Putting the Client First

Did you know that by law, someone can call themselves a financial advisor and not have to uphold a fiduciary standard? What's a fiduciary standard, you ask. It means that they put the clients' best interest ahead of their own best interest. Now, the fiduciary standard allows the advisor to be paid, but it means that this payment needs to be within a fiduciary level of care.

The latest financial reform legislation originally required that everyone who worked with your money as a financial advisor had to follow fiduciary standards; however, due to heavy industry pressure, this language was dropped, and the current legislation does not require it.

In today's investment news, a dozen industry leaders, including Nobel prize winners, and Vanguard founder John Bogle, are asking that the fiduciary language be put back into the bill.

The language needs to be there. Clients believe it to be true that their advisor is always acting in their best interest, so the laws need to be changed to make it true. If you feel like being an activist, contact your senator asking him or her to support that the Fiduciary Statement language be added to the bill.

Tomorrow, we will review the different names and titles that financial advisors can use and what they mean.

Be prosperous!
Peggy

Procrastination

In short, don't do it! Today's thoughtful, data-filled blog isn't going occur because I am teaching a new class for the College for Financial Planning, and I need to read the module before I teach it! Always plan ahead.......
Be prosperous!
Peggy

Gifts and Taxes

Most of us don't really think about tax implications of gifts we want to give. However, the IRS has rules about how much money we can gift each year without reporting it, and how much we can gift over our lifetimes without owing gift tax. Let's review some of the highlights:

If you want to give someone a gift, you can give $13,000 in 2010 without having to file a gift tax return. If you and your legal spouse want to gift together, you can "gift split" and give $13,000 each to a person. (As an odd note, if you choose to split your gifts for one person, you must split all your gifts to everyone all year.) This allows you to give away $26,000 a year to someone (like a child or grandchild) and not have to report your gift. Many people use this as a chance to lower the value of an estate and potential liability for estate tax.

What if you give more than $13,000? Well, then you file a gift tax return. The value of your gifts begins to accumulate over time, and when you have eventually gifted over $1,000,000, you must pay gift tax. Remember that gift tax is always paid by the gifter, not the recipient. You don't owe any gift tax until your lifetime gifting exceeds a million dollars.

If you want more information about this, check out IRS Publication 950, available at www.irs.gov.

Be prosperous!
Peggy

Last Chance to Fund Your IRA

Quick blog tonight to remind you that April 15 is your last day to fund a traditional IRA or a Roth IRA for 2009. Even if you file for a tax extension, April 15 is still your deadline. Now, if you have a small business retirement plan or your employer has a small business retirement plan, the plan may be able to be funded as late as the business tax return is filed, including extensions. However, your traditional and Roth IRA funds are due in April. So if you need your last chance for a 2009 deduction, consider a traditional IRA if you are eligible. (Check earlier blogs to see if you can.)
Be prosperous!
Peggy

Income Tax Tips

Here are a few tips when you complete and submit your income taxes.
1. If you aren't going to be finished in time, file for an extension. You will owe interest, then, on any unpaid liability, but you won't owe penalties, as well.
2. Use a CPA or tax preparation software to help you avoid tax errors. If your return is complicated, the CPA may well save you more money than his or her fee, giving you a net profit.
3. If you choose to go it alone, get everything organized well in advance to help you when you actually begin completing the return.
4. If you calculate your own taxes or use software, proofread everything once you have entered it, just to avoid typos. The IRS knows what was reported, and they will check to make sure the numbers match.
5. Use the Internal Revenue Service website www.irs.gov to help you check regulations.
6. SIGN YOUR RETURN! It's a leading cause of audits!!!

Be prosperous!
Peggy

Capital Gain Tax

If you hold investments in a taxable account, you have to pay capital gains tax on them. If you just hold investments in an IRA, you don't pay capital gains each year. Instead, you will pay income tax when you take a distribution. Further, if you are currently in a very low tax bracket, you might not owe capital gains tax, but this rule is expected to change shortly, so don't count on it!

Capital gains tax has two different rates. If you hold an investment a year and a day, your rate currently is 15%. I have heard that in 2011, the rate may increase to 20%, which is still likely lower than your income tax rate. If you sell an investment in less than a year, you pay tax at your nominal income tax rate. This difference is one reason why long-term investment strategies might result in lower taxes.

Be prosperous!
Peggy

'Cause I'm the Tax Man!

As you know, April 15 is the deadline for filing your taxes (or an extension if you just can't make it). I thought today I'd define a few terms that are confusing. First, is your "nominal bracket." Well, this always makes me think that somehow, they want me to believe the bracket is low--that it's nominal. That's not what it means. We have a series of tax rates that increase as you earn more money. Everyone begins by paying the lowest income tax rate, until they earn more money than applies to that bracket. Then, they fill the next lowest bracket. They continue this process until they run out of money in a certain bracket. This bracket is called their "nominal bracket," and it's the highest bracket the person pays. Any additional dollar they earn will be taxed at this bracket, until eventually they might move to an even higher bracket. As a result, if you take your income and multiply it by your nominal bracket, you will get a tax liability much higher than you actually owe. The tax tables and income levels are available on irs.gov. (If I reproduced them here, you would all fall asleep!) We'll cover more terms tomorrow.

Be Prosperous!
Peggy