You might be able to contribute up to $5,000 to a traditional IRA or Roth IRA - even if you don't have earned income. If you're 50 or older in 2010, you might be able to contribute $6,000.

If you file a joint return with your working spouse, you can contribute to an IRA based upon income your spouse earned.

Ex: Ann's spouse earned $50,000 in 2010 and is contributing $5,000 to an IRA. Since Ann's under age 50, she can also contribute up to $5,000 to an IRA. She can do this since the total IRA contributions for her and her spouse are less than her spouse's compensation.

If your spouse is an active participant in an employer's retirement plan, you might be limited in what you can deduct of your traditional IRA contribution.

If you're divorced and receive alimony, treat your alimony payments as earned income to figure your IRA contributions.

See IRS Publication 590 to learn more.

If you're going college for the first time or going back for another degree, you should know about tax breaks for higher education that can help reduce the cost.

The most important breaks are:

• Lifetime Learning Credit - This credit equals up to 20% of your family's qualifying education expenses - up to $10,000 annually.
  Ex: You pay $2,000 for tuition towards a master's degree. You can claim a $400 credit (20% of $2,000).
• Hope Scholarship Credit / American Opportunity Credit - This credit equals the combination of:
• 100% of the first $2,000 of qualifying education expenses
• 25% of the second $2,000 of qualifying expenses
The maximum credit you can claim is $2,500. In 2010, the credit applies to the first 4 years of post-high school education. The credit is also 40% refundable. So, even if you don't owe taxes after claiming other credits, you might get up to a $1,000 refund from the credit. Ex: You pay $4,000 for bachelor-degree classes. Your American Opportunity Credit is $2,500 but you don't owe any tax. You'll receive a $1,000 tax refund (40% of the $2,500 credit).
• Tuition and Fees Deduction - This deduction expired at the end of 2009, though Congress might extend it for 2010. It allows you to claim up to $4,000 of your qualifying education expenses - even if you don't itemize - instead of claiming 1 of the credits. This deduction's worth $1,000 if you're in the 25% tax bracket.
• Scholarships and grants degree-seeking students receive aren't taxable if used for tuition and books.
• Up to $2,500 of student-loan interest on money used to pay for higher education is deductible.

See Publication 970 to learn more.

If you volunteer at a place of worship, or for charitable agencies, keep track of out-of-pocket expenses you incur while doing your volunteer work. You can't claim a deduction for the time you spend, but you can deduct:

• Mileage to and from volunteer activities
• Cost of uniforms
• Out-of-pocket amounts you spend for supplies for the activities

Ex: You can't deduct supplies you buy for your daughter's Girl Scout troop or sponsorship you pay for your son's little league team.

If you trade goods or services for other goods or services, you might have tax consequences. Some things you should know include:

• Trading services with your friends, like babysitting, is usually nontaxable.
• If you trade an item with a fair market value higher than your cost basis, you usually must report the difference between the fair market value and the basis as taxable income.
• If, in connection with your trade or business, you or your spouse receives goods or services in exchange for business services, the fair market value of the goods or services received is usually taxable business income.
• If you belong to a bartering club, you might have to pay tax on the value of the goods and services you receive. If you receive trade dollars, also known as barter dollars, consider the amount you receive as cash and taxable income.
• If you regularly exchange goods or services, you might have a bartering business.

See IRS Publication 525 to learn more.

When you sell personal-use items, like clothing and furniture, for less than their basis - usually their purchase price - you:

• Can't claim the loss
• Don't have to report the sale

Report the gain on the sale of personal-use assets on Schedule D. If you held the property for more than 1 year, the gain is a long-term capital gain that's taxed at a maximum rate of 15%.

If you regularly provide services or sell items to others, you might have started your own business. If so, you'll pay income tax and self-employment tax on your profits. However, you'll also get to deduct your business expenses directly against your business income.

To determine if your activity is a business or a hobby:

• Does the time and effort you put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control, or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Did the activity make a profit in some years?
• Do you expect to make a profit in the future - including gain from the appreciation of assets used in the activity?

If your business shows a profit in at least 3 of the last 5 years, the IRS usually assumes your activity is a business. However, the activity can consistently show a loss and still be a business.

Report hobby income on Form 1040. It isn't subject to self-employment tax. You can usually deduct hobby expenses on Schedule A as miscellaneous itemized deductions subject to the 2% of adjusted gross income (AGI) limitation.

If you're uncertain if your activity is a hobby or a business, you might get help from an experienced tax professional.

You might qualify to exclude up to $250,000 of any profit you may make on the sale of your primary residence. To be eligible, you generally must have owned and used the home as your principal residence for at least 2 of the last 5 years ending on the date of sale.

If you're married and filing a joint return, you can exclude up to $500,000 of the profit if both of these apply:

• Either you or your spouse meet the ownership requirement.
• You both meet the use requirement.

Special rules apply to surviving spouses who have not yet remarried.

If you sell your home for a loss, the loss isn't deductible.

Special rules apply if you meet the ownership and use requirements, but used the home for purposes other than as your principal residence after 2008 (for example, as a rental or as a vacation home). See IRS Publication 523 to learn more.

Consider establishing a budget if:

• You frequently ask yourself "Where did all the money go?" after paying bills and buying groceries.
• You can't seem to save money for a vacation or a big purchase.

If you have a budget and it's not working, it's time to rethink it.

To establish a sound budget:

1. Find out where your money goes. Begin by tracking all spending for 1 week. At the end of the week, review how you spent your money and ask yourself what you might do differently. Ask yourself questions like:
• Did I really need that?
• Did I eat that or is it still in the refrigerator waiting to be thrown away?
• Is a generic version available?
• Could I have brought coffee from home instead of buying all those lattes?
• Where can I cut spending?
2. Make a list of your recurring expenses, like:
• Rent or mortgage
• Car payment(s)
• Insurance
• Groceries
• Utilities
• Clothing
3. Prepare a monthly budget worksheet so you can track your expenses and monitor how you're doing during the course of the month.

If you're consistently over your budget on any item, you might need to:

• Find ways to spend less to accomplish your goal
• Adjust your budget in other areas