Monday, August 17, 2009

Do your employees hate you? That’s just bad business

Tough-talking Yahoo CEO Carol Bartz sure knows how to get the media’s attention. Virtually every quip she’s ever uttered — including her famous “Tell me why I shouldn’t fire the whole lot of you” line — has been happily devoured and dissected by reporters looking for juicy quotes.

It makes for a great story, but you’ve got to wonder what it’s like to work for her.

A recent article from Entrepreneur.com suggests that bosses like Bartz might want to lighten up — not just because it’s good for office morale, but it may also boost their company’s bottom line.

Writes author Nancy Mann Jackson:

“Quite simply, if employees like and respect you, they’re more invested in your company and interested in its success. They’re willing to work harder and give more. But if they don’t care about you, they don’t care about your company.”

Not exactly rocket-science, but it’s an idea worth considering, especially in today’s morale-crushing economic times. Since the recession kicked into high gear last year, there’s been no shortage of reports warning about undermotivated, overworked employees struggling to keep up with growing workloads while worrying about losing their jobs.

But forward-looking leaders would do well to nurture office relationships, particularly during tough times.

“This is when managers typically go into ‘avoidance mode,’ and as a result productivity goes down and morale goes down,” said Mark Murphy, CEO of Leadership IQ, in an interview with Reuters.

The better approach, he says, is to give employees a sense of purpose. Just don’t fall into a coddling trap. In research to be published in his forthcoming book, Hundred Percenters: Challenge your employees to give it their all and they’ll give you even more, Murphy found that most employees would prefer a boss that pushes them to achieve their full potential instead of one whose sole concern is making them happy.

Maybe Bartz is on to something…

Wednesday, August 12, 2009

How Can I Keep More of My Mutual Fund Profits?

Provisions in the tax law allow you to pay lower capital gains taxes on the sale of assets held more than one year. The maximum long-term capital gains tax rate is currently 15% (0% for individuals in the 10% and 15% tax brackets). Short-term gains — those resulting from the sale of assets held for one year or less — are still taxed at your highest marginal income tax rate.

This means that if you’ve been buying shares in a stock or mutual funds over the years and are considering selling part of your holdings, your tax liability could be significantly affected by the timing of your sale.

The main pitfall for most investors is the IRS “first-in, first-out” policy. Simply stated, this means the IRS assumes that the first shares you sell are the first shares you purchased. Thus, the first shares in become the first shares out. As a result, if the value of your shares has appreciated, more of the money you receive from the sale will be considered to be taxable as a capital gain.

Fortunately, there is an alternative. When you place a sell order, instruct your broker or mutual fund transfer agent to sell those shares that you purchased for the highest amount of money. This will reduce the percentage of the proceeds of the sale that can be considered capital gain and are therefore taxable.

In order for this strategy to work, you must specify exactly which shares you are selling and when they were originally purchased. Ask your broker to send you a transaction confirmation that identifies by purchase date the shares you want to trade. This will enable you to reduce your taxable gain and maximize your deductible losses when you fill out your tax return.

In some cases, you may be better off selling the first shares you purchased, even if this results in a larger gain. If the first shares are subject to the 15 percent long-term capital gains rate, but the recently purchased shares are subject to the higher short-term rate, the correct choice may not be obvious. Always consult a tax professional.

Some transfer agents for no-load mutual funds will not go through the trouble of isolating the shares you want to sell by purchase date. This doesn’t necessarily mean you are stuck with the first-in, first-out computation.

By carefully reviewing your brokerage statements, you can determine which shares you paid the most for. You can then specify exactly which shares you’d like to sell. A word to the wise: Make this request in writing. If the IRS calls the transaction into question, the burden of proof is on you.

Finally, the IRS also allows you to calculate your tax basis by taking the average cost of all your shares. On an appreciating asset, this will result in a lower tax liability than the first-in, first-out rule would dictate. Be aware, though, that if you elect to average, you must continue to average for any subsequent sales.

Using either system, you may end up with a lower tax liability from the sale of your shares than the IRS would assume using the first-in, first-out rule.

The value of stocks and mutual funds fluctuates so that shares, when sold, may be worth more or less than their original cost.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

What Tax-Advantaged Alternatives Do I Have?

A strong savings program is essential for any sound financial strategy.

We take Benjamin Franklin’s saying to heart, “A penny saved is a penny earned,” and we save our spare cash in savings accounts and certificates of deposit.

Investors who’ve accumulated an adequate cash reserve are to be commended. But as strange as it sounds, it is possible to save too much. Although this may not sound like much of a problem, it can be if you save too much of what you should be investing.

You see, many investors simply put their savings into the most convenient and secure financial instrument they can find. Often, that turns out to be certificates of deposit (CDs). The benefits of CDs are that they are FDIC insured (up to $250,000 per depositor, per institution)* and generally provide a fixed rate of return.

Unfortunately, placing all your savings in taxable instruments like certificates of deposit can create quite an income tax bill.

In an effort to ensure security, some investors inadvertently produce a liability. It’s a bit like turning on all the taps in your house just to make certain the water’s still running. Sure, you’ll know that the water’s still running, but a lot of it will go down the drain.
The solution is simply to turn off some of the taps.

A number of very secure financial instruments enable you to defer or eliminate income taxes. By shifting part of your cash reserves to some of these instruments, you can keep more of your money working for you, and turn off the taps that hamper your money’s growth.

You can consider a number of tax-advantaged investments for at least a portion of your savings portfolio.

One possibility is a fixed-annuity contract. A fixed annuity is a retirement vehicle that can help you meet the challenges of tax planning, retirement planning, and investment planning. Fixed-annuity contracts accumulate interest at a competitive rate. And the interest on an annuity contract is usually not taxable until it is withdrawn. Most annuities have surrender charges that are assessed in the early years of the contract if the contract owner surrenders the annuity before the insurance company has had the opportunity to recover the cost of issuing the contract. Also, withdrawals made from an annuity prior to age 59½ may be subject to a 10 percent federal income tax penalty. The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company.

Another tax-exempt investment vehicle is a municipal bond. Municipal bonds are issued by state and local governments and are generally free of federal income tax. In addition, they may be free of state and local taxes for investors who reside in the areas in which they are issued.

Municipal bonds can be purchased individually, through a mutual fund, or as part of a unit investment trust. You must select bonds carefully to ensure a worthwhile tax savings. Because municipal bonds tend to have lower yields than other bonds, the tax benefits tend to accrue to individuals with the highest tax burdens. If you sell a municipal bond at a profit, you could incur capital gains taxes. Some municipal bond interest could be subject to the federal alternative minimum tax. The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk. Bonds mutual funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond mutual fund's performance.

A number of other tax-advantaged investments are available. Consult with your financial professional to determine which types of tax-advantaged investments may be appropriate for you.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

*The $250,000 FDIC deposit insurance coverage limit is temporary and is scheduled to revert back to the $100,000 limit after December 31, 2009.

Tuesday, August 11, 2009

What Tax Deductions Are Still Available to Me?

Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available to help lower their tax liability. In fact, the head of the IRS once said that millions of taxpayers overpay their taxes every year because they overlook one of the many key tax deductions that are available to them.1

One of the most overlooked deductions is state and local sales taxes.2

Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services, and contributions to a traditional IRA.

Of course, some tax deductions disappear as adjusted gross income increases. And some deductions are subject to sunset provisions, which your tax professional can help you navigate.

Another key deduction is unreimbursed medical and dental expenses. For medical and dental bills paid during the past year that weren’t covered by insurance, a household may be able to deduct the amount that is greater than 7.5% of its adjusted gross income when calculating income taxes.

Remember that you may only deduct medical and dental expenses to the extent that they exceed 7.5% of your adjusted gross income and were not reimbursed by your insurance company or employer.

In addition to medical and dental expenses, certain miscellaneous expenses — primarily unreimbursed employee business expenses — can be written off if they exceed 2% of adjusted gross income. Some of the expenses that qualify for this deduction are union dues, small tools, uniforms, employment agency fees, home-office expenses, tax preparation fees, safe-deposit box fees, and investment expenses. Your tax advisor will be able to tell you exactly what’s deductible for you.

The end of the year is the time to take one last good look to determine whether you qualify for a tax credit or deduction or whether you’re close to the cutoff point.

If you’re not close, you may opt to postpone incurring some medical or other expenses until the following year, when you may be able to deduct them.

On the other hand, if you’re only a little short of the threshold amount, you may want to incur additional expenses in the current tax year.

With a little preparation and some help from a qualified tax professional, you may be able to lower your income taxes this year. You just have to plan ahead.

1–2) Kiplinger.com, December 2008

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

How Can I Benefit from Tax-Advantaged Investments?

For many people, tax-advantaged investing is an excellent way to reduce their taxes. And while many of the traditional tax-advantaged strategies have been eliminated, there are still alternatives left that can help you reduce your taxes. Some are described below.

Real Estate Partnerships

Two of the most common types of real estate partnerships are low-income housing and historic rehabilitation. The federal government grants tax credits to those who construct or rehabilitate low-income housing or who invest in the rehabilitation or preservation of historic structures.

Participating in a real estate partnership has many advantages. Besides being considered socially responsible investments, these partnerships may provide opportunities for tax-advantaged income and long-term capital appreciation.

The tax credits generated by these partnerships can be used to offset your income tax liability on a dollar-for-dollar basis. This can make them much more valuable than tax deductions, which help reduce your taxable income, not the tax you pay. These credits are subject to certain limitations, and the rehabilitation tax credit begins to phase out for taxpayers with adjusted gross incomes (AGI) greater than $200,000 and is completely phased out when AGI reaches $250,000.

Oil and Gas Partnerships

Energy partnerships can provide shelter through tax deductions taken at the partnership level. These include deductions for intangible drilling costs, depreciation, and depletion.

The deductions may be limited; check with a tax advisor to see whether you could benefit from oil and gas partnerships.

Suitability

There are risks associated with investing in partnerships. Key among these is that they are long-term investments with an indefinite holding period with no, or very limited, liquidity. There is typically no current market for the units/shares, and a future market may or may not be available. If a market becomes available, it may result in a deep discount from the original price. At redemption, the investor may receive back less than the original investment. The investment sponsor is responsible for carrying out the business plan, and thus the success or failure of the venture is dependent on the investment sponsor. There are no assurances that the stated investment objectives will be reached. This type of investment is considered speculative. You want to ensure that the investment is not disproportionate in relation to your overall portfolio and that it is consistent with your investment objectives and overall financial situation. In order to invest, you will need to meet specific income and net worth suitability standards, which vary by state. These standards, along with the risks and other information concerning the partnership, are set forth in the prospectus, which can be obtained from your financial professional. Please consider the investment objectives, risks, charges, and expenses carefully before investing. Be sure to read the prospectus carefully before deciding whether to invest.

The alternative minimum tax is another concern. Make sure to consult an advisor to evaluate your exposure to the AMT.

As long as they are suitable for your situation, these tax-advantaged investing strategies can be one way to help reduce your income tax liability. A financial professional can help you determine whether such investments would be an appropriate strategy for you.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

Monday, August 10, 2009

When Must Taxes Be Paid on IRA and Employer-Sponsored Retirement Funds?

Traditional IRAs and most employer-sponsored retirement plans are tax-deferred accounts, which means they are typically funded with pre-tax or tax-deductible dollars. As a result, taxes are not payable until funds are withdrawn, generally in retirement.

Withdrawals from tax-deferred accounts are subject to income tax at your current tax rate. In addition, withdrawals taken prior to age 59½ are subject to a 10% federal income tax penalty.

If you made nondeductible contributions to a traditional IRA, you have what is called a “cost basis” in the IRA. Your cost basis is the total of the nondeductible contributions to the IRA minus any previous withdrawals or distributions of nondeductible contributions. The recovery of this basis is not seen as taxable income.

Exceptions are the Roth IRA and the Roth 401(k) and Roth 403(b). Roth accounts are funded with after-tax dollars; thus qualified distributions (after age 59½and the account has been held for at least five years) are free of federal income tax.

Traditional IRAs, most employer-sponsored retirement plans, and Roth 401(k) and 403(b) plans are subject to annual required minimum distributions (RMDs) that must begin after the account owner reaches age 70½ (no later than April 1 of the year after the year in which the owner reaches age 70½).* Failure to take RMDs triggers a 50% federal income tax penalty on the amount that should have been withdrawn. Roth IRAs are exempt from RMDs.

When you begin taking distributions from your retirement accounts, make sure to note any required beginning dates and the appropriate distribution amount in order to avoid unnecessary penalties.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

*The Worker, Retiree, and Employer Recovery Act of 2008 suspends required minimum distributions for the 2009 tax year.

What Are the Tax Benefits of Charitable Trusts?

Americans give freely to support the causes they value, from churches, education, and the arts to medical research. Fortunately, current tax laws encourage and even reward philanthropy. Beyond the basic tax deductions for charitable giving, setting up one or both of the following types of trusts could provide financial advantages in addition to the personal satisfaction that comes from giving.

Charitable Remainder Trust

When money, securities, property, or other assets are placed in a properly structured charitable remainder trust, the donor or a beneficiary receives income for a specific term or for life. When the trust expires, the designated charity receives the assets that remain.

For the donor, there are several potential tax benefits: (1) Assets placed in the trust may be partially deductible for income tax purposes. (2) At death, trust assets are not subject to estate taxes because they are no longer part of the donor’s taxable estate. (3) Any appreciated assets in the trust are also exempt from current capital gains tax.

Charitable Lead Trust

A charitable lead trust is an estate conservation tool that uses the donor’s assets to provide income for a charity during the donor’s lifetime and then transfers the remaining assets to the donor’s heirs when he or she dies. This type of trust could potentially reduce the estate tax due upon death, most notably on highly appreciated assets, because they are not subject to current capital gains tax.

Keep in mind that donations to both types of charitable trusts are irrevocable. This means that the assets cannot be withdrawn once the trust is formed. Also bear in mind that not all charitable organizations are able to use all possible gifts. It is prudent to check first. The type of organization selected can also affect the tax benefits that may be received.

When structured properly, these tools could possibly be used to benefit the charities of your choice and also help to reduce your tax obligations at the same time.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisors before implementing such strategies.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

Friday, August 7, 2009

How Can I Better Manage My Short-Term Cash?

For the vast majority of people, it is essential to keep a portion of their assets in liquid form in order to meet monthly commitments.

For example, most families have to meet their mortgage or rent payments, grocery, utility, and transportation bills out of their monthly paychecks. There are a host of other expenses that arise from month to month, such as auto insurance, that help keep the pressure on the family cash flow.

If people are fortunate enough to have anything left over once all the expenses have been met, then they can worry about saving or investing for the future.

The paychecks that you deposit in your checking account, which seem to swiftly disappear as you pay monthly expenses, constitute a portion of your short-term cash. The money is no sooner in your bank account than it flows out again as payment for goods and services.

However, because the money that we use to meet our monthly expenses is so liquid, there is a tendency to simply look at it as a method of payment. We often leave more than we need in our checking accounts, gaining little or no interest until we need it for a future expense.

By actively managing the short-term cash that passes through your hands, you can provide a means of saving for the future. You can use this money to increase your net worth with little or no additional risk to your principal.

Short-term investment instruments, such as Treasury bills, certificates of deposit, and money market mutual funds, can provide you with the liquidity needed to meet expected and unexpected expenses and to increase your short-term investment income.

There are numerous alternatives available to enable you to get your short-term cash working for you. The key to successfully managing your short-term cash lies in understanding the alternatives and choosing the one most appropriate to your particular needs and circumstances.

Treasury bills are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. Bank CDs are insured up to $250,000 by the FDIC.*

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in money market funds.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

*The $250,000 FDIC deposit insurance coverage limit is temporary and is scheduled to revert back to the $100,000 liimit after December 31, 2013.

What Advantages Does a Biweekly Mortgage Offer?

One of the most precious assets that you are likely to possess as you progress through life is your home. Owning their own homes is something that most Americans strive for.

Unfortunately, for the vast majority of people, one of the major drawbacks in owning a home is the long-term mortgage that must be paid off. Mortgages often stretch out 30 years with interest and principal repayments.

Most mortgage repayments are made on a monthly basis. However, arranging to make payments biweekly can have a dramatic effect on the amount of money you have to pay and the time frame before it is all paid off.

Under a biweekly mortgage, instead of making the payments once a month, you make half the payment every two weeks. If your mortgage is $1,000 per month, under a biweekly system it would be $500 every two weeks.

You make 26 payments per year, which is the equivalent of 13 monthly payments rather than 12. The extra payment should be taken directly off the principal, reducing the payment schedule accordingly.

The effect of biweekly mortgage payments can be dramatic. For example, if you currently have a $150,000 loan at 8 percent fixed interest, you will have paid approximately $396,233 at the end of 30 years.

However, if you use a biweekly payment system, you will pay $331,859 and have it completely paid off in 21.6 years. You save $64,374 and pay the loan off 8.4 years earlier!

The savings you realize using a biweekly payment schedule can save you nearly half of what it cost to buy the house in the first place.

An increasing number of mortgage companies are now offering a biweekly payment option. It is even possible to convert your current monthly payments into a biweekly schedule.

Some companies will attempt to charge you to refinance the loan. However, this is not always the case and shopping around can save you money in refinancing charges.

Be wary of independent companies offering to do this for you for a fee — you can do it for yourself for free.

You should receive professional financial advice when considering switching to a biweekly mortgage payment schedule.


Thursday, August 6, 2009

What About Financial Aid for College?

Is the financial aid game worth playing? There’s a tremendous amount of paperwork involved. The rules are obscure and often don’t seem to make sense. And it takes time.

But make no mistake, the game is definitely worth playing. Financial aid can be a valuable source of funds to help finance your child’s college education.

And you don’t necessarily have to be “poor” to qualify. In some circumstances, families with incomes of $75,000 or more can qualify.

U.S. Government Grants

The federal government provides student aid through a variety of programs. The most prominent of these are Pell Grants and Federal Supplemental Educational Opportunity Grants (FSEOGs).

Pell Grants are administered by the U.S. government. They are awarded on the basis of college costs and a financial aid eligibility index. The eligibility index takes into account factors such as family income and assets, family size, and the number of college students in the family.

By law, Pell Grants can provide up to $4,731 per student in the 2008-2009 award year.1Due to financial constraints, however, Pell Grants generally don’t exceed $2,900 per year. Students must reapply every year to receive aid.

Most colleges will not process applications for Stafford loans until needy students have applied for Pell Grants. Students with Pell Grants also receive priority consideration for FSEOGs.

Students who can demonstrate severe financial need may also receive a Federal Supplemental Educational Opportunity Grant. FSEOGs award up to $4,000 per year per student.

State Grants

Many states offer grant programs as well. Each state’s grant program is different, but they do tend to award grants exclusively to state residents who are planning to attend an in-state school. Many give special preference to students planning to attend a state school.

College Grants

Finally, many colleges and universities offer specialized grant programs. This is particularly true of older schools with many alumni and large endowments. These grants are usually based on need or scholastic ability. Consult the college or university’s financial aid office for full details.



How Does Inflation Affect Me?

Are you saving for retirement? For your children’s education? For any other long-term goal? If so, you’ll want to know about a sometimes subtle, yet very real threat to your savings: inflation.

Inflation is the increase in the price of products over time. Inflation rates have fluctuated over the years. Sometimes inflation runs high, and other times it is hardly noticeable. The short-term changes aren’t the real issue. The real issue is the effects of long-term inflation.

Over the long term, inflation erodes the purchasing power of your income and wealth. That means that even as you save and invest, your accumulated wealth buys less and less, just with the mere passage of time. And those who put off saving and investing will be even deeper in the hole.

What Can You Do About Inflation?

The effects of inflation can’t be denied — yet there are ways to fight them.

Historically, one of the best ways has been to utilize growth-oriented alternatives. Stocks, stock mutual funds, variable annuities, and variable universal life insurance may be options to consider. These alternatives provide the potential for returns that exceed inflation over the long term.

Growth-oriented alternatives carry more risk than other types of investments. Over the long term, however, they may help you stave off the effects of inflation and realize your financial goals.

As you focus on growth, remember that prudent investing calls for diversification. Don’t risk all your wealth in aggressive investments. Consider other alternatives to balance your portfolio, and choose all your investments with an eye toward your tolerance for investment risk.

The return and principal value of stocks and stock mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

There are contract limitations, fees, and charges associated with variable annuities, which can include mortality and expense risk charges, sales and surrender charges, administrative fees, and charges for optional benefits. Withdrawals reduce annuity contract benefits and values. Variable annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made prior to age 59-1/2. Any guarantees are contingent on the claims-paying ability of the issuing company. The investment return and principal value of an investment option are not guaranteed. Because variable annuity subaccounts fluctuate with changes in market conditions, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

The cash value of a variable universal life insurance policy is not guaranteed. The investment return and principal value of the variable subaccounts will fluctuate. Your cash value, and perhaps the death benefit, will be determined by the performance of the chosen subaccounts. Withdrawals may be subject to surrender charges and are taxable if you withdraw more than your basis in the policy. Policy loans or withdrawals will reduce the policy’s cash value and death benefit , and may require additional premium payments to keep the policy in force.

Mutual funds, variable annuities, and variable universal life insurance are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


Wednesday, August 5, 2009

What Is a Bond?

When you invest in bonds, you are investing in the debt of a government entity or a corporation. A bond is simply evidence of a debt and represents a long-term IOU.

Bonds are issued by federal, state, and local governments; agencies of the U.S. government; and corporations. By selling debt with a promise to pay it back with interest, the issuing agency can raise capital to finance its operations.

The issuing company or government entity will outline how much money it would like to borrow, for what length of time, and the interest it is willing to pay. Investors who buy bonds are lending their money to the issuer and thus become the issuer’s creditors. Bonds are sold at “par” or “face” value, which is the price at which the bond is issued, usually in denominations of $1,000.

By purchasing a bond, you are lending the debtor money. In exchange, you receive a note stating the amount loaned, the interest rate (the “coupon” or “coupon rate”), how often the interest will be paid, and the term of the loan.

The principal (the amount initially paid for the bond) must be repaid on the stipulated maturity date. Before that date, you (as lender) receive regular interest, usually every six months. The interest payments on a bond are usually fixed.

Before 1983, bondholders would receive coupons that they would clip and mail in semi-annually to receive the interest payments. Presently, all bonds are issed electronically in book-entry form only.

If you are considering buying a bond, remember that the market value of a bond is at risk when interest rates fluctuate. As interest rates rise, the value of existing bonds typically falls because the interest rate on new bonds would be higher. The opposite can also happen as well. Of course, this phenomenon applies only if you decide to sell a bond before it reaches maturity. If you hold a bond to maturity, you will receive the interest payments due (barring default) plus your original principal. Additional considerations are a bond’s maturity date and credit quality. Investments seeking to achieve higher yields also involve a higher degree of risk.




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What Are Dividends?

When considering the profit they make on stocks, many investors assess the gains they have obtained based on the appreciation of the stock on the open market or the gains they obtained after selling the stock for more than the original purchase price. However, it’s also wise to include the income acquired from stock dividends, if any.

Dividends are taxable payments to shareholders from a company’s earnings. These payments generally come from retail profits and tend to be distributed in the form of cash or stock. They are usually paid quarterly, and the amount is determined by the company’s board of directors.

Dividends are most often quoted by the dollar amount each share receives, put simply, the dividends per share. They can also be stated in terms of a percent of the current market price, designated as a dividend yield. The dividend yield is the annual dividend income per share divided by the current stock price.

Many mature, profitable companies offer regular dividends to shareholders. However, if a company experiences losses during the year or needs any earnings to be reinvested back into the business, it’s always possible that it could decide to suspend dividends. It’s important to remember that a company can decide to increase, decrease, or stop paying dividends at any time.

Rather than pay dividends to shareholders, many companies with current high growth rates choose to reinvest their earnings back into their businesses. On the other hand, some stable companies that haven’t experienced much growth might pay dividends to provide an incentive for investors to purchase their stock.

Before 2003, dividends were taxed at ordinary income tax rates reaching as high as 35%. But as a result of changes to the tax law, corporate dividends are currently taxed at a maximum rate of 15%; this lower rate will expire at the end of 2010 unless Congress acts to extend it. Because payouts have become more attractive to shareholders, many companies with high growth rates are offering dividends.

When investing in the stock market, it’s important to remember that the return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Tuesday, August 4, 2009

What Are the Tax Benefits of Charitable Trusts?

Americans give freely to support the causes they value, from churches, education, and the arts to medical research. Fortunately, current tax laws encourage and even reward philanthropy. Beyond the basic tax deductions for charitable giving, setting up one or both of the following types of trusts could provide financial advantages in addition to the personal satisfaction that comes from giving.

Charitable Remainder Trust

When money, securities, property, or other assets are placed in a properly structured charitable remainder trust, the donor or a beneficiary receives income for a specific term or for life. When the trust expires, the designated charity receives the assets that remain.

For the donor, there are several potential tax benefits: (1) Assets placed in the trust may be partially deductible for income tax purposes. (2) At death, trust assets are not subject to estate taxes because they are no longer part of the donor’s taxable estate. (3) Any appreciated assets in the trust are also exempt from current capital gains tax.

Charitable Lead Trust

A charitable lead trust is an estate conservation tool that uses the donor’s assets to provide income for a charity during the donor’s lifetime and then transfers the remaining assets to the donor’s heirs when he or she dies. This type of trust could potentially reduce the estate tax due upon death, most notably on highly appreciated assets, because they are not subject to current capital gains tax.

Keep in mind that donations to both types of charitable trusts are irrevocable. This means that the assets cannot be withdrawn once the trust is formed. Also bear in mind that not all charitable organizations are able to use all possible gifts. It is prudent to check first. The type of organization selected can also affect the tax benefits that may be received.

When structured properly, these tools could possibly be used to benefit the charities of your choice and also help to reduce your tax obligations at the same time.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisors before implementing such strategies.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.





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PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to

What Is the Estate Tax?

The estate tax is a tax on property that transfers to others upon your death. Estate taxes are due on the total value of your estate — your home, stocks, bonds, life insurance, and other assets of value. Everything you own, whatever the form of ownership, regardless of whether the assets have been through probate, is subject to estate taxes.

Also referred to as the “death tax,” the estate tax was first enacted in this country with the Stamp Act of 1797 to help pay for naval rearmament. After several repeals and reinstatements, the Revenue Act of 1917 put the current estate tax into place. Despite its long history, this tax remains controversial.

By working in much the same way as marginal income tax brackets, estate taxes claim a graduated percentage of the total value of your estate. For estates of greater value, the percentage amount due in taxes is generally higher.

The IRS calculates the estate tax due on your gross taxable estate by adding the value of your assets and then subtracting any applicable exemptions.

The most common exception to the federal estate tax is the unlimited marital deduction. The government exempts all transfers of wealth between a husband and wife from federal estate and gift taxes, regardless of the size of the estate. Of course, the surviving spouse must be a U.S. citizen to qualify for this exemption. When the surviving spouse dies, the estate will be subject to estate taxes and, unless the appropriate preparations have been made, only the surviving spouse’s applicable credit can be used. Other exemptions include mortgage and other debt, administration expenses of the estate, and losses during estate administration.

The Economic Growth and Tax Relief Reconciliation Act of 2001 made sweeping changes to the federal estate tax. It established a schedule that loweredthe top estate tax rate and raised the applicable credit amount gradually over several years. In 2010, the federal estate tax is scheduled to be repealed. However, because of the tax law’s sunset provision, the federal estate tax will return in 2011 at its previous maximum level unless Congress votes to permanently repeal the tax. (See the table for applicable credit amounts and top estate tax rates.)

Check with your tax advisor to be sure that your estate is protected as much as possible from estate taxes upon your death.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

Monday, August 3, 2009

Psychologists repudiate gay-to-straight therapy

NEW YORK — The American Psychological Association declared Wednesday that mental health professionals should not tell gay clients they can become straight through therapy or other treatments.

In a resolution adopted by the APA's governing council, and in an accompanying report, the association issued its most comprehensive repudiation of "reparative therapy" — a concept espoused by a small but persistent group of therapists, often allied with religious conservatives, who maintain gays can change.

No solid evidence exists that such change is likely, says the resolution, adopted by a 125-4 vote. The APA said some research suggests that efforts to produce change could be harmful, inducing depression and suicidal tendencies.

Instead of seeking such change, the APA urged therapists to consider multiple options — that could range from celibacy to switching churches — for helping clients live spiritually rewarding lives in instances where their sexual orientation and religious faith conflict.
The APA had criticized reparative therapy in the past, but a six-member task force added weight to this position by examining 83 studies on sexual orientation change conducted since 1960. Its report was endorsed by the APA's governing council in Toronto, where the 150,000-member association's annual meeting is being held this weekend.

The report breaks new ground in its detailed and nuanced assessment of how therapists should deal with gay clients struggling to remain loyal to a religious faith that disapproves of homosexuality.

Judith Glassgold, a Highland Park, N.J., psychologist who chaired the task force, said she hoped the document could help calm the polarized debate between religious conservatives who believe in the possibility of changing sexual orientation and the many mental health professionals who reject that option.

"Both sides have to educate themselves better," Glassgold said in an interview. "The religious psychotherapists have to open up their eyes to the potential positive aspects of being gay or lesbian. Secular therapists have to recognize that some people will choose their faith over their sexuality."

In dealing with gay clients from conservative faiths, says the report, therapists should be "very cautious" about suggesting treatments aimed at altering their same-sex attractions.
"Practitioners can assist clients through therapies that do not attempt to change sexual orientation, but rather involve acceptance, support and identity exploration and development without imposing a specific identity outcome," the report says.

"We have to challenge people to be creative," said Glassgold.

She suggested that devout clients could focus on overarching aspects of religion such as hope and forgiveness to transcend negative beliefs about homosexuality, and either remain part of their original faith within its limits — for example, by embracing celibacy — or find a faith that welcomes gays.

"There's no evidence to say that change therapies work, but these vulnerable people are tempted to try them, and when they don't work, they feel doubly terrified," Glassgold said. "You should be honest with people and say, 'This is not likely to change your sexual orientation, but we can help explore what options you have.'"

One of the largest organizations promoting the possibility of changing sexual orientation is Exodus International, a network of ministries whose core message is "Freedom from homosexuality through the power of Jesus Christ."

Its president, Alan Chambers, describes himself as someone who "overcame unwanted same-sex attraction." He and other evangelicals met with APA representatives after the task force formed in 2007, and he expressed satisfaction with parts of the report that emerged.
"It's a positive step — simply respecting someone's faith is a huge leap in the right direction," Chambers said. "But I'd go further. Don't deny the possibility that someone's feelings might change."
An evangelical psychologist, Mark Yarhouse of Regent University, praised the APA report for urging a creative approach to gay clients' religious beliefs but — like Chambers — disagreed with its skepticism about changing sexual orientation.

Yarhouse and a colleague, Professor Stanton Jones of Wheaton College, will be releasing findings at the APA meeting Friday from their six-year study of people who went through Exodus programs. More than half of 61 subjects either converted to heterosexuality or "disidentified" with homosexuality while embracing chastity, their study said.
To Jones and Yarhouse, their findings prove change is possible for some people, and on average the attempt to change will not be harmful.

The APA task force took as a starting point the belief that homosexuality is a normal variant of human sexuality, not a disorder, and that it nonetheless remains stigmatized in ways that can have negative consequences.

The report said the subgroup of gays interested in changing their sexual orientation has evolved over the decades and now is comprised mostly of well-educated white men whose religion is an important part of their lives and who participate in conservative faiths that frown on homosexuality.
"Religious faith and psychology do not have to be seen as being opposed to each other," the report says, endorsing approaches "that integrate concepts from the psychology of religion and the modern psychology of sexual orientation."

Perry Halkitis, a New York University psychologist who chairs the APA committee dealing with gay and lesbian issues, praised the report for its balance.

"Anyone who makes decisions based on good science will be satisfied," he said. "As a clinician, you have to deal with the whole person, and for some people, faith is a very important aspect of who they are."

The report also addressed the issue of whether adolescents should be subjected to therapy aimed at altering their sexual orientation. Any such approach should "maximize self-determination" and be undertaken only with the youth's consent, the report said.
Wayne Besen, a gay-rights activist who has sought to discredit the so-called "ex-gay" movement, welcomed the APA findings.

"Ex-gay therapy is a profound travesty that has led to pointless tragedies, and we are pleased that the APA has addressed this psychological scourge," Besen said.

Wall Street rises on recovery optimism, Ford sales

NEW YORK (Reuters) - U.S. stocks rose on Monday after data showed the manufacturing sector shrunk at a slower pace in July, while rising commodity prices boosted natural resource stocks.

The sharp advance briefly pushed the broader S&P 500 Index .SPX to its highest level in nine months, above the psychologically important 1,000 level.

Ford Motor Co's (F.N) July sales jumped 2 percent, adding to the positive tone.

According to the Institute for Supply Management, its index of national factory activity rose to 48.9 in July from 44.8 in June. A Reuters survey of economists had forecast 46.2.

"The ISM data adds to the building case that the economy has stabilized and that it is going to grow this quarter. I imagine it will embolden the case of the bulls," said Jim Awad, managing director at Zephyr Management in New York.

The Dow Jones industrial average .DJI rose 81.70 points, or 0.89 percent, to 9,253.31. The Standard & Poor's 500 Index .SPX gained 9.80 points, or 0.99 percent, to 997.28. The Nasdaq Composite Index .IXIC shot up 15.06 points, or 0.76 percent, to 1,993.56.

The S&P 500 is now up 47.4 percent since hitting a 12-year low on March 9.

Among natural resource stocks, shares of aluminum producer Alcoa Inc (AA.N) jumped 6 percent to $12.46, while miner Freeport-McMoran Inc (FCX.N) shot up 7.7 percent. The S&P materials index .GSPM.N was up 2.8 percent.

Ford shares rose 7.1 percent to $8.54. The company is among the primary beneficiaries of the federal government's "Cash for Clunkers" incentive program that took effect on July 24.

The Senate on Monday was due to vote on extending the program to stimulate auto sales after the U.S. House approved $2 billion for it on top of an initial $1 billion in June.

3M Co (MMM.N) shares rose 2 percent to $71.95 after Goldman Sachs upgraded the Dow component to "buy" from "neutral.













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Friday, July 31, 2009

Moody's cuts Energy Future Holdings, warns on debt

Moody's Investors Service on Monday cut its ratings on Energy Future Holdings to a deeply speculative grade and warned the company will likely need to restructure its $44 billion debt load.

Energy Future Holdings, formerly known as TXU Corp, is struggling with its debt after being taken private in the largest leveraged buyout in U.S. history in 2007 by private equity firms Kohlberg Kravis Roberts & Co KKR.UL and Texas Pacific Group TPG.UL.

"The capital structure is untenable and will likely prompt the company to pursue some form of restructuring activity," Moody's said in a statement.

"These actions are likely to address the company's liquidity profile and its substantial maturities upcoming in 2014," Moody's said.

Energy Future Holdings has around $23 billion of debt maturing in 2014, Moody's said.

Moody's cut Energy Future Holdings' corporate family rating one step to Caa1, seven steps below investment grade and a deeply speculative grade. The outlook is negative, indicating an additional cut may be likely in the coming 12-to-18 months.

A distressed debt exchange, in which bondholders swap debt for new cash, debt or equity at less than the debt's par value is deemed a default by rating agencies.

UPDATE 2-More than 6,000 GM hourly workers leave automaker

* 66,000 U.S. hourly workers leave GM since 2006

* GM aims to reduce hourly workforce further in 2009

* GM also cutting white-collar workers, executives (Adds bullet points, details on GM plans to reduce jobs)

DETROIT, Aug 3 (Reuters) - More than 6,000 U.S. hourly workers have left General Motors Co [GM.UL] under the automaker's latest buyout program intended to make it a leaner company after its emergence from bankruptcy.

GM, which exited bankruptcy on July 10 by selling most of its assets to a group funded by the U.S. Treasury, said the latest round of buyouts has brought the total number of its U.S. factory workers to 48,000.

GM has said it aims to reduce its U.S. hourly employment to about 40,500 by the end of 2009, through layoffs and other measures.

The cuts add to the thousands lost in the downturn for U.S. automakers that began in 2005 and forced both GM and Chrysler Group LLC to restructure under Chapter 11 bankruptcy protection.

Since 2006, about 66,000 U.S. hourly workers -- more than half of its factory workforce -- have left GM through buyouts and retirement packages as the automaker scrambled to reduce costs in the face of slowing sales and mounting losses.

The company also plans to cut its white-collar workforce more than 20 percent, or 6,000 jobs, this year. Executive ranks will be cut 35 percent.

GM lost $31 billion in 2008, taking its total losses to $82 billion in the last four years. It lost its ranking as the top global automaker by vehicle sales worldwide in 2008 when it was outsold by Toyota Motor Corp (7203.T).

"One of the very tough, but necessary actions to position the company for long-term viability and success is to reduce our total U.S. workforce, both hourly and salaried employees," said Diana Tremblay, GM vice president of labor relations.

Most of the hourly workers left the company on Aug. 1, GM said.

GM is also scheduled to report its U.S. auto sales for July later on Monday. Analysts expect the automaker to post a double-digit decrease in sales from a year ago, although the U.S. government's trade-in incentives likely limited the pace of the decline.








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PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to