Here are some steps you can take to get your personal finances back on track:

• REset your retirement savings:  Most people find it easier to max out their retirement contributions by budgeting a set amount each month.  Instruct your employer to withhold $1,375 per month for your 401(k) or 403(b) plan to ensure that you hit the max of $16,500 in 2009.  Are you self-employed?  If so, you can sock away up to $49,000 next year into a SEP, Keogh or Solo 401(k), which equals $4,083 per month.  And if you'll be 50 or older by December 31st, the limit jumps to $22,000 for 401(k) and 403(b) salary deferrals, and $54,500 for Solo 401(k)'s.

• REbuild your investment portfolio:  Warren Buffet said it best by stating, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."  While many individual stocks might never recover, the broader indices have shown that when given enough time, they rebound to match and then beat previous highs.  The stock market came back following the Great Depression, 1987 Crash, and September 11th Sell-off.  Could the current level of the Dow be seen as one of the best investment opportunities in recent history?

• REfinance your home mortgage:  My wife and I just locked in a thirty-year fixed-rate mortgage at 4.875% with no points.  According to our mortgage guy, Bob Cahill of Bank of America, there are a variety of low-rate mortgage products currently available to people looking to purchase a new home or refinance an existing mortgage (as long as the home value exceeds the outstanding mortgage balance.)

• REduce your personal debt: Over time, people and businesses seemed to have forgotten that any money borrowed needs to be repaid.  Remember, leverage equals risk.  Make 2009 a year to pay down some of your personal debt.  Perhaps you can delay the purchase of a new car, scale down your awesome vacation, or settle for a 37 inch flat screen TV.

• REvise your savings and debt reduction goals: Take a few minutes to set new savings goals including how much you’d like to put away towards your retirement, a child’s education, and the down payment on a home, and also to reset how much you plan to pay down your student loans, personal debt, and home mortgage.  Download our (Microsoft Excel) debt/savings calculator to help you crunch the numbers.

• REbalance your investment portfolio:  During 2008, all sectors of the stock market got hammered.  Your bond funds and money market funds, however, probably did okay.  By rebalancing your portfolio to it's original or updated asset allocation, you move money from the sectors that performed the best into sectors that underperformed.  

• REcalculate how much your retirement savings will be worth when you retire: With the Dow off 40 percent from its high of $14,000, now's a good time to take a look at how much buying power you can expect to have upon retiring by utilizing our unique on-line retirement calculator.

• REvisit your life and disability insurance needs: As you move through your career, your life and disability insurance needs change. Give some thought to how much of these insurances you need versus how much you currently get through your employer’s benefit package and how much coverage you've already purchased for your personal policies. 

• REsolve errors on your credit report:  Each year, you’re entitled to three free credit reports, so there’s no excuse to not look at this important financial report annually, especially since errors are not uncommon.  Order your free report at www.annualcreditreport.com.

Questions about financial planning steps you should take for 2009? Please check out our directory of CPAs and EAs that offer Fee-Only Financial Planning at: FindAGoodCPA.com to find a professional familiar with the financial planning issues that affect you and your colleagues.  Do-It-Yourselfers should check out the tools available at www.eFinPlan.com.

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STANDARD MILEAGE RATE DROPS TO 55 CENTS PER MILE IN 2009

by Andrew D. Schwartz, CPA

The IRS announced that the standard mileage rate will drop to 55 cents per business mile driven, effective January 1, 2009.  That is a decrease of approximately 6% from the 58.5 cents allowed as of December 31, 2008. 

When you use your car for business, driving between job sites is deductible.  So is driving between your home and a temporary job site, job interviews, and conferences.  Commuting between your home and a regular place of business generally isn't tax deductible.

There are two ways for you to calculate your automobile expenses.  You can either multiply the total business miles driven during the year with the applicable rate of $.55, or you can base your deduction on the percentage of miles your car was driven for business multiplied by actual costs incurred.  Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.

Generally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you're better off basing your deduction on the standard mileage rate.

Other Deductible Miles

Any mileage driven in connection with a qualified move is deductible at a rate of 24 cents per mile effective January 1, 2009, down from 27 cents per mile for the second half of last year, and should be reported on a Form 3903, Moving Expenses.  Medical mileage is deductible at the same rates, and should be reported with all other medical expenses on the Schedule A.

The standard mileage rate for using your automobile in connection with a charitable activity did not increase and remains at 14 cents per mile.  Make sure to report these miles with other charitable contributions as an itemized deduction of the Schedule A. 

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2008 & 2009 TAX FACTS

• For 2008, the standard deduction for a single individual is $5,450 and for a married couple is $10,900. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
• For 2008, the personal exemption is $3,500. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  
• The maximum earnings subject to social security taxes is $106,800 for 2009, up from $102,000 for 2008.
  
• The standard mileage rate is $.55 per business mile as of January 1, 2009, down from $.585 per mile as of December 31, 2008.
  
• The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2009.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account this year.
• The maximum annual contribution to your IRA is $5,000 for 2008 and 2009.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2009 to make your 2008 IRA contributions. 

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