First, Obama wants to cut small businesses a break on taxation of capital gains. Excuse me, but how many small businesses engage in the buying and selling of capital assets for profit? This is a meaningless proposal because it will affect so few businesses.

Second, Obama wants to extend a tax credit to small businesses that hire people. This proposal is similar to one rejected by Congress last year because it would be so difficult to implement and enforce fairly. For example, could a company hire two employees this month, receive the credit, then fire three employees next month? How about firing two this month and re-hiring them next month? Or firing a $60,000 employee and replacing him with two $30,000 employees. You can imagine how all of this could be abused.

Third, isn’t such a credit unfair to those small businesses who struggled to retain loyal employees through the bad times while favoring small business owners who swung the axe as soon as things went south?

Fourth, most small corporations pay little or no corporate income taxes, as they pay out all of their “profits” to the owners as deductible salary and bonuses. This means that either they will not benefit from the credit or this will be a refundable tax credit. If the latter, then the government is basically directly subsidizing the salary of new hires. How long can that last?

Fifth, if a small business doesn’t have the revenue to support a new hire, what good is a tax credit going to do? Not enough to cause that business to pull the trigger on new hiring.

Obama should look instead at cutting payroll taxes. A recent Congressional Budget Office analysis concludes that this would create jobs. What he is proposing is more fluff than substance.

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I read about a lot of crazy financial ideas and products. It used to be that checking and savings accounts led the way in offering different features and so-called benefits to entice new customers. That trend was displaced by credit card products as Americans became less interested in saving and more interested in spending.

It’s to the point now that selecting credit card features is like buying options on a new car purchase. (Another expensive activity.)

The latest is the ZYNC card. This is a fee-based charge card with optional “Lifestyle” packs that you can “add” for an extra fee.  Wow – I definitely need the fully-loaded version. But what’s with the “Zync” moniker? Have we finally run out of precious metal versions of spending aids?  What’s next – the “TYN” card? Or how about the “LEAD” card for spending that will really weigh you down.

OK enough about that latest in credit card fashions. On to some tough money love reading for the week.

First up: Paul Farrell at MarketWatch gives us 20 reasons why the global debt time bomb is ready to explode. If you read credit card ads but won’t read Farrell’s piece, you deserve to have your finances blown up.

The Moolanomy blog wrote about having a no-spend weekend. I like the concept, particularly for young adults who have come to believe that the national pastime is clubbing with big bar tabs. If you can break out of the “weekends are for spending” mindset when you are young, the rest of your financial life may go a lot smoother.

Kyle at Amateur Asset Allocator wrote a summary of places to find coupon deals. I have started to appreciate finding these coupon deals and now make a habit of checking them before any significant purchase. As a techie, I would add Tech Deals to the list.

Money Crashers published a piece about the “fat tax“, i.e., taxing food products that are objectively unhealthy by their contributions to our national obesity problem. I don’t like taxes but I like this one. Face it – the gazillions of extra pounds that our fellow citizens are lugging around cost us all a lot of money, particularly in health care. Now that I think about it, I need to write an entire post on this topic.

Finally, check out this week’s Carnival of Personal Finance.

Enjoy the weekend (maybe a no-spend one?)

No related posts yet.

For the most part, the people I helped were wonderful (or at least interesting) and taught me a lot about life, through stories they freely told about their own lives. I decided to write about my experiences, telling their stories without violating their privacy. If you are interested in reading about last year’s experiences, just search this site for “volunteer tax.”

This year I took more tests and went back to work for my first session yesterday afternoon. I had four appointments scheduled. One cancelled but he was replaced by a walk-in. Three of the four appointments were people I had helped last year. I guess that’s a good sign that I didn’t completely mess up their returns!

The first gentlemen was not a repeat client. He was retired, living alone in a paid-for house with a nice size government pension, making more than $60,000 yearly. He had worked with a different volunteer last year so his 2008 return was in our system. I asked him if any of his circumstances had changed in the past year. His answer was sort of sad: “No, and I don’t guess they will until I expire.” He said it in a way that made it sound like he had nothing to look forward to. It reminded me of something Bobby Bowden – the recently retired FSU football coach – often said:  ”After you retire there is only one big event left in your life.” I don’t agree with that but I can see how others might feel this way. When I told this gentlemen he would be receiving a refund, I learned something that might be contributing to his negativity. He told me that the refund would be taken from him by the IRS because he was still paying off an old tax obligation. Ouch.

The next appointment was with the walk-in, a school teacher who had the day off because the schools were closed due to bad weather. I had prepared this woman’s return last year. She was in her early 50’s, divorced and supporting her adult son who couldn’t hold a job. She had a decent income – close to $60,000 – but was not in good shape financially. Her only other income was a few hundred dollars in interest. She told me that next year she planned on having dividend income from stocks, etc. because she needed to start investing for retirement. (She will have a pension but not a large one.) She added “I’m waiting for the market to come back.” Not one to shy away from volunteering advice, I responded: “That means you will be buying high. Why not buy now, when the market is down?” She didn’t have an answer for that. I came to understand that although she was aware of the urgency of her retirement planning, she did not yet have the willpower to do anything about it. First, she had purchased a new car in 2009, costing more than $30,000. That was obviously a mistake for someone in her situation.  Second, when I told her the size of her refund, she immediately announced that she would use that money for a vacation. OK then, see you next year. I may have planted a seed, though. As she was walking out the door, she turned and told me that the state government was offering a “teacher’s IRA” and asked whether that would be a good thing for her to do. I told her that IRAs can work for a lot of people and explained about the different kinds (ROTH and traditional). But I particularly warned her about studying the investment options and fees associated with this “teacher’s IRA” because there were lots of places where she could open an IRA. I hope that she takes some action.

The third appointment was perhaps the strangest. This was a 58 year old man who was receiving disability benefits from an annuity jointly funded by the federal government and his own contributions. For some reason, the tax statement from the government did not state the taxable amount of the annuity payments he had received. To calculate this myself, I had to know at what age he started receiving benefits. He told me he had no idea. That sounded weird to me until he explained that his disability was the result of a traumatic head injury which caused him to lose most of his short term memory. So I ended up guestimating. It got even more strange in a sad way. I noticed that he was married but he stated that he wanted to file separately because “my wife deserted me eight years ago.”  Before I could say more, he then went on to explain that he remained married because his wife had cancer and he wanted her to be able to stay on his insurance. (I’m guessing that this was a continuing form of a federal government insurance plan.)  Apparently, he still cared enough about her to make sure she had adequate medical care. A bittersweet sentiment but good for him.

My final client of the day was a cheerful woman in her 70’s. I don’t know how she lived on what little income she had.  A small Social Security benefit and $6,000 in unemployment benefits. She paid no taxes at all. What will happen when those benefits run out? She didn’t seem worried. I wondered  to myself if I could remain so calm and carefree under similar circumstances.

That’s a wrap for this week. Stay tuned for more as tax season progresses.

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So have all of your 2009 year-end tax documents rolled in? Mine haven’t yet. That doesn’t bother me because I have already estimated our tax liability and paid some of it. The rest can wait until the bitter end because I have another check to write.

Be extra selective this year about which tax software you use to do your own taxes. Many of the personal finance bloggers will be running “reviews” and other articles with lots of affiliate sales links. Nothing wrong with that as long as you do your own due diligence. I am a long time TurboTax user but I am probably switching this year. Intuit seems to have changed their revenue model on the TurboTax product and in a way that I’m not sure is good for the consumer. So I’m looking at other options, including TaxAct which I used to run my liability estimates. TaxAct is big on upselling from inside the product but with a little willpower, I should be able to use it completely free. More on this later.

Today is my first volunteer afternoon at the AARP/VITA Tax Aid tax office. We have a handful of new or modified tax credits to deal with so I’m sure to receive lots of questions about those. I hope everyone is in a good mood. I also hope that I don’t start my season helping younger taxpayers who make real money and don’t really need our help. I had a few of those last year.

I will probably write about today’s experiences tonight and publish something tomorrow or Thursday. Wish me luck!

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If you don’t know anything about Keynes or Hayek, it’s never too soon or too late to learn. You might as well start with a video. Enjoy:

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Second, Obama and Biden announced a “down payment” on high-speed rail funding in Florida. Unfortunately, this is mostly political hot air as the amount promised won’t actually complete any high speed rail projects.

I would be OK with developing a true national high speed rail infrastructure. That’s what China is doing, at a cost of $300 billion through 2020. The amount that Obama is planning to spend won’t scratch the surface of what is needed to supply a true benefit to the taxpayers. He should have said “no” to the car companies and AIG and used that money for a real investment in the future of transportation. Now we are stuck with airline bag fees and such, plus a shaky GM and Chrysler.

Third, Paul Bernanke was confirmed for a second term as Fed Chairman. I thought Bernanke would do a good job but now I have my doubts about what he and his team have accomplished. I think it’s safe to say that he won’t be around for a third term, which is when some of the real damage (e.g., high taxes and inflation) will be felt.

So why don’t I feel better? That’s why.

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First, Apple is finally going to tell us all about its latest must-have product offering. This will have gadget freaks and the Apple-brand obsessed running for their credit cards to be the one of the early adopters.

I’m a skeptic and cynic when it comes to these announcements and Apple’s overpriced products. I even resisted the siren call of the i-Phone. Can you believe it? As an engineer and patent lawyer, I admire technology and make my living protecting it. But I finally got over the need to own it all. Have you? If not, read the post I wrote on how hedonic adaptation prevents us from achieving true happiness from our gadget lust.

Anyway, if you want to follow an Apply-savvy techie as he blogs the announcement live, check out these guys at ZDNet. (P.S. There is now a rumor that the product ship date has slipped to June. OMG!)

Returning to more important matters, the Federal Open Market Committee meets today and will likely have an announcement early this afternoon about interest rates and related matters. Check any financial site for that news and watch the stock and bond index tickers for market reaction. Or do both at once at Google Finance.

Finally, tonight our President will attempt to re-capture economic high ground with his State of the Union Address. I think the President’s intentions will be good but I don’t believe our Congress will cooperate with anything that involves serious deficit reduction. The Democrats are now living in such fear of being “Scott Browned” in the next election that they won’t easily surrender their “bring home the bacon” spending attitude. Instead, look for more “job stimulus” talk.

Here’s a little national debt monitoring gadget that you should watch before and after all of the political hot air escapes. The numbers you see are not for the faint-hearted but at least you will know how a big chunk of your tax dollars will be used for the rest of your life.

Or you could skip all of the goings-on and make some money doing your job and planning your financial future.

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