Apr 15

We continue our look at the proposed 2015 Government Budget, and today it’s one that is bound to impact people by surprise.

The proposal itself may seem well intended, at face value, it puts a limit on what one can accumulate in their retirement accounts. In light of the Mitt Romney $400M IRA, such proposals have gotten public approval. To be clear, it’s not the spirit of the proposal that I object to, but the math behind its implementation. Let me first offer the limits and how they will be calculated. First, an annual benefit of $210,000 has been deemed enough. For a single person with no deductions, he would clear about $160,000. This is top 10% or so, but not quite wealthy. The next step is to see that $3.2M at age 62 will buy an annuity which will return the $210K each year. That makes sense, but not everyone wants an annuity. $3.2M will provide $128,000 per year if we use the 4% withdrawal rule, and after tax, just under $100,000.

We are talking about age 62, and the proposed budget doesn’t go into detail, but a rate of return must be assumed to determine a present value. If we use 6%, a 32 year old will have a cap on his account of about $560K. Still a reasonable number, although you should keep in mind, the market isn’t consistent year after year. Million dollar 401(k) accounts dropped by half in the dotcom bubble in early 2000, and again in the bust of 2008. So, the employee of a high tech firm with a volatile stock can see years when he can’t contribute, and therefore cannot collect his company match, only to find a drop in value the next year that puts him below the limit. The limit is different for each person depending on their age, and will force a cumbersome set of calculations as multiple providers will need to report their year end balances for each participant.

Last, I see nothing in the proposal to distinguish between the calculations for a couple vs individual. This may be addressed in the final version of the budget or just left as individual limits, but either way, as it stands, the calculations are just this side of incomprehensible. And this doesn’t address the accounts that are already in the tens of millions, only the ability to deposit more money.

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Apr 14

This is a change for the better that reverses a bit of tax code that never made sense to me. There is a loophole that taxes what you or I would look at as income to partners of an investment firm, and tax it at a capital gain rate. As the budget proposal states “Although profits interests are structured as partnership interests, the income allocable to such interests is received in connection with the performance of services. A service provider’s share of the income of a partnership attributable to a carried interest should be taxed as ordinary income and subject to self-employment tax because such income is derived from the performance of services.”

I was always in favor of closing this loophole. Let’s see if this budget ever passes.

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Apr 13

I’ve been sifting through the proposed 2015 Government Budget and will complete the series in a seven day marathon, an article each day for the next seven days. The tax code is so complex that each bit ranges from applying to most of us, to code so specific, it might hit the top fraction of a percent. So please bare with me if the proposed code changes I’m highlighting have no interest for you.

You may know, the gift tax exclusion permits an individual to gift up to $14,000 each year to another person with no tax consequence. Even if you are not wealthy, when you reach an age that you realize you can’t take it with you, some people like the idea of handing out money to their loved ones each year. In some situations where it’s preferable not to have the recipient gain access to the money until they are adults, or even for adults, when they reach a certain age. This is often accomplished via a trust. The process itself is a bit convoluted. The deposit is made to the trust, and the beneficiary, in theory, is given brief access to the funds, but upon signing (or having their guardian sign) a Crummey Notice Letter, the gift to the trust is considered completed.

The proposed change to the code eliminates some of the paperwork, no more letters to deal with, but caps the gift amount to $50K per year via this method. The normal, real, immediate, $14,000 gifts are not impacted.

My view? This actually simplifies the tax code for many who wish to gift up to $50K per year to a small number of beneficiaries, and avoids the smoke and mirrors of the letter acknowledging the gift. I’m with any rules that help simplify the code.

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Apr 11

Gambling responsibly is something that everybody strives to achieve however it can be tricky for some people as it takes quite a lot of self-control in order to achieve it. The reason why this subject is so common these days is because of online gambling and the thousands of online casinos that are now available on the Internet. These casinos are fantastic and offer a huge variety in games that are free to play however since they are open twenty-four hours a day and are available no matter where you are as long as you have an Internet connection it can be quite hard to control yourself when you get the urge to gamble.
There are a couple of ways in which to create a responsible gaming environment for yourself and the first one isn’t really environmental, but more state of mind. You should create a budget in order to make sure you do not overspend when gambling. If you are overspend while gambling it makes the whole experience sour and so you should work out from your monthly budget how much you are willing to spend and then try not to go over it.
Being responsible for yourself online can be tricky to do as you never know whether there is somebody out to try and scam you. An online casino can be quite a scary place to go for the first time as they are asking for real money in order to play. Fortunately for many people there are lots of online casino review sites which you can visit in order to find safe and well regarded casino sites so that you can feel better about playing on them. With this knowledge in your hands you can then find the right casino for you in order to enjoy a safe online environment.

Article by Miles Hughes

written by Joe

Mar 28

We continue our look at the proposed Federal Budget, and today, it’s the 1031 exchange that’s under review.

The good news? Odds are, you’ve never even heard of this. A 1031 exchange is a way of taking an appreciated property, usually real estate (rental, not your home) and after jumping through a bit of tax hoops, you are able to sell one property, and soon after, buy another one at last as costly as what you sold, and defer the gain. It’s a neat trick for real estate investors and I’d never giving it much thought until recently. A friend sold a rental property and planned to use the money to buy a different one in a different location. I’m not an expert on this topic, but I knew enough to tell him to research the 1031 exchange and use the process to avoid a tax bill. Sure enough, it went off without a hitch. Out with the old, in with the new, and no tax bill.

Now, the new Budget limits the flexibility of the 1031 exchange. Specifically, it proposes a $1M limit per taxpayer per year for the value of deferred capital gain. Not a big deal for those with a few rentals, but if you have any larger buildings or expensive houses you rent out, you might kiss your 1031 goodbye.

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