A flat rate tax has been mentioned and discussed several times throughout our nations history. There are many proponents and opponents to the flat tax system, both sides having very valid and logical arguments. Would a flat tax system benefit our Nation and is the flat tax system fair to everyone?

Basically a flat tax would ensure that everyone pays the same percentage of taxes on their income. Lets say the rate is 25% someone who makes $20,000 would pay $5,000 in taxes and someone who made $200,000 would pay $50,000. Most flat tax systems allow no or very few exemptions making tax time and tax returns very simple.

I think a perfect system would allow a flat percentage charged to everyone, with very few deductions. These deductions would include children, mortgage interest and charitable contributions (which should be very documented).

Even though I’m not upper class, financially speaking, I don’t think it’s fair to place more of the tax burden on the upper class. Why should the wealthy be penalized for being successful in life. I would hope this new tax system would encourage the wealthy to donate more money to charity and help those who are less fortunate, but I don’t think they should be penalized.

Currently the US Revenue Code is over 9 million words long and contains many loopholes, deductions, and exemptions.  A flat tax system would help eliminate millions of dollars that slide through the cracks every year. It would save the IRS millions of dollars and thousands of man hours.

No matter what tax system we use there will be pros and cons. There will also be thousands of supporters and just as many protesters. I personally don’t know if we “need” a tax system overhaul, but I think things can be done more efficiently

So how will you use your ~$100 per month in savings? I’ve compiled a top 5 list of great ideas of how to use your new found tax savings.

1. Start an automatic savings account – Just a few posts ago I talked about how easy it is to setup an automatic savings account and have money automatically deducted from your paycheck and placed into savings. It’s a great time to get started since you won’t miss the money.
2. Pay off some debt. Again since this will be unexpected money why not put it to use before it even gets to your budget. If you have high interest credit cards start paying extra on them every month or even every week. If you have online access to your credit card accounts they allow you to make payments at any time. When you get your paycheck, immediately send it to the balance.
3. Split the savings into a few different categories of your budget. First, give yourself some extra spending money. After all that’s what the stimulus package was designed for in the first place. Plan to go out to dinner somewhere nice every month and use some of the tax savings. Send some of the other money to a savings account or use it to pay down debt.
4. Start a Roth IRA or similar retirement fund or increase the amount you are contributing. Now is a great time to enter the market or increase the amount you are contributing. Stocks are at their lowest points in years so there are some great deals to be found.
5. Start an emergency fund. We all need to have a fund stashed away for a rainy day. Even if it’s just $1,000 in an easily accessible account you will appreciate it down the road. Life is full of unexpected events and being financially prepared will save you more money and stress.

Most of these tips won’t do a lot to stimulate the economy but it will help ensure that you are prepared for tough times. If you are already debt free, have a funded retirement fund, and have a funded emergency fund then have fun! You have successfully planned your finances so enjoy the extra money and help stimulate the economy!

With that being said what will you do with your $8 per week pay increase? Again this isn’t going to be much of an economy stimulator but wouldn’t it be a great time to start an automatic savings plan? Technology and banks have made it so easy to save money these days there is really no excuse not to start.

Most employers offer you the opportunity to divert money into different accounts. If you already have your check direct deposited then more than likely you can divide the money into different accounts. Just ask your company accountant or your payroll person to help you with this. Since you will be getting $8 per week extra you won’t miss the money if you set this up before it starts.

Another option it to setup an automatic savings plan with your bank or credit union. Most banks allow you to set this up with just a few clicks of the mouse. Again this is money you aren’t used to getting so why not start the automatic savings plan today? By saving $8 per week at a 2% interest rate (yes you can get this with online banks) for 10 years you will accumulate over $4,200!

Turbo Tax has a great online tax software that allows you to completely do your taxes online and they only charge you if you actually file through them. It’s a great way to double check yourself or get an exact estimate of how much money you will get back or pay this year even if you have your taxes professionally prepared. The software keeps track of your total return or amount owed as you go through each step of preparing your taxes. After you enter your W2 it give you a tally, enter more miscellaneous income and it gives you a tally, enter deductions it gives you a tally, etc. Anyway, I took advantage of this great software and filled out our tax information completely before I took them to our accountant this year and I’ll compare the results.

As I was filling out our information I realized that we have neglected a good deduction for the past few years. Our accountant always asks us if my wife, who is in education, has any educators expenses that we would like to claim. I guess I never realized that you can claim up to $250 for this and you get most of it back. Throughout the year she spends a few dollars here and there and I’m sure it would add up to close to $250 but we never save the receipts. Because we were not prepared we will probably lose over $100 in taxes this year.

So don’t think it’s too early to start preparing for your 2009 taxes. Start a folder today with receipts and donations. Keep good records throughout the year and you will be rewarded. Also learn about all the different deductions offered so you can track them throughout the year instead of scrambling through documents in February!

Well, the government’s attempt to stimulate the economy seems to be a worthless endeavor and a recession seems to be inevitable. With rebate checks already in the bank for many of those tax payers who filed electronically much of the anticipated cash will be going to other things than toys and games.

With the rising prices of necessary items such as fuel and food you can bet that many Americans will be spending their $600 on thing other than items that will actually stimulate the economy. There are just some things that are more important than a new Plasma or LCD TV, like gas to get to work and food for the family!

The average price for a gallon of gas is now over $3.50 per gallon and food prices have increased on the average of about 5% this year. Personally our fuel bill has increased about $25 to $30 per month already and our grocery bill has increased another $30 – $40 per month over the past year. Might not sound like a whole lot but it adds up quick and there is no relief in sight. Two days ago I put $70 worth of gas in our mini-van, talk about a budget buster!!!

Most oil companies reported record high profits this quarter including Exxon Mobile who posted it’s highest profit ever of 40.6 BILLION dollars! What’s wrong with this picture? Our government can’t figure out what’s wrong with the economy or can’t figure out a way to fix it, but oil companies keep making billion dollar profits each year.

There needs to be some type of regulations set on oil prices. It’s pretty obvious to me that if fuel prices drop then the price of food will follow. If fuel prices are lower and food prices are lower then Americans will have more money to spend on other things in turn boosting our economy.

I know you might enjoy getting back a $3,000 tax return around February every year, but is it really the best financial move? The easy answer is NO! Many people think it’s a great way to save money and it’s a wonderful unexpected chunk of money to get back just after then new year. In reality it’s the worst savings plan you can imagine.

By getting back $3,000 from your taxes means that you basically took a $57 per week bring home pay cut every week of the past year. There are a few different ways you could have made better decisions for this money. My first example is to assume that you have a revolving balance on a store credit for some furniture you purchased. It just so happens that the balance is for the amount of $3,000. The interest rate on the loan is 10%. The store set you up on a payment plan to pay back the loan in 5 years. Your monthly payment is $63.74 to repay the loan in 5 years. What a great deal you can have a new bedroom suite and it will only cost you $63.74! That means your $3,000 bedroom suite will cost you $3,824.47 when you get it paid for and it will then be 5 years old!

Now let’s rework this example above but this time we are going to add the $57 per week to the payment each month ($228 extra each month plus the minimum payment of $63.74 for a total of $291.74). This means you will pay off your furniture at the end of the 11th month. You will have only paid $3149.64 for your furniture and it will be less than a year old! Also don’t forget the final 4 extra $57 paychecks you will get in the final month.

 The above example does not mean that you need to go out and finance furniture because you can pay it off in less than a year. The best advice is to save the money first then buy the furniture for cash. You might even get a better deal than $3,000 if you have the cash on hand to pay the furniture store. This was only an example of how you can pay off debt and save money.

My second example is for those of you who just want to get back that $3,000 in February. Let’s do the same example above but instead of paying the $57 per week to a bill put that in a savings account. If you save $57 per week in a savings account with an interest rate of 4.5% and the interest is compounded monthly you will have $3,033 at the end of 1 year. Sure it doesn’t sound like much but it’s the same $3,000 the government would have given you back with an additional $33 interest. Why give away your hard earned money to the government? If you have trouble saving money you can set up an automatic savings plan, just check the “Savings” category for more advice!

Do you always get back tax money from the government every year? If so then you are losing valuable money to the government. The average tax return for Americans is going to top $2,500 this year. Do the math and that’s almost $50 per week that you are letting the government borrow for an entire year! Not only are you letting them keep the money all year but you are also losing valuable interest. How many people do you know that would be willing to let you borrow $2,500 without paying back any interest?

With that being said how do you go about adjusting your taxes so that you don’t end up paying back the government when tax time comes around? There is a very valuable calculator found on yahoo finance (http://finance.yahoo.com/calculator/career-work/pay-02) which can be used to help you calculate the number of deductions you should claim. Also one is available here: http://www.kiplinger.com/tools/withholding/index.php. You might want to give both a try for more accurate results.

To get started with your adjusting all you need to do is fill out a W4 form from the IRS and turn it into your employer. Each allowance basically makes $3,300 of your annual income off-limits for withholding. So if you are in the 25% tax bracket you would basically be getting back $825 over the course of the year or $15.85 per week. You may want to only change your deductions 1 or 2 so that you still get a small refund and not owe money at tax time.

So instead of bursting into your bosses office and demanding a pay raise this new year, why not just change a few numbers on your W4 and don’t stress about losing your job!