Archive for Tax planning

Antiques Roadshow & investments

Vintage Jewelry

Sure, I love it. So much so that when Antiques Roadshow announced that it was going to be in Chicago for the first time in years, I applied for the ticket lottery immediately. They had 19,000 applications for 6,000 tickets, so I was thrilled when we won two tickets.

If you’re a fan, you probably find it at least as addictive as chocolate truffles. Watching other people live at the show, I spent a lot of time wondering just what the show offers. Everyone hopes they’ll pick something from a trash bin that turns out to be worth six figures, and we saw one or two folks who looked like they were being pulled aside for the big reveal.  However, given the lines we saw for painting appraisal, and the absolutely horrible paint-by-numbers art being carried in, I can tell you without a doubt that most of us have absolutely no taste in or knowledge of art. Really, I don’t think I could bear to be an appraiser on that beat, the stuff was so horrible. It must be a thrill to their eyes, too, when they finally spot something good. So, my first lesson is that if you’re going to hang it on a wall, make sure it’s something that has meaning for you, because value is questionable at best.

My second lesson while there is that not only do we probably have little idea of the value of collectibles or much ability to judge such value, but dealers don’t really have a clue, either. You probably know that if you’ve watched many Antiques Roadshow broadcasts, and see the terrible prior advice people have been given, but this time it’s personal. I brought a set of jewelry to be evaluated, which I bought at a reputable antiques show (the Winnetka Antiques Fair) from a reputable and long established dealer. Not one single thing I was told about the jewelry when I purchased it was accurate, at least according to the Roadshow appraiser. It wasn’t the karat weight I’d been told (14kt vs. 15kt.) it wasn’t from the era it had been labeled (U.S. Civil War vs. 1870s), and it wasn’t made where I was told (Italy, vs. England). The only “fact” that slightly mattered to me was that it wasn’t Civil-War era, as I was heavily interested in Civil War re-enacting at the time and that was the “fact” that thrilled me into purchasing the piece.

The third lesson I learned is that the demographic of viewers appears to be baby-boomer or older. Everyone is hoping that something from their early life, or that they inherited, has value. It’s a way of recouping your youth through your possessions—and finding that the changes over time that you see in yourself (perhaps losses) can be redeemed by the increased value of things that once had very low prices. Perhaps it’s innate in us that we want to have something of value that we can pass on to our children.

My biggest fear was that the jewelry would turn out to be worth less than what I paid for it, so it was a great relief to find out that it was worth about 60% more than its original price tag. But I have to confess, one of the games I play when watching the show is, “was it a good investment?”  And mostly, I have to answer no. I purchased this jewelry in 2000. If I’d have plunked my money into, say, the fairly conservative Vanguard Wellington fund instead, I’d have a nearly 200% return for the period. Plus, I wouldn’t have paid to insure it for the last 14 years (although I would have had to pay taxes on the Wellington dividends). You can play this game too—listen to how long the person has owned the object, take the amount they paid, and double it for every 10 years of ownership. If they’re not doing at least that well, financially at least they’d have been better off investing it in a balanced fund portfolio. But truthfully, it was much more thrilling at the time to own the jewelry than it would have been to put the same amount into a mutual fund. Fourteen years later, I’m not so sure. I’ve probably worn the darn thing 3 or 4 times.

Then, there are the things that don’t hold their value—most recently, antique dolls and furniture. You may not buy these things strictly as an investment, but you should be very, very careful that you pay on the low side of whatever the current market value is, be able to judge quality pretty well, and be willing to hold the object for as long as it takes for the category to rebound. And be sure it’s insured and properly cared for in the meantime. Probably, don’t own cats or have small children.

The final ouch! is the taxes on collectibles. I have to believe that a fair portion of those who get a big pleasant surprise are thinking about contacting their friendly local auction house.  I have never seen this mentioned on the show, but if your tax bracket is above 15% on ordinary income, you’re going to be hit with a 28% capital gains tax on the gain you make from the sale (most other long term investments are taxed at no more than 15% currently). Maybe your kids actually do want to inherit that ugly picture.

Middle class tax “relief”


Mitt tin man

Mitt tin man (Photo credit: JonMartinTravelPhotography)

I’ve been trying to keep a lid on my personal political views on the off chance that there’s someone in my area who actually likes Mitt but jeez, I’ve just about bitten through my tongue. And I’m only grinding my teeth over the second debate—I got stuck on Mitt announcing with glee that under his tax plan (I guess he has one somewhere) the middle class taxpayer would no longer pay taxes on dividends, capital gains, or savings.

Ugh, these dumb statements are making my box of rocks so heavy that I just have to say something…and Barack, why didn’t you jump on that?  You need a fee-only financial planner on your debate team. (If I have one complaint against our President, it’s that he has no instinct to go for the jugular. Actually, maybe that’s not so bad.)  Aside from the fact that none of us actually pays taxes on savings, a large share of my clients aren’t exactly living off their currently-taxable dividends or capital gains, either. Whoops, that would be Mitt himself, who might just get out of paying anything at all, much less the pitiful 13% or 14% his accountants couldn’t figure out how to weasel out of.

I’m happy when my clients are maxing out their 401ks or 403bs and maybe managing a Roth or some sort of IRA and a college savings plan. For most people, the bulk of their investments are already sheltered in these accounts, or plunked into their house. People who have significant investments outside of their retirement savings are also less likely to be “middle class” by any usual income tax definition—they’re at least waving at the 1%. BTW, the top 1% is actually those earning over $343K, but since both candidates seem to like a $250K figure, let’s just go with that.

So let’s just say you somehow managed to accumulate or inherit $100,000 in a brokerage account or some mutual funds that are in plain vanilla taxable accounts.  Let’s say you plunked that $100K in a Total Stock Market Index fund, which yields about 1.8% right now (I’m not considering capital gains here, just the dividends, because I’m assuming for now that you just hold on to it). So, each year you’re getting $1,800 in dividends and paying $270 in taxes. Gee thanks, Mitt, I’d sure like to give up my home mortgage interest deduction and get back $270 instead. In other words, these ballyhooed savings are pretty insignificant compared to the stuff that might really count—like more secure retirement funding, college cost reduction, etc. I’d be willing to give up that $270 if I didn’t have to cough up $25K/year for college or wring my hands about long-term care insurance or the myriad of other things we Americans are “free” to purchase in the open marketplace, but which every other Western nation provides for their citizens.

How about retired people—maybe that will help them? Let’s ignore the 1/3 of retirees that are living on Social Security alone—after all, Mitt does (ignores them, that is).  For most of the people I see who would fall into the “middle class”, the bulk of their income is coming from 401ks, 403bs, etc., and those withdrawals are taxed as ordinary income, anyway. There are very, very few people who could be classified as both “middle class” and who have significant income from capital gains or dividends. There’s another name for people who live on investments that generate significant capital gains, interest, and dividends—they’re called “rich”. Or maybe, friends of Mitt.

And what about the clients that ARE coupon clippers (bonds, not newspapers)? No one yet has come into my office saying that lower taxes would solve all their money problems. Across the board, my clients are worried about retirement, college costs, job security or business viability, and the cost of long term care. On the other hand, I do see plenty of people who feel they’ve been robbed by the financial “services” industry, whatever their income, investment or education level. But I doubt that that’s on Mitt’s radar. After all, those folks are friends of Mitt, too.

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Financial lessons for anyone, from college financial aid


"Digging", detail from the Hunterian...

Image via Wikipedia

I’m really in the trenches this year. After being a know-it-all for some time about the college financial aid process, I’ve finally had to do it close to home. While the process itself included all the forms I expected, I did learn a few tricks which are relevant to your money management even if you don’t have a college-age child.

  1.  It doesn’t get any better if you avoid it. If something has a deadline (for example, choosing your 401K investment mix, assembling records for taxes, or choosing the right options for your flex-spending account) your ability to think this through and get adequate information decreases as the deadline gets closer.
  2.  With any important financial move, follow up. It’s hard to believe, but two of the schools my daughter applied to lost significant parts of her application, which had to be re-sent.
  3.  The more complicated the transaction, the more follow up needed. Financial systems are set up to have lots of checks and fail-safes. Why? Because, guess what, they fail. If you are making a transfer of accounts, for example, you or your financial advisor needs to be watching it like a dieter looking at pizza.
  4.  Don’t ignore your accounts for long periods. I once had a major brokerage transfer someone else’s $250,000 account into one I was managing. The actual owner never noticed, and you can bet his broker never told him.
  5. Get names or follow-up is hopeless. Dear daughter has been trying to send some supplementary materials (recent awards, extra recommendations) and, at one school, has been given five different names on who is actually reviewing her admissions. Turns out two students with her name are applying this year to the same school. Belongs in Ripley’s Believe It or Not. I wouldn’t believe it but it’s happened before—two people with the exact same name had a checking account at the same local bank and one of them became, temporarily, $10,000 richer. This was only discovered after the rightful owner’s checks began bouncing all over town. Straightening out these snafus required quite a bit of contact with one person who could keep the details straight and be accountable for fixing the problems.
  6. Things you dread turn out to be easy, and things that are hard you never see coming. Everybody worries about filling out the FAFSA, but this year’s version takes about 10 minutes if you have your tax return. On the other hand, the CSS/Profile (for private schools), took hours, lots of extra explanations and several calls to the organization about what I still believe are errors in this year’s form.
  7. Good records are important. Having to reconstruct or unearth financial records in a time of stress makes everything worse. Really, it’s worth spending an hour on the weekend entering spending and investments in Quicken or, filing those papers or creating a decent file system on your computer, and reading an article or two on something financial. You’ll be so grateful when you fill out those college apps, try to do taxes, or retire; you’ll have a better idea of whether you can retire and how much money you really need; you’ll have some check on runaway spending; and your heirs will thank you. Put in that spade work. It’s all good.
  8. You can go broke saving. It’s important to analyze whether an action really puts you ahead. Sometimes people get so focused on getting financial aid that they make poor investments (often, annuities) that reduce their assets for aid, but are also high cost and hard to get out of. People justify bigger houses for the mortgage interest tax deduction, not realizing that they are spending much more to save just a little. Is it worth your time? Is it worth the cost?
  9. Most authorities are already hip to your little tricks. College financial aid officers and the IRS generally clue in to the most “creative” strategies pretty quickly. In the case of the IRS, just how much money and time do you want to spend in an audit? (see #8 above!)
  10. On the other hand, you are entitled to what’s due. There’s no reason not to apply for financial aid if you’re on the borderline. In the larger scheme of things, spending a day filling out forms could have a pretty big payday. If you really do work out of your home, you’re entitled to home office deductions just the same as any business deducts its expenses.

In college applications as in life, the more complex the system gets, the more “controls” are introduced, the more money at stake, the more that can go wrong. Good luck, and keep on top of it!



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