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Archive for October, 2011

31
Oct

When taxes motivate a transaction, know the consequences.

Provisions in the tax laws are intended to stimulate, encourage, etc. certain expenditures.  These used to be called “tax shelters”.  “Loopholes” used to be benefits that were not intended by the tax laws.  Today everything that reduces taxes are referred to as “loopholes”.
My first look at tax motivated expenditures was as a field agent for the Internal Revenue Service (IRS).  I audited individuals and businesses that promoted the tax shelters and individuals and businesses that purchased them anticipating increased returns.
When I entered public accounting, I also dealt withindividuals and businesses that promoted the tax shelters and individuals and businesses that purchased them.  It quickly became obvious that many on both sides did not understand the requirements, costs, limitations and risks involved with these expenditures.  The high commissions and other incentives to the promoters provided a strong incentive to sell these investments.  The tax benefits was a strong incentive to purchase the investments.  Getting out of these investment was much more difficult than getting into them.   
Jaon Zweig’ s October 29th article discussed a specific tax strategy that helped qualify real estate transaction for tax deferrals.  Real estate owners that wanted to dispose of a property and invest the proceed in another property are able to defer the taxation of any gain by entering into a like-kind exchanges (1031 exchange).  Frequently there were logistic, financial, and other issues that prevent the property owner to have a like-kind exchange.  Some times the real estate owners wanted to do estate planning, succession planning or resolve management issues. These issues and goals were resolved using an investment vehicle called tenancies-in-common (TIC).
Promoters started offering TICs to everyone.  Many people that purchased them did not get the benefits they were looking for and/or had problems and expenditures they did not anticipate.
If you are considering an expenditure because of the tax advantages consult your advisers.  Make sure that you know what you are getting and that you understand the consequences of the transaction.
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27
Oct

Some common “money mistakes” can be overcome.

Jennifer Openshaw’s October 25, 2011 article in Market Watch discusses how to overcome “money mistakes” that are frequently made.  Her discussion is; straightforward, clear and short.  The topics are: how to make time for financial tasks, how to budget, how to increase your returns, and insurance. 
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26
Oct

FHA enhanced the HARP

The enhancements will make it easier to refinance for many that have mortgage balances that are more than the value of their homes.  Generally a person qualifies if the home loan was guaranteed by Fannie Mae or Freddie Mac, if the home has less than 5 units, mortgage payments have made timely for the prior 6 months , and there has not been a mortgage payment more than 30 days late for the prior 12 months.
This program waives the loan-to-value requirements.  An appraisal will not be needed for many.  The program is expect to be available in December 2011.
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25
Oct

Safeguard your email accounts.

The number of people that tell that their email accounts were hacked has increased in the last few months.  PC Magazine recently issued an article that discussed 5 non technical steps to help protect your email account.
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24
Oct

About 70% of 401(k) participants are passing up free money.

Many employers match an  employees’ contribution to their 401(k) plans.  The most common match is $1 match for every $1 that the employee contributes up to 3%.   Most employees are not contributing enough to capture the full match that is available.  The employee’s contribution is pre-tax.  That is, the money contributed is not taxed.  The contributions, employer match and any income and/or gains will be deferred.  They will be taxed when the funds are withdrawn in the future.
If the employer  offers a Roth 401(k), the employees’ contribution is made with money after it is taxed.  The contributions, the employer match and income and/or gains is not taxed when it is withdrawn by the employee. 
FINRA recently issued an alert encouraging employees to take the free money.  READ MORE

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21
Oct

IRS also announced the 2012 tax-brackets, and other items that affect almost every taxpayer.

The announcement included: tax-brackets, personal and dependent exemptions, standard deductions, estate and gift tax exemptions.  Year-end tax planning may suggest accelerating or deferring transactions to minimize 2011 and 2012 taxes.  Understanding the items to look for and completing the transactions can not wait till the last day of the year.
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21
Oct

You know it is time to start your year-end tax planning.

When IRS starts to announce the next years limitations, you know it is time to start your year-end tax planning.  The limitations for retirement related items for 2012 were released yesterday.
The maximum employee contribution to 401(k) and similar plans will increase to $17,000.  The catch-up contributions for those at least 50 years old will remain at 45,500. 
The contribution phase outs and other limitations were also announced.  The link is to the IRS announcement.
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18
Oct

Do Money Market Funds meet your needs?

After the collapse of Lehman Brothers Holdings in 2008 and the resulting impact on the Reserve Fund, questions have been raised about the use of money market funds.  The U.S. government stepped in to provide time to sort out the issues and maintain the $1 fixed value.  Money market funds are a very import vehicle for businesses.  Problems with money market funds could cause significant problems to companies, investors and the economy.
The issues are being discussed by regulators, legislators and the investment industry.  People who use money market funds as a safe place to keep their reserve funds need to ask themselves if the funds meet their needs.
Francesco Guerrera discussed these issues in his column in the “Wall Street Journal” today. 
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14
Oct

“U.S. Won’t Start Long-Term Care Insurance”

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9
Oct

Do you know what a “bear” market is?

Jason Zweig discusses “bear” markets in his October 8th article in the Wall Street Journal .  The meaning  has changed over time, and from pundit to pundit, author to author, etc.  He believes we aassign a label to it to give the feeling that the market is predictable and controllable.  The label does not tells what the direction of the market the next day, week, month, etc. 
Those who can accumulate stocks when stock values are depressed will benefit.  They most likely will see gains in the long-tern.  That assumes you do not panic and sell before stocks go back up.  It is bad for those who are retired and are trying to fund your living expenses from stocks.
It is important to understand what your current and future financial needs are.  Periodically you need to review where you are financially in relation to your needs.  Based on other factors including your anticipated longevity you may have to modify your goals, savings, spending, etc.  By monitoring where you are in relation to your plan you should not need to panic.  These are also factors that determine how your portfolio should constructed.    
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