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Seema Ramroop




In 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which reduced taxes on long-term capital gains, estate taxes and gift taxes. Many of the provisions of the act are repealed in 2010, so unless Congress reinstates EGTRRA, taxes on long-term capital gains, estate taxes, gift taxes as well as taxes on qualified dividends will all increase to their pre-act rates.

Many investors are understandably anxious about the impact these tax increases will have on their investments, their incomes and their financial goals. However, by taking action this year, they may be able to blunt some of the effects of a future tax increase. Consider these six preemptive strategies for suitable clients:

* Give increased consideration to municipal bond investments.

* Consider tax-efficient mutual funds and other professionally-managed, tax-advantaged investment strategies.

* Consider investing in variable annuities that offer tax deferral.

* Give increased attention to buy-and-hold strategies.

* Consider investing in life insurance, which can provide estate tax liquidity.

* Consider opening a 529 College Savings Plan to fund college expenses and leverage tax-deferred growth.

Municipal bonds

An important thing to consider is that when tax rates go up, demand for municipal bonds goes up. Increasing demand may come at a time when the supply of tax exempt municipal

bonds may be shrinking, due to the number of municipalities, which are issuing taxable Build America Bonds rather than traditional tax-exempt issues. Accordingly, clients may wish to purchase tax-exempt issues and lock in tax-exempt income before tax rates rise. The interest income earned on municipal bonds is generally exempt from regular federal income taxes and, in most cases, exempt from state and local income taxes as well. With municipal bonds, clients can select credit quality that meets their risk tolerance and have a select a final maturity date when return of principal is expected. Note that tax-exempt municipal bond income is specifically excluded from the additional Medicare tax of 3.8 percent for high income taxpayers that start in 2013.

Tax-efficient mutual funds

Many experts believe that an increase in tax rates is a foregone conclusion – clients may be most vulnerable to those increases. Another idea is to consider tax-efficient mutual funds and other professionally-managed, tax-advantaged investment strategies. The fund:

* May help to maximize real after-tax return for investors subject to federal income taxes, without undue risk to principal.

* May invest in municipal bonds and other securities that generate income exempt from federal income tax (a portion of which may be subject to the alternative minimum tax).

* May provides inflation protection through inflation swap agreements or other inflation-protected securities.

Variable annuities that offer tax deferral

Today, many investors are turning to variable annuities to provide tax deferral, guaranteed lifetime income, the potential of equity upside and a death benefit for heirs they name as beneficiaries. The owner of a variable annuity invests assets in a choice of investment options offered by the annuity issuer. Earnings on those assets accumulate tax-deferred until distributed. When withdrawn, income is taxed at ordinary rates (and if taken prior to age 59½ may incur a tax penalty). The owner can choose to receive guaranteed payments from the annuity for life. When the owner of an annuity contract dies, the assets remaining (and perhaps more if the contract owner has elected a guaranteed minimum death benefit rider for an additional fee) are paid to his designated beneficiaries.

To be continued

Seema Ramroop, financial advisor, Morgan Stanley Smith Barney, can be reached at seema.ramroop@mssb.com or call (727) 773-4629.

Kamlesh Patel


you might qualify for this new business credit

by kamlesh h. patel, cpa

Is your business eligible for the new small employer health insurance credit? Here’s how to decide, by the numbers.

§ 25. One of the requirements for meeting the definition of “small employer” is that 25 or fewer “full-time equivalent employees” worked for you during the year.
What to do. To calculate full-time equivalent employees, you need the following two numbers:

(1) The total hours worked by all your employees during the year (excluding seasonal workers and family members), which you’ll divide by —

(2) 2080 (the maximum qualifying annual work hours, or 52 weeks x 40 hours per week).

Why bother with the special wording and the math? If some of your workers are on a part-time schedule, you could have more than 25 employees and still qualify for the credit.

§ $50,000. A second requirement for meeting the definition of small employer: Paying average annual wages of less than $50,000 to full-time equivalent employees.
What to do. Compute average annual wages by dividing total wages you paid during the year by the number of full-time equivalent employees. Wages paid to family members or to yourself are not included.

  50 percent. You have to pay at least half of the health insurance premiums for your employees. Note: Under a transitional rule available for 2010, you might qualify if you pay less than 50 percent of the premiums for certain employees, depending on the coverage.

Do the numbers look good so far? If so, here’s one more.

§ 35 percent. The maximum credit you can claim is 35 percent of qualifying health insurance premiums paid during 2010. You’ll take the credit on your 2010 federal income tax return, using it to reduce your income tax liability dollar for dollar.

The credit can be applied against regular income tax or the alternative minimum tax, and you can carry any excess to future years.                                   

taxes apply to children’s summer jobs

If your child takes a job in summer, you’ll want to know about the following tax issues.

For 2010, your child can earn as much as $5,700 and not pay a dime in federal income taxes. If your child’s earnings won’t exceed this amount, consider having the child claim “student – exempt” when completing the federal withholding allowance certificate (Form W-4). If this is the child’s only income and the total is below the $5,700 limit, he or she then won’t have to file a 2010 tax return. If the child makes a maximum deductible traditional IRA contribution for 2010 ($5,000), he or she can earn as much as $10,700 without incurring any federal income tax.

Don’t overlook the fact that there will still be withholding from your child’s paycheck for Social Security and Medicare taxes. But those payments are not income taxes, and they cannot be refunded to the child.

Realize also that as long as you provide more than half of your child’s support, you can continue to claim the child as an exemption on your tax return. Your child will lose his or her exemption, but that exemption deduction is typically more valuable to you than to your child.

If you own your own business, consider hiring your child for summer employment. Your business can deduct the wages you pay the child, as long as the wages are appropriate for the work performed. If your business is a sole proprietorship or family partnership, you are not required to withhold social security or Medicare taxes on your child’s wages if he or she is under 18 years of age.

Don’t overlook the benefits and opportunities for both you and your children when helping them to plan for taxes and their summer jobs.

tips on how to manage part-time employees

Part-time employees can play a valuable role in a small business. They can help you deal with variations in workload without having to hire a full-time employee. Because part-timers often look for a job that requires fewer hours, you can find a person with above-average skills for the position.

But part-timers can turn into a liability if not managed well. You could end up with poorly motivated workers who are unsure of their duties, unfamiliar with the company, and unsure who they report to. Here are a few tips to prevent this situation.

  Think before you hire. Know why you’re hiring. Decide exactly what you want the person to do, what hours you want the person to work, and who he or she will report to. The position may have well-defined duties, or it may involve filling in wherever needed. Decide on the pay level and what benefits you’ll offer.

  Communicate clearly with the part-timer. Explain the person’s duties and who his or her superior is. Be very clear on hours and benefits. The more flexibility you can offer, the easier it will be to recruit somebody and the happier the new worker is likely to be. Make sure you explain what job performance you expect.

  Communicate clearly with your full-time staff. Explain why you’re hiring a part-time person. Make it clear what that person will and won’t be expected to do. Designate who will manage and assign work to the part-timer. Otherwise you might find everyone trying to unload work on the new employee.

  Make the part-timer feel like part of the company. Provide introductory training on specific duties and on the company’s business and policies. Assign a mentor or “buddy” – someone the new person can turn to with everyday questions.

  Monitor part-timers’ progress. Don’t just forget about them after they’re hired. Provide feedback on their performance and recognition if they’re doing a good job.

With attention to these points, you can make hiring a part-time employee a winning decision for your company.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail kpaccounting@verizon.net or kpinsurance@verizon.net.





In March, RealtyTrac, a leading online market for foreclosure properties, reported that February 2010 foreclosures were actually down 2 percent from the previous month.

Yet, RealtyTrac indicates this break might not last long. Even though the 6 percent year-to-year increase in February foreclosures was “the smallest annual increase” RealtyTrac recorded in 50 straight months, it believes that current foreclosure prevention programs and processing delays are keeping a lid on the numbers. If those programs end and processing glitches lift without an upswing in the economy or job market, or the foreclosure could accelerate.

For individuals with some money to spend and invest, the troubled home market has its attractions. First, there’s the possibility of attractive real estate – albeit some in need of serious repair – at a bargain price. Then there are the sellers, both banks and individuals, who are at best eager, at worst, desperate to get out from under their obligations.  But the trail to ownership of properties that are under a cloud can be treacherous and it’s best to know what you’re doing.  It’s wise to consult a tax planner and a financial planning professional before making a move into this risky arena.

Here are some of the things potential investors should know:

How foreclosure works:
A foreclosure happens when a buyer defaults on their payments and their lender takes legal steps to take back the property. Rules vary by state and local government, but generally, when a lender decides to foreclose on a property it files a notice of default or a lis pendens (Latin for "lawsuit pending"). This document is a public record, and for buyers – including other lenders –

it's the first step in locating a property in foreclosure. A buyer looking for foreclosures can look online (RealtyTrac is a good source) for lists of properties in default, but individuals with contacts inside lenders holding these properties have a particularly good leg up.

Pre-foreclosure sales are attractive, but often tough to close.
With so many homeowners struggling with payments, “pre-foreclosure” or “short sale” transactions are currently common, but fraught with obstacles. Short sales essentially allow a seller to sell their home for less than they owe as long as they get their lender to buy their story about a lost job or other financial hardships. The second obstacle is getting a real estate agent to work to sell the property for a far lower commission than they usually get.  Third, many states allow for very tight timeframes between the notice of default – the first news a homeowner is facing foreclosure, if they’re checking their mail – and an actual foreclosure notice. Deals of this variety need to close within days, not months.

How do people invest in foreclosure properties? There are three primary ways this happens. First, you will see buyers coming in at the “pre-foreclosure” stage. Second, you will see buyers going after “REO” (real estate owned) properties – literally foreclosed real estate still on the books of a lender. Third, you’ll see foreclosures auctioned off at the public courthouse or in private auctions, depending on how the lender wants to market such properties to get them off their hands. Each process has its own conventions for inspecting the properties – sometimes prospective buyers get time to inspect what they might buy, other times little or none. It’s best to learn the process as a bystander before putting any skin in the game. The most knowledgeable foreclosure investors also have good intelligence on how heavy the lender’s inventory is with troubled properties – the more headaches they want to get rid of, the faster they’ll get rid of them.

Is it wise to borrow?
Given the current state of the lending industry, such a question might be a moot point even for the most-creditworthy individuals. Buying distressed property is primarily a cash game. It lowers the cost of entry and speeds these kinds of transactions where time is definitely of the essence. Even sophisticated foreclosure investors often discover ugly surprises when buying – property with greater damage than they anticipated, for example – and they may not have the flexibility to borrow to fix those unexpected problems after they borrowed to buy in the first place.

This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Dev Goswami, CFP®, a  member of FPA in Jacksonville, who offers securities through: The O.N. Equity Sales Company, Member FINRA/SIPC, One Financial Way, Cincinnati, Ohio 4524, and Investment Advisory Services through: O.N. Investment Management Company. He can be reached at (904) 565-2969, email dev@devgoswami.com or visit www.DevGoswami.com

Amol Nirgudkar



2010 will mark the end of this decade. The decade will be remembered by many as Washington’s glory period for new tax legislation. There have been 24 new tax acts over the last 10 years that have overhauled our tax code and made it into one of the most complex treatises ever written. The pace of change and complexity of the regulations have befuddled Americans and many of them have gotten progressively intimidated by the enormity of modern tax compliance. Even tax attorneys and CPAs have spent countless hours in continuing education trying to understand each new law and apply it to the benefit of their clients.

The purpose of this article is to analyze two recent pieces of legislation that became law recently and discuss the impact on 2010 taxes.   

On March 18, 2010, the president signed into law the “Hiring Incentives to Restore Employment Act of 2010” (aka the HIRE Act). Its was stated in the title — to stimulate employment and make a dent in the 9.7 percent unemployment rate that is looming like a dark cloud on the United States economy. In hopes of encouraging employers to hire and retain unemployed workers, the HIRE act provides two basic tax breaks:  

1)      Payroll tax holiday — Exempts employers from paying employers share of the Social Security employment taxes on wages paid in 2010 on newly hired unemployed workers. The tax holiday applies to workers hired after Feb. 3, 2010 and before Jan. 1, 2011 provided the workers were unemployed for at least 60 days before hire date. The payroll tax paid by the employer on wages after March 19, 2010 will be exempt from the 6.2 percent Social Security tax for the remainder of the wages for 2010. 

2)      Retention incentive — As an additional incentive to retain the qualified unemployed workers, the act provides an additional $1,000 tax credit if the workers maintain employment for 52 consecutive weeks.   

In addition to the employment incentives, the HIRE act also extends Section 179 deduction until Dec. 31, 2010. Section 179 allows qualifying businesses to deduct up to $250,000 in qualified asset purchases in 2010.  

On March 23, 2010, the president also signed two controversial healthcare bills – Patient Protection and Affordable Care Act (aka Health Care Act) and the Health Care and Education Reconciliation Act (aka Reconciliation Act). Both acts aim to reform the current unsustainable health care system in the United States and offer affordable health coverage to all Americans.   

The centerpiece of the legislation is the mandate that requires most United States residents to obtain health insurance. There are a host of other provisions ranging from new penalties for not carrying health insurance, large employer mandates to offer coverage, voucher system for lower income employees, “simple” cafeteria options for small businesses, etc.   

Most of the mandate and other provisions go into effect in years 2014 and beyond. However, starting in 2010, small businesses that offer and pay for at least 50 percent of the health coverage for their employees get a tax credit equal to 35 percent of the premiums paid in 2010, 2011, 2012 and 2013. The credit increases to 50 percent for years beginning after 2013 for employer’s non-elective contributions towards employees’ health insurance premiums. Another provision of the health bill that affects 2010 is the new 10 percent tax on indoor tanning services.  

The fate of this health legislation in future years and its impact on Americans is hard to predict and many of the provisions could possibly change in the next few years. The November elections and the presidential election in 2012 could be contributing factors to future amendments. All of us can hope and wish that these new laws actually do make health care affordable to all Americans while maintaining quality of care.   

Amol Nirgudkar, CPA is the managing partner of Reliance Consulting LLC and a partner at Reliance Wealth & Trust Partners LLC and can be reached at (813) 931-7258 or via email at amol@reliancecpa.com  



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