Wall Street – Don’t Count on Federal Reform

“Gain the upper hand by making smart decisions” says Neil Weinberg in the August 8, 2010 issue of Forbes.
Weinberg suggests the following:

Ignore the Chatter

To make money over the long haul stop trying to outguess the market and focus on setting up a mix of stocks, bonds and other assets that it makes sense for you to own. Then stick to it!

Invest in Indexes

Wall Street has built a large industry of managed funds, futures, and options and leveraged products that in aggregate can’t do any better than market returns. Don’t get sucked-in. Buy the whole market, via a cheap and tax efficient index fund or exchange-traded fund.

Find a Fiduciary

Make sure that the person that is giving you advice is putting your interest ahead of their own. They may tout themselves as advisors but most are salesman whose vague legal duty is merely to sell you products that are “suitable”.
A fiduciary by contrast must put your interests first. Registered retirement advisors are fiduciaries. You can also access one by switching from a commission based account to a fee account at a traditional securities firm. Get the relationship spelled out in writing – and negotiate the fees.

Admit Mistakes

Many of us have a hard time doing this. Instead capitalize on your dogs by selling them and using your losses to offset up to $3,000 of ordinary income and an unlimited amount of capital gains.

Less Tax Liability

Taxes are probably second only to asset allocation in determining in what you end up with.
Put tax-inefficient investments like bond funds and real estate investment trusts, into retirement accounts. Their income doesn’t get taxed until it is taken out.

Stocks and equity funds are best for taxable accounts where, as noted above, loses can be used to minimize, if not eliminate gains on your winners. You can also use appreciated stock as gifts to low tax- bracket relatives and bequests.

An Amended Tax Return – Did you claim every tax?

Did you claim every tax break that you were entitled to in 2009? There were a lot of tax breaks. It was easy to miss a few according to Mary Beth Franklin in this month’s issue of Kiplinger. Here is the list.

Making Work Pay credit.

This is a 6.2% payroll tax worth up to $400 for individuals and $800 for married couples. There are phase out rules for those with high income. You must file Schedule M to claim the credit and have your tax adjusted. Check your 2009 tax return and if you didn’t claim the credit but are eligible for it, amend your return.

Breaks for Non-itemizers.

You needed to file a new form - Schedule L. Taxpayers who did not itemize their deductions could claim an enhanced standard deduction for net disaster relief, sales or excise tax paid on the purchase of a new car purchased after February 16, 2009 and a property-tax deduction of up to $500 ($1,000 for married couples filing jointly). If you missed these tax breaks, file an amended return.

Home Buyer’s credit.

If you bought a house this year and qualify for either the $8,000 first-time home buyer credit or the $6,800 credit for longtime owners who bought another principal residence, you don’t have to wait to file your 2010 tax return as long as you signed a binding contract before July 1. You will need to file Form 5405 and include a copy of your settlement sheet when you file your amended return.

Education Breaks.

If you paid college education tuition and related expenses in 2009, did you pick the best tax break for your situation? For most people the American Opportunity Credit, worth $2,500 per student was the logical choice. But if you had a freshman or sophomore who attended school in one of seven midwestern states that were declared federal disaster areas, you might be eligible for an enhanced Hope Credit up to $3,000.

How to file an amended return.

You have up to 3 years from the date of your return to file an amended return, which means April 15, 2012. Do it now and get your money as soon as possible. Go to irs.gov and download Form 1040X. Explain why you need to amend your return. You don’t have to redo your entire return. Just make the necessary changes and adjust your tax liability accordingly.

If you and your business have survived this far THIS IS WHAT YOU MUST DO.

It’s about intensity and customer traction in a very short time period!

Quickly build a small war-chest of funds/people resources without hurting your base business and use this war-chest to fund a plan to sell:
1. Existing products and services to new customer groups or,

2. New products and services to existing customers.

Here are the project rules.

1. Individual project budgets must not exceed $5,000 in total including staff time,

2. take no more than 6 weeks to complete.

3. The project must require at least 75% of the project time in face-to-face contact with the targeted customers.

4. Have a project objective that is measurable. The objective has to be measured in terms of a NUMBER OF CUSTOMER ACCEPTANCES.

5. Make sure the steps to achieve the objective are broken down into daily deliverables that are very measurable and then measure them.

6. Don’t get started too soon. Wait until you have a detailed plan that is really understood by everybody and you get the sense that there is a high degree of confidence in meeting the objective.

7. Get a daily report with a RED or GREEN sticker depending on whether the daily and project miles stones are met or not. If RED, stop the project until a corrective action is agreed upon and implemented.

8. Make sure that there is a 6 week intensive concentrated effort from yourself and other those on the team.

9. Finally, get a partner to share the project costs. This could be a vender, a service provider, another business, a non-profit even an employee!

After 6 weeks or before stop the project and decide how many immediate paying customers you have and how committed they are to doing repeat business. If you have no paying customers stop the project and move on.

It is about a measurable customer based project objective, intensity, short cycle times, very detailed daily plans, critical tracking of progress daily, honest evaluation and immediate correcting actions.

Tenants can find deals on office leases….but don’t leave it too late in Dallas!

Dallas high office vacancy rate which routinely tops 20% is now at 26% and has kept lease rates from rising. In fact they are down 11% in the last 12 months. This is one of the largest vacancy rates in a central business area of any large city in the US. Average effective lease rates in Dallas at $19.94 per-square-foot are the lowest in the 12 largest US cities.

This presents a tremendous opportunity for tenants to save.

Most economists predict Dallas will be amongst the first to rebound from the recession because of the North Texas’ growing population, low business costs and better-than-average growth outlook.

If tenants wait a year or more, it’s likely that vacancy rates will be headed back down, leaving tenants with fewer options and less leverage.

Tenants need to move relatively quickly.

Some tenants are signing short-term leases while waiting to see what happens with the economy while others are locking in low rates on long-term deals.

Landlords are still hungry in this market. There is still a lot of downsizing going on and landlords still have to be pretty aggressive to attract and retain tenants because the deal volume is down.

Naturally, landlords in buildings that have experienced a substantial increase in vacancy are offering deep discounts.

Retain a commercial estate broker to obtain comparative property lease rates and investigate ‘blend and extend” arrangements to receive the lowest possible rates. Also, don’t forget to tap into leasehold improvement incentives that can be used as to pay rents if not used.

Is your business presently strapped for cash to pay existing debt, credit cards, etc? Is this a temporary problem?

If so, you may want to consider an ARC loan. This is run under the auspices of the US Small Business Administration (SBA). Signed in February 2009 the program (America’s Recovery Capital) allows small businesses to borrow up to $35,000 from an approved SBA lending bank. You have until September 2010 to apply for this loan or until the allocated funds run out (seems unlikely right now). The loan proceeds can be drawn down over a six month period from approval and be used to make payments on existing debt, credit cards, leases etc . Unfortunately proceeds cannot be used directly for operating expenses but by the nature of the ARC facility this does free up cash flow for such expenses.

After the six months the borrower has a twelve month grace period before starting repayment of the ARC loan over five years. SBA pays the monthly interest on the loan and also guarantees the whole loan. So in most cases no collateral from the borrower is required.

Now for the more complicated bits.

To qualify you must demonstrate to the lending bank that you have a viable ongoing business. Technically you must have been in business for at least two years and have shown a positive cash flow in at least one of the past two years. In addition you must also provide a projection that you are able to meet all your loan repayments and operating expenes for the next two years. Also for the not so good news, many banks are not that enthusiastic about ARC loans loans and you may have to shop around. While the ARC loan is fully guaranteed by the SBA, a bank still has to evaluate and approve the loan. Naturally banks are reluctant to approve the loan where they have doubts on a borrower’s ability to repay since they could be criticized for lower credit standards. Also by their nature the loans are time consuming.

The best way forward.

This is to work with your existing bank and get approval from them if possible. A bank has little incentive to work with an ARC loan applicant if there is no other relationship. Also try to make it as easy as possible for the bank’s credit evaluation. Along with an ARC loan application form, submit full and understandable financial information. Don’t be too optimistic on your forecast for the two years projection since the bank would probably not believe them. In any case banks don’t like surprises. Also a paragraph or two on your current situation and future plans would be very helpful.

With President Obama’s new emphasis on increased lending by banks to smaller companies your chances of getting this loan should be greatly improved.

Tax-free retirement just got a little easier - ROTH conversions

Rules on Income Limts.
The income-eligibility limit on Roth conversions disappear on January 1st 2010 for high earners. The income level of $100,000 will become nonexistent. This is a prime opportunity to convert money into the tax-free Roths for high-earners. Income eligibility limits on contributions remain in effect.

You don’t have to wait until 2010.
For wager earners that make less than $100,000 adjusted gross income, you can actually convert now. With the market being down this might be an excellent time to convert since you will be paying less income tax on the lower account value. By waiting until 2010, you may be having to pay a higher tax bill with market appreciation. If you convert too soon, you can always convert back to a traditional IRA in what is known as a recharacterization by October 15th of the year you convert.

2010 is the year but not the year the tax is due.
While 2010 is the actual year that you will be able to convert, the income to be claimed can be deferred until 2011 and 2012. The IRS has granted you the option to claim 50% of the conversion amount as income in 2011 and the remaining 50% in 2012. Keep in mind that this is only in 2010. After 2010 the taxes will all be paid in full the following year going forward.

If you elect to pay the tax over the two year period, keep in mind that the tax rate is determined for that year only. Example, in 2011 you will pay the tax based on your tax bracket for that year. If your income were to somehow sky rocket in 2012, then you will be paying more in taxes that year for the conversion.

Convert Traditional IRAs and Old 401(k)s.
The 2010 conversion is not limited to just your traditional IRA. If you have any old 401(k)s or any other retirement plans from a previous employer, those will also be allowed to convert as well. Might be a good idea to convert them all.