November 18, 1998

Clinton and Congress Agree

          on the budget. Even though the President tried to bust the budget with additional “emergency spending” for education, the Congress prostrated themselves to his demands in order to get home to electioneer. Self-employed were big winners in the final agreement as they will be able to deduct 60% of health insurance premiums in 1999 up from 45%. Will rise to 100% in 2003, up from 2007.

          Middle income individuals lost out as Clinton axed larger exemptions from estate tax, tax relief for married taxpayers, an exclusion for $400 of investment income, and a $1,500 increase in the social security earnings limit from $15,500 to $17,000 in 1999. But, left in was a provision to allow the child care credit, adoption credit and HOPE scholarship credit to be used against the Alternative Minimum Tax.

Year-end Tax Planning - Mutual Funds

          If you’re thinking of buying - there could be a hefty tax burden on gains that have not been paid out yet - gains taken earlier this year when the stock market was much higher. It may be wise to delay buying shares until after the record date of the payout - usually in mid-December. Otherwise you will be taxed on the payout this year, perhaps, with no real increase in your net worth.

          If you own funds that are down in value - selling may be in order, especially before the record date of the next dividend-or gains payout. You could be in line for a hefty payout of capital gains later this year, gains incurred earlier in ‘98 and still have a paper loss in the funds. A better move in this instance might be to sell the shares before the payout date and if you have a loss, use it to offset gains elsewhere in the portfolio. If you like the fund, you can buy it back, but wait at least thirty days and until after the record date for distributing the capital gains for ‘98.

ROTH Conversion IRA Reminder

          Your adjusted gross income cannot exceed $100,000 for 1998 to switch a traditional IRA to a ROTH IRA.

Home Office Update

          In a recent Tax Court decision, a fisherman could not deduct the cost of an office in his home. He used a room in his basement to make telephone calls to plan fishing trips and set up boat charters. He also stored fishing gear and records in a separate shed. The Court said his main place of business was on the water, not in the home office; that was where he made his money.

          But the result would probably be different in 1999. The cost of the home office will become deductible if the office is used exclusively for key managerial functions and there is no other place to perform them. Of course, the office expenses must still be properly substantiated.

Milton Greenspan

          was the real “stealth” candidate of this recent election. If the Wall Street correction continued for a couple of more weeks because the Federal Reserve did not lower interest rates twice, more incumbents would have been looking for new careers.

          The majority of Americans are invested in America via their own portfolios or their 401(k) plans. When they feel financially comfortable they are complacent. This was the real message of the election. Not Monica, not taxes, not social security or education.

More Thoughts on the Election

          The defeat of Senator D’Amato spells the end of legislation to reform the banking system, including allowing banks to compete with brokerage firms. Senator Gramm, a Texan populist, becomes the new Chairman of the Senate Banking Committee. You might want to rethink the purchase of banking stocks or bank mutual funds.

          For the first time in over 70 years the Republicans have been able to hold majorities in Congress for three consecutive sessions, although that hold was somewhat diminished. The American people said that they like a divided government with the legislative branch in one party’s hands and the Executive branch in another. This diminished majority and the fact that extremists on both ends tended to be defeated will provide fertile ground for legislation with more consensus. However, gridlock should be the expected norm and that is good for business; hence the stock market will continue to move upward and continue the long term upward trend.

Financial Advice 

          Audrey and I have for many years used a Mastercard credit card which not only has no annual fee but rewards you with $50 U.S. Savings Bonds for your usage. For every $2,500 charged you will receive a $50 savings bond (1% of the amount charged). For further information call 1-800-EDVANCE.

          If you have any questions about these or any other financial matters, please call me.