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Give your money more clout

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By Doug Awad

The American Recovery & Reinvestment Act of 2009 allows qualified motor vehicle taxes paid or accrued within the taxable year to be deducted as an itemized deduction, or as part of the standard deduction. A qualified motor vehicle means a passenger automobile, light truck, or motorcycle that has a gross weight of not more than 8,500 pounds, or a motor home, acquired on or after February 17, 2009, and before January 1, 2010, the original use of which commences with the taxpayer.  Individuals who itemize deductions will be able to deduct qualified motor vehicle taxes on their 2009 form 1040, Schedule A. Qualifying individuals who do not itemize will be allowed to claim qualified motor vehicle taxes paid as part of the standard deduction. The deduction is limited to state and local sales and excise tax attributable to the first $49,500 of the purchase price of a qualified motor vehicle, and is phased out for taxpayers with a modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 in the case of joint return). The deduction is also allowed for purposes of calculating the alternative minimum tax amount).

President Signs the Credit Card Accountability Responsibility and Disclosure Act of 2009 into law on May 22, 2009.

The Act requires that creditors give consumers written notice 45 days in advance of any rate increase or other significant account charge. Consumers must also be given notice of a right to cancel the account prior to the charge, and cancellation cannot be construed as a default or trigger an obligation to immediately repay the obligation in full. Perhaps most importantly – from a consumer’s standpoint – creditors are generally prohibited from increasing the annual percentage rate (APR) applicable to an existing balance on an open end consumer credit card unless the account falls 60 days past due, or other specific conditions apply. If the APR is increased because the account falls 60 days past due, the creditor must inform the consumer that the rate increase will be terminated (and the rate restored to what it was before the increase) once the creditor receives the minimum payment due in a timely fashion for six months. The sections of the Credit card Act of 2009 concerning notification requirements take effect 90 days after the date of enactment. The remaining portions of the Act take effect Feb. 2010.

Tax Season Follow-Up: Overwithheld? Underwithheld? Did you owe tax on your 2008 federal income tax return? If so, you might want to consider increasing the amount of federal income tax that’s withheld from your paycheck by completing and filing a new Form W-4 with your employer. If you’re self-employed or retired, you’ll have to bump up your quarterly estimated tax payments. Not having enough withheld or not paying enough estimated tax can result in more than just a cash crunch at tax time – it can mean penalties and interest.

On the other hand, receiving a large federal income tax refund can be an indication that you should adjust your withholding as well. Why? A large refund essentially means that you are providing Uncle Sam with an interest-free loan during the year. Think of it this way: If you received a $4,000 refund in 2008, you paid approximately $333 more each month to the federal government than you had to. Sure, you get that money back in the form of a refund when you file your federal income tax return, but the government doesn’t pay you interest on those funds. If you had taken that $333 every month and instead invested it in an account that earned 3% annually, you would have an extra $80 by the time your return was due. And, depending on how you invested the funds, you would have access to them should the need arise. If overpaying the government is the only way you can save, go right ahead. Just recognize that there is an opportunity cost when you overwithhold.

If you have any questions, please call Doug at 352 854-6866 or contact him by email at Doug.Awad@Raymondjames.com.

This information was partially developed by Forefield, Inc., an independent third party. It is general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or solicitation to buy or sell any security. Investments and strategies mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James does not provide advice on taxes or mortgages. These matters should be discussed with an appropriate professional.