Image: TaxBrackets.org

Lindsay Lohan might have received an “A” for behavior on her recent progress report, but she gets an “F” in financial literacy. The former child-star owes nearly $94,000 in back taxes from 2009. MSNBC reported that on Jan. 5 the Internal Revenue Service filed a notice of a Federal Tax Lien against Lohan.

The lien is against Lohan’s Encino home for a whopping $93,701.57, and this isn’t the first time the 25-year-old has made a major financial flub. Previously it was reported that Lindsay racked up $600,000 in credit card debt. Another report claimed she was nearly evicted from her apartment for falling behind on her rent.

If you can’t pay the bill, don’t make the purchase.

Comeback role as Elizabeth Taylor on Lifetime aside, it’s time for Lohan to read up and improve her financial literacy. We’ll help her out:

• Always pay your taxes. And pay them on time!
• Have someone check your return to make sure you’ve paid the proper amount.
• Have a liquid emergency fund (not to be used for shopping sprees or late night partying).
• If you want to live like an A-lister, it helps to be an A-lister. Stop trying to keep up with the Joneses.

Check out why so many celebrities make financial flubs here.

PotteryBarnKids.com

While we can’t offer you respite from the heat wave oppressing much of the country, we can bring you good news of upcoming sales tax holidays to ease the burden on your back-to-school shopping budget. (Don’t have a household budget? This is a perfect time to create one and educate your kids about what all those new clothes, shoes, books, school supplies, and computers cost.)

Check out the following list to see if there is a tax-free shopping day coming to a state near you. (Live in Louisiana? Lucky duck!) And be sure to investigate additional discounts that stores may sponsor to coincide with the dates and get people through the door.

• Alabama (August 5-7): computers up to $750 per transaction, clothing up to $100, school supplies up to $50, books up to $30.
• Arkansas (August 6-7): clothing up to $100, no limits on school supplies.
• Connecticut (August 21-27): clothing and footwear up to $300.
• Florida (August 12-14): books and clothing up to $75, school supplies up to $15.
• Iowa (August 5-6): clothing and shoes up to $100.
• Louisiana (August 5-6): all purchases up to $2,500.
• Maryland (August 14-20): clothing and footwear up to $100.
• Mississippi (July 29-30): clothing and footwear up to $100.
• Missouri (August 5-7): computers up to $3,500, clothing up to $100, school supplies up to $50.
• New Mexico (August 5-7): computers up to $1,000, clothing up to $100, school supplies up to $15.
• North Carolina (August 5-7): computers up to $3,500, instructional materials up to $300, computer equipment and accessories up to $250, clothing up to $100, school supplies up to $100, sports equipment up to $50.
• Oklahoma (August 5-7): clothing up to $100.
• South Carolina (August 5-7): no limits on computers, school supplies, and clothing.
• Tennessee (August 5-7): computers up to $1,500, clothing up to $100, school supplies up to $100.
• Texas (August 19-21): clothing, backpacks, and school supplies up to $100.
• Virginia (August 5-7): clothing up to $100, school supplies up to $20.

(via the Federation of Tax Administrators)

RetireSensibly.com

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

CDs, money markets, and Roths — oh my. The world of saving for the future is an alphabet soup, but we’ve put together this handy glossary for helping you figure out where you should stash your cash for a rainy day.

1. Savings and checking accounts. A savings account is probably the very first account you ever opened — perhaps back when going to the bank meant a free lollipop. These linked accounts are the simplest way to put away money and have access to it when you need it. Just make sure you’re not accidentally draining it by paying overdraft or ATM fees.
2. Online money market account (MMA). If you would like to make better interest on your money than what your savings account is offering, consider an online money market account. Online banks can pay a higher interest rate on savings because of a lack of overhead (you can check yields here). However, transferring money to your checking account can take 3 days and you may be limited to a certain number of debits per month, so it’s not the best place for a true emergency fund that could save your hide in a crisis.
3. Certificate of deposit (CD). A CD is a perfect option if you have cash you won’t need for a few years (like for a down payment) and want it to grow with very little risk. Bankrate reports that 3-year CDs are currently paying between 1.5 and 1.9 percent in interest, many with no minimum deposit. However, if you withdraw that money before the CD matures, you’ll pay a penalty that will cancel out whatever you’ve earned in interest.
4. 401(k) and 403(b) plans. These common retirement account is available through many employers: 401(k)s through companies and 403(b)s through nonprofit groups. If you get a company match or are looking to pay less in taxes, it is your best bet for saving for your golden years. You can deduct any money that you contribute to it and pay taxes when you withdraw it in retirement. Also, a company match is free money that your workplace is trying to put in your pocket, so take them up on that benefit!
5. Traditional and Roth individual retirement accounts (IRAs). A traditional IRA is similar to a 401(k) in that you can contribute pre-tax dollars to it (up to $5,000 per year). But you can open it yourself at a bank of your choosing in any year in which you earn income. If you are not offered a company match or you think there’s a chance taxes on retirees will be higher in the future than they are now, the Roth IRA is a better bet. You fund it with post-tax earnings so you do not get the tax savings now, but the money can grow and you won’t have to pay taxes on it again in the future. And remember: They earlier you start contributing, the more your money can grow.

Still undecided about how best to save? Check out our features on retirement savings and starting an emergency fund.

MTV.com

On April 4, the IRS put liens on the Osbournes’ two Los Angeles-area mansions to cover tax debts of $718,948 from 2008 and $1,024,175 from the 2009 tax year. (Daughter Kelly was also slapped with a $34,000 lien last month.)

To the Osbournes’ credit, they promptly resolved the matter by cutting a check to the IRS last week. Sharon took to her Twitter page to explain the screw-up, which she said left even her accountant in the dark:

You can’t rely on anyone but yourself. You have to be on top of your own business affairs. My fault……..lesson learned

At more than $1.7 million, it was an expensive lesson indeed!

BlissTree.com

April 15 is traditionally tax day, but because today is a public holiday to celebrate Emancipation Day in Washington, D.C., the country is given three extra days to file their federal tax returns for 2010.

If you’re a wait-til-the-last-minute type, here are three commonly misunderstood deductions and how to claim them on your return:

• You can deduct health expenses only if your spending exceeds 7.5 percent of your adjusted gross income (AGI). For example, on an AGI of $40,000, you would need to spend more than $3,000 out of pocket on health-insurance premiums, payments for medical services not covered by your insurance, prescription medications, laser eye surgery and vision correction products, dental services, and ambulance transportation to hospitals. However, if you are eligible to participate in a subsidized health plan through an employer, you can’t count those premiums toward that minimum. (Note: In most instances you will save the most money by paying for health insurance, so you shouldn’t forgo health insurance to maximize your tax deductions.)
• If you have a home office, you can deduct the proportion of space that the office takes up in your apartment or home — assuming you meet the IRS’s two requirements. The first is that it is a room that used regularly and exclusively for your business, and it must be your principal place of business. That means if you put a desk in the living room, you can’t deduct the entire living room. For the purpose of avoiding an audit, it’s better to set up your office in an enclosed space, like a spare bedroom.
• Just because New Year’s is long gone doesn’t mean you can’t still save like it’s 2010. You have until April 18 to contribute to your 2010 IRA or Roth IRA — up to $5,000 if you’re under age 50. It can be an excellent way to reduce your taxable income and potentially turn a tax bill into a tax refund, assuming you have enough lying around in your bank account to make it happen.

FemTalks.com

We’ve written before about unintended consequences and banking restrictions or consumer credit. But there are plenty of other places where they show up. What if the new health-care law — meant by lawmakers to reduce medical costs for Americans — actually increased them for the average family’s household budget? An article in the Wall Street Journal suggests that that’s exactly what’s happening when it comes to getting a tax break for over-the-counter drugs.

Many of you may take advantage of a flexible-spending account (FSA) through your workplace, which allows you to spend pre-tax earnings on over-the-counter medical supplies ranging from Tylenol to contact lenses to ace bandages. It used to be that you could buy such things with a prepaid debit card or simply submit your receipts for reimbursement from your FSA manager.

However, legislation went into effect this year that requires all purchases to be authorized with a prescription, and the unintended consequences are creating hardships for consumers, reports the WSJ:

Patients are demanding doctors’ orders for over-the-counter products because of a provision in the health-care overhaul that slipped past nearly everyone’s radar. It says people who want a tax break to buy such items with what’s known as flexible-spending accounts need to get a prescription first.

The result is that Americans are visiting their doctors before making a trip to the drugstore, hoping their physician will help them out by writing the prescription. The new requirements create not only an added burden for doctors, but also new complications for retailers and pharmacies.

“It drives up the cost of health care as opposed to reducing it,” says Dr. Chung, who rejected much of a 10-item request from a mother of four that included pain relievers and children’s cold medicine.

The law means not only are patients faced with the prospect of making appointments (and taking off work) for trivial reasons, but health-insurance companies are being forced to pay out hundreds for unnecessary office visits so that health consumers can take advantage of a tax perk that used to cost just a few dollars.

Should the government return the law to what it was previously? Share your thoughts in the comments below.

FunkyBear.com

In 2010, the average filer’s tax refund was a whopping $3,036, reflecting some new tax credits to stimulate the economy. A fat check like that gives the average family a whole lot of cash to spend as they see fit. Of course, the smartest ways to use it may not be the most fun but they will give you the biggest benefits in the long run. Read on for our tips to make the most of a hefty refund.

1. Put it in a Roth IRA. Since Roth IRA contributions cannot be deducted on your taxes, it can be a lot harder to come up with enough after-tax income to sock away $5,000 a year. But a fat tax refund can go a long way to ensuring your long-term financial welfare.
2. Make an extra loan payment. Take a look at the interest rates on your student loans, mortgage, car payment, or credit cards, and apply the money toward the one charging you the most on your balance. Bonus points if you can wipe out the debt entirely.
3. Start a rainy-day fund. An emergency fund is a safety net, a cushion, peace of mind — pick your metaphor — that provides you with accessible cash in the event of job loss, unexpected car repairs, big medical bills, and any other strokes of bad luck. If you don’t have one, consider yourself lucky that you haven’t needed one yet, and then take your government check and tuck it away into savings in case you ever do.
4. Put it toward tax-deductible purchases for 2011. Got a home office? Spend the money on new furniture or equipment and you can deduct the cost on next year’s taxes. Or make a nice donation to charity. There are lots of ways to spend money that will help your tax bill next year.
5. Bring home a bigger paycheck. If you’re getting a big percentage of your income back in a refund, you’re paying way too much in taxes every month. Rather than loaning that money to the government, talk to your company’s accounting department to increase your federal allowances on your W-4 form. Yes, it means your refund will be smaller next year, but you’ll bring home more bacon in every paycheck.

NBA.com

Just when you think playing for the NBA couldn’t get any better between the insane paychecks and adoring fans, here’s a new perk: If you’re a big enough star, your employer will even pay your way out of trouble with the Internal Revenue Service.

That’s what former Miami Heat point guard Tim Hardaway found out last month when his team bailed him out of tax trouble. By the time he retired in 2003, Hardaway was paid nearly $50 million over the course of his 14-year pro career, but the IRS says he owes $120,748 in unpaid income taxes dating back to 2005 and 2006.

Last year, the tax agency filed a lien against his 7,542-square-foot mansion outside Miami. But the Miami Heat has come to his rescue, buying the home for just under $2 million. The five-bedroom property (complete with swimming pool and private basketball court) is now back on the market for $2.5 million.

Unfortunately, financial illiteracy among pro sports players is nothing new. (This article from CBS Sports describes how rampant bankruptcy runs among retired basketball players, even as early as 5 years after they leave the game.)

If taking care of their own is a priority, perhaps rather than making a habit of bailing former headliners out of trouble, the NBA can focus more of its resources toward money-management classes for current players — before it’s too late.

According to the scientists who developed it, “The model was broken down using six immediately identifiable factors; weather (W), debt (d), time since Christmas (T), time since failing our new year’s resolutions (Q), low motivational levels (M) and the feeling of a need to take action (Na).” The result is the Monday of the last full week of January, which falls on January 24 this year.

I thought it was interesting that debt and busted New Year’s resolutions both factor prominently in Blue Monday, since they are both finance-related and typically things under our control. (Can’t do much about the weather, unfortunately.) So here are a few ideas to ward off the money blues and keep your finances in the black:

• Return some Christmas gifts. If you and your significant other went overboard on presents last months, discuss returning one of the more pricy gifts that might have been a stretch to afford. You’ll lose the regret and free up some money instantly.
• Get cash for used stuff. Alternatively, consider selling something you received for Christmas 2009 that has lost some of its luster over the past year — eBay and Craigslist are hopping in January, and you can always sell things like books, video games, and CDs on Half.com. Then turn around and put your newfound cash toward your credit card balance.
• Files your taxes early. Once you have all your tax forms, get to work on your federal tax return. The sooner you file, the sooner you can get your tax refund into your pocket. And the sooner you can adjust your withholding so you can stop giving the government a free loan of your rightful money.

IMDb.com

Val Kilmer may have played Iceman in Top Gun, but he’s not about to outmaneuver the taxman for the second time.

In April 2010, Kilmer settled a $538,858 tax debt with the IRS. But that wasn’t all he owed to the feds, because in November, the IRS filed a new lien — worth $498,165 — against the actor for unpaid income taxes dating back to 2008.

In jeopardy is the multimillion-dollar Pecos River Ranch that he owns in New Mexico. The 5,300-acre luxury property first hit the market in 2009 with an asking price of $33 million. But with Kilmer now facing another half-million in back taxes, he’s been forced to cut the price to $18.5 million to try to entice a buyer fast.

Moral of the story? Being an entertainer comes with many perks and a big paycheck, but without the most rudimentary good financial habits — like paying your taxes on time and having a liquid emergency fund in case major expenses come up — you won’t be able to live like Batman forever.