I never used E-file, not since I knew there’s such an option. The reason is very simple: I didn’t have a refund to claim, so I wasn’t that eager to send Uncle Sam my tax money. Every year I printed out my tax forms and waited till April 15th to mail them out. However, if you do expect a refund, there are plenty of reasons to use e-file, just like there are many benefits of using direct deposit.

Still not convinced? IRS recently published some tips to help you better understand the benefits of e-filing your taxes:

• It’s easy. You can usually file a state tax return at the same time you electronically file your federal tax return.
• It’s accurate. No more human errors because e-file checks for math errors and necessary information. This not only increases the accuracy of your return, but it also reduces the need for correspondence with the IRS to clarify errors or omissions.
• It’s fast. You don’t have to make a trip to the post office. In fact, you won’t even need to walk to the mailbox to send your return. Just click Send.
• You’ll get your refund faster. When you use e-file, you can get your refund in as little as ten days.
• No more second-guessing yourself. When you file electronically, the computer software or online program guides you through the process step-by-step.
• There are more payment options. With e-file, you can file your return early, but wait to pay any balance due by the April deadline. You can also pay electronically using a credit card, electronic funds withdrawal or in some cases the Electronic Federal Tax Payment System.
• You’ll know the IRS received your return. The IRS will send you an electronic notification acknowledging receipt of your return.
• You’ll have peace of mind. After clicking send and receiving your notification from the IRS that they received your return…kick back and relax – you’re done!

Are you going to use e-file this year?

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At the end of 2008, the IRS published its 2009 marginal tax brackets. Comparing to 2008 tax brackets, we saw increases in all taxable income ranges, thanks to the inflation, because the federal taxable income levels are inflation adjusted each year, as shown in the following tables. Remember that these are marginal tax rates, which means, based on your income level, you pay a basis tax plus tax for income exceeding the floor of your income range. For example, if you earn $80,000 taxable income (married couple filing jointly) in 2009, your federal tax will equal to

Federal income tax = $9,350 + 25% * ($80,000 – $67,900) = $12,375

Also, the income is taxable income, which is your gross income minus deductions, exemptions and all other applicable adjustments.

Married Individuals Filing Joint Returns and Surviving Spouses

Heads of Households

Unmarried Individuals

Married Individuals Filing Separate Returns

In addition, the IRS also adjusted standard deduction for 2009 tax year. Depending on the filing status, the 2009 standard deductions are as follows:

Comparing to 2008, the standard deductions also  increased across the board. For instance, for married couple filing joint returns, the standard deduction increased by $500 from $10,900 for 2008 to $11,400 for 2009.

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I got two such letters in the past couple of months, one from Chase and one from Citibank. The contents of the letters are almost identical, something like: After a review, we noticed that you haven’t used your card for at least 24 months, which means the card can no longer meet your financial needs. Therefore we have closed the account.

And the letters all came after my accounts have been closed. They are not warnings. They, the credit card companies, simply informed me what they have done already. While it’s true that if I haven’t used a card for 2 years, I must have abandoned it for various reasons, most likely being that the card no longer attracts me any more, however, I don’t want those just being closed. Why? Because closing a credit card, especially an old card with high credit limit, could affect my credit history and damage my credit score. According to  myFICO, FICO credit score are determined by the following factors:

1. Your payment history – approximately 35%
2. How much you owe – approximately 30%
3. Length of credit history – approximately 15%
4. New credit – approximately 10%
5. Other factor- approximately 10%

As you can see, the amount of debt and the length of credit history together count for nearly half the credit score. Therefore, closing an old account with high credit limit will 1) Increase relatively the amount you owe as the total credit limit is lowered; 2) Shorten your credit history. To avoid these negative impacts, here’s what I did after receiving the letters.

I called the issuers, Chase and Citi, asked to move credit limits from those cards that have been closed to those that are still active. Those accounts were closed already, but they were able to move the credit lines for me. In this way, even though the accounts were closed, my debt-to-credit ratio wasn’t affected as I got to keep my overall credit limit. And since those cards are relatively new, closing them won’t have a big impact on my credit history either.

However, if the account is old, then closing it won’t be a good strategy. While I was on the phone with Chase bank, I was told that my Chase Sony Card is all above to be closed due to inactivity, but that account was opened 2000. I don’t want to close an account that’s more than 8 years old. So I need to charge a small amount on the card immediately to keep it alive.

If you get a letter from a credit card issuer as those I got, don’t panic. There are options available to limit the damage even if the card is already closed.

*Photo source: edwardkhoo.com

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I did. I contributed close to the maximum $15,500 allowed for 401(k) account in September and $5,000 for IRA account in October. After missing out a large portion in 401(k) in 2007 after changing the job middle of the year, I determined to take advantage of the tax-free growth of money in 401(k) account last year, despite no company match whatsoever because I am saving for my own retirement. With that determination, I started the year contributing very aggressively, setting aside 20% of my salary into my 401(k) account. Though from what I can see now that doesn’t seem to be a good strategy as stock markets basically collapsed in the second half of the year, I am still glad I finished my goal early. For IRA account, I divided the $5,000 annual contribution into 4 parts and invested a quarter every three months. I have been using this approach for years and it actually served me quite well: For one, I don’t’ have the pressure to make a large contribution at once; for two, I could better migrate the risk by spreading my investments throughout the year.

For 2009, I will continue to employ the strategy I used last year to build my retirement funds. In fact, new changes in 2009 retirement account contribution limits, especially 401(k) accounts, make it even easier to save more for retirement:

• 2009 401(k) contribution limit goes up to $16,500. If you are age 50 or older, you can make another $5,500 catch-up contribution.
• 2009 IRA contribution limit remains the same at 2008 at $5,000, but the phase-out limit has been increased from $159,000 – $169,000 for couple filing jointly in 2008 ($101,000 – $116,000 for single) to $166,000 – $176,000 in 2009 ($105,000 – $120,000 for single).

Is maxing out your retirement accounts part of your 2009 resolution?

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After the latest rate cut, lenders followed suit by lowering their prime rates that they charge customers for their loans and credit card debts. Pretty soon, online banks, where we put most of money, will adjust the interest rates they offer to customers when borrowing money from them. In fact, some banks, such as ING Direct, have already lowered their rates. And from now on, we will likely be sitting in a low interest rate environment for quite sometime because so far all the efforts from the government don’t seem to produce any significant results in reviving the sagging economy. From what I read, the rate could go even lower, at 0%, if things don’t improve in the coming months.

So at the time when interest rates from online banks keep dropping, where should we put our cash? Make no mistake, online savings accounts are still a valid option for anyone who wants a decent return for their money, which you probably won’t get from the stock market now and not from Treasury bills/notes either. As long as the bank is FDIC insured and the amount of deposits is below the insurance limit (the current insurance limit of $250,000 is gill till the end of 2009), there isn’t too much to worry about. The problem for online savings accounts is the adjustable rates, which means you are not guaranteed for the rate you are getting now.

If you want guaranteed return, the time is now to lock in certificate of deposit (CD) with good rates before they disappear. However, even when selecting a CD product, I will focus my attention on those with relatively short terms, such as 1 year to 18 months. 3- or 5-year CDs won’t be an option. The reason is simple: I don’t expect interest rate to stay low for that long. If CDs are on your mind now, you may want to check out these offers:

• GMAC Bank: 12-month, 4.10% APY, $500 minimum;
• FNBO Direct (a FNBO Direct Savings Account is required): 12-month, 4.00% APY, $500 minimum;
• E-Loan Bank: 12-month, 3.80% APY, $10,000 minimum;
• ING Direct: 12-month, 3.50% APY, $500 minimum;
• HSBC Direct: 12-month, 3.50% APY, $500 minimum;
• Umbrella Bank: 12-month, 3.45% APY, $1,000 minimum;
• IGoCD: 12-month, 2.95% APY, $1,000 minimum;

The benefit of CDs is that you get a guaranteed rate for a certain period of time, which is good when the trend of interest rates is lower like now. The downside, of course, is you could stuck with a low rate if the interest rate starts to move up again. Therefore, you need to select a term that fits your financial circumstance.

Related posts:

1. Want To Lower Your Citi Card Interest Rate? You Must Spend More Money With It
2. Capital One $25 Bonus For Online Savings Account
3. Capital One InterestPlus Account 1.60% APY