Tax Questions to Ask If You’re Unemployed

January 12th, 2009

Those who weren’t working in 2008 should check out CNN Money’s “Tax Tips for the Unemployed,” a brief FAQ intended to help the aforementioned as we head into tax season. The six-part write up does a lot to answer any questions and concerns you may have about your taxable finances.

CNN Money staff writer Jessica Dickler answers the following:
Do I still have to pay tax if I was out of work in 2008?
Do I have to pay tax on my unemployment checks?
What if I took money from my 401(k)?
What if I did some supplemental work?
What if I had to relocate for a job?
What if I spent money on job searches?

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Can You Avoid Higher Roth IRA Taxes?

January 9th, 2009

Attn: Retirees – Yes, You Can
Did you know you can switch your assets back to a more traditional retirement account if your Roth IRA isn’t holding value? It’s true, and CNN Money Magazine’s Walter Updegrave suggests the oft-overlooked tactic can be a smart move as our country looks toward what’s expected to be a long-winded recession complete with Presidentially-revamped taxes.

For example, Updegrave points out that your Roth IRA’s value could take a huge hit if the stock market drops drastically, in some cases marking down what was a $150,000 IRA to something closer to $100,000.

Aside from the initial hit of $50,000 you’d take, it will cost you more in taxes as well. A Roth IRA is taxed in the 28% bracket on what you contribute to the account, and that’s a tax that is based on the IRA’s value at the time of the conversion ($150,000 instead of $100,000). That turns out to be $42,000 taxed dollars you’d lose in addition to the $50,000 that was lost as a result of the dipped stock market.

By recharacterizing, which entails undoing that conversion and transferring the balance you had from your Roth back to your traditional IRA, you can save yourself a sizable portion of those taxed dollars because the IRS would only tax your $100,000 holdings rather than that $150,000 you previously held.

It’s important to remember that there are certain rules and regulations to the recharacterization process that you’ll need to keep in mind moving forward. According to Updegrave, “you can recharacterize a conversion anytime up to the income tax filing deadline for the tax year of your conversion, including extensions.”

In layman’s terms, that means that if you converted in 2008, you can take the mulligan as late as October 15 of this year. Then, you’ll have to wait until the next year begins before you can convert your holdings from your traditional IRA into a new Roth IRA again.

So is there any negative aspect to this opportunity? Of course: that ever-fluctuating stock market may recover and experience some steady growth, which would in turn raise your taxes accordingly.

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Wells-Fargo Takes Control of Wachovia

January 6th, 2009

Wells-Fargo & Co. completed their $12.7 billion acquisition of Wachovia Corp. this past Friday. The California-based bank now heralds itself as “one of the strongest financial companies in the nation and America’s #1 small business leader” and can now lay claim to over $14 trillion in assets.

The move puts Wells-Fargo in control of Wachovia’s 11,000 stores and 12,260 ATMs operating out of 39 states and does indeed make Wells-Fargo the nationwide leader in small business lending, agriculture lending, commercial real estate lending, commercial real estate brokerage, and bank-owned insurance brokerage. The bank trails only Bank of America in U.S. bank deposits, home mortgage originations and servicing, and retail brokerage.

In a statement provided by CEO John Stumpf, Wells-Fargo said that the bank’s “primary goal is to do what is right for our customers,” a group that now includes everyone who has had an account with Wachovia.

While it may take a number of months to fully integrate the two banks, Stumpf and Wells-Fargo are eager to assure individuals that they will still benefit from the same FDIC insurance plans they had prior to the merger, and that account holders can receive free cash withdrawals and balance inquiries at any Wells-Fargo or Wachovia ATM around the country.

In the meantime, Wells-Fargo will be offering regular updates on the integration at www.wellsfargo.com/wachovia.

This is just one outcome of the shake-up in the banking world since the recession took hold of our economy. Mergers of entities of this size are evidence that a revamping of the industry is already underway with more changes sure to follow.

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Must Read: Bailout Cheatsheet – The Trail of Tax Dollars

January 5th, 2009

CNNMoney.com has a great outline of where and when money has been allocated for this economic bailout we’re paying for in tax dollars. Check it out here.

We’re beginning to wonder what the figures for Citigroup loan-loss backstops and Auto industry energy efficiency loans will look like when all’s said and done.

Also, that unknown price tag for money market guarantees is something we’re eager to see cleared up. There look to be four different programs set up to help insure against money market fund losses, and it will be interesting to see if spending there was divvyed up evenly.

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2009 Senior Savings Get a Boost from Congress

January 5th, 2009

Senior citizens across the country got good news in December when reports out of Washington stated that Congress suspended the law that requires those 70 ½ or older to withdraw funds from their retirement plans in 2009, even if they don’t need the money. Traditionally, senior citizens have had to withdraw what’s known as “required minimum distributions,” or RMDs, every year, with the price tag based individually on the IRA owner’s age and IRA balance on December 31 of the previous year.

Simply put, RMDs work in the following way, as outlined by Kiplinger.com’s Editorial Director, Kevin McCormally:

An 80-year-old is required to withdraw about 5.4% of his account this year. If he had $1 million in the account at the end of last year, the 2008 payout would be $54,000. But what if market losses have driven the IRA value down to $600,000? He still has to withdraw $54,000, even though that is 9% of the account’s current value.

Advocates for the decision suggest that the moratorium was a necessary move based on the way IRAs and 401(k)s have suffered in the stock-market recently. According to McCormally,

U.S. markets have lost more than $8 trillion in value since they peaked in October 2007. The last thing seniors want to do is sell investments that tanked to take a retirement-plan payout that would further deplete their nest egg. The less money in the account when the market recovers, the less chance they have to rebuild their wealth.

Many seniors thought that the decision to place a moratorium on 2009 withdraws would lead to the IRS and Treasury rethinking expected 2008 withdraws, but recent reports suggest otherwise. From Forbes.com:

Treasury and the Internal Revenue Service have decided, however, that since Congress has now acted, they will not allow this, according to a letter being sent to several senators and congressmen who had requested help from Treasury.

Any changes that the Treasury could make administratively for 2008 would be “complicated and confusing for individuals and plan sponsors,” the letter states, and the relief would not be available as “uniformly” to taxpayers as the change passed by Congress for 2009. That’s because most seniors already have taken their 2008 payouts.

Amidst the bad news concerning 2008, Kiplinger.com isn’t ready to encourage retirees to go back to work just yet. The financial site still believes senior citizens should hold out hope for some level of financial relief:

We expect the Treasury Department to grant some kind of relief, probably within the next week or so. So if you haven’t taken your 2008 distribution yet, keep procrastinating.

Stay tuned… we’ll let you know if the Treasury offers any support in the coming days.

In the meantime, tell us your take on the moratorium.  Is it just another shot in the dark by Congress or a move that will help support our seniors?

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Wall Street on the Up and Up

January 2nd, 2009

Good news coming from Wall Street today, as the Dow Jones Industrial Average rose 258 points, or 2.9%, to close above 9,000 for the first time since November. Standard & Poor’s 500 index gained 3.2%, and the Nasdaq composite rose 3.5%.
Numbers have been rising since this past Wednesday but experts are remaining cautiously optimistic, according to CNN.com’s David Goldman:

Investors should brace for wild market swings as companies and the economy struggle to rebound. This past year was marred by horrid corporate results, record high oil and gas prices, dismal housing news and a full-blown shakeup on Wall Street.

“A fair amount of damage has been done, and earnings need to stabilize first,” said Tobias Levkovich, chief investment strategist for Citigroup. “Before the patient gets better, let’s make sure his condition doesn’t worsen.”

On many days, analysts predict markets could tumble on poor corporate earnings and sour economic news. But optimism about the new administration and apparent success of government interventions will help stocks skyrocket on other days.

2009 may be better, but stocks won’t rise in a straight line to recovery. A majority of analysts expect that in the first months of the year, the S&P 500 index will test its 2008 low of 752, set on Nov. 20, even though the market has recovered more than 16% since then.

“The market could end up tracing out the [crooked] design on Charlie Brown’s shirt,” said Sam Stovall, chief investment strategist for Standard & Poor’s.

We’re hoping that crooked line ends on an upswing, and there have been some positive signs of late that indicate that’ll be the case. With the Fed’s decision to lower interest rates to record lows, improved handling of nationwide credit, and President-elect Barack Obama’s proposed stimulus plan, it’s beginning to look like our nation’s economy may finally be getting just a glimpse of a light at the end of the tunnel.

Has anybody had the chance to notice any other trends that may be generating this optimism? What’s your optimism level? Do you think we’ve gotten ourselves on the long road to recovery?

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Milking the Declining Price of Dairy Products

January 2nd, 2009

Like the auto industry in Detroit, America’s dairy industry is also taking a huge hit that’s sure to affect your grocery shopping budget. The New York Times’ Andrew Martin reports:

“In a warehouse that [Roger Van Groningen’s] company runs here, 8 to 20 trucks pull up every day to unload milk powder. Bags of the stuff — surplus that nobody will buy, at least not at a price the dairy industry regards as acceptable — are unloaded and stacked into towering rows that nearly fill the warehouse.”

The problem’s gotten so dire that the dairy industry had to ask for a bailout. According to Martin, the U.S. government has agreed to buy approximately $91 million worth of milk powder. And, unlike the auto industry, putting a stop to operations isn’t as simple as flipping a switch.

“’They are going to produce it because they have to milk the cows,’ Van Groningen said. ‘It’s like a river. It keeps coming.’ ”

So what’s happened to the price of milk for the American public? In July, the national average for a gallon of milk reached record highs of $3.89. Now it sells for $3.67. Additionally, Martin writes that the cost of powdered milk has seen a drastic drop:

“The price of powdered skim milk, used in infant formula, dairy products and processed foods, has fallen to roughly 80 cents a pound today from about $2.20 in mid-2007.”

The interesting part is the biggest reason the price of milk has dropped has nothing to do with Americans. In recent years, the American dairy industry has benefited globally from a weak dollar amount and a general lull in production from Australia and New Zealand, two of the biggest dairy exporters in the world.

“But now, global demand has stagnated amid high prices and economic uncertainty just as the dollar has strengthened and milk production in New Zealand and, to a lesser extent, Australia, has bounced back. The continuing scandal involving melamine contamination of dairy products in China is expected to further diminish demand.

‘In some of these countries where dairy hasn’t been a big part of their diet, this is where we are seeing people pull back,’ said Deborah Perkins, managing director of the food and agribusiness research group at Rabobank International.

Several dairy exporters say they remain bullish on their long-term prospects, given the barely tapped markets in the developing world. Until then, dairy farmers say, they are braced for a period of low milk prices even as feed and other costs remain relatively high.”

For a “dairy-based” society like America’s, consumers could be looking at a little more change in their pockets every time they pick up a gallon of milk.

We’re wondering if you’ve seen a change in the price of milk recently. Reports out of Florida say that a gallon is selling for much higher than the national average, but Texas prices are staying well under. How about where you live?

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Bigger ’09 Paychecks Under Obama’s ‘Make Work Pay’ Tax Plan

December 31st, 2008

Americans making less than $75,000 annually should expect to see a slightly larger paycheck every two weeks when Barack Obama takes the presidential office on January 20. While he was once believed to be re-thinking the plan he touted during the election, the President-elect is in fact expected to implement a reduced tax plan.

The plan would take effect almost immediately, which could increase individual earnings by $83-$166 per paycheck during the first quarter of the year.

It’s Obama’s belief that a permanent tax break like the one he plans to put into place would stimulate the economy and increase spending from lower to middle-income workers because they’d be reassured that the tax break savings would be there every year.  Obama’s top adviser David Axelrod spoke on the matter Sunday on “Meet The Press,” pointing out that “this new plan will include a portion of a tax cut that will become part of the permanent tax cut [Obama will] have in his upcoming budget.”

As part of his ‘Make Work Pay’ plan, this particular objective will apply to individuals making $75,000 or less annually and families making $150,000 or less annually. Individuals who qualify should expect to see $500 per year come back, while couples will see returns of $1000 per year. Those making between $75,000 and $85,000, or couples making between $150,000 and $170,000, will receive a partial credit.

And since the tax returns will be refundable, even low-income workers without any tax liability will be able to receive a break.

In addition, Obama plans to drop President Bush’s tax cut plans for the upper class. Axelrod spoke on this issue as well on “Meet The Press,” saying,” Whether it expires or whether we repeal it a little bit early, we’ll determine later, but it’s going to go. It has to go.”

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Home Price Index Hit With 18% Drop In October

December 30th, 2008

Homes prices across the country dropped again between September and October, marking the 27th month in a row that the S&P Case-Shiller Index has posted losses. The mean price of homes saw a 2.2% drop, bringing prices back down to where they sat in March of 2004. Altogether, home prices experienced an 18% decrease from last October’s figures.

David Blitzer, Chairman of the Index Committee at Standard & Poor’s, attributes the price drop to the fact that October was the first full month the entire country felt the credit crisis. Up until the time Lehman Brothers filed for bankruptcy on September 15, Blitzer believes “everyone felt relatively optimistic.”

It’s the individuals living in some of America’s largest cities that are now feeling the most cynical. The 20-city composite S&P Case-Shiller uses, comprised of 18 of America’s most populous cities and two composite figures, recorded a -23.4% 1-year change. Every city posted a decrease in prices.

IHS Global Insight U.S. Economist Patrick Newport suggests foreclosures are the main problem. And while the Federal Reserve and the incoming Obama Administration are working to find a solution, Newport believes “trial and error will be a part of the process.”

But despite whatever answers the two entities come up with, the fact remains that the majority of real estate sales this year did consist of foreclosed homes or ones that were forced to short sale to avoid foreclosure. The collapse of credit companies and the stock market has left a large number of Americans who were already stretched thin financially unable to pay their mortgages.

RealtyTrac’s James Saccacio is predicting a “foreclosure storm” in the next few months. While Fannie Mae and Freddie Mac have announced moratoriums on foreclosures, many leading banks have failed to follow suit. Without a way to ease the pressure of high interest rates and overwhelming mortgages, Americans will continually be staring foreclosure in the face.

Nationally, the greatest drop in home prices was seen across the SunBelt region, with Phoenix posting a 32.7% lost from last year and Las Vegas’ figure dropping 31.7%.

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NASDAQ’s Tech Driven Trading Model Outsmarts the Competition

December 30th, 2008

Financially, 2008 was a year defined by the plummeting stock market, but Forbes Magazine still thought that no company was more impressive over the four quarters than market mogul NASDAQ OMX. The financial magazine’s Daniel Fisher praised the New York-headquartered company for adapting to recently introduced methods of new business better than competitors.

It was CEO Robert Greifeld that caught Forbes‘ attention with his ability to transform the company from a typical trading floor institution into a company that’s completely technology driven. It’s helped NASDAQ to succeed while the rest of the financial world struggles and led to NASDAQ OMX receiving the distinction of being Forbes’ “Company of the Year.”

NASDAQ’s successful transformation process is simple on the surface. As the company’s assets have gotten greater, the company’s size has gotten smaller, therefore reducing overhead costs and increasing their level of organization. Once operating out of one of the most hectic headquarters in the entire country, NASDAQ’s control room is now run by a single technician who works in front of 8 computers in a room above the World Trade Center’s construction site.

The 70,000 orders, cancelations and trades NASDAQ processes per second are managed on a server in a rented data center in New Jersey. As Fisher notes, the company’s “entire trading floor [has been] crammed into a suitcase-sized computer.”  It’s worlds away from the hectic scene many Americans associate with trading.

This transformation is occurring at a time when NASDAQ has begun taking on a much greater number of trades per day. A decade ago, the United States alone saw 1.5 billion trades a day. In 2006, the number jumped to 4.2 billion per day. Currently, combined U.S. trading is set at 10.6 billion exchanges. Of those billions, NASDAQ has been able to hold 33% of U.S. equities through 2,500 employees, but Greifeld plans to hold a far greater percentage in the future without increasing his workforce.

That’s been the difference recently between NASDAQ’s business model and that of other financial institutions, and Fisher suggests cost-effectiveness has been the company’s forte since Greifeld took over as CEO in 2003.  In our current economic downfall, being able to fiscally manage their business smarter has given them even more of an edge.

Here’s how Greifeld has been able to expand NASDAQ’s assets without increasing their number of employees:
·    2005: Greifeld acquires Instinet Group for $935 million. Instinet, one of the largest electronic exchange operators in the world, gives NASDAQ access to the Island trading engine. These servers allowed Greifeld to cut NASDAQ’s use of the expensive Tandem computers in a Connecticut data center.
·    2007: NASDAQ buys out OMX, which managed 7 Nordic and Baltic stock exchanges, fires 11% of the company’s 1400 employees to cut spending by $100 million per year, and suffers no financial backlash.
·    2007: NASDAQ buys the Philadelphia Stock Exchange and announces plans to cut $50 million out of the market’s exchange cost.
·    Fisher writes that Joseph Ratterman, NASDAQ’s chief executive, operates now out of Kansas City, MO, where rent is $18.50 per square foot, as opposed to New York City, where rent is $150-$200 per square foot.

Because NASDAQ’s been able to outsource all of its data centers, the company hasn’t inherited a costly overhead package. More importantly, the data centers have given NASDAQ the opportunity to acquire companies without taking on their costs and expenses. It’s a set precedent for using technology and innovative management that is sure to be followed by many trading companies in the coming years.

Posted in economy, finances, investments, money, stocks | 1 Comment »

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