Skip the DRIPs

ANSWER: That depends on why your parents are looking to move. While IRS rules state that homeowners who have not lived in their home for two of the past five years are subject to tax on their gains, you could drive a truck through the loopholes. If your parents are selling for health reasons, a job that's more than 50 miles away, or "unforeseen circumstances," they may be able to get a prorated exclusion on their tax bill. Unforeseen circumstances include divorce, having twins and losing one's job. If your parents have an unusual reason, they could seek a private letter ruling from the IRS, says principal tax analyst Mark Luscombe, of CCH, a tax-information publisher. (Reasons such as noisy neighbors have qualified.)

Of course, falling housing prices combined with home improvements, which increase the home's cost basis, thereby reducing the profit and, consequently, the tax on the sale, may mean there's no gain to shelter. Or the sluggish housing market may force your parents to limp over the two-year mark, in which case they can shield up to $500,000 in profit from capital gains taxes. Sadly, the days of the quick flip are over.

QUESTION: What is your take on dividend reinvestment plans (DRIPs)? I haven't heard much about them.
— Thomas Nguyen, Orlando

ANSWER: DRIPs allow investors to buy stock from a company directly, without a broker. You can get started with just a single share, and your dividends will be automatically reinvested to purchase more shares. The better plans also allow you to buy more shares outright, often with as little as $25. More than 1,200 companies, including Microsoft, Exxon Mobil and Caterpillar, offer these programs. (For a list, visit directinvesting.com.)

QUESTION: I recently graduated from college and started a new job. How many allowances should I claim on my W-4 to save the most on taxes?
— John Rhee, Washington, D.C.

ANSWER: It's smart to think about slashing your tax bill, but you're barking up the wrong tree. Futzing with the number of allowances you claim doesn't affect your tax hit. It simply determines how much in the way of taxes is withdrawn from your paycheck. The more allowances you claim, the less is withheld throughout the year. Each allowance basically accommodates for a tax break you anticipate on your return. So folks who have kids or own a home, for example, usually claim at least a few.

The key is to find the sweet spot. Withhold too little and you'll owe Uncle Sam a tidy sum when it comes time to file. (Really get this wrong and you could owe a penalty.) If too much is withheld — meaning you get a fat refund when you file — then you've just given the IRS an interest-free loan for the past year, says tax expert Barbara Weltman, of J.K. Lasser. Happily, your W-4 form has a worksheet on it that should get you in the ballpark.