How State and Local Governments Can Help You at Tax Time

No one likes to pay taxes. Well, almost no one: 3% of Americans think the amount they pay in income taxes is too low. Far more common is the belief that taxes are too high, a view held by almost half of Americans.1

Unfortunately, most people have limited options for significantly reducing their tax burdens. And that may be why municipal bonds are so popular. It has been estimated that municipal bonds save high-income American bond investors around $20 billion a year in federal income taxes.2

When Governments Owe You
Municipal bonds are debt obligations issued by state and local government entities. With a few exceptions, they pay interest that is not subject to federal income tax. Municipal bonds typically fall into one of two categories.

General obligation bonds are issued to raise capital immediately, usually to cover expenses or refinance public debt. They are commonly repaid through taxes levied by the issuing agency.

Revenue bonds are issued to fund specific revenue-generating projects, such as sports stadiums, redevelopment projects, and toll roads. Revenue bonds are typically repaid from the revenues generated by the finished projects.

Because municipal bonds offer interest payments that are typically free of federal income tax, they tend to pay lower interest rates than those offered by taxable bonds. As a result, the tax benefits offered by municipal bonds tend to be more valuable to people in higher income tax brackets.

If a bond was issued by a municipality outside the state in which you reside, the interest could be subject to state and local income taxes. If you sell a municipal bond at a profit, you could incur capital gains taxes. Some municipal bond interest could be subject to the federal alternative minimum tax. The principal value of bonds may fluctuate with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

Municipal bonds offer an appealing opportunity to generate income that is free of federal income taxes, but they are not for everyone. Call  to discuss the tax implications of your current investing strategy.

1) Gallup, 2010
2) TheBigMoney.com, April 12, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

For more information call your Naperville CPA and Naperville Financial Services professionals at LewisCPA.us

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Finding Your Balance

As an investor, you hardly need to be reminded about market volatility, having lived it for the past several years. Even though the S&P 500 had an 8.2% average annual return from 1990 to 2009, the index has still seen some remarkable gains and losses.
One way to help manage volatility is through asset allocation. But this process of determining the appropriate proportion of assets based on your financial goals, risk tolerance, and time horizon is not a set-it-and-forget-it strategy. Once you have implemented your preferred asset allocation, it’s time to stick to your strategy.

Over time, the performance of the different investments in your portfolio will invariably cause your allocation to change. Taking time to periodically rebalance — that is, to buy or sell investments to bring your asset mix in line with your target allocation — may help you be in a better position to pursue your long-term goals.

Rebalancing can help you stick to your investment strategy. It may also help you avoid the pitfalls of market timing, chasing performance, and overexposing your portfolio to one asset class.

In the process of rebalancing your portfolio, you may incur commission costs as well as taxes if you sell investments for a profit. Therefore, it may not be a good idea to rebalance too frequently. Generally, once a year should suffice. However, you may also want to rebalance whenever the percentage of an asset class rises above a certain threshold, say 5% to 10% over your preferred asset allocation, or if your risk tolerance changes.

Asset allocation does not guarantee against investment loss. It is a method used to help manage investment risk.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

More info? Contact a preferred Naperville Investment Advisor, Platinum Financial at 630-548-9600

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Are Higher Taxes Ahead?

Evidence is mounting that high-income taxpayers will face higher taxes in the near future. Sweeping tax reforms enacted in 2001 and 2003 — which reduced tax rates on ordinary income, dividends, and capital gains for most U.S. taxpayers — are set to expire at the end of 2010, which means many Americans could face higher taxes starting in 2011.1
And beginning in 2013, single filers with modified adjusted gross incomes exceeding $200,000 ($250,000 for joint filers) will face a 3.8% Medicare unearned income tax on net investment income and a 0.9% Medicare payroll tax on earned income exceeding these thresholds.2

If you are concerned about how these and other potential taxes could affect you, the following ideas may position your portfolio to help reduce the effects of anticipated tax increases.

Take Gains Wisely
Through 2010, long-term capital gains will be taxed at a relatively low 15% maximum tax rate. With that in mind, you may want to evaluate your holdings that have appreciated. Also, this may be an opportune time to rebalance your portfolio if it has drifted from its target asset allocation. Asset allocation does not guarantee against investment loss; it is a method used to help manage investment risk.


Invest Efficiently
If your mutual fund gains are causing unintended tax consequences, it might be time to consider mutual funds that strive to control tax ramifications, usually through lower turnover. Tax-efficient mutual funds may begin to attract wider interest if the capital gains tax rate climbs as expected.

Opportunity to Convert
If you believe tax rates will continue to increase in the coming years, you may want to consider converting tax-deferred assets to a Roth IRA. Although there are income restrictions on contributing to a Roth IRA, there are no income restrictions on converting.

You must pay income taxes on tax-deferred assets converted to a Roth IRA, but qualified distributions of any future investment gains will be free of federal income tax.3 To qualify for a tax-free and penalty-free withdrawal of earnings (and assets converted to a Roth), Roth IRA distributions must meet the five-year holding requirement and take place after age 59½, or as a result of the owner’s death, disability, or a first-time home purchase ($10,000 lifetime maximum).

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Understanding current tax rates is an important first step in understanding your tax situation. Before you take any specific action, be sure to consult with your tax professional.

1) CNNMoney, May 4, 2010
2) Reuters, March 22, 2010
3) Income taxes are payable in the year of the Roth IRA conversion. For 2010 conversions only, the taxes can be deferred until 2011 and 2012, with half payable each year.

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The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

For Naperville Tax Preparation Services, please consult LewisCPA.us or contact Susan S. Lewis.

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Tips For Fighting Inflation

Federal Reserve Chairman Ben Bernanke told Congress earlier this year that he does not see inflation becoming a major threat to the U.S. economy anytime soon.1 But as more than one pundit has pointed out, the Fed doesn’t exactly have a stellar record of anticipating crises. Some critics believe that the central bank was caught unaware by the financial crisis that began in 2008.
Although inflation has been fairly quiet over the past few years, it remains a perennial concern for investors because it reduces the value of money over time. When inflation is low, it just means the purchasing power of a dollar is eroding at a rate that is slow enough not to cause widespread concern.

Fortunately, the U.S. Treasury issues a form of debt that could help protect investors from the effects of inflation. If you are concerned about how inflation is affecting your portfolio, you may want to consider Treasury Inflation-Protected Securities (TIPS).

Inflating Principal
The principal value of TIPS increases as the Consumer Price Index (a popular measure of inflation) rises, and the value decreases when the CPI falls. This, in turn, can increase or decrease your yield. TIPS make interest payments twice a year and return the greater of either the original or the inflation-adjusted principal at maturity.


One advantage is that as the principal amount grows, so do the interest payments, meaning that the income generated by TIPS has the potential to rise over time. One disadvantage is that unless you own TIPS in a tax-deferred account, you must pay federal income tax on the income plus any increase in principal, even though you won’t receive any accrued principal until the bond matures.

U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of TIPS fluctuates with changes in market conditions. If not held to maturity, TIPS may be worth more or less than their original value.

Inflation appears to be under control at the moment, but over long periods even a modest inflation rate can significantly reduce purchasing power. We can help you decide whether inflation-fighting TIPS may be a valuable addition to your portfolio.

1) The Wall Street Journal, April 15, 2010

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The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.

For more information regarding inflation-fighting TIPS, contact your Naperville Brokerage Services team at Platinum Financial.

Looking for Naperville Tax Preparation?

When we talk about Naperville tax preparation, the thought which strikes our mind is the filing of documents and writing the dreaded check. I know the the words “tax preparation” and “annual tax return” are like nails on a chalkboard to some but your in luck… With the help of an accountant, tax preparation can make its way off your list of taboo words and become quick and painless by using licensed accounting firms in Naperville.

Interestingly enough, using a licensed accounting firm is becoming more popular than ever before. This is due to the ever changing tax laws and the desire to businesses and individuals to mitigate their tax expenses. In fact, according to the 2007 statistics about 59.2% people opted for outside tax preparations while rest of them did tax preparations themselves.

The main reason why people opt for using an accountant is the lack of knowledge or the chances of errors which one might produce. By using an accounting firm, you are not only maximizing your deductions, you are gaining an extra barrier of protection in case of an audit. More and more consumers realize that the small fee associated with professional tax preparation is well worth the added protection and deductions they can receive.

When choosing tax preparation services, make sure that your tax preparer is certified by the state. Additionally, an experienced and genuine preparer will always ask for proof or receipts for your transactions and financial activities in the financial year. So be prepared!

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