Broker Check

December 1, 1997

World Series Surprise Hit

          Tinker-to-Evers-to-Chance has been the slogan of a great infield. The Florida Marlins found an unheralded reserve infielder in Craig Counsell, a Fightin’ Irish graduate of Notre Dame; the alma mater of Carl Yastrzemski. We think this accounting major will find his degree useful in counting the riches of his new found exposure.

Year-End Tax Planning

          The time to arrange your affairs for maximum tax savings in 1997 is running down. Year-end tax planning, which is never easy, is more complicated this year because of the passage of the Taxpayer Relief Act of 1997.

          One of the most significant opportunities in preparing a year-end strategy this year is the new capital gains break in the ‘97 Tax Act. Effective for capital gains realized after May 6, 1997, there is a multiple-level system for taxation, ranging from 39.6% for short-term capital gains realized by those in the highest income tax bracket, down to 28%, 25%, 20%, 15%, and 10% for long-term capital gains, depending on both your regular income tax bracket and how long you’ve held the asset before its sale. In addition, there is a new (and rather complicated) set of rules for determining how capital losses offset gains. Yet, within these complex provisions, are opportunities to lower your overall tax on capital gains by carefully timing sales between 1997 and 1998. For example, postponing a sale into 1998 can mean an additional 8% tax break if the asset’s overall holding period is extended beyond 18 months. And taking losses now, instead of next year, may entitle you to offset gains which would otherwise be taxed at a higher level.

          In order to position yourself to take full advantage of many of the other tax breaks in the Taxpayer Relief Act, you may need to consider year-end maneuvers that accelerate income into 1997 or postpone deductions to 1998. The new child credit, the education credits and the “Roth” individual retirement accounts--all effective in 1998--impose different adjusted gross income limits that will disqualify certain taxpayers with “too much” income in 1998. Moving some of that income into 1997 may make sense. There are other year-end considerations in qualifying for ‘97 Tax Act benefits such as getting ready for the one-time 1998 rollover rules for the new Roth IRAs which will entitle rollover income to a special 4-year income averaging break.

          Nuts-and-bolts year-end tax planning can’t be ignored either. As always, changes in your personal situation can affect your year-end tax planning decisions. A change in filing status or employment status can also make a significant year-to-year tax difference. Or you may be close to qualifying for a medical expense deduction, and might want to accelerate some treatment or elective procedures into this year to put you over the top. Inaction might mean no deduction at all.

          Business owners who set up qualified retirement plans before year-end generally can make deductible contributions for the full 1997 tax year. In other situations, they may want to amend or terminate their plans. Some businesses should take a second look at their tax accounting methods, particularly in light of tax law changes in the long-term contract method and inventory shrinkage rules.

          We’re ready to help you plan your year-end personal, investment, and business affairs for maximum tax benefit. If you have any questions about year-end tax planning in light of the ‘97 Taxpayer Relief Act, or would like to make an appointment, please do not hesitate to call.

Charitable Contribution Receipt

          Since the end of the year is approaching as well as the holiday season many of us think this is the time to be charitable and hence we make many of our donations during this time of year. It is important when making these contributions to get a receipt or some other form of verification that the donation actually occurred and for what amount. Many charities accept credit cards and most accept checks. Try not to give cash since it is hard to get a receipt. Even if you do get a cash receipt, you might lose it.

          To underscore the importance of cash receipts, consider that the oldest receipt for a charitable donation was just discovered. The contribution, made almost 2800 years ago, was for three shekels and was made to Solomon’s Temple. It is the only physical corroboration that Solomon’s Temple existed. It included who the contribution was made to and the amount. But the IRS today would insist on who the donation was from and the date. The donation receipt which was on a piece of ancient pottery read,” pursuant to the order to you of Ashyahu the king to give by the hand of Zecharyahu silver of Tarshish to the House of Yahweh, Three Shekels.

Millennium Marketing

          While we are approaching year end planning, let’s talk instead about the approaching end of the millennium. For most of the latter half of the 20th century the year 2000 has served as a symbol of the future. It’s been so suggestive of things to come that countless studies, reports and conferences have used it as a central theme. There are certain benchmark events that seem to cause people to take stock of their lives. Often they are milestones, like turning 30 or 50 or seeing kids getting close to college years. The year 2000 might have that kind of impact on people. We believe you should review your business plan and see if you can incorporate this into your marketing plan.


          The year 2000 (y2k) computer problem can be explained so easily that a child can understand it, but that simplicity masks the complexity and enormity of the issue for most of us. For example, many people who understand the problem at its basic level do not know that the y2k issue-
                • Is not just a main frame COBOL problem 
                • Is not just a software problem 
                • Is not just a Fortune 500 company problem 

          The y2k problem shows up in many types of hardware: mainframes, client/server and PCs. It occurs in both packaged and custom-designed software. It appears in embedded systems such as building security, climate control, manufacturing process control, appliances, telephone systems, etc. Just about every business, large and small will be affected.

          It has not been necessary to wait until 1999 to see what will happen. Many companies’ y2k woes have already started: 
               • Trouble with five year forecasting systems 
               • Newsweek (6/2/97) reported that a perfectly good corned beef           
                  inventory was destroyed because a Marks & Spencer computer
                  thought the corned beef was nearly one hundred years old
               • A state prison computer ordered an early release of some inmates
                 because it thought they had completed their sentences.

          One of the first widespread y2k issues for many businesses will be their possible inability to take credit cards with a “00” expiration date. As you can see, the issue is upon us. Think as to how is problem can affect you.