Eastman Kodak Shares

One of my favorite lines from the Lord of the Rings trilogy is when the wizard, Gandalf, speaking to Frodo about feelings of regret at having to witness difficult times, says, “So do all [people] that come to see such times, but that is not for them to decide.  All we have to decide is what to do with the time that is given to us.”  So it is with the shareholders of Eastman Kodak’s (EKDKQ) common stock.  Ten years ago it was worth over $30/share.  Today it is worth a bit more than $0.40/share. 

We’ve been getting questions about what happens to common stock in bankruptcy.  The answer is that it’s possible there might be some value left to the stock in bankruptcy, but it’s pretty unlikely.  Common Shareholders come last in bankruptcy (right after Preferred Shareholders) and have a residual claim on assets of the company assuming there are any left – and that’s a very large assumption.  So, the question Common Shareholders should be asking themselves is not will I get any value out of this stock through the bankruptcy, but rather what should I do with it now?

The punch line is to suggest it for bathroom wallpaper.  But beyond the minimal price you might fetch in the market today or any residual claim you might get at the end of bankruptcy, there could be some value in tax savings from the loss of your investment’s value.  For those who own Kodak stock outside of an IRA or other tax-advantaged accounts, selling the stock at such a steep loss can shield you from having to pay taxes on some gains derived from elsewhere in your portfolio.  If there are no other gains to offset, or you have exhausted your ability to offset gains and still have losses leftover, you can offset up to $3,000 per year in ordinary income.

You may elect to take advantage of these losses by selling Kodak stock at any time up until the shares stop trading.  It is important to know that you must begin to book the loss on your taxes within the calendar year that you either sell or when the stock goes to $0.00 and stops trading.  If you do not promptly report the loss on your taxes you will not be able to record the tax loss in following years.  We don’t believe Kodak’s stock will stop trading and become worthless until 2013.  If that happens in 2013 and you still hold it, then that is the year in which you must book the loss or risk forgoing the potential tax savings forever.

Regrettably, this is probably the most value you will realize from the shares have owned for years. 

For more information about the tax advantage, look for a blog to follow today from our Director of Tax & Business Services, Joe Arena.

Brennan R. Redmond, CFA
Vice President
Brighton Securities

Are you one of the 99 thousand?

For years the Internal Revenue Service has encouraged taxpayers to receive their refunds through direct deposit.  The Internal Revenue Service recently announced that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks for last year that could not be delivered because of mailing address errors.  The undelivered refund checks average $1,547.

Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “Where’s My Refund?” tool on IRS.gov. The tool will provide the status of their refund and, in some cases, instructions on how to resolve delivery problems.

Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

Senator Chuck Schumer (D-N.Y.) recently announced that New York State has over 7,000 state refund checks returned by the post office as un-deliverable due to address issues.  These checks total about $14.5 million or an average of over $2,000 per check, sitting in a bin somewhere in Albany.

 Direct deposit is definitely the way to go!!

 

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Tis the season!

My favorite season is about to kick off…tax season.  This year we do not have many major changes in the tax law.  Here is a brief summary of some changes to expect:

• Overall, many of the dollar thresholds were adjusted upward for cost of living increases. This includes tax brackets, standard deductions, retirement contribution thresholds and amounts, etc.
• The “Making Work Pay” credit is gone.  For the past couple of years you received an extra $400 ($800 for a working couple) in your pocket. You will not see this on your 2011 tax return, so refunds should be smaller this year.
• Business mileage rates for 2011 were 51 cents per mile thru June 30 and jumped to 55.5 cents for the balance of the year.  In 2012 business mileage will remain at 55.5 cents, medical and moving mileage will be 23 cents, and charitable mileage will be 14 cents per mile.
• The most daunting change will be the reporting of capital gains on your investments.  A new Form 8949 for reporting capital gains/losses will be required to summarize your gains and losses before they flow to Schedule D.  Form 8949 will separate the reporting of cost basis into three potential categories before short term and long term gains/losses are summarized.
• We do have until April 17^th to file this year.
• Some other changes can be found on our website.

Have a happy season!

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Self-directed IRA – “Investor Alert”

The Securities and Exchange Commission (SEC) has issued an “Investor Alert” to warn IRA investors to be wary of fraudulent advisors promoting “alternative” investments for your self-directed IRA.

 http://http://www.sec.gov/investor.shtml

 As the recent volatility in the financial markets has shaken investor confidence the fraudulent promoters have come out in force to exploit the investor fear.  Before considering any change in IRA custodian always perform your own due diligence.  The grass may not be greener on the other side…

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

On the chopping block…

In recent years many of our income tax deductions have been temporary breaks with a shelf life of a couple of years. Over the next 14 months dozens of tax breaks will be expiring.  Some may be extended and others will probably disappear.  From year to year you cannot assume that the same benefits will be available for your tax return.  Below I have listed some of the tax breaks that will be on the chopping block.

 Expiring on 12/31/2011:

• School teacher expense deduction of $250.
• Option to deduct State and local sales tax.
• Mortgage insurance premium deduction
• Alternative minimum tax (AMT) patch that allows a larger exemption. Without this millions of additional taxpayers will get hit with AMT.
• The 2% reduction in Social Security tax withheld from our paychecks.
• The tuition and fees deduction of up to $4000.
• Tax free donation of IRA distribution for seniors.
• The $500 credit for energy saving improvements to your home.

 

Expiring 12/31/2012;

• The low capital gains rate.
• Qualified dividends being taxed at the low capital gains rate.
• The American Opportunity education tax credit of up to $2,500 for tuition paid.
• Deduction for student loan interest.
• Education IRA contribution limit drops from $2,000 to $500.
• The 10% tax bracket disappears.
• Child care deduction limit is reduced back to $2,400.
• Child tax credit for children under 17 drops to $500 from $1,000.
• Marriage penalty is back.
• Earned income credits will be greatly reduced.
• Debt forgiven on home foreclosures will be taxable.
• Many others…

Stay tuned…when Congress speaks…I will let you know…

 

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

The “Santa Claus” tax deduction paradox

Conventional wisdom would tell us that if we did not pay for an expense, we certainly could not deduct it on our tax return.  Seems like there are always exceptions to the rules and the tax world is no different.  Medical expenses, property taxes and points paid on a mortgage can all be paid by someone else and potentially be your tax write-off.  Many people who do their own tax returns tend to miss these unexpected deductions.

 With the current economic conditions of high unemployment and homeowners underwater with their mortgages it has become fairly common for parents/grandparents to step in and pay bills for the kids/grandkids.  Recent tax court rulings have concluded that if your parent pays a medical bill for you it can be characterized as a gift of funds to you hence, your tax deduction.  If the payment is made directly to the medical service provider there are also no gift tax implications.

Otherwise there is a gift filing requirement for gifts over $13,000 in one year.  Real estate taxes paid by your parent would also be considered a gift (subject to gift tax filing requirements over $13K), and deductible by you.

 Many times a home buyer will negotiate for the seller to pay points to their bank enabling them to get a lower interest rate.  As long as the home is going to be your principal residence you can deduct the points on your tax return even though the seller paid them.

 Santa Claus could be busy till April 15^th this year!

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Could Be Time for a Fall Harvest

Toward the end of the year we frequently hear financial advisors talk about “harvesting” capital losses (or gains).  Investors who have realized gains (or losses) may want to off-set them before the end of the tax year.  This year there are some additional considerations, especially for lower income and higher income taxpayers.

 Lower income taxpayers (couples with taxable income below $69,000 and singles below $34,500) will pay no tax on long-term capital gains up to these amounts. Take note that this is not gross income, but net taxable income (line 43 on form 1040).  For example; a married couple with two children earning $94,000 in wages (after 401K contributions) who have $20,000 in itemized deductions would only have about $59,000 in taxable income after personal exemptions (4 X $3,650 or $14,600).  This couple could take about $10,000 in long-term capital gains and pay no income tax on the gain.  A potential strategy could be to sell a winner with long term potential and buy it back, effectively increasing your cost basis in the position with no tax due (transaction costs need to be considered).

 High income taxpayers (couples with taxable income over $250,000 and singles over $200,000) have to consider changes coming in 2013, and whether 2011 or 2012 would be the best time to realize gains.  In 2013 the Medicare surtax of 3.8% on investment income kicks in, and preferential treatment of long-term capital gains expires.  Although we do not know what the rates will be for long-term capital gains in 2013, it would be prudent to review your portfolio and plan ahead.

 Fire up the combine and get harvesting?  Maybe.

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

A bit of inflation relief

Most of you have heard the news that the more than 60 million Americans who are receiving social security will get an increase of 3.6 percent in 2012.  The government is also providing some inflation relief for many tax benefits in 2012.  Here are some of the changes:

• Your personal exemption is increasing $100 to $3,800.
• The standard deduction for couples is increasing by $300 and $150 for singles.
• The tax bracket thresholds are increasing.
• Some of the income based phase-out ranges are increasing.
• The maximum contribution to your 401K will go up $500 to $17,000.
• The income phase-outs for IRA deductibility will increase as will for ROTH IRA’s.
• The AGI limit for the saver’s credit will increase.

I’m thinking 2012 will be an interesting year in the income tax business……could be many more changes coming our way.

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

A “Zero” Percent Tax Rate Can Also Have Some Bite!

A few weeks ago, I wrote about the “zero” percent tax rate on long term capital gains for individuals in the 15% tax bracket (or lower).  I concluded that post by saying “a little pre-planning before year-end should be on your agenda.”  This “zero” rate can be of great benefit to many people, but in some situations there can be some surprise costs (bite).

 Long term capital gains are entered on page 1 of the 1040 form and are included in your adjusted gross income (AGI).  The “zero” percent tax is figured on page two of the 1040 form in the taxable income section.  Your AGI is used in many other calculations.  For example, the amount of social security that gets taxed is based on your AGI.  College financial aid calculations are partly based on AGI.  Some programs that benefit senior citizens such as STAR exemption and EPIC are based on AGI.  So, even though it may be tempting to take a $10,000 capital gain free of tax, you need to examine the overall impact.

 Young taxpayers, 18 or younger (or up to 23 if a full-time student)  may be subject to “kiddie” tax rules.  Under the current “kiddie” tax rules the young taxpayer can only get the “zero” percent rate if their parents qualify for the “zero” percent rate.

 For most people in the 15% tax bracket this tax free opportunity is certainly worthwhile.

Some taxpayers are selling their favorite stock (which has appreciated greatly) and then buying it back to step up their basis with no tax due.  The “wash sale” rules do not apply to capital gains, only to capital losses, so not an issue in this case.

 So again, a little pre-planning before year-end should be on your agenda.

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Seniors can reap tax benefits even without itemizing

Many senior citizens pay no mortgage interest and do not have enough deductions in order to itemize. So, typically, they would receive no tax benefit from their charitable contributions.

 Again in 2011 there is a little-known tax planning tip involving charitable contributions for people over 70 1/2 years old.  Those over 70 1/2 years old can direct part or all of their required minimum IRA distribution (up to $100,000) directly to a charity, tax-free. Even though they are not itemizing their deductions, they will reap the tax benefit of not reporting the donated distribution as income.

 The donation must be distributed directly by the IRA trustee to an eligible IRS-approved charity. (The list of such organizations can be found here).  If both you and your spouse have IRAs, each of you is entitled to a separate $100,000 limit, for a combined total of $200,000.  

 This strategy could have other potential tax-saving benefits.  The qualified donation is not included in your adjusted gross income (AGI), which lowers the odds that you will be affected by various unfavorable AGI-based rules – such as those that can cause more of your Social Security benefits to be taxed.  This donation is exempt from the rule that says your itemized charitable write-offs for the year cannot exceed 50% of AGI.  If your IRA has a combination of deductible and nondeductible contributions over the years, any qualified donation is treated as coming directly from the taxable portion. The nontaxable amounts are left behind in your IRA and can be withdrawn tax-free by you or your heirs in the future.  Finally, these qualified donations reduce your taxable estate.

 This is a valuable tax and estate planning tool for at least 2011 as there is no guarantee that this benefit will be renewed in future years.

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: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.