Broker Check

                                                                                                                      March 31, 2005



Late Starter?

More Savings Is Best Bet

            You may be one of the many baby boomers who do not have enough saved for retirement.  You may be considering, as a solution, to invest aggressively in order to increase your potential returns.  In terms of investing, trying to use a more aggressive asset allocation will probably not make that big of a dent.  The solution, according to fund manager, T. Rowe Price, is to increase your contribution each year.  They maintain that shifting allocations only marginally improves your returns.  The key is how much you contribute each year and how long you have to let your money compound.

            The T. Rowe Price study was made with a few basic assumptions based on expected returns.  Stock results were figured at an annual 8% rate of return.  Bonds were calculated to gain 5.8% a year and annual inflation was assumed to be a steady 3%.

            The challenge is that people playing catch up can invest too aggressively.  When you go for a home run, you may strike out.  That can dig you into a deeper hole. Investors Business Daily 1/18/05 p.A14


IRS Sets Its Sights on the Web

            IRS auditors will target small web based firms to determine if there is a significant level of noncompliance.  Over the next two years, the IRS plans to audit about 1800 companies operating retail, auction, gambling and barter sites.  The program has the possibility of expanding if major noncompliance is found. Kiplinger Tax Letter 1/14/05


Terry Shiavo

            The lesson to be relearned here that should have been originally learned with Karen Ann Quinlan is to have a living will.

            Howard Lisch is an attorney and able to prepare a living will, health care proxy and even a will for you.


Hire Your Children

            to work in your business and you can save taxes.  Their pay must match their duties according to a recent Tax Court case.  A father hired his 5 year old and 10 year old to work in his vending business.  They did some small jobs such as helping to stock the candy machines and break down candy boxes.  The older one helped to count the money.  At year end, he paid them each a lump sum of $4,200 for their work but took their checks and deposited the funds back in his business.

            The Court said the children were overpaid for the work they did and their skinflint dad never relinquished control of the money.

            We suggest that had the father paid the salary on a weekly basis and deposited the funds in the children’s bank account or their own 529 account, there would have been a different result.

            Proprietors do get a payroll tax break on their kids’ wages.  There is no Social Security tax on the salary of children under the age of 18 who work for a parent’s sole proprietorship or a mother-father partnership.


Tax Favored Retirement Inducement Payments to Teachers

            A Sixth Circuit District Court has held that early retirement incentive payments made to tenured public school teachers were not FICA wages but rather were payments made for the surrender of contractual property rights.  This was similar to the result in the Eighth Circuit where payments to college or university professors in exchange for relinquishment of their tenure rights were not FICA wages.  The IRS has not agreed to the Eighth Circuit decision and has indicated it will continue to litigate.  Presumably, the IRS will appeal the Sixth Circuit decision. Klender et al v. US DC Mich 8/2/2004

            Presumably, these cases are applicable to any situation where the state considers the right of teachers tenure a property right such as Michigan and North Dakota.


            If you have any questions about the foregoing or any other financial matters, please call us.  If you want to read more, visit the AOHL Newsletter Archives at


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