Broker Check

September 21, 2005

Back To School I

          Various education expenses did not qualify for exception to IRA early withdrawal penalty.  A recent Tax Court summary opinion has concluded that amounts paid for a computer, housewares, appliances, furniture, bedding and books in connection with the taxpayers' child's enrollment at a university did not qualify for the education expense exception to the IRA early penalty because they were not shown to be required for the education.  The amount paid for books also failed to qualify because they were not substantiated.  The Tax Court concluded that a computer could qualify as equipment required for enrollment at an eligible institution but the taxpayers in this instance did not show the computer was required for the child's attendance.  There were three or four computers available in the library for the 15,000 students at the university.  The Court stated that the university did not require the purchase of a computer. Gorski TC Summary Opinion 2005-112
          Note that the purchase of a computer from distributions from a Coverdell ESA would be tax free.

Back To School II

          While you are waiting for the school bus to pick up the kids, you should be thinking whether you can afford to send them off to college.Call us to set up a Section 529 College Savings Plan.  Save on a monthly basis with direct trransfer from your checking account.
          Start saving today!
          See my website to view the college savings calculator.

Education Takes a Backseat

          According to a recent survey by Allstate Insurance Company, 38% of parents with children under 18 years of age are not putting money aside for college tuition.  Are you?  Journal of Accountancy 6/05 p.24

Poor in Judgment

          New poverty data is out and there will be much talk about the widening gulf between rich and poor.  Left unsaid will be that the poor rival the rich in the entertainment they own.  More than 34% of poor own two color TVs, compared with 33% of the rich. 25% of poor households have a large screen TV vs. 40% of rich households.  Nearly 65% of the poor have cable or satellite hook ups vs. 86% of the rich.
          What will also be left unsaid is that 20% of the poor own a PC and just 15% have Internet access vs. 83% and 74% for the rich.  It is clear to see that the poor put a higher value on entertainment than information.  The problem is not a case of information haves and have nots but between information haves and will nots.  The poor simply choose the wrong tools for success.  They could easily buy a basic computer with Internet access for what they pay for a big screen TV.  Investors Business Daily 8/31/05 p. A10

High Cost of NY Gas

          The American Petroleum Institute ranked New York number one in the total federal, state and local taxes on a gallon of gasoline.  They imposed 58 cents per gallon.  Hawaii was number two at 57.2 cents.  New Jersey is a low tax bite at about 31 cents per gallon.  The U.S. mean is 44 cents.  Investors Business Daily 8/31/05 p.A12

IRS Raises Mileage Rate

          In an unprecedented step, the IRS temporarily raised the optional business mileage rate in mid-year to 48.5 cents per mile for those miles driven between September 1 and December 31, 2005.  The rate for 2006 will be determined in December.
          The medical and moving rate rose 7 cents to 22 cents per mile and the charitable rate, which is set by statute and not the IRS, remains at 14 cents.

Market Opportunity?

          "America's economy is, in most respects, stronger that it has been in years", wrote Sen. Jon Kyl, R-Ariz., in a column in August for "So why are Americans pessimistic about it?"  Economist Lawrence Kudlow wonders the same thing calling it "one of the enduring political mysteries of our time".  He cites an ever growing list of "splendid" economic reports.  But, in one poll, he notes, consumer and investor confidences were down 15% from late 2003, when things were not nearly as good.
          Both Kudlow and Kyl finger the more obvious culprits: high gas prices, nonstop Fed tightening, worries about the war in Iraq and fears about a "housing bubble".  Kudlow also cites a seeming unwillingness of the White House to "communicate" and market an economic recovery message. According to Investor Business Daily, still another reason may be the way the media delivers the message.  In a poll conducted by IBD, they determined the readers of newspapers and news magazines had the most bearish outlook on the economy.
          If what Kudlow and Kyl say is true (and that view is shared by most economists), then there is a disconnect between the stock market's performance and reality.  That disconnect may represent an opportunity to make money in the stock market.
          I remind you that one should buy low (when the market is out of favor) and sell high (when the market is in favor).  Investors Business Daily 8/26/05 p. A12

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