A client came into our office yesterday morning unannounced
and wanted to know if he should sell all his investments due to the issues
going on in our federal government. We
asked the client if he needed all or a majority of his money in the near
future. His response was “absolutely
not”. Our response to him was that no
matter how dire the current situation seems, in the grand scheme of history, the
financial markets and life, it is but a tiny blip and we shouldn’t react to
short term news, especially when it has to do with our politicians! We have
been here before, we will be here again and we will always have a government
(and if we don’t you will not need financial assets anyway) and therefore, over
the long- term, short- term issues like this will not be significant.
DISCLAIMER: Please note that it is not possible to invest directly in a market index. Past market performance is not guarantee of future market performance or success.
The
following charge averages the last 17 government shutdowns, plotting the
average S&P500 performance 20 trading days before the shutdown and 60
trading days after. As the chart shows,
the stock market (as measured by the S&P500 Index) but trends higher as
everyone gets used to minimized government.
Source: Chart of the Day
The
most important consideration is to have a plan and the intestinal fortitude to
stick to the plan if your goals are still the same. This is what we help
clients do!
DISCLAIMER: Please note that it is not possible to invest directly in a market index. Past market performance is not guarantee of future market performance or success.
2013 Tax
Considerations
As the fourth quarter of 2013 approaches it is important to review your tax situation. Some of the issues you may wish to consider are discussed below. Please make sure, however, to consult your tax advisor prior to implementing any of these strategies.
Be aware of the new 3.8% Medicare surtax. It applies to net investment income of single filers with modified adjusted gross incomes (AGI) above $200,000 and of couples over $250,000. Marrieds filing separately have a $125,000 threshold. Modified AGI is AGI plus tax free foreign earned income. The tax is due on the smaller of net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income. However, tax-exempt interest and distributions from 401(k)s, Traditional IRAs, Roth IRAs and pension plans are not covered. (Source: The Kiplinger Tax Letter, Vol. 88, No. 20).
As the fourth quarter of 2013 approaches it is important to review your tax situation. Some of the issues you may wish to consider are discussed below. Please make sure, however, to consult your tax advisor prior to implementing any of these strategies.
Be aware of the new 3.8% Medicare surtax. It applies to net investment income of single filers with modified adjusted gross incomes (AGI) above $200,000 and of couples over $250,000. Marrieds filing separately have a $125,000 threshold. Modified AGI is AGI plus tax free foreign earned income. The tax is due on the smaller of net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income. However, tax-exempt interest and distributions from 401(k)s, Traditional IRAs, Roth IRAs and pension plans are not covered. (Source: The Kiplinger Tax Letter, Vol. 88, No. 20).
Take
steps to minimize the impact of the surtax if you will be subject to it or try
to keep your income below the thresholds.
For example, use an installment sale to spread out a larger gain or, if
feasible, do a like-kind exchange to defer the gain
Investors with capital loss carry- forwards can cull their portfolios for gains. Any net gains they have this year, up to the carryover amount, aren’t taxed at all
Don’t forget about the 0% rate on long-term capital gains and dividends. If your income other than gains and dividends is in the 10% or 15% bracket, profits on sales of assets owned for over a year and dividends are tax free until they push you into the 25% bracket. That bracket starts at $72,500 of taxable income for couples and $36,250 for singles. The balance of your long-term gains and dividends is taxed at 15% or possibly 20%. If part of your gains and dividends is taxed in the 0% bracket and the balance is taxed at a higher rate, claiming additional itemized deductions or making a deductible IRA contribution gives you two tax breaks: First, the income tax savings from the deduction. Second, more gains and dividends will be taxed at the 0% rate.
Investors with capital loss carry- forwards can cull their portfolios for gains. Any net gains they have this year, up to the carryover amount, aren’t taxed at all
Don’t forget about the 0% rate on long-term capital gains and dividends. If your income other than gains and dividends is in the 10% or 15% bracket, profits on sales of assets owned for over a year and dividends are tax free until they push you into the 25% bracket. That bracket starts at $72,500 of taxable income for couples and $36,250 for singles. The balance of your long-term gains and dividends is taxed at 15% or possibly 20%. If part of your gains and dividends is taxed in the 0% bracket and the balance is taxed at a higher rate, claiming additional itemized deductions or making a deductible IRA contribution gives you two tax breaks: First, the income tax savings from the deduction. Second, more gains and dividends will be taxed at the 0% rate.
Think
about selling some poor performers.
Capital losses offset your gains and an additional $3,000 of other
income. Any excess losses are carried
over to the next year. Taking losses to
offset gains can also reduce the tax bite of the 3.8% Medicare surtax.
However,
beware of the wash-sale rule: If you buy
the same security within 30 days before or after the sale, the loss isn’t
deductible. Instead, the disallowed loss
is added to the basis of the new shares.
For example, the rule can apply if you sell a mutual fund at a loss
within 30 days of the date a dividend is reinvested, or if you have your IRA
purchase shares that you recently sold at a loss out of your taxable account.
A bond
“swap” avoids the wash-sale rule even if the replacement security is from the
same issuer as long as the maturity date or interest rates are different.
White House Financial
& Settlement Consulting LLC
COMPREHENSIVE - CLIENT FOCUSED - FINANCIAL ADVICE
114 South Main Street • Suite 300 • Chelsea, Michigan 48118 •
Phone: (734) 433-1670 • Fax: (734) 433-1671
Securities offered through Sigma Financial Corporation. Member
FINRA/SIPC
Fee-based investment advisory services offered through Sigma
Planning Corporation, a registered investment advisor
White House Financial & Settlement Consulting, LLC is
independent of Sigma Financial Corp. and Sigma Planning Corp.
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