Paul Ferraresi

The Recovery and Reinvestment Act of 2009 has a variety of tax savings that may benefit you.

Most people spend and concentrate mainly on their homes and autos. Here are a few tax incentives in each area that may save you tax dollars.

If you have a house or a car, going green will be easier.

• Green Homes - Clients who install solar panels or make other energy efficiency improvements to their homes will receive substantial write-offs for their efforts. A credit of up to 30% is available for expenses incurred in 2009 and 2010. You could even install solar panels to heat your pool and it will count. In the past, the benefit was only a 10% credit.

The maximum credit has been raised from $500 to $1,500, combined over two years, with specific limits for different types of improvements. For example, furnaces are limited to $150. A previous limit of $200 for windows has been lifted, but the specifications for windows to qualify have become stricter.

For certain green home improvements, there are no longer any dollar caps. For example, that $1500 cap does not apply to geothermal heat pumps, solar water heaters and solar panels. Wind energy systems and certain fuel cells are also exempt from the cap. You can claim the full 30% of the purchase price for these, and they can be expensed. To see exactly which home improvements qualify, go to:
www.energystar.gov/index.cfm?c=products.pr_tax_credits.

• Green Cars - The government hopes more people will start driving clean, plug-in cars. Hybrid electric cars now qualify for a tax credit that starts at $2500 and phases out after the manufacturers sell 200,000 vehicles. The credit is calculated according to the power of the vehicle. If the car has a battery with at least five kilowatt-hours of capacity, your credit is increased by $417. For every kilowatt-hour thereafter, up to 16, you add an additional $417. It could be worth as much as $7500.

The September 2009 issue of Investment Advisor portrayed how much it costs to raise a child. The report from the Department of Agriculture child-rearing study will take your breath away.

A two-parent, middle income family (with income from $56,870 to $98,470) can expect to spend $221,190 ($291,570 inflated) to raise a child born in 2008 for the next 17 years. This amounts to $11,610 to $13,380 per year based on the child’s age.

The USDA states that a family with income over $98,470 can expect to spend $366,660 raising a child for 17 years. This does not include any private school or college costs.

You can see the full report and online calculator at www.cnpp.usda.gov.

And don’t you love it when your children say to you … “what have you done for me?”

What if you could retire early and still get full retirement benefits??

It is not a new concept but many people do not know about it. The current Social Security system allows individuals to claim reduced, early retirement benefits beginning at age 62. Individuals who wait until their full retirement age to collect and receive about 30% more in monthly benefits. If they wait until age 70 to collect, their benefits will be about 60% larger than at age 62. So what should you suggest your clients do?

Assuming a normal life expectancy and using the interest rate on government bonds, the actuarial present value of lifetime benefits are the same for those taking early retirement as for those waiting to take benefits at a later age. Of course, if one’s life expectancy is not normal (due to illness or bad luck or particularly good genes or good luck) one retirement age will look more attractive than another.

Look at going for the best of both worlds: retire at age 62, then pay back and reapply for Social Security benefits at age 70 if you come to regret your early decision.

A couple claimed their Social Security benefits at age 62 and now they each receive reduced benefit of $13,250 annually (in 2008 dollars). If they had waited until their normal retirement age (65) to collect benefits, the couple would each receive $18,928 a year. If they waited until 70 (this year) to apply, their benefit in 2008 would have been $20,693, thanks to the delayed benefit credit. If they choose to pay back the Social Security benefits they have received over the past eight years, they will each receive the much higher benefit for the rest of their lives. If they take this option, each would repay $94,556 to Social Security. They would then each begin receiving $20,693 a year (the same as if they had waited until age 70 to begin receiving benefits); and as a result, they would have approximately 56% more in real Social Security benefits every year for the rest of their lives. “Essentially, the government has given them an interest-free loan.”

Through my blogs, emails and personal discussions, I have explained that the Bush Tax cuts will end December 31, 2010. Under the sunset provisions imposed by Congress, the tax rates will revert back to pre-Bush. These earned income rates were all 5 percent higher than now. In addition, rates for dividend and capital gains will move from the present 15 percent up to 28 percent.

It is evident to everyone that with the huge budget deficits, the new trillion dollar stimulus package, cap and trade and health care revision that tax rates will have to go even higher. Experts in the area estimate that middle Americans will be at rates of 55-60 percent very soon.

With this in mind, I have extolled the virtues of taking monies from all your qualified plans now at lower rates. Why wait until later when your tax rates can be almost double? Get your money out now and place it into something that will grow tax free, you can have access to it tax free and when you die, it transfers tax free.

The least expensive way to take your money out is through a Strategic Roll Out (SRO).

The purpose of my letter is to remind you to make this year’s withdrawal now from your IRA/401k. You want to pull out money now (even without a SRO) in 2009 up to a level that will not throw you in a higher tax bracket. Then, do the same thing in early 2010. Do not try to double up in 2010, for that will move you into a higher bracket. Make your move early in 2010 as many investors will begin selling their stock market gains early in 2010 to take advantage of lower rates. I want you to get out the maximum amount before the markets turn down due to 2010 tax selling.

If you are on track with your tax planning fine, but, please pass these thoughts on to your family and friends.

I love finding other financial advisors that have great information to help build your wealth. You know, if you go to a major bookstore to the personal finance section, you will find thousands of books to help you become financially independent.

If you could skim each book, you would find the same basic principles in each one. It would take you hours to assemble all your notes. While reading the May 2009 issue of Success Magazine, I was introduced to 3 sites that will help you as they have numerous personal wealth building tidbits for you. I encourage you to visit:

Thesimpledollar.com
Moneyinstructor.com
Billeater.com

You may find one idea that will catapult you into financial independence.