Janell A. Israel & Associates

 1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817

July 2009 Tax Newsletter

 

 

What's new in taxes:  

 

Changes Affect 529 Plans

 

Two changes could affect your 529 college plan. First, during 2009 and 2010, you can use 529 funds for tax-free purchases of computers, peripherals such as printers, certain educational software, and Internet access. Second, for 2009 you are permitted to make two investment strategy changes (in addition to changes made when switching the plan's beneficiary). Previously only one annual change was allowed.

 

 

 

Follow The Road To Savings With Tax Credits

 

A tax deduction should never be overlooked, but it's a tax credit that can make a big difference in your tax bill. While a deduction will reduce your tax liability, it will only reduce it by your marginal tax rate. For example, if you're in the 25% bracket, a $1,000 deduction will save you $250 in taxes. But a credit is a dollar for dollar reduction of your tax liability. Regardless of your tax bracket, a $1,000 credit will reduce your tax liability by the full $1,000. In some cases, a credit will reduce your liability even below zero (called a refundable credit), giving you a refund of more taxes than you actually paid. Here are some of the more valuable credits.

 

* First-time homebuyer credit. This is a new refundable credit that provides a credit of up to $8,000 for first-home purchases in 2009 made by November 30.

 

* Child tax credit. If you qualify and meet income limits, you'll receive a $1,000 credit for each dependent child under age 17.

 

* Retirement savings contribution credit. This credit is for low- and middle-income taxpayers who contribute to a retirement plan, such as an IRA or 401(k). This overlooked credit is as much as 50% of the retirement contribution to a maximum credit of $1,000. There is also a credit for businesses who establish new pension plans.

 

* Energy credits. There are many energy-related credits - from the purchase of an alternative fuel vehicle, to the installation of solar/fuel cell property in a residence, to the production of biodiesel or ethanol.

 

* Foreign tax credit. The foreign tax credit lets you claim a credit on your federal tax return for taxes paid to a foreign country.

 

* Work credits. Credits are available to businesses for hiring certain low-income employees, employees residing in certain geographic locations, or various minority employees.

 

With over 40 credits available to individuals and businesses, all with their own rules and qualifications, it's easy to overlook some of them. Call us if you would like to review the credits for which you might qualify.

 

 

 

 

What's New in Finances:

 

Factor Graduation Rates Into Choice Of College

 

As college costs seem to increase every year, you might want to look at graduation rates for the colleges being considered by your family.  After all, six years of college will certainly cost more than four.

 

A recent report from the American Enterprise Institute revealed that hundreds of colleges are failing to graduate their students in six years.  According the the report, "four-year" colleges in this country graduate an average of 53% of entering students within six years.  Individual colleges fall even below this national average, with some having six-year graduation rates as low as 30%.

 

Completing college within four years can depend on factors beyond the school's responsibility - factors such as student finances and ability.  Nevertheless, it's smart to consider graduation rates in choosing what college to attend.

 

 

 

How To Raise Financially Literate Children

 

If everything your children ever learned about personal finances came from the mass media, they might think credit is a limitless resource and savings something you only find on a clearance rack. To fill in the gaps in their financial education, parents should teach their children the fundamentals of handling money. But where do you start? Perhaps begin with the following benchmarks of financial literacy.

 

* Time Value of Money

One of the most essential of all financial concepts is the time value of money. Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children grow a little older, they can learn the reverse lesson: how debt today results in accumulated interest costs down the road. To illustrate the point, show them a loan amortization schedule for a typical car or home loan. That will get their attention.

 

* Transactional Skills

In today's cashless society, your children will someday need to know how to write a check, use a debit or credit card, and how to bank online. When they are ready, consider setting aside a morning to take them to the bank, introduce them to a representative, and set up their first checking account and bank card under the tutelage of the banker. Children will appreciate this rite of passage to adulthood, and they will learn how to navigate an ATM or bank Web site the right way, not just the way you do it.

 

* Keeping Good Records

You might feel a little hypocritical when pointing out your children's recordkeeping shortcomings, but they probably need your help more than you think. Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. Developing a system for safely storing receipts, warranties, and other valuable papers is also important. When they begin driving, point out the location and importance of the vehicle proof of insurance and registration.

 

* Reflecting Your Values

Like any other area of life, you will naturally want to pass down truisms that have guided you financially. Succinct phrases often suit this purpose quite effectively, such as, "keep a little gas in the tank, a little money in the bank." Or, "don't place all your eggs in one basket." Sound corny? Perhaps. But such sayings today might just remind your children of something important tomorrow.

 

Those who value philanthropy should consider including their children in the charity selection process. Teach them why certain causes are important to you, and how you determine the amount to give. Perhaps you could give your children gifting discretion over a small sum of charitable dollars.

 

* Investments 101

The day will eventually come when your children will be ready to talk investments, retirement, and taxes. Feeling intimidated yet? There is no need to fear. Our firm can assist you and your children with these advanced topics. Being financially literate is not child's play. But then again, neither is being a parent.

 

 

 

 

 

Take a Break

 

O Say, Can you Sing Our National Anthem?

 

Surveys have shown that many Americans don’t know the words to our national anthem. The National Anthem Project is going to cities across the country to reteach the words to people.

 

If you tried to sing The Star Spangled Banner and got a bit muddled in the middle, here’s how the first stanza goes:

 

O say, can you see, by the dawn’s early light,

What so proudly we hailed at the twilight’s last gleaming?

Whose broad stripes and bright stars, through the perilous fight,

O’er the ramparts we watched, were so gallantly streaming?

And the rocket’s red glare, the bombs bursting in air,

Gave proof through the night that our flag was still there.

O say does that star spangled banner yet wave

O’er the land of the free, and the home of the brave?

 

Happy Independence Day! And if you would like to sing the other stanzas in our national anthem, go to www.thenationalanthemproject.org.

 

 

 

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The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.

Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Janell Israel & Associates and NPC are separate and unrelated companies.

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