Broker Check

                                                                                                                                          July 31, 2005

Financial Thoughts on the London Bombings

          As a financial advisor I often tell clients that "when a backpack explodes on a bus in Alberquerque, the stock market will go down".  The backpack bombings on the London Transport System were a grim reminder that the war on terror is still here and we cannot count on business always being done as usual.
          If you have been sufficiently unnerved by the recent bombings and fear the possible reaction of our stock market to another attack, call me for some suggestions to protect your principal while allowing for potential growth.

Is Your Child Working This Summer?

           If your child or grandchild is working this summer, consider making a ROTH IRA contribution for him or her.  You can contribute as much as $4,000 if the child earns that much.  That sum will be counted toward the $11,000 annual gift tax exclusion ($22,000 if your spouse agrees).
          The ROTH can be a nice retirement nest egg.  If a 15 year old has $4,000 in a ROTH that grows at 6% a year, he or she will have $73,000 at age 65 and $98,000 by age 70.  The amount becomes significantly larger if the child works for a few summers and contributions are made each year.
          Payouts from ROTH's after age 59 1/2 are tax free as well as payments used to pay for college and buying a first home (up to 10,000). The Kiplinger Tax Letter July 1, 2005

Tuition Costs For Children With Learning Problems

           can be deducted.  A couple's two children were diagnosed with learning disabilities, including dyslexia, caused by medical conditions.  They enrolled the kids in a school that gave specialized treatment to deal with these problems so the children could then move on to attend classes at a regular school.
          The IRS said in a private letter ruling, that the cost of the special education is a deductible medical expense.  The learning disabilities were diagnosed by a doctor to be a medical condition that required a program of remedial education.  Also, overcoming the disability was the main reason for their attendance.  The Kiplinger Tax Letter 6/17/05

No Precedent

          According to the Tax Court, three no change IRS Audit examinations meant nothing in a subsequent audit.  After a divorce, an ex-wife received half of her ex-husband's pension each year.  Even though the Form 1099 showed she received a taxable distribution, she noted on her tax return that the money was a tax free divorce settlement.  The IRS audited her three times on this issue and always let her off the hook.  On the fourth audit, the IRS decided that the distribution was fully taxable and the Tax Court agreed.  The Court said the IRS can correct its error at any time no matter what it OK'd before. Kelley TC Summary Opinion 2005-68

Do Not Use Your Regular Lawyer

          to be the qualified intermediary on a like-kind exchange.  According to the IRS, doing so will make the exchange taxable.  IRS regulations say that an attorney who performed services for the seller in the two years before the exchange cannot be a qualified intermediary.  Kiplinger Tax Letter. 6/3/05 Vol. 80 No.

           If you have any questions about the foregoing or any other financial matters, please call us.

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