Dear Dr. Don,
If your current credit card provider does a soft inquiry on your credit report, does it show up on your report’s credit history like your own inquiries?
— Dee Details

Dear Dee,
The difference between a hard inquiry and a soft inquiry on your credit report is the difference between applying for credit and having your credit monitored.

A hard inquiry happens when you apply for credit. You’ve initiated the credit application process. A hard inquiry stays on your credit report for two years but is only used in calculating your credit score for one year.

A soft inquiry takes place when an existing creditor reviews your file or a prospective creditor looks at the file as part of a marketing decision. Your decision to review your credit report also generates a soft inquiry. These soft inquiries have no impact on your credit score.

You are the only person who gets to see these soft inquiries on your credit report. Creditors and other parties eligible to review your credit report see your account relationships and the hard inquiries, but not the soft inquiries.

Dear Dr. Don,
I am 24 and put 10 percent of my income into my 401(k). If my company does not match my 401(k) contribution, am I better off contributing that money to a Roth IRA?
— Regina Retirement

Dear Regina,
Your ability to contribute to a Roth IRA account in 2008 is determined by your income. Here’s what IRS Publication 590, “Individual Retirement Arrangements,” says about the income restrictions: (in the following example, “-0-” is equivalent to “zero dollars.”) For 2008, your Roth IRA contribution limit is reduced (phased out) in the following situations:
Your filing status is married filing jointly or qualifying widow(er) and your modified AGI (adjusted gross income) is at least $159,000. You cannot make a Roth IRA contribution if your modified AGI is $169,000 or more.Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2008 and your modified AGI is at least $101,000. You cannot make a Roth IRA contribution if your modified AGI is $116,000 or more.Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

The modified AGI, or MAGI, limits for the 2009 tax year will be a few thousand dollars higher than the 2008 numbers. The publication “IRS Announces Pension Plan Limitations for 2009″ puts a finer point on it if you’re bumping up against these MAGI limits.

Assuming you’re eligible to contribute to a Roth IRA, you still have to decide if it is the better choice. Both the Roth IRA and the 401(k) plan are tax-advantaged accounts. With the Roth, you contribute after-tax dollars today, and qualified distributions coming out of the account aren’t subject to federal income taxes.

With a 401(k) plan, you contribute pretax dollars today, and qualified distributions are subject to federal income tax at your ordinary income rate. Being able to borrow money from the plan is an advantage to a 401(k) versus a Roth IRA, but the loan has to be repaid if you leave your company. Otherwise, it is counted as a distribution from the plan and is subject to income tax and possibly a penalty tax if it is an early distribution.

While there is no loan program available for a Roth IRA account, you contributed after-tax dollars, so no income tax is due on withdrawals of your contributions. You can withdraw your original contributions for any reason and at any time without taxes or penalties.

However, early distribution of investment earnings can be subject to income taxes and may be subject to a 10 percent penalty tax. The age of the account matters. Distributions from accounts less than five years old are treated differently than accounts more than five years old.

In addition, different tax rules apply if the money is withdrawn early (before age 59Ѕ) for certain reasons, such as to pay for qualified education expenses or to buy a home for the first time, or if the account holder has died or is disabled. When in doubt about the rules, work with your tax professional.

Most people in their 20s are in a lower marginal federal income tax bracket than they will be when they retire. If you expect that your tax rate is lower today than it will be when you retire, contributing to a Roth IRA can make sense versus contributing to a 401(k) plan. The Bankrate article “Traditional IRA vs. Roth IRA” can help you make the right decision.

Another advantage to the Roth IRA account is that you can control where the account is held. Being able to do this lets you have some control over account fees and expenses and lets you pick a custodian that offers the types of investments you want for the account.

A lot of workers complain about the investment choices offered in their employer’s 401(k) plans. You can finesse these issues by picking your custodian based on how you want the money invested.

Dear Bankruptcy Adviser,
I have filed for Chapter 7 after failing the income test but passing the means test. I was unemployed for four months and have $85,000 in unsecured debt that I have been barely paying off, and $500,000 on a secured debt associated with a house in foreclosure.
The problem is that for the last two months I have had a high-paying job. What are the chances that I will be moved from Chapter 7 to Chapter 13?
— Nelson

Dear Nelson,
This is an excellent question, but one that is difficult to answer because I do not have all the facts in your case. However, you may be faced with the decision to either convert from Chapter 7 to Chapter 13 or have the Chapter 7 dismissed.

I need to explain your question for those who do not know the two bankruptcy tests.

When you file a consumer bankruptcy, there are two tests you must “pass” in order to qualify for Chapter 7, aka “fresh start” bankruptcy. If you fail either of these tests, you may be required to enter Chapter 13 — a reorganization plan — for the next three years to five years, or have your Chapter 7 case dismissed.

The first is the old test, under the old law, which looks at your income versus your ordinary and necessary monthly expenses. This is the test that many highly paid professionals passed under the old law. Some people were paying twice the average for rent in their area or paying $500 a month for their child’s school tuition. And, in general, the creditors got fed up and said a person’s excessive spending habits should be closely scrutinized before allowing that person to qualify for Chapter 7 bankruptcy.

The result of creditor challenges was the new law, or “means test.” This test looks at the average income in the state in which you live and compares everyone equally.

Your income over the past six months will be compared to the average person in your state. Based on that average, a presumption arises as to whether you may or may not qualify for Chapter 7 bankruptcy. Failing the means test means that a presumption arises that you can pay back some of your creditors. And you, the debtor, must overcome that presumption. Quite often, debtors can still qualify for bankruptcy even though they make more than the average income in their state.

In very general terms, the means test is made up of two prongs: First, are you below median income? If so, you are not subject to the means test, only the income versus expenses test. Second, do you have potential disposable income when your expenses are compared to average expenses in your area, as compiled by the IRS?

Failing one test and passing the other simply means that you will need to prove that you still qualify for Chapter 7 bankruptcy protection. If you have made good money for two months, but not over the past six months, then it is possible for you to fail the income versus expenses test and pass the means test. Please note that having higher-than-average income does not mean you definitely will fail the income vs. expenses test.

You stated that your income has been high for the past two months. If this income is going to continue into the foreseeable future, you might be able to pay back your creditors some of the money you borrowed. However, if the last two months was just a short-term project that ended right after you filed your case, then likely you can still qualify for Chapter 7.

You need to explain the circumstances surrounding your current employment and why it will not continue into the future. You may benefit greatly by consulting with a bankruptcy attorney, since you are not familiar with acceptable versus unacceptable expenses.

At the same time, you need to be realistic and understand that if you are now earning a good living and there is some money leftover after necessary and ordinary expenses, you may have to pay your creditors some or all of the money you borrowed. Creditors deserve to be repaid some of the money borrowed when your income permits it.

Dear Real Estate Adviser,
I am giving my house back to the bank. Can they go after my savings? What about other assets? I am near retirement age.
— Kitty

Dear Kitty,
Depending on the state where you live, the bank could conceivably come after your savings through a deficiency judgment. However, these days there’s a better-than-average chance the bank won’t do that, especially if it is a first-lien holder. Winning such a judgment can be a lengthy and expensive process fraught with sizable legal fees and little upside, in part because so many homeowners have blown through their assets trying to stay in their homes. Plus, lenders have found it can create bad public relations, particularly if foreclosed parties start accusing them in court of questionable origination practices such as inflating appraisals or pushing “gimmick” mortgages that convinced borrowers to buy more than they could afford.

Many states prohibit a deficiency judgment following a “nonjudicial” foreclosure, or a foreclosure that hasn’t gone through the courts. Other states, such as Texas and Georgia, are a little less lenient. Typically, IRA and 401(k) savings plans are untouchable assets. As for your savings, many people are moving their savings out of their banks before they even approach the same bank about a voluntary foreclosure — an increasingly common but legally questionable practice.

But before you give your house back, ask the lender for a loan modification with lower payments and lower interest or an extension of payment time known as “forbearance.” Banks don’t want your house back in this environment. And don’t overlook the option of a short sale, where the lender accepts less than what they are owed. It will cause a smaller blemish on your credit than a foreclosure. Of course, lenders don’t have to consent to this. There’s another option called “deed in lieu of foreclosure,” where you would fully convey your interest in the home to the lender. Lenders will sometimes agree to this to avoid the cost of the foreclosure, especially since they’ll end up with the house anyway.

At press time, government-subsized short sales, deeds in lieu of foreclosure and loan modifications were all made part of the distressed-homeowners aid measures in the Obama administration’s just-unveiled $75 billion foreclosure-prevention plan. Targeting at-risk homeowners who are upside-down on their mortgages and/or have other financial hardships, the plan would allow some borrowers to refinance into low fixed-rate mortgages in order to stay in their homes. For more details, go to www.FinancialStability.gov.

Good luck!

Dear Dr. Don,
I lost my job at end of March and I have to decide both what to do with my 401(k) and my lump-sum retirement money.
Several years back, we had to decide between two plans for retirement — one was getting the money at 65 (or whenever you retire) and the other was taking a lump sum at the time you leave the company.

Since I had not been there very long, I decided to take the lump sum, which I will get when my severance runs out.

The company just tells you your job is done and then sets you loose. I have no idea what to do with this money or the 401(k). I want to take the money from both to live on for the next couple of years and just raise my 2-year-old daughter.

I don’t need all the money at once and want to do some short-term investing to try and regain some of the money back that the IRS is going to take in penalty. I don’t care as much about the tax that will be taken because that would be taken anyway when I am old (if I make it to old age).

All this stuff is driving me crazy! Thank you in advance for your advice, but please don’t say, “Don’t cash out your 401(k).” Everyone says that, but the fact is that I could die tomorrow or next year and never see that money.

This is my last child and I missed my other children growing up because of school and work. Life is precious and I have been given a gift.
— Tracee Tapper

Dear Tracee,
I understand your points about being there for your child and that life is uncertain. But I’m not going to be the person to validate your decision to spend your retirement savings like there’s no tomorrow.

That said, there are ways to manage these accounts to minimize the tax impact while taking early distributions. For example, annuitizing the payments over your lifetime under a 72(t) distribution is one way to avoid the penalty tax when taking distributions from a traditional IRA account.

Your 401(k) account can be rolled over into a traditional IRA account. It’s likely that your lump-sum retirement benefit can be rolled over as well, but I don’t know enough about the plan or your particulars to give you that advice.

You should talk to a financial planning professional about your options to spend down the accounts while minimizing the tax impact. I recommend a fee-only financial planner. The National Association of Personal Financial Advisors can help you find a fee-only planner in your area.

Bankrate also has a tool to help you find a Certified Financial Planner, although this list is not restricted to fee-only planners.

Investing the money with an eye toward recouping the income tax “haircut” over the short term is likely to be a mistake. You want the money now, so you pay a price to get the money now. Swing for the fences and you’re likely to strike out.

Dear Tax Talk,
My question is regarding my boyfriend and his ex-wife. They are divorced with two daughters. His ex is a very difficult person to deal with, to say the least. She has taken him to court several times over the last five years. One of those times, she added that they will alternate the girls as tax-exempt on their tax returns. The judge granted this request.
For 2008, he was to claim his youngest daughter. But before my boyfriend could get his taxes done, his ex-wife claimed the two girls, claiming that she could do this because he was behind in his child support.

He called child support and his worker told him he wasn’t behind. I was looking on the Internet and I read that the parent who pays for more than 50 percent of the children’s expenses gets to claim the children as a tax-exempt. She provides more than 50 percent of their support, but they went to court to let him claim them, too.

I also read that child support amounts presume that the parent receiving child support also claims the children as a tax exemption; thus, if you receive child support and you give up the exemption, you should really be getting more in monthly child support. Is this a Minnesota law? Is she in contempt of court for claiming both of the girls for 2008?
— Cara

Dear Cara,
While I’m not sure if she is in contempt of court, she definitely went back on your agreement. Generally, the IRS does not like to get involved in this bickering. If your husband goes to file his return electronically, claiming the daughter, chances are it will get rejected. If he wants to file claiming his daughter, he’ll need to file on paper and attach some supporting paperwork.

The law says that a child will be treated as the qualifying child or qualifying relative of his or her noncustodial parent if all of the following apply.

What makes a qualifying child?The parents:Are divorced or legally separated under a decree of divorce or separate maintenance.Are separated under a written separation agreement. Or lived apart at all times during the last 6 months of the year.The child received over half of his or her support for the year from the parents.The child is in the custody of one or both parents for more than half of the year.For a post 1984 divorce:The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return.

Chances are the child meets the tests in items 1 through 3, but the ex-wife isn’t about to give the written declaration in item 4. In this case your husband can rely on the terms of the divorce decree. To be able to do this, the decree or agreement must state all three of the following.

The divorce decree must stateThe noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support.The custodial parent will not claim the child as a dependent for the year.The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent.

If the divorce decree meets the foregoing tests he should attach all of the following pages of the decree or agreement to his or her return.

The cover page (write the other parent’s social security number on this page).The pages that include all of the information identified in items 1 through 3 above.The signature page with the other parent’s signature and the date of the agreement.

If you do all of this, you may eventually get your refund, but you’ll have to be patient and persistent.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Dear Tax Talk,
I bought a CD in January of 2008 that matured one year later, on Jan. 29, 2009. My bank sent a 1099 for a portion of the interest in 2008 and said I would receive another 1099 for the balance of the interest at the end of 2009. I never took interest from this account until the maturity date, at which time I closed the CD and took both the principal and interest.
The reason I bought a 12-month CD in the first place was so that I could show the income from it in 2009, not 2008. It was a rather large CD. The IRS refers me to Publication 17, Page 60, but the bank says they have a right to send me a 1099 in both years because they paid the interest into the account and then compounded it monthly, and they can quote no IRS rule to substantiate that. I am so confused. Can you help me?
— Nancy

Dear Nancy,
As we’re learning, the best laid plans of mice and men don’t matter to the banks. In general, any interest that you receive or that is credited to your account and can be withdrawn is considered taxable income. (It does not have to be entered in your passbook.)

The following information from IRS Publication 550 says that some bank accounts call for the deferral of interest until maturity, such as a certificate of deposit or other type of deferred-interest account. If you open any of these accounts, interest may be paid at fixed intervals of one year or less during the term of the account.

You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. The same is true for accounts that mature in one year or less and pay interest in a single payment at maturity. If interest is deferred for more than one year, the interest can be imputed under the original issue discount rules — imputed means that the payments can be recharacterized.

Since the bank has already issued a 1099-INT for the amount of interest it believes you were entitled to in 2008, you need to persuade them differently. You would have to argue with the bank that you were not entitled to the monthly accrued interest until maturity without incurring a substantial penalty. You will need to convince the bank to reissue the 1099-INT if you can persuade them that you are correct under the law.

Dear Tax Talk,
My employer takes out about $300 a month for health insurance from my gross pay, and I am told that this is before taxes to save me money. However, when I get my W-2 form, all the money I pay for health insurance is included as “wages, tips and compensation,” so it really saves me nothing at tax time.
I have argued this point with them, but they say that they have to include it. I don’t believe this is right, because there is then no real tax saving advantage, as I pay Social Security taxes, as well as Medicare, federal and state taxes on everything, including what I paid in for health insurance. What’s right?
– Dave

Dear Dave,
You must be working for really dumb people. Employers generally establish a health insurance plan to be payroll-tax-free. The employee saves some payroll and income taxes, but the employer makes out better by not having to match the payroll taxes. In your case of $3,600 a year, you save FICA and Medicare tax of 7.65 percent, and an income tax that can be 10 percent or more if you have a well-paying job.

There is a matching 7.65-percent payroll tax savings to your employer as well. While that may only mean $275 for you, when your employer multiplies it by all the employees, it can add up quickly.

In order for the payroll reductions for health insurance to be tax-free, the employer has to establish a cafeteria plan. A cafeteria plan is a benefit plan that offers the employee the option to forgo part of his or her compensation on a tax-free basis in order to provide certain fringe benefits.

Cafeteria plans come in various sizes and shapes and differ from employer to employer. A basic cafeteria plan is called a premium-only plan. The plan only provides for the exclusion from income and payroll taxes the amount of health insurance premium deducted from the employee’s wages. The plan is simple to administer, as it only requires the employer to deduct the premiums from the employee’s paycheck, which is something that they would do whether or not tax-favored.

The plan is tax-free is because part of your pay covers the cost of the insurance. Suppose you make $50,000 annually. If your employer gave you the full $50,000, all of it would be subject to payroll taxes, including income taxes. Now, if the employer establishes a premium-only plan, and says to you “I can offer you health insurance for $300 a month,” your salary becomes $46,400 plus $3,600 in benefits.

Because health benefits are favored under the law, you avoid paying payroll taxes on that part of your salary reduction. If, instead of health insurance, your employer offered you a car for $300 a month, the $300 continues to be taxable, as a car allowance is not an excludable fringe benefit.

Your employer must establish a plan in order to provide you with the tax-free benefit. Most qualified health insurance agents will provide a plan and administration as part of the sale of the health plan. I hope this makes sense to your employers.

Dear Tax Talk,
We are an S corp that was formed in May 2008. We have two shareholders who contribute about three hours a day, five days a week on a regular basis. We had zero revenue with about $17,000 of losses in 2008. In 2009, we will probably be incurring another $23,000 loss. We will not make cash distributions to our shareholder nor will they get any sort of remuneration for their services. Do we have to pay “reasonable compensation” to our shareholders even though we are incurring losses and will not make cash distributions or dividends?
— Arianne

Dear Arianne,
Only Wall Street brokers would think they were entitled to compensation when the company is losing money. The phrase “reasonable compensation” in the area of S corps is often used. There are no specific guidelines for reasonable compensation in the IRS Code or the regulations. The various courts that have ruled on this issue have based their determinations on the facts and circumstances of each case.

An S corp that does not pay a reasonable compensation to its shareholders avoids payroll taxes. The payroll tax savings, of course, raises an issue with the IRS.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”

According to the IRS, the amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property or the right to receive cash and property did go to the shareholder, a salary amount must be determined, and the level of salary must be reasonable and appropriate.

Because the stockholders are not receiving any sort of distributions, the fact that they are not receiving salary is an economic issue rather than the avoidance of payroll taxes.

Dear Tax Talk,
My daughter is 24 and a student in veterinarian school. She had $2,400 in income. She took out student loans for her tuition, about $17,000. My husband and I paid the balance of all her medical bills after insurance, bought food and supplies, gave her a car, bought clothes but certainly not more than that $17,000 she borrowed for her tuition. Can we still claim her as a dependent under the qualifying relative definition?
– Francey

Dear Francey,
Although you may think of your daughter as dependent, you need to run through a series of tests to determine if you can claim her as such.

A child can be claimed as dependent if he or she is a qualifying child or qualifying relative. Unless permanently disabled, a child can only be a qualifying child if the child is under age 24 at the end of the year and a full-time student. The major difference is that as a qualifying child the dependent’s income is not a factor.

Since your daughter was 24 in 2008, you can only claim her as a qualifying relative. Among other common tests, a qualifying relative must have gross income less than the exemption amount, which for 2008 is $3,500. Your daughter passes this test.

The principal other test is that you provide more than half of the support for the year. To figure if you provided more than half of a person’s support, you must first determine the total support provided for that person. Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities.

In figuring a person’s total support, include tax-exempt income, savings and borrowed amounts used to support that person. Assuming your daughter spent the $17,000 she borrowed to pay for tuition, the value of everything else you provided would have to exceed that amount in order to claim her as a dependent.

This would mean that your support items would have to be in the range of $1,500 a month. In determining support, you can include the value of the home you share. The value of the home would either be rent paid or its fair rental value, divided by the number of occupants. You would also include your daughter’s share of utilities, maintenance and food.

For example, if it’s just the three of you and your home’s rental value is $3,000 a month and you spend $1,000 in food, utilities and upkeep on the house, your daughter’s monthly share would be $1,333. When you add in her car, insurance and cell phone, you may just be providing more than half of her support.

Work sheet 1 of Publication 501 provides the format for calculating the support test.

Dear Tax Talk,
We have a newborn who needs constant home nursing care due to a tracheotomy. We normally would put the child in day care right now, but can’t. Are any of our expenses (nursing care, medical supplies, etc.) deductible in terms of the child care credit? The nurse basically acts as a nanny so my wife and I can work. I know medical expenses have to be beyond 7.5 percent of income to be deducted, but can any of these expenses be seen as child care?
– Josh

Dear Josh,
Taxpayers can receive a credit (usually 20 percent) of up to $3,000 of a dependent’s child care expenses. Child and dependent care expenses must be work-related to qualify for the credit. Expenses are considered work-related only if both of the following are true: They allow you (and your spouse if you are married) to work or look for work, and they are for your dependent’s care.

Some expenses for the care of your child may qualify as work-related expenses and also as medical expenses. You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction.

If you use these expenses to figure the credit, and they are more than the earned income limit or the dollar limit of eligible expenses, you can add the excess to your medical expenses. Hence the nursing care can qualify as child care expenses, but the medical supplies cannot.

The medical supplies would strictly be medical expenses. If the nurse performs basic household duties such as cleaning and laundry, all of her costs would still be considered for child care. You can also include the value of meals provided to the nurse.

Use Form 2441 for calculating the child care credit.

If my MAGI were $100,000, I could have had a passive loss of $11,000 ($29,000 minus $18,000). Since it is less than the $25,000 limit, I could have deducted it from my regular income.

The story changes if MAGI is over the $150,000 limit; I can’t take any deductions. From what I read, I can carry forward the losses I can’t deduct in the current year until I qualify to take them or I sell the property.

Say I own the property for 10 years (rental income of $18,000 per year), and during this time I cannot deduct anything as I don’t qualify. How will it all work with taxes when I sell? Do I take a onetime deduction of $110,000 ($11,000 times 10 years) from my regular income, and pay 25 percent taxes on the full amount of depreciation, $290,000, ($29,000 times 10) or the $110,000 deduction? To make things a bit simpler, let’s assume the property will be sold for $800,000.
– Alex

Dear Alex,
The reason you’re confused is that the tax law is complicated. You’re basically right in the way you are computing depreciation. However, in calculating depreciation, the cost of the property should be allocated between land and building. Only the cost allocable to the building is depreciable.

An individual is not allowed to deduct passive losses against other types of income such as salary, active business income, and investment income from stocks, bonds and bank deposits. Passive losses are, among other things, losses from rental real estate activities.

An exception exists that allows taxpayers with MAGI of less than $100,000 to deduct up to $25,000 in passive rental real estate losses. The $25,000 cap is reduced $1 for every $2 that MAGI exceeds $100,000. The reduction eliminates all losses for those individuals with MAGI in excess of $150,000. In this case losses are carried forward until there is passive income, MAGI dips below the threshold or the property is disposed of in a fully taxable transaction.

There is no distinction as to what makes up the passive loss. In other words, the loss can consist of depreciation or actual out-of-pocket expenses.

As in your example, when you sell the property, the full $110,000 loss is allowed. If you have income taxable at 35 percent in that year, the $110,000 can reduce it so that you’re saving tax at about 35 percent. The depreciation is still taxed at the maximum of 25 percent.

For example, assume your other income is $400,000 and your gain on the sale is the $290,000 that represents the depreciation recapture. Using the 2008 tax rates, assuming you’re single and have no other deductions except automatic deductions, your tax would be $188,373 without the carry-forward deduction and $151,352 after the loss carry-forward. The savings is about $37,000, or 34 percent of the $110,000 carry-forward deduction.

If instead you had only $180,000 in gain from depreciation recapture and no tax carry-forward, your tax would have been $160,873 instead of $151,352. The preferential tax rate on the depreciation recapture saves you $9,500 in tax.

This is called “gutter-service,” where the collection agency files a lawsuit, never serves you because the process server literally throws the lawsuit papers into the gutter, gets the judgment and tries to collect on it years later, when it is impossible or very difficult for you to overturn.

By this point, your debt has not only been wiped out in the bankruptcy from 1982, but the statute of limitations that would have allowed the creditor to sue you for the balance has run out. You need to make sure that you send over proof that the debt was included in your bankruptcy. If you did not save the bankruptcy paperwork then it will take a little effort to get the old case from the bankruptcy court, but it is available.

The most common statement I get from clients is that the creditor or subsequent collection agency claims you have a moral obligation to pay the debt back. While that might be true to the original creditor, this is completely false with regard to a collection agency buying the debt for the purpose of hoping you will pay something and potentially re-establish the statute of limitations.

The statute of limitations for unpaid debt is typically four years from the date of last payment or last use. If you make a payment to the collection agency then it restarts the statute of limitations clock. While you may not believe the collection agency that’s calling, the caller might scare you into paying. That would be the worst thing you could do.

You need to tell the collector that you refuse to pay because the debt was eliminated in your previously adjudicated bankruptcy. Fax and mail a certified letter to the collection agency indicating that the debt was eliminated in bankruptcy.

Then, you need to pull your credit report in six months to see whether that new collection account remains on the report. If it is listed on your credit report then you can dispute that new credit line with the three credit bureaus to have it removed.

You are dealing with the shady side of debt collection, Dora. And you must know your rights to ensure you are not duped into paying on a debt for which you have no legal obligation to pay.

Dear College Money Guru,
Can you withdraw funds from a 529 in 2008 for payment of next semester’s bill, which starts in 2009, without penalties being applied?
— Cheryl

Dear Rebecca and Cheryl,
Your inquiries raise the same question: For withdrawals from a 529 plan to be tax- and penalty-free, must they be taken during the same calendar year in which the college expenses are paid?

Rebecca, you are concerned about a withdrawal taken in April of this year for the expenses you paid in the prior year. Cheryl, you are wondering about taking a withdrawal this year in anticipation of next year’s payment of college expenses.

Unfortunately, both of these scenarios involve some risk of tax and penalty because of the mistiming of withdrawals and payments.

However, the consequences of these actions are not certain. Nothing in Section 529 of the federal tax law specifically requires the matching of withdrawals and expenses within the same calendar year. However, general tax accounting principles may demand it. Ultimately, it’s up to you and your professional tax adviser to decide the appropriate reporting of distributions when preparing your income tax returns.

The Internal Revenue Service has acknowledged the uncertainty taxpayers using 529 plans face. In its Announcement 2008-17, issued in January 2008, the IRS includes the following statement:

Section 529 is silent regarding whether distributions must be made from a section 529 account in the same tax year as QHEEs (qualified higher education expenses) were paid or incurred. Concerns have been raised that individuals could allow the account to grow indefinitely on a tax-deferred basis before requesting reimbursement or use distributions in earlier years to pay QHEEs in later years.

The announcement goes on to say the IRS expects to develop a new rule permitting recipients of 529 plan distributions to count only those qualifying expenses paid during the same calendar year as the distribution, plus expenses paid within the first three months of the following year.

As we await final clarification from the IRS, I strongly urge anyone taking money from a 529 account (assuming the account has grown in value) to match the withdrawals and the payment of qualified expenses within the same calendar year. This becomes especially important as we close in on the end of the year and schools begin sending out bills for the second semester. In many cases, you have the option of paying the bill in either December or January.

Rebecca, even though you intended your 2008 withdrawal to be a reimbursement of 2007 expenses, you will still avoid any problems to the extent that your son incurs additional college expenses in 2008. However, you should avoid taking excess withdrawals from your 529 plan this year.

Cheryl, you should wait until 2009 before withdrawing 529 funds for 2009 expenses. Although the IRS wants to provide a three-month window to help parents like you, that rule is not yet in effect. If you’ve already withdrawn the funds from your 529 plan this year, pay the associated college bills before Dec. 31.

Last year we tried flipping a house and he wouldn’t let me keep track of the money — he overspent by $30,000. We had to sell the house, take a loss and downsize to a place with a basement apartment to help with costs. I thought this would have cured him, but he still thinks we have money where we don’t.

We are in the hole every month and I’m afraid this time we won’t be able to “downsize” and get out of it.

What do I do? Otherwise, he is an awesome husband and father.
— Jenna

Dear Jenna,
Wait just a minute. Your regular status is what? Minus $400 a month! And you are complaining about Mr. Awesome because he sees the difference between minus $400 and minus $745 as no big deal?

Meanwhile, your combined solution to your expense problem was to flip a house?

Arguments over money end many marriages and I don’t want that to happen to you or your family. I turned to my friend and colleague, psychologist Brad Klontz, for some fresh insights into your situation.

Klontz wrote the book “Wired For Wealth,” which explores the “money mindsets that keep you trapped” and suggests ways to shift your thinking patterns so you’ll have more success building wealth.

Money is indeed a major cause of conflict in relationships and the No. 1 cause of divorce in the early years of marriage. Klontz believes you and your husband may have some competing beliefs about money that drive your financial behaviors. He calls them “money scripts.”

Formed in childhood, scripts often have strong emotions attached to them. They often operate outside of our immediate awareness — sort of like the memories I associate with baking smells (thanks Mom!).

It may be that you both are in conflict around money, due to clashing money scripts. Ironically, it is common to be drawn to partners who have different money experiences and money scripts. Brad sees this as an unconscious attempt to find balance (e.g., spenders find themselves with savers). Unfortunately, these combinations can often set the stage for disagreements.

Your husband knows better than to spend more than he makes. However, his money script — “I have the right to spend money, even if we don’t have it” — may have come from some early experiences he had around money.

For example, maybe he grew up never feeling like he had enough. Identifying, then separating the scripts from the person you love can be a crucial first step in resolving money conflicts and destructive financial behaviors.

Here is a prescription from Klontz and me:

Discuss the issue
Money is a big taboo in our culture, so you may feel uncomfortable talking about it. Don’t surprise your husband with a “we-need-to-talk-about-this-now” discussion. Instead, ask for a “date” to talk about family financial goals over a glass of wine or during a set-aside quiet time. Talk about your hopes and fears. Don’t place blame. Take turns talking and listening. Take 100 percent responsibility for your 50 percent of the problem.

Agree to a joint budget or money plan
Create two plans — one for managing money and one for resolving money conflicts. You may want to include the services of an objective third party such as a credit counselor, therapist or neutral trusted family adviser.

Set a timeline
Follow up by setting a 60- to 90-day timeline to review your progress. Track your expenses and income during that time.

Establish an emergency response plan
Increase the chances of success by deciding ahead of time what you will do if one or both of you can’t adhere to the plan. Also, make plans for adjustments in case you want to make changes to the plan, or the plan fails for other reasons. Be sure to include emergency savings as part of the plan.

Don’t be too hard on each other
You are on the right path to getting this situation resolved. In fact, I bet you are already ahead of the curve. I was surprised to learn that the average couple who seek professional help spends at least seven years fighting over the same issue before they do so. Life is too short for that.

Those foreclosure-heavy valuations of the present not only create pricing problems for sellers, they are also thorns in the side of owners, seeking new valuations for a refinance.

“If one-third of the market is your sales of foreclosed properties, then that is the market you’ve got to take into consideration,” says Jim Maibach, a long-time certified appraiser with Arlington, Texas-based Peyco Southwest Realty. If there have been an inordinately high number of foreclosures or short sales in a particular neighborhood, the appraiser will then consider the sale prices of similar homes in a more stable nearby neighborhood, he says.

It’s not just foreclosures that are wreaking havoc with values. Properties in recently constructed subdivisions that have been slow to move are often getting re-valued at around 10 percent less than their previous selling price to reflect new market realities, Maibach says.

For years, finance and residential real estate veterans have complained that appraising is not an exact science and that standards vary greatly. However, appraisal accuracy has come under increased federal scrutiny during the housing bust. To aid in lending transparency, the Federal Housing Finance Agency, or FHFA, is in the process of overhauling appraisal requirements and appraiser codes of conduct for appraisers working with Fannie Mae and Freddie Mac to ensure more thorough documentation of market conditions.

Tentatively, the revised regulations call for more accurate reporting and consideration of absorption rates, or the rate at which homes are being sold in a given area, changes in the local median sale price, average days on the market, or DOM, and the average value of seller concessions made in a market. The changes are expected to be implemented by May 1 this year.

Sorry to deliver the bad news. Good luck on your sale.

I’ve been looking at Web sites with cost-of-living calculators, and I was wondering how heavily they should influence my decision on a job offer. I will rent an apartment for at least five to seven years, and it seems like the difference between two cities in rent is not as great as the difference in the cost of a home.

If I will only be renting, would the difference in cost of living between two cities be overstated? Or should I put a fair amount of trust in these calculators?
— Mike Migrate

Dear Mike,
Cost-of-living differences between cities are certainly something to consider, but life’s so much more than dollars and cents. Being close to family, friends and things you like to do when you’re not working is important. So is good health care availability, as well as a range of job opportunities in case your first job isn’t your last job.

Bankrate’s Cost-of-living comparison calculator takes into account dozens of items in six broad categories — groceries, housing, utilities, transportation, health care and miscellaneous goods and services. But it doesn’t include the effects of state and local taxes, which can be vastly different from one locale to another.

Some cost-of-living calculators, like the one at Salary.com, go beyond costs to also consider income differentials — because employers weigh lower labor costs when making their decision where to locate.

Talk to the people at your college’s placement office for ideas on how to research lifestyle decisions along with employment decisions. I don’t know what your field is, but this is likely to be a difficult year for finding work. I hope you have the opportunity to choose between offers.

We are somewhat frugal people, but we need some help handling this mountain. My husband’s good credit is now poor, if not bad. Mine is bad. He is paying the minimum or missing one. Our rent had been late each and every month for over a year; it has been on time for the last four months, but we have all but sold our souls to make that happen. I don’t know what will happen for rent in eight days. There is almost $500,000 in the IRA, and we are living on less than welfare. Even if it may be possible for us to qualify for public assistance, I would prefer not. Is there any other way?
– Gail

Dear Gail,
You can always withdraw early from an IRA, but are subject to a 10 percent penalty. There are numerous exceptions to the early withdrawal penalty.

First, you can elect to begin taking distributions annually over his life expectancy, which at age 58 is 27 years. With a balance of $500,000, you can free up around $19,000 penalty-free. If your situation gets better, you’ll unfortunately have to continue making the withdrawals.

If you have any higher education expenses, withdrawals are penalty-free. You can try to buy a home and get out from the rental situation (although you need good credit to qualify for a mortgage). A withdrawal of up to $10,000 for a first-time home purchase is penalty-free, plus there is a $7,500 tax credit available on your 2008 tax return, even if the house is purchased in 2009.

A little more complicated planning may involve turning that IRA balance into a qualified retirement plan. If you own your business, you could incorporate and set up a retirement plan that allows employees such as your husband to roll in IRA money.

Once the money is in the qualified plan, you can borrow $50,000, free of the penalty and income tax. While this is a little more sophisticated, if you can accomplish this yourself, you can do it with little cost. You can even get a tax credit for half of the cost of setting up the retirement plan by filling out Form 8881.

Best-selling author Paco Underhill believes we’re all about to undergo the home version of fat camp.

Step on the scale, America. Then give us 50 push-ups.

“The American consumer has woken up and realized that their debt is too big, their car is too big, their house is too big, their belly is too big and somehow they have to go on a diet,” says Underhill.

What’s more, the man who has been called the Margaret Mead of shopping says the change is gonna do us all a world of good — at least in the long term.

In the short term? Well, no pain, no gain.

The charismatic Underhill went from New York City retail anthropologist to founder, president and CEO of Envirosell, which today advises many of America’s top retail, food, financial and consumer brands.

Underhill’s groundbreaking 2000 best-seller, “Why We Buy: The Science of Shopping,” told us more about our unconscious decision-making than we know ourselves.

Remember the old joke that begins, “A guy walks into a bar …?”

Underhill’s practice begins with, “A guy walks into a store.”

Greatest reset in a century
Underhill doesn’t underestimate the impact that the ongoing turmoil in our economic system will have on shopping.

“It’s going to be the greatest reset in the past 100 years,” he says.

But in Underhill’s view, the Great Reset was not only inevitable, but may have been necessary to move us beyond voracious over-consumption to rediscover how shopping fits into the meaning of life.

“The American concept of value is undergoing a fundamental transformation,” he says.

“The American merchant has been addicted like heroin to the idea of the sale. As a result, Americans have no understanding of what full price is. As we look at the convergence of being able to walk the aisles of Best Buy and comparison shop on our mobile phone for the same product being sold online, we have a fundamental restructuring of the concept of what value is.”

As our concept of value resets, Underhill predicts a new phenomenon will emerge: trading up.

“The American concept of value is undergoing a fundamental transformation.”

“It’s not keeping up with the Joneses,” he says. “It’s recognizing that four of one thing may trump 12 of something else. It’s about having fewer but better things. I have this rule: For everything that I bring in the front door, I have to take three things out the back door.”

Which leads us to my new favorite Christmas tale: “Paco’s Cashmere Socks.”

“Last Christmas, I asked my family to give me cashmere socks; I wanted blue and black cashmere socks. It meant that some of them got me one pair of socks; that’s all I wanted from them.

“But I ended up with a bunch of cashmere socks, and I went to my sock drawer and every pair of tube socks that I had from Wal-Mart over the last three years got thrown out. You know what? I’m wearing a pair of cashmere socks now and my feet feel great. I’m loving it.”

I want Paco’s socks, too. Don’t you?

Shoppers vs. shareholders
According to Underhill, the short-term forecast for retail is almost certainly grim. A lot of store closures are inevitable for at least the next six months.

But he predicts the survivors will reinvent themselves into a high-tech version of the old general store, offering retail and online shopping, as well as a delivery portal for online goods.

The shopper, not the shareholder, will once again rule.

It’s a silver lining Underhill offers in this winter of our financial discontent, and one that seems to fit nicely with our national awakening to the need for infrastructure and alternative energy.

“The lesson that the present economy gives us is that conspicuous consumption is no longer acceptable,” says Underhill. “I hope that what we’re going to see on the other side of this is a much more responsible consumer who is conscious of the political, social and ecological consequences of their consumption.”

Imagine the possibilities. Paco has.

Dear Carrie,
You will get no argument from me that you shouldn’t spend if you can’t afford it. I have seen too many people who have taken your mother’s philosophy on spending and then ended up truly mystified as to how they got themselves so deeply in debt. And you should not bail your mother out of her financial situation. Provide her support, but not financial support.

I do understand your mother’s attitude that you should enjoy life and live in the here and now. Plus, I’ll bet that somewhere deep down, your mother thinks you received some benefits from her overspending ways when you were younger. I have learned how quickly time passes and agree you should grab as much enjoyment out of life as you can, while you can. Where your mother and I part ways is in how you pay for that enjoyment.

I encourage all my readers to include some “fun” money in even the tightest of budgets. The trick is to manage your money in such a way that you can afford the small, and occasionally large, pleasures in life.

You and your husband are wise to be putting aside savings as a cushion should either of you lose your job or have unexpected large expenses such as a major car repair, large appliance replacement or medical bills. Everyone is concerned in our current economic environment and most people are cutting back on entertainment, putting off large purchases and generally spending less.

While saving is important and managing your finances to avoid increasing your debt is crucial, I’d encourage you to find a good balance between saving and spending. After all, our economy relies on consumer spending, and I know you want to do your part to help the economy recover.

You sound like a successful saver, so here’s a guideline for you. Build up an emergency fund of six months to a year of living expenses. Note that I said living expenses. That should be less than your income if only because you can exclude tax withholding, Social Security and retirement contributions. Once you get to that number, take a paragraph from your mom’s book and begin to set aside money for things you want to do.

I would encourage your family to sit down together and decide on what that might be. Some of my favorites include a family cruise or just a long weekend or something that will make life at home more enjoyable. You get the idea. Ask everyone what they will be willing to do on their part to save the money necessary to accomplish the family’s goal.

You will be teaching your children that saving and delaying gratification can lead to fun, and that it is important to save wisely as well as spend wisely. As far as any advice about your mom telling her granddaughter about how you were brought up, all I can say is relax and enjoy it. My kids used to howl at the stories my mother told them about my childhood, and then they’d ask me if they were true. My response was it was too long ago and I can’t remember!

Good luck!

In the case of sales tax, there are standard tables depending on your local tax rate, income level and family size. The IRS provides an interactive sales tax calculator on its Web site for purposes of computing a standard sales tax deduction.

In addition to the standard tables, you can deduct the sales tax on certain large-ticket items, such as the purchase or lease of a car, boat, motorcycle, etc. As an alternative to the standard tables, you can use actual sales tax that you gather from all your receipts for the tax year.

If you believe your state and local income taxes are higher than sales tax, you can claim them as a deduction instead. The deduction is based on the taxes paid during the tax year. This means the actual taxes paid or withheld from Jan. 1 through Dec. 31.

In your case, this would be the $600 withheld plus any additional state income taxes that you paid during 2008, namely the tax due, if any, with your 2007 return when you filed it April 15, 2008. Hence, the $400 you owe for your 2008 return, which you will pay when due April 15, 2009, would be deductible on your 2009 federal income tax return, due in 2010.

The ability to choose whether to deduct income or sales tax allows you to plan for tax purposes. For example, you may want to consolidate all your large purchases (car, boat and home improvements) in one year to maximize your sales tax deduction. In that year, you would want to minimize your state income taxes as much as you can to accumulate them for the subsequent tax year. The sales tax deduction is set to expire after 2009, but it has been repeatedly extended since 2004.

This is not typical, however, and requires a bit of forethought and a stronger will than mine to buck convention. I recall when my sainted wife and I bought our first car together. They asked how the title should be listed — Mr. and Mrs. or Mr. or Mrs. I chirped “and,” for which I got a withering glare from the registry employee and my wife. Oh, my mistake, I quickly said, I meant “or,” as in one signature was all that was needed.

The only way to know for sure how your loan agreement is structured is to review the loan documents. I suspect that if the unfortunate husband referenced in your example has written a check that was paid by the account then the loan is structured so that either Mr. or Mrs. may draw from the account with only one signature.

The elephant hanging around the edges of this column is a $24,000 draft on a joint account where the other account holder was not informed, asked about or given input, and has yet to receive a $24,000 gift from said action.

When any two or more people, spouses, friends, business partners or any other combination enter into a financial relationship where funds can be accessed with or without the other party’s consent, there is an opportunity for problems.

Obviously, there is a certain degree of trust in place or the financial arrangement would never have been made. Communication, or lack thereof, is where things can begin to break down and cause the potential for serious trouble. To help you and any of my readers who are beginning, or are already in, a financial relationship with another person or persons, follow the guidelines below:

Begin by discussing goals. These will be quite different between business partners than they will be for spouses, but the conversation is important for all. Topics to cover include why you should save, and when and why you should spend.Decide if you want the account to be drawn by joint signature or single signature. With a joint-signature account, both parties must sign for withdrawals from the account. While this could be a burden at times, it does eliminate any surprise withdrawals by one party or the other.Discuss how withdrawing discretionary funds from the account will be handled. For example, many people agree that anything above a certain mutually agreed-upon amount will be discussed beforehand by both parties.Determine if one or the other or both of you will handle any maintenance issues for the account, such as balancing the checkbook, writing routine checks, making loan payments etc. Yes, someone should balance the checkbook!

Good luck!

Dear Diane,
I think it’s a good goal to try to have your mortgage paid off by the time you retire. It isn’t always possible to do, but your plan of shortening the loan from 11 years to nine years should be fairly easy to accomplish.

My numbers won’t match yours exactly, but a fixed-rate mortgage at 5.75 percent with 11 years remaining has a monthly payment of $716.80. Bankrate’s “Mortgage payment calculator” allows you to input your precise mortgage balance and the number of remaining payments.

From there, you can use the calculator’s amortization schedule and additional payment options to determine what it will take to have your loan paid off in nine years. I input different monthly numbers and then asked the calculator to recalculate the amortization schedule.

My estimate is that an additional $115 a month will shorten the loan term from 11 years to nine years. By doing this, you’ll also save about $4,750 in interest expense.

A once-a-year additional principal payment of $1,400 will provide about the same results, so do the approach that works best for your budget.

When stressed, something in our DNA responds well to lyrics that acknowledge our troubles with humor and optimism, especially when they’re borne on an I-can’t-get-this-out-of-my-head melody that everyone can hum — or better yet, whistle.

1) “Don’t Worry, Be Happy” by Bobby McFerrin. Aside from being ridiculously contagious and whistle-able, McFerrin’s ear worm reminds us: “In every life we have some trouble/ When you worry you make it double.” So don’t worry. And be happy.

Arguably, we might not even be sitting here blubbering in our Bellinis were it not for America’s first anthem, “Yankee Doodle.”

The British song, which marginalized our pre-colonial forefathers as “doodles,” fools, was on the furry lips of the Redcoats when they arrived to stop us from partying like it was 1775. Unimpressed, our fine, young rebels took up the tune to reverse-mock the British and ultimately, drove them back to their island, where they would later invent copyright infringement.

2) “Suddenly I See” by KT Tunstall. Catchy, upbeat “Britgirl” rock that I’m pretty sure recounts Ms. Tunstall’s career epiphany watching The Pretenders’ Chrissie Hynde on stage. If not, it’s still a timely reminder that not all “aha!” moments are bad ones.

The Great Depression spawned two grin-and-bear-it anthems — “Life Is Just a Bowl of Cherries” reminded us to “live and laugh at it all” while “We’re In The Money” offered this wishful-thinking pep talk: “We’re in the money, come on, my honey/ Let’s lend it, spend it, send it rolling along!”

Oh, that we could.

3) “Wondering Where the Lions Are” by Bruce Cockburn. Granted, in the years since Cockburn slipped this one over the Canadian border, we now know precisely where the lions are. Or were. It’s infectious refrain still beats Xanax: “Sun’s up, uh huh, looks OK/ the world survives into another day/ and I’m thinking about eternity/ some kind of ecstasy got a hold on me.”

“A pal of mine says he survived his tour of duty in Vietnam by cranking ‘White Bird’ up to 11.”

We similarly whistle our way through war times. The Civil War had “When Johnny Comes Marching Home,” World War I spawned “Over There” and WWII inspired a ton of Big Band anthems, including “I’ll Be Seeing You” and “As Time Goes By.”

4) “The Heart of Life” by John Mayer. The multitalented Mr. Mayer must have pulled this one from an astral area code. It’s a twofer, really: It reminds us that, as Dr. Martin Luther King Jr. said, “the arc of the universe is long but it bends toward justice,” then adds, “fear is a friend who’s misunderstood.” But I reckon we know that now.

5) “Soak Up The Sun” by Sheryl Crow. In the interest of the green movement, which is looking more and more like the best available branch to lift us out of this economic tar pit, we’ll recycle this beach party that Crow wrote to shake off the 9/11 heebie-jeebies.

We’ve drifted away from social anthems in recent decades, though you wouldn’t know it by looking at our presidential campaigns, which now come with their own soundtracks.

You can probably credit former Sax Man in Chief Bill Clinton for setting that table with Fleetwood Mac’s “Don’t Stop” in 1992. But props to H. Ross Perot for having a sense of humor by opening to Patsy Cline’s “Crazy.”

George W. Bush followed in 2000 with Tom Petty’s “I Won’t Back Down,” against which Al Gore had no chance with that incredibly lame Bachman-Turner Overdrive overkill, “You Ain’t Seen Nothin’ Yet.”

In my humble opinion, Stevie Wonder deserves a Cabinet position for “Signed, Sealed, Delivered, I’m Yours,” which will be forever linked with the ascendancy of President Barack Obama.

John McCain didn’t exactly bring his musical A-game with ABBA’s “Take a Chance On Me.” I mean, ABBA? ABBA never got America through anything worse than a disco hangover.

6) “It’s Raining Men” by the Weather Girls. Of course, if none of the panaceas currently being launched manage to stave off the Big D, we might be facing a 1929 scenario in which Wall Street’s former masters of the universe start falling from the skies.

Only this time, yeah — we’ve got a song for that.

Dear Elliot,
A spokesman from FICO, the company that created the FICO score, told me it depends on whether the account was reported to the credit reporting agencies. Once an account is reported, it will affect your FICO score. The score doesn’t care about whether a card is activated.

“Basically it’s either reported or it’s not, and if it is, it’s either open or it’s closed,” says Barry Paperno, the consumer operations manager at FICO.

If you cancel the card after the issuer reports it, the closure could ding your score. If you cancel it before it gets reported, then it won’t harm your credit rating. Of course, the inquiry from the application will still appear on your credit report for two years but will only factor into your score for one year.

For example, American Express says it reports new credit card accounts one billing cycle after the application gets approved, regardless of card activation. So if you waited a few months to formally close the account and never activated the card, the new trade line would still show up on your credit report. Closed accounts in good standing can stay on the credit report for up to 10 years.

To see if the new account landed on your credit report, request a free copy at www.annualcreditreport.com. Through this site, you can obtain a credit report from each nationwide consumer-reporting agency — TransUnion, Equifax and Experian — once every 12 months.

As for your second question, you really shouldn’t be receiving unsolicited credit cards, unless they’re replacements for existing cards. Check your credit reports if you receive unsolicited cards, as this could be a sign of identity theft. If you’re talking about a replacement card, not activating it wouldn’t hurt your score, but eventually the issuer might close the account because of inactivity. If you cancel the new card, then you’ve closed your existing account. The FICO scoring model treats both issuer- and consumer-initiated account closures the same way, even though you might see a distinction on the credit report.