The government is again overhauling taxes and this time there is a change that will greatly benefit those in lower tax brackets - they won't have to pay any capital gains tax! Obviously, the largest benefactors are retirees that will be able to cash their investments out for free if they fall within these tax brackets. Those with relatives in low tax brackets can also gift investments to them to sell tax-free. The best summary of this rule online right now is over at the CPA Journal for all of those interested in this great new opportunity.

From PFBlog:
Yes, for the next three years (2008 to 2010), taxpayers in those two tax brackets [10% and 15%] won't have to pay anything for long-term capital gains and qualified dividends. The tax rate on such income for those of higher income, will stay at the prevailing rate of 15%. For short-term capital gains and disqualified dividends, all taxpayers still have to pay tax at the marginal tax rate just like other ordinary income.

It is becoming increasingly apparent the the U.S. economy may be in trouble unless some major changes are made. Consumers are taking on more debt than ever before in order to fund their spending habits while lenders are being bailed out and acquired by foreign companies. Meanwhile, a mortgage crisis has broken the back of the largest source of funds for most Americans. When consumer debt rises to $15.4 billion in the same month that Citigroup is bailed out by foreigners for $7.5 billion then we know we are in for some problems - especially when Consumer Confidence hit an all-time low...

From SeekingAlpha:
It took a few years, but some key factors are finally exposing the dangerous delusion of the credit-fed lifestyle and how it affects the U.S. economic outlook.

• Debt is up, and consumer confidence is down
• Sovereign-wealth funds are coming to the rescue of drowning U.S. lenders
• Two wars and broken social services mean the national balance sheet will get much uglier
  

The sub-prime credit disaster and subsequent brake-slam of the international finance industry are tossing momentum back and forth from the highest levels of the economy down to the lowest-paid workers. Unemployment is also up, and you can bet that driving around to look for a job gets a lot more urgent when gasoline costs upwards of three bucks a gallon.

U.S. consumers managed to set several records this year: More bankruptcies than ever before, more foreclosures than ever before, and ironically more online spending than ever before. This past holiday season resulted in $29.2 billion in spending online alone as credit cards offer consumers more and more credit. Brick-and-mortar stores showed sluggish growth, however, as more and more business went online and consumers felt the credit crunch. So, why weren't online stores affect? Perhaps online sales - that don't involve an actual cash transaction - make it easier to spend money... Either way, it is important for consumers to keep their online spending in check in 2008!

From Fibre2Fashion:
comScore Inc released its final update of holiday season e-commerce spending for the 2007 holiday season (November 1 – December 31). $29.2 billion was spent online during the holiday season, marking a 19-percent gain versus the same period last year. "This year’s online holiday shopping season has concluded with a record $29 billion in spending, a 19-percent gain versus year ago," said comScore Chairman Gian Fulgoni.

Bankruptcies are expected to be up sharply again during the beginning of this year if history repeats itself. It is increasingly important for consumers to realize the ramifications of bankruptcy before going through with the process. Bankruptcy remains on your credit report for ten years and can make it extremely difficult to obtain future loans. As a result, it is important to explore other alternatives such as debt settlement or credit counseling as a way to get out of debt while avoiding bankruptcy. Debt settlement is a process that can reduce what you owe by up to 40% while helping you establish a payment plan. Meanwhile, credit counceling is a process that entails putting together a budget and paying off what you owe over time. Either program is often a better option than bankruptcy that should be explored!

From Journal Gazette:
Last year, post-holiday bankruptcy filings spiked in the first quarter to more than 185,000 – a steep increase over the year before. If the general rule about history repeating itself bears out, we should expect another surge in the beginning of 2008.

A new government tax break for those with mortgage insurance means you might be eligible for a rather sizeable tax break! Those paying for mortgage insurance are now able to write off the full amount if they make under $100,000 or part of the amount if they make over $109,000. Unfortunately, this only applies to mortgages that have originated between 2007 and 2010, but it still provides incentive for people to take on mortgage insurance. A great move by the government who wants to reduce the risk of mortgage securities in order to help the market recover!

From BusinessWeek:
Homeowners with a new mortgage that is covered by insurance can claim a tax break on the insurance this year. The break, called the qualified mortgage insurance deduction, lets taxpayers with an adjusted gross income of less than $100,000 write off the full cost of mortgage insurance. Folks who earn less than $109,000 can take a write-off for part of it. To qualify, the mortgage must have originated between 2007 and 2010. The deduction can be taken for insurance on a principal residence or a second home.

It now looks like there will be even more trouble ahead for consumers as additional credit card companies pile on loan loss provisions for an increasing number of deliquences. American Express led the pack last week but now at least two other credit card companies have added their names to the list - most recently Capital One. The problems are affecting all people too: Capital One's modest incomes to Amex's affluent incomes. And we have also already begun to see the effects of the crunch during the December shopping season...

From Forbes:
What's in your wallet? If you're a Capital One credit-card customer, it might be plastic but not cash. The credit-card company said Thursday that its 2007 earnings will fall short of previous expectations due to loan delinquencies and additions to its reserves during the fourth quarter. The company said it is reserving $1.9 billion for loan losses in the fourth quarter, approximately $1.3 billion of which are charge-offs.

Countrywide reported a record number of foreclosures in December that marks a continuation of the subprime mortgage crisis that plagues the US economy. Now, many analysts are speculating that the mortgage giant may be forced into bankruptcy if things get any worse. This could spell bad news for consumers who will find it more difficult than ever to obtain new home loans as liquidity for mortgage securities declines substantially and lending standards increase due to more government oversight.

From Reuters:
Countrywide Financial Corp, the largest U.S. mortgage lender, said on Wednesday that foreclosures and late payments rose in December to the highest on record, sending its shares tumbling for a second day to their lowest in nearly 13 years. Analysts attributed Wednesday's drop to deteriorating credit quality reflected in Countrywide's monthly operating report, and renewed concern the lender might not survive the housing crunch and could seek bankruptcy protection. On Tuesday, Countrywide rejected bankruptcy rumors.

Recent earnings numbers put out by credit card companies are quickly confirming what many analysts have already seen coming: American consumers are quickly finding themselves in a pile of debt that may be extremely difficult to escape. Subprime mortgage defaults combined with a consumer credit crunch have led to a substantial increase in defaults. Capital One is the first such credit card issuer to report the decline in credit quality as it raised its loan loss reserves. It appears as if credit card companies may have been just as careless when loaning to individuals as the mortgage sector.

From MarketWatch:
Credit-card shares were among the top decliners in the financial sector Thursday after Capital One Financial Corp. lowered its earnings outlook and raised its loan loss reserves, with increasing clarity that the credit crisis sparked by careless home lending has spread to the consumer sector.

American consumers continue to take on more debt despite major problems in the credit and mortgage markets. The Federal Reserve released a report showing credit card balances increasing at the fastest pace in years with the biggest gain in outstanding debt since August - a 7.5% annual rate! Perhaps consumers should take a hint from corporations who have taken a conservative approach and kept as much cash as possible on their books. It's time for consumers to get the help they need and start reducing their debt and increasing their savings.

From MarketWatch:
U.S. consumers took on more debt in November, increasing their credit-card balances at the fourth fastest pace during the six-year expansion, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt increased by $15.5 billion, or a 7.5% annual rate, in November to $2.51 trillion after a revised 1% rise in October, the Fed reported. It was the biggest gain in outstanding debt since August.

There has been a lot of speculation that Countrywide could go bankrupt amid the mortgage crisis and it has a lot of consumers wondering how it may affect them. The first thing that consumers' will notice is a much more difficult loan application process that involves much more strict lending guidelines. New government regulations are making it very difficult for subprime borrowers who do not have a huge income to justify a home mortgage payment. Home sales will also fall further as mortgage financing becomes even more rare. Fewer mortgages means fewer buyers, meaning more homes will stay on the market and prices will fall with increased supply. Combined, this only means more hurt for a company has exhausted many of its extraordinary financing options - maybe it will happen.

From FoxBusiness:
Countrywide Financial, the nation's largest mortgage lender, is on a collision course with bankruptcy, with potentially severe impacts on the ability of U.S. consumers to refinance their homes or get new mortgages, according to Weiss Research analysts Mike Larson.

The IRS is finally considering at refund loans and whether they are being used by tax cheats in order to game the system. Many middle-class Americans are taking advantage of the system by falsely identifying their income in order to qualify. These loans are traditionally available to the working poor in order to help them attain temporary assistance but now many others are taking advantage of the program as a "free" loan opportunity. Clearly, this is a practice that has to stop and the IRS is definitely taking the right steps...

From Baltimore Sun:
Last week, the Internal Revenue Service said for the first time it will be looking at refund loans and whether they encourage cheating among tax preparers, as some critics claim. Sounds hopeful, though at this point the agency only is seeking public comment ... A refund loan is an advance on your tax refund - minus fees. The loan is repaid when the IRS deposits your refund in the bank ... Millions of tax filers likely will take out refund loans this tax season. Don't be one of them.

It appears as if the credit crisis is not only limited to people defaulting on home loans, it's now affecting the rich as well. Many millionaire investors around the world have begun pulling out a significant amount of money in order to reduce risk. Unfortunately, this is causing a lot of pain for money managers and those who manage cash for the rich. So much money being pulled out is also causing damage to the markets themselves, which continue to feel the effects of a lack of liquidity.

From The Guardian:
As the credit crisis drags on, not even the world's millionaire investors are immune from its effects, and the private banks which manage their money could be next to feel the pain. Rich investors are reducing leverage on their portfolios, robbing wealth managers of a lucrative income stream just as difficult financial markets cast a shadow over their results. As the credit crisis eats away the value of their assets, millionaires are paying back cash they borrowed for investment purposes to reduce risk, private bankers say.

Credit card companeis have been known to institute seemingly random rate increases for some time now and the practice was finally beginning to be brought to attention during 2006. However, the subprime meltdown along with a host of other problems buried it in the newsmedia. Perhaps it's time to bring this back to the public attention so that the Senate takes the time to continue their inquisition into this unfair practice...

From FWDailyNews:
In the midst of all the reports of home foreclosures and credit failures in 2007, an investigation that could affect anyone who has a credit card slipped under the radar. Spearheaded by Michigan Senator Carl Levin, the U.S. Senate Permanent Subcommittee on Investigations Hearing: “Credit Card Practices: Unfair Interest Rate Increases” met twice this past year, in March and December. While the senator doesn’t have another hearing scheduled soon, the investigation isn’t over, an office aide in Washington told me Thursday. What this is about is what Levin describes as arbitrary decisions by credit card companies to increase the rates on consumers’ cards, on what often seems like an inexplicable whim. The problem is, you agree to this whim when you get your credit card (read the fine print in your cardholder information packet).

Many residents of the UK are set to overpay on their credit cards and the same holds for many Americans. Credit card companies offer residents in both countries many opportunities to loan money with 0% interest for a certain time, yet many people are set to continue to make minimum payments and accrue interest. If you are one of these people, it is important to check into low interest credit cards at websites like CreditCards.com: http://www.creditcards.com/balance-transfer.php.

From TimesOnline:
NEARLY 7m people will pay over the odds for credit card debts they built up over Christmas, in the latest worrying sign for the Britain’s beleaguered economy. Research by Moneyexpert.com, a financial website, found that 6.6m people are not planning to switch to a cheaper credit card deal, despite the fact that they are paying an average 16.8 per cent interest, compared with 0 per cent on the best transfer deals.

Free balance are a great way to reduce your credit card payments by lowering your interest rates and a record number of credit card users are expected to make them during the first three months of 2008. Keep in mind, however, that balance transfers will still cost you money. The best ones will charge around 2.5% in order to transfer your balance - but this is still far better than paying the higher interest rates! Also, remember that the 0% interest rate is typically for a promotionally period only until it resets to a higher rate - so it is very important to get the card paid off during this time period.

From Motely Fool:
If you splashed out over the Christmas period, you could find yourself saddled with a large debt on your plastic. The New Year has arrived so now is the perfect time to get your finances back into shape which means switching to a 0% balance transfer credit card. That way you can put a temporary stop on your interest while you get to grips with your debt. Voila!

The evidence is piling up that American consumers are in deep trouble with credit. This latest report showed that deliquences across all consumers loans are at their highest rate since 2001 when we were in a recession. The highest number of deliquencies were present in housing and auto loans as home equity lines of credit have dried up; however, we are likely to see a continued rise in credit card problems despite more lenient financing terms.

From Mercury News:
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.