Permanent Value Inc. - Registered Investment Advisor

Week in Review 6/10/13

KNOWING WHICH ASSETS TO DONATE

Ohio National Financial Services suggests three routes for managing assets with no cash flow:

1. Keep the Asset

Indefinitely keeping collectibles, antiques, land and other assets with high fair market value but no cash flow, has its risks. Keeping such assets for life may force heirs to later sell the assets at an unfavorable time in order to pay the estate taxes it generates.

2. Sell the Asset

Selling an asset with high fair market value creates an opportunity to reinvest the proceeds toward higher rates of return; keeping in mind that capital gains rates can shrink the asset’s value.

3. Give the Asset to Charity

Giving an asset to charity opens up many opportunities for cash flow. Consider your options: Do you desire an income stream in return for the gift? Do you prefer one large up-front tax deduction, or would you rather allocate the deduction over multiple years? The type of asset being donated is also an important consideration.

4. Outright gifts

Know what types of gifts are appropriate for each asset donation. A no-strings-attached gift is appropriate when giving smaller gifts. When making sizeable gifts, especially large cash amounts by check, alternative assets may be more beneficial. Outright gifts of appreciated marketable securities reduce the cost of the gift by offering the dual savings of a tax deduction while avoiding capital gains tax.

Gifts of IRA assets

Contributing IRA assets to a qualified charity can be considered a charitable contribution. Another example of a taxable distribution from an IRA is a “qualified charitable distribution”, or QCD*:

• To qualify for a QCD, an IRA owner must be at least 70 ½ years old and must pay directly from the IRA to a qualified charity.
• Up to $100,000 of a QCD made in a year may be excluded from the gross income of the IRA owner
• QCDs may be used to satisfy IRA required minimum distributions (RMDs) for the year
• The IRA owner can avoid tax on a RMD by giving it directly to a non-profit entity
*The QCD has been a temporary part of the tax code since 2006

Source: Ohio National Financial Services

Week in Review 6/4/13

CHARITABLE GIVING AS A TAX STRATEGY

Charitable giving is a sensible tax strategy for amplifying tax advantages. Deciding which type of tax deduction to pursue (gift, estate, or income tax deductions) determines the availability of a tax deduction for a charitable gift.

Charitable gifts must be given to a qualified charitable organization, also known as 501(c)(3) organizations, to be eligible for a tax deduction. A rule of thumb in finding qualifying charities is to look for religious, scientific, literary, educational, and governmental organizations.

Income-tax deductions
During your lifetime, income tax deductions for charitable gifts are limited to a percentage of your adjusted growth income, also known as your AGI. The percentage for tax deductions ranges from about 20 to 50 percent of the AGI, and itemizing deductions is required to be eligible. The percentage varies depending on the type of charitable organization receiving the gift, the format of the gift, and the gift’s nature (i.e. ordinary income, capital gain, or appreciated property).

Avoiding taxes on capital gains
Charitable giving can be utilized to avoid taxes due on highly appreciated assets, thus preserving the asset’s value. When an appreciated asset is given to a non-taxpaying charitable organization, the organization is exempt from tax due on capital gains. Charitable remainder trusts are ideal for appreciated stock or real estate.

Assets held after death
When assets are held until death, the asset rises to fair market value, also known as the FMV, for the recipient. Also, the donor’s basis is replaced with the FMV and the FMV becomes the basis of the asset for the recipient. In addition, any gain recognition for the recipient is extinguished.

Estate-tax deduction
Any bequest given to a charitable organization entitles an estate to an estate-tax deduction. When a charitable contribution is made by will, it is fully deductible to the estate as long as the taxpayer’s gross estate valuation lists the value of the property given. ?

Source: Ohio Nationial Financial Services, Inc.

Week in Review 5/28/13

FIVE RULES OF SUCCESSFUL INVESTING

1. Diversify

Spreading the risk around in a portfolio over multiple asset classes can make it less vulnerable to the market’s unpredictability. This can be done by diversifying investments within asset classes. This keeps a portfolio balanced and less vulnerable to fluctuations in the market.

2. Keep Costs Down

Working with a financial advisor helps avoid investments with high costs that reduce returns. Also, setting aside money for investments before planning personal budgets is an essential part of being a successful investor.

3. Pay Attention to Taxes

In addition to investment costs and inflation, taxes frequently reduce returns. Know what types of accounts are right for different types of portfolios.

4. Buy & Hold for the Long Run

Using market timing as an investment strategy is not reliable as a consistently winning strategy. Frequently buying and selling investments increases taxes as gains are taken. Investing for the long term can help increase overall returns by reducing the number of transactions.

5. Know Yourself

Everyone has different investment temperaments. Some people are not as affected by market swings as others. Take a look at your portfolio and see if it fits you and your investment temperament.

Source: Vanguard Marketing Corporation