Coping With Your Spouse’s Retirement
http://ping.fm/KJGZV
Watch out for Covert Capital Gains! January 1, 2009
Hey all you smart mutual fund investors, listen up! Check your accounts on line now, or call your broker or investment company,to see if your fund issued any capital gains this month. That’s right, even though your fund’s value probably took a nose dive, there very well may have been trading in that fund throughout the year that could have resulted in a capital gain. Mutual funds distribute the bulk of such gains during December to their shareholders, so you COULD owe income tax on capital gains even though your fund is sporting a big fat loss, or even a mild-paunchy loss…
You see, when a lot of novice or nervous investors call 1-800-REDEEM (that’s a joke, not a real number to my knowledge) fund managers have to raise enough capital by 4pm EST each day of trading to satisfy all the redemptions. Well, quite a few savers sold out of mutual funds when the markets started declining. (Generally it’s savers, not investors, that panic and sell prematurely incidentally.) So, quite a few mutual fund managers had to juggle their portfolios, invariably selling out securities that had built-in capital gains. Yes, I know, a distant memory…over 6 months ago, even…but I digress.
If the mutual fund manager wasn’t able (or interested) to offset those gains with losses, there may have been an excess of gains over losses, resulting in us shareholders having to declare a portion of those gains on our individual income tax returns.
Here’s an example: Your mutual fund issued a gain to your account in mid December totalling $1,000. Look through your portfolio (as I mentioned in my earlier blog today) for a security whose value is at least $1,000 less than your basis (fancy term for what you paid for it, including all reinvested dividends, if applicable) and sell that security booking a $1,000 capital loss. Your losses offset your gains (for the most part it’s that simple, although long-term capital losses-securities held one year and one day–offset long-term capital gains, and short-term capital losses–securities held less than one year and one day–offset short-term capital gains).
Finally, the federal government allows you to deduct an additional $3,000 in excess of all offsetting capital gains and losses each year against ordinary income. If you have more than $3,000, you get to carry the excess forward to future tax years. Some states follow the feds in the unlimited carry forward of capital losses, New Jersey, however does not. Check with your CPA for details on this, to be sure, if you expect heavy losses in 2008.
At the end of the day, its the end of the year. No sense in paying unnecessary income taxes. So, while you did not actively sell any securities this year to produce a capital gain, you may be an unsuspecting shareholder who DID receive a capital gain. There’s still time to avoid paying tax on that by “booking;/realizing” an equal dollar capital loss, or even quite a bit more than the amount of capital gains, and deducting your $3,000 excess on your 2008 return and pushing the balance forward. Yes, Ms. Dubious, there WILL be capital gains in your future, and they JUST might start in 2009! You’ll be prepared however, with perhaps an ample supply of carried forward capital losses so you won’t have to pay taxes till they’re all used up. Now THAT’S planning, and THAT’S effective planning.
Consult your broker and/or CPA for details. (Most likely your fee-only financial planner has already contacted you and handled this for you.
Great News Today And Some History Too October 23, 2008
In my previous post “Measuring Cups is Essential in Baking and Life“, we have learned how to measure enough units of happiness in our lives is in some cases a talent and in others, a learned skill. As a motivational speaker, I continuously upgrade myself with new studies and skills which I deem to be important in life.
I’ve just received my Master Practitioner Strategist certification in Neuro Linguistic Programming, learning all kinds of wonderful facts, I will continue to share with you over the coming weeks and months. For example, did you know that information flows into our minds at a rate of 2-4 million bits per second, and yet we can only digest 134 bits per second? That means that the overflow of information floods our minds at a similar speed of water blasting from an open fire hydrant. We “filter” what actually enters our minds by deleting information that doesn’t make sense, distorting information based upon our beliefs, and/or by generalizing.
Measuring Cups Essential In Baking And Life October 22, 2008
Measuring Cups are essential in baking and in life. Cooking allows for more variation, of course…you have the opportunity to taste as you go while cooking. Baking, however, is entirely different. First you decide what it is you want to make! Today let’s choose to bake a cake.
Then we often entrust that outcome to a recommended recipe—our own or one that has been referred to us by trusted friends or sources. Some of our favorite restaurants publish cookbooks that tantalize us with their tasty treats. Often donors to charities donate their favorite dessert recipes to be compiled into fund raiser cook books.
All this to say that we tend to follow a recipe, measuring ingredient by ingredient, paying particular attention to how many teaspoons of baking soda compared with how many cups of flour. A quarter teaspoon measurement for baking soda is equally important as a cup of flour, even though the measurements are not equal. It’s the combination that is essential to a great outcome.
