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

Tax bite still up in the air

Congress will probably wait until after Thanksgiving to finalize the income tax scenario.

Numerous tax breaks that we have benefited from in recent years have expired.  Tax planning is difficult this year as we may not know the tax landscape until mid December.

Some of the benefits in question:

The Bush tax rate cuts.

• Higher AMT exemptions.
• The lower tax rates on capital gains and dividends.
• The deduction of sales tax in lieu of income tax.
• Tax free payouts from IRA’s to charity.
• Write-off’s for college tuition.
• Deduction for teacher class supplies.
• The estate tax.
• The deduction of $1000 in property tax for non-itemizers.
• The exclusion of $2400 in unemployment income.
• The $1500 energy credit would be reduced to $500.

Let’s keep our fingers crossed that these benefits are extended.

I will keep you posted.  I will post a blog as soon as the decision is made.

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).

Reducing Our Debt

Most readers of this blog are clients of Brighton Securities, and the overwhelming majority of our clients need little or no advice on reducing debt.  You know debt is needed at times, particularly when buying a home.  But you also know that in the long run debt imposes its own form of servitude, and too much debt will eventually impoverish the debtor.

But we have a national debt that is large and has grown through Democrat & Republican oversight; through administrations liberal, conservative, and moderate.  Both parties spend more than we pay in taxes, no matter how much we pay.  How to fix it?

Yet another bipartisan commission has now issued its recommendations.  Commission members are a credible bunch and have put forward some very serious suggestions on what we should do – a body of ideas controversial enough that, in the words of co-chair Alan Simpson, Americans can “start to chew on it.”  The implication, of course, is that we have a lot of chewing to do.

I generally oppose higher taxes and we spend plenty of time and effort to help our clients find ways to reduce their tax burden.  But if a tax increase were to truly reduce our national debt, I could get on board.  Congress will need to have a concrete plan to reduce spending if they hope to win broad support for more taxation.

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).

Tax Relax

Random thoughts on the end of Tax Season for 2010:

1. How long must you keep your tax records? Generally you should retain your tax records for three years from date of filing. So if you filed your 2009 return yesterday, you should retain access to a copy until April 15, 2013.  Because the period is only three years, some people might think 2009 returns need only be kept until the end of 2012.  Easy shortcut: keep returns for 4 years.
2. If you use our tax department, we give you either a paper or PDF copy of your return.  If you don’t keep that copy (or can’t find it when you need it) you can always ask for an additional copy which we will provide whenever you might need it.
3. This year 98 million tax returns were expected to be filed electronically. If filed on paper, those returns would amount to 1.1 billion sheets of paper.  That much paper would take over 13,000 cords of wood to produce.
4. Our office is quiet today, with no clients stopping by to wrap up their returns, and with our tax staff mostly off on well deserved vacations.  Tax Manager Joe Arena is still here, tying up loose ends. We remain available year-round to answer your tax questions.
5. Now I am glad to turn my attention from taxes to springtime!

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).

2010 Health Reform Legislation – Part III: Higher Taxes On High-Income Taxpayers

This week for my series on the 2010 Health Reform legislation we’ll discuss higher Medicare taxes on high-income taxpayers.  Basically, high-income taxpayers will be hit with a double whammy: a tax increase on wages and new levy on investments.

Higher Medicare payroll tax on wages.  The Medicare payroll tax is the primary source of financing for Medicare’s hospital insurance trust fund, which pays hospital bills for beneficiaries who are 65 and older or disabled.  Under current law, wages are subject to a 2.9% Medicare payroll tax.  Workers and employers pay 1.45% each.  Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes).  Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 for 2010), the Medicare tax is levied on all of a worker’s wages without limit.

Under the provisions of the new law, which take effect in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts.  Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS.  Companies won’t be responsible for determining whether a worker’s combined income with his or her spouse makes them subject to the tax.  Instead, some employees will have to remit additional Medicare taxes when they file income tax returns, and some will get a tax credit for amounts overpaid.  Self-employed persons will pay 3.8% on earnings over the threshold.  Married couples with combined incomes approaching $250,000 will have to keep tabs on both spouses’ pay to avoid an unexpected tax bill.  It should also be noted that the $200,000/$250,000 thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.

Medicare payroll tax extended to investments.  Under current law, the Medicare payroll tax only applies to wages.  Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income.  A new 3.8% tax will be imposed on net investment income of single taxpayers with adjusted gross income (AGI) above $200,000 and joint filers with AGI over $250,000 (unindexed).  Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business).  Net investment income is reduced by properly allocable deductions to such income.  However, the new tax won’t apply to income in tax-deferred retirement accounts such as 401(k) plans.  Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds.  So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax.  Because the new tax on investment income won’t take effect for three years, Congress and IRS have more time to tinker with it.  So we can expect lots of refinements and “clarifications” between now and when the tax is actually rolled out in 2013.

As we learn more and more about the health reform legislation, it is becoming obvious that there are many layers of new and additional taxes to pay for its mighty price tag.

Derek Duncan

(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).