Dear Mary: I have a question about our emergency fund. My husband keeps complaining that I should put the money in an account that makes more interest. I think we should leave it in savings in case we need it. Our house is paid for; we pay off our credit cards each month; and our auto loan will be paid off in February. Do you have any advice for us? — R.M., e-mail
Dear R.M.: Your emergency fund needs to be safe and available to you. That would preclude investing it, because it would be at risk and you would not have access to it if you really needed it. Finding a place to park that money where it can earn the most interest possible is a challenge but worth the search. Most banks and even credit unions are paying a paltry amount of 1 percent or less. Your best bet may be an online savings bank, such as ING Direct (1.75 percent annual percentage yield currently) or, better yet, SmartyPig (also 1.75 percent APY). Don’t let that name fool you. SmartyPig and ING Direct are both FDIC-insured, so your money would be both safe and available. If your husband knows of a safe account earning higher interest, go for it. Then be sure to let me know about it, too!
Dear Mary: Is it true that you can claim all sales taxes paid on anything, including clothes, dining out, personal care items, etc.? — Brenda, Nebraska
Dear Brenda: As I write, the president has just signed the tax relief legislation extending the Bush-era individual and capital gains/dividends tax cuts for all taxpayers for two years. Included in this package is the deductibility of sales tax, which would have ceased with the 2010 tax year had this legislation not been passed. So that’s a good thing as far as I am concerned.
I am not a tax professional, so you will want to check with someone who is. However, the way I understand it, people can choose between two methods of calculating their sales tax deductions.
Method 1. Actual Sales Tax Expenses. Keep all your receipts, and add up the total amount of sales tax you actually paid out during the year. This method requires a tremendous amount of record keeping but could result in a higher deduction.
Method 2. Optional Sales Tax Tables. Use the amount provided in the sales tax calculator provided by the Internal Revenue Service, plus sales taxes paid on the purchase or lease of a vehicle, on the purchase of a boat or aircraft, or on the purchase or a substantial renovation of a home.