Tax time can be stressful for those who end up owing the government money, especially those in dire financial straights or recovering from a recent bankruptcy filing.

The Associated Press reports that President Obama has proposed new taxes that would both create incentives for companies to hire new workers and increase the amount of money paid by America’s wealthy. Here’s a look at some of the specific changes the president has so far suggested.

Taxes & Breaks for Businesses

As it now stands, the Obama Administration’s tax plan would include the following changes to tax requirements for businesses, including:

• A $5,000 tax break for each new employee hired
• Reimbursement from the government for extra Social Security taxes paid by companies that increase employees’ wages or hours worked
• Increases in taxes for companies with large overseas operations
• Elimination of certain tax exemptions for coal, oil and gas companies
• Introduction of a financial crisis responsibility fee on major financial institutions

While these moves are apparently intended to promote hiring and working hours for Americans, they also come with a considerable price tag for the government. And the measures that raise costs for big business have congressional Republicans balking already.

Further, any new tax plan must pass through both houses of Congress before being implemented.

Taxes & Breaks for Individuals and Families

Obama has reportedly claimed that, because of the dire financial straits in which our nation finds itself, continuing tax cuts for wealthy individuals and families is something we simply cannot afford.

His proposed changes to the tax code would include:

• Extending through 2011 the Making Work Pay tax credit, which would mean an extra $400 for low-income individuals and $800 for low-income families per year
• Eliminating tax breaks on individuals earning more than $200,000 and families earning more than $250,000 annually
• Making permanent the Earned Income Tax Credit, geared toward eliminating poverty and aimed at low-income families with three or more children
• Increasing the top two individual tax rates (from 33 percent to 36 percent and from 35 percent to 39.6 percent)
• Restricting some tax deductions the wealthy can claim on their taxes
• Increasing top capital gains taxes for individuals
• Repealing a law that taxes personal use of company-issued cell phones and other electronics

The various measures are geared toward increasing revenue for the government and alleviating tax burdens for those least able to pay as part of whittling down the nation’s debt, which has swelled significantly in recent months.

Additional Resources

http://www.irs.gov/taxtopics/tc600.html

If and when you decide to become a homeowner, your house will likely be the biggest purchase you ever make, so it’s a good idea to learn all you can about the various mortgage lending options out there. After all, educating yourself about various types of loans is perhaps the best way to keep yourself from being victimized by a predatory lender.

Life of the Loan

Fixed-rate mortgages come in a variety of lengths: 15-year, 20-year, 30-year and even 40-year, though 15-year and 30-year tend to be the most common. Naturally, each has advantages and disadvantages.

• 15-Year Mortgage: These loans have the obvious advantage of being short—you’ll own your home in the shortest amount of time possible, assuming you make all your payments on time. Plus, you have a good chance of having both a lower interest rate and less time for the interest to accrue, meaning your loan will be significantly less expensive. The main disadvantage here is that your monthly payments will be higher than with a longer-term loan, which means an unexpected expense could throw a wrench in your home ownership plans.
• 30-Year Mortgage: These loans tend to have lower monthly payments than 15-year loans, but higher interest rates. Plus, the interest will accrue over a longer period of time, meaning you’ll pay significantly more for your house. However, you’ll have the option of overpaying your mortgage every month that unexpected expenses don’t get in the way, which, in the long term, could mean substantial savings.
• 40-Year Mortgage: Some lenders may claim that this is the “new normal,” but 40 years is probably too long to stretch a home loan. If you can’t afford your home in 30 years, it’s likely too much home for your budget.

The post at FiveCentNickel.com goes on to crunch some actual numbers to give an idea of what your options might be in a real life situation, and it’s worth a look to see the potential costs of buying a home spelled out.

When you do find yourself in the market for a house, though, keep in mind that the financial meltdown that led to the current recession began in the real estate market. There are a lot of complex mortgage products still on the market, which means you must do a lot of research before committing to one or risk losing your investment to foreclosure.

Additional Resources

Dreams Foreclosed (PDF)

Mint.com and WallStats.com have teamed up to create a tongue-in-cheek visual representation of some dangerous predatory lending products common in America today. The image is titled The Shaft: How Some Companies Prey on the Poor.

The graphic helps depict the reality of some benign-seeming products—and highlights how susceptible many lower-income Americans are to terrible credit products, and how these financial fixes often lead to personal bankruptcy.

Payday Loans

Most people who enter payday lending shops expect the transaction to be a one-time event—which is understandable, because that’s how they’re often advertised. In practice, though, many people find themselves trapped by such loans. Here’s how:

• You take out the initial loan by post-dating a check to be cashed on your next payday. For this service, you pay a “fee,” which can be viewed as an interest rate (usually around 30 percent of the amount borrowed).
• If you have money to pay the loan in full in two weeks, you’re square.
• If you don’t have enough money to pay the amount you borrowed plus the fee, the loan “rolls over” for another two weeks. For this, you pay another fee.
• After a few cycles of falling short, it’s easy to pay more than the amount you borrowed in fees, which translates, as the image points out, into an interest rate well over 100 percent.

Payday lenders tend to affect lower income individuals as they typically have little savings to cover an emergency and few choices in terms of credit.

Rent-to-Own Stores

When you can’t afford to make a major purchase in one fell swoop, your only option may be to rent—or, more specifically to go to a rent-to-own shop and sign a contract with them. But, while this option may seem affordable in the short term, it’s usually a terrible deal in the long term:

• Items in the store have a significant markup. Most people who can make major purchases on their own don’t head into to RTO stores; the assumption is that you’ll be renting something and/or buying it gradually.
• For a set period of time, you make weekly payments and have the option of purchasing the item at its original RTO store price.
• When that period ends, you typically default into a contract that may require you to pay for insurance for the item, continue making payments over a long period of time and generally will end up costing you far more money than buying it new.
• Once you actually own an item, it’s far from new and worth much less than you ended up paying for it.

Additional Resources

Information Disclosure, Cognitive Biases and Payday Borrowing (PDF)

In a detailed report on the current state of the foreclosure crisis in the U.S., msnbc.com examines some of the issues currently troubling America’s real estate market and what these problems could mean for the future.

How the Foreclosure Crisis Started

During the real estate bubble, mortgage lenders eagerly underwrote home loans because credit was easy to come by. But:

• Many loans had adjustable rates, meaning that monthly payments would adjust (usually upward) after a certain period of time.
• These loans seemed like a good idea because home prices had risen steadily and people assumed they’d continue their upward climb. When the higher payments kicked in, many borrowers figured, they’d refinance or sell their home for a profit.
• The rising prices were part of a bubble. When it burst, home prices plummeted.
• Many borrowers were left owing more on a house than it was worth and unable to sell their homes, refinance or make monthly payments.
• The adjustable rate mortgages began resetting and many people’s monthly payments shot up.
• Layoffs began plaguing the country, meaning that many people lost their income, making difficult monthly payments impossible.
• Without making payments on their houses, many families found themselves forced to leave their homes because of mortgage foreclosure.
• The glut of houses on the market (both new and abandoned by foreclosure victims) mean that prices have dropped even lower.

Why Modification Programs Aren’t Working

Naturally, the government is aware of the foreclosure situation (it’s hard to ignore the 2.8 million citizens threatened with foreclosure last year, or the 3.5 million predicted for this year) and has taken steps to help homeowners. But, according to the report, many efforts have been sadly under-successful.

The Bush Administration’s HOPE Now fell far short of its stated goal of helping some one to two million Americans modify their mortgage loans, and the Obama Administration’s HAMP (Home Affordable Modification Program) has been only slightly more successful, it seems. Here’s why:

• Some of the criteria for qualifying for a home loan have not been made public, thus people whose applications for modification are rejected don’t know how to improve their chances.
• Foreclosure and modification proceedings are carried out by different groups – groups which often don’t communicate with each other.
• Many temporary modifications have been issued, but do not guarantee homeowners long-term solutions for their mortgage woes.
• Many lenders stand to make more money from moving forward with foreclosure than opting for a modification.

The article explores various facets of the effects this problem has had and continues to have on the American economy, and is worth a read. Meanwhile, if your home is in danger of foreclosure and a loan modification is not on the table, you may want to consider filing for Chapter 13 bankruptcy, which could at the least postpone foreclosure for several years.

Additional Resources

Report: Why Servicers Foreclose When They Should Modify (PDF)

The news for the casino industry has not been good during the recession, as one after another faces bankruptcy. But now there is hope, as one major Las Vegas casino company, Tropicana Entertainment, emerges from bankruptcy looking to go on a lucky streak.

Tropicana Entertainment will emerge from the bankruptcy after filing two years with a new owner, and with little if any debt on the books. The new owner, billionaire Carl Icahn, will also pump millions into paying off creditors and upgrading Tropicana properties, according to the Las Vegas Sun. Employees will maintain their jobs, which was far from a certainty before and during the bankruptcy.

Tropicana’s nine casinos will pull in revenue of about $700 million, which does not match pre-recession numbers, but Tropicana Entertainment CEO Scott Butera says that the important thing is to be out of debt. Clearly revenue is down, Butera told the Sun, but the idea is to make money.

According to the Las Vegas Sun, Tropicana’s troubles can be traced back to former owner Bill Yung, who took a costly gamble when he purchased the Aztaca casino chain. Yung had been a purveyor of mid-level hotels, like the Marriott, and his purchase of the casino chain coincided with the onset of the recession.

Revenue increased by 77 percent, but costs to run the new facilities increased by several hundred percent. Yung responded by laying off employees and reducing overhead, which did not prove to mitigate the problems.

Service got worse, and complaints about service shortfalls shot up. In 2007, New Jersey regulators had also revoked the company’s license to operate the Tropicana in Atlantic City, forcing them to sell it off despite its profitability. Poor performance by Laughlin holdings, and a bad ski season added to wildfires near Tropicana holdings in Lake Tahoe pushed the casino company closer to the edge, the Las Vegas Sun said.

With $2.7 billion in debt from the casino purchase, and with the recession in full swing, the company had to file for bankruptcy. Though there were money-making portions of the business, they went into bankruptcy willingly, without negotiating with their lenders. As such, Tropicana had equal amounts of debts and assets, around $2.8 billion.

Butera went on to praise the bankruptcy process. This word, bankruptcy, frightens people. But it’s been incredibly beneficial for us, he told the Sun.

Other casino companies have avoided bankruptcy because of the tight restrictions it can lead to, the stigma that it holds in the eyes of investors and partners, and the opportunity it gives competitors.

Tropicana, on the other hand, needed to recover from fundamentally flawed management, Butera told the Sun. It also needed to repair its image in the eyes of industry regulators. Since the bankruptcy, Tropicana’s operations operate under completely new general managers and updated guidelines.

It was a bottom-up process. We literally had to deconstruct this company and rebuild it from scratch, Butera says. It was very, very challenging.

With unemployment hovering around 10 percent, many employed Americans are understandably skittish about their jobs. According to the numbers, there are plenty of people who’d love to take our places if we set a foot wrong. So here are some things to consider next time you have to make a major decision at work.

Vacation: Should I Stay or Should I Go?

Whether or not you can afford a luxury getaway, you may have vacation days allotted to you by your employer. So, when times are tough at the office, should you bother taking off? This article from Forbes.com says yes.

• Productivity benefits: In the U.S., we tend to think that more work is better, no matter what. But studies have shown that, after a certain point, more work actually yields less productivity. If your boss isn’t likely to take this view, be sure to mention the long-term benefits to the bottom line of workers taking time off.
• Psychological benefits: Relaxed, focused workers aren’t generally the ones who need to take sick days or visit various doctors’ offices on a regular basis. Remind any doubters that the mental and physical benefits of a few days off could ultimately save the company in health costs.
• Reminders of your contribution: According to the Forbes.com article, too many Americans worry that taking vacation time will make their employers forget about them, but this is often not the case. In fact, while you’re away, you’ll give everyone at work a chance to see how difficult things are when you’re not around.

Naturally, it’s important to consider the vacation environment in your workplace. And, if you have any doubts, talk with your supervisor and ask for suggestions about what to do with any vacation time you might have.

Leaving a Job: Play It Cool

Whether you’re lucky enough to leave one job on your terms for another you like better or forced out the door by a struggling company, it’s important not to burn too many bridges. Talk show host Conan O’Brien recently drew attention to this matter with a resignation letter addressed to NBC but published on the web, for all to see.

However, according to experts on job hunting, this is not a move most of us should mimic. Remember:

• The world is very connected today, and childish or unkind behavior will likely follow you, thanks to online networking.
• Leaving on a good note will only help you in the future when you need recommendations or references.
• You are (probably) not a famous comedian in a financial situation to get away with wild antics. Sorry.

So, while a final office prank or snarky letter may give you temporary satisfaction, remember that it can impede your career opportunities well into the future.

Hard economic times are not limited to American families right now – many states, too, are finding themselves in precarious financial situations. California is notorious for its budget shortfalls, and, according to nbc.com, Illinois has joined the ranks of the nearly bankrupt.

Perhaps unsurprisingly, the problems plaguing state governments aren’t that different from the ones that cause financial distress at a more localized level. Here’s a look at how we as individuals can learn from the states’ mistakes.

• Don’t resist change. At the state level, it takes time and energy to alter policies that are draining finances without offering much benefit. For individuals, this often isn’t the case. So if you realize your debt is getting out of control, recognize that you’ll need to make concrete and permanent changes to improve your finances.
• Accept the hard truth. Many state politicians are unwilling to raise taxes or lower spending, because they’re worried they won’t get reelected if they do. Luckily, you aren’t up for reelection in your life. Increasing your income and/or reducing your spending are the only two ways of decreasing your current debt – if you’re unwilling or unable to do one, you must do the other.
• Look on the bright side. Federal bankruptcy law offers protection to individuals, organizations and even municipalities in financial difficulty, but that protection is not available to state governments. So, if you’re in way over your head financially, don’t panic: the U.S. Bankruptcy Code offers you a chance to start over financially, as long as you’re wiling to commit to improving your relationship with money, credit and debt.

The Good News

Serious debt can be an enormous burden, but, compared to state governments, individuals may actually have something to be happy about when they’re in serious debt:

• You don’t have to please millions of voters, so when you want to start saving money, you can cut back in areas that are less important to you.
• You don’t have to wait months or years of negotiating between Congress members to implement a new, financially streamlined lifestyle. Get started today!
• You can always move to a part of the country where the cost of living is lower as a long-term money-saver.
• Your family and friends may actually be in a financial situation to help you get back on your feet.

Additional Resources

Borrowing after Personal Bankruptcy (PDF)