Late tax fix means taxpayers will wait for refunds

Millions of taxpayers could find their refunds delayed next tax season due to Congress’s late action earlier this week to fix a glitch in the federal tax law.

The IRS said today that it had started to update its computer system to accommodate changes related to the Alternative Minimum Tax, passed this week by Congress and expected to be quickly approved by President Bush. But even with those efforts, the late start could delay tax-return processing—and refunds—for an estimated 15.5 million taxpayers.

“There could be delays for certain taxpayers, but we’re working to minimize the impact,” said Nancy Mathis, an IRS spokesperson.

Mathis said the IRS could not yet say exactly how many—or who—would be affected. However, based on earlier estimates by IRS Acting Commissioner Linda Stiff and the independent IRS Oversight Board, some 15.5 million returns—and some $39 million refunds—could be delayed.

The agency said it would be working over the next week to finalize its processes. Taxpayers should check the IRS’s Web site for updated information.

On Wednesday, Congress voted to protect some 21 million taxpayers from the AMT, a 1969 provision originally meant to ensure that the super-rich paid their fair share of taxes. Congress’s “patch”—an annual ritual that ran very late this year—insulates all but about 4 million taxpayers from using an alternative method to figure their federal income tax. The AMT, which disallows numerous tax breaks, raised affected households’ average tax burden by about $2,000 last year.

Yesterday’s patch raises the minimum adjusted gross income subject to the tax to $44,350 for single filers and $66,250 for married couples filing jointly.

In theory, people who aren’t AMT candidates, but who claim certain credits factored into figuring the AMT, could also experience delays. Affected credits include those for mortgage interest, education, child and dependent care, residential energy, retirement savings, and adoption.—Tobie Stanger

R.I.P. for the check?

For all the talk over the years about a cashless society, it’s looking like a check-less one could happen first. According to a Federal Reserve study released this month, more than two-thirds of noncash payments are now done electronically, primarily by debit and credit cards, and less than a third are made by check. Just four years ago, in 2003, the split was roughly 50-50.

Since 2003, in fact, the use of checks has declined by about 6.4 percent a year, the Fed says.

Debit and credit cards certainly are more convenient as a payment method than writing a check. To make sure that convenience doesn’t cost you, follow our readers' advice on selecting a consumer-friendly credit card. Also, when using a debit card, monitor your checking account to make sure you don’t overdraw your account and incur penalty fees.

Charitable giving: Things to keep in mind this year

As you plan your holiday charitable giving, take note of these developments that could affect the ease of donating, and the tax-deductibility of your gifts.

Give (cautiously) via credit card
More charities are arranging to let you donate by credit card every month. The system is convenient, but has some potential pitfalls.

What to do: Check out our advice, “Easier ways to give.”

Save your receipts
The IRS now requires receipts for all deductible donations. Starting this year, all charitable deductions, no matter how small, must be substantiated either by a canceled check; bank record containing the charity name, donation amount, and date; or detailed receipt from the charity. Otherwise the contribution is not deductible.

What to do: Start collecting your charitable acknowledgements, receipts, and cancelled checks in one place now. If you make cash donations, you’ll need either a bank statement or a written communication from the charity noting the charity name, your donation amount, and the date. For more, check IRS Publication 526, Charitable Contributions, on the IRS Web site.

Make your donation count
Make sure your dollars will be efficiently and wisely used by the not-for-profit of your choice. Not every charity is efficient in its use of donors’ money, and not all charities are even recognized by the IRS as eligible to receive tax-deductible donations.

What to do: For advice on how to find the best charity for your money, check out this article from Consumer Reports ShopSmart magazine.

Donate directly from an IRA
This is the second and final year that individuals aged 70½ can make a charitable deduction directly from an IRA—up to $100,000 a year—without having to recognize the income and pay taxes on it. If you do so, however, you can't take a tax deduction for the donation, but it should count toward fulfilling your minimum distribution requirement without adding to your taxable income. This can be a good strategy to avoid the IRS’s rule that limits higher-income taxpayers from fully deducting donations. It’s also good for folks on the other end of the income spectrum who don’t itemize and therefore can’t normally get a tax deduction from a charitable donation.

What to do: Contact your IRA custodian with the names of charities to which you’d like to make donations. Since this could take a little time, start the process now so that the gifts are made before year end, when this tax break is set to expire. The contributions must go directly to the charity. Don’t cash any checks that are sent to you by mistake or you’ll pay the taxes. IRS Publication 526, Charitable Contributions, on the IRS Web site. —Tobie Stanger

Class action suit spurs refunds of currency exchange fees

If you used your credit, ATM, or debit card for foreign transactions, you could be eligible for a refund of some of the currency exchange fees you paid, according to the proposed settlement of a class-action lawsuit brought against Visa, MasterCard, Diners Club, seven major banks, and affiliated companies. But you must file your request by May 30.

Under the proposal, payments would be available to anyone who used a Visa-, MasterCard- or Diners Club-branded credit, charge or debit/ATM to make foreign transactions while traveling abroad or over the Internet from Feb. 1, 1996 to Nov. 8, 2006. Covered transactions include purchases, cash advances, and cash withdrawals.

The refunds are expected to be at least $25, though they could be higher for individuals and corporations who actually can provide good estimates of their foreign transactions.

The proposal would settle charges that the card companies, their member banks, and affiliated firms conspired to set and conceal the markups and fees on currency exchange rates, typically 1 to 3 percent of foreign transactions. The class action suit also alleges that the companies failed to disclosure the fees adequately.

In agreeing to settle the case, the defendants denied wrongdoing, saying that the rates had been properly established and disclosed. They said they were agreeing to settle the case to “avoid the inconvenience, expense and uncertainty of litigation,” according to the notice posted on the settlement Web site.

The other defendants include Bank of America, Bank One/First USA, Chase, Citibank, HSBC/Household, MBNA and Washington Mutual/Providian, as well as certain affiliated and predecessor companies.

Under the proposal, the defendants would pay $336 million to pay claims, attorneys' fees and expenses. The proposal also would require them to make certain disclosures to cardholders about the rates used to calculate the U.S. dollar amount owed for a foreign transaction and any fees applied in connection with a foreign transaction. The proposal received preliminarily approval the U.S. District Court for the Southern District of New York on Nov. 8, 2006. A hearing on final approval has been set for March 31.

To participate, you must file a claim form by May 30. The claim form allows participants to opt for one of three types of refunds:
• Easy refund of $25. This option is recommended for those who traveled outside the U.S. for less than one week or had foreign transactions of less than $2,500 using the affected cards.
• A refund of up to 1 percent of estimated transactions. Based on typical spending during foreign travel and your answers to a few questions, this is recommended for those who traveled outside the U.S. for more than one week or had foreign transactions of more than $2,500.
• A refund of up to 1 to 3 percent of annual estimated foreign transactions. This option is recommended for those who had extensive foreign transactions and who can provide year-by-year information.

Any amounts, including the $25 easy refund, could be lower if participation exceeds expected levels.

Affected card holders also can object to or opt out of the proposed settlement by Feb. 14. Those who do not opt out would be covered automatically by the settlement terms, including giving up their right to pursue further claims against the companies.

For further information or to obtain a claim form visit the settlement Web site or call 1-800-945-9890.—Anthony Giorgianni

Feds list poor nursing homes

The federal government has released its first ranking of what it characterizes as poor-performing nursing homes. The list, published by the Centers for Medicare & Medicaid Services, singles out 52 facilities across the U.S.

For basic, step-by-step advice on choosing a good nursing home, see Consumer Reports’ special September 2006 report.

Ways to cut the cost of shipping

Americans are expected to spend almost $475 billion this holiday season. And that doesn’t include the costs of sending gifts to relatives or paying a premium so they arrive in time for your own family. Here are four suggestions to trim shipping expenses.

Get ahead of the rush. Nearly a quarter of shoppers surveyed in 2006 said they waited until the last minute. But you’ll save big on shipping if you mail early. For the biggest savings at the post office, mail by Dec. 15—the deadline for items sent by Parcel Post to be delivered in time for Christmas. The deadline extends to Dec. 20 for First Class, Dec. 20 for Priority, and Dec. 22 for Express Mail. But those extra days come at a cost. A 10-pound package sent from New York to California runs about $45 if mailed Express vs. $16 for Parcel Post. A Priority Mail Flat Rate Box is a great value: For $8.95 you can send a package anywhere in the U.S. as long as it fits within one of two designated boxes and weighs no more than 70 pounds. FedEx Ground will deliver packages by Dec. 25 if shipped by Dec. 17, and the deadline for FedEx Express is Dec. 19. But those extra two days will add $25 to the cost of shipping a 10-pound package. 

Consider in-store pickup. Shoppers can avoid shipping costs with retailers who offer local in-store pickup for online orders. Wal-Mart says its Site to Store program has saved customers $10 million in shipping costs since the program was launched this spring. Site-to-store orders arrive 7 to 10 days after order processing, which can take 48 hours by itself. Other retailers that offer in-store pickup include Best Buy, Circuit City, and Sears. Merchandise is often available the same day, but you may have to travel to a particular store to get it.

Look online for coupons. Free shipping may be just an Internet search away. We entered "shipping coupon" into Google and found offers for free shipping at Target, JCPenney, Timberland, and the Gap. Popular coupon Web sites are Judy’s Book and Shopping Bargains.

Watch for promotions. L.L.Bean is offering free shipping on all holiday orders this year. And some online retailers will ship orders of a certain size for free. Amazon.com, for instance, ships qualifying orders of more than $25 for free, though delivery takes an additional 3 to 5 business days. —Gregory Brown

Give the gift of micro loans

Looking for a holiday gift that will really keep on giving? How about turning a loved one into a humanitarian financier by giving them a Kiva.org gift certificate?

Recipients redeem their certificates to make “micro loans” directly to small entrepreneurs in 37 developing countries. Once the loan is repaid, the lenders can re-lend or withdraw the money, ultimately using it for that MP3 player or anything else they want.

It’s all done through the San Francisco non-profit group’s Web site, which features a profile of every entrepreneur seeking to raise him- or herself out of poverty.

Take for example Jorge Romero, who recently requested a 6-month, $650 loan to buy shampoo, conditioner, and other supplies for his beauty salon in Paraguay. Or Betha Auma of Kenya, a wife and mother of six seeking an 18-month, $800 loan to buy 20 sacks of grain to sell in her cereal business. Or Sun Channy of Cambodia, asking for $1,200 over 18 months to buy more ducks for her retail egg business.

Generous Kiva lenders quickly granted those three loan requests. In fact, due to huge media attention the organization has received from the Oprah Winfrey Show, PBS’s Frontline/World, and even former President Bill Clinton, the average wait for a Kiva loan is an incredibly short 1.5 days. The most popular entrepreneurs are African women, whose loan requests are filled almost immediately after being posted on the site, says Kiva spokeswoman Krista Van Lewen.

Recipients redeem their $25 to $5,000 Kiva gift certificates to set up a lending account. They then decide when to make a loan, in what amount and to whom.

Although account holders can lend the entire amount to a single entrepreneur, they most often divide the money among more than one borrower. Usually, each loan is made up of money pooled from numerous lenders, with each lender kicking in, on average, $25, the minimum loan amount. Kiva lenders typically have a total of $100 in their accounts or on loan at any one time. Lenders can track the entrepreneur’s progress through updates posted on the Web site or sent by e-mail.

Once the entrepreneurs repay their loans, the money is returned to the lenders’ accounts, where it can be lent again, donated to Kiva itself or withdrawn, all without fees.

Lenders don’t earn interest, and there’s even a small chance that they could lose part or even the entire amount they lend. But, of the more than $2 million in loans completed since Kiva was founded in 2005, only about a quarter of 1 percent are in default. Outstanding loans currently total more than $13 million. Because lenders expect to get their money back, Kiva loans are not tax-deductible. However, lenders may be able to take a capital loss deduction for any money they lose through default.

To purchase gift certificates, you must first create a Kiva account. The certificates are purchased through the Web site using PayPal, which accepts major credit cards. PayPal waives its transaction fees for Kiva members. The certificates can be sent directly by e-mail or printed. They must be redeemed within a year, or the proceeds will convert to a donation for Kiva’s operating expenses. The company will e-mail two warnings before that happens. Certificate givers can use the Web site find out if a certificate has been redeemed. —Anthony Giorgianni