Posts Tagged ‘spending’

Redefining risk in a down market

By

Jeffrey D. Carlson, CFP®

Has Wall Street hit rock bottom, and is the U.S. economy bound for recovery? Some claim the worst is over, which is of small comfort to many investors. Just as the stock market crash and Great Depression of 1929 had a lasting impact on those who lived through it, our current recession could change the way Americans earn, save, invest and spend money. The question is how will we improve our individual and shared financial future?

We all make choices. The tanking economy has triggered all kinds of responses. Some investors have simply pulled the plug on their remaining investments however; a mass exodus from the stock market will do more damage to the economy as a whole. The other problem with this approach is that once you sell a stock, you forfeit any opportunity to regain the value you lost. Some investors are paralyzed by fear and have not corrected or adjusted their financial position in the marketplace. While this is a common and natural response, it’s not necessarily in your best interest to stand still. Whether you ultimately move or adjust your stocks, it’s important to take time to evaluate your investment positions and make changes as you see fit, all the while proceeding with due caution.

Rebalance your holdings and diversify. The widespread nature of the downturn means almost every sector of the economy has been negatively affected. Those portfolios that were weighted heavily in risky investments generally suffered the largest losses. Many investors re-evaluated their risk tolerance. Low-yielding CDs, money market funds and Treasury Bills grew in popularity since they were considered less risky investments. Unfortunately, these options don’t provide much return. In fact, your assets may remain rather stagnant in these investment vehicles, but some argue that could be better than watching your savings drop in value.

Buy low if you can bear the risk. This suggestion may seem counterintuitive, but if you are in a position to accept risk, right now is a great time to invest. The market is full of bargains and there will be people who can profit from the market’s downfall. As the old adage goes, buy low and sell high. But as recent history shows, investing involves risks — more than many of us bargained for — and there are no guarantees.

Recoup some of your losses through tax breaks. With the failure of mortgage companies, banks, development firms, car manufacturers and other businesses, some investors have experienced losses that simply can’t be replaced. If you find yourself at ground zero (or below), keep in mind that you may be able to offset your losses in the form of tax breaks. Talk to your tax advisor to determine if you can deduct a portion of your losses from your taxable income.

Consult with a financial advisor. Now more than ever, investors can benefit from the insights of an experienced financial advisor who can help you sort through your options. As survivors of the recession, we can potentially work even harder, adjust our expectations and appreciate what we have. Much of the success or failure of the stock market relies on something intangible — buyer confidence. If we can find our way back to confident investing, we could be on our way to a stronger economy.

Jeffrey D. Carlson is a CERTIFIED FINANCIAL PLANNER practitioner™ who can be reached at (410) 740-8000, 10025 Governor Warfield Parkway, Suite 209, Columbia, MD 21044. Or visit www.ameripriseadvisors.com/jeffrey.d.carlson.

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Diversification helps you spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Diversification is not a guarantee of overall portfolio profit or protection against loss.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2010 Ameriprise Financial, Inc. All rights reserved.

Making every gift dollar count ~ Jeffrey D. Carlson, CFP®

www.ameripriseadvisors.com/jeffrey.d.carlson.

In challenging economic times, charitable organizations often suffer. More than ever, this is a time when every dollar you can spare for your favorite causes can make a significant difference.

As you study your budget to determine what you can afford to give, it is equally important to be aware of the rules surrounding charitable giving as it affects your tax return. You may find you can afford to give more if you take steps to maximize your own tax benefits. For most types of gifts, the laws are not complex, but in order to legitimately deduct all of your charitable donations, you want to make sure to follow them. In simple terms, there are two basic rules:

• Make sure the gift is made to a qualified organization. This typically includes religious, charitable, scientific, literary or educational organizations like United Way or the Red Cross. A list of charitable organizations recognized by the IRS (IRS publication 78) can be found at www.irs.gov.

• Make sure the donation is properly documented. The IRS requires that all cash donations claimed as deductions be backed by bank records (you’ll need to keep your pay stubs from the charity showing the gift) or written receipt provided by the recipient organization.

Different ways to give cash

It is possible to make charitable contributions part of your regular budget by having payroll deductions made (this is common for gifts to large organizations like United Way) or through an automatic withdrawal from your bank account. This allows you to maintain consistent giving regardless of other financial challenges or spending temptations you may encounter.

You can also make direct cash donations to specific organizations on a one-time basis. As long as the gift can be fully documented (with bank or credit card records or a receipt from the organization), it may qualify for a deduction. There can be limitations related to your adjusted gross income.

There are a variety of other ways to effectively donate cash as well. The key is to claim the actual cash value to the recipient organization. For example, if you buy a ticket for a charitable fundraising dinner, there is an underlying value you obtain by attending the event. That value cannot be deducted. The organization should identify what portion of the ticket price is deductible for charitable purposes.

Non-cash contributions

You can also donate stock or mutual fund shares. If you hold for more than one year and shares have appreciated in value, you can deduct fair market value in the shares. You avoid the taxable capital gain and the organization can receive a gift of greater value (the appreciated share price) and can sell the investment with no tax consequences. If, as is the case from the recent bear market, shares are worth less than you paid for them, you can only deduct the fair market value of the investment when you donated it.

The IRS is more demanding of truthful reporting for gifts of property. Any low-value clothing or household items you donate must be in “good used condition” or better in order for it to qualify as a deductible gift. In other words, you can’t simply drop off a box of worn-out household appliances at the Goodwill store and claim a deduction or loss for it. Therefore, it may be better to sell the depreciated stock and donate the proceeds in order to get the capital loss and the charitable deduction.

The IRS has strict rules about valuing and substantiating donated vehicles. For example, if a car is valued at more than $500, you generally will be required to deduct only the gross proceeds the charity obtained by selling the car, and more than blue-book value of the car. There are some exceptions, for example, if the organization makes significant use of the vehicle or it gives the car to a needy person, you then can deduct the fair market value.

IRA contributions

Individuals age 70-1/2 or older can have money sent directly from their IRA account to a charitable organization. From a tax standpoint, this is particularly beneficial to those with a traditional IRA, where distributions are subject to income tax. Money that goes directly from the IRA to the charity will not be taxable. It is one way for those with a traditional IRA to manage required minimum distributions if they wish to limit their own taxable income. Keep in mind that for 2009 only, required minimum distribution rules for IRAs have been waived.

Travel write-offs

Charities also have a big need for human resources. If you are able to donate time to a charity, you can claim a deduction for the miles you drove to perform your volunteer services (for a qualified organization). For 2008 and 2009 taxes, the allowable rate is $0.14/mile.

Consult your tax planner and financial advisor. Tax laws are constantly changing, so it’s wise to consult a tax expert before you make any large charitable contributions. A tax expert can identify if there are advantages to making a contribution in certain years and may advise you to accelerate or postpone your gift at year- end based on your tax situation. Your financial advisor can help you establish a financial plan that takes into account your charitable giving goals.

Jeffrey D. Carlson is a CERTIFIED FINANCIAL PLANNER practitioner™ who can be reached at (410) 740-8000, 10025 Governor Warfield Parkway, Suite 209, Columbia, MD 21044. Or visit www.ameripriseadvisors.com/jeffrey.d.carlson.

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2010 Ameriprise Financial, Inc. All rights reserved.