Broker Check

December 16, 2002

Politics Counts

        Do you think politics does not effect the stock market?  By April, 2001 the S & P had corrected 30% off its March, 2000 top, reasonable by bear standards.  It then shot up 22% in nine weeks, reasonable by bull standards. Many thought then that we were back in gear to the upside.

        But that rally came to an abrupt end the week of May, 2001 when VermontSenator James Jeffords quit the Republican Party and, in so doing, gave Senate control back to the Democrats.

        Since then the S & P lost another 32% and the NASDAQ another 42% bringing its loss since March, 2000 and through the beginning of November to 74%.

        Since the Republicans won the election in that they control both Houses of Congress, it seems likely that another bull market could be in the works. Investors Business Daily 11/4/02

Year End Tax Planning

        Now is a good time to think about your year-end tax planning-a time to take measures to minimize the tax you pay this year and next.  The rule of thumb is to review your tax situation two years at a time, in this case for 2002 and 2003. 
        Your portfolio takes on added importance this year in planning as the stock market limps toward its third consecutive year in the red.

        Take a look at how you stand.  Tally long term gains and losses, sales of securities and the like that you held for longer than 12 months.  This is your net long term gain or loss.  Do the same for sales of assets owned 12 months or less -- short term holdings.  Then combine the nets.

        If you have a long term gain, it is taxed at no more than 20%.  But if you have a net loss, $3000 of it can offset other income.  A Republican bill, in Congress to raise the $3,000 amount to $8,250 did not make it.  Maybe, as a result of the election, there may be a change in the future since the Republicans regained control of the Senate and, thereby, will control both houses of Congress next year.  But as for now, any net loss in excess of $3,000 must be carried over and used in 2003.

        Selling some losers by December 31 can pay off.  Losses can be used to offset other gains or simply to generate a deduction of up to $3000.  For individuals in the 27% tax bracket, losses are less valuable if they reduce long term gains because the losses offset income taxed at 20% instead of 27% or more.  And if the net loss exceeds $3,000, taxing additional short term gain as an offset is a sound tax strategy.

        The wash sale rule can bar deducting a loss on securities; it applies if you buy virtually identical securities within 30 days of sale.  If you sell a security for tax reasons but still want to keep owning it, you have to either wait more than 30 days or pick a different investment.

        The Holding period for securities usually begins when the trade occurs. The trade date also generally fixes the year for reporting the sales.

        Your liquid funds offer a few options for tax planning.  Shift income to next year by buying short term Treasuries or CDs as long as the next payout is not until 2003; thereby holding down your 2002 income.

        Use the opposite strategy in order to have your income taxed to you this year.

        Retirees can take larger IRA payouts if that is better taxwise for them.

        Professionals can delay year end billings in order to collect less in 2002. Or speed them up so more is taxed in 2002.

        Medical insurance for self-employeds is 70% deductible in 2002, next year, the write-off hits 100%.

        Up to $24,000 of the cost of equipment put into service in 2002 can be expensed in 2002.

        Increase your withholding if an underpayment penalty is looming.  In order to avoid the penalty, you must prepay 90% of the 2002 tax or 100% of the 2001 tax (112% if your AGI exceeds $150,000).  While estimated tax payments can not be back loaded unless you get much of your income late in the year, withheld taxes are treated as being paid evenly throughout the tax year.  Thus, extra withholding late in the year can overcome prior underpayments. Kiplinger Tax Letter 10/25/02

Productivity Growth Hits 30 Year High

        The nation’s productivity grew at an annual rate of 5.1% in the summer and 5.6% for the year ended September.  Productivity gains tend to be strong as the economy recovers but this was the best rate since 1973.

        Gains in productivity let the economy grow faster without triggering inflation. That, in turn, lets companies pay workers more without raising prices.

        It also means in an environment where revenue gains are hard to come by, profits can be made by reducing costs. Investors Business Daily 12/5/2002 p. A1

FINRA Fines American Express Financial Advisors  

       for failing to tell customers about the costs of buying some variable annuities and variable life insurance products.  The FINRA said American Express Financial Advisors broke the rules by failing to tell customers about the lack of tax related benefits or about the costs associated with buying some variable annuities.  Among findings from the FINRA review, which lasted several years, was that American Express reps failed to compare and contrast variable annuities with mutual funds when a customer might have needed mutual funds, instead. Investors Business Daily 12/5/2002 p. B14

E-mail Addresses 

       THIS IS THE LAST MONTHLY MAILING. Please call and give us your email address for our January  “emailing”.  Only those of you who have called to say you don’t have email will continue to receive the monthly newsletter via the US Postal Service. Call or email us today. 

        If you have any questions on these or any other tax, financial or legal matters, please call us.

        Remember, we’re here for you!! 

        Have a Healthy and Happy New Year!!