Legislator Brian Scavo fights character assassination

Thursday, January 22, 2015

tax increases that slam married couples


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Getting married involves major financial changes, and the U.S. tax system is one of the most important aspects of marital financial planning. Although some married couples benefit from tying the knot as far as their tax returns are concerned, many couples end up paying more than they would if they remained unmarried and each filed their own tax return.

This phenomenon is known as the marriage penalty, and it rears its ugly head in several parts of the tax laws. Let's take a look at some of the most common provisions in which married couples get the short end of the tax stick.

1. Two-Earner Couples Pay Higher Taxes Faster

Married couples have to combine their earnings in order to determine their gross income, and the tax brackets that apply to various income levels differ for married couples compared to single filers. For one-earner couples, the higher incomes for the brackets for a particular rate result in a marriage bonus. But for two-earner couples who earn roughly the same amount, the fact that the tax brackets for married filers at the 25 percent rate and above have income limits that less than double those of single filers means that they can end up paying extensive marriage penalties.

For instance, the 33 percent tax bracket kicks in for singles at $186,350 and for married couples at $226,850. So if two people earning $150,000 got married, they'd be well into the 33 percent bracket, even though when they were single, they were in the lower 28 percent bracket. For higher-income couples, the disparities are even more egregious, making bracket structure one of the biggest marriage-penalty provisions in the tax laws.

2. Standard Deductions Are Higher for Unmarried Parents

The tax bracket situation above gets even worse when kids enter the picture. Tax law allows one of the unmarried parents of a child to claim head of household status, which comes with an additional $2,900 standard deduction compared to singles. That means that unmarried parents can claim a total of $15,300 in standard deductions in 2014, compared to just $12,400 for married couples.

In addition, unmarried individuals have the option of having one parent itemize deductions while the other takes a standard deduction. Married couples, on the other hand, don't have that option. If one itemizes, the other has to as well -- even if that spouse has no itemized deductions at all.

3. New Surtax Rules Have Considerable Marriage Penalties

The Medicare and Net Investment Income surtaxes impose additional income taxes of 0.9 percent and 3.8 percent, respectively, on various types of income. The 0.9 percent Medicare tax applies to earnings above $200,000 for singles and $250,000 for married joint filers, while the 3.8 percent Net Investment Income provision imposes tax on interest, dividend, and other investment income to the extent that it falls above the same $200,000 and $250,000 income limits. Two individuals earning just under $200,000 wouldn't be subject to the provision at all, but if they married, they'd be well over the threshold and owe substantial amounts of tax.

4. Tax Benefit Phaseouts Can Hurt Couples More Quickly

Many favorable tax provisions have income limits above which their benefits slowly phase out and eventually disappear. In many cases, combining two individuals' incomes is enough to phase out beneficial tax breaks even if neither one alone would have been a problem.

One example involves the income level at which personal exemptions and itemized deductions begin to phase out. For singles, income above $250,000 triggers provisions to start phasing out those tax breaks, while married joint filers face a $300,000 limit. Again, the simplest example involves two people who each earn $200,000 -- alone, neither would have a problem, but together, they'd lose considerable amounts of their exemptions and deductions and thus pay a lot more in tax liability.


Motley Fool contributor Dan Caplinger never likes getting penalized. You can follow him on Twitter @DanCaplinger or on Google+. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

Monday, December 29, 2014


Hey Let's Get Rich


Don't buy this, buy that! 55 stocks to own in 2015


Sometimes the smartest actions are the ones you don’t take. That old dictum seems relevant at a moment when the markets are a paradox: Each new high only makes many veteran investors more nervous that disaster looms. Between lofty valuations, slowdowns from Europe to China, conflict from Ukraine to Syria, the end of the Fed’s bond-buying binge, and more, there are many reasons for caution. That’s why this year we decided to recommend not only investments to make but also ones to avoid. Smart defense is always wise, and the good news is that even in these precarious times, there are still opportunities to be found.
Small-cap stocks trade at a 25% premium to the large-caps of the S&P 500, implying they will underperform the index by that much, argues Doug Ramsey, chief investment officer of the Leuthold Group. Concurs Russ Koesterich, global chief investment strategist for BlackRock  BLK -0.01% : “Reasonable is the new cheap: What can you look for that has some cushion in it?” He adds that small companies also fare worse than bigger ones when interest rates rise, as is expected in the near future.
Citigroup’s chief U.S. equity strategist, ­Tobias Levkovich, argues that bigger is better right now—especially when large conglomerates are under pressure to buy back shares or spin off underperforming units. “We think some of the cheapest stocks in the market are the mega-caps, and we’re starting to see activists step in and force the unlocking of ­value,” he says. ETFs such as ­Vanguard Mega Cap provide broad exposure to the majors in the U.S.
BUY1-small capsSources for all graphics: Dealogic; Bloomberg; S&P Capital IQ; MSCI; Everest Capital
After peaking about four years ago, the commodity supercycle really is ending, many experts say. Weakening Chinese demand for raw materials has depressed prices on everything from nickel to soybeans to timber. And with the dollar rising, pros think materials stocks will get worse before they get better: “The valuations still look pretty high,” says Ramsey of the Leuthold Group. He advises waiting until they fall significantly before thinking about buying.
U.S. banks have shored up their balance sheets and are poised to cash in as the economy accelerates. But financial stocks are still marked down, says Federated Investors senior portfolio manager Lawrence Auriana, who oversees $8 billion. Auriana thinks J.P. Morgan Chase  JPM 0.11% , Capital One  COF -0.02% , and Wells Fargo  WFC -0.11% , which trade between 10 and 13 times forward earnings, should benefit as businesses borrow more money. And Auriana thinks the banks may finally be ready to put the years of regulatory fines and settlements behind them. Intrepid Capital CEO Mark Travis favors Oaktree  OAK 1.11% , the investment firm run by renowned bond manager Howard Marks. Travis thinks Oaktree has been undervalued—it sells at a P/E of 14.4. One element that is depressing the valuation: Oaktree owns a 20% stake in privately held bond manager DoubleLine, but carries the position on its books at $9 million. Some commentators have speculated it could be worth as much as $600 million. Oaktree also has a 5.3% dividend yield.
Things are looking up for banks these days. Federal restrictions on approving dividends and stock buybacks, among other things, have forced them to boost their liquidity. “Credit has been improving on a year-over-year basis while yields remain attractive,” says J.P. Morgan’s Loomis. Adds Mark Kiesel, chief investment officer of global credit for Pimco and Morningstar’s 2012 fixed-income manager of the year: “The U.S. banking industry may have $200 billion in pretax, pre-provision earnings, but the majority of that money has been staying within the bank over the past four to five years as retained earnings to build equity capital organically.” As a result, “bondholders are benefiting at the expense of equity holders.” Nearly 4% of Kiesel’s portfolio is invested in debt from Bank of America  BAC 0.00% , 3.4% in J.P. Morgan’s, and another 1.5% in Citigroup’s  C -0.20% . Loomis opts for preferred equity, which sits between debt and equity. The iShares U.S. Preferred Stock ETF has more than 60% of its assets in financial preferred stock. The ETF returned 12% in the past year.
Being nimble is important, says Arnott. “Mainstream markets are stretched, yields are low, valuations are high, the risk of correction or bear market is significant,” he says. “We like to have dry powder if an opportunity suddenly becomes newly cheap.” But cash is yielding essentially nothing.
Arnott suggests investing some cash in a long-short fund. Such a fund typically buys an equity portfolio or index it believes will beat the S&P 500—say, by 3%. The fund then mitigates risk by shorting the S&P 500. The manager is betting on the spread between the portfolio and the S&P. This strategy narrows the ability to make the full return when the market rises. But returns and losses are stuck within a narrow band too, so volatility drops. The Gateway A Fund is a great example. It has returned almost 5% in the past year, but its three-year volatility is roughly a third of the S&P’s.
BUY4-mergersSources for all graphics: Dealogic; Bloomberg; S&P Capital IQ; MSCI; Everest Capital
There’s another alternative for a small portion of your cash. GMO’s Inker predicts that investors can make about 5% over the next six months by investing in merger arbitrage. That means betting that the stock price of an acquired company will bump up a few points, and the price of the buyer may tick down, in between the announcement of a takeover and its consummation. Merger arbitrage dried up after the financial crisis because deals went away. Now deals are back. The returns “wouldn’t be exciting in a world filled with opportunities to get double-digit returns. But in a world where you aren’t getting paid for taking risk, you’re getting paid for taking risk here,” Inker says. Two possibilities: Westchester Capital’s Merger Fund (a large mutual fund) or the IQ Merger Arbitrage ETF, which specializes in investing in ­takeover targets.
Read more from the Fortune 2015 Investor’s Guide “Don’t Buy This, Buy That” series:
This story is from the December 22, 2014 issue of Fortune.


Sunday, November 30, 2014

Your 2014 taxes: Here's how to get ahead

Your 2014 taxes: Here's how to get ahead

Tax season is quickly approaching.Photograph by Bloomberg — Getty Images

There’s less than two months left before the year ends, and there are not a lot of changes set to take place.

Despite the fact that it feels like mid-February, from a financial perspective we’ve got another month to go until we turn the page into 2015. That’s enough time to do a little end of the year tax work. The good news, says Greg Rosica, Ernst & Young Tax Partner and a contributor to the EY Tax Guide 2015, is that there are not a whole lot of changes set to take place before the end of the year. “Things are fairly similar in 2015 as they were in 2014” he says. That can change. Sometimes last minute changes do come down the pike. But for now, your job is fairly predictable.
You should start, as you do every year, by getting the lay of the land. Job number one is to sit down and project your tax picture for the full 2014 year. “We’re in November so we have over 10 months of information,” Rosica says. “You can estimate the remaining.” Once you have that, look forward and do a 2015 – and perhaps even 2016 – income projection to try to understand the types of income you’re going to have. See if you’re subject to itemized deductions being phased out, if you’re in alternative minimum taxland, or if you’re subject to the new net investment income tax that went into effect on January 1, 2013 for individuals who have net investment income and modified adjusted gross income of $200,000 or more for singles, $250,000 or more for couples, he suggests. “Once you understand [your overall picture] you can start to look at ways to defer income, accelerate deductions and deflect income down to lower tax-bracket family members.” Specifically:
Consider deferring income. Generally, this is a valued strategy because it allows you to put off paying the taxes on whatever income you push into the next calendar year. Look at bonuses, if you have any flexibility as to when you earn or receive them. Similarly, with stock options, can you take them in January versus December? And if there are any assets you’re considering selling, you may want to wait until January if there will be a gain associated with the sale. Deferring doesn’t always make sense, Rosica notes: “Look at it from a big picture perspective. If you’re already in a fairly high [income] year and you’re going to try to have a lower one next year, you may not want to defer.”
Look at accelerating deductions. When it comes to real estate taxes, state income taxes, even charitable contributions, you want to consider if you get more benefits from paying them – and taking the commensurate tax deductions – this year versus next. By pushing payments into December, you can often lower your tax liability, but again, this is not a no-brainer, notes Melissa Labant, director of tax advocacy for the AICPA. “If you’re subject to the alternative minimum tax, you may not receive a benefit for certain deductions like real estate taxes and state income taxes. That’s why you want to have an income tax preparation prepared as soon as possible. It gives you the opportunity to look at income and expenses.”
Weigh deflecting income to lower tax bracket family members. If you have children who are in a lower tax bracket than you are, it may make sense to gift certain assets to them. They can then sell the assets and pay taxes on that sale at their lower rate. “There is still a zero tax bracket for capital gains, so there are real favorable results that can be achieved by looking at this,” Rosica says.
Max out retirement, college-saving contributions. If you haven’t maxed out your 401(k) contributions for the year (the limit on contributions is $17,500, $23,000 if you’re over 50), and you’re in a position to do so, get in touch with your benefits department pronto. (If you’re self-employed, you may be able to deduct much more — $52,000 or 25% of your compensation — by contributing to a SEP-IRA). Similarly, if you’ve established a 529 college savings plan for children or grandchildren, contributions should be made before the end of the year if you’re looking to capitalize on the break many states offer on state income taxes. And if, like me, you have a college-aged son or daughter who worked over the summer, consider helping them with a Roth IRA contribution. “Many people are concerned about giving their kids money that will impact their motivation,” Rosica says. This shouldn’t. “This is a way to help them start saving for retirement in an extremely tax-efficient way.”
Contribute (wisely) to charity. Finally, if you’re thinking about making year-end contributions to causes you believe in, think about giving appreciated stock that you’ve held for more than 12 months rather than cash. You get a deduction for the full value of the contribution and you don’t have to pay tax on the appreciation. “You can actually get more cash into the hands of the charity this way,” Labant says. It’s a gift that gives back.

Tuesday, October 28, 2014

Have You Heard of Dividend Al Capones

Have You Heard of

Dividend Al Capones?

The Wall Street Journal calls them
“mega-dividend payers”…

Find out how you can start collecting these big dividends – November 26th.

Fellow Investor,

Today, I'd like to introduce you to three unique companies I call Dividend Al Capones.

Like Capone, these American businesses control vast empires that generate extreme amounts of cash.

These three companies are so profitable… so rich…

that with the money they make in just one year: $27 billion in pure profits…

they could easily buy other companies – big, household names including Clorox, Alcoa, or Sony.

Of course, they wouldn't buy up companies like these… unless they were a threat.

You see, Dividend Al Capones make all their money without the tiniest of disruptions from competing businesses…

or even the U.S. Government.

These companies are deeply entrenched in our economy…

They hold monopolies that dominate entire sectors. 

And they do everything in their power to protect their money flows...

including greasing the Washington bureaucracy to make sure laws and court cases go their way.

At the end of the day, these powerful companies only answer to one group of people…

Their partners… the shareholders entitled to their fair share of the spoils… and big, generous dividends.

And they are big…

Last year alone, these three Dividend Al Capones paid out a whopping $16 billion to their investors

But not in the form of special one-time payments…

These cash cranking companies pay consistent dividends over and over again.

In fact, they've been doing it for decades.

Just have a look at the chart below…

It shows you exactly how well the first of our three Dividend Al Capone has rewarded its shareholders over the years:

Dividend Al Capone #1 has
Increased its Dividend 10-Fold!

Quarter after quarter… year after year… this company's investors receive bigger and bigger payouts…

Already this year, this company's hiked its dividend up 10%.

These large cash payouts are a big reason why an investment in these companies would far greater reward you than the vast majority of stocks…

And the chart below proves it.

It shows the performance of all three of our Dividend Al Capones over the past 2 years compared the market's return over the same time…

These 3 Dividend Al Capones DOUBLE
 returns of the S&P 500!

Now, I think you'll agree that this is exactly the kind of company you'll want to invest in.

The kind that pays ever-increasing dividends… allowing your investment to grow for years…

giving you much-needed income in retirement to cover the bills…

or padding your children or grandchildren's college funds with new money…

These are all admirable uses for your dividends, sure, but you could also have some fun too.

I like to put mine towards a membership at my local country club.

These dividends are big enough to pay for a year's worth of greens fees!

Which brings me to an important point…

It's the reason why I feel safe recommending these companies to you today…

You see, what separates these highly profitable companies from the rest of corporate America is exactly how they make their money.

Because they aren't like Apple…

They don't have to dazzle people with new and expensive products every three months or they'll go out of business.

They have a captive customer base to be sure… and their products are in high demand…

But they have what Apple doesn't… and that's market share.

They've cornered the market.

(Apple holds just over 30% of the smartphone market and 10% of the computer market.)

There's no competition… because they won't allow it.

They'll either undercut them in the marketplace… or simply buy them out and take their revenue streams for themselves.

The chart below demonstrates how the second of the three companies I've identified as a Dividend Al Capone has completely taken over its market…

Dividend Al Capone #2
Rakes in Billions… Uncontested.

Now, this cutthroat philosophy isn't just applied to where they sell their products…

They own everything along the supply chain.

The raw materials… the factories… the stores…

They make money on everything involved in making and selling their products – controlling every aspect of their businesses and squeezing every last dime out of them. 

This dedication to generating cash is why our third and final Dividend Al Capone has been able to pay shareholders big dividends for so long…

Dividend Al Capone #3 paid out
 $231.99 PER SHARE!

This company is so profitable… so dominant…

(last quarter it accounted for 77% of new business in its sector)

that it's paid out 487 consecutive dividends.

That's well over a century of dividends… and it's never missed one payment.

Not during the 2008 financial crisis… the deep recessions of the 1970s… or even the Great Depression…

It makes so much money… its business is so safe… that it always pays – no matter what!

Frankly, I don't know of a more reliable dividend-paying investment.

And the best part is…

This company and our other two Dividend Al Capones can continue to grow and generate exceptional returns – without requiring an excess of capital.

Let me explain…

These companies don't have to spend much (if anything at all)… on research and development… creating whole new products… or building expensive new factories.

Where a company like Facebook reinvests the bulk of its profits into growing its business and expanding…

These companies can invest just a fraction of their profits… mere blips on their balance sheets… and continue to grow exponentially – year after year.

"The ability for [Dividend Al Capones] to increase dividends
 from here remains very strong…"
 – Chris Sheldon, Chief Investment Officer, Dreyfus Funds, March 5, 2013

Now, with these companies performing so well… and having a documented history of rewarding shareholders… you might think they are commonly held.

But despite the fact that these are among the safest investments in the world… and offer ever-increasing dividends... people still don't own them.

Most investors are ignoring these high dividend companies!

According to a recent The Wall Street Journal poll, self-directed investors only have 8% of their portfolio allocated to these high yield companies.

Instead, they're opting for cash – with a 0% yield… foreign stocks… or ETFs.

No one is buying the safest and most reliable income opportunity available in the market today… it's truly shocking.

Now, I can't wait to give you the names and ticker symbols of all three of companies – plus all the important details including a full in-depth analysis…

including how much you can expect to collect in dividends in the months ahead.