Action heroes are lousy tax advisers

More tax trouble in Tinseltown this week. (That sounds like a line out of an old movie that I normally wouldn't admit liking as much as I do.) The Los Angeles Times and others are reporting that the IRS has filed a $79,000 tax lien against California Gov. Arnold Schwarzenegger. He's disputing the claim and insists he's paid his taxes.

Lots of celebrities seem to get into tax jams, of course. Wesley Snipes, who allegedly didn't file returns for a few years, is in a big one. Willie Nelson used to be, though that apparently is behind him now. Olympic swimming gold medalist Michael Phelps was thought to be, though that turned out to be a case of mistaken identity. It isn't just Hollywood either. All kinds of literati anad glitterati have been making some dumb financial moves, reports ABC News. It is even an international phenomenon; celebrity chef Gordon Ramsey reportedly is in hot water with British tax authorities too.

Watching celebrities getting into financial jams has become something of a cottage industry. There is at least one blog devoted to the subject, by Cincinnati law professor Paul Caron. Austin, TX writer and tax geek Kay Bell watches too. Even Roni Deutch, the queen of late night TV tax service commercials keeps a list. Though in her line of work, she may be able to write some of that off.

So, if you are starting to pull year-end tax records together soon - and you should be - just remember: action heroes can be lousy tax advisers. Here's a short list of things IRS definitely recommends avoiding and 15 pages of why. The short answer is, they don't work.

Ho Ho Ho or Humbug, What's your shopping plan?

Are Christmas shopping forecasters secret Scrooges? Some retailers think so. They contend mainstream media tends to deck the malls with doom and gloom in their holiday shopping forecasts.

Holiday shopping forecasts often are moving targets. The National Retail Federation, which last month forecast a basically flat shopping season this year, now predicts 134 million of us will be lining up outside discount stores at O-Dark-30 tomorrow.

What we'll be doing there is anybody's guess. Really. Relatively few of us plan to cut back our holiday spending, but we'll be watching our money more closely, we've told pollsters for Upromise.com. Quite a few of us, though not as many as last year, plan to cut back, but will be freer with our money, we told a joint Consumer Federation of America/Credit Union National Association survey. If you do the math, some of us fibbed.

I think there's another reason it might not seem holiday festive yet. Even though the recession is over, according to the double domes, many communities are cutting back on holiday decorations this year because money is tight. Holiday event planners are feeling a pinch too.

Peaking mentally at 53...is this as good as it gets?

Age 53 is your sweet spot where handling money is concerned according to some Harvard researchers quoted by Ryan Sager at SmartMoney.com.

That's about when you've picked up as much financial street smarts as possible before aging begins slowing your brain functions, according to the lead scientist, David Laibson, who incidentally is 43.

That doesn't mean best is good, though. I know I made some dumb decisions at 53; technology stocks were hot at the time. Many of today's 53-year-olds - who make up a big swath of the U.S. population -are apparently in the same boat.

Few of us handle all our retirement savings questions brilliantly, reports the online 401(k) Help Center. Throw in the trauma of a layoff or other collateral damage from the recession and we become even more unhinged, adds Prudent Money Financial Services.

Fifty three is a tough age. You are maybe nine years from retirement - planned or otherwise - and reaching your peak earning years, but with probably way too little in life savings. The Employee Benefit Research Institute calculates many 53-year-olds probably have about $44,000 stashed in their retirement plans, which is not a lot of money to stretch over two decades of retirement.

And pulling that money out early generally is not one of the most brilliant moves a 50-something can make, despite some attractions recently listed by John Credule in the New York Post.

Hang on, it's the only nest egg you've got

You've got three choices about what to do with your retirement plan money when you leave a job. And even though the recession supposedly is over, more of us may be making those choices, according to forecaster Nouriel Roubini, who has been distressingly accurate before.

Basically you can cash in part or all of the plan; leave it with your employer until you retire, even if you no longer work there, or roll it into an IRA of your own where you can tend your investments personally.

Financial advisers generally agree the first choice is the worst choice for most of us, because of the huge tax bite and potential penalties that may be triggered when you cash out too soon. They are more divided about the other two choices.

Hewitt Associate's Pam Hess is among a minority of financial advisers who find good things about leaving the money where it is. It's simple and your plan's investment managers probably know more than you (you hope) about investing as profitably as possible.

More advisers favor rolling the money into an IRA, as CNN's Walter Updegrave reports. It's easier to track and you've got more investment choices. Having more choices is important, because traditional 401(k)s often aren't cutting it anymore, say executives such as Putnam Investments chief executive Robert Reynolds.

Insurers such as Prudential have been imagining some of the changes savers need and are coming up with suggestions that would have been startling just a few years ago. Recently insurance giant Metlife and Fidelity, the nation's largest mutual fund company announced a plan to include annuities in mutual fund retirement plans.

Annuities sound complicated to many people. And we've all heard, or in my case, written horror stories about high costs and other jams investors have gotten into. But in many cases, annuities are getting second looks because lifetime incomes sound reassuring right now.

Belt tightening at Thanksgiving

"When an economist says a recession is over is different from when a hungry family says it's over," said John Hornbeck of Episcopal Community Services, one of many food assistance providers to hungry Kansas City area residents.

That shows up a lot right now, as supermarket Thanksgiving grocery ads hit our driveways. At least one store offers turkeys at 40 cents a pound with a $25 purchase. Another throws in a free turkey if you buy a featured ham.

Those are good deals, better than a year ago, the American Farm Bureau correctly reports, but the offerings might as well be Beluga caviar as far as many of some 17 million hungry households are concerned. Those are the ones that the U.S. Agriculture Department calculates experienced what delicately is called food insecurity last year.

Hunger is a noticeably growing problem in many suburbs once thought impervious to the problem, reports Newsweek. Count Johnson County, KS, home of the statistically not shabby 19th highest household incomes in the U.S., among them, says Linda Rogers of Johnson County Human Services. Requests for food assistance are up maybe a third from a year ago as more white collar severance packages run out before people find jobs, she said.

"There is a direct connection between rising unemployment and requests for food assistance," said Karen Heren, chief executive of the Harvesters Community Food Network in Kansas City. She's shopping for what's budgeted to be $4 million in additional food purchases to supplement donations.

"Two words that really scare us are 'jobless recovery' " Heren said. "This time last year, our shelves were bare."

There are some tax breaks you don't want

More than 15 million taxpayers may owe Uncle Sam another $250 next filing season, a Treasury Department Inspector General reports.

Lower payroll taxes passed last spring to pump money into the economy ended up putting too much money back into the checks of workers with more than one job, of which there have been many this recession. Social Security recipients who worked part time may be hit too.

IRS has a free calculator to help you see what your situation is. There are barely six weeks left in the tax year, though, which leaves little time to do anything other than brace for impact.

The recession has produced some really crummy tax breaks you need to prepare for if you qualify. My two favorites? The first $2,400 of unemployment benefits you collected in 2009 are tax exempt. You pay taxes on the rest. Forgiven debt usually counts as taxable income, but not if you lost your home or modified your mortgage.

Yippee.

Lots of roadside help is just a phone call away

Our seven-year-old Toyota's original battery died suddenly in the supermarket parking lot this weekend. And I found out that much has changed since the last time I called AAA.

For one thing, the auto club sells batteries roadside now, and have been doing that for a couple years at least, according to the technician who answered our call. It's a moderately pricey service; we paid $115 to buy a battery that costs maybe $75 at AutoZone, have it installed and the old dead one taken away for recycling. But paying the extra money also allowed us to finish shopping at the next supermarket on our list and get home before the frozen food thawed.

I also realized we're potentially covered by at least three auto clubs. One is AAA, which was the most universally dependable services when we first signed up four decades ago. AARP offers a slightly reduced price similar service, which we haven't signed up for. Progressive Insurance also throws roadside assistance in with an auto policy we have. Many other insurers do that too; Allstate ramps up the service a notch with a special plan for Blackberry users. Even Subaru offered free help for the first year after we bought that car.

So, is it dumb to continue paying AAA for coverage that overlaps what these other providers offer anyway? That apparently depends on what is most likely to go wrong when we hit the highway, writes Vivian Blackwell at Edmunds.com.

Roadside assistance plans are essentially insurance policies designed to help policy holders deal with what are usually minor emergencies. Some are part of lusher larger services, like GM's OnStar, which costs about $200 a year after a first year free trial. Others are barer bones plans that may limit which vehicles are covered or where you take your car if you need repairs. Some aim for niche markets, such as the Better World Club, which has a roadside plan that covers bicycles too.

Finding the right plan is like finding the best insurance deal. You basically read the fine print and compare the choices.

New Fed consumer protection rules need your help

New Federal Reserve banking overdraft regulations might help many of us avoid big penalties if we use our ATM or debit cards too enthusiastically after July 1.

It's a big deal. About three fourths of the nation's bank routinely sign up customers for automatic overdraft protection, and collect $37 billion in overdraft fees when we trigger it, reports Kiplinger Personal Finance's Joan Goldwasser. The new regulations stop part of that by ending the automatic enrollment and requiring us to sign up if we want that protection. Meantime, here is a rundown of what the Consumer Federation of America found the nation's biggest banks were doing last month.

But take a close look at the details when your bank mails you an explanation of the changes in a few months. There is less there than meets the eye for some of us.

For starters, the new regulations apply only to ATM and debit card transactions. Banks can still charge for honoring overdraft paper checks or covering automatic bill payments if your account drops too low. Plus, the new rules don't put caps on what banks can charge if you do sign up or prevent them from potentially tweaking the system to trigger more fee income, CFA reports.

So the best way to avoid overdraft fees in July is what is still the best way now. Avoid overdrafts. Basic tactics such as having your paycheck deposited directly into your account, keeping a comfortable cushion there and simply keeping track of what you spend aren't hard and go a long way, the American Bankers Association says.

Not maxing out your plastic gets tougher

Credit card reform doesn't always go smoothly, we are discovering.

Horror stories abound of how credit card users are being whiplashed by fast changing loan terms. The Federal Reserve reports 75 percent of the nation's lenders might not comply with new regulations that kick in in February. That echoes a Pew Charitable Trusts report two weeks ago that cards offered now by the 12 biggest lenders still fall short of snuff.

Lenders in general are tightening their credit card standards, reports Creditcards.com. Lenders are tightening other lines too, Diane Swonk, chief economist at Mesirow Financial, writes in that firm's latest newsletter; home equity loans have all but vanished.

Borrowers can still get relatively good credit card deals from credit unions, Forbes.com reports.
Even so, tight money and shrinking credit lines make it easier to hit credit limits before you mean to.

Freefalling into an unplanned retirement

Finding new jobs these days is tougher than it used to be, AP's Jeannine Aversa reports. But so is one of the alternatives - being forced into an unplanned early retirement. Among the nation's younger than 65-year-olds, anywhere from two to six times more workers are taking that route out of the job market than planned to, the Employee Benefit Research Institute found last spring.

Leaving the workforce sooner than you planned is never easy. You worry more about money, EBRI researchers report. Duh. But a small slew of surveys released in the last few weeks suggests more of us have good reason to worry. MetLife reports that more of us really are trying to live within our means these days. But a good three fourths of us aren't succeeding, says Wells Fargo.

But not saving enough money is only one of three reasons why retiring prematurely fails. Investing your savings unwisely or underestimating what retirement living really costs will sandbag you too. There aren't many roadmaps, I discovered last spring. Basically, you look at your resources and try to use them creatively. Or, you try to find a job, as Newsweek's Linda Stern found more 60-somethings are doing. Some 72 percent of the nation's retirees are planning that now, EBRI calculates, up from 66 percent a year ago.

Gimme a (tax) break - I don't want to buy a house

Now you don't have to be a first time buyer to get a tax credit for buying a home.

New legislation that President Obama is signing, probably today, also provides a potential $6,500 tax credit for homeowners who sell their current homes to buy another one. Get it done by April 30 if you are interested.

Huzzah, say the nation's realtors. Others' enthusiasm is more restrained. The New York Times editorial board calls it throwing good money after bad. Washington Post's Steven Pearlstein grumps that it's a better deal for sellers than buyers and also for real estate agents, appraisers, lenders, brokers and insurers, who also get cuts in the deals. Tha makes sense in a way because there still are a lot more sellers in the market than buyers, the National Association of Realtors reports.

Meantime, don't forget other potential tax breaks you can get without planting real estate signs in your yard. You need to get moving on those too, because the Dec. 31 end of the tax year for most of us is a scant eight weeks away.

If you've got some investments down for the ten count, for example, you may want to sell them and use the losses to offset profits on other stuff you sold. Or if you still have stuff that didn't move at your fund-raising garage sale, donate it to your favorite charity, get receipts and deduct it on Schedule A next spring.

Or if you've been job hunting or running a part time business to make extra cash, as many of us are these days, start rounding up and saving receipts for those expenses too. Many are deductible. And if you are snugging up the house to save energy this winter, don't forget to check out any potential energy tax credits you might qualify for.

If you are still working, you are a god to many of us. But check how the tax withholding in your paycheck may have changed by stimulus legislation flying out of Washington

Savings Bonds warm up to back above zero. Why should I care?

Series I Savings Bonds, which have been paying some savers zero-percent interest the last six months, are back in the black again. The Treasury Department announced earlier this week that savers who buy the inflation-adjusted bonds will get 3.36 percent interest on any bonds they buy before May 1. Rates will change again after that depending on what consumer prices do.

Calculating what I-bonds pay can be mystifying. Buyers get paid with a combination of interest rates. One is a fixed rate that is calculated on the recent price for government securities when you buy the bonds and stays the same for however long you own them. The fixed rate is 0.30 percent now, but was as high as 3.6 percent a decade or so ago when financial markets were boomier.

The other rate, which changes every May 1 and Nov. 1, is based on the Consumer Price Index. It's 3.06 percent now, thanks in part to some recently spiky energy prices. It's been minus 2.78 percent for the last six months, so anyone with a fixed rate smaller than that has been earning zip.

So why do we care? Basically, now that I-bonds have a pulse again, they are an okay place to stash any emergency money you won't need for a year or more. Starting at $50, they are cheap to buy. And they currently pay better than money market accounts or comparable certificates of deposit.

Their biggest drawback is that you cannot get your money back for 12 months. Busting a CD and paying a penalty is easier. The second biggest drawback is that after those first 12 months are up, you still lose three-months' interest if you cash out before 5 years are up. I think that's a judgment call. If you really need your money that badly, you've still made better than bank rates for nine months or longer and three months interest at current market rates may not be that big a hit.

Blue Christmas - oldies and some not so goodies.

Christmas clubs are back. That can't be a great omen for retailers.

Christmas clubs, for those of you who don't remember a president before Ronald Reagan, are savings plans consumers use when they expect financially leaner holidays. Some people think the plans are kitschy and a bad deal. They're wrong.

Sears and Kmart, which are pushing the plans this year, are the same two retailers who resuscitated layaway plans last year. However, Walmart, the nation's largest retailer, phased out its layaway program three years ago and appears to be counting on cutting prices to win customers. Discounts and instant gratification are always winners.

Even that looks a bit dicey this time around. Some retailers ran into a new competitor during the just ended Halloween season, which has become sort of a warm up for Christmas. Home made gifts. Merchants are fighting back.

Plus there is one more Christmas shopping budget stretcher retailers worry about. Shoplifting, already a $30 billion dollar business in the U.S. by FBI estimates, appears to be on the rise, the National Retail Federation.

Remember to turn off the home alarm for Santa.