Know When to Sell

Deciding when to buy a stock is often easier than determining when to sell. As you’re reviewing your portfolio at year-end, consider these situations that may indicate the right time to sell.

When there are no tax consequences. If you hold stock in a retirement fund, you may want to reap gains with no tax impact.

To take money off the table. If a stock has had a nice run, you could sell a portion to recoup part of your investment. You can continue to invest in the stock but with locked-in gains.

A shift in fundamentals. Consider selling if the economy changes or an entire industry becomes vulnerable due to negative news.

When you’ve given up on a stock. If a stock has been declining or flat-lining for an extended period, selling low now can save you from having to sell even lower later on.

To take a contrarian position. If the market has gotten frothy and all the news is optimistic, choosing to harvest your gains could be a wise move.

When cash becomes attractive. A gloomy economic outlook could be reason to increase your cash reserves.

Having a disciplined selling strategy means giving as much thought to the sale of a stock as to the purchase. Contact us. We’re here to help.

Don’t Include the IRS on Your Gift List

Suppose a relative gives you an expensive painting. Several years later, your relative dies and you decide to sell the painting. Your accountant says you’ll owe capital gain tax on the sale, and asks for your basis in order to reduce the amount on which you’ll pay tax. What’s your answer?

When you sell property received as a gift, the general rule is that your basis is the donor’s cost basis. If you sell at a loss, your basis is the lower of the donor’s basis or the fair market value on the date you received the gift. These numbers are adjusted in some cases. But without cost records, you have no way of proving the donor’s basis and no way of saving yourself tax dollars.

If asking for records of the cost when you receive a gift seems inappropriate, explain why you want to know to help make the conversation less awkward. No one likes to pay unnecessary taxes. Having the same conversation about the cost of valuable gifts you received in prior-years is also worthwhile.

If you’re the gift-giver, offer the additional gift of presenting the cost records to the recipient at the same time. Otherwise, you may end up giving an unintended gift to the IRS in the form of unnecessary taxes.

How Social Security Benefits Are Taxed

Are you wondering if your social security retirement, survivor, and disability benefits will be subject to federal income tax on your 2016 return? Generally, when these benefits are taxed is determined by your “provisional income.”

Provisional income (PI) is the product of a formula used for no other purpose than figuring out the taxable percentage of social security benefits. To compute your provisional income, total your adjusted gross income, any tax-exempt interest or similar nontaxable revenue, and one-half of your social security retirement benefits for the year. How much of your benefits are taxed depends on this “base amount.”

– Joint filers with PI below $32,000 ($25,000 for single filers) owe no tax on benefits.

– Joint filers with PI between $32,000 and $44,000 ($25,000 and $34,000 for single filers) are taxed on a sliding scale that tops out at 50% of benefits received.

– Joint filers with PI over $44,000 ($34,000 for single filers) are taxed on more than 50% and up to 85% of benefits.

Note that supplemental security income payments (SSI) are not taxable. For answers to questions about your benefits, contact us.

Clean Your Financial House for the New Year

Out with the old, in with the new. No matter whether you apply the expression to changes in attitude or to life adjustments, the end of the year is a great time to assess your household finances and prepare for new opportunities. Here are suggestions.

Review your credit report. Request a free copy of your credit report from each of the three major credit bureaus. If the reports contain errors, get them corrected.

Make or update your home inventory. Go through your house and make a video describing what you see, along with information such as purchase dates, prices, and estimated values. Your home inventory can be vital for getting insurance claims approved in case of disaster.

Calculate your net worth. Your net worth is the value of your assets, including your house, personal property, bank accounts, car, and investments, minus liabilities such as your mortgage, credit card balances, and loans. This is a great yardstick for measuring your household’s financial growth (or shrinkage) from year to year.

Increase your savings. If you get a year-end raise, consider contributing a portion of the extra money to your 401(k) plan or other savings account.

Purge financial records. If you’re a financial packrat with stacks of old cancelled checks and bank statements that are no longer needed for an IRS audit or your own use, shred them.

Need help? Contact our office.

Fight Scammers the Old-School Way

Scam artists are relentless in finding ways to take your money. But some old-school methods are still effective for protecting yourself. Here are suggestions.

Fortify your computer and your phone. Install anti-virus and anti-spyware programs and update your protection regularly. Consider firewall software to prevent unauthorized access. Change the password on your computer router from the default, enable and set up the router firewall, and keep your router software up-to-date.

Clean out your wallet. Make sure you’re not carrying personal identification numbers for debit or credit cards on a scrap of paper. If you do, anyone stealing your wallet will have open access to your checking account. Sign all your cards. Another old tip also bears repeating: Don’t carry your social security card with you.

Delete all spam emails immediately without opening them. Never click on an attachment or follow a link to a web page unless you know the sender. List your telephone number on the national “do not call” list. If a telephone solicitor calls, ask to be put on the company’s “do not call” list and then hang up.

Obtain a free copy of your credit report. Go to www.annualcreditreport.com and order a free copy of your credit report from at least one of the three major agencies. Review it for mistakes, accounts you don’t recognize, or unknown credit inquiries. If you find something wrong, report it immediately.

For more suggestions, please contact us.

Beware of Bogus Charities

Times of crisis, when others are suffering and you want to help most, is also when heartless fraudsters tend to strike. If you’re planning a donation, watch for these signs that a charity isn’t on the up-and-up.

The fly-by-night charity. Every legitimate charitable association had a start date, and some are still being formed. But during a major crisis, such as a natural disaster, donate to charities that you trust, which means those with a proven track record. If you’re unsure, check out a charity watchdog group for details.

The evasive caller. If you get a phone call from a charity, don’t be afraid to ask direct questions and expect direct answers. A legitimate caller will be upfront about the charity, the percentage of funds allocated to administration and marketing, and what target groups will be helped by your donation. Beware of vague claims such as “educating the public” or “promoting awareness.”

The urgent online request. Social media postings, fake websites, and emails brimming with desperate pleas for money may originate from the backroom computer of a scam artist. Never divulge your financial information via email and don’t assume that social media messages about a particular charity are legitimate.

You want your donations to provide help where it is most needed, not line a fraudster’s pocket. Take time to make sure the charity you’re donating to is legitimate. If we can help, let us know.

Watch Out for These Early Warning Signs from Credit Customers

Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect trouble is brewing. You don’t want to crack down on a good customer too hard too soon; yet you don’t want to be “taken” by a debtor who has become unable or unwilling to pay. The problem is distinguishing between slow payers and no-payers.

What you need is an early warning system to detect a credit problem in the making so you can stop additional sales to that customer and begin collection procedures in earnest. Here are some telltale signs of an account that is turning sour.

  • The debtor has begun paying erratically, settling up on smaller invoices while larger ones get older.
  • The debtor fails to return your phone calls or shows unusual annoyance at your inquiries.
  • Your requests for information, such as updated financial statements, are ignored.
  • The debtor places jumbo orders and presses you for a higher credit limit.
  • Despite the problems you are having, the debtor tries to coax you into providing a good credit report to another supplier.

Any one of these hints of trouble can mean it’s time to turn up the heat on your collection efforts with this debtor, and make no more sales unless they’re cash on delivery. Contact us for more tips.

Planning a Wedding Over the Holidays

Will wedding bells be ringing for you along with holiday sleigh bells this year? If so, add tax planning to your to-do list. Here are tax tips for soon-to-be newlyweds.

Check the effect marriage will have on your tax bill. If you both work and earn about the same income, you may need to adjust your tax withholding to avoid an unexpected tax bill next April, as well as potential penalty and interest charges for underpayment of taxes.

Notify your employer. Both you and your spouse will need to file new Forms W-4, Employee’s Withholding Allowance Certificate, with your employers to reflect your married status.

Notify the IRS. You can use Form 8822, Change of Address, to update your mailing address if you move to a new home.

Notify the insurance marketplace. If you receive advance payments of the health insurance premium tax credit, marriage may change the amount you can claim.

Update your social security information. You’ll need a certified copy of your marriage certificate to accompany Form SS-5, Application for a Social Security Card, if you change your name. Otherwise the IRS won’t be able to cross-match your new name and your social security number when you file your return with your spouse.

Review your financial paperwork. Update your estate plan, making appropriate changes to wills, powers-of-attorney, and health care directives. Also review the beneficiary designations on your retirement plans and insurance policies.

Have questions? Contact us. We’ll help you get the financial part of your married life off to a great start.

Designate Beneficiaries to Avoid Unintended Consequences

After your death, the disposition of retirement accounts, life insurance policies, annuities, and accounts at financial institutions are governed by beneficiary designations. If those designations are outdated, unspecific, or wrong, your assets may not be distributed the way you would like. Here are items to consider.

Be specific and stay current. When you name a beneficiary, your assets can pass directly to that person or entity without going through a legal process called probate. Update the designations for life events such as divorce, remarriage, births, deaths, job changes, and retirement account conversions.

Think about unexpected outcomes. Be alert for the effect of taxes and unintended consequences. For example, if the money in your accounts is distributed directly to your heirs, they may be stuck with a large unexpected tax bill. For wealthier heirs, estate tax may also play a role. In 2016, the estate tax exclusion is $5.45 million and the top estate tax rate is 40%. Another concern: If one of your designated beneficiaries is disabled, government benefits may be reduced or eliminated by the transfer of assets. You may want to consult an attorney to establish a special needs trust to ensure your loved one is not adversely affected.

Name contingent beneficiaries. If your primary beneficiary dies or is incapacitated, having a backup, or contingent, selection will ensure that your assets are properly distributed. In some cases, a primary beneficiary may choose to disclaim, or waive, the right to the assets. In that case, contingent beneficiaries can step up to primary position.

Practice good recordkeeping. Keep your beneficiary designation forms in a safe location, and maintain current copies with your financial institution, attorney, or advisor.

Beneficiary designations are an important part of estate planning. Contact us for more information.

Returning Home as an Adult

Are you thinking of returning to your childhood home to live with your parents? Although heading home after graduation or a divorce may feel like a setback, a temporary return to living with your parents can present opportunities to improve your financial situation.

For example, living with your parents means you can share the cost of rent, utilities, and food, resulting in reduced expenses. By establishing a realistic budget, you can make the most of these lower costs, and repay student loans or other debt more quickly. You can also build up savings for emergencies and long-term goals, such as buying a home of your own. A sound plan is to avoid additional debt while you’re working toward your financial independence. You also might consider paying expenses in cash to reduce your reliance on credit and help you stick to your budget.

For best results, establish clear expectations for both you and your parents before you move in together. Consider a written agreement that outlines the financial responsibilities of everyone in the household, and what the consequences will be for not living up to your promises. In addition, determine specific milestones you want to reach before you move out, and communicate them clearly. Goals could include accumulating $5,000 in savings, or reaching a six-month work anniversary at your job.

Contact us for suggestions about how to create an achievable financial plan.