Ann Wolfson Associates » General Investing Tips

Reduced Student Loan Brings Big Tax Bill

author3 — Thu, 08 Dec 2011 15:30:31 +0000

If a lender allows a graduate to pay less than the full amount of a loan, that entire discount is considered taxable income by the IRS. Example: A lender agreed to reduce a student’s loan by $28,000 – so the IRS said that the student had $28,000 in taxable income. A court agreed with the IRS positions. What to do: Discuss any loan forgiveness or other changes in debt status with a knowledgeable financial advisor. Be aware the discount is not considered taxable income if the graduate works in certain professions for set periods in specified areas (such as a teacher in an inner city).

What Can Investors Do To Avoid Running Out Of Money?

author3 — Mon, 28 Mar 2011 20:06:05 +0000

The two bear markets over the last decade has impacted those close to retirement and those already retired.

TRowe Price examined this question using Monte Carlo probability analysis to look at likely outcomes of different responses to the bear market.

Option 1: Continue withdrawals as planned had a 29% of a successful outcome.

Option 2: Reduce withdrawals by 25% for three years after the bear market bottom – 84% chance of successful

outcome.

Option 3: Take no inflation adjustments for three years after each bear market – 69% chance.

Option 4: Worst outcome switch to 100% bond portfolio after bear market on October 1, 2002 – 0% chance.

The study showed that retirees could significantly boost their odds by adjusting their withdrawal rates.

What is AMT?

author3 — Mon, 28 Mar 2011 20:00:00 +0000

Congress came up with this parallel tax system in 1969 as a way to stop the ultra wealthy from avoiding taxes. Problem is that the AMT (short for alternative minimum tax) treats the state income tax deduction and write off for your kids as if they were tax avoidance strategies and because it is not indexed for inflation the AMT hits millions, not just the rich.

Ways to Save More…

author3 — Mon, 28 Mar 2011 19:49:48 +0000

You may think you have squeezed the maximum from your budget, but there are always some painless ways to save more.

When mortgage rates are low, reduce your 30-year mortgage to a 15-year mortgage. Note that you will save 60% more in interest by refinancing to a 15-year loan. Tthis move will allow you to pay back more of the principal over a shorter term.

Choose higher deductibles on your home insurance policy.

Encourage your kids to apply to a state university or community college for the first year and then transfer to a private school. Pick a school that will work well with the students transfer goals. At the same time check with the financial aid offices for information on merit awards.

When shopping for a car, compare the costs of insuring different vehicles and the costs of gas consumption. Consider buying a cheaper model of the car you have in mind.

When you renew your automobile insurance, be sure that you get credit for a good driving record.

Wash your own car.

Work out at home instead of paying for use of a gym.

And lastly, do it yourself. Over time, it is amazing how much you can save by mowing your own lawn, doing your snow removal or even doing home projects.

Smart Moves

author3 — Thu, 02 Dec 2010 14:21:31 +0000

1. If you have a stock or fund that is way up, consider reaping the gains while you are still paying 15%. If you have substantial losses, consider saving them to offset future gains.

2. Estate taxes to rise

Unless Congress acts before December 31, the estate tax will be back next year for estates worth more than $1 million and the top rate will return to 55% from 45% in 2009. Annual tax-free gifts of $13,000 per person to reduce your estate now.

3. Separate your money by goal. Maybe reduce the risk with your retirement money, put that end poor money in bonds and well-diversified stock fund. Put your get rich quick money in more speculative stocks. The point is keep one part of your portfolio that is safe and another that gives you an opportunity for higher returns.

4. Should You Cosign a Loan for your child?

If you do decide to cosign, take precaution to curtail losses, make sure the limit on your child’s credit card is low. On a lease get the parents of your child’s roommate to cosign with you. That way it is less likely you will have to foot the bill for someone else’s child.

Remember that you are secondary when you cosign. Creditors will come after you so don’t agree unless you can afford the payments yourself. A cosigned loan is an outstanding debt on your credit file that can crimp your ability borrow.

5. Does buying a long term CD make sense now?

Maybe check with penalties imposed for early withdrawal. It if is just two months it may be worth it.

6. Remember deductions go farther when rates are higher. Delay deductions into 2011 and beyond. Don’t pay real estate taxes now, delay them into 2011. Delay charitable contributions until 2011 if possible.

Tax Planning Strategies Going Forward – This Year is Different

author3 — Thu, 02 Dec 2010 14:15:49 +0000

Fall is the time to start thinking about taxes for the next several years and begin some strategic planning. And this year is different because it may be necessary to accelerate income and delay deductions.

A review of the highest tax brackets tells a story. Tax rates on regular income increased to 39.6% this year from 35% in 2010. Since income is now taxed at a higher rate, deductions save more as well. In 2013 an additional 3.8% Medicare tax on investment income and another .9% Medicare tax imposed on wages. In addition, capital gains rates have risen to 20% this year from 15% last year and then will be another 3.8% in 2013.

Here is an exercise: For those with significantly appreciated assets think about a 5% higher rate in 2011 (15% vs. 20%) and add 8.8% higher rate in 2014. Consider comparing how soon you might otherwise sell the asset and compare rate and use of money considerations.

Tax Breaks

author3 — Wed, 23 Jun 2010 20:11:51 +0000

A new law lets employers avoid the 6.2% share of Social Security tax on wages paid to new hires who certify they worked fewer then 40 hours in the prior 60 days. That even includes students who didn’t work because they were taking classes. The payroll-tax exemption is available for compensation paid after March 18^th, 2010 and before January 1, 2011 to employees hired on or after February 4, 2010.

Conveniently located in Central New York state, Ann Wolfson Associates is a financial planning and consulting firm dedicated to helping individuals, families and organizations reach their financial goals. If you have questions about this article or if you would like to become a client of Ann Wolfson Associates, please call (315)449-4730.

The information presented is general in nature and should not be considered legal or tax advice. You should consult your legal or tax advisor for information concerning your own specific tax situation.

Diversification Is It Still Important?

author3 — Wed, 23 Jun 2010 20:07:06 +0000

The idea of spreading your investments into many asset classes that rise and fall independently throughout market cycles has been considered a safe and sure move to make sure your assets are protected. So if any one basket falls, the other basket should keep your portfolio intact. That sounds good, but then there was 2008 to date, that keeps us all of wondering what to do. But using the financial crises to conclude that diversification is pointless because stocks, bonds, and other assets will move in tandem forevermore is a misreading of recent history.

As economic conditions improve, regions are recovering at different paces. It is a good idea to maintain a global perspective, not just the US or hot emerging markets for a big score. Make sure your portfolio will benefit from extraordinary changes in the world.

Make sure you are paying attention to prices. Consider investing in attractive proceed areas like beaten down blue chips that under performed in the S&P in 2009.

Review your objectives and time horizons. Are you buying a home in the next five years, saving for college or is retirement your goal. Review your portfolio with a focus. Remember that lowering volatility through diversification can actually improve your return.

Organizing Your Financial Records

author3 — Wed, 23 Jun 2010 20:05:23 +0000

Having an organized approach to financial records can remove much of the stress associated with living. We all play many roles, each with a trail of paper attached.

What to keep
Knowing what keep by separating your papers by your need to use them, keeping short-term items together and a longer term items together.

Immediate needs files should include items for the past year including

Unpaid bills
Paid bills
Bank statements
Credit card statements
An updated resume
Income tax receipts for deductions
Major purchase receipts
Insurance policies

Long term files should include

Bank statements (7 years)
Credit card statements with home improvement expenses
Canceled checks (7 years)
Warranties and operating instructions for appliances
Income tax record and back up for previous three years
Gift tax returns
Inheritance papers
Retirement and all investment statements (all year end)
Reports from trusts
Birth certificates
Social security cards
Burial vault/plot deeds
Will/living wills
Powers of attorney
Car titles
House titles/deeds

What about taxes?

There are two types of tax information that you need to be concerned about: information you need in case of an audit and information you need to support your claims of income.

Keeping tax returns and supporting documents for seven years (because the IRS has six years from when you file to investigate.

Keep forever or until assets are sold

Receipts for home improvements
Receipts for major appliances
Annual investment statements
Gift tax returns
Inheritance papers
Copy of your will
Health care proxy forms
Power of attorney form

Achieve Clarity with a Second Opinion

author3 — Wed, 13 Jan 2010 19:42:10 +0000

Getting a second opinion can help you to confirm that your investments are on track. It can also help you reduce risk and improve your return before it’s too late. A second opinion can determine whether or not your investment portfolio is designed as efficiently as it can be to achieve your goals.

If there is any consolation to be taken from the recent past, it is that most people now pay more attention to their financial picture – not just their stock and bond investments, but savings and spending habits as well. However, most people do not have time to focus on their savings.

Let us take an objective look at how to improve your finances – you will be surprised at the results. Through simple measures you can make sure your finances are back on track.

Our second opinion will be practical – through inventory of your assets and liabilities, e.g. using some savings in a cash account that yields zero to repay certain types of debt. We will revisit your retirement goals, explaining the impact of inflation on your nest egg. We will help you save, save, save. We will help you to be smart about your various insurance plans.

People should look at finances the way companies do. You need to protect the value of your work. We wouldn’t let panic dictate investment choices. Recent losses had many people changing their asset allocation and diversification strategies. Regardless of what the market is doing, sticking to a strategy that matches your investment principles is important especially when it comes to risk.

Make sure you can find someone you can trust. Get a second opinion and keep asking questions. We are here to help. Your success is our success.