Stewart Welch Videos

Loading...

Thursday, October 28, 2010

Year End Tax Planning

With less than three months remaining in 2010, now is the time for year-end tax planning. Most people can exert some degree of control over their tax bill if they maximize certain tax strategies available to them this year. Here’s a checklist of items you should review now:

Green Home Improvement Credit: You can get a tax credit for making green home improvements through the end of this year. You can get a 30% tax credit, up to $1,500, for making small energy efficiency upgrades such as adding insulation, replacing windows, getting duct seals and adding energy efficient doors. If you make a big upgrade, such as solar panels or a wind turbine, you can get a 30% tax credit — no limit or cap on how much.
Invest in your 401k plan: Make sure you are deferring either the maximum or the most that you can financially afford. Many companies match employee’s contributions up to a certain percentage so you want to make sure you are deferring enough to receive the full match. That is free money! The maximum contribution in 2010 is $16,500, plus individuals age 50 and over can make an additional catch-up contribution of $5,500.
Donate to Charity: All gifts must be made by year-end to receive a deduction in 2010. In addition to checks or cash, consider giving appreciated stock from your portfolio to avoid capital gains tax on the sale.
Required Minimum Distribution from IRAs: If you are age 701/2 or older, then required minimum distributions (RMD) are back! If you have to take a distribution from your IRA and you have charitable contributions to fulfill then I recommend you give part or all of your RMD directly to the charity. NOW… Congress has not passed this into law for 2010 and no one knows if they will but there is no downside to doing this right now. The pro for giving your RMD directly to charity is it will reduce your Adjusted Gross Income. A lower Adjusted Gross Income can reduce your exposure to phase-outs on your Itemized Deductions and can lower your Medicare Part B premiums if you are subject to the Income-Adjusted Part B premiums. If Congress does not pass this then you would just have to report the RMD as income and then take the charitable gift deduction your Schedule A as an itemized deduction.
Manage your capital gains: Many people have loss carry forwards from the previous years due to the market conditions. If you have capital gain income this year then make sure you have enough loss carry forward to offset this plus enough to take $3,000 against ordinary income. If you don’t have a loss carry forward from last year then consider selling any positions you have with losses to offset the gains.
Sell Investments for Long-Term Capital Gains: If you’ve been holding on to some investments with gains, now might be a good time to sell them. Through the end of 2010, there is no long term capital gains tax for those in the 10% and 15% tax brackets. For everyone else, capital gains top out at 15%. Next year though, capital gains tax might shoot up to as high as your marginal tax rate!

Because everyone’s facts and circumstances are different, you should meet with your tax advisor now to determine what other strategies might help cut your tax bill this year. Next week I will have Part II of Year End Tax Planning.

My thanks to Kimberly Reynolds, M.S., CFP®, for her assistance with this article.

Tuesday, October 19, 2010

You Could Have Been a Millionaire!

Years ago a group of tobacco executives appeared before a congressional hearing, placed their left hand on the Bible, raised their right hand and swore that tobacco products were neither addictive nor harmful to your health. Of course everyone including smokers knew this was a big lie. Unfortunately, many young people still believe that smoking cigarettes is 'cool' and makes them feel (and look) like adults. That is --until their teeth turn yellow, they figure out people are keeping their distance because of bad breath and they realize that they can no longer control the habit. I remember once being in a quick mart and having someone come in and order a carton of cigarettes. He was on oxygen and toting an oxygen bottle at the time. One of my associates who quit smoking five years ago based on my challenge (with a monetary reward!) said that she occasionally still has urges to smoke a cigarette, “As long as her leg!” Tobacco is as addictive as any drug.

We all know that smoking is a universally bad idea, but did you ever stop to think about the true costs of smoking? Is it nothing more than the cost of a $5 pack of cigarettes per day? Here’s a partial lists:
A twenty-year-old who gave up a $5 per day habit and invested the money at 7.5% would have $1 million by age 70. Reverse thinking would suggest that continuing smoking costs this person a million dollars over their lifetime. And this assumes the cost of cigarettes stays constant.
Research indicates that smokers on average die nineteen years sooner than non-smokers.
In Alabama, research suggests that for every pack of cigarettes sold, and additional dollar will be spent on healthcare treatment related to tobacco use.
There are fewer job opportunities for smokers as many employers avoid hiring smokers for a number of reasons. First, smokers tend to need to take ‘smoking breaks’ throughout the workday which is both unproductive and unfair to non-smoker employees. Second, smokers tend to have greater health related illnesses causing greater absenteeism and higher healthcare costs.
Life insurance premiums are much higher for smokers than for non-smokers. For example, a $1 million 20-year term policy on a 30-year old smoker cost $1,500 versus $435 per year for a non-smoker.

These are just some of the personal costs of smoking. There are also the health-related side effects to unborn children as well as people exposed to second hand smoke. Tobacco is clearly one product with virtually no redeeming personal or social values. Research does suggest that the rising cost of cigarettes does cause decreased use. If, at the state level, we were to raise the tax on cigarettes and ban use in all public places we could positively impact health, healthcare costs and our economy. With elections right around the corner, this would be an excellent topic to add to the list of issues for our legislators.


If you have avoided the habit or beaten the habit, pass this article along to a smoker that you care about. You may just save their life and make him or her a millionaire!