Tax Deductions You May Have Overlooked

I don't think we can ever be completely positive that we've claimed every deduction possible on our taxes, some are forgotten and others may not even be known to us. Following are some deductions that are commonly overlooked by taxpayers.

1) Non-cash contributions.
Don't forget about any contributions you may have made by credit card. Also, any clothes, furniture, etc. that you may have dropped off to goodwill are deductible, so be sure to get a receipt before you leave. Items must be in good or better condition to be eligible for the deduction.

2)Health insurance premiums.
Any health insurance premiums you pay, including some long-term-care premiums based on your age, are potentially deductible. Medical expenses have to exceed 7.5% of your adjusted gross income (AGI) before they give you any tax benefit.
But if you're self-employed and not covered by any other employer-paid plan, you can deduct 100% your health insurance premiums "above the line." Above the line means the expense is included in adjusted gross income and doesn't get lumped in with itemized deductions. That means that you not only don't have to exceed the 7.5% floor, you don't even have to itemize!

3)Educator expenses.
If you're a qualified educator, you can get an above-the-line deduction of as much as $250 for materials you bought in 2007 and may buy in 2008. That includes books, supplies and even computer equipment. You qualify if you're a kindergarten through grade 12 teacher, aide, instructor or principal.

4) Student higher education expenses
For 2007, if your adjusted gross income isn't more than $65,000 ($130,000 on a joint return), you can get an above-the-line deduction of as much as $4,000 for any higher-education expenses you paid. The law expires after 2007, but it will most likely be renewed.

See if you qualify for the Hope and Lifetime Learning credits. The Hope credit is worth as much as $1,650 per student subject to income limits for 2007 and $1,800 for 2008. The Lifetime Learning credit is worth as much as $2,000 per return. Compare the credit with the deduction, and go with the one which gives you the biggest benefit.

The following is from the IRS website:

Hope and Lifetime Learning Credits
2007
For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return).

2008
Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits.
Income limits for credit reduction increased. For 2008, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return).
Hope credit. Beginning in 2008, the amount of the Hope credit (per eligible student) is the sum of:
100% of the first $1,200 of qualified education expenses you paid for the eligible student, and
50% of the next $1,200 of qualified education expenses you paid for that student.
The maximum amount of Hope credit you can claim in 2008 is $1,800 per student

5) Clean fuel credit
Credits are good because they are a dollar-for-dollar reduction in tax. And if you bought a new hybrid gas-electric auto or truck in 2007, you can get a conservation tax credit of between $250 and $1,000 and an additional fuel economy credit of between $400 and $2,400, depending on the make and the fuel economy.

6)Investment and tax expenses
Many of us forget tax planning and investment expenses because they are part of miscellaneous itemized expenses. Their total must exceed 2% of your adjusted gross income before you get any tax benefit.
Expenses to track include your employee business expenses, tax preparation fees and even the portion of your legal or accounting fees relating to tax planning. Many people shortchange themselves on the deduction of investment expenses. Remember the safety deposit box fees, the annual fee paid your broker and any IRA fees you pay directly. Also remember the cost of your investment publications on subscription -- such as Forbes, Fortune, BusinessWeek, Worth and Barron's, the investment newspapers you buy off the newsstands and keep track of your long-distance phone calls to your broker and investment adviser, and the mileage to go see them.

For more information visit the IRS website at www.irs.gov.

Stock Picking Tool

MSN Money has an interesting stock picking tool called Stock Scouter, which identifies stocks expected to rise in price. It rates stocks on a scale of 1 to 10 based on business fundamentals, price behavior, valuation and stock-ownership characteristics. This site is definitely worth a look. Find it at www.moneycentral.msn.com/investor. On the left side of the page, under stocks, click on Stock Scouter.

You can access their list of stocks rated from 1 to 10. You can also type in a specific stock to find a rating and much more valuable information. These lists are a great starting point in your stock research. Try starting out with the following, most current list.

Their current top 10 includes; Alcoa (AA), Apple (AAPL), Adobe (ADBE), Cisco (CSCO), Goldcorp (GG), Hewlett Packard (HPQ), Intel (INTC), Kinross Gold (KGC), Annaly Capital Mngmt. (NLY) and Occidental Petroleum (OXY).
Happy Trading!

Using ETFs to Profit in a Market Downturn

Proshare ETFs can help you profit in a down market. So, January was not such a hot month for stocks especially in the first half. There is a lot of fear in the market right now, and significant downturns are possible from time to time. But there’s no reason you can’t profit from a down market. Listed below are a number of Proshare ETFs that will allow you to get short exposure on some major indexes and sectors. They trade like stocks and will increase in value as the underlying index or sector declines. You can use these ETFs to seek profit and protect your portfolio in a market downturn or to hedge an investment. They are as easy to buy as a share of stock, and a much better alternative than selling stock short. The best return for your money would be the Ultra Shorts which correspond to twice (200%) the inverse of the daily performance of the specific index or sector. If you want to start out more conservative, take a look at the Proshares Shorts which are 100% the inverse of the index.

INDEX SHORTS (100%)

QQQQ (PSQ)
Dow 30 (DOG)
S&P 500 (SH )
MidCap400 (MYY)
SmallCap600 (SBB)
Russell2000 (RWM)

INDEX ULTRASHORTS (200%)

QQQQ (QID )
Dow30 (DXD)
S&P500 (SDS)
MidCap400 (MZZ)
SmallCap600 (SDD)
Russell2000 (TWM)

SECTOR ULTRASHORTS (200%)

Basic Materials (SMN)
Consumer Goods (SZK )
Consumer Services (SCC)
Financials (SKF)
Health Care (RXD)
Industrials (SIJ)
Oil & Gas (DUG)
Real Estate (SRS)
Semiconductors (SSG)
Technology (REW)
Utilities (SDP)

Why Own Gold?

I last wrote about gold in April of 2007 when gold was trading around $700 an ounce. Many believed it was overpriced at that time, and although it traded sideways for several months after that, it finally broke to the upside and hasn’t looked back since. In early January it broke to a new all time high with conviction. Now trading above $900, there are still many who believe it is overpriced and getting ahead of itself. Although it is likely to consolidate for a short time, the trend for gold is still up. There are many factors that will contribute to the continuing rise of gold, many reasons why investors own gold and why you should consider owning the yellow metal.

The big lure to gold continues to be its tendency to hold value when the rest of the investment picture turns uncertain. With U.S. inflation hitting multi-decade highs, U.S. stock markets starting off the year with declines and the global outlook looking both inflationary and at risk of a slowdown, investors are looking for alternative investments. With the Fed cutting rates, the dollar will continue to weaken and gold will continue to rise. Although some are concerned that gold will dip as the Fed attempts to fight inflation, Fed Chief Bernanke seemed to suggest in recent statements that the Fed will put inflation on the backburner as it attempts to thwart a possible recession.

Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and U.S. stocks, by currency-related crises, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities. The price of gold reacts to supply and demand changes. Gold is different from other precious metals such as palladium, platinum and silver because the demand for these precious metals comes mainly from their industrial applications. Gold is produced primarily for accumulation; other commodities are produced primarily for consumption. Gold is money.

INFLATION HEDGE
Gold is renowned as a hedge against inflation. The most consistent factor determining the price of gold has been inflation - as inflation goes up, the price of gold goes up along with it. Since the end of World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979, and 1980. During those five years, the average real return on stocks, as measured by the Dow, was -12.33%; the average real return on gold was 130.4%.
Today, a number of factors are creating an inflationary environment: the current monetary policy which is extremely stimulative, a major tax cut, a long term decline in the dollar, a spike in oil prices, a huge trade deficit, and America’s status as the world’s biggest debtor nation. There is no denying that inflation is on the rise, and with the choice between fighting inflation or fighting recession, it seems that the Fed has chosen to focus on keeping the U.S. out of a recession.

HEDGE AGAINST A DECLINING DOLLAR
Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world's reserve currency - the primary instrument for international transactions, the currency in which the worth of commodities and equities are calculated, and the currency primarily held as reserves by the world's central banks. However, now that it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper. The dollar remains in a long term decline, and any signs of strength have only been short-lived bounces. Downward pressure on the dollar will help support gold’s rise.

SAFE HAVEN
Gold often tends to outperform other investments during periods of world tensions. There are a multitude of problems festering around the world, any one of which could erupt with little warning. The very same factors that cause other investments to suffer cause the price of gold to rise. A bad economy can sink poorly run banks. Bad banks can sink an entire economy. As banking crises occur, the public begins to distrust paper assets and turns to gold for a safe haven. When all else fails, governments rescue themselves with the printing press, making their currency worth less and gold worth more. Gold has always risen the most when confidence in government is at its lowest.

SUPPLY AND DEMAND
First, demand is outpacing supply across the board. Gold production is declining; copper production is declining; the production of lead and other metals is declining. It is very difficult to open new mines when the whole process takes about seven years on average, making it hard to address the supply issue quickly. Gold output in South Africa, the world's largest gold producer, fell to its lowest level in nearly 75 years. And the recent shut down of several mines due to power shortages in South Africa does not help the production.
India is the largest gold-consuming nation in the world. China, on the other hand, has the fastest-growing economy in modern history. Both India and China are in the process of liberalizing laws relating to the import and sale of gold in ways that will facilitate gold purchases on a mammoth scale. China recently passed legislation that will allow the country's four major commercial banks to sell gold bars to their customers in the near future.

DIVERSIFY YOUR PORTFOLIO
Diversification of investments can improve overall portfolio performance. The most effective way to diversify your portfolio is to invest in assets that are negatively correlated with those in the stock and financial markets and that are not closely correlated to one another. Gold is the ideal diversifier for a stock portfolio, simply because it is among the most negatively correlated assets to stocks.

Although the price of gold can be volatile in the short-term, gold has maintained its value over the long-term, serving as a hedge against the erosion of the purchasing power of paper money. Gold is an important part of a diversified investment portfolio because its price increases in response to events that erode the value of traditional paper investments like stocks and bonds.

Although gold is a very volatile commodity and is subject to large swings in price from time to time, it has still proven to be a worthwhile long term investment. I would look at any significant pullbacks in the price of gold as a buying opportunity.