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Of Taxes Past, Present, and Future

Tuesday, December 11th, 2012

With the 2011 tax filing season behind us, much attention is being paid to the expiring “Bush tax cuts”–the reduced federal income tax rates, and benefits, that will expire at the end of 2012 unless additional legislation is passed. In fact, though, several important federal income tax provisions already expired at the end of 2011. Here’s a quick rundown of where things stand today.

What’s already expired?

A series of temporary legislative “patches” over the last several years has prevented a dramatic increase in the number of individuals subject to the alternative minimum tax (AMT)–essentially a parallel federal income tax system with its own rates and rules. The last such patch expired at the end of 2011. Unless new legislation is passed, your odds of being caught in the AMT net greatly increase in 2012, because AMT exemption amounts will be significantly lower, and you won’t be able to offset the AMT with most nonrefundable personal tax credits. Other provisions that have already expired:

* Bonus depreciation and IRC Section 179 expense limits– If you’re a small business owner or self-employed individual, you were allowed a first-year depreciation deduction of 100% of the cost of qualifying property acquired and placed in service during 2011; this “bonus” depreciation drops to 50% for property acquired and placed in service during 2012, and disappears altogether in 2013. For 2011, the maximum amount that you could expense under IRC Section 179 was $500,000; in 2012, the maximum is $139,000; and in 2013, the maximum will be $25,000.
* State and local sales tax– If you itemize your deductions, 2011 was the last tax year for which you could elect to deduct state and local general sales tax in lieu of state and local income tax.
* Education deductions– The above-the-line deduction (maximum $4,000 deduction) for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals both expired at the end of 2011.

What’s expiring at the end of 2012?

After December 31, 2012, we’re scheduled to go from six federal tax brackets (10%, 15%, 25%, 28%, 33%, and 35%) to five (15%, 28%, 31%, 36%, and 39.6%). The rates that apply to long-term capital gains and dividends will change as well. Currently, long-term capital gains are generally taxed at a maximum rate of 15%. And, if you’re in the 10% or 15% marginal income tax bracket, a special 0% rate generally applies. Starting in 2013, however, the maximum rate on long-term capital gains will generally increase to 20%, with a 10% rate applying to those in the lowest (15%) tax bracket (though slightly lower rates might apply to qualifying property held for five or more years). And while the current lower long-term capital gain rates now apply to qualifying dividends, starting in 2013, dividends will be taxed at ordinary income tax rates. Other provisions expiring at the end of the year:

* 2% payroll tax reduction– The recently extended 2% reduction in the Social Security portion of the Federal Insurance Contributions Act (FICA) payroll tax expires at the end of 2012.
* Itemized deductions and personal exemptions– Beginning in 2013, itemized deductions and personal and dependency exemptions will once again be phased out for individuals with high adjusted gross incomes (AGIs).
* Tax credits and deductions– The earned income tax credit, the child tax credit, and the American Opportunity (Hope) tax credit revert to old, lower limits and (less generous) rules of application. Also gone in 2013 is the ability to deduct interest on student loans after the first 60 months of repayment.

New Medicare taxes in 2013

New Medicare taxes created by the health-care reform legislation passed in 2010 take effect in just a few short months. Beginning in 2013, the hospital insurance (HI) portion of the payroll tax–commonly referred to as the Medicare portion–increases by 0.9% for high-wage individuals. Also beginning in 2013, a new 3.8% Medicare contribution tax is imposed on the unearned income of high-income individuals.

Who is affected?

The 0.9% payroll tax increase affects those with wages exceeding $200,000 ($250,000 for married couples filing a joint federal income tax return, and $125,000 for married individuals filing separately). The 3.8% contribution tax on unearned income generally applies to the net investment income of individuals with modified adjusted gross income that exceeds $200,000 ($250,000 for married couples filing a joint federal income tax return, and $125,000 for married individuals filing separately).



Protect Yourself from Identity Theft

Monday, October 22nd, 2012

Identity theft happens when someone steals your personal information and uses it without permission. Thieves can run up your credit accounts, get new credit cards, medical treatment or a job – all in your name. Identity thieves cause a lot of damage – and they don’t just target the elderly.

There are several activities which, when made part of your regular routine, can help you reduce the risk of identity theft or the damage when it occurs:

  1. Monitor all your accounts on a routine basis – look at transactions each month to be sure that they are authorized and contact your financial institution immediately if you discover a problem.
  2. Read your credit reports from each of the credit reporting companies each year – you have a right to a free credit report every 12 months and can access these reports at
  3.  Remember to keep your anti-virus and anti-spyware software up-to-date and if you haven’t done so already, add a firewall to your home network.
  4. Keep your personal and financial papers secure and shred them before discarding them.

These are just a few suggestions – for more information, check-out the resources provided by the Federal Trade Commission, the Consumer Financial Protection Bureau, or the Consumer Federation of America.

If, despite your best efforts, your information does become compromised, act fast to limit the damage:

  1. Flag your credit reports by calling one of the credit reporting companies, and ask for a fraud alert on your credit report. The company you call must contact the other two so they can put fraud alerts on your files. An initial fraud alert is good for 90 days.
  2. Contact your bank’s fraud department to secure your personal accounts and ask for further guidance on securing personal information.
  3. Consider placing a “freeze” on your credit – the freeze should prohibit anyone from opening accounts using your name and Social Security number.

Identity theft can happen at any time and any place – the thieves may appear in person, online, or over the phone. Take precautions to secure your data and help your loved ones do the same.

Health Insurance for Retirees?

Tuesday, July 5th, 2011

In most instances, retirees who collect Social Security benefits are eligible for Medicare after their 65th birthday. If you retire before age 65, you will need to find another source of health insurance before you qualify for Medicare. Depending on your situation, your options may include the following:

A Former Employer — Determine whether your former employer provides a group plan for retirees. In many instances, premiums paid by retirees are more expensive than those paid by workers, but you may be able to rely on this type of coverage until you qualify for Medicare. Employers who provide retiree coverage (not all do) may require participants to have a minimum tenure with the organization (such as 10 years or more) to qualify. Also, be aware that rising health care costs are prompting many employers to raise premiums for retirees or to eliminate this coverage altogether.

A Spouse or Partner’s Plan — Many employers permit workers or retirees to elect coverage for spouses or partners. This may be a convenient option if available.

A Professional Association — National organizations representing lawyers (such as the American Bar Association), accountants (such as the American Association of Certified Public Accountants) or doctors (such as the American Medical Association) may enable members to participate in group health care coverage. If you belong to such an association, or are eligible to join, determine whether the association offers medical insurance to members. You may be required to pay dues, maintain a professional license or otherwise show evidence of professional stature.

A New Job — If you will not qualify for Medicare for several years, consider whether you may want to return to work in the interim and participate in an employer-sponsored medical plan with a new employer. In addition to obtaining medical coverage, you will have an opportunity to earn money, potentially contribute to your retirement savings and remain active.

Insurance on the Open Market — This is likely to be your most expensive option. When purchasing insurance on the open market, it may cost you thousands of dollars annually in premiums, not to mention copayments and other out-of-pocket expenses. You may want to consider this option only if other avenues are not available.

Can I Lower the Interest Rate on My Credit Card?

Thursday, April 7th, 2011

The simple answer is: It never hurts to ask. A study conducted by the U.S. Public Interest Research Group found that more than half (57%) of those who called their credit card issuer and requested a lower interest rate were successful. On average, the rate was lowered by between 7 and 10 percentage points.

Now that most of the provisions of the Credit Card Act (signed into law last May) have finally gone into effect (as of February 22, 2011), there is no better time to review your own credit situation with an eye toward making improvements.

Getting to Yes
Your chances of getting a lower rate are improved if you meet most of these qualifying factors:

  • Good credit rating. A good rating applies both in terms of your payment history with the card issuer and your overall credit score. You are entitled to a free copy of your credit report every year from each of the three major credit-reporting agencies: Experian, Equifax and TransUnion. To save time, log on to to access reports from all three. For a small fee, these agencies also provide personal credit scores.
  • Low card balance. You have a history of paying off the entire balance or paying more than the minimum required each month.
  • Track record with card issuer. You have held the card for a year or two before requesting the rate change.
  • Your card is not classified as “subprime.” The credit card is not marketed solely to consumers with bad credit.

The Law of Averages
To negotiate successfully with the credit card company, you will have to be prepared. Know what your current interest rate is and make sure that it is not a promotional rate that will expire within a matter of months. Also research what other banks and credit card companies are charging their customers.

If you are paying significantly more than that and have done your research, you are ready to make the call. Be sure to remain upbeat, confident and persistent. If the first person you speak with turns you down, ask for his or her manager. Base your argument on logic and facts and politely threaten to take your business elsewhere unless you get some satisfaction.

Remember, the better your payment record with the card issuer and the higher your credit score, the better your bargaining position.

One final word of advice: Be careful about getting overly zealous in your search for the lowest rate card. Applying for multiple new cards at the same time (three or more inquiries in one month) could cause your credit score to be lowered.

Doing Your Homework
Visit these Web sites for competitive rate information and more.

Japan: In the Face of Tragedy

Monday, March 14th, 2011

On Friday March 11, 2011, the largest earthquake on record in Japanese history struck northeastern Japan. A devastating tsunami followed with 30 foot waves swallowing entire cities across the Pacific coastline. The full scope of the damage is still unknown, though the confirmed death toll has already exceeded 1,600, and is expected to rise significantly. Several cities and villages remain completely isolated, accessible only by helicopter.

Earthquakes are not new to Japan. Its long history is marked with numerous disasters.  Still, what has surprised us is Japan’s ability to restore a sense of normalcy in a timely manner. Learning from their past experiences and failures, we are confident that Japan can put itself back on its feet. In fact, several retail chains have already restored operations in some of the hardest hit areas to provide food and daily necessities. 

We have no intention of underestimating the negative impact on Japan’s economy. In the short term, businesses in the retail, insurance and manufacturing sectors are likely to struggle. Electric power is in short supply due to the closure of most nuclear power plants on the Pacific coast, with several reactors possibly experiencing a meltdown. Electric power companies have announced plans to implement scheduled power outages across the Kanto region. Industrial production in areas affected by the power outages will likely remain low for the time being.

However, there are positives emerging from the rubble. Political feuding within the majority Democratic Party of Japan, as well as with opposition parties, which had threatened a budget impasse, has subsided. For a change, Japan is finally seeing leadership from its politicians. As was the case with the Kobe earthquake, a large stimulus bill will likely be passed for the reconstruction of infrastructure. This will create much needed domestic demand. Additionally, the Bank of Japan (BOJ) has announced it will consider every measure to provide sufficient liquidity, starting with a massive 15 trillion yen open market operation, where the BOJ will buy bonds from banks to provide them with short-term liquidity. On top of this, the BOJ doubled its risk-asset purchase program to 10 trillion yen. Japan’s financial system remains solid.

Earthquakes of this scale are difficult to foresee or model. These events remind us of the importance of maintaining a well-diversified portfolio. Over the next few weeks, we will continue to monitor the situation and adjust our strategy accordingly, taking into consideration the long-term impact of this earthquake.

Last but not least, Japan has received offers of aid from more than 90 countries around the world. Rescue teams from Korea, Singapore, China and other countries have already arrived and are heading toward the disaster area. U.S. military forces are also on the scene to assist in various capacities. On behalf of my fellow Japanese, we would like to express our deepest gratitude.