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Monday, November 30, 2009

YEAR END TAX PLANNING: INVESTMENT EXPENSES



DON'T FORGET TO CLAIM YOUR INVESTMENT RELATED EXPENSES!!!
As you plan your income tax return, don't forget about money you have shelled out to buy, sell, and manage your investments. I categorize investment-related expenses into 4 categories, all of which are treated differently on your tax return:
• Category I: Those that you just can't claim
• Category II: Those that relate to buying and selling particular investments
• Category III: Those that relate to buying, selling, and managing your investments in general
• Category IV: Those that relate to royalty income and real estate rentals.


CATEGORY I: THOSE THAT YOU JUST CAN'T CLAIM
Costs specifically related to tax-exempt investments can't be claimed on your tax return at all. Congress' reason for making it this way is that if you're not going to have to include the income on your tax return, you shouldn't be able to include the deductions either. That makes sense.
However, here's one little point to remember: IRA's and 401k's and similar vehicles are NOT tax exempt!! They are tax DEFERRED. This means that outlays related to managing your IRA are, indeed, tax deductible if other requirements are met. On the other hand, outlays related to managing your tax-exempt municipal bonds are NOT.
Travel costs to attend an investment seminar, conventions, or stockholder meetings, or to investigate potential rental property are generally NOT tax deductible. Congress made it this way because they noticed that these activities so often occur in warm, sunny vacation locations. That makes a certain amount of sense.
Another investment related outlay that can't be deducted is one that you didn't pay. For example, if your brother Bob paid your annual IRA management fee, you can't deduct it. (Neither can your brother Bob, by the way.) That makes sense.
This leads to one important point of caution, however. If, Bob doesn't pay that IRA management fee, and the IRA management company simply takes it out of your IRA account, you can't deduct it. Why? Because technically, although you control your IRA, you don't own it; it is owned by a trustee. Therefore, if the fee is simply deducted from your IRA account, YOU didn't pay it! Always pay your IRA related expenses from a source outside the IRA; that way they will be deductible!!
Another expense that you just can't deduct is any part of the basic monthly fee for the first telephone line in your house.

CATEGORY II: COSTS OF BUYING AND SELLING SPECIFIC INVESTMENTS
Outlays related to buying any investment are capitalized as part of the investment, increasing its cost, or "basis". This reduces the amount of any gain when you ultimately sell the asset.
Outlays related to selling any investment are subtracted from the selling price, reducing it to the "net amount realized." Again, this lowers the amount of any taxable gain when you sell the asset.

CATEGORY III: OUTLAYS RELATED TO GENERAL MANAGEMENT OF YOUR INVESTMENTS

Unless you're a "real estate professional" or professional securities trader, which is pretty narrowly defined, all these expenses of owning and managing your investments go on Schedule A (Itemized Deductions) of your Form 1040 as "Miscellaneous Itemized Deductions" -- all except expenses related to royalties and real estate rentals, which go on Schedule E. We'll talk about Schedule E expenses later; let's focus on Miscellaneous Itemized Deductions for now. Almost anything you can think of could be included here as long as these conditions are met:
• You must itemize your deductions using Schedule A of Form 1040.
• You must literally "pay or incur" the expense yourself.
• The expense must be "ordinary and necessary."
• The relationship between the investments and the expense must be "reasonable and proximate."
Here's a partial list of deductions to think about:
  • Fees for investment advice
  • Subscriptions to investment or financial publications
  • IRA setup and custodial fees
  • Software or online services to manage your investments
  • Safe deposit box fees if used to store investment related documents
  • Transportation costs to and from your broker or advisor's office – including mileage
  • Attorney, accounting, or clerical costs
  • Charges for automatic investment services or dividend reinvestment plans
  • Costs to replace lost security certificates
  • Straight-line depreciation on your computer and peripherals to the extent they were used to manage investments
  • Bank deposit losses if not FDIC insured
  • Casualty or theft of non-rental, non-royalty investment property
  • Investment fees for non-publicly offered mutual funds shown in Box 5 of Form 1099-DIV
  • Proxy fight expenses related to non-frivolous policy disputes
  • Salary of a bookkeeper, secretary, or other employee to keep track of investments
  • Investment property management expenses
  • (Investment interest is also deductible but is reported differently that other "investment expenses."  It is NOT included under "miscellaneous itemized deductions;" instead, it has a separate line on Schedule A and potentially requires a Form 4952 to compute its limitations.)
Once you have compiled your list of Miscellaneous Itemized Deductions and investment interest, the amount you can actually deduct is subject to a series of different limitations:
FIRST of all, the amount of any investment interest you are claiming cannot exceed the following amount: investment income minus the deductible portion (after 2% AGI floor) of other related investment expenses.. . This excess investment interest, if any, can be carried over and deducted on your tax return in some future year. There is no limit to the number of years you can carry it forward until you get a chance to use the deduction.  You may be required to submit a Form 4952, "Investment Interest Expense Deduction" do compute and document all of this.
SECOND, most Miscellaneous Itemized Deductions, including investment expenses, are subject to a "2% of AGI Floor." This means that you multiply your adjusted gross income by .02 and subtract that figure from your investment expenses and other Miscellaneous Itemized Deductions.
The only people who don't have to worry about the 2% of AGI reduction are professional securities traders, who can put all their expenses on a Schedule C. These insiders have no reduction or limit on their investment expenses writeo-off at all. (Go figure!!!)
THIRD: If there is anything left after applying the first two limitations, it is subject to being reduced by a "phase out" of your total itemized deductions. Phase-out of miscellaneous itemized deductions occurs if your Adjusted Gross Income exceeds certain thresholds. These thresholds are:
If your filing status is "married filing separately" $79,975
Single $159,950
Head of Household $159.950
Married Filing Jointly $159,950
(2 Singles living together out of wedlock = $159,950 x 2 $319,900)
(Do you see the big marriage penalty in those numbers?)
Generally, for your 2008 return, 27% of itemized deductions above these thresholds evaporate in this sneaky Congressional take-back called the "phase-out" of itemized deductions. Gambling losses, medical expenses (minus 7.5% of AGI "floor"), and casualty/theft losses (minus a series of limitations that apply only to casualties and thefts) are not subject to "phase-out."
And again, there is no phase-out for the insiders who are able to list their investment expenses on Schedule C.
FOURTH: If there is anything left of your Miscellaneous Itemized Deductions at this point, it is now subject to the Alternative Minimum Tax -- which completely disallows all of your investment expense deductions.
Have you heard the term "shell game"???!!!!. Thank Congress! LOL!

CATEGORY IV: RENTAL AND ROYALTY EXPENSES
Royalty and real estate rental expenses, which appear on Schedule E, must meet the same requirements as the Schedule A expenses, namely:
• You must literally "pay or incur" the expense yourself.
• The expense must be "ordinary and necessary."
• The relationship between the investments and the expense must be "reasonable and proximate."
In order to limit the amount of royalty and rental expenses you can deduct, Congress came up with a scheme that classifies all income into 3 categories: "Earned Income," "Portfolio Income" and "Passive Income." . Earned Income includes wages and the net income (or loss) from conducting a business or a farm and certain other things like unemployment compensation. Any other income, in Congress' view, is "Unearned." Unearned income is divided into Portfolio Income and Passive Income. Portfolio Income is interest and dividends stocks, bonds, and bank accounts. Passive Income relates to things such as real estate rental and royalties. The tricky part about Passive Income is that if your expenses exceed your revenues, the resultant loss CANNOT be deducted unless you have another passive activity that is producing an equal profit – which is referred to as a "passive income generator," or PIG. In most cases, because of depreciation of high-cost assets such as buildings, rental activities generate only a small profit, or, more often, a nondeductible loss. This is to say that the deduction for passive investment expenses is limited to the amount of passive revenue. The excess can be carried over to future years until either the asset is sold, in which case the accumulated carried forward losses become part of a capital transaction, or a PIG comes along.
There is one important exception to the limitation of deducting real estate rental losses. If you have more than 10% of a real estate rental and you help manage it in a "active" way, and if your "Modified Adjusted Gross Income" is less than certain thresholds, you may use up to $25,000 of rental loss to offset other non-passive income, such as a salary. The thresholds are:
Married filing separately Zero
Married filing separately as abandonded spouses $50,000
(But the exception amount is $12,500 each, not $25,000)
Single $100,000
Head of Household $100,000
Married Filing Jointly $100,000
(2 Singles living together out of wedlock = $100,000 x 2 $200,000)
(Anybody see a marriage penalty in these numbers?)
Between $100,000 and $150,000, the $25,000 exception is phased down to zero.
Another exception relates to "qualified real estate professionals." These insiders can deduct their real estate losses fully every time without limit.

THE BOTTOM LINE
The bottom line to all of these complexities, is to keep careful track of all those investment related expenses and consult your tax advisor about how to best use them. For assistance with your income tax filings, you may wish to contact Maximum Legal Refund ™ at maxlegalrefund@yahoo.com or telephone (301)537-5365.

DO YOUR CHRISTMAS AND HOLIDAY GIFT SHOPPING AT AMAZON.COM

by JC Leahy

For Cyber Monday, Black Friday, and the rest of your Holiday Shopping, remember that you support the Journal when you shop Amazon.com. With many purchases, you get the advantage of no shipping charges or sale tax -- that's in addition to getting rock-bottom, below-retail prices. Simply use the Amazon link below (or ANY of the Amazon links contained in the Journal) to enter the Amazon website. That way, your whole shopping session will be attributed to the Journal for a commission to the Journal of up to 15% on everything you buy -- at no cost to you!!

Thursday, November 19, 2009

DOCTOR TO AVOID: ARTHUR I. KOBRINE, MD -- WASHINGTON, DC

by JC Leahy
RN, BSN, MA, ACLS
Sigma Theta Tau's "100 Most Extraordinary Nurses Award"


I am writing these details while they are fresh in my mind. I just arrived home from a very unusual doctor visit. I am a registered nurse. I have seen many doctors interview many patients and I have never witnessed anything as bizarre as today's visit with Dr. Korbine. You may actually find it hard to believe:

My insurance company, Northwestern Mutual Life Insurance, wanted me to have an evaluation of a neck injury. They steered me to Dr. Kobrine. The waiting room was nearly empty: me and one other patient attended by 3 staff members. I am, by nature, a friendly guy. At work I smile and say hello to people I pass in the hallway, whether it's Bert the cleaning guy or the hospital chief of surgery, or patients. So, when Dr. Kobrine entered the exam room this morning, I gave him a bright "good morning" and a broad smile.

"Good Morning!" I said.

Dr. Korbine closed the door behind himself, sat down silently, a dour facial expression, avoiding eye contact. Silently, he opened my file and began to read.

It's unfortunate how so many people at so many levels in this world feel entitled to be rude.  I felt awkward that he hadn't responded to my greeting. I tried to recover. "How are you this morning?" I smiled. No response. Only silence.

After reading for a while silently, he asked, "You work for the Department of Veterans Affairs?"

"Yes, I do!!" I responded enthusiastically. " I take care of veterans at the VA Medical Center on Irving Street." I smiled again and held out my Veterans Affairs professional business card.

Dr. Kobrine glanced coolly at my hand but did not take the card from it. "I don't need your business card.".

"Oh....okay....." This WAS awkward!! I placed my card back in my pocket. Dr. Kobrine continued to silently flip through my file.

"Dr. Kobrine," I said politely. "I must say, I find you dogged silence and refusal to interact to be a bit rude. Are you having a bad morning or do you treat all of your patients this way?"

He looked up from his reading, glaring. He looked like he had just been kicked in the stomach. There was anger in his eyes. "WHAT did you just say???!!!"

"I believe you heard me, Dr. Kobrine."

"Let me tell you something!!! I'm not here to be your buddy!!!! I don't need your friendship!!! I don't need your business card!!! I'm here to evaluate your neck!!!! Frankly, I find YOU rude for saying what you just said!!!"

"Please don't misunderstand me, Doctor!! I'm trying to HELP!!! Your waiting room is not exactly overflowing.  Your poor professional demeanor CAN'T be good for your practice! ! And besides, life is too short to be acting like that, don't you agree?"

"Well I don't need your help! I do NOT need your help!!"

"Okay, Doctor. I stand admonished. Proceed with your evaluation."

"I think YOU are the rude one!!!"

"Very well, Doctor. Proceed."

He gave me a little physical exam. Zero small talk. Very tense. When he was finished, he said simply, "That's all."

He turned and left the exam room leaving me sitting there in my undershirt with no good-bye or instructions to go to the front desk or anything at all.

How needlessly unpleasant was Dr. Kobrine!!!!  In short, the good doctor Kobrine exhibited a personality somewhere between Colonel Klink and a dead fish dressed up like Glenn Beck's photo on his new book Arguing With Idiots. I'm not saying Dr. Kobrine is incompetent -- that may or may not be, but it's not my point-- I'm just saying that a patient would have to be a masochist to tolerate his extremely unprofessional bedside manner!!! It takes more than technical skills to be a physician, and Dr. Kobrine simply does not measure up.

Here are his contact data, as listed on his business card:

Arthur I. Kobrine, MD, Ph.D.
Diplomate (sic) American Board of Neurological Surgery
2440 M Street, NW, Suite 315
Washington, DC 20037
Tel. 202-293-7136

Tuesday, November 17, 2009

JC LEAHY'S LETTER TO THE AARP

November 17, 2009

AARP
PO Box 2400
Long Beach, CA 90801

Dear Sirs:

Ref. Account #311985804

My AARP membership renewal form is enclosed herewith. Are you kidding??!! After the AARP's baldfaced support of the Democrats' so-called health care reform bill (House version), do not EVER again mail anything to my address!!!

Very sincerely,
JC Leahy, RN, BSN, MA, ACLS
2009 "100 Most Outstanding Nurses" Award, Wash, DC

Sunday, November 15, 2009

SHOULD YOU PUT NITROGEN IN YOUR CAR'S TIRES?

By JC Leahy

Maybe I was ripped off. You decide. I went to Castle Ford for a "free" oil change. A year's free oil changes had come with my new car. While I was there they gave me a sales pitch for putting nitrogen in my Mustang's tires. It sounded like a novel idea and seemd to make some sense, so I said okay. That cost me around $70. It was a year and a half ago.

Since then, I have done a little research. Replacing air with pure nitrogen in tires was not exactly a novel idea -- just new to me. Nitrogen in tires is common in race car driving and commercial fleets. For race cars, small changes in tire pressure are really important. Race car tires get warm from friction as the car races around the track. Normal air contains water vapor -- humidity -- which expands and contracts a lot more than pure nitrogen. If small changes in tire pressure are important to you -- as they are is in NASCAR racing -- nitrogen makes a lot of sense. On the other hand, if you're just commuting to work, you might not care.

For commercial fleets, nitrogen has other advantages. First, although normal air is 78% nitrogen, it also contains 21% oxygen, a little CO2, a little water vapor (humidity), and minute amounts of noble gasses such as neon and argon. Nitrogen molecules are relatively large. Because of the larger molecular size, the theory is that nitrogen won't seep through the tires as fast as oxygen. That means that tire pressure will be more stable over time, leading to improved fuel efficiency, better tread life, and predictable handling (safety).

Also, because pure nitrogen doesn't contain water vapor or oxygen, there is no oxidation of the tires or the aluminum or steel rims. After all, you can't have oxidation without oxygen. Low oxidation is supposed to reduce tire aging and wheel corrosion.

The National Transportation Safety Administration has confirmed that nitrogen does, indeed, reduce tire aging in commercial fleets. Personally, the tread of my own tires has always worn down long before aging of the rubber ever became an issue. Whether or not reduced tire aging would benefit you is something for you to decide. There is some theoretical benefit.

Consumer Reports conducted a study to determine if nitrogen-filled tires held pressure better than air-filled. They filled 31 assorted tires with nitrogen and 31 matching tires with air. Then they put them outdoors for a year and checked the pressure afterwards. Air-filled tires lost an average of 3.5 psi and the nitrogen tires, 2.2 psi. So, yes, nitrogen tires will hold pressure better. The Consumer Reports study was flawed because their 62 tires were not mounted on cars and driven -- they were just sitting there. It is possible that under actual use, the relative benefit of nitrogen would be greater.

Driving my own Mustang, I noticed no difference in handling between tires filled with air and tires filled with nitrogen. I did imagine I saw a little increase in fuel efficiency, but not much. My preception may have been wishful thinking.

I have concluded that the important goal is to maintain proper tire pressure. Proper tire pressure will give you safer handling, better tread life, and better fuel efficiency. Nitrogen in your tires will do no harm and may help your tires maintain pressure. Nitrogen is not, however, a substitute for regular checking of your tire pressures.




Bottom line: Get yourself a good tire pressure gauge, keep it in your glove compartment, and use it. Buy your tires at somewhere like Costco that will fill your tires with nitrogen for FREE and refill them with nitrogen FREE for the life of the tire. And, by the way, Costco will also give you a pretty great Costco tire warranty on your tires and rotate them free anytime you say, and not charge you anything for mounting and balancing. You can have nitrogen re-filling done while you shop. I would NOT again pay $70 for nitrogen in my tires -- I believe Castle Ford got me on that one. :)

Saturday, November 7, 2009

SPECIAL DEAL FROM AMAZON.COM

By JC Leahy

Amazon.com is my favorite online shopping web site because they have EVERYTHING and the prices are low. Also, there is usually no sales tax. If you sign up for their "Amazon Prime" deal, you can even get free shipping on anything Amazon sells. Returns are generally simple. And you don't have to drive around town spending time and gasoline. This makes Amazon far better and "greener" than brick-and-mortar retail shopping for most purchases. The exception is with items of clothing that I really want to see, feel, and try on before you buy. Even then, I will often buy, say shoes, hats, shirts, or outdoor jackets online and just return them if I don't like them. In your own Holiday Shopping, or in general whenever you shopl, go to Amazon.com by FIRST going to www.jaitoday.com. At Jaitoday, go to the bottom of the page to the the "Amazon Gift Card" link. Click that link to enter the Amazon shopping site. No, you don't have to buy a gift card. This link will take you to the Amazon.com website and you can proceed to shop and buy anything you want. The special deal is that, because you entered Amazon through Jaitoday, Amazon will pay a sales commission to the Journal of American Ideas Today for every item you buy. This commission can range as high as 15%. This way, you can support the Journal at NO COST to you!! Your shopping support will be greatly appreciated!!

Thanks!!

JC Leahy, Editor

PS - You can also use any other Amazon.com link located in WWW.JAITODAY.COM. For example, there are links in certain articles to buy books, etc. The Journal will get the commission from any of these links, too. --- JCL

HOW TO CONTACT YOUR SENATORS AND CONGRESSMAN

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WHATEVER you may think about the current 2000-plus-page health care "reform" bill, TODAY is the time to contact your congressional representative and senators. Here is an easy link for your convenience. And forward this www.jaitoday.com link to EVERYONE YOU KNOW!!!!!!!!!! As the Nike slogan says, Just do it !!!!!!!!!!!!!!!

TO CONTACT ELECTED OFFICIALS CLICK HERE

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