Values and Living Well
November 18, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Most of my posts are pure financial planning. Looking at the dollars and cents of how to use your financial resources most efficiently. However, I find from time to time it’s helpful to take a step back and look at the bigger picture of how money inter-relates with so many other aspects of our lives. If you’re looking for hard-core financial knowledge, you’ll want to skip this category of posts. Or, if you like to occasionally walk on the philosophical side of life, I hope my musings provoke your own thinking. Feel free to comment.
An important part of living well to me is having my values in sync with my lifestyle. In addition to all the other reasons, that’s one of the main elements that attracted me financial planning because being financially responsible and helping people are two of my top values. I also really wanted to believe in the work I was doing and feel that it served a higher purpose. Providing the tools, motivation, and knowledge for people to make sense of their relationship with money fits right into this.
I had the opportunity on Saturday morning to participate in a wonderful session that brought me back to re-examine my values. Life Coach and Business Consultant Kristin Robertson of Brio Leadership led a wonderful 3-hour session called “Building the Temple of Well Being.” She walked us through activities that looked at how we spend our time and our money and how that reveals our true values. She talked about the difference between the values these two exercises revealed and our aspirational values — the ones we’d really like to have. We also did several activities to reconnect with our spirituality in our daily lives. I found the focus on gratitude and forgiveness as definitive actions that promote personal happiness, optimism, and satisfaction a wonderful reminder that we determine much of our level of happiness in daily life through our actions. If you’d like to read more about Kristin’s workshops or life coaching practice, I encourage you to check out her blog at www.brioleadership.com.
Bailout Bill Tax Changes Affecting Business
November 18, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The Emergency Economic Stabilization Act of 2008, referred to by some as the “bailout bill,” or, as others prefer to call it, the “rescue plan,” was recently enacted in an attempt to help stabilize the turmoil in the U.S. economy. While a great deal of the attention has been focused on the bailout provisions of the Act, there are also significant tax law changes affecting businesses and corporations. Here are some of the most noteworthy.
Extension and modification of research and development credit
Anxiously awaited by many companies, the research tax credit–generally equal to 20% of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed a base amount for that year–is extended through December 31, 2009.
In addition, the alternative simplified research credit increases from 12% to 14%, effective for tax years ending December 31, 2008. Further, the alternative incremental research credit is repealed for tax years beginning after December 31, 2008.
Extension of new markets tax credit
Current law provides a tax credit for taxpayers who make a qualified equity investment in a qualified community development entity (CDE). This provision was set to expire December 31, 2008. EESA extends it through 2009. For 2009, up to $3.5 billion in qualified equity investments are permitted.
Extension and modification of other business tax credits and deductions
- The Indian employment tax credit is extended through December 31, 2009.
- The election to expense costs related to film and television productions is extended to 2009.
- The placed-in-service and construction requirements for the IRC Section 179C election to expense 50% of the cost of eligible qualified refinery property is extended two years to property placed-in-service through 2013.
- The 15-year MACRS recovery period for qualified leasehold improvement property, restaurant improvements and buildings, and qualified retail improvement property is extended to apply to property placed in service in 2008 and 2009.
- Machinery or equipment (other than a grain bin, cotton ginning asset, fence, or land improvement) that is used in a farming business, where the original use of the machinery or equipment commences in 2009, is treated as 5-year property for purposes of claiming MACRS depreciation.
Extension and modification of incentives for charitable giving
- The enhanced deduction for charitable donations of food inventory by noncorporate taxpayers that are engaged in a trade or business is extended for contributions made on or before December 31, 2009. The 10% limitation is temporarily eliminated for food contributions by certain farmers and ranchers.
- The enhanced deduction for corporate donations of book inventory to public schools is extended for contributions made on or before December 31, 2009.
Modification of other business tax incentives
- The District of Columbia empowerment zone provisions are extended to apply in 2008 and 2009.
- Compensation from nonqualified deferred compensation plans maintained by offshore corporations will generally be taxable when it is not subject to substantial risk of forfeiture.
Changes to energy conservation incentives
- The placed-in-service date for the IRC Section 45 credit is extended through December 31, 2009 in the case of wind and refined coal, and through December 31, 2010 in the case of other sources. The Act expands the types of facilities qualifying for the credit to new biomass facilities and to those that generate electricity from marine renewables (e.g., waves and tides). The Act updates the definition of an open-loop biomass facility, the definition of a trash combustion facility, and the definition of a non-hydroelectric dam. The Act also increases emissions standards on the refined coal credit and removes its market value test.
- The 30% investment tax credit for solar energy property and qualified fuel cell property, as well as the 10% investment tax credit for microturbines, is extended through 2016. The Act increases the $500 per half kilowatt of capacity cap for qualified fuel cells to $1,500 per half kilowatt of capacity, and adds small commercial wind as a category of qualified investment. The Act also provides a new 10% investment tax credit for combined heat and power systems and geothermal heat pumps. The Act allows these credits to be used to offset the alternative minimum tax (AMT).
- The credit available to contractors for the construction or manufacture of new energy-efficient homes is extended through December 31, 2009.
- The credit allowed for the manufacture of energy-efficient dishwashers, clothes washers, and refrigerators is extended through 2010. Additionally, the standards that the manufactured appliances must meet for application of the credit have been modified.
Midwestern, Hurricane Ike, and other disaster relief
- A special five-year carryback period for net operating losses (NOLs) is created for qualified disaster losses.
- A business can expense qualified disaster expenses after 2007, instead of capitalizing these costs
- An additional 50% depreciation allowance can be claimed for real and personal business property that is purchased to rehabilitate or replace similar property that is destroyed or condemned as a result of a presidentially-declared disaster. The provision applies to property placed in service after December 31, 2007, with respect to disasters declared after that date and occurring before January 1, 2010.
- The maximum IRC Section 179 expense allowance and investment limitation amount are both increased (by $100,000 and $600,000, respectively) for qualified IRC Section 179 disaster assistance property placed in service after 2007, with respect to disasters declared after 2007 and occurring before January 1, 2010.
- Many of the tax benefits extended to the victims of Hurricanes Katrina, Wilma, and Rita are modified and available for victims of the severe storms, tornados, and flooding that hit the “Midwestern Disaster Area” between May 20, 2008 and August 1, 2008. The “Midwestern Disaster Area” includes areas in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
FUTA surtax
The Act also extends the current temporary additional 0.2% FUTA surtax through December 31, 2009.
Dummies Excerpt Now Available
November 18, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Book now on sale!
Investing in an Uncertain Economy for Dummies came out in October this year. The book is by Sheryl Garrett and the Garrett Planning Network, and I am proud to be a contributor. I wrote Chapter 37, Sort Through an Investment’s Return. Wiley (the publisher) has now provided the electronic version of my chapter for posting, so you can click on the link to read it: Dummies Final Published Version. Enjoy!
I will be doing a free seminar at the Keller Public Library on December 1 on Saving for Retirement, and will be giving away a copy of the book at that event. Get the full information here.
KFP Ribbon Cutting last week
November 17, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The Keller Chamber of Commerce held a ribbon cutting at my office on November 12. Much thanks to all of the Chamber members and others who attended. We had a lot of fun!
- members of the Chamber
Melynda Lilly, Ambit Energy
Investment News quotes Jean
November 9, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
In an article on the performance of big mutual funds in the recent market downtown, Sue Asci writes about how 60% of the big mutual funds are under-performing the S&P 500 Index. I was quoted on how the under-performance is making investors more willing to consider an index strategy. See the full article on Investment News’ website.
November 2008 Newsletter
November 7, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
View the November 2008 Newsletter
Ten Gifting Traps to Avoid
November 6, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Lifetime gifting can be a powerful estate planning tool. Transferring property during your life, instead of at your death, has many advantages. Making lifetime gifts can be desirable for personal reasons (e.g., to help your children or other family members) or for financial reasons (e.g., saving taxes). No matter what your reasons for starting a gifting program, there are a few gifting traps you should be aware of.
1. The kiddie tax rules
Beware of the kiddie tax rules when transferring income-producing property to your children. Investment income over $1,800 (for 2008) will be taxed at your marginal income tax rate, not your child’s.
The kiddie tax rules apply to children who are: (1) under age 18, (2) age 18 with earned income that doesn’t exceed one-half of their support, and (3) ages 19 to 23 who are full-time students with earned income that doesn’t exceed one-half of their support.
2. Gifts of retained interests or powers
Be careful when making gifts of property in which you retain some financial interest (e.g., a life estate, right of reversion, or right of revocation) or powers (e.g., the power of appointment). This property may be includible in your estate for estate tax purposes.
For example, say you transfer ownership of your home to your son on the condition that you’re allowed to continue living in the home for the rest of your life. You have retained a financial interest in the home, and this interest may be includible in your estate for estate tax purposes.
3. Income taxation of gifts made to a trust
Some types of trusts are taxpaying entities, which are taxed at more compressed income tax rates than individual taxpayers. If you’ll be using such a trust, be sure to consider the consequences of paying income tax on trust income at higher income tax rates.
4. Delays in making a gift of life insurance
Do not delay making a gift of a life insurance policy on your life. A transfer of an insurance policy by gift within three years of death results in the proceeds being includible in your estate for estate tax purposes.
5. Delays in planning your estate to meet percentage tests
Do not delay removing certain nonbusiness assets to help your estate meet the percentage tests to qualify for Section 303 (redemption of stock), Section 2032A (special use valuation), or Section 6166 (installment payout of taxes) tax treatment. This technique will work only if the gift is made more than three years prior to your death.
6. Payments for tuition or medical care made to the donee
Payments you make for tuition or medical care on behalf of another are exempt from federal gift tax. However, to qualify, you must make the gifts directly to the educational or medical institution–do not make such payments to the donee.
7. Overlooking gift splitting
For 2008, you can give $12,000 per donee federal gift tax free under the annual gift tax exclusion. There is also a gift-splitting privilege for spouses who qualify that can double the exclusion.
8. “Reverse” gifting if death is imminent
Reverse gifting is a technique where a healthy individual transfers low-basis assets to a dying individual. If the decedent lives for more than one year from the date of the transfer, the basis gets stepped up to fair market value. However, the basis will not get stepped up if the decedent dies within a year of receiving the gift, and should this happen, you may end up needlessly paying gift tax and/or using up your $1 million gift tax applicable exclusion amount.
9. Overlooking the benefit of taxable lifetime gifts
Don’t assume that lifetime gifts and transfers made at death result in the same tax effect. Paying gift tax on taxable lifetime gifts can result in an overall tax savings because the tax you pay is also removed from your estate.
10. Selecting property that does not attain your tax-savings objectives
There are some types of property that you should avoid giving if you want to enjoy tax savings, such as property that has depreciated in value or is likely to depreciate.
Silver Lining in the Market Downturn
November 6, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
When you look at your retirement plan statement and it’s down 30% or more from a couple months ago, it’s hard to believe there might be a silver lining there somewhere. While the market downturn has created a tremendous amount of anxiety and it’s caused a significant change in plans for some who planned to retire in the next couple of years or who had recently retired, there are still some potential opportunities created depending on your situation and stage in life. This list isn’t exhaustive, but hopefully it gets you thinking a bit more optimistically about these economically challenging times.Buying Opportunity
First, we’ve all heard that the downturn is a “buying opportunity.” That’s easy to say, much harder to do. But I would encourage you to give it serious consideration if you have money sitting in cash that you’re not going to need for the next 5-10 years. Warren Buffet writes eloquently on this topic in his op-ed column “Buy American. I am.” in the NY Times on October 17. Click on the article title to link to the NY Times website and read the article.
Roth Conversions On Sale
The second silver lining created by this situation is an opportunity to do Roth conversions “on sale.” This opportunity isn’t available to everyone this year, only those with incomes under $100K. But if you are eligible, this could be a great time to convert traditional IRAs to Roths. You will need to pay the income taxes when you do the conversion, but you’ll 
bepaying taxes on a much-reduced amount verses last year at this time or what your account may have recovered to in a couple of years. For example, if you had a traditional IRA worth $100,000 last year and it’s worth $65,000 now and you’re in the 28% tax bracket, converting it now would only cost you $18,200 in federal income taxes vs. the $28,000 it would have cost you a year ago — a savings of almost $10,000. There are some nuances to this strategy and it’s not right for everyone, so make sure you research the details or talk with a financial planner (preferably me) before moving forward.
Using Losses to Offset Capital Gains
The third opportunity is to “harvest losses” to offset capital gains. If you have long-term property you’ve held that’s appreciated in value and you plan to sell it in the future, you may want to consider acting now because of potential tax savings. If you sell the capital-gain property along with investments that have significant losses, they could offset each other and you would avoid paying capital gains taxes on the property that increased in value. There’s also a significant chance that capital gains tax rates may be higher in the future. Again, there are nuances to this strategy as well … so do your homework before jumping in.
Opportunity to Re-Examine
The last opportunity really applies to everyone. We go through life every day and it’s very easy to get into routines and habits where we basically stop thinking. But then something major happens that makes us feel less secure and makes us more willing to re-examine our lives and consider making changes. I believe this economic downturn is one of those things. The positive that can come out of this loss of a sense of security is that we may be willing to make that hard choice that we weren’t willing to make before.
It could be something small like committing to only 1 Starbucks a week instead of 5 and saving the other $14 — over a year that would mean $728 in the bank. Earning a 4% interest rate on your Starbucks savings, you would have saved $8,740 in 10 years. Not chump change.
Or it could be something big like really wanting to simplify your life. Downsizing a house. Making a decision to get out of credit card debt once and for all. Driving a car you can pay cash for. Big actions with big pay-offs.
So if you’re so inclined, I encourage you to take a moment and use this economic insecurity to do something positive for yourself. If you’ve already done this, I’d love to hear about it. You can post a comment to my website if you want it to be public, or just send me an e-mail.
Bail-Out Bill Tax Changes Affecting Individuals
November 6, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The Emergency Economic Stabilization Act of 2008, referred to by some as the “bailout bill,” or, as others prefer to call it, the “rescue plan,” was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. While a great deal of attention has been focused on the true bailout provisions of the Act, there are also a plethora of tax law changes affecting individual taxpayers. Here are some of the most noteworthy.
Extension of mortgage debt forgiveness
The Act extends for three additional years the exclusion from gross income for discharges of qualified principal residence indebtedness.
The Mortgage Forgiveness Debt Relief Act of 2007 provided an exclusion for the discharge of up to $2 million ($1 million if married filing separately) of Qualified Principal Residence Indebtedness that applies to debts discharged from January 1, 2007 through December 31, 2009. The Act extends the end date to December 31, 2012. The exclusion applies to foreclosures, deed-in-lieu of foreclosures, or any loan modification.
Note: “Qualified Principal Residence Indebtedness” is a debt incurred to acquire, construct, or substantially improve a principal residence.
One-year “patch” for the alternative minimum tax (AMT)
The 2008 AMT exemption amount for individuals is raised to $46,200 for singles, $69,950 for married couples filing jointly, and $34,975 for married couples filing separately. This is a one-year “patch.” Absent further legislation, the AMT exemption amounts in 2009 will be $33,750 (single), $45,000 (married filing jointly), and $22,500 (married filing separately).
The Act also modifies the way the AMT refundable credit is calculated, generally making it easier for individuals to utilize any AMT credit that is carried over from prior years.
Additionally, the Act offers specific relief to individuals who were unable to pay AMT liability that resulted from the exercise of incentive stock options (ISOs) in prior years.
Note: AMT exemption amounts are phased out for higher income taxpayers. For married couples filing jointly, phaseout starts when income exceeds $150,000. For unmarried individuals, the phase out threshold is $112,500, and for married individuals filing separately, the threshold is $75,000.
New tax credit for electric vehicles
The Act creates a new tax credit of $2,500 to $7,500 for plug-in electric vehicles. The credit will start to phase out for each manufacturer after 250,000 qualifying electric vehicles are sold. Vehicles that qualify will need to be certified under the Clean Air Act and meet low-emission standards. Higher tax credit amounts are also available for electric vehicles with gross vehicle weight ratings of more than 10,000 pounds.
New tax-free fringe benefit for bicyclists
The Act provides a new tax break for employees who commute by bicycle. Employers can provide a tax-free fringe benefit of up to $20 per month to cover “reasonable expenses incurred by the employee” for the purchase, improvement, repair, and storage of a bicycle that is regularly used to commute between the employee’s home and office. This bicycle fringe benefit will begin in 2009.
Extension and modification of energy tax credits
The Act extends and modifies the energy efficient property credit through 2016, and allows the credit to offset AMT liabilities. The Act also removes the $2,000 maximum limit on solar electric property. Two new types of equipment are added that would qualify for the credit: wind energy equipment will produce a tax credit worth 30% of the cost of the equipment, with a maximum credit of $4,000, and geothermal heat pumps would qualify for a credit worth 30% of the cost, with a maximum credit of $2,000.
The nonbusiness energy property credit is extended for property placed in service during 2009. This provides a credit of up to $500 for purchasing energy-saving products, such as windows, insulation, and HVAC systems. The Act also adds two new types of improvements that qualify for the credit: biomass fuel stoves with a thermal efficiency rating of 75% or more, and asphalt roofs with cooling granules.
Other tax changes
* The Act modifies the child tax credit for 2008 by lowering the income threshold for the refundability of the credit from $12,050 to $8,500.
* The deduction for up to $250 of personal expenditures by teachers, counselors, and principals in K-12 schools for materials and supplies is extended for 2008 and 2009. This is an “above-the-line” deduction: you need not itemize to take this deduction.
* IRA owners who have reached age 70½–and who must therefore begin to withdraw money from their retirement accounts–can contribute up to $100,000 of directly to a qualified charity without having to include the distribution in income. This tax benefit is extended for 2008 and 2009, but is only available for individuals over age 70½ by the end of the year.
* The Housing and Economic Recovery Act of 2008 established a new real property tax standard deduction for non-itemizers. The maximum deduction is $1,000 for married couples filing jointly and $500 for all others. This deduction can’t exceed the amount of state and local real property taxes that you actually pay during the year. This deduction was originally for 2008 only. The Emergency Economic Stabilization Act of 2008 extends it through 2009.
* The optional itemized deduction for state and local sales taxes (in lieu of deducting state and local income taxes) is extended for 2008 and 2009. You must claim itemized deductions on Schedule A of Form 1040 to take this deduction.
* The deduction for up to $4,000 of college tuition and related fees is extended for 2008 and 2009. This above-the-line deduction allows married couples (filing jointly) with incomes of $130,000 or less ($65,000 for individuals) to deduct up to $4,000 in higher education expenses and those couples (filing jointly) earning $130,000 to $160,000 ($65,000 to $80,000 for individuals) to deduct up to $2,000. As it is an “above-the line” deduction, if you qualify, you need not itemize to take it.
Focus on Fiduciary
November 3, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
What is a fiduciary? What’s the difference between a financial advisor who takes the fiduciary oath and one that doesn’t? See 3 videos at www.focusonfiduciary.org.