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The recession may be over, but many families are still feeling the effects. Unemployment is at a record 10.2% and wages are flat. The cost of gas is taking a bigger bite out of paychecks, and home foreclosures were one fifth of home sales in September.

To help, WalletPop is launching an occasional series in which your personal financial questions will get answered by our experts. Leave your questions in the comments section below.

Question: As a single, self-employed mother of two, I need to buy life insurance. How much should I buy?
--Laurie W., 51, psychologist

Answer from Dr. Scott Testa, professor of business administration
Cabrini College, Philadelphia, PA

"You must first determine what your family needs are, should you die. That means coming up with a realistic figure that will pay off all your debts, your funeral expenses, and big-ticket items like college for your two children. It is always better to overestimate rather than underestimate. Then I would recommend shopping for term life rather than whole life, because it is generally easier to comparison shop and, for most people, is the best option.

"Look for reputable companies with good ratings from rating companies like A.M. Best, Moody's, Standard & Poor's or Fitch. You should look for the highest ratings by these organizations. Good websites for comparision shopping include insweb.com and Quotesmith.com.

"But before you schedule that meeting, make sure you're putting your best foot forward. That means getting in shape, quitting smoking, and doing what you must to be an ideal candidate. Life insurance companies will ask for your medical history and give you a physical. They will view you as less of a risk if you are healthy, because, invariably, you are less of a risk to die."


Question: My husband and I have two young children. We would like to set up their college funds. Is there any formula to use to determine how much to put in a 529 plan each year per dependent?
--Andrea Zaretsky, 37

Answer from: Jason Whitby, senior financial advisor
Investor Solutions, Inc., Coral Gables, FL

"There is a formula, but even better, there are online college savings calculators! Online calculators like Savingforcollege.com can provide you with all the required estimates and walk you through the process to attain costs as well as a monthly savings rate that is tailored to your specific situation. But before you actually open up the 529 plan, I'd strongly recommend that you figure out how much you can afford to save for college after you have everything else covered first. Meaning, you should have no consumer debt, have an emergency cash reserve and are already saving each month for your retirement. If all that is covered and cash flow still isn't a problem, I'd recommend you look at maximizing the state income tax deduction for funding a 529 plan. New York provides an above-the-line exclusion from income of $5,000 single and $10,000 joint. If cash flow starts getting tight, I'd recommend you go ahead and open a 529 plan for each and look to save at least $25 a month. I would recommend $25 per month to keep the hurdle low. Once you get the account set up and get used to contributing $25 a month, you can increase the monthly.

Question: I am expecting my first child next year. How can I, having paid the Alternative Minimum Tax for the past two years, reduce my AMT burden?
--Matt Carola, 35, an IT professional

Answer from Jay Brennan, CPA, CFP
Brennan Financial Group LLC, Princeton, NJ

"When confronted with the AMT, there is no one-size-fits-all approach to try to minimize its effect. You need to sit down and look at how the AMT would affect your taxes over a 2- to 3-year period. Things that will put you into the AMT are what we call adjustments, such as living in a high tax state like New York, and the number of personal exemptions or miscellaneous itemized deductions. For example, is there some flexibility to when you get paid? You may elect the income to come in this year because you already know you will pay higher taxes. Potentially next year, you will have a lower income, so you may not be in the AMT bracket. Of if you were to prepay some taxes or defer some taxes, is there a benefit? You may consider postponing or accelerating paying certain addback itemized deductions, such as nonqualified mortgage interest. Under the regular tax and AMT, you can deduct the interest on a mortgage up to $100,000 if it is used to buy, build or improve on your home. If you drew on it to pay for things like bills, cars or college, you can claim it on your regular taxes but not on the AMT.

"Another adjustment is for miscellaneous itemized deductions such as unreimbursed business expenses. When you calculate them, there is usually a nice benefit under regular taxes. With the AMT, there is no benefit. But if you don't make those deductions, your regular taxes will be higher while your AMT will be the same. So if you feel comfortable asking, you should ask your employer if he will pay for the expenses if you reduce your income by X amount."

Got questions for WalletPop experts? Leave them in the comments space below.


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TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

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Jason

Please help me with my finances! I can't even afford a personal finance professional. This credit card debt is weighing heavily on me. Also I have a new girlfriend, want to get my divorce finalized (which will cost around $1000), then move on with my life and possibly have another child with said girlfriend who is well off, but I don't want to bring with me a burden.

My situation:
*Separated for 1 year, 2 young kids which cost me about $1300 month in care
*Rent is $1050/mo in Santa Barbara where mom and kids live, but I have my own studio in good location - I'm as frugal as I can be but cc debt is getting higher and higher.
*I earn paychecks 2x month for total of around $3000/mo & few side jobs for an extra $250/mo income

*BOFA CC: $9,814.10 - 0% interest until 2014 - min payments around $100 - credit limit $10,000
*Capital One CC: $3,414.80 - 11.9% interest - min payment $68.00 credit limit $20,500
*Chase CC: $12,993.55 - 13.49% interest - min payment $282.00 - credit limit $27,500
*Sears CC: $800 - 21.24 % - min payment $25.00 - credit limit $5,000
*Citibank CC: $8,319.61 - min payment $124.00 - 0% interest until 2014 - credit limit $25,000.00

Total CC debt: $35,342.06

Other living expenses gas/food/insurance = $400

Total expenses per month are around $3400

Cash in bank $900.00

My last job's Prudential Retirement account (current - no loans) $48,341.36 - has earned only 2.79% since 10 year inception

My current job's 401k has about $5000

Car is a 97 bmw good condition value is $4000

No other significant loans, just a lot of cc debt. The card payments are really starting to hurt but I have always stayed current with my payments and have good credit. But not excellent credit for the next 4 years because we had to short-sell our condo during market drop. I've only had 4 non-payments on the old mortgage that are the only dings.

Should I declare bankruptcy? Should I cash out my 401k and pay a big penalty? Should I do a credit consolidation and take a credit hit? Should I continue to do 0% interest debt shuffle between cards? I'm feeling pressured because taxes are coming up and really I'm just tired of the credit burden. With the divorce the x will assume I'm guessing half of 20k in CC debt which will absolve me of around $10k in CC debt leaving me with 25k. I don't have much in the way of personal items to sell/pawn maybe $1000.00. I need real answers, money has been hemorrhaging out as gotchas come up. I have no cash emergency fund and am tired of living paycheck to paycheck.

Thank you so much for all help!

January 29 2013 at 1:06 AM Report abuse rate up rate down Reply
worried

How do I wisely use a home equity loan?
I bought a house in July 2006 for $ 158,000 and the mortgage today January 2012 is $815 ($ 1041 total per month) with 6.75% 30 year fixed rate. :( I have $87,800 equity loan with 3.75% rate from house . I have $65,000 in the bank and I am thinking of paying off my mortgage. I also own another $65,000 house. + the fixed 3.75% equity loan expires in 2/1/2015 +house I bough costs $ 158,000 with 20% down and the mortgage was $ 125,000. January 1st mortgage balance is $ 117,292 +I'm with Bank of America :(

January 03 2012 at 1:26 PM Report abuse rate up rate down Reply