CompleteTax, TaxACT, TaxCut: Which to choose in Free File?

The IRS says more folks are taking advantage of Free File, its program that allows many taxpayers to prepare and file their federal taxes for free online. In Free File, you can choose among 19 authorized services to prepare and file your return. It's a good bet that many taxpayers will consider the popular TaxACT, from 2nd Story Software; TaxCut, from H&R Block; or CompleteTax, from CCH.

Recently my friend Chris and I tested all three to see which offered better value and ease of use for a typical Free File customer. (If you want to use them in Free File, you must enter their sites through www.irs.gov, not through their regular URLs, where you'll usually pay a fee to prepare and file your federal return.) Chris, like an estimated 70 percent of Americans, had  2007 household adjusted gross income below the $54,000 cut-off point that Free File requires.

We didn't try TurboTax, the market leader. While it has a free federal version on its regular site, it excludes a lot of taxpayers preparing through Free File. Only those with adjusted gross incomes of $30,000 or less, active military personnel with AGI of $54,000 or less, and folks who qualify for the Earned Income Tax Credit can prepare and file with TurboTax in Free File. (We noticed only after we used CompleteTax that its AGI requirement--$32,000--is nearly as strict in Free File. We present our CompleteTax results here anyway.)

In a nutshell, here's what we found:

•All three programs—CompleteTax, TaxACT and TaxCut—calculated the same federal and state refund amounts. That's encouraging for folks concerned about accuracy.

•All three took about an hour to do, including preparing a New York State return. Chris's relatively simple returns involved inputting data from a couple of W-2s, a 1099 for interest income, a charitable donation receipt, and a couple of other documents. If your return is more complicated, you should expect that it'll take longer to complete.

•TaxCut Free File will serve anyone 50 and under with an AGI of $54,000 or less. We found that of the three it was easiest on the eye, and included some nifty features. While both TaxCut and TaxACT had cool counters on the top right recalculating the refund as we worked, only TaxCut told us when the return was 65 percent finished, 90 percent finished, etc. TaxCut had the most useful checklists before each new topic so Chris knew what she needed to have ready and only had to answer parts of the interview pertaining to her. TaxCut also provided handy summaries at the end of each section for review. Both TaxCut and CompleteTax anticipate taxpayer questions by posting typical questions—and links to answers--to the right of each screen.

•CompleteTax had the most jarring look, but it was somewhat more intuitive. For example, to input information from your W-2 form, you fill out an identical-looking form online. Of the three programs, CompleteTax was the only one with the option to import W-2 information from your employer, which should ensure accuracy and save your a few minutes (your employer has to participate with CompleteTax’s electronic W-2 program). However, CompleteTax had a number of annoying pop-ups related to filling out the forms, and what seemed like an unnecessary requirement to mark each page as complete . We also didn't like that CompeteTax made Chris disclose the bank account where she wanted her refunds deposited before it divulged her final refund amounts.

•TaxACT’s Free File service works for anyone between 19 and 54 with an AGI of $54,000 or less. It was a fairly simple program with some nice features: a refund counter like TaxCut, commonly-asked questions on the right margin, and a clean-looking layout. But there was no convenient checklist at the beginning of every section; we had to slog through a series of questions, and then wait for the program to process and refresh each page after completion. In all, however, it took about the same amount of time, overall, as the other programs.

Bottom line: For ease of use, we preferred TaxCut and CompleteTax. But for folks who have to file a state return and can't file for free with their own state, TaxCut at $29.95, is considerably more expensive than both CompleteTax at $14.95 and TaxACT at $13.95. If you don't have to file a state return or your state offers its own free online filing, TaxCut is a better choice. If you must pay to complete and file a state return electronically and fit the tough AGI criteria, go with CompleteTax. Otherwise, TaxACT is  a quite reasonable choice.

Of course, there is nothing to stop you from filing your federal return online in Free File and using that information to fill out and send in a paper form for your state income tax. It depends on what your time is worth. Because the software automatically transferred all the federal information directly to the state tax forms, Chris spent at most 10 minutes filling out her New York forms. For many people, that convenience is worth $13.95.

—Tobie Stanger

Investment moves for a slow economy

The subprime mortgage meltdown, record oil prices, and a tumbling housing market have raised the specter of a recession. And the wild stock market volatility of recent weeks has put many investors in a defensive stance.

Investors shouldn't panic, but it's worth knowing how to build an all-weather portfolio to help you through such economic storms. The difficulty facing individual investors is that if you reshuffle your portfolio now, you might sell stocks or mutual funds after they’ve taken a beating, and buy defensive investments after their prices have been inflated by investors looking for a safe harbor. At the same time, if you try to hide out the recession in cash, reduce your exposure to stocks, or stop making regular contributions to your portfolio you may miss out on some good opportunities to buy.

“Investors should stay the course and keep investing,” says Alec Young, equity strategist at Standard & Poor’s. “Nothing outperforms stocks over 10-year periods, and investors who continue to buy when prices are low tend to do best.”

So unless you need cash immediately, you may be better staying put and weathering the storm. Still, there are some tweaks you may want to make to your portfolio. Here are some recommendations for the different market segments:

• U.S. large-cap stocks are relatively inexpensive and attractive at the moment, especially ones with lots of overseas business. You can play this trend by increasing your portfolio’s large-cap exposure, such as in an S&P 500 index fund or ETF.
• International stocks are still attractive. With growth in Europe and Japan slowing, emerging markets have the best long-term growth prospects and are less affected by some of the economic ailments in the U.S. Yet emerging markets are volatile, so your decision here should depend on your investing horizon and tolerance for a bumpy ride.
• Cash is king in a down market and will leave you ready to snatch up good deals. Short-term CDs and high-yield money market accounts are a good option. Avoid Treasury bills, which have depressed yields after investors poured into them as a safe harbor amid the recent instability.
• Buy a municipal bond fund. Treasuries have anemic yields right now. Munis are looking very appealing and many are yielding more than Treasuries, even before factoring in the tax exemption.

Take trading costs into consideration before shuffling your portfolio, and stay diversified. Also consider how hard it would be to buy back investments you sell now at a good price later on. If you buy, dollar-cost average, or buy in chunks, instead of all at once to help limit your risk.

—Chris Fichera

Save the penny--or scrap it?

Our recent item about a proposal to ban the $100 bill prompted a number of comments on that topic, some that suggested the U.S. also get rid of the penny (and perhaps other coins) while it’s at it.

As it happens, the fate of the penny is also the subject of an interesting New Yorker article this week by David Owen.

This is not a new debate, of course, but one that’s been going on for years. An argument against doing away with the penny (and perhaps other coins) is that it would be inflationary to round prices up to the nearest nickel or dime.

Is the hassle of dealing with pennies simply not worth it, inflation or no?

What do you think? Please let us know by clicking on Comments below and sharing your, uh, two cents worth.

Experian challenges LifeLock on fraud alerts

Experian, one of the three giant credit reporting bureaus, recently filed a lawsuit in U.S. District Court in California, designed to stop LifeLock from selling a service that, among other things, puts temporary fraud alerts on customers' credit reports and automatically renews them every 90 days. LifeLock charges $10 per month or $110 a year for this service.

Fraud alerts warn prospective lenders that a credit applicant might be an ID thief, and they should take steps to verify the identity of the borrower. Under the federal Fair Credit Reporting Act, consumers who make a good-faith assertion that they suspect they are, or are about to become, a victim of identity theft, have a right to file such alerts on their own—for free. That’s one reason we criticized LifeLock recently in the Consumer Reports Money Adviser.

That hasn't stopped LifeLock from selling the service—heavily advertised through TV, radio, and newspaper ads featuring LifeLock's CEO Todd Davis, who claims the company offers protection so ironclad that he reveals his actual Social Security number. LifeLock says it's now adding 120,000 new subscribers a month and is closing in on 900,000 total customers.

Experian’s central argument is that the Fair Credit Reporting Act “does not permit the placement of an initial fraud alert by corporations such as LifeLock.” But the law does allow a “consumer” to directly place a fraud alert or an “individual” representing a consumer to place fraud alerts; it does not specifically say "corporations."

Experian also argues that LifeLock violates the FCRA, which allows temporary fraud alerts lasting only 90 days, saying that it doesn't anticipate a series of 90-day alerts that are perpetually renewed. Consumers who have had their identities stolen can get a 7-year extended fraud alert if they file an ID theft report.

The Federal Trade Commission has made no policy statement on the matter, but offers advice to consumers on whether or not to buy services that claim to protect against identity theft.

Davis says Experian’s suit is “frivolous.” Experian’s retort: “This is not a frivolous thing we’ve done. We don’t file frivolous suits,” says Donald Girard, a spokesperson.

Protect yourself
As Davis himself admits, a fraud alert “isn’t 100 percent bulletproof” protection against identity theft. Consumers Union, our parent organization, recommends that you consider using a “security freeze” to completely block access to your credit reporting file by all prospective lenders. This would stop ID thieves from opening new accounts in your name. You can unfreeze your file with a personal identification number. As of last year, all three credit bureaus allow anyone to freeze and thaw their credit report as they wish for about $10, less in some states, and for free if you've been the victim of ID theft. Click here for more information.—Jeff Blyskal

Safeguarding your credit and debit numbers

With the Hannaford heist still in the news, here are further tips on how to protect your financial information, courtesy of “Money Mom,” who blogs on our parent organization’s Web site, ConsumersUnion.org.

Ban the $100 bill?

New and more colorful $5 bills, intended to make counterfeiters’ lives more difficult, went into circulation earlier this month, joining the already spruced-up $10s, $20s, and $50s. The old $5 bills will continue to circulate until they wear out.

Coming next, at a date still to be determined, is the new $100 bill—unless, that is, those who would dump it altogether have their way. The anti-$100 bill argument, made in newspapers recently via this article, is that the $100 bill is handy for terrorists, drug kingpins, and other criminals who deal in large amounts of cash but plays little or no role in the lives of ordinary, law-abiding consumers.

Eliminating the $100 bill (the jargon is “demonetizing” it) would presumably mean that those of us with a C note we got from Grandma last birthday would be able to cash it in for some period of time before it became worthless. Criminal types with crates full of them, however, would have a lot of explaining to do.

What do you think? Should we keep the $100 bill or phase it out? Which would be better for consumers?  Please feel free to comment below.

When cyber crooks have your number

The latest data breach involving consumers’ credit- and debit-card numbers has hit the Hannaford Brothers supermarket chain, which operates primarily in New England, and the related Sweetbay supermarkets in Florida.

The company says cyber crooks made off with customers’ card numbers and expiration dates but not their names or addresses.  It offered this advice to anyone who might be affected.

For tips from Consumer Reports on preventing such thefts in the first place and dealing with one if it happens, click here.
 

What to do if you’re offered a buyout

News reports that Delta Air Lines plans to offer voluntary buyout packages to some 30,000 employees, more than half its workforce, may have you wondering what you’d do in that situation. Even if you don’t work in the beleaguered airline industry, it’s not a bad idea to have a “what if?” plan, especially given the current economic climate.

The Consumer Reports Money Adviser newsletter looked at that question last summer and had this still-timely advice to offer.   

Beware of bogus car warranty pitches

Law enforcement officials throughout the country are warning of misleading solicitations aimed at pressuring car owners to buy extended warranties.

Missouri Attorney General Jay Nixon recently announced that he had filed lawsuits or reached settlements with numerous companies that he said misled and pressured scores of car owners across the country into buying extended warranties that, in most cases, they didn't need. In some instances, consumers were charged thousands of dollars.

He said the companies, most based in St. Louis, used official-looking postcards that included words such as “Notice of Interruption!” or “Important Dated Material Enclosed” to mislead vehicle owners into thinking that the mailing was from the vehicle manufacturer or dealer that sold them the car. He said one elderly consumer paid nearly $1,900 to buy a warranty after being told that her existing coverage “expired or was about to expire” in March 2007; the actual expiration date was November 2008. He said the company then refused the customer’s request for a refund.

“Many consumers—confused, but not wanting their car warranties to expire—went ahead and purchased the new, but in most cases unneeded, service contract the company was hawking,” Nixon said, in a news release.

A warning on the Washington State attorney general’s office Web site said that attorneys general around the country have been receiving increasing numbers of complaints about the practice. It said many of the postcards are personalized with the car owner’s name and a customer ID number. On such postcard, which appears on the Web site, was labeled in large, capital letters: “FINAL WARRANTY NOTICE.”

The Connecticut attorney general’s Web site reports that 20 states are investigating such solicitations, which it said also come in the form of letters, e-mail messages, and telephone calls.

Even when extended warranties are being sold honestly, they often aren’t worth the added expense, especially if your car has a top-reliability score. On the other hand, if your heart is set on a model with below-average reliability, deciding on whether to buy an extended warranty —also known as an extended service contract—is more of a toss-up. —Anthony Giorgianni

Calculate your tax rebate

We've tried the IRS's new online economic stimulus payment calculator, released yesterday, and found it easy and fast--about 5 minutes to fill out. To get an accurate result, you'll need to plug in information from  your completed 2007 federal income tax form. Check the IRS's Web site for a schedule of when you can expect your rebate.

Get your stimulus tax rebate faster: The IRS tells how

Want to get your tax rebate faster? File your taxes early and electronically, and arrange for direct deposit.

The IRS drove home that message today when it announced its schedule for delivering economic stimulus rebates. Folks whose federal tax forms are processed by the IRS by the April 15 deadline and who arrange for direct deposit can expect their rebates to be sent to their bank accounts no later than May 16. You're more likely to have your taxes processed by April 15 if you file electronically.

The IRS will deliver stimulus payments based on the last two digits of filers' Social-Security numbers; the lower those digits, the earlier the payment. If a couple is filing jointly, the first Social Security number on the tax return is the one that counts in determining the payment schedule.

For folks whose returns are processed by April 15 and arrange for direct deposit:
Those whose last two Social-Security number digits are between 00 and 20 are expected to get the first payments, by May 2.
Those with last digits between 21 and 75 should get their payments by May 9.
Those with last digits between 76 and 99 should get theirs by May 16.

In contrast, the IRS says it will begin to send out paper checks on May 16, even for early filers. The agency says it expects to send out the last checks to on-time filers by July 11. You may have to wait a few days extra for the checks to reach your mailbox.

If there's a problem with processing your return, your payment--whether by direct deposit or paper check--could be delayed beyond those target dates. And anyone filing for an extension will have to wait for their rebate for at least two weeks after they get their refund.

IRS spokesman Eric Smith notes that by filing electronically, you can expect your rebate from two weeks to two months sooner than if you filed by mail. Even if you owe the government, you can file now and arrange for payment on April 15; that way, even with no refund, you'll get your rebate faster.

"If you've never tried electronic filing, this is the year to do it," Smith told us. "If you're getting a refund, you'll get it sooner. If you're getting a rebate, you'll really get it sooner."

While you're waiting for the rebate, try the IRS's new economic stimulus payment calculator to determine how large a rebate you'll get. To do a proper estimate, you'll need to have filled out your 2007 Form 1040, 1040A or 1040EZ.

30 years without a credit card, part 2

Last week I wrote a blog item that set off a surprisingly spirited discussion here and on Web sites such as The Consumerist.

In it I mentioned that I’ve gone three decades without a credit card—at least the kind that extends revolving credit. As I noted in the blog, I do have an American Express card, which has to be paid off in full each month.

Some of the readers who posted comments had favorable things to say; others thought I was splitting plastic hairs in saying the card I do carry isn’t technically a credit card. The words “smug” and “self-satisfied” even came up a time or two.

Quite a few commenters protested that anyone with the proper discipline could use a credit card without incurring onerous fees or paying outrageous interest.

I don’t disagree. I would point out, however, that lots of people do get in trouble with their credit cards, and there’s reason for concern that the situation is becoming worse. Here’s one recent study to that effect.

What may be most remarkable in all of this is how central credit cards have become to our lives. How did so many of us become so comfortable taking out a loan, in effect, every time we buy a burrito or a bottle of shampoo?

And whether or not we pay any interest on that loan, businesses are presumably adding something to the cost of their wares to cover the fees the card companies impose on them.

The genius of the credit-card companies is that they have managed to insert themselves into not just the big transactions where people might not have enough cash in their wallets but into the smallest, most everyday ones. This part is equally true for the card I carry, of course.

You’ve got to hand it to them, I suppose. But you don’t have to hand it to them with interest.

Comments, anyone?

—Greg Daugherty

Greg writes the “Retirement Guy” column in the Consumer Reports Money Adviser newsletter.

IRS Free File Frustration: Make it simpler, please!

Frank Y., a Consumer Reports Money Adviser reader from Terre Haute, Ind., has been discovering some of the same things I've been finding in my research on the IRS Free File site. The IRS says that anyone with 2007 adjusted gross income of $54,000 or less is eligible for Free File, a program that lets you prepare and file your federal returns online free via 19 participating companies. Even with the income limit, Free File is designed to serve 70 percent of American taxpayers. (To take advantage of free federal filing, you must go through IRS Free File.)

As Frank found, in reality the system can be restrictive, and is often confounding.

Problem #1: "Each Free File participant [company] decides who to allow to file for free. Their rules are quite different as well as quite confusing."

True. While some companies hew to that $54,000 rule, not all do. Market leader TurboTax, for instance, says you have to 1) have an adjusted gross income (AGI) of $30,000, 2) qualify for the Earned Income Tax Credit (with an AGI of up to $39,783), or 3) be an active member of the military. Only military folks can have AGIs of up to $54,000 and still do Free File using TurboTax. CompleteTax requires folks to have an AGI of $32,000 or less, period. 

Competitors have other limiting criteria in addition to an AGI of $54,000. TaxCut, eSmart Tax, and OnLine Taxes say you must be age 50 or younger. Conversely, TaxSlayer's  target users include taxpayers age 65 or older. (The company also serves folks age 25 and younger, and several other very specific populations.) Scads of Free File companies only serve residents of certain states.

The easiest way to wade through the clutter of qualifiers to find a company you can use is through the IRS's interactive worksheet. Plug in your income and personal characteristics, and up pops a list of companies that can do the job.

Still, I have to ask: Wouldn't it be easier and more fair to taxpayers to let everyone use the service of his or her choice?

Problem #2: "It's only in the fine print that you learn what the programs can handle."

Frank mentions the TurboTax Web site, which he says only indicates in the fine print:  "Complex tax situations not covered:  Investments, Rental Properties." "When you click on the (small) link for information about coverage," he notes, "you get a list of the forms that are covered and the forms that are not covered—with absolutely NO explanation as to what situation each form covers. ... In order to know whether you can use the Free File system you have to understand the purposes of all of the IRS forms, which one does not know unless one has already filled out the tax forms (or is a CPA)."

Good point, though TurboTax is hardly alone there. For example, at 123Easytaxfiling, we found a list of 11 "limitations and unsupported items," including decedent returns, portions of Schedule A related to  certain charitable contributions, and sections of the 1040 dealing with some retirement and health insurance deductions for the self-employed. FreeTaxUSA  doesn't support 19 IRS Forms, including Form 8839 for the Adoption Credit, and Form 4684, for casualty losses. Average1040 lists the forms it does cover, and leaves you to guess what it's left out.

I can't blame the companies entirely. In some cases, their Free File editions are meant for simpler returns; they make their money from upgrades for more complex cases. But that lack of completeness is another annoyance for taxpayers. It's just one more thing you have to check out carefully before taking the plunge. And as Frank says, most folks don't know what they need just by looking at the form number or title.

Problem #3: "In order to know whether you are eligible to file for free you have to know your AGI - which of course is computed as you figure your taxes."

Yeah, this one always flummoxes me. You could go through the entire program—at least an hour for even the simplest returns—and discover you're ineligible. What a pain!

Frank finishes up his e-mail with some pointed words, which will resonate with anyone who doesn't make a living in tax preparation:

"The tax code will never be simplified until every elected official is required to complete his/her own tax return plus those of all immediate family members—all without ANY assistance from any other person and with a video camera recording the whole experience so that it can be posted on the Web for the education and entertainment of the taxpayers who have to deal with the mess created by these officials.  Every time I look at attempts to simplify taxes and make things easier for low-income people I see that the exact opposite has again happened. ... When you add to this the confusion caused by inaccurate statements and misleading information provided by both the IRS and the Free File companies, it is enough to make one long for the good old days when the only thing people could complain about was the top tax rate of 93%."

Inaccurate? Not really. Misleading? Possibly. Confusing? Absolutely.

Thanks, Frank, for expressing so well that seasonal frustration felt by Free Filers, and everyone else.

—Tobie Stanger

Stupid bank tricks

Anyone who despairs over the current state of American ingenuity might take some comfort in a new report from the U.S. Government Accountability Office. The GAO report shows that the banking industry today is nothing if not creative in thinking up fees to stick us with.

The report focuses largely on overdraft fees, which have become a major source of revenue for banks, as well as a big annoyance for consumers. The average overdraft fee, according to the report, is now about $28.

At the same time, some banks are making it remarkably easy to overdraw. One way is by letting debit card transactions go through even if there isn’t money in the account to cover them. We covered that in a recent article in the Consumer Reports Money Adviser newsletter.

The GAO also notes that while electronic payments, such as debits, are processed virtually instantaneously, banks are allowed up to 11 days to process non-local paper checks. As a result, depositors can easily incur overdraft fees even though they think they have ample money in their accounts. 

What’s more, the GAO found, some banks process debits not in the order they occur but by size, starting with the biggest.

Say you have $1,000 in your account and make a series of debit transactions in this order: $25, $300, $10, and $750. Only that last $750 charge will have put you over the limit of your account (in this case, by $85). You might think you’d incur one overdraft fee.

But nooooooo……

If the bank reorders your debits as: $750, $300, $25, and $10, you’ll be overdrawn as of the second transaction and face three overdraft fees.

Lessons here: Keep an eye on your account balances, use that debit card with care, and if your bank starts pulling stuff on you, consider taking your business elsewhere. There are still plenty of banks to choose from. Our last survey of banks showed high levels of consumer satisfaction with many financial institutions. (The report on our survey is free, but the ratings are available to our subscribers only.)

Bring out your inner skinflint

Money is tight these days, and most of us appreciate whatever advice we can get on saving. Our resident penny pincher, Anthony Giorgianni, shares one of his recent money-saving moves.

I recently decided to upgrade to the expanded-function “pro” version of one my favorite freeware computer programs, RoboForm, a handy and high-rated password manager and Web form filler. Just as I was about to pay $29.95 at the “checkout,” the wise shopper (make that “skinflint”) in me took over. In a new browser window, I Googled “Roboform coupon.” Right near the top of my search results was an online coupon for 20 percent off. I pasted the coupon code into the checkout page and got an instant $6 savings.

The lesson? Don’t even think of shopping online (and maybe elsewhere) without searching thoroughly for an online discount coupon. You’ll likely find that a simple Web search works best, though here are just a few of the many Web sites that offer free coupons and coupon codes: couponchief.com, couponcabin.com, fatwallet.com, retailmenot.com, and ultimatecoupons.com. Who knows how much the skinflint in you can save?

Sharper Image demonstrates perils of gift cards

Holders of Sharper Image gift cards have been getting a hard lesson in some of the downsides of gift cards.

Some three weeks after the specialty retailer filed Chapter 11 bankruptcy on Feb. 19, owners of gift cards and merchandise certificates are facing confusing options about what to do with those obligations, which the retailer initially said it wouldn't honor, at least for the time being.

On March 7, the U.S. Bankruptcy Court for the District of Delaware granted the retailer’s request to resume honoring its cards and certificates—but only for customers who make a purchase of at least twice the value of the card or certificate. So to use up a $50 gift card, a customer would have to buy at least $100 in merchandise.

Initially, the San Francisco-based retailer specifically told the court that it was not seeking interim authority to redeem its estimated $42.6 million in outstanding cards and certificates, including those cards it sold to Discover and American Express for use in those companies’ membership rewards programs. But that was before Feb. 27, when competing retailer Brookstone took advantage of the situation by offering to give anyone who surrenders a Sharper Image gift card, merchandise certificate, or similar obligation a 25 percent discount off their entire purchase at any of Brookstone’s 314 stores nationwide. (Brookstone’s offer does not apply to Web site purchases or to Sony, Celestron, Bose, Panasonic and Tempur-Pedic products.)

In its March 3 motion to the court, Sharper Image wrote:  “Brookstone is only one of undoubtedly many Sharper Image competitors that will attempt to capitalize on the fact that Sharper Image is currently prohibited from honoring its gift certificate and merchandise certificate programs by instituting promotional programs designed to draw customers away from the Sharper Image.”

The case is just one more reason why holders of gift cards, merchandise certificates, store credits and similar obligations should use them as quickly as possible and think twice about purchasing them in the first place. Last December, Consumer Reports Money Adviser reported on the problems with gift cards, including the risk of issuer bankruptcy. With growing problems in the economy, other retailers might also go under, leaving consumers with worthless obligations.

“It is not a surprise to us that people are having problems using these cards once [the store goes] into bankruptcy. The general advice is spend them quick. That advice is even better right now,” said Evan Johnson, administrator the Montgomery County, Md., Office of Consumer Protection. Johnson conducts an annual survey of gift cards to determine the fees and other conditions that card issuers impose.

The case could end up testing relatively recent state laws in California and Washington that prohibit retailers from using bankruptcy as a reason not to honor gift cards and certificates. In those states, the value of those obligations is deemed to be held in trust for consumers and not the property of the company. California last week tried unsuccessfully to get a state court to intervene. Attorneys general in both states say they are studying whether to raise the issue in the bankruptcy court.

YOUR CHOICES
If you have Sharper Image gift cards and merchandise certificates, what should you do? Here are your options:

• Redeem the card or certificate at Sharper Image. You can use it only if you spend twice its value. While that may seem unfair, especially if you received the card as a gift, it could be your easiest and least-costly option. The offer might not be valid at the 90 Sharper Image stores that the company plans to close as part of its reorganization plan, about half its outlets. Also, if Sharper Image fails, it won’t be there to honor its return policies or any other rights you may have if a products turns out to be defective.

• Redeem the card or certificate at Brookstone. In this case, you’d receive a 25 percent discount on your entire order if you surrender a Sharper Image gift card, rewards card, gift certificate, or merchandise credit. You won’t get the entire amount of the card or other obligation unless your purchase equals at least four times its value. For example, someone who has $50 on a Sharper Image Gift card would need to purchase $200 in Brookstone merchandise to receive the card’s full benefit. On the other hand, if your purchase exceeds $200, you would end up saving more than the value of your card. Brookstone spokesman Robert Padgett said a Brookstone store in Atlanta sold Sharper Image card holders three $4,500 massage chairs, giving a 25 percent discount on each.

• File a challenge. If the Sharper Image gift card or certificate was purchased recently using a credit card, the credit cardholder can try challenging the purchase with the credit card issuer. But this might not work. For one thing, you might already be past the time limit on such claims. Also, the credit card company might not agree with your claim.

• Wait out the bankruptcy. This is probably the least attractive option. For this to work for you, Sharper Image must reorganize successfully and resume honoring its gift cards and merchandise certificates without conditions. In its court filings, the company reported that as of Jan. 31, it had $251.5 million in assets and $199 million in debt. If Sharper Image goes out of business, card and certificate holders will have to line up behind the secured creditors for a piece of the liquidated assets. Typically, consumer creditors receive pennies on the dollar, if anything.

If you choose to roll the dice with this option, send a proof of claim form to Sharper Image Corp. Claims Processing, c/o Kurtzman Carson Consultants LLC, 2335 Alaska Ave., El Segundo, Ca 90245 (tel.# 866-381-9100). Be sure to designate yours as a priority claim. To do this, check the box next to “Up to $2,425 of deposits toward purchase, lease or rental of property,or services for personal, family, or household use,” and enter the entire amount on the line labeled  “Amount entitled to priority." This may place you ahead in the line of unsecured creditors.— Anthony Giorgianni

Some rich folks can get stimulus tax rebate while those with far less can't

I'd like to rename the Economic Stimulus Act of 2008 the Law of Unintended Consequences.

That came to mind the other day when I read a reader's question. He and his wife received at least $3,000 in Social Security benefits last year, enough to qualify them for an economic stimulus rebate. But, he wanted to know, if they made more than $150,000 in tax-free bond interest in 2007, would that disqualify them?

The answer, shockingly, is no. They can get the rebate.

The law says you have to have at least $3,000 in earned income and/or certain benefits like Social Security to qualify for the basic rebate. When a couple's earned income reaches $150,000, the basic rebate begins to shrink, and at $174,000 in adjusted gross income, the rebate phases out completely. So many upper-middle class people, by Congress's definition, get left out.

However, tax-free bond interest isn't considered earned income. It's not figured into adjusted gross income, either. So, no matter how high that tax-free income is, it doesn't disqualify someone from getting the rebate. Further questioning determined that my reader and his wife had other income besides Social Security last year, so they could be eligible for a rebate of up to $1,200.

Contrast that with a query I got today from another reader, a single mother of two whose only income is child support. She's not eligible for the basic rebate of up to $600 for single filers and heads of household because child support is not considered earned income. And because she can't get the basic rebate, she also is ineligible for the $300-per-child rebate that's provided for by the law.

The Economic Stimulus Act of 2008 was billed as an aid to the working middle class. The solons who crafted it were criticized for leaving out the very poorest people, who didn't make enough earned income to qualify. With this twist, we learn that not only were the poorest left out, but some very rich people still can benefit. Is this really what Congress had in mind?

--Tobie Stanger

30 years without a credit card

With Americans’ credit card debt at record levels and growing at a rapid pace, one of our staffers shares his secret for staying out of credit card trouble. It's simple—he doesn’t have any credit cards.

I recently reached what I bet is a rare milestone: I have now gone 30 years, basically my entire working life so far, without a credit card.

This may make me seem like some kind of nut, or at least an anachronism. You know, the type of person who still isn’t convinced that indoor plumbing is worth the investment.

I do have what’s sometimes called a “travel and entertainment” (as opposed to credit) card, in my case American Express. I’m not here to plug Amex, but I believe a card like that, which has to be paid off in full each month, imposes a certain restraint that could keep many of us out of financial trouble.

It’s almost impossible to go through life without some sort of plastic, of course. Try renting a car or booking a hotel room, for example. If you have the discipline to carry a conventional credit card and pay it off in full each month, bully for you. But many of us clearly don’t have that discipline.

Debit cards are another option, but they have their own problems.

As a result of never having a credit card, I have never paid a cent of interest on one. Or a late fee. Or anything. Nor do I think that I have denied myself or my family much in the way of material stuff, vacations, or whatever.

None of this is to say that I am wiser or more moral than anybody else, including my friends with wallets full of credit cards and ample debt on them.

In fact, I applied for a card when I first joined the grown-up work force and would have happily accepted it. But I was rejected for lack of a sufficient credit history. Seemed like an insult at the time and had me steaming for a day or two. I never did reapply.

Looking back now, though, it may have been a lucky break—for me, if not the card companies.—Greg Daugherty

Greg writes the “Retirement Guy” column in the Consumer Reports Money Adviser newsletter.

Free File opens to more tax rebate candidates

The IRS announced today that it has opened up its Free File electronic tax filing system to more people—specifically folks who don't normally file a tax return but seek this year's economic stimulus payments, or rebates. That's a boon to some 23 million low-income earners, seniors and veterans who this year must file a federal tax return to get their rebates. Now, they can fill out and file the required form online free of charge, and get their rebates more quickly and securely than by using the Postal Service.

If you're among those seeking a rebate who otherwise have no legal requirement to file taxes, click here to be directed to the Free File Economic Stimulus Payment page.

If you usually file tax returns, you still may be eligible to use Free File. It's available to taxpayers with adjusted gross income of $54,000 or less—about 70 percent of taxpayers, according to the IRS. Click here to be directed to the regular Free File page.

Know your rights on debt collection

LTD Financial Services, a Texas debt-collection firm, recently paid more than $1.3 million to settle Federal Trade Commission charges that it misled, threatened, and harassed consumers in violation of federal law.

The Fair Debt Collection Practices Act bars debt collectors from a variety of practices, including contacting you at inconvenient times and places, such as before 8 a.m. or after 9 p.m.; contacting you at work if your employer disapproves; or contacting you directly if you’re represented by counsel or have requested in writing that all contact cease. If you believe a collector has violated the law, you have up to one year to sue to recover damages, attorney fees, court costs, and up to an additional $1,000. You also should file a complaint with your state consumer protection agency and the FTC. —Anthony Giorgianni