The IRS releases inflation adjustments for 2012.
On October 20, 2011, the IRS released inflation adjustments for 2012 (Rev. Proc. 2011-52). This revenue procedure applies to taxable years beginning in 2012, and transactions or events occurring in calendar year 2012, where applicable.
The full text of these changes can be found in IRS Rev. Proc. 2011-52.
Monday, February 6, 2012
Monday, January 23, 2012
Calculating Cost Basis Gets Easier This Year
Brokers must track and report cost basis to both you and the IRS
Anyone who has ever been baffled by calculating the net proceeds from the sale of an investment will find some relief, starting with the 2011 tax return due April 17. If you bought any stocks after January 1, 2011, and sold them later in the year, you should be receiving information from your broker shortly that tells you the adjusted cost basis of those stocks. Your adjusted cost basis, which affects the amount of tax you may owe on the sale, represents the original purchase price plus any commissions or other fees, and takes into account factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends.
In the past, cost basis information has sometimes been available as a service; the Emergency Economic Stabilization Act of 2008 now requires all broker-dealers and other financial intermediaries to report the information on your 1099-B form. However, you won't be the only one to receive that information; your broker also is required to report the same information to the Internal Revenue Service. Individual taxpayers (or their tax preparers) will still be responsible for accurately reporting the net proceeds of a sale on their federal income tax returns, but the IRS will now have a better way to double-check those figures.
In some cases, you're still on your own this year
The new reporting requirements don't mean you can empty your files completely. Because they're being phased in, the rules don't apply to stocks bought before January 1, 2011, for which you'll still need to do your own calculations, or to securities held in retirement accounts. Cost basis reporting does go into effect this year for mutual funds and stock bought as part of a dividend reinvestment plan; however, it will apply only to shares bought after January 1, 2012, and will be reported on the 1099-B that will be available in 2013 for the tax year 2012. And cost basis for bonds, options, and other securities won't have to be reported until 2013, so those will still need to be monitored independently.
Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days). However, they only have to do so if the newly acquired securities are identical to the securities sold (meaning the securities share the same CUSIP identification number). They also are not required to report adjusted cost basis for wash sales when the purchase and sale transactions occur in different accounts.
You can tailor your reporting method to suit your tax situation
Investors sometimes use cost basis to help manage their tax liability on a securities sale. If you're one of them, the reporting requirements make it more important to determine in advance what accounting method you wish to use for each sale. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).
If you don't want to use your broker's default method, you may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three business days after execution of the trade). After the trade settles, you cannot change your mind about the method used.
Brokers also will be required to report to the IRS the cost basis of a short sale in the year in which the short is closed (in the past, it was done for the year a short sale was opened).
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
Anyone who has ever been baffled by calculating the net proceeds from the sale of an investment will find some relief, starting with the 2011 tax return due April 17. If you bought any stocks after January 1, 2011, and sold them later in the year, you should be receiving information from your broker shortly that tells you the adjusted cost basis of those stocks. Your adjusted cost basis, which affects the amount of tax you may owe on the sale, represents the original purchase price plus any commissions or other fees, and takes into account factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends.
In the past, cost basis information has sometimes been available as a service; the Emergency Economic Stabilization Act of 2008 now requires all broker-dealers and other financial intermediaries to report the information on your 1099-B form. However, you won't be the only one to receive that information; your broker also is required to report the same information to the Internal Revenue Service. Individual taxpayers (or their tax preparers) will still be responsible for accurately reporting the net proceeds of a sale on their federal income tax returns, but the IRS will now have a better way to double-check those figures.
In some cases, you're still on your own this year
The new reporting requirements don't mean you can empty your files completely. Because they're being phased in, the rules don't apply to stocks bought before January 1, 2011, for which you'll still need to do your own calculations, or to securities held in retirement accounts. Cost basis reporting does go into effect this year for mutual funds and stock bought as part of a dividend reinvestment plan; however, it will apply only to shares bought after January 1, 2012, and will be reported on the 1099-B that will be available in 2013 for the tax year 2012. And cost basis for bonds, options, and other securities won't have to be reported until 2013, so those will still need to be monitored independently.
Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days). However, they only have to do so if the newly acquired securities are identical to the securities sold (meaning the securities share the same CUSIP identification number). They also are not required to report adjusted cost basis for wash sales when the purchase and sale transactions occur in different accounts.
You can tailor your reporting method to suit your tax situation
Investors sometimes use cost basis to help manage their tax liability on a securities sale. If you're one of them, the reporting requirements make it more important to determine in advance what accounting method you wish to use for each sale. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).
If you don't want to use your broker's default method, you may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three business days after execution of the trade). After the trade settles, you cannot change your mind about the method used.
Brokers also will be required to report to the IRS the cost basis of a short sale in the year in which the short is closed (in the past, it was done for the year a short sale was opened).
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
Tuesday, December 27, 2011
Ringing In The New Year
As we come out of the busy holiday season, we all need to begin to focus on 2012. Make 2012 the year that you get your financial house in order. The years seem to fly by and retirement is approaching sooner and sooner than you might think.
Make a resolution, contact us in 2012 to put a plan together for your future.
The Mitlin Financial, Inc. family would like to extend you and your family all the best for 2012, health and happiness!!
Regards,
Mitlin Financial, Inc.
Make a resolution, contact us in 2012 to put a plan together for your future.
The Mitlin Financial, Inc. family would like to extend you and your family all the best for 2012, health and happiness!!
Regards,
Mitlin Financial, Inc.
Monday, December 19, 2011
Other Investment Companies and Investment Vehicles
Introduction
There are many ways to invest in stocks, bonds, cash alternatives, real estate, and commodities. For example, you can buy individual stocks and bonds, apartment or office buildings, and commodity futures. However, unless you're able to afford a wide variety of individual securities or property, you may not be able to diversify sufficiently. Though diversification can't guarantee a profit or protect against the possibility of loss, it can help cushion the impact of a loss in a single security.
To achieve greater diversification than they might be able to manage on their own, many people choose to use an investment vehicle that offers the ability to put money into multiple securities with a single investment. Such investments also may offer other advantages, such as expertise in selecting specific securities, greater convenience, or lower costs than would be required to invest in the same assortment of securities individually. However, each type also involves its own type of risk apart from the risks involved with the individual securities it includes.
Depending on how a specific investment vehicle is structured, it may be classified as an investment company and regulated by the Securities and Exchange Commission (SEC). There are two major types of investment companies: management companies and unit investment trusts. With all investment companies, you should carefully consider a prospective purchase's investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the issuer. Read it carefully before investing.
·Management companies--Management companies are usually structured as a corporation or trust, typically with a separate investment advisor that takes care of the actual purchase and sale of securities. A management company may be an open-end company that continuously offers an unlimited number of shares that can be redeemed directly with the issuer; mutual fundsare the most prominent example of open-end companies. By contrast, a closed-end companygenerally issues a fixed number of shares but does not directly redeem those shares from the public.
·Unit investment trusts(UITs)--UITs generally invest in a relatively fixed selection of securities that are held for a specified period of time (often one to five years) and issue a fixed number of so-called units to the public when the trust is initially offered. There is typically little or no trading of securities within the UIT during the life of the trust, and therefore little active management. The market value of the trust fluctuates with market conditions and the value of the underlying securities. A UIT typically will redeem shares at the net asset value (NAV), though it depends on the policy of the trust.
Technical Note: A third type of investment company, known as a face-amount certificate company, issues debt securities that guarantee payment of a specific sum (the face amount) in the future. In exchange, the certificate's holder typically makes either a lump-sum initial payment or periodic payments to the face-amount certificate issuer. Only a few face-amount certificate companies are still in existence.
Some companies that would seem to be investment companies are actually excluded from the legal definition. Examples include private investment funds with no more than 100 investors or whose investors are considered qualified investors with substantial income and/or net worth, such as hedge funds.
Investment vehicles are not the same thing as investment companies. They do not represent a security per se, but a particular method for holding securities, or a unique way of investing in certain asset classes.
Exchange-traded funds
Like a mutual fund, an exchange-traded fund (ETF) is considered an investment company and is regulated under the Investment Company Act of 1940. However, an exchange-traded fund is priced and traded throughout the day and can be bought on margin or sold short--in other words, it's traded much as a stock is. Also, an ETF may be structured somewhat differently from a mutual fund in terms of how the fund buys and sells securities. Most ETFs are passively managed to try to replicate the performance of an index. An ETF may be structured as either an open-end fund or a unit investment trust.
Closed-end funds
A closed-end fund has some of the characteristics of a management company, but also resembles a unit investment trust in some ways. Like many open-end mutual funds, it is professionally managed and can be either diversified or nondiversified. However, it is similar to a unit investment trust in that it is priced and traded throughout the day on market exchanges. Also, the number of shares is fixed, and shares are generally not redeemed by the company that issues them. Share price is determined by supply and demand.
Other investment vehicles
Separately managed accounts (SMAs)
A separately managed account is a personal investment account that is customized and managed for you by one or more professional money managers. In an SMA, your assets are not commingled with those of other investors. With a mutual fund, you buy and sell shares of the fund. Even though each fund share represents a proportionate ownership of individual securities within the fund, your share of each of those securities is tiny. By contrast, you are the sole owner of each security within your separately managed account. You also can place securities you already own in an SMA; with mutual funds, you can't. As a result, you and your financial professional have more control over management of specific investments in an SAM. An SMA typically focuses on one asset class--for example, equities.
Unified managed accounts (UMAs)
Unified managed accounts are an outgrowth of the separately managed account concept. They offer a more efficient way to manage the asset allocation process and integrate a variety of investment vehicles. A separately managed account typically has a single investment manager (or management firm), and often invests in only one type of asset. A unified managed account allows you (or your financial professional) to aggregate multiple asset managers and investment vehicles within one account, and make investment decisions in the context of a much broader view of your overall finances.
Wrap accounts
A wrap account is a type of account that offers unlimited transactions within the account and charges a quarterly or annual fee (usually a percentage of the assets in the account) that covers all investing costs, including trading costs. It also may offer suggestions about how to invest those assets based on your investment objectives and risk tolerance. A mutual fund wrap account is typically made up of only mutual funds; a nondiscretionary advisory account is offered by brokerage houses and can hold a broader range of investments.
This article was provided by Forefield and distributed by Lawrence Sprung.
There are many ways to invest in stocks, bonds, cash alternatives, real estate, and commodities. For example, you can buy individual stocks and bonds, apartment or office buildings, and commodity futures. However, unless you're able to afford a wide variety of individual securities or property, you may not be able to diversify sufficiently. Though diversification can't guarantee a profit or protect against the possibility of loss, it can help cushion the impact of a loss in a single security.
To achieve greater diversification than they might be able to manage on their own, many people choose to use an investment vehicle that offers the ability to put money into multiple securities with a single investment. Such investments also may offer other advantages, such as expertise in selecting specific securities, greater convenience, or lower costs than would be required to invest in the same assortment of securities individually. However, each type also involves its own type of risk apart from the risks involved with the individual securities it includes.
Depending on how a specific investment vehicle is structured, it may be classified as an investment company and regulated by the Securities and Exchange Commission (SEC). There are two major types of investment companies: management companies and unit investment trusts. With all investment companies, you should carefully consider a prospective purchase's investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the issuer. Read it carefully before investing.
·Management companies--Management companies are usually structured as a corporation or trust, typically with a separate investment advisor that takes care of the actual purchase and sale of securities. A management company may be an open-end company that continuously offers an unlimited number of shares that can be redeemed directly with the issuer; mutual fundsare the most prominent example of open-end companies. By contrast, a closed-end companygenerally issues a fixed number of shares but does not directly redeem those shares from the public.
·Unit investment trusts(UITs)--UITs generally invest in a relatively fixed selection of securities that are held for a specified period of time (often one to five years) and issue a fixed number of so-called units to the public when the trust is initially offered. There is typically little or no trading of securities within the UIT during the life of the trust, and therefore little active management. The market value of the trust fluctuates with market conditions and the value of the underlying securities. A UIT typically will redeem shares at the net asset value (NAV), though it depends on the policy of the trust.
Technical Note: A third type of investment company, known as a face-amount certificate company, issues debt securities that guarantee payment of a specific sum (the face amount) in the future. In exchange, the certificate's holder typically makes either a lump-sum initial payment or periodic payments to the face-amount certificate issuer. Only a few face-amount certificate companies are still in existence.
Some companies that would seem to be investment companies are actually excluded from the legal definition. Examples include private investment funds with no more than 100 investors or whose investors are considered qualified investors with substantial income and/or net worth, such as hedge funds.
Investment vehicles are not the same thing as investment companies. They do not represent a security per se, but a particular method for holding securities, or a unique way of investing in certain asset classes.
Exchange-traded funds
Like a mutual fund, an exchange-traded fund (ETF) is considered an investment company and is regulated under the Investment Company Act of 1940. However, an exchange-traded fund is priced and traded throughout the day and can be bought on margin or sold short--in other words, it's traded much as a stock is. Also, an ETF may be structured somewhat differently from a mutual fund in terms of how the fund buys and sells securities. Most ETFs are passively managed to try to replicate the performance of an index. An ETF may be structured as either an open-end fund or a unit investment trust.
Closed-end funds
A closed-end fund has some of the characteristics of a management company, but also resembles a unit investment trust in some ways. Like many open-end mutual funds, it is professionally managed and can be either diversified or nondiversified. However, it is similar to a unit investment trust in that it is priced and traded throughout the day on market exchanges. Also, the number of shares is fixed, and shares are generally not redeemed by the company that issues them. Share price is determined by supply and demand.
Other investment vehicles
Separately managed accounts (SMAs)
A separately managed account is a personal investment account that is customized and managed for you by one or more professional money managers. In an SMA, your assets are not commingled with those of other investors. With a mutual fund, you buy and sell shares of the fund. Even though each fund share represents a proportionate ownership of individual securities within the fund, your share of each of those securities is tiny. By contrast, you are the sole owner of each security within your separately managed account. You also can place securities you already own in an SMA; with mutual funds, you can't. As a result, you and your financial professional have more control over management of specific investments in an SAM. An SMA typically focuses on one asset class--for example, equities.
Unified managed accounts (UMAs)
Unified managed accounts are an outgrowth of the separately managed account concept. They offer a more efficient way to manage the asset allocation process and integrate a variety of investment vehicles. A separately managed account typically has a single investment manager (or management firm), and often invests in only one type of asset. A unified managed account allows you (or your financial professional) to aggregate multiple asset managers and investment vehicles within one account, and make investment decisions in the context of a much broader view of your overall finances.
Wrap accounts
A wrap account is a type of account that offers unlimited transactions within the account and charges a quarterly or annual fee (usually a percentage of the assets in the account) that covers all investing costs, including trading costs. It also may offer suggestions about how to invest those assets based on your investment objectives and risk tolerance. A mutual fund wrap account is typically made up of only mutual funds; a nondiscretionary advisory account is offered by brokerage houses and can hold a broader range of investments.
This article was provided by Forefield and distributed by Lawrence Sprung.
Monday, December 12, 2011
College Board Releases New College Cost Numbers
College Cost Trends
Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases and trends. While costs can vary significantly by region and individual college, the College Board publishes average cost figures, which are based on its survey of 3,500 colleges across the country.
Here are highlights from its latest report:
At four-year public colleges for in-state students, tuition and fees increased an average of 7.9% from last year to $7,605, and room and board costs increased an average of 4.6% to $8,535.
Total average cost for 2010/2011 is $20,339.
At four-year public colleges for out-of-state students, tuition and fees increased an average of 6.0% from last year to $19,595, and room and board costs increased an average 4.6% to $8,535. Total average cost for 2010/2011 is $32,329.
At four-year private colleges, tuition and fees increased an average of 4.5% from last year to $27,293, and room and board costs increased an average of 3.9% to $9,700. Total average cost for the 2010/2011 year is $40,476.
“Total average cost” includes tuition and fees, room and board, books and supplies, transportation, and a small amount for miscellaneous expenses.
To read the Trends in College Pricing report, visit www.trends-collegeboard.com.
Student Aid Trends
The College Board notes that the average cost figure is not necessarily representative of what most college students pay. That's because approximately two-thirds of undergraduate students receive grants that reduce the actual price of college. The largest provider of grant aid is individual colleges, followed by the federal government, private sources and employers, and state governments. Some students and their parents also benefit from federal education tax benefits.
The College Board estimates that for the 2010/2011 academic year, students at public colleges will receive an average of $6,100 in grant aid from all sources and federal tax benefits, while students at private colleges will receive an average of $16,000 in grant aid from all sources and federal tax benefits. Federal tax benefits include the American Opportunity tax credit (formerly called the Hope credit), the Lifetime Learning tax credit, and the deduction for qualified higher education expenses.
Every year, the College Board releases a sister report to Trends in College Pricing, called Trends in Student Aid, that examines student financial aid in more detail. To read this report, visit www.trends-collegeboard.com.
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
This article was provided by Forefield and distributed by Lawrence Sprung.
Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases and trends. While costs can vary significantly by region and individual college, the College Board publishes average cost figures, which are based on its survey of 3,500 colleges across the country.
Here are highlights from its latest report:
At four-year public colleges for in-state students, tuition and fees increased an average of 7.9% from last year to $7,605, and room and board costs increased an average of 4.6% to $8,535.
Total average cost for 2010/2011 is $20,339.
At four-year public colleges for out-of-state students, tuition and fees increased an average of 6.0% from last year to $19,595, and room and board costs increased an average 4.6% to $8,535. Total average cost for 2010/2011 is $32,329.
At four-year private colleges, tuition and fees increased an average of 4.5% from last year to $27,293, and room and board costs increased an average of 3.9% to $9,700. Total average cost for the 2010/2011 year is $40,476.
“Total average cost” includes tuition and fees, room and board, books and supplies, transportation, and a small amount for miscellaneous expenses.
To read the Trends in College Pricing report, visit www.trends-collegeboard.com.
Student Aid Trends
The College Board notes that the average cost figure is not necessarily representative of what most college students pay. That's because approximately two-thirds of undergraduate students receive grants that reduce the actual price of college. The largest provider of grant aid is individual colleges, followed by the federal government, private sources and employers, and state governments. Some students and their parents also benefit from federal education tax benefits.
The College Board estimates that for the 2010/2011 academic year, students at public colleges will receive an average of $6,100 in grant aid from all sources and federal tax benefits, while students at private colleges will receive an average of $16,000 in grant aid from all sources and federal tax benefits. Federal tax benefits include the American Opportunity tax credit (formerly called the Hope credit), the Lifetime Learning tax credit, and the deduction for qualified higher education expenses.
Every year, the College Board releases a sister report to Trends in College Pricing, called Trends in Student Aid, that examines student financial aid in more detail. To read this report, visit www.trends-collegeboard.com.
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
This article was provided by Forefield and distributed by Lawrence Sprung.
Monday, December 5, 2011
Keeping Market Volatility in Perspective
When markets are volatile, sticking to a long-term investing strategy can be a challenge. To keep the ups and downs in perspective, it might help to look at past market cycles to see how recent market action compares.
Bears versus bulls
Corrections of 10% or more and bear markets of at least 20% are a regular occurrence. Since 1929, there have been 18 previous 20%-plus bear markets (not including 2011 market action). Losses on the S&P 500 in those markets ranged from almost 21% in 1948-1949 to 83% during 1930-1932; the average loss for all 18 bears was 37%.*
However, since 1929, the average bull market has tended to last almost twice as long as the average bear, and has produced average gains of about 79%.* Individual bull market gains have ranged from 21.4% at the end of 2001 to the nearly 302% increase registered during the 1990s.* The worst annual loss--47%--occurred in 1931, but the all-time best annual return--a capital appreciation gain of just under 47%--happened just two years later in 1933.**
Points of reference
This year has seen extreme volatility, with weeks and even days when swings of several hundred points in both directions on the Dow seemed to become commonplace. In the first week of August alone, 2 of the Dow's 11 best days in history alternated with 2 of its 11 worst daily point losses ever.***
While by no means normal, the highs and lows are hardly unprecedented. Even though the 634-point drop on August 8 felt historic, it didn't begin to match the real record-holders. The single biggest daily decline occurred in September 2008, when the Dow fell 778 points. The biggest percentage drop was October 1987's "Black Monday," when the Dow fell almost 23%; that makes the Dow's 5.5% loss on August 8 of this year seem relatively tame by comparison. And August 8 was followed by the Dow's 10th best day ever, with a gain of 430 points. While that upward movement may seem exceptional, the Dow's best day ever came during the dark days of October 2008, when a 936-point move up on October 13 represented a gain of more than 11% in a single day.***
Stocks versus bonds
The last decade has been a challenging one for stocks. Between 2001 and 2010, the S&P 500 had an average annual total return of just 1.4%, while the equivalent figure for Treasury bonds was 6.6%.**** For much of that time, interest rates were falling, helping bonds to outperform stocks. However, interest rates are now at record lows, and rising rates could change the relative performance of stocks and bonds.
Many experts predict that the global economic recovery will continue to create an uncertain investing environment in coming years, with both strong rallies and strong downdrafts. While there may be ongoing volatility in the markets that needs to be monitored, it's important to keep things in perspective; your ability to meet your long-term goals could be affected if you change your overall game plan with every new headline.
Past performance is no guarantee of future results. Market indices listed are unmanaged and are not available for direct investment. All investing involves risk, including the risk of loss of principal, and there can be no guarantee that any investment strategy will be successful. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The Standard & Poor's 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
DATA SOURCES: *Bull and bear market time frames, gains/losses: all calculations based on data from the Stock Trader's Almanac 2011 for the Standard & Poor's 500.
**1931 and 1933 annual stock returns: based on Ibbotson SBBI data for capital appreciation of S&P 500.
***Based on data from the Stock Trader's Almanac 2011 .
**** 10-year rolling stock returns: based on Ibbotson SBBI data for annual total returns between 2001 and 2010 of S&P 500 and an index of U.S. Treasury bonds with an approximate 20-year maturity.
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
Bears versus bulls
Corrections of 10% or more and bear markets of at least 20% are a regular occurrence. Since 1929, there have been 18 previous 20%-plus bear markets (not including 2011 market action). Losses on the S&P 500 in those markets ranged from almost 21% in 1948-1949 to 83% during 1930-1932; the average loss for all 18 bears was 37%.*
However, since 1929, the average bull market has tended to last almost twice as long as the average bear, and has produced average gains of about 79%.* Individual bull market gains have ranged from 21.4% at the end of 2001 to the nearly 302% increase registered during the 1990s.* The worst annual loss--47%--occurred in 1931, but the all-time best annual return--a capital appreciation gain of just under 47%--happened just two years later in 1933.**
Points of reference
This year has seen extreme volatility, with weeks and even days when swings of several hundred points in both directions on the Dow seemed to become commonplace. In the first week of August alone, 2 of the Dow's 11 best days in history alternated with 2 of its 11 worst daily point losses ever.***
While by no means normal, the highs and lows are hardly unprecedented. Even though the 634-point drop on August 8 felt historic, it didn't begin to match the real record-holders. The single biggest daily decline occurred in September 2008, when the Dow fell 778 points. The biggest percentage drop was October 1987's "Black Monday," when the Dow fell almost 23%; that makes the Dow's 5.5% loss on August 8 of this year seem relatively tame by comparison. And August 8 was followed by the Dow's 10th best day ever, with a gain of 430 points. While that upward movement may seem exceptional, the Dow's best day ever came during the dark days of October 2008, when a 936-point move up on October 13 represented a gain of more than 11% in a single day.***
Stocks versus bonds
The last decade has been a challenging one for stocks. Between 2001 and 2010, the S&P 500 had an average annual total return of just 1.4%, while the equivalent figure for Treasury bonds was 6.6%.**** For much of that time, interest rates were falling, helping bonds to outperform stocks. However, interest rates are now at record lows, and rising rates could change the relative performance of stocks and bonds.
Many experts predict that the global economic recovery will continue to create an uncertain investing environment in coming years, with both strong rallies and strong downdrafts. While there may be ongoing volatility in the markets that needs to be monitored, it's important to keep things in perspective; your ability to meet your long-term goals could be affected if you change your overall game plan with every new headline.
Past performance is no guarantee of future results. Market indices listed are unmanaged and are not available for direct investment. All investing involves risk, including the risk of loss of principal, and there can be no guarantee that any investment strategy will be successful. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The Standard & Poor's 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
DATA SOURCES: *Bull and bear market time frames, gains/losses: all calculations based on data from the Stock Trader's Almanac 2011 for the Standard & Poor's 500.
**1931 and 1933 annual stock returns: based on Ibbotson SBBI data for capital appreciation of S&P 500.
***Based on data from the Stock Trader's Almanac 2011 .
**** 10-year rolling stock returns: based on Ibbotson SBBI data for annual total returns between 2001 and 2010 of S&P 500 and an index of U.S. Treasury bonds with an approximate 20-year maturity.
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
Monday, November 28, 2011
Year-End Tax Planning: 10 Things to Keep in Mind
The window of opportunity for many tax-saving moves closes on December 31. So set aside some time to evaluate your tax situation now, while there's still time to affect your bottom line for the current tax year. With that in mind, here are 10 things to consider as the curtain closes on 2011.
1. Deferring income to 2012 means postponing taxes
Consider opportunities you might have to defer income to 2012. You might be able to delay a year-end bonus, for example. If you're able to push what would have been 2011 income into 2012, you may be able to put off paying income tax on the deferred dollars until next year.
2. Paying deductible expenses sooner may help you in 2011
Does it make sense for you to accelerate deductions into 2011? If you itemize deductions, it might help your 2011 bottom line to pay deductible expenses like medical costs, qualifying interest, and state and local taxes before the end of the year, instead of waiting until 2012.
3. Income tax rates to remain the same in 2012
The same six federal income tax rates that apply in 2011 will apply in 2012. So, depending upon your income, you'll fall into either the 10%, 15%, 25%, 28%, 33%, or 35% rate bracket. And, as in 2011, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15% in 2012; and if you're in the 10% or 15% tax rate brackets, a special 0% tax rate will generally continue to apply.
4. Is AMT a factor?
If you're subject to the alternative minimum tax (AMT), special rules apply. For example, the AMT rules can effectively disallow a number of itemized deductions, making it a potentially significant consideration when it comes to year-end planning. You're more likely to be subject to AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions. If you've been subject to the AMT in the past, or think that you might be for 2011, you'll want to make sure that you understand how the AMT rules might affect you.
5. IRA and retirement plan contributions
Employer-sponsored retirement plans like 401(k) plans and traditional IRAs (if you qualify to make deductible contributions) present an opportunity to contribute funds on a pre-tax basis, reducing your 2011 taxable income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) aren't deductible, so there's no tax benefit for 2011--they're still worth considering, though, because qualified distributions are free from federal income tax. The window to make 2011 contributions to your employer plan closes at the end of the year, but you can generally make 2011 contributions to your IRA up to April 17, 2012.
6. Special distribution requirements at age 70½
Once you reach age 70½, you're generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. It's important to make withdrawals by the date required--the end of the year for most individuals. The penalty is steep for failing to do so: 50% of the amount that should have been distributed. Barring additional legislation, 2011 will be the last year to take advantage of a popular provision allowing individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity (these charitable distributions are excluded from your income, and count toward satisfying any RMDs that you would otherwise have to take from your IRA for 2011).
7. Depreciation and expense limits to drop for business owners and the self-employed
If you're a small business owner or a self-employed individual, you're allowed a first-year depreciation deduction of 100% of the cost of qualifying property acquired and placed in service during 2011; this "bonus" first-year additional depreciation deduction will drop to 50% for property acquired and placed in service during 2012. For 2011, the maximum amount that can be expensed under IRC Section 179 is $500,000, but in 2012 the limit will drop to $139,000.
8. Last chance to deduct energy-efficient home improvements
This is the last year you'll be able to claim a credit for energy-efficient improvements you make to your home (up to 10% of the cost of qualifying property). Improvements can include a qualifying roof, windows, skylights, exterior doors, and insulation materials. Specific credit amounts may also be available for the purchase of energy-efficient furnaces and hot water boilers. However, there's a lifetime credit cap of $500 ($200 for windows). So, if you've claimed the credit in the past--in one or more years since 2005--you're only entitled to the difference between the current cap and the amount you've claimed in the past.
9. Other expiring provisions
Barring additional legislation, this is the last year that you'll be able to elect to deduct state and local general sales tax in lieu of state and local income tax, if you itemize deductions. This also will be the last year for both the above-the-line deduction for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.
10. Get help
Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities, and can keep you apprised of any last-minute legislative changes.
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
1. Deferring income to 2012 means postponing taxes
Consider opportunities you might have to defer income to 2012. You might be able to delay a year-end bonus, for example. If you're able to push what would have been 2011 income into 2012, you may be able to put off paying income tax on the deferred dollars until next year.
2. Paying deductible expenses sooner may help you in 2011
Does it make sense for you to accelerate deductions into 2011? If you itemize deductions, it might help your 2011 bottom line to pay deductible expenses like medical costs, qualifying interest, and state and local taxes before the end of the year, instead of waiting until 2012.
3. Income tax rates to remain the same in 2012
The same six federal income tax rates that apply in 2011 will apply in 2012. So, depending upon your income, you'll fall into either the 10%, 15%, 25%, 28%, 33%, or 35% rate bracket. And, as in 2011, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15% in 2012; and if you're in the 10% or 15% tax rate brackets, a special 0% tax rate will generally continue to apply.
4. Is AMT a factor?
If you're subject to the alternative minimum tax (AMT), special rules apply. For example, the AMT rules can effectively disallow a number of itemized deductions, making it a potentially significant consideration when it comes to year-end planning. You're more likely to be subject to AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions. If you've been subject to the AMT in the past, or think that you might be for 2011, you'll want to make sure that you understand how the AMT rules might affect you.
5. IRA and retirement plan contributions
Employer-sponsored retirement plans like 401(k) plans and traditional IRAs (if you qualify to make deductible contributions) present an opportunity to contribute funds on a pre-tax basis, reducing your 2011 taxable income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) aren't deductible, so there's no tax benefit for 2011--they're still worth considering, though, because qualified distributions are free from federal income tax. The window to make 2011 contributions to your employer plan closes at the end of the year, but you can generally make 2011 contributions to your IRA up to April 17, 2012.
6. Special distribution requirements at age 70½
Once you reach age 70½, you're generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. It's important to make withdrawals by the date required--the end of the year for most individuals. The penalty is steep for failing to do so: 50% of the amount that should have been distributed. Barring additional legislation, 2011 will be the last year to take advantage of a popular provision allowing individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity (these charitable distributions are excluded from your income, and count toward satisfying any RMDs that you would otherwise have to take from your IRA for 2011).
7. Depreciation and expense limits to drop for business owners and the self-employed
If you're a small business owner or a self-employed individual, you're allowed a first-year depreciation deduction of 100% of the cost of qualifying property acquired and placed in service during 2011; this "bonus" first-year additional depreciation deduction will drop to 50% for property acquired and placed in service during 2012. For 2011, the maximum amount that can be expensed under IRC Section 179 is $500,000, but in 2012 the limit will drop to $139,000.
8. Last chance to deduct energy-efficient home improvements
This is the last year you'll be able to claim a credit for energy-efficient improvements you make to your home (up to 10% of the cost of qualifying property). Improvements can include a qualifying roof, windows, skylights, exterior doors, and insulation materials. Specific credit amounts may also be available for the purchase of energy-efficient furnaces and hot water boilers. However, there's a lifetime credit cap of $500 ($200 for windows). So, if you've claimed the credit in the past--in one or more years since 2005--you're only entitled to the difference between the current cap and the amount you've claimed in the past.
9. Other expiring provisions
Barring additional legislation, this is the last year that you'll be able to elect to deduct state and local general sales tax in lieu of state and local income tax, if you itemize deductions. This also will be the last year for both the above-the-line deduction for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.
10. Get help
Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities, and can keep you apprised of any last-minute legislative changes.
Neither Mitlin Financial, Inc., Forefield Inc. or Forefield AdvisorTM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Mitlin Financial Inc. and the Forefield companies are unaffiliated.
Subscribe to:
Posts (Atom)
Posts
