Here is a list of different ways in which you can earn money online right from your home.

1. Blogging
   
2. Write Paid Articles for Other Sites.
3. Paid Surveys.
   

But Blogging is by far the most powerful and enjoyable way of earning money online. In the last month (March 2009) i earned $890 from my blog. This income is just the money earned from Google Adsense. Are you interested and more importantly serious about blogging for money or earning money online? If you already have a blog, you may also want to read my post on Get Paid to Blog.

I started this personal finance blog in mid 2008 with the intention of making money and I had no idea that within six months I would be so successful in earning income from my blog. Here is a quick progress report of my money making activity from this blog.

Progress report of my blogging activity / making money online from home project.
How much money do I earn from my blog?

Sep 2008 Blogging & Make Money Online from Home Progress	Blog Income - $0 per month. I just start my Blog with the intention of making money online.
Dec 2008 Blogging & Make Money Online from Home Progress	Blog Income - $25 per month (approx.) I earn the first few cents from my blog. The money I made from my blog was still negligible, less than $1 per day.
Jan 2009 Blogging & Make Money Online from Home Progress	Blog Income - $300 per month (approx.) Awesome progress in money making activity and blogging. By this time I am convinced that eventually (maybe after 4 more months?) 7 hours of blogging per week can earn me more money than my full-time job !
Mar 2009 Blogging & Make Money Online from Home Progress	Blog Income - $850 per month (approx.) I now have a Make Money Blog. On good days I get $40 per day income from blogging.

In this post I will only discuss money making activities related to blogging because I think this is the easiest way to secure a good monthly income by putting least amount of work. The other activities, especially writing articles for other sites is as if somebody else is getting most of the benefit of your hard work. Perhaps the only drawback of making money online from blogging is that you will need a few months patience in order to first setup and get started with a good blog.

Are you interested in making money online? or earning regular income from blogging activity? If yes then read this entire post in which I have shared my experience.

Before I start on a step by step guide to online money making let me quickly answer some very Frequently Asked Questions about bloggers earning money online.

1. How much time per day do you need to devote in order to make money online? Answer: The answer obviously depends on how much you want to make per month. But lets say you want to earn between $500 to $1000 per month- then you will have to spend at least 5 to 8 hours every week (which is less than one hour per day) on your blog. However let me warn you that initially, when your blog is just new, you may have to spend more.
2. When will I start making money from my blog? Answer: Wait at least 5 months in order to start earning "good" income from blogging activity.
3. How much money do bloggers earn from their blog? Answer: The answer depends on so many factors that it is impossible to give an accurate answer. Let me give you a thumb rule. A site which receives 1000 visitors per day has the potential to earn anywhere between $10 to $25 per day.
   

Two important thing to keep in mind about blogging and earning money online from Home

1. There is nothing like making free money online. You have to work for it. If you are serious about making money online, you must devote at least 3 to 5 hours per week.
2. Blogging is fun - Dont think of it has a couple of hours of 'hard work' etc. If you choose the right topic you will actually start enjoying blogging. Don't you spend hours on the internet browsing surfing and reading? All you have to do it spend a portion of it blogging.
   

Now let me discuss step by step guide to start and grow your blog with the intention of earning some cash.

Starting your Blogging for money Project.

Choosing a Blog Topic The most important decision!	This is the first and the most important decision you will make when you start your make-money-from-blog project. Here are some tips: 1. Choose a Blog Topic which covers a broad topic. For example writing a blog on Entertainment (movies, music, etc.) is much better than writing just on relatively narrower topic of Sci-Fi movies. 2. Some good and popular blog topics are - Health, Food (recipies etc.), Entertainment, Finance or Blogging tips and Make money Blog Income :). 3. Choose a blog topic which you can enjoy writing.
Your own domain or Free site like Blogger? Your second important decision.	Soon after you start thinking about writing a blog for money, you will be confronted with the question: Should you choose a free site like blogger, wordpress, etc. or pay to get a custom domain? Learn more about website hosting and this choice.
Open a Paypal Account Getting ready to get paid for blogging.	I recommend opening a paypal account when you can. Not that you will immediately start earning money from your blog, but having this account ready can help you accept payments. To start with choose "personal account" instead of "premium" or "business".

Once you have an active blog, there are more than one ways in which you can earn income from your blogging activity. Each method is quite different and will add excitement and fun to your blogging for money project.

Different ways in which you can make money from your blog.

Google Adsense Advertising on your blog. Using Google Ads.	This will be the most important source of income for you. Google puts extremely relevant ads on blogs. These ads will be so useful for your readers that in fact, I started clicking on ads more after i started writing a blog. You will be paid either on a Cost Per Click (CPC) or Cost Per Impression (CPM) basis.
Affiliate programs Getting Paid by Referral programs - Cost Per Action (CPA)	Affiliate programs can be an important source of your blogging income depending upon which affiliate programs you choose. I must confess that affiliate programs have not worked out well for me yet.
Writing Paid Blog Reviews Getting Paid for Blogging and writing Sponsored reviews.	There are several sites you can join which give you the opportunity of getting paid for reviewing certain product or services of advertisers. Lear more about getting paid for writing blog reviews.
Putting Text Ads Earning Income by displaying text ads of Advertisers on your blog.	Depending on the page rank of your blog, several advertisers may pay you for putting a text ads on your blog. Don't bother about this until your page rank is at least one or two.
Other Money Making ways from your Blog Other Advertising agencies, Inline text ads, etc.	There are other ways of earning from your blog for example using other ad formats offered by other advertising agencies like Adsense e.g. Full page Ads (from Adbrite), Inline Text Ads, directly advertising for a particular advertiser etc. I recommend you do not venture into these money making options until you are 'ready' and you know what you are doing. The income from such options will typically be very small for small bloggers as compared to the above options.

Skills that you will have to acquire over time for your Blogging for Money project.

Writing Quality Posts Articles which earn more traffic and boost your blogging money.	By Quality blog posts I mean articles which you have taken effort to gather information, write in simple fluent language, and something which your readers will actually like. For example, I have spent quite a bit of time writing this post. I recommend you write at least one quality post per week.
Learning SEO Learning SEO or Search Enginge Optimization techniques to get more blog traffic.	You have to learn some SEO techniques. There are three main things you have to pay attention to. - The title of your Blog posts : Learn to choose an attractive and relevant title for your Blog posts. If you are using a free site like blogspot, make sure your blog title either does not appear in the title of each page, or if it appears it appears at the end. Believe me, this is important ! - Keyword selection and keyword density : Use keywords which you think people will actually search using google etc. It is important to tastefully sprinkle the keyword throughout the post (without overdoing it artificially).
Link Development Increasing your web-popularity for more traffic and blogging income.	One of the factors which Google or other search engines use to asses the relevance of a page is backlinks - i.e. what pages link to it and what is the 'anchor text' which is used to define that link. You have to be careful with this though as any malpractices will be punished by google.
Learning basic web design HTML/javascript/XML in order to place ads wherever you need.	There is no hurry for this and each time you find something related to web design and you cannot do, you can simply try to google it and then learn the relevant info. Placing the ads in correct location is necessary and you may need some basic knowledge of html for this.

Some Make-Money-Blog Tips and Dont's

Make Money Tip 1.	Do not mess with adsense. Never get tempted by extra few dollars and permanently damage your blogging income.
Make Money Tip 2.	Dont try too hard to exchange links with sites which are not relevant. Do not link to a site which has been banned or delisted by google.
Make Money Tip 3.	Patience is virtue. Never get frustrated if you are not getting too many visitors to your blog. It happens to everyone. It takes time to build a good blog and start earning money.
Make Money Tip 4.	Try very hard to write quality posts which actually provide useful information to readers. Medium and Longer sized posts with lot of information related to a particular keyword are great. Remember sometimes just 8 to 10 extremely well written posts can get your 1000 blog visitors per day !!!
Make Money Tip 5.	Try to acquire the blogging skills listed above slowly but surely. SEO skills are a must if you are serious about making money from your blog.

Blogging for Money, Earn Regular Income Make Money Online from a Blog - Step by Step Guide How much do bloggers earn? A vague estimate of blogging income and a statistical overview of money that bloggers make online. Make Money Online from Home: Blogging - the most efficient way of earning money online. Some tips to start your own blog and turn it into a make money blog. Get Paid to Blog - List of various paid blogging networks where you can get paid to write blog posts, sponsored reviews or display blogging ads. A useful way of earning income from your blog in addition to Google Adsense or other advertising money.

Read more ...

Option Pricing & Options Premium

Writing an Option is an obligation for the seller of the option to sell the underlying (Stock, Commodity or Future) at the strike price. The writer of call option or a put option is at a 'risk' because of possible price fluctutions. For example, if you write a call option, then any price rise in the underlying will result in loss for you. As a compensation for this risk, the persion buying options pays a premium to the writer. The Buyer of the option on the other hand is not exposed to risk or uncertainty because he has the option but not the obligation to buy (in case of call option) or sell (in case of put option). The premium of the options therefore hides a lot of factors that may contribute to the risk to which the writer of the options is exposed. In this post will discuss the factors which influence Options Pricing.

If you are new to futures and options you may want to read my post on "stock options example explained" or Covered Call - Options Strategy.

How are Commodity and Stock Options Priced?
Factors affecting options pricing

The price of an options premium can be though of as made of two parts Intrinsic Value of the Option and the Time value of the Option. In other words we can think of

Premium or Option Price = Intrinsic Value + Time Value

A call option is call in the money option if its strike price is below the current market price of the underlying. In this case the intrinsic value of the call options is defined as the difference between the current price and the strike price. Intrinsic value is equal to the money that you would gain if you were able to immediately exericse the option. Similarly we have the concept of at the money, and out of the money call option and analogous concepts for put options summarized by the following table.

Type of Call / Put Option	Definition / Condition on Strike Price	Intrinsic Value of the Call/Put Option
In the Money Call Option	Option Strike Price > Current Price	Intrinsic Value of the Call Option = Current Price - Strike Price
At the Money Call Option	Option Strike Price = Current Price	Intrinsic Value of the Call Option = Zero
Out of the Money Call Option	Option Strike Price > Current Price	Intrinsic Value of the Call Option = Zero
In the Money Put Option	Option Strike Price > Current Price	Intrinsic Value of the Put Option = Strike Price - Current Price
At the Money Put Option	Option Strike Price = Current Price	Intrinsic value of the Put Option = Zero
Out of the Money Put Option	Option Strike Price > Current Price	Intrinsic value of the Put Option = Zero

The remaining component of the options price, i.e. the Time value is a bit more complicated to understand and it depends on a variety of factors listed in the following table.

Three main Factors affecting Time Value component of Options Pricing.

Factor affecting Time Value	Explaination / Effect on Option Price
Volatility	Roughly speaking Volatility is the measure of 'how much the underlying moves'. The more the volatility of the stock or index, the more the risk for the writer of the option and therefore more the time value.
Time Remaining to Expiry date of the Option	The greater the time that is remaining to the expiry date of the option, the more the 'time value' of the option.
Type of Option: American or European	American style Options are those which can be exercised anytime before the expiry date of the option. European style options are those which can be exercised only on the expiry date of the Option. Since American Style Options give more flexibility to the options buyer, their price is more than the European style Options.

More about How is the options price calculated? Black Scholes etc.

I have just mentioned the factors which affect the price of options. If you want an exact formula you can read the wiki post on Black Scholes Formula for Options Pricing. I however think it is not very useful to break your head too much trying to understand the precise formula as it does not give any more insight into options pricing.

There is one more thing that you need to know about options pricing, viz., the concept of Implied Volatility. While calculating 'ideal options price' volatility of the underlying is calculated using historical values, i.e. by observing the price movements in the past. Naturally price movements in the past may not accurately reflect the future price movements. For e.g. according to historical values a stock shows 20% volatility, it may happen that the current price of options premium is more than what you would calculated ideally. It just means that the market expects the stock to show more volatility. This expected volatility reflected in the price of the options premium is called as Implied Volatility. Implied Volatility gives a very good idea of what the market expects in future. Read more about Implied Volatlity.

Options Greeks Option Greeks for Beginners (with free Options Calculator) Option Greek Delta and Delta Neutral Options Trading Strategy Option Greek Theta and its role in Options Trading Strategies Option Greek Vega and implied volatility Option Greek Rho - does it really matter in your Options Trading Strategies? Stock Market Derivatives: Futures, Options From Forward contract to Futures. Stock Futures example - Futures trading basics explained. Stock Options trading examples - Call Option Example and Put Option example. Covered Call and Covered Put - Simplest Options trading strategy. Volatility and Options Pricing - How is Option premium priced? Lot Size of a Derivatives Contract - Contract Unit Options Trading Basics In the Money Stock Options At the Money Stock Options Out of the Money Stock Options

Read more ...

What is Home Mortgage Refinancing? Why does mortgage refinance work?

Mortgage Refinance is an option for you if you already have purchased a home and have taken a home loan or mortgage for it. In this case Refinance means taking a new home loan or a second mortgage in order to pay off your old mortgage. If the current mortgage refinance rates are attractive, mortgage refinancing can result into monthly savings for you. Below is a link provided to a Refinance Mortgage Calculator which can be used to calculate how much will you gain by refinancing your home loan. Also in the post you will find simple but effective tips for how to go about refinancing your mortgage. Here are the four possible situations in which refinancing mortage can turn out to be profitable.

1. Refinancing Mortgage with lower mortgage rates: If the mortgage interest rates drop, it maybe cheaper for you to take a new home loan and pay off your original mortgage.
2. Refinancing Mortgage with a longer term: If the monthly mortgage payment is turning out to be too much of a burden for you, it may make sense to take a new home loan with a longer term and convert your short term mortgage into long term mortgage thus resulting in lower monthly payments.
3. Cash Out Mortgage Refinancing: This type of mortgage refinance simply means you take a new home loan which is larger than your current mortgage liability, and thus even after paying off your current mortgage you have some extra cash remaining with you which can be used for some other purpose. This can especially be an alternative in emergency situations where you need cash, e.g. you lose your job, etc.
   
4. ARM (Adjustable Rate Mortgage) versus Fixed Rate Mortgage: Adjustable rate mortgages are those where the interest rate may vary according to market conditions. Fixed rate mortgages are those which have a constant rate of interest throughout the term. Changing terms of your mortgage for e.g. changing an ARM to Fixed Rate Mortgage may also be one of the things you can do while considering the refinancing option for your home loan.
   

Refinancing Mortgage: Charges and fees involved- Refinance Mortgage Calculator

Before considering the option of mortgage refinance one needs to understand that it refinancing is never free. There are several charges involved when you try to refinance your mortgage. It is important to consider all these charges before you finalise your decision to refinance your home loan and do not make the mistake of simply comparing mortgage rates. You can use this Refinance Mortgage Calculator on Bankrate.com in order to calculate how much money will you actually save by refinancing your home loan and also to compare and choose the best refinancing option. Also on the above link you will find links to find the Refinance Mortgage rates in your local area for various home loan options like 30 year fixed rate mortgage, 40 year fixed rate mortgage, 1 year ARM, etc.

The concept of a Mortgage Point or Mortgage Points

An important parameter to be considered while refinancing mortages is the concept of a Mortgage Point also sometimes called as a discount point. Banks usually charge 'advance' or 'pre-paid' interest from the borrower. One mortgage point equals 1% of the Loan amount. This upfront amount or Mortage points can be paid to the lender in order to reduce the interest rate and thus the monthly mortgage payment. Typically paying 1 Mortgage point reduces the interest rate by 0.125%. What refinancing options is best for you, how much mortgage points works best all depends on the current amount of spare cash you have and how much you are willing to pay upfront money in order to reduce your monthly mortgage payment.

Simple things to keep in mind before you take your decision to refinance mortgage.

1. First fix a general idea of what you would like to do gain by refinancing your mortgage. Ofcourse most of us consider refinancing because they want to take the benefit of lowered interest rates, but do you also want to increase your mortgage term, say 15 year fixed mortgage to 30 year fixed mortgage in order to reduce your monthly mortgage payment burden? Narrow down your options to less than two or three.
   
2. How much mortgage points or upfront payment can you actually afford in order to reduce your monthly mortgage payment? This option depends on how much cash you have. Or are you considering mortgage refinancing to get extra cash to settle other dues, etc.? In case you have other high interest rate debts like credit card debts, you may want to consider the option of cash out refinancing, i.e. getting a second home loan greater than your current mortgage liability in order to pay off other high APR debts.
3. Call/Contact at least four to five lenders or banks (the more the better) and compare their mortgage rates and refinancing charges and fees using the above mortgage refinance calculator link. In this manner you can choose the best deal available to you and thus benefit the most from your refinancing idea.

Read more ...

I remember reading somewhere that Search Engines like Google use over 200 criterion to evaluate the significance of a page to the search query in order to determine the search engine ranking. Some of the criterion used are -
1. Keywords density.
2. External Links to that page and keywords used in the anchor text of that link.

Improving your search engine rank with respect to a particular keyword from 10 to say 2 or 3 could make a world of a difference to your website traffic. There are several service providers nowadays who can provide you help with website design and search engine marketing. In this post I am quickly going to review one such Internet Marketing Service provider - TheClickdepot.com.

Here is a list of Internet Marketing Services provided by TheClickdepot.com

1. Free Internet Marketing Tools - like Keyword Selection Tools, Google's Traffic Estimator, Link Popularity Checker, and a Google Page Rank Look-Up tool.
2. Online Business Profile.
3. Local Internet Marketing.
4. Pay Per Click.
5. Search Engine Optimization (SEO Tools).- Extremely useful if you are targeting visitors from search engines.
   
6. Website Design.
   
7. Bundled Internet Marketing Solution - A combo of some of the services mentioned above.
   

The price charged for the above services is comparable to those charged by others in the industry. For e.g. for SEO optimization there are several packages ranging from $399 per month to $1999 per month. These packages are catered to needs of different businesses/websites. A quick google search will tell you that it is possible to get slightly cheaper rates, e.g. ebrandz charges $250 per month, but it is the quality of service and results that are the key factors in selecting SEO services.

Internet Service Provider, TheClickdepot.com, which provides a vast number of internet marketing services and SEO tools has the reputation of being leading Raleigh Internet Marketing Service Provider. The website of TheClickdepot.com is user friendly and easy to navigate. If you are interested in SEO or Internet Marketing Services, I encourage you to go and visit their website and have a look at their services and charges.

As a feedback to all internet marketing service providers and TheClickDepot.com in particular, I would like to mention that since internet marketing services and especially SEO tools are so much related to performance and getting results - it would be great for them to come up with a monthly package which was performance based. For example - first have a preliminary look at the client's website and give the client a quote for a specified action e.g. bringing the client's page on first page of google search with specified keywords, etc.

Read more ...

Paying taxes can be quite a hassle especially with so many different tax laws and provisions to understand. The situation can get even more complicated if you are filing your taxes late. IRS Taxes are usually due by April 15th. If you cannot pay your taxes by the due date then you are in a state where you have IRS Back Taxes. Surprisingly there are quite a few Americans who are in this situation.

There are several Tax service providers, tax preparing softwares who offer tax help for a small fee. I am currently reviewing one such tax service provider - backtaxeshelp.com - which provides Help with Taxes for various tax problems ranging from - late filing of taxes, cannot pay back taxes, dealing with IRS tax penalties and fees, unfiled tax returns, settling payroll taxes, and other tax problems related to individuals as well as small businesses. Apart from paid tax help, you can also find lots of informative articles written by Tax Professionals on the site dealing with common tax problems listed above and all these articles are absolutely free !

The website of backtaxeshelp.com, especially the front page is well written with a quick list of possible tax problems one usually faces along with a list of tax solutions that they have to offer. The fees charged is proportional to (and in fact a small fraction of) the taxes that you owe to the IRS. One great thing about the service offer is the transparency in the charges and fees, which is evident from the fact that they have a list of charges incurred by most recent clients on their homepage. Transparency and reliability are two main important things, apart from professional service, that one must look for when one is looking to get paid help in order to get Tax Relief.

If you are in a situation where you have to deal with IRS back Taxes, Tax Debt Relief, I encourage you to visit backtaxeshelp.com and have a look at the related tax services they have to offer.

Read more ...

Getting banned from Google Adsense program is in my opinion a serious setback to small sites. You can still continue to make money, but probably you will make less than half the money you would with google adsense. Or maybe much much less than half. Thus it is important to follow google adsense toc if you want to take make money online from home seriously. Read more about Adsense Terms and Conditions.

Read more ...

It can be a bit confusing although very important to decide whether you should start your site on a free site like blogger (blogspot) or wordpress or should you get your own domain? Paid website hosting?

Remember that it is very difficult to move a site once it has become popular and once it has gained some reputation (page rank etc.) and attracts traffic from search engines. So the choice you make is more or less permanent in most cases, especially in those in which traffic from Google or other search engines is important.

The advantage of starting your blog on a free site like blogspot is that it is free and easy to use. The disadvantage is that sometime you may find it is not as customizable as you think, e.g. if you want to put a Google Ad in the middle of the post, its not easy. Also, there are some advertisers and a couple of money making opportunities (e.g. get paid for link ads etc.) which exclude free sites like blogspot.

So should you or should you not get your own custom domain?

• Even if you decide to get your own domain, dont spend too much on it just yet. It is easy to move service providers and switch later on and buy a bigger plan as your site becomes big. Look for under $5 per month plans which provide standard features and preferably lot of bandwidth.

Get your own domain only if

1. Very serious about making money online.
2. Are willing to acquire some html javascript knowledge. Not a lot, but some little googling to figure out things etc.
   
3. You are planning to spend over 8 hours per week.
   

Read more ...

There are several ways to earn money online from home and enrolling in sites which pay you for taking a survey is one way in which you can make a regular income. Taking a survey means answering some questions, telling your opinions etc. This can be boring. However if you are getting paid in the form of prizes of cash for taking surveys, then it sure can become much more interesting. Here are some sites which pay you for taking surveys.

Earn Reward Points for taking each surveys. Redeem your points for merchandise and gift cards offered by popular retail merchants. There are also quarterly sweepstakes, and once you join & take a survey you can earn by referring a friend.
Requires Windows. You can increase your eligibility for taking a survey by downloading their software. Earn points for taking surveys & redeem for gifts and also cash (in most circumstances).

Read more ...

Did you pay someone to take care of your child spouse or dependent ? If you did then you can take benefit of IRS Child Care tax credit and claim tax deduction for the amount you paid to take care of your child spouse or dependent. Here are the things you need to know in order to claim the Child/Dependent Tax Credit.

Qualifying Dependent for the Dependent Care tax Credit:

The dependent for whose care you paid and are claiming the dependent tax credit for must qualify in the following sense.
1. The Dependent must be a dependent child under the age of 13 years. OR
2. Your Spouse or other dependents who are physically or mentally incapable of taking care of your themselves may qualify for dependent care tax credit.

Your and Your Spouse's Income- qualifying for Dependent Care Tax Credit
- The Care must be provided so that you (or you and your spouse if you are married and your spouse is not the dependent in question) can work or look for work during that period. So in particular, if you are married and your spouse is at home by choice, then probably you do not qualify for the dependent care tax credit.

-You must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. If you are married then both you and your spouse must have earned income from the above mentioned sources. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.

Who can qualify as a Care provider for Dependent Care Tax Credit?
The Care Provider must be identified on your Tax return. The Care provider cannot be one of the following:
- Your Spouse - you cannot simply say you have paid your spouse in order to take care of your dependent and claim the dependent care tax credit.
- You Child who is under age 19 years of age - You cannot claim the Dependent Care Tax credit by saying you paid your child who is below 19 years of age in order to take care of your dependent. This applies even if your child is not dependent on you. From the IRS website, it appears that if you have a child who is over 19 years of age and not dependent on you, then he may qualify as a care provider for your dependent.

Read more on IRS Tax Tip for Dependent Care tax credit.

Read more ...

In this post I will discuss two hedging strategies in futures and options trading: Covered Call and Covered Put. Some variations of the covered call and put strategy will also be discussed. If you are new to Stock Options trading and futures trading you might want to first read my posts on

• Stock Options trading explained: Call and Put Option examples
• Understanding Stock Futures Trading with a simple example.
  

If you are already familiar with derivatives, you may scroll down the introduction and see variations of covered call and covered put writing at the bottom table or post a comment.

What is a Covered Call Strategy?

Covered Call is a Options trading strategy in which you

1. Buy the underlying , i.e. a stock, commodity or a Futures Contract.
   
2. Sell or Write a out of the money Call option for the same underlying, i.e. write a call at a strike price slightly higher than the price of the underlying.

Understanding Covered Call by an example: Suppose the current price of a company, say Coca Cola, is $20 per share. You anticipate that the price of this share is going to go up so you buy a futures contract that will allow you to buy 100 shares of Coca Cola at $20 at the expiry date. But there is a risk- what is the price of this share does not rise? if the price drops you could be at a loss. In order to minimize this what you can do is the following - Sell a Call Option for Coca Cola at strike price of $21. Say you get a premium of $1 per share after writing this call option. This call option that you sell is called a covered call. Writing or selling a call option always has a risk - if the price rises beyond the (strike price+premium), in this case $22, of the option you have written you start making a loss. In principle you could make an unlimited loss while writing a call option. In this case even if the price rises, you will not make a loss because you have already bought a future. In other words the risk of call option writing is covered by your future. In the current example -

• You gains or profit increase as the price of the stock rises until the strike price of the call option that you have sold, i.e. $21. Beyond $21 you do not make any additional profit because the gains in the futures contract are offset by the loss by the call option you have written. In other words the maximum profit that you will gain by writing the covered call in this case is equal to (strike price of the call option - futures price + call option premium)=$2 per share.
  
• Even if the price of the stock drops by a small amount, say less than $1, you do not make a loss, in fact you end up making a profit because the options premium that you recieved by writing the covered call option. Thus a small downside of the future is 'covered' by the options premium.
• You make the loss if the price of the stock drops below $19. The amount of loss you can make is not limited in the case of the covered call strategy. In principle you capital can be wiped out. Thus covered call option writing strategy is useful only when you anticipate an upward movement in the stock option price.

Some Jargon related to Covered Call

As explained above, writing an out of the money call option when you already own the underlying (in the form of physical stocks or a futures contract) is called as a covered call. If you simply write a call option without it being 'covered' by a futures contract or underlying which you already have, it is called writing a naked call option. The Break Even Point (BEP) of the transaction of writing a covered call is the price below which you start making a loss by selling the covered call. More precisely

Break Even Price = Price of the Underlying (or Futures) - Premium recieved by writing the call.

What are advantages of Covered Call options writing strategy?

All the benefits of covered call strategy are actually illustrated by the above example. Let me quickly relist them without explaination.

• By writing a covered call - you make profit if the price rises.
  
• Some portion of your loss is covered by the options premium that you get by selling the call option.
  

Note that Covered Call strategy is not necessarily a 'profit maximizing' strategy but in fact a hedging strategy, i.e. a strategy in which you try to minimize the risk. There is an obvious variation of the covered call strategy where instead of buying a 'futures contract you actually by the underlying if it is stock or a commodity. However this variation is not really a new options writing strategy. Here are some minor 'real variations' of covered call writing.

Some variations of the Covered Call Options Strategy

Futures Options Trading Strategy	Remarks
Covered Put Strategy Sell a Futures Contract on a stock/index. Write a Put Option on the same stock/index at a strike price below the price of the Futures contract.	Writing Covered put is suitable when you have reasons to believe the price of the underlying is going to go down.
Buy a Call, Write a Call Strategy Exactly like the Covered Call strategy but where instead of buying a futures contract you buy a 'at the money' options contract and write a out of the money option.	An at the money option is certainly more expensive than an out of the money option. So in this strategy, unlike the 'pure' covered call, to start with you are at a loss and in order to make profit the price of the underlying MUST rise. However as opposed to covered call strategy there is limited 'downside loss'.
Covered Call + Buy a Put Option Strategy You use the options premium obtained by selling the covered call to buy a out of the money put option.	This variation of the covered call strategy is suitable when you have strong reasons to believe that the price of the underlying will rise but also know that if something goes wrong then it will go wrong by a big margin, i.e. you dont want to take unlimited risk but you cover the downside risk of your futures contract by buying a put option.

Similarly the last two strategies mentioned above have an obvious analogue for the put option.

Options Greeks Option Greeks for Beginners (with free Options Calculator) Option Greek Delta and Delta Neutral Options Trading Strategy Option Greek Theta and its role in Options Trading Strategies Option Greek Vega and implied volatility Option Greek Rho - does it really matter in your Options Trading Strategies? Stock Market Derivatives: Futures, Options From Forward contract to Futures. Stock Futures example - Futures trading basics explained. Stock Options trading examples - Call Option Example and Put Option example. Covered Call and Covered Put - Simplest Options trading strategy. Volatility and Options Pricing - How is Option premium priced? Lot Size of a Derivatives Contract - Contract Unit Options Trading Basics In the Money Stock Options At the Money Stock Options Out of the Money Stock Options

Read more ...

This post contains a summary of the 2009 Obama's small business plan. Obama has alloted $15 billion to revive small businesses and help the U.S. economy. If you are looking for latest news or confirmed update on this plan, note that the precise details of this plan are not out yet and they could be available as early as by the end of this month. You may wish to bookmark this page and visit again for updates on 2009 Obama's small business plan.

Now lets look at what is expected of this $15 billion small business stimulus. Scroll down for latest on IRS tax breaks for small businesses.

Anyone who had followed the 2008 presidential debates between Barack Obama and John McCain would have noticed the rhetoric regarding 'Joe the Plumber' which had was a small reflection of what Obama was planning to do for small businesses in the United States. There are over 25 million small businesses in America and over 99% of all employees are small business employees. Given this and the current recession or economic downturn, any reasonable 'recovery policy' must take into account small businesses and try to boost them by giving tax cuts, tax breaks, refunds, rebates or other stimulus.

Here are the highlights of 2009 Small Business Plan (announced earlier) of Barack Obama and Joe Biden:

Obama Small Business Health Tax Credit: This is a tax credit provided to small businesses to reduce healthcare costs of employees. Under this new 2009 tax credit, all small businesses will be provided a refundable tax credit of 50% of the premiums paid by small businesses on behalf of the employees.

Zero Capital Gains and Other Tax Relief for Small Businesses and Start Ups: Capital Gains taxes on small and start up businesses will be eliminated. This proposed small business tax break is expected to reduce tax burden on businesses.

Expand Loan programs for Small Businesses: In order to increase small businesss line of credit Obama administration will work to help more small business entrepreneurs get loans, expand the network of lenders, and simplify the loan approval process.

Apart from the basic small business stimulus mentioned above there are a number of other points proposed earlier by Obama to revive small businesses in 2009. You may read more details of their small business vision on Barack Obama and Joe Biden's plan for Small Businesses.

The IRS has also announced series of significant new tax breaks for small businesses.

• Small businesses with average earnings upto $15 million (qualifying limit) in gross receipts annually over a three-year period will be allowed to claim losses for the past five years in the current tax year. This limit prevents larger business' from claiming this tax exemption. It also means many firms should get refunds now, rather than have to wait to deduct 2008 losses from future profits after the economy recovers. But firms must decide whether to use the five-year carry back provision and which year it applies to by April 17.
• Small businesses may write off upto $250,000 in investments this year.
• Small businesses can reduce estimated tax payments to 90 percent of the previous year's filing.
• Small businesses will be allowed to take larger depreciation deductions within the first year of property purchases.
• For those who invest in small businesses, 75% of capital gains will be excluded.

I will update the info and also provide authentic links soon.

Read more ...

Stock Options - what you will learn by reading this article in detail

There are two derivative instruments which every investor must know of - Futures and Options. In this post I will explain the two different types of Options - Put option and Call Option starting with an example. By the time you finish reading this post, I hope you will have understood the difference and concepts underlying the following four types of options trading.

1. Buying a Call Option.
2. Selling a Call Option (also sometimes called as writing a Call Option).
   
3. Buying a Put Option.
4. Selling a Put Option (also sometimes called as writing a Put Option).
   

Whether it is stock options or commodity options, the underlying concept is the same. So let us start by understanding an example.

Simple Call Option example - How call option works?.

Suppose you are interested in buying 100 shares of a company. For the sake of this example let us say that the company is Coca Cola and the current price of its stock is $50. However instead of just buying the shares from the market what you do is the following: You contact your friend John and tell him "Hey John, I am thinking of buying 100 shares of Coca Cola from you at the price of $52. However I want to decide whether to actually buy it or not at the end of this month. Would that be OK?". Of course what you have in mind is the following.

1. If the stock price rises above $52, then you will buy the shares from John at $52 in which case you will gain by simply buying from John at $52 and selling it in the market at the price which is above $52. John will be at a loss in this situation.
2. If the stock price remains below $52 then you simply wont buy the shares from him. After all, what you are asking John is the 'option' to buy those shares from him - you are not making any commitment.
   

In order to make the above deal 'fair' from the viewpoint of John you agree to pay John $2 per share, i.e. $200 in total. This is the (risk) premium or the money you are paying John for the risk he is willing to take - risk of being at a loss if the price rises above $52. John will keep this money irrespective of whether you exercise your option of going ahead with the deal or not. The price of $52, at which you would like to buy (or rather would like to have the option to buy) the shares is called the strike price of this deal. Deals of this type have a name- they are called a Call Option. John is selling (or writing) the call option to you for a price of $2 per share. You are buying the call option. John, the seller of the call option has the obligation to sell his shares even if the price rises above $52 in which case you would definitely buy it from him. You on the other hand are the buyer of the call option and have no obligation- you simply have the option to buy the shares.

Simple Put Option Example - How put option works?

Let us consider a situation where now John wants the option to sell you his 100 shares of Coca Cola at $48. He agrees to pay you $2 per share in order to be able to have the 'option' to sell you his 100 shares at the end of the month. Of course what he has in mind is that he will sell them to you if the price falls below $48, in which case you will be at a loss by buying the shares from him at a price above the market price and he will be relatively better off rather than selling the shares in the market. The $2 he is willing to pay you is all yours to keep irrespective of whether John exercises the option or not. It is the risk premium. In this case John is buying a Put Option from you. You are writing or selling a Put Option to John. $48 is the strike price of the Put Option. In this case, you the seller or writer of the Put Option have the obligation to buy the shares at the strike price. John, the buyer of the Put Option has the option to sell the shares to you. He has no obligation.

Difference between above option examples and 'real life options'

The above examples illustrate the basic ideas underlying, writing a call, buying a Call, writing a Put and selling a Put. In real life you sell (or write) and buy call & put options directly on the stock exchange instead of 'informally dealing' with your friend. Here are some key points to remember about real life options trading.

1. Options trading is directly or automatically carried through at the stock exchange, you do not deal with any person 'personally'. The stock exchange acts as a 'guaranteer' to make sure the deal goes through.
2. Each Options contract for a particular stock has a specified LOT SIZE, decided by the stock exchange.
   
3. The writers or sellers of Call and the Put option are the ones who are taking the risk and hence have to pay 'margin' amount to the stock exchange as a form of guarantee. This is just like the margin money you pay while buying or selling a futures contract and as explained in the post on futures trading. The buyers of Call and Put options on the other hand are not taking any risk. They do not pay any margin. They simply pay the Options premium.

Examples of Situations where Options are traded

Why buy options rather than buying the underlying stock or commodity? there are several situations where buying or writing an option can help. Here are some examples (but please bear in mind, options trading is very dangerous and unless you know what you are doing you should avoid it)

1. If you speculate that the price of a stock is going to rise, you buy a call option. This is merely speculative trading in case of options.
   
2. Last month, I had kept money aside to buy the stock which was selling for Rs. 55. I was prepared to buy it for up to Rs. 60. However, there was a possibility that the price might fall sharply. However, I did not just want to wait and see if the price falls, after all, what if the price rises sharply? So what I did was to buy a call option for strike price Rs. 60 and wait for a month. If the price rises, I still get to buy the stock at Rs. 60 (+ a small premium I paid to buy the option). If the price falls sharply during this month, I get to buy the stock for even cheaper. I usually use this strategy which limits risk in situations where I have some anticipation of market movements.
   
3. If you have a stock say whose current price is $50. You have decided to sell it if the price rises above $52, if not then keep it. In this case you can profit by writing a Call option for Strike price of $52. To know more about this situation and example, read covered call. (note to beginners: writing options is even more dangerous than buying options).
   

Further reading on Options Trading

There are still some details to be explained as to how do options really work, various options trading strategies and examples, advanced concepts like Option Greeks, and some do's and dont's about options trading. These are explained in posts listed on the right column of this page. If you have still have questions or additional remarks, please do not hesitate to ask in a comment. You may also like to download the free option greeks calculator, a must-have-tool for every investor.

Other MUST VISIT posts on options and option greeks. Option Greeks for Beginners (with free Options Calculator) Option Greek Delta and Delta Neutral Options Trading Strategy Option Greek Theta and its role in Options Trading Strategies Option Greek Vega and implied volatility Option Greek Rho - does it really matter in your Options Trading Strategies? Stock Market Derivatives: Futures, Options From Forward contract to Futures. Stock Futures example - Futures trading basics explained. Stock Options trading examples - Call Option Example and Put Option example. Covered Call and Covered Put - Simplest Options trading strategy. Volatility and Options Pricing - How is Option premium priced? Lot Size of a Derivatives Contract - Contract Unit Options Trading Basics In the Money Stock Options At the Money Stock Options Out of the Money Stock Options

Read more ...

The amount of Standard deduction changes every year due to adjustments for inflation. The amount for 2008 according to IRS website are:

IRS 2008 Standard deduction for Single Taxpayer: $5,450
IRS 2008 Standard deduction for Married filing jointly: $10,900
IRS 2008 Standard deduction for Head of Household: $8,000
IRS 2008 Standard deduction for Married filing separately: $5,450

The precise amount of standard deduction you can claim also depends on a variety of other factors. If any of the following apply to you, please use the Standard Deduction Worksheet in the Form 1040EZ, 1040A or 1040 instructions.

1. You are over 65 years of age.
2. You are blind.
   
3. You plan to claim additional standard deduction for state and local taxes.
4. A tax exemption can be claimed for you by another taxpayer.
5. You have a net disaster loss from a federally declared disaster.

Some additional points to be kept in mind.

1. If you are married but filing separately and your spouse itemizes deductions, you cannot claim a standard deduction. You have to itemize deductions too.
2. Non-resident Aliens, dual-status aliens and individuals who file returns for periods of less than 12 months are not eligible for standard deductions.

Read more ...

Retirement Savings Contributions Credit, or informally 'Savers Tax Credit' is a tax credit for those taxpayers in the low to medium income category who contribute to the employer sponsored retirement plan. The following are the eligibility criterion for the Retirement Savings contribution credit.

1. Income Limits for retirement savings contribution credit: If you are a individual taxpayer, your income must be upto $26,500. For head of household, the income cap is slightly larger, $39,750.
   
2. Age Limit for this tax credit: You must be above 18 years of age.
   

How much tax credit will you get for making contributions to retirement savings?

The following is the quote from IRS.

If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a tax credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

Read more about retirement savings  tax credit on the IRS webpage for this tax credit.

Read more ...

What is Lot size? (Futures and Options)

While trading in Futures and Options, be it stock futures and options or commodity futures and options, you can only trade multiples of a fixed number called the LOT size of that contract. Every stock or commodity which is traded on the derivatives market has a LOT SIZE.

Say you are trading gold derivatives on the commodities market and the lot size of gold is 1 kg. This means that any gold futures contract or options contract is going to be for 1 kg. of gold. For example, by buying one futures contract of gold you enter into an agreement to purchase 1 kg of gold at the expiry date. Similarly if you are trading stock options, say for a company called coca cola which has a lot size of 100 shares then by buying one call option contract to buy coca cola will give you the right (but not the obligation) to buy 100 shares of coca cola at the strike price on the expiry date (or anytime before the expiry date if the options is a European style options contract).

You cannot trade fractional lot sizes while trading in futures and options. Of course you can trade multiples of a given lot size simply by trading more than one contract. However one options or futures contract will always be for the specified lot size.

Pricing and Lot Size - word of caution

Also the price of the futures or options contract is specified not 'per lot' but per unit of the commodity or stock. For e.g. if the premium or cost of buying one put option of a particular stock is $5, then the total premium you will have to pay is $5 x lot size.

Options Greeks Option Greeks for Beginners (with free Options Calculator) Option Greek Delta and Delta Neutral Options Trading Strategy Option Greek Theta and its role in Options Trading Strategies Option Greek Vega and implied volatility Option Greek Rho - does it really matter in your Options Trading Strategies? Stock Market Derivatives: Futures, Options From Forward contract to Futures. Stock Futures example - Futures trading basics explained. Stock Options trading examples - Call Option Example and Put Option example. Covered Call and Covered Put - Simplest Options trading strategy. Volatility and Options Pricing - How is Option premium priced? Lot Size of a Derivatives Contract - Contract Unit Options Trading Basics In the Money Stock Options At the Money Stock Options Out of the Money Stock Options

Read more ...

The 2009 Obama's Economic Stimulus Package contains several tax credits, tax rebates, tax refunds and stimulus payments like the 2009 $8000 Housing Stimulus bill, 2009 $800 Making work pay tax credit (as a replacement for 2009 Stimulus Checks) and the 2009 Auto Stimulus bill in the form of tax deduction for sales tax and auto loan interest. Apart from these most of the other people will get a piece of the stimulus package pie in the form of a one time $250 Social Security payment. Here are the key points about this $250 Social Security stimulus payments which are to be sent out in May 2009.

Who is eligible for $250 Social Security Stimulus Paycheck? How does it work?

Anyone who is entitled to Supplemental Security Income (SSI) or to any of the Social Security benefits at any time during Nov 2008 to Jan 2009

1. Retirement Social Security benefits.
2. Wifes or Husband's Social Security benefits.
3. Disabled Adult Child benefits (but not other child's benefits).
4. Widow's, Widower's, Mothers, Fathers, Parents Social Security Benefits.
5. Disability Insurance benefit.
6. Special age 72 benefits.

is eligible to recieve 250 USD Social Security Stimulus Payment check. Children qualify for the 250 Social Security payment only if they are getting disabled adult child benefit.

How to get the $250 Social Security Check? - Those who are eligible for the $250 Social Security Stimulus Payment will recieve the payment automatically by late May 2009. No action is needed on your part. However if you do not get your 250 social security check by May 2009 end you may contact SSA (not IRS) directly.

To receive payment, the beneficiary's address of record must be in a valid US state or territory. Only individuals eligible for Social Security, SSI, Veterans, or Railroad Retirement benefits at any time during the months of November 2008, December 2008, or January 2009 may be eligible for the one-time payment. The $250 SS payment will be delivered in the same way your current Social Security or SSI benefit is sent.

Other Tax Breaks, Tax Credits, Tax Rebates in 2009 Economic Stimulus Package that maybe of interest to you 2009 Obama Stimulus Package details explained. New Car Purchase Auto Stimulus details explained- Excise and Sales Tax deduction for new purchase of new vehicles. $8000 First Time Home Buyer Tax Credit details- 2009 Housing Stimulus Bill in Economic Plan proposed by Obama. $800 Making work pay tax credit stimulus- details explained ($400 working tax credit for individuals and $800 tax credit for married taxpayers). $250 Social Security Stimulus Check in 2009 Economic Stimulus Package. 2009 Cobra Stimulus Package 65% Reduction in Cobra Health Insurance Premium for qualifying individuals. 2009 Stimulus Checks? Economic Stimulus Payment $1000 Child Tax Credit, Dependent Tax Credit 2009 extension.

Read more ...

If you are planning to buy a home in 2009 you can take advantage of the Housing stimulus bill which is a part of 2009 Obama's Economic Stimulus Package. This Housing Stimulus bill contains a $8000 refundable tax credit for First time home buyers. One of the main points to understand here is What is the defintiion of a First time Home Buyer? This post is in response to the 100+ comments i recieved on my earlier post on $8000 first time home buyer tax credit - details explained in which most of the comments were a result of a confusion - Do i qualify for this home buyer tax credit? Here are the key points.

1. Definition of a First Time Home Buyer: A first time home buyer is one who has not purchased or owned a Principal residence in the past three years. A principal residence is home which you actually live in. It maybe a mobile home a condominium (or condo) or a house boat. As long as you have been residing in it, it is your principal residence. Thus if you have purchased or owned a house in the past but have rented it, then that was not your principal residence. You may still qualify for the $8000 first time home buyer stimulus. Rental property or Vacation homes do not disqualify you from claiming the 8000 home buyer tax credit. Even non Resident Aliens may qualify for this $8000 housing tax credit. However not that if you are married, then both you and your spouse must be first time home buyers. Read my posts on $8000 first time home buyer tax credit for married people and $8000 housing tax credit for joint purchases.
   
2. Dates of Purchase: in order to qualify for the $8000 first time home buyer tax credit you must purchase your home between Jan 1 2009 and Dec 1 2009.
   
3. Income Limits/ Income Caps: Not every who is a first time home buyer qualifies for the $8000 housing stimulus. Only first time home buyers with modified gross annual income of $75,000 get full benefit of this housing tax credit. The tax credit is gradually reduced for those with income between $75,000 to $95,000 and finally a home buyer gets no tax credit if his/her modified gross annual income is more than $95,000. For married taxpayers, the home buyer tax credit is gradually reduced to zero for modified gross annual income between $150,000 to $170,000.
4. Building a house as opposed to buying a house: Yes, even if you are building a home on a land you qualify for the $8000 home buyer tax credit. The law treats this case as if you have purchased the home from the contractor.
   

Read more ...

Obama unveiled a Economic Stimulus Package in order to revive the economy. One of the key provisions in 2009 Obama Economic Stimulus plan is the housing stimulus bill. This housing stimulus, also referred to as $8000 first time home buyer tax credit is a refundable tax credit given to qualifying first time home buyers who purchase homes between January 1 2009 and December 1 2009. Read my detailed post on 8000 housing tax credit- details explained for a gentle introduction to this housing tax rebate. I am writing this post in response to the 100+ comments i recieved for on the above mentioned post on federal 8000 home credit, especially to clarify some of the points for First time home buyers who planning to make a joint purchase. Here are the key points.

1. In order to qualify for the $8000 first time home buyer tax credit or housing tax credit you must be a first time home buyer. The defintiion of first time home buyer is one who has not owned a Principal Residence in the past three years. Principal residence is a home in which you actually stay in. Thus if you have owned a home and have rented it for the past three years or more, or it was your vaction home, then you still may qualify for the $8000 first time home buyer tax credit.
2. If you are married, then both you and your spouse must be first time home buyers. This is irrespective of whether you are planning a joint purchase with your spouse or not. Read more about $8000 first time home buyer tax credit for married people to learn more if you are married or are planning to get married in 2009.
3. If you are unmarried and making a joint purchase, then it is ok if one of the partners or home buyers qualifies for the 8000 housing tax credit. In this case, after making the joint purchase the 8000 home buyer tax credit may be allocated to any one (but not more than one) of the qualifying first time home buyer involved in the joint purchase.
   

Please read my main post on $8000 home buyer tax credit or housing stimulus for more details

Read more ...

Obama unveiled a Economic Stimulus Package in order to revive the economy. One of the key provisions in 2009 Obama Economic Stimulus plan is the housing stimulus bill. This housing stimulus, also referred to as $8000 first time home buyer tax credit is a refundable tax credit given to qualifying first time home buyers who purchase homes between January 1 2009 and December 1 2009. Read my detailed post on 8000 housing tax credit- details explained for a gentle introduction to this housing tax rebate. I am writing this post in response to the 100+ comments i recieved for on the above mentioned post on federal 8000 home credit, especially to clarify some of the points for First time home buyers who are married or are planning to marry in 2009 and also purchase a home. Here are the key points.

1. If you are married, in order to qualify for the $8000 first time home buyer tax credit, both you and your spouse must be first time home buyers. A first time home buyer is one who has not owned a principal residence in the past three years. Thus if your husband/wife owned a house in the recent past and that house was a principal residence, (which means it was not rental property or vacation home) then unfortunately you do not qualify for the 8000 home credit.
2. If you are planning to marry in 2009 and also planning to buy a house in 2009 then it may matter in which order you do this. For the purpose of qualifying for this $8000 home buyer tax credit only your martial status on the date of purchase matters. Note that is your fiance/fiancee is not a first time home buyer and you are, then it is better that you buy a house first, claim the $8000 home buyer tax rebate and then get married.
   

Please read my main post on $8000 home buyer tax credit or housing stimulus for more details. For unmarried joint purchases read my post on $8000 home buyer tax credit for unmarried joint purchases.

Read more ...

Income Tax Deduction under Section 80C

Although it may not be able to completely avoid your tax liabilities, there are several deductions and exemptions allowed by the Indian Income Tax Act (for e.g. Section 80C, Section 80D, Section 80DD, Section 80G, Section 24, etc.) which help you reduce your taxable income and thus help you save taxes. One of the most common income tax deductions is Section 80C. One reason why Section 80C is the most popular is that it encourages people to do monthly savings from their income. This post discusses details of Section 80C and how to take maximum benefit of Section 80C for your personal tax planning. If your taxable income is in the highest tax bracket, then taking full advantage of deductions provided by Section 80C can help you reduce your taxable income by Rs. 1 lakh, which means that you can save about Rs. 33,000 taxes by provisions of Section 80C.

You may also be interested in reading my post on : Indian Income Tax deductions, Tax Exemption Limits for Section 80C, Section 80D, Section 80DD, Section 80G, Section 24, etc.
Understanding all tax deductions is important for your income tax planning.

What type of deductions are allowed under section 80C? Tax Exemption limit.

For the financial year 2009/2010 (as well as 2008/2009) Section 80C allows a maximum deduction of Rs. 1 lakh from your taxable income for money invested in one or all of the following.

1. Life Insurance premium: Any contribution to premium paid for Life Insurance policies, e.g. LIC policies, is eligible for income tax deduction under Section 80C. Note that apart from premium of your own policie's premium paid for Life Insurance policies of your spouse (wife/husband) or your children is also eligible for exemption under Section 80C. Income tax tip: If you and your wife/husband both have LIC policies, and your spouse's taxable income is in the lowest slab (i.e. he/she has does not have to pay income tax anyway) then you can show both your and your spouse's LIC premium and get more benefit of deduction under Section 80C.
   
2. Provident Fund: Any contribution made to Provident Fund can be deducted from your taxable income according to Section 80C. Note that for most of the salaried employes, a fixed amount gets automatically deducted from your salary every month. Note that this amount qualifies for tax exemption under Section 80C. You can also increase this contribution to Provident fund (Voluntary provident fund or VPF) and the increased contribution also qualifies for deduction under Section 80C. You can also open a Public Provident Fund or PPF account and any money saved in your PPF account qualifies for deduction under section 80C. PPF accounts can be opened in most of the well known banks and the minimum investment allowed for PPF account is Rs. 500 while the maximum investment allowed is Rs. 70000.
3. Fixed deposits, National Saving Certificate (NSC): Any amount invested in Fixed deposits of term period greater than or equal to 5 years is eligible for tax exemption under section 80C. This is a recent amendment and in my opinion on of the best risk free saving options where you can save money as well as take benefit of Section 80C deduction. Moreover you can get benefit of your savings just in 5 years as compared to PPF option above where you will have to wait for 15 years or certain Life insurance policies where the maturity period is usually over 10 years. Amount invested in National Saving Certificate (NSC) is also eligible for deduction under Section 80C.
   
4. Mutual Fund Investments in ELSS: Investments in certain type of mutual funds called Equity Linked Savings schemes or ELSS are eligible for income tax deduction under Section 80C. Note that not all mutual fund investments qualify for 80C deduction. All mutual funds which qualify for 80C or belong to the ELSS category have a lock-in period of 3 years and most (although not all) have something like 'tax saving' in their name , e.g. SBI Magnum Tax Gain, Reliance Tax Saver, etc. Before planning any mutual fund investments for the purpose of tax planning under Section 80C, it is advisable to make sure whether that Mutual Fund is an ELSS.
   
5. ULIPs - Unit Linked Insurance Plans - ULIPS or Unit Linked Insurance Plans are a combination of Life Insurance as well as stock market investment or mutual fund investment. Money invested in ULIPs is eligible for deduction under Section 80C.
   
6. Principal Part of the Home Loan: If you have bought a new house and have a housing loan for this, then you can take benefit of Section 80C deduction. The EMI or Equated Monthly Installment you pay for your housing loan has two components - The Principal Part and the Interest. The principal part is tax exempt under Section 80C. Note that even the interest part is eligible for tax deduction, not under Section 80C but under Section 24. If you pay rent for your house and dont recieve an HRA, even the rent is eligible for tax deduction but again under some other section, Section 80GG and not Section 80C. Read more about Tax deductions other than Section 80C.
7. Stamp Duty and Registration Charges: Stamp duty charges and registration charges paid while purchasing a new house are eligible for tax deduction under Section 80C.
8. Tution Fees: Amount paid as tution fees for education of one or two of your children is exempt from Income Tax and you can use it as tax deduction under Section 80C.

How to use Section 80C for your tax planning?
Which tax saving options of Section 80C are best for you?

There are numerous tax deduction options under Section 80C mentioned above which you can take benefit of. Which option is best for you? In planning your tax and savings for the current financial year it is useful to keep the following in mind.

1. Keep in mind that the total amount of exemption allowed by Section 80C for financial year 2008/2009 (as well as 2009/2010) is Rs. 1,00,000. For any mount invested or saved in excess of Rs. 1,00,00 you do not get any further tax relief from Section 80C.
   
2. If you pay tution fees, or have just bought a home, then you should definitely take benefit of (6) and (7) deduction options of Section 80C mentioned above. In this case you do not have to do any additional investment or saving to take benefit of Section 80C.
3. In case you are going to need money in the near future (i.e. next few years, say for e.g. you are planning to have a baby, buy a house etc.) then go for those tax saving options of Section 80C which have short term maturity period and are risk-free. For example Fixed Deposits is the best 80C option in this case. As compared to PPF which typically have a maturity period of 15 years, in fixed deposits you can get your 80C money back in 5 years. ELSS also has a 3-year lock in period which means you can get your money invested in ELSS after 3 years. However investments in mutual funds involve risk and you must understand the risks before you make any investments.
   
4. I personally do not prefer ULIPs as their fees and charges are somewhat hidden and not easy to understand. So for Section 80C or otherwise, i would prefer ELSS+Life Insurance separately to ULIP alone.

Income Tax Slabs India - Financial Year 2008/2009 and 2009/2010. The IT slabs for 2009/2010 are the same as the slabs in 2008/2009. Income Tax Calculator - 2008/2009 (also good for A.Y. 2009/2010 since the tax slabs are unchanged for 2009/2010). This Income Tax Calculator is in Excel Spreadsheet format. India Income Tax deductions - Various Income Tax deductions under section 80C, section 80D, section 80DD, section 80G, section 80GG, section 80E, section 24, etc. and their max. tax exemption limits allowed under the Indian Income Tax Act discussed in this post. All Indian IT deductions in one single post. Tax deduction under Section 80C: The most common income tax deduction for Indians discussed in detail. Use this for your personal tax planning and save upto Rs. 33,000 Income Tax. How to pay your Indian Income Tax online? How to check your Income Tax Refund Status online?

Read more ...