National Taxpayer Advocate Nina E.

Yesterday, Nina E. Olson, the National Taxpayer Advocate, released a report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will focus on this year. Below I have cut and pasted a summary of some items presented:

Impact of Changes in Tax Law on Taxpayers and the IRS.  “The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was,” Olson wrote.  “Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk.  The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.”

Expired Tax Provisions.  Among tax provisions that expired at the end of 2011 are the following:

• The so-called “AMT patch.”  As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
• The deduction for state and local taxes.  About 11 million taxpayers claimed this deduction last year.
• The deduction for mortgage insurance premiums.  About four million taxpayers recently claimed this deduction.
• A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.

Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for certain what will happen and therefore cannot make plans.  For example, a homebuyer trying to decide whether to utilize a loan package that includes mortgage insurance now lacks important information.  So does a pensioner trying to decide whether to tap his IRA to make a charitable donation.

Expiring Tax Provisions.  In addition to the provisions that expired at the end of 2011, an even larger number of provisions are set to expire at the end of 2012, including the Bush-era cuts in marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the earned income tax credit, and the adoption credit, and the moratoria on the phase-outs of itemized deductions and personal exemptions.

“An aura of uncertainty prevails as the IRS and taxpayers wait for word about what will be the law governing us this year and for the near future,” Olson wrote.  “This uncertainty affects the IRS’s ability to smoothly administer the filing season and taxpayers’ ability to make plans.”

Impact of Tax Fraud and Tax-Related Identity Theft.  Tax fraud and tax-related identity theft, although distinct problems, often overlap and present similar challenges for taxpayers and the IRS.  Both problems are growing.  In FY 2011, the IRS’s Electronic Fraud Detection System (EFDS) identified more than one million returns as potentially fraudulent, a 72 percent increase from the previous year.  The IRS blocked nearly one million additional refund claims using other means.  While not all fraudulent returns involve identity theft, many do.  The IRS recently reported an inventory of more than 450,000 identity theft cases.

Joe Arena

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

IRS CIRCULAR 230 NOTICE:

As required by U.S. Treasury Regulations, please be advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

All Quiet on the Facebook Front

Things have certainly calmed down since May 18^th when I spent almost two straight hours on the phone talking with folks about Facebook.  It was THE thing in the week leading up to its IPO and it seemed like everybody wanted a piece of the action.

At the time, our advice was to be “cautious, not euphoric,” because there is usually something that can be said for not following the crowd when it comes to investing.

By now, we know what happened.  To call Facebook’s IPO a “mess” would be an understatement.  After briefly passing $45 on the first day of trading, it took FB just two and a half weeks to fall 43% to $25.52.  All of a sudden, nobody wanted it.

Then a funny thing happened.  Facebook’s stock started to rise, reaching $33.43 at one point Friday, June 22, 2012, an increase of 31% since hitting bottom in early June.  As of mid-afternoon Friday, FB had risen just over 4% for the day alone.

Now, I am not saying that just because Facebook’s had a nice run that we should all start to “Like” it.  The point is, when you follow the crowd, it can be tough to make money.

Chuck Wade

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Lesson learned from Joe-Pa

Here is an interesting article in Forbes magazine on Joe Paterno’s estate.

The moral of this story is that a will is not a private document; in probate it becomes public record.  If you want the value of your assets and your beneficiary designations to remain private you should use a living trust.  A living trust also makes it much harder for relatives to challenge your wishes than with a will.

If you are considering a living trust, I would recommend using an attorney who specializes in trusts and estates.

Joe Arena

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

IRS CIRCULAR 230 NOTICE:

As required by U.S. Treasury Regulations, please be advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

Congress Hard at Work

As I powered up my computer yesterday to look at the morning news, I came across another prime example of our lawmakers hard at work spending our tax payer dollars addressing some of the most important issues of the day.  No, I’m not referring to the ridiculous waste of our money and their time digging into the ongoing mess at JP Morgan in another hearing in front of the House of Representatives.  A far more pressing issue apparently required Senator Reid and Senator McCain’s time and energy.

That would be the “integrity” of the boxing industry here in the United States of are you kidding me? These folks can’t get a budget passed,  they convene a “super committee” to address the budget deficit which comes back with nothing, but these elected officials think they should concern themselves with the boxing industry now.  Apparently the Roger Clemens issues resolution left a void that needed to be filled.

It is truly a sad state of affairs when Congress cannot do the job we elect them to do, are asleep at the switch during the financial crises and yet still are so tone deaf that they have the audacity to now take a jab at the boxing industry.  All the while the real issues that need to be tended to are simply ignored.

Doug Hendee, CFP^®

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Return on Investment, or Paying to Hide Out?

I heard an interesting story on NPR the other day, about investors who are so frightened of financial markets that they are willing to pay – and get no return – just to keep their money safe. Even with rates so low on US Treasury bonds (about 1.5% for 10 years!) investors from around the world continue to buy.  At first it seems puzzling, and here’s why: it’s anybody’s guess what inflation will be over the next ten years, but if you expect inflation to average 1.5%, then the inflation adjusted return for those US Treasury bonds would be exactly zero. It’s not a stretch to imagine inflation of 1.8%, meaning investors in the 10-year treasury would lose an average of .3% to inflation every year.

So: why? That one-word question can be answered with one word: fear. Fear of Europe, fear of banks, fear of corporate malfeasance.  Some investors seem afraid of nearly everything; the equivalent of a monster in the financial closet. I’ll admit, it can seem scary out there. Greece is on the brink, Spain seems close behind, China’s economy is slowing. Here at home you still have big banks doing stupid things. So what’s an investor to do? For many, the answer is to hide in US Treasury bonds, despite what seems like a near-certain inflation adjusted loss.

But think: as I’ve said before and will say again, you seldom make money following the herd.  Even if the herd is crowding into Treasuries.  What can you do? How about this: do you think that Procter & Gamble is on its way out of business any time soon? How about Exxon? Hershey?  I think those companies will be around for quite a while, and the shares of each one pay a cash dividend greater than the 10-year US Treasury.  Does that mean you ought to go out and buy their stock? No. But it means you should think about where the opportunities are for real safety – the safety that comes from confidence in your investments. For me, confidence doesn’t come in the form of government insurance or following the herd. Confidence comes in sound management and solid business. Opportunities exist.  Look for them, or ask your financial advisor what opportunities are right for you.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Time to review Social Security

Last year the Social Security Administration (SSA) stopped mailing statements to taxpayers to reduce their costs (by about $70 million).  Earlier this year they resumed mailing to people 60 or older who have not yet started drawing social security.  Now they have launched a new online version of your social security statement, available at www.ssa.gov.

If you are doing any retirement planning this SSA tool will provide useful information.  The tool will show your estimated benefit amount at early retirement age (62), full retirement age (typically 66-67) and if you wait until 70.  The estimates are based on your current earnings rate.  You are also provided with a history of your prior years’ earnings.  Since benefits are based on your 35 highest earning years, it would be wise to verify that yours have been posted accurately in Social Security’s database.  This tool will also show estimates for disability and survivor benefits, including the amount your spouse and children would receive if you pass away.

If you have not started your retirement planning, now would be a great time to start.

Joe Arena

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

IRSCIRCULAR 230 NOTICE:

As required by U.S. Treasury Regulations, please be advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.