A couple big stories out today in BusinessWeek and the Los Angeles Times talk about how state and local governments are getting pinched by both high gas prices and falling home values, which cut property tax revenues. They're just as broke as the rest of us. Governments are coming up money-saving schemes that range from creative to despicable. With expenses up and revenues down, governments are hoping to boost other revenues, like traffic tickets and lottery sales. So unless you plan to make up the budget shortfall, watch out.

Twenty-four states are in the red this year, the Times says, quoting stats from the National Conference of State Legislatures. They're cutting the favorite targets of school budgets and public health benefit. Local governments are cutting back on services like buses or parking the bookmobile. Some places are cutting back on all the unnecessary grass-mowing. BusinessWeek says Stillwater, Oklahoma cut its mowing in half, letting parkland turn into prairie. Somewhere Lady Bird Johnson must be smiling.

As much as no one wants to cut back on public safety, for some districts it's inevitable. Cops around the country have to watch their gas spending. Some are switching to alternate vehicles, like golf carts, or just doing foot patrols. Cops in El Paso County, Colo., saw their gas bill climb from $160,000 in 2003 to a projected $700,000 next year, the Times reported, so they stopped car patrols, a move they say will mean they won't be able to catch as many drunk drivers. BusinessWeek says Arizona is going to boost traffic tickets from cameras -- how many speeding tickets can a cop in a golf cart issue -- and stepped up lottery sales. Earlier this year California hatched a new lottery plan and Colorado decided to increase ticket fees. Expect to see these schemes around the country.

One woman spent it on training her puppy. Another couple spent theirs fixing their car. One woman bought a fancy Dyson vacuum cleaner and commented, (I paraphrase here) "I hope it sucks as good and long as this president and administration has." Ouch. But, you know, a valid observation, nicely tied into the current political/economic morass which produced such notions as economic stimulus checks in the first place.

How'd you spend your stimulus check? Before you tell us, check out others who've gone before you. It's all here at Howispentmystimulus.com.

Started by a Park Slope (Brooklyn) resident Rudy Adler, the site is a collaborative effort to collect the stories of ordinary Americans and their decidedly un-ordinary windfalls. It's fascinating reading. And everyone is invited to post their own tale, along with a photo of the purchase.

Even more interesting are the category breakouts. There are 40 entries for Gifts and Donations, 63 for Invest/Savings, and 104 for Travel/Vacation. There are 80 posts under the Debt/Credit Card category. And 95 classified as "other." What's the story here? You'll just have to go investigate yourself.

As I reported last month, I was supposed to get my economic stimulus check direct deposited some time on or before May 9. But the day came and went and I got absolutamente nada.

I then discovered that the IRS had slipped in a stipulation about how if you had filing fees deducted electronically from your return, your economic stimulus would arrive via paper check. In my case, on or around June 20.

So when I got an envelope from the IRS in today's mail, I got all tingly. Could this be it? And just when I was least expecting it? How delicious!

Many parents are going to be unhappy when they open up their stimulus check in the coming weeks and find that the IRS didn't include their children. Despite a government push for No Child Left Behind, the IRS left 350,000 or more families behind when it comes to the economic stimulus package. The good news is that the IRS has identified the problem and is taking steps to get new checks out to those affected.

The glitch was caused by paper filers not marking a certain box and also by errors in two commercial tax preparation programs. These issues human and computer, led the IRS calculations to miss the children when calculating the rebate amounts. Thankfully affected families do not need to take any action to get the rest of their stimulus package, the IRS will be mailing the additional check out in July.

This is likely to be a bummer to many people and I can see why this is annoying. Unfortunately the old adage, "garbage in, garbage out," applies to rebate processing as well. If you filed on paper and didn't check the box, be happy you get a second check in July. If you used one of the affected programs, live with the wait or email the company and ask for your money back. In the end I'd just be happy the tax software didn't make a bigger error setting you up for an audit!

Lately the water-cooler discussion at work has been surrounding who the ultimate beneficiary of my rebate check will be. Knowing I am obsessed with technology, most of my co-workers assumed that I would take my $1,200 and head straight to Best Buy in search of a bigger TV. Others assumed I might pick up a batch of video games or an iPhone. In reality I used my rebate check for a much simpler and exciting purpose, and no, it wasn't blown on quarter wings at Buffalo Wild Wings.

My wife and I spent our stimulus package on debt. Yep; unsexy, non-shiny, can't-unwrap-it-debt. Of course we got there in part from spending on things like gifts, the occasional vacation and things you can unwrap as well as a super-fun MRI last year so getting there was fun anyway. From our actual tax return and our stimulus check we have knocked a nice chunk out of our credit card debt, even paying off one card in an attempt to snowball our way to wealth. The decision to pay down a credit card rather than pick up scrapbooking and electronic items was easier than at least I thought it would be.

Just as my fellow blogger Lita Epstein found that making an extra payment to her mortgage translated into savings above and beyond the initial payment, I know that knocking a grand off of my credit card debt no matter my current interest rate will save me even more in the months to come. This payment is part of our effort to be out of credit card debt by the end of the year. After that we can start looking at our student loans!

I know this isn't the most exciting use for the stimulus package, but It was the best use for us and made the most financial sense. Have you received your stimulus check yet? What are you using it for; Fun, debt reduction, starting an emergency fund, hookers?

I didn't know you could attempt to deduct THX from your TAX return but the good folks at Sound and Vision Magazine have covered many of the issues related to deducting home theater equipment.

As an amateur audiophile and gadget addict, this guide is of particular interest to me, however its usefulness may be questionable for the majority of individuals. If you are up to the challenge, the rewards of home theater deduction may be worth the hassle for anyone ponying up for 7.1-surround and a screen larger than 50 inches.

This process's worth to an average Joe is questionable due to the many requirements a deduction of this type requires. First and foremost you'll need to set up a business for which your home theater is needed. If you can manage to do that, you also need to make sure your home theater gets more than 50% of its use for work related activities. On the upside, if you meet all of the requirements -- including generating income from your business -- you can go all out claiming anything related to your haven of sound and video, even furniture, so long as it all meets the 50% rule.

If you need more help determining if your "movie quotes on demand" service is a business or just a hobby to annoy those around you, check a recent post by Tracy Coenen, Is it a hobby or a business. I wish I could start claiming items I purchase for business use but in all honesty I can't imagine anything I do use in pursuit of blogging being used more than 50% for business, if you can, more power to you. Just don't point your finger at me if the IRS comes a knockin'.

This question comes up a lot as people find themselves regularly participating in the social ill of gambling. Most people lose far more than they win. That's why gambling is so stupid. But what if you "get lucky" and win a chunk of money. Do you have to report it? What if you've lost far more than you've won? Then do you have to report it?

The rules surrounding gambling are simple. Any money you win (from lotteries, raffles, horse racing, casinos, etc.) is taxable. The same goes for any prizes you win, such as cars, electronics, trips, or real estate. You may get a form W-2G to document your winnings, but even if you don't get one, you're responsible for reporting the gambling income.

Your gambling income goes on line 21 of Form 1040. Any gambling losses that you have documented can go on Schedule A of Form 1040. However, you can't deduct more than your gambling winnings. You have to keep accurate records of your winnings and losses. Most people don't seem to do that, but it's what the law requires. Be careful: This is a much-abused part of the tax code because most gamblers don't have records that support their deductions. Don't set yourself up to be audited.

More information can be found on gambling winnings and losses on the IRS website.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

I recently received my W-2 form from my employer and it held a bit of nice news. Working in concert with my employer I managed to shield about $3,000 of my income from being taxed. Through various changes in the tax code made during the Bush administration, we can now have a number of different payouts made with pretax dollars. My employer puts these savings under a heading called a "cafeteria plan." Here's how it helped me to reduce my tax bill.

My employer takes the deduction for my health insurance premium pretax. That's $49 per week untaxed. My employer-provided life insurance premium is paid pretax. That's another $4 untaxed. My company-sponsored IRA account gets $5 per week untaxed, as well as the untaxed contributions which my employer makes to my IRA, out of the goodness of their hearts.

There are other payments which you can make with pretax dollars also. Consult with your employer to see if they enable these types of benefits. As far as I know, the law doesn't require employers to provide these options but many employers do because they can improve workforce morale. It might also be advisable to consult with a tax preparation professional regarding the long term effects and conditions of these types of benefits. Pretax deposits to IRA accounts can later become taxable if you access them before you reach certain age thresholds.

Ken and Daria Dolan are widely known as America's First Family of Personal Finance.

Here's a little tax trivia for you...

How many pages long is the United States Tax Code? If you guessed 18,500, you win the prize. It's no wonder that so many of us make mistakes when filing our federal income tax forms.

A mistake or two on your tax return can bring you unnecessary stress, delay your refund and subject you to more pesky paperwork -- or worse yet, an appointment with an IRS agent to fix the problem.

But here's the good news... The most common taxpayer mistakes are, for the most part, very simple to avoid once you know to watch out for them. So let's look at the Dolans' Dirty Dozen. Here are 12 common taxpayer mistakes you can easily avoid:

The general rule of thumb for tax records is to keep everything for at least three years, but there are some things you should keep longer. Throughout the year, I recommend that you keep your pay stubs, mortgage statements, bank statements, home purchase and renovation receipts, investment account statements and receipts for anything that might be used on your tax return.

Once you receive your W-2, you can throw out the pay stubs. Once you receive your 1098 for mortgage interest paid, you can discard your monthly mortgage statements. Most of the other documents mentioned above should be kept with your tax return for the three year period. Items related to your home purchase, rental property purchase, or major renovation should be kept until you sell the property.

Anything that has been deducted on the tax return should have documentation in your files, in case the IRS ever questions it. You may have heard that you should keep your records for seven years, rather than the three years I've mentioned above. Three years is the time frame during which the IRS can audit your tax return, while seven years is generally the time period during which the IRS can bring a criminal tax fraud case against you. Since most of us aren't engaged in serious tax fraud, we probably don't need to maintain our records for seven years. Some people still like to be cautious though, and keep the records for the longer period.

You can find more information about good recordkeeping practices at the IRS website.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Just when millions of Americans are busy mentally spending their likely tax rebate check from the government ('hmm... a new flat-screen TV or a vacation to Disney this Easter?'), comes a new scam.

The Internal Revenue Service is warning that email and telephone con artists are attempting to grab taxpayers personal financial information (all the better to steal your identity with, my dear), by saying that if they hand it over, they will get their rebate check all the sooner.

One reported phone scam asks people for their bank account information so the rebate could supposedly be supplied direct deposit. An email scam sends a message, supposedly from the IRS, and asks the recipient to click over to a site and enter personal information in order to claim their rebate (a new flavor of 'phishing.')

The IRS wants to remind everyone that not only does it NOT COLLECT INFORMATION BY TELEPHONE (got that?), but Congress hasn't even enacted the legislation that would allow for the tax rebate to be sent. Last week the House voted for a plan that would supply most Americans a rebate of $600 for individuals and $1,200 for couples, plus an extra $300 per child. The Senate will vote on a different version.

Once they vote, the check will show up in the mail. There will be anything else you need to do to claim it, besides filing your income tax.

Taxpayers often wonder if they should be taking the home office deduction, and this issue is problematic for sure. The first question to be answered is whether or not you even qualify for the deduction. The IRS requires that in order for a space to qualify for the deduction, it must regularly used in connection with a business AND it must be used exclusively for that business.

The "regular use test" requires that you use that space regularly throughout the year for the business. This means that you use the desk or office space more than a few times a year for doing things related to your business.

The "exclusive use test" requires that the space you're claiming be used only for business purposes. So if you've got a spare bedroom with your desk in it, the only space that could qualify for the deduction is that in which the desk is occupied, not the entire room. That space with the desk must also be exclusively for the business in order to qualify. If your child does homework at the desk, it does not qualify. If your wife uses the desk for craft projects, it does not qualify. In like manner, if you use your dining room table for both dinner and business paperwork, you can't do a home office deduction for it.

While our system of federal taxation may seem burdensome, taxpayers do have many rights when it comes to the process. The IRS does want taxpayers to be informed about their rights so that they can protect themselves.

There are many rights for taxpayers at all steps of the tax process, but here are some of the most common rights that you should be aware of:

• Your civil rights are protected, and that means that no employee of the IRS can discriminate against you based upon your race, sex, age or disability.
• You have a right to receive notices related to your tax matters. The IRS must notify you if they claim you owe more or less taxes, and they must give you the reason why you owe more or less. They also must provide you details of interest and penalties that are assessed.
• You have a right to be represented in your tax matters. You can be represented by an attorney, an accountant, a family member, or other person of your choosing.
• You have a right of confidentiality, both within the IRS and outside of the IRS. No IRS employee can release information about your tax situation to anyone but you, unless you have signed a power-of-attorney form. Also, employees of the IRS are not allowed to arbitrarily access your tax records. They must only access them for official business.
• You have certain procedural rights when it comes to collecting your taxes. These rights include a timetable for collecting taxes, as well as certain methods for collecting taxes, which might include garnishing wages or levying bank accounts.
  

Along with rights come responsibilities, however. Taxpayers are responsible for filing accurate taxes on time, and for paying the taxes, interest, and penalties due. The IRS provides a Taxpayer Advocate Service which is there to take your complaints and help you resolve your problems with the IRS.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Currently, capital gains tax rates are more favorable than regular income tax rates. That's why it's important for taxpayers who own stocks, bonds, mutual funds, or certain other investments to pay attention to the rules.

Favorable capital gains rates apply when the taxpayer has held the investment for more than a year, referred to as "long-term." If you hold an investment less than a full year, you don't get capital gains rates. So it's important when you're selling an investment to look at how long you've held it. You may want to hold it just a little longer if you're close to a full year of ownership.

What is the capital gains tax rate? If you're in a higher tax bracket, the capital gains rate is 15%. If you're in a lower tax bracket, the capital gains rate is only 5%. There are some exceptions to these rules, but these will apply to most taxpayers.

It pays to look carefully at your holding period for an investment. You could save yourself a significant amount of tax by ensuring that you've got a long-term holding period and are therefore able to get the benefit of capital gains tax rates on that investment. More information on Capital Gains can be found on the IRS website.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

If you got a large tax refund this year or you owed a lot of money, you are probably not having the proper amount withheld from your paychecks. Each tax situation is different, so this is not the case for everyone. But for the typical family, with one or two paychecks, a couple of children, and a home, this is likely the case.

Why do you want to correct the withholding? Well if you owed a lot of money, the answer is obvious. It's much less painful to have the government take the taxes out of your check little by little, than to have to write a large check in March or April.

If you get a big refund, you'll also want to correct your withholding. If you got a big refund, it means the government was taking too much money out of each paycheck, and they got to use your money all year without paying you any interest. You should lower your withholding amount to keep more of your money throughout the year. You could put that money to work for you all year long, earning some interest or paying down some debt.

How do you correct your withholding so that you have more or less withheld next year? Ask your employer for a new W-4 form, and at the same time, ask your employer how many allowances you have been claiming. If you need more withheld from your paycheck, claim fewer allowances than you did last year. If you need less withheld from your paycheck, claim more allowances than you did last year. Have someone from the payroll department or your tax preparation service help you, if necessary

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.