Permanent Value Inc. - Registered Investment Advisor

New Year, New Possibilities

NEW YEAR, NEW POSSIBILITIES…

2011 is here and the elections are over.  We last talked about how the elections were a referendum on how the new administration is guiding our economy and judging by the huge Republican shift in Congress, the voters expressed that they want the government to go in a different direction.    Congress will be trying to enact those changes that will take the government in a different direction but will have to work with the administration to do so.  As a result, there has already been a significant tax deal which we will detail below. 

THE NEW TAX DEAL…

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.   The Bush tax cuts are thus extended for all income levels through year-end 2012.   As a result, the dividend and capital gains tax rates remain at 15% through 2012.   The AMT is “patched” through 2011, mitigating its consequences for middle-income taxpayers in the same manner as in prior years.  The employee’s share of Social Security tax is reduced by two percentage points in 2011.  As a result, working taxpayers will pay Social Security tax in 2011 at a 4.2% rate (rather than the prevailing 6.2% rate). A worker with compensation in excess of the Social Security wage base maximum of $106,000 will save $2,120 in Social Security tax in 2011.    Most expired or expiring tax provisions are extended through 2011.   Of particular note, investors may move up to $100,000 from an IRA to a charity in each of 2010 and 2011 to satisfy their RMD requirement without incurring tax.  To provide investors with additional time to arrange this transfer, the legislation treats transfers from IRAs to charities made during January 2011 as if they were made in 2010.   Perhaps most surprising was that the compromise included estate and gift tax provisions more generous than any past estate tax change. These new rules remain in effect through year-end 2012:  a $5 million estate tax exemption and a 35% estate tax rate and reinstatement of stepped-up basis at death.  One thing is clear: eventually, taxes must go up. Whether higher taxes occur through further stratification of upper-income tax rates or through tax reform that eliminates many of the deductions we’ve come to expect, mathematically the budget deficit simply demands greater revenues. We have a two-year reprieve, but we are likely to be paying back our tax refunds with interest. *(source The Washington Update Jan 2011)    Now you might be thinking, “How do you stay up on all these changes and make the best recommendations for me?”  The same answer applies to executing the strategy as it does to designing it.   We know how to identify the issues that need addressing and then we rely on tax and legal experts to help us analyze your situation and make recommendations that best fit your financial situation.

EXECUTING THE STRATEGY…

In our last letter we discussed how to design a strong financial game plan.  As you may have seen or heard while watching the college bowl season or the NFL playoffs, executing the game plan is even more important than designing it.   Every coach knows that without proper execution and adjustments, the best plan is useless.   That is why open communication between you and your advisor to discuss implementation of action items and ongoing changes is so important.  We are the offensive and defensive coordinator that helps design how to grow and how to protect.   You are the head coach who helps set the strategy and then we make sure it gets executed properly.  Luckily we have unlimited timeouts to discuss strategy but the clock is ticking and we want to have a sense of urgency.    As always, we are continuing to work on your investment and financial game plan on a regular basis and look forward to our “huddle” with you to discuss it.  

Have a Happy New Year from all of us.

A Time of Transition

A TIME OF TRANSITION… 

When October comes around in even numbered years that means one thing… November elections are around the corner.  Exercising our duty as citizens to elect our representatives brings out the best in us and is one of the key freedoms we enjoy as Americans.   While this isn’t a presidential election with the increase in media coverage that goes with it, there is a lot on the line for how our country and economy are going to fare for the next few years.   It is a referendum on how the new administration is guiding our economy as well as the effectiveness Congress has had in allocating our hard-earned taxpayer dollars.   It is our job as your financial advisors to make sure we keep up on the law changes in the tax codes and financial system.   We can thus make recommendations that will save you money based on these changes so that you can put more of your money towards the goals that are most important to you.

HEALTHCARE, FINANCIAL REFORM, AND TAX LAW…

These are the major new federal law changes that have taken place during the past few months and that will continue to phase in over the next couple of years.   We have gone into depth about healthcare in previous letters and the financial reforms that mainly affect large financial companies, so we will focus more on the tax law changes that will occur come January 1st.  The most notable change will come from the phase out of tax cuts from 2000, which are scheduled to expire in 2011.  This includes both income tax and estate tax (which this year is waived but will go up significantly in 2011).    So your question to us might be: “how do you stay up on all these changes and make the best recommendations for me?”  The answer is that we know how to identify the issues that need addressing and then we rely on tax, legal and healthcare experts to help us analyze your situation and make recommendations that best fit your financial situation.   We are the coordinator or financial quarterback to organize and direct what needs to be done.  You are the coach who helps set the strategy and then we make sure it gets done as efficiently and effectively as possible. 

REVIEWS AND GAMEPLANS…

As anyone who has watched a team sport knows, a game lasts only a few hours but the pre-planning that goes into it takes hours and days to construct.  After each game, there is a review to discuss what worked and what didn’t work so the gameplan for the next game can be adjusted accordingly.   That is why we feel financial reviews are so important.  You would never see a quarterback developing and reviewing a gameplan without significant input from the coach, and we don’t want to change your financial strategy without significant input from you on a regular basis.  It is very challenging to write and implement a tax-efficient, growth-oriented, risk-managed, long-term gameplan (aka financial plan).  It is especially difficult to make sure that it is implemented and followed consistently.  Thus having a qualified Certified Financial Planner™ is invaluable in helping you to implement a great gameplan that takes into account all contingencies.  It is especially important to update your plan at year-end since any last minute changes that need to be made can still affect what you save, pay, or get refunded in taxes in 2011.   Once January 1st comes around, however, we have to wait until 2012 to see the results.

Please set aside some time for a review with us before the year-end so we can help you have the best gameplan possible and that we can make sure you are doing what is best for you, no matter what is going on in our government, economy or our country.

President’s Message

In this month’s newsletter, Nate and I will be discussing how and when the new healthcare act will be affecting the two highest concentrations of clients we serve: small business owners, and retirees (and pre-retirees).  We’ve provided you with a timeline and the likely affect the bill will have on your financial situation.  If you would like a more detailed analysis on how the changes will affect your financial plan specifically, please call our office and we’ll schedule a time to discuss the new law with you further.

Immediately through 2010

Beginning on June 23rd, 2010, small businesses will be eligible to receive a tax credit of up to 35% of the premiums on the health care plans they offer to their employees.  This tax credit will be increased up to 50% of employee’s health care costs by 2014.  The full credit will be available to firms with 10 or fewer employees with average annual wages of $25,000, or firms with 25 or fewer employees and average wages of $50,000.  Also, beginning in June, companies with early retirees will see a new system of reinsurance established to offset the expensive cost of coverage for benefits of those between the ages of 55 and 64.

2011 through 2013

At the beginning of 2011, small businesses will be able to create a simplified Cafeteria Plan aimed at providing tax-free benefits to employees.  This plan would ease the administrative burden that many small business struggle through when sponsoring a plan for their employees.  Also, all employers will be required to enroll their employees in a new national public long-term care program, unless the employee opts out.  And finally, businesses paying providers of property and services of $600 or more during the year will now be required to file information reports with the IRS.

2014

Waiting periods for employees to be eligible for health coverage will be 60 days, and 90 day wait periods will be prohibited.  All plans must be offered on a guarantee issue basis, preexisting condition limitations are prohibited as are annual and lifetime limits.  Fees for large companies (over 50 employees) will begin to be assessed if they do not provide insurance to their employees.  The fee will be $2,000 per full-time employees excluding the first 30 employees.  Also, so-called “Cadillac Plans” will be subject to an excise tax of 40% on insurers and plan administrators for any health plan that exceeds $10,200 per year for individuals and $27,500 for family plans.