After the great recession and an economic meltdown, financial resolutions are in the cards for numerous Americans in the New Year.
But the extension of Bush-era tax cuts may produce few changes in 2011.
"Instead of scouring for some nuance, you need to make sure you're saving the right amount for your financial goals," says Stuart Ritter, a financial planner for T. Rowe Price.
Thanks to a bump in minimum wage and reduction in the Social Security payroll tax, millions of Americans may have a lot more money in their pockets to meet their financial goals.
"You want to get your investment strategy right based on your time horizon," Ritter says. "A financial goal has a name [what do you want to spend your money on], a date and it needs to have an amount. Until you have those three things, you don't have a financial goal, you have an abstract concept."
To meet your 2011 goals, here's what you should know about the New Year:
There will be a filing delay if you itemize because the late enactment of the tax-cut extensions in December changed a lot of things that were or weren't going to be on the forms, says Steven Meyerson, a tax expert for JustAnswer.com. "There's a lot of restructuring of software on the IRS's side and, in some cases, some forms need major adjustments."
As a result, prepare to wait a little longer for a refund from Uncle Sam.
OTC Flexible Spending Account
"The cost of over-the-counter medicine cannot be reimbursed from a Flexible Spending Account unless a prescription is obtained," Walgreens spokesman Robert Elfinger said. "When you see your doctor you can ask for whatever medicine you might need. To avoid rising costs, people can buy certain medicines like pain relievers and cold medication when they are on sale or after they see their doctor," Elfinger says.
Minimum wage earners in seven states will get a pay hike in 2011. Arizona, Colorado, Montana, Ohio, Oregon, Vermont and Washington will boost hourly wages by nine to 10 cents starting Jan. 1. "These small increases mean that thousands of minimum wage earners like health aides, child care workers, restaurant workers and retail clerks will be better able to put food on the table, provide for their children, and keep a roof over their head," the executive director of the National Employment Project, Christine Owens, said in a statement.
Gas Prices Up, S.S. Tax Down
"It took almost 100 years to get to a dollar and now it's taken 10 to get to $3," says Brad Proctor, founder of GasPriceWatch.com, a website that tracks local gas prices.
With a Shell executive predicting gas prices climbing to as high as $5 a gallon, the best option for drivers are more fuel efficient automobiles or mass transportation. For households with multiple vehicles, drivers should use the most efficient car for the long commute and the short commute should be the least efficient, Proctor says.
"Make the most efficient use of the vehicles you have," he says.
Business-Mileage Deduction Decreases
Taxpayers who itemize will see a decrease of about 10 percent for eligible business mileage. Instead of a deduction of 55 cents per mile, taxpayers can claim 50 cents for qualified business mileage.
What qualifies? "Commuting miles from home to your first place of work are not tax deductible. Driving between places of work and/or school may be considered business miles," Meyerson says.
For farther details, check the IRS Web site.
Social Security Payroll Tax Reduced
In 2011, individuals will see an increase in take-home pay thanks to the 2 percentage point drop in Social Security payroll tax on wages on income of up to $106,800.
Unemployment Benefits Extended
About 9 million Americans will benefit from the 13-month extension of unemployment benefits.
Extension of Coverdell Education Savings Account
Instead of shrinking down to $500, taxpayers can continue to contribute a maximum of $2,000 per year to fund private secondary and post secondary schools.
Self-Employed Income Tax Reduction
"For those that are self-employed in 2010, you may be able to reduce your income subject to self employment tax by your health insurance premiums," Meyerson says.
Tax Reduction for Teachers
Teachers receive a deduction of up to $250 for supplies purchased for the classroom, which is allowable without itemization.
2011 Gift Tax
The amount exempt from gift tax went from $1 million to $5 million for a lifetime of taxable gifts.
Repay $7,500 First-Time Homeowners Credit
Homeowners who received the 2008 $7,500 tax credit under the Housing and Economic Recovery Act of 2008 must begin repayment of the loan in a 15-year period starting in 2010.
"Although inflation has been relatively weak for most of 2009 and 2010, higher food commodity and energy prices have recently exerted pressure on wholesale and retail food prices," according to the U.S. Department of Agriculture.
As a result of food inflation, consumers may see a leap in grocery bills if food prices increase by the forecasted 2 to 3 percent in 2011.
Caveat: For tax-related issues, contact a tax provider or the Internal Revenue Service to determine whether reductions or credits apply to you.