Your Lifetime Gift Tax Limitation is Scheduled to Expire After 2012
Jim Kohles, Stockholder
There is a very good possibility that the current $5 million lifetime gift tax limitation will be reduced to $1 million at the end of this year. That statement should interest a number of people that are looking to avoid incurring estate taxes at their death. There hasn’t been enough attention given to this issue and many are not convinced that this will actually happen. There is little that Congress can or wants to agree on with the election posturing going on this year and not much time will be left after the election. That scenario does not bode well for a new gift tax law to reinstate or modify the existing law that reduces the limitation. Once the gift tax limit is reduced, it will be even more unlikely that it will be increased retroactively or ever for that matter. Therefore, it would be prudent to take action on a gifting program that takes advantage of this limit this year and planning for this will take time. Start now.
January 11, 2012 at 1:36 pm | Blog | No comment
Deferring Difficult Decisions is a Decision
Jim Kohles, Stockholder
There are very few things in life that are certainties. Death and taxes have been consistently listed as the only ones. Excluding those two, we have entered a period in history where the only certainty is uncertainty and the degree of uncertainty is rapidly escalating. There is an unfortunate trend in our culture to defer decisions as long as possible and sometimes beyond the possibility of being effective. Our government at every level fails to make the difficult decisions and often fails to make any decisions until the outcome has been decided by other factors. This is now extending into everyday life as many people defer making difficult decisions until the bank or other external forces make them instead. While this may not seem to be a very consequential development, this tactic has major ramifications for effective planning and budgetary controls. If everyone tries to put off anything difficult, the difficult will not get done; eventually unwinding the fabric of our institutions and those too big to fail, will fail anyway.
December 28, 2011 at 3:03 pm | Blog | No comment
Automatic Budget Reductions
Jim Kohles, Stockholder
There is still a larger than usual sense of uncertainty that is permeating the country long after the official recession has ended. The continuing disagreements and lack of action among our political parties is mirrored throughout the world it seems, causing indecision in the business world. It really doesn’t take much more than that to slow down the economy. We have now seen another example of how we can’t agree on anything with the failure of the budget deficit committee. This has been used by Wall Street as a reason to drop the market down alleging indecision but was it really. The automatic budget reductions will now go into effect and neither party has to accept responsibility for those cuts, sounds pretty decisive to me. No individual politician nor either party wants to bear the burden of making the necessary cuts so this was a predetermined outcome arranged at the outset. So is the furor over the lack of decision making justified and do those that are holding back on making hiring and investment decisions really have a good reason, probably not.
December 5, 2011 at 11:03 am | Blog | No comment
Now is the Time for Tax Planning
Jim Kohles, Stockholder
The end of 2011 is close at hand and there is probably more uncertainty about tax planning than ever. The economic outlook is poor and asset values and interest rates are low. However, the uncertainty of income tax rates and the income tax structure going forward is a combination that presents many opportunities to transact, particularly in related party situations. Gifts to family members or the transition of ownership to the next generation of management are prime areas where the time is at hand to complete a plan. This can and should extend to performance stock bonuses in the form of actual stock or stock options, since values are low, the income tax effects are correspondingly low. If upper level management is approaching retirement age and there is a group of second tier managers that could be incentivized by partial ownership, this would be the time to put that structure in place. A gifting program that might transfer a currently low value stock portfolio or real estate should be done now while they are at low values and if there are considerations regarding future income, an installment sale at these low values and low interest rates could help ease the cash flow issues. The wait and see methodology that most people adopt in difficult times won’t deliver the results that an act now approach will.
November 7, 2011 at 3:42 pm | Blog | No comment
PG&E Changes Policy on Purchasing Excess Solar Energy
Jim Kohles, Stockholder
I found out recently that PG&E has unilaterally changed its policy on purchasing excess production from independently owned solar panel electricity generators, like homeowners who bought solar systems that sometimes generate more than they use. These solar generators are basically required to be hooked up to PG&E’s grid so the energy still goes into the system, its just that PG&E has decided not to pay for it. This seems to be another trust issue with this seemingly unregulated utility. First, they represent that they will pay and people are convinced to buy solar systems and install them. Then, they just pull the rug out from under those people without any consideration. While they are suffering from a real credibility gap after the pipeline issues, it seems there is really no end to their lack of concern for fairness, openness and public relations. It is also surprising that this hasn’t received more media attention. I guess the other issues are just grabbing all the headlines.
July 29, 2011 at 4:34 pm | Blog | No comment
Investing in Apartment Buildings a Good Hedge in a Slow Economy
Jim Kohles, Stockholder
I had a recent conversation with an old acquaintance who was extolling the virtues of investing in apartment buildings. He also happens to manage several buildings in an investment group he heads. However, much of what he said made sense as to why apartment buildings might be a good hedge in this very slow recovering economy we are stuck with. We have all seen the dismal numbers on housing starts and the record high foreclosure rates. Combine that with the increased loan scrutiny on new home buyers and the result is home ownership is fast becoming the fading American dream. People who have been forced out of the housing market have to live somewhere causing the demand for apartment space to increase, not decrease in these tough times. The rate of new apartment construction is also at a record low and it appears the demand is increasing and the supply is not. That will result in increasing rents which translates to increased values for apartment buildings. It does seem to be a persuasive argument and should receive some consideration in any balanced investment portfolio.
July 15, 2011 at 3:06 pm | Blog | No comment
Lower Home Values Doesn’t Lead to Lower Insurance Premiums
Jim Kohles, Stockholder
There has been a continuous downward slide of real estate values for the last two years in this country, that’s not news. In many places, the reductions to values have been almost half of the pre-recession amounts. We have all seen the news stories, the abandoned houses with foreclosure signs on them. The stories about huge backlogs of homes that the banks have repossessed but not released to the market which threaten a double dip recession. It seems that every month we hear about another two to three percent decrease to the housing market with no turnaround in sight. While all of this has been going on, there appears to have been absolutely no corresponding decreases to the amounts paid for homeowner’s insurance. Doesn’t it make sense that if your house has substantially decreased in value, you shouldn’t have to insure it for as much and that insurance premiums should go down. Hasn’t happened. I believe many policies have a clause that allows the insurance company to just “cash you out” for the value of the house rather than paying to rebuild. That should reduce their cost of claims and then be reflected in insurance premium reductions. This seems to be missing in the formula which is placing more stress on the homeowners to continue to pay high rates on lower value assets.
June 3, 2011 at 10:52 am | Blog | No comment
Whose Job Is It? The IRS or Congress
Jim Kohles, Stockholder
Recent events regarding oil producing countries, oil prices, Congress and the IRS have created a very large disconnect in my mind. Yes, I understand that the unrest in the Middle East could affect oil production and that oil companies use that as an excuse to raise prices. But the price increase never really relates to the lack of supply, only to the threat of a lack of supply which usually never occurs. Prices go up, we pay more and oil company profits escalate to astronomical levels. Congress puts on a show by dragging the heads of the oil companies into special meetings and a lot of things are said but the prices still remain high for as long as they think they can use the excuse. There was a special surtax imposed on the obscene profits about 30 years ago and that might be a good idea but it doesn’t look like something that can pass now, they can’t even take away the tax incentives we are still giving them. Now that is all part of a game that is played regularly as politicians protect their supporters, the oil companies. But another game is played that is somewhat less direct but still very impactful to taxpayers. That is the standard mileage rate that the IRS sets for business mileage incurred by taxpayers and deductible on income tax returns. Despite significant price increases for gas, the IRS has already stated that it will not increase the mileage rate in 2011. Obviously, the rate will be much lower this year than it has been in prior years compared to actual costs. Studies indicate that it was significantly below actual costs in prior years so now it will really be low. This just makes the burden of high gas prices even more difficult on the average taxpayer and Congress as well as the current administration seems to be saying that it isn’t their job to get the IRS to increase the rate. Whose job is it?
May 24, 2011 at 12:21 pm | Blog | No comment
President Obama Signs Bill Repealing Health Care Law’s 1099 Provision
On April 14th, President Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 which retroactively repeals the expanded 1099 tax-reporting requirements from the 2010 health care law. For payments made after December 31, 2011, businesses will not be required to issue 1099 forms to corporations and payments for goods or other property in excess of $600. The Act also repealed the 1099 reporting requirement for recipients of rental real estate income who are not otherwise considered to be engaged in the trade or business of renting property. The old 1099 rules, those that were in place before 2010, are still in effect.
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May 11, 2011 at 4:09 pm | Blog | No comment
Planning For The Not Too Distant Future
Jim Kohles, Stockholder
We have closed out another tax season, much like the 39 that I have closed before this one. The tools have been improved so that the final few days aren’t quite as hectic as they used to be but the problems and concerns are pretty much the same. How can we owe this much and what can we do to reduce the tax burden. The answers have changed somewhat as the IRS has been more aggressive in finding and prosecuting the tax shelter promoters and participants. The economy has created an opportunity that many haven’t fully considered as yet. Due to the reduction in most people’s retirement accounts, there is an opportunity to reimburse those losses with increased deductible and perhaps non-deductible contributions. A difficult but ultimately rewarding decision to forego current expenditures and invest more in a retirement account should be seriously considered. Regular IRA accounts, Roth IRA’s, 401k’s, defined benefit plans, etc. all offer a platform for this tactic. Obviously, proper investment policies should be followed and the old “invest it and forget it” style can’t be used anymore but saving for retirement is going to become more and more important. Many thought that their home was going to be their retirement nest egg but that asset’s value has declined right along with everything else. Actually, some are using this decline in real estate values to acquire rental properties as one of their retirement assets. Not a bad idea but these, like many assets, require more care and maintenance than standard market based investment vehicles. The issue is never simple but it is clear that many retirees are going to face bigger hurdles than they had estimated when determining what they needed to retire and social security may not be there when they do.
April 21, 2011 at 5:18 pm | Blog | No comment