Saturday, March 31, 2012

U.S. stocks notch best first quarter since 1998

In first quarter, Dow gains 8.1%, Nasdaq Composite up nearly 19% and S&P 500 gains 12%.

This is why I always advocate investing in no-load index funds. And if you include dividends, the gain is even more. While this kind of performance most like won't repeat anytime soon, in my opinion, over a long period of time, it should beat most actively managed funds. Index funds are tax efficient too. They generally do not pay any capital gains dividends; therefore, the carrying cost is very low.

Warren Buffet is currently having a $1 million bet with some hedge fund managers that the S&P 500 will grow better than any of the hedge funds over a ten year period. See

Friday, March 30, 2012

Deloitte Offers FATCA Guide

The Foreign Account Tax Compliance Act (FATCA), was included in the HIRE Act of 2010, and it has caused consternation abroad and at home. The law requires foreign financial institutions to report to the Internal Revenue Service on the assets of U.S. citizens. Last month, the IRS and the Treasury Department proposed new regulations for FATCA designed to address some of the concerns they had been hearing from banks, expatriates, and other countries, such as Canada (see IRS and Treasury Propose New FATCA Rules).

FATCA also requires every U.S. citizen and permanent resident (green card holder) to file a Form 8938 with their income tax return when they have a certain amount of financial assets located overseas. This is on top of the filing of the TD F 90-22.1 with the U.S. Treasury. Failure to file the Form 8938 could result in a penalty ranging from $10,000 to $50,000.

Tuesday, March 27, 2012

6 reasons why Wall Street hates LazyPortfolios

I have always advocated investing in no load index funds. Here is an excerpt of the article. To read the entire article, click on the link below.
By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — “America’s investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask,” former Securities and Exchange Commission Chairman Arthur Levitt warned in an article in Fortune magazine a decade ago. That same year in his classic “Take On The Street,” Levitt lambasted the fund industry as “a culture that thrives on hype … withholds important information,” a “cutthroat business” that “misleads investors.” Today, it’s worse.

Lazy Portfolios give investors a far superior alternative than gambling retirement savings in Wall’s Street’s casino. Simple solutions: Just three to 11 no-load low-cost index funds, and zero trading . . . without brokers or advisers.

Follow six simple secrets and create your own Lazy Portfolio winner
  1. Being average wins.
  2. Buy and hold. Buy and hold. Buy and hold.
  3. No market timing, no active trading. Never.
  4. Not saving 10% for your retirement? Then you’re spending too much.
  5. Forget short-term market swings.
  6. Forget stock market news.

Monday, March 26, 2012

IRS Commissioner Shulman Addresses Tax Delays

Internal Revenue Service Commissioner Doug Shulman warned Thursday of a delayed tax season next year unless Congress resolves questions over the alternative minimum tax patch and other tax extender items, and talked about the tax refund delays this tax season.

" I would be remiss if I did not acknowledge that in the first few weeks of the tax filing season, we experienced some delays in processing a subset of e-filed returns,” Shulman said in his prepared remarks for a hearing before the House Ways and Means Oversight Subcommitee. “These were temporary issues that affected a subset of taxpayers who filed in late January and early February, and the issues were resolved by mid-February. And, even with the delays, the IRS was generally delivering refunds in our normal 10- to 21-day time frame. I recognize that this group of taxpayers encountered delays this filing season and we regret the inconveniences caused.”

However, Shulman noted that even with the initial issues during tax season, the overall average refund timeline remained steady in fiscal year 2012 when compared to fiscal year 2011. “In other words, the delays were isolated to early issues in the filing season, and after that IRS was processing tax returns according to normal refund timelines,” he said.

Some Accounting Today readers have reported much longer delays beyond the first few weeks (see IRS Experiences Further Tax Refund Delay Problems and Tax Preparers Threatened over Tax Refund Delays).

According to a report released Thursday by the Government Accountability Office, between Jan. 17 and Jan. 26, the IRS delayed about 6 million returns because of a programming error. As a result, the GAO estimated that approximately 5.5 million refunds were delayed for about one week over what had been planned, while the IRS identified, isolated, and resolved the programming error.

The Commissioner also discussed various other topics such as AMT, the new tax preparer registration, ID theft, new technology at the Service and the IRS budget cut. Clock on the link above to read the whole article.

The refund delay really hasn't been completely solved, but it's better than earlier in the tax season.

Sunday, March 18, 2012

When Trusts Meet Retirement Accounts

Many parents want to control how quickly their children can draw down the retirement accounts they inherit—and are fixating on trusts as the answer. But setting up such a trust can be a complicated and risky process.

This area of estate planning "is a minefield," warns Jay Starkman, a certified public accountant in Atlanta. Recent rulings by the Internal Revenue Service and various courts have raised more questions than they have answered. Still, he understands why parents put up with the hassle.

"Every tax practitioner has seen parents leave a lot of money that took a lifetime to save, and then watched the children go through it in less than five years," Mr. Starkman says. Such profligacy can be especially galling when parents have paid taxes upfront to convert a traditional individual retirement account to a Roth IRA so their children's future withdrawals—and any future gains—are tax-free.

The big concern is adult children with spendthrift ways, contentious marriages or careers that leave them vulnerable to lawsuits. Bankruptcy and civil courts, which generally shield IRAs from creditors for their original account holders, have been divided over the treatment of such accounts when they are inherited.

Seymour Goldberg, a lawyer and CPA in Woodbury, N.Y., points to conflicting court rulings as another reason to use trusts. In a Texas case, a bankruptcy judge ruled in March that federal law doesn't protect inherited IRAs as retirement accounts, because their owners can't use those accounts to save for retirement.

A Florida state court ruled last year that inherited IRAs aren't sheltered from creditors in civil lawsuits outside of bankruptcy court. But recent bankruptcy cases in Minnesota, Idaho and Pennsylvania resulted in judgments preserving inherited IRA assets.

The upshot: It could be years before the courts, or Congress, make it clear whether inherited IRAs are protected from creditors.

• Annual distributions. As a result, some estate lawyers and accountants are advising parents to name an irrevocable trust as the IRA beneficiary—and to name their heirs as beneficiaries of the trust.

One downside with such a trust: You have to spread the required annual withdrawals across the life expectancy of the oldest heir, rather than using each heir's individual life expectancy. That means that your heirs could lose the opportunity for a longer period of tax-free growth. Given that, you might want to name a young trust beneficiary in order to spread those distributions over a longer time period, says Mr. Goldberg.

A second pitfall: The IRS seemed to indicate in a so-called private-letter ruling issued in March that the opportunities for trustees to tweak the language in such trusts is limited. In this case, a trustee wanted to clarify in the trust's wording who the designated beneficiary was supposed to be—after the original IRA owner had died. A state court order allowed the change—but the IRS said it wouldn't.

"The moral of the story is, we have to get these [IRA trusts] right the first time," says Robert S. Keebler, a CPA in Green Bay, Wis.

• Conduit trusts. What if your kids have low-risk, stable jobs and happy marriages, and your main concern is simply making sure they stretch out their inherited-IRA withdrawals? One option is a lower-maintenance "conduit" trust.

Say you want to leave your IRA to your three children. You could set up a conduit trust for the benefit of each child, and then name those trusts as the beneficiaries of the account. Each year, the required distributions from the IRA, divided into separate inherited accounts, would be based on each child's age, would go into his or her individual trust and then be paid out to the child. You can set it up so the child can't take out more than the minimum each year.

But what if you aren't sure what the future holds for your children? Mr. Keebler is increasingly advising clients to set up a conduit trust with a "toggle switch," he says. With a conduit trust, the IRA distributions have to be paid outright to the trust beneficiary. But by including special language when the trust is set up, the trustee could have a one-time option to switch to a more protective trust, as described above, between the IRA owner's death and Sept. 30 of the following year.

In a private-letter ruling five years ago, the IRS said that a trust with that option met its standards. "This gives you the chance to take a second look at the trust and decide what's more important"—simplicity and the potential for a longer distribution period, or creditor protection, says estate lawyer Philip Kavesh in Torrance, Calif., who requested the ruling.


Write to Kelly Greene at

Saturday, March 3, 2012

2012 automoblile depreciation

Revenue Procedure 2012-23 contains tables showing the limits of depreciation deductions under section 280F for automobiles placed in service in 2012.

Section 168(k)(2)(F)(i) of the Internal Revenue Code increases the first year depreciation allowed under §280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies.

REV. PROC. 2012-23 TABLE 1
Depreciation limitations for passenger automobiles (That are not trucks or vans) placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction applies
Tax Year Amount
1st Tax Year $11,160
2nd Tax Year $ 5,100
3rd Tax Year $ 3,050
Each Succeeding Year $ 1,875

REV. PROC. 2012-23 TABLE 2
Depreciation limitations for trucks and vans placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction applies
Tax Year Amount
1st Tax Year $11,360
2nd Tax Year $ 5,300
3rd Tax Year $ 3,150
Each Succeeding Year $ 1,875

REV. PROC. 2012-23 TABLE 3
Depreciation limitations for passenger automobiles (that are not trucks or vans) placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction does not apply
Tax Year Amount
1st Tax Year $ 3,160
2nd Tax Year $ 5,100
3rd Tax Year $ 3,050
Each Succeeding Year $ 1,875

REV. PROC. 2012-23 TABLE 4
Depreciation limitations for trucks and vans placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction does not apply
Tax Year Amount
1st Tax Year $ 3,360
2nd Tax Year $ 5,300
3rd Tax Year $ 3,150
Each Succeeding Year $ 1,875

Tables 5 and 6 show inclusion of taxable income for leased automobiles and trucks/vans.