Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
February 2010 Tax Newsletter
What's new in taxes:
New Law Provides Early Deduction For Haiti Relief Contributions
On January 22, President Obama signed a law that could give you an early tax deduction for contributions you make for earthquake relief in Haiti.
If you itemize deductions on your return, you may elect to take a charitable deduction on your 2009 return for contributions you made for qualified Haiti disaster relief. The contributions must have been made after January 11, 2010, and before March 1, 2010.
The law also provides another way to substantiate these charitable contributions. Normally, you would need a bank record or written communication from the charity to back up your deduction. However, under the new law if you make a monetary contribution through your cell phone via a text message, you may use your telephone bill to substantiate your contribution. The telephone bill must show the name of the charitable organization, the date of the contribution, and the amount of the contribution.
If you claim a Haiti relief deduction on your 2009 return, you may not also claim it on your 2010 return (which you will be filing in 2011). You should compare the tax benefit of a 2009 deduction or a 2010 deduction. For 2009, higher-income taxpayers have a limit on their total itemized deductions. This limit is eliminated for 2010, so the deduction may actually provide a bigger tax break if taken on your 2010 tax return.
If you need additional information or filing assistance, please contact our office.
Take a tax deduction for worthless stock
Financial firms, car manufacturers, clothing retailers. As an investor, you know businesses in these industries went through bankruptcy proceedings in recent months — events that are painful to remember if you owned stock in a now defunct company. Once the investment is worthless, you might prefer to forget about it.
Not so fast! Even if a stock has no value on a securities exchange, you may still get some benefit in the form of a tax deduction.
How it works. When you own securities, such as stocks, stock rights, or bonds that become completely worthless, you can claim a capital loss on your tax return. You report the loss in the year the investment loses all value, using the last day of the year as the disposal date no matter when the stock stopped trading. That's important because it affects whether you have a short- or long-term capital loss.
Example. Say you owned common stock in a company that finalized bankruptcy proceedings in July 2009. You include the loss on your 2009 return, with December 31, 2009 as the date of disposal.
What if you just realized a stock became worthless in a prior year, but you forgot to claim the loss? Under a special rule, you generally have up to seven years from the due date of your original return to file for a refund.
Determining when a stock is completely worthless is not always as clear-cut as you might think. Alternative methods, including a sale to your brokerage firm or abandonment of the investment, can also secure the loss.
Give us a call. We can help you review your portfolio to make sure you can qualify to take a deduction for losses on your income tax return.
What's New in Finances:
Tips To Get The Most From An IRA
* There is still time for a 2009 IRA. If you didn't make contributions to an IRA in 2009, you can still set up and contribute to an IRA for 2009. The deadline for doing so is April 15, 2010. An IRA is a great way to save for your retirement while you cut your current tax bill.
* If your 2009 IRA wasn't fully funded by December 31, 2009, and you make any IRA contributions prior to April 15, 2010, designate to the bank or trustee that these 2010 contributions are for 2009 (up to the maximum allowed). You can then deduct these amounts on your 2009 income tax return for a quicker tax benefit.
* Make your 2010 IRA contributions as early this year as possible to maximize the time you have for potential tax-deferred growth in the fund.
* Consider converting a traditional IRA to a Roth IRA this year. The previous rule that excluded taxpayers with incomes over $100,000 from doing a conversion to a Roth is eliminated as of January 1, 2010. You'll have to pay tax on the amount converted, but qualifying distributions from the Roth IRA are tax-free thereafter. Furthermore, you won't have to take annual distributions from your Roth IRA when you reach age 70½ if you don't want to. [To qualify for the tax free penalty free withdraw of earnings, a ROTH IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to $10,000 lifetime maximum). Before taking any specific action, be sure to consult with your tax professional.]
Do you own too much company stock?
Employees often have too much of their employer's company stock in their 401(k) or other retirement plan. Employees feel they know their company best, overlooking the risks of having too much of an investment in any one company, including their own.
What are some of the risks of loading up on your employer's stock?
* Tremendous bet in a "safe haven." Overweighting investment holdings in any company minimizes diversification, exposing your portfolio to increased downside return risk. The belief that employer shares are less risky is an illusion.
* Double whammy potential. No company is protected from economic downturns. If your employer's performance weakens, you may lose your income if you lose your job, as well as long-term earnings growth in your retirement portfolio from the company's market value loss.
* Lock-up periods. Some companies prohibit employees from converting the employer retirement match contributions in company stock into other investments until after a number of years. In this case, use your own contributions to diversify your holdings.
* Tendency to forget. As you move closer to retirement, you may forget the riskiness of your employer's stock to your portfolio. At the same time, contributions of company stock may be growing, based on higher benefit matches — just when portfolio reallocation is becoming more important with your shortening investment horizon.
Your goal should be to create a well-balanced portfolio that suits your age (investment horizon) and your risk tolerance. Call us for assistance in reviewing your retirement situation.
Take a Break
Geography Trivia
Check out these bits of geography trivia.
* More than half of the coastline of the entire United States is in Alaska.
* Canada has more lakes than the rest of the world combined.
* Siberia contains more than 25% of the world's forests.
* The water of Angel Falls in Venezuela (the world's highest waterfall) drops 3,212 feet, 15 times higher than Niagara Falls.
* More water flows over Niagara Falls every year than over any other falls on earth.
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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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