One of the most Amazing Gift Catalogues in the World!

Heifer International's mission is to work with communities to end hunger and poverty and care for the Earth.

It all started with a cow.

Moved by the plight of orphans and refugees of the Spanish Civil War as he ladled out meager rations of powdered milk, Dan West, an Indiana farmer, volunteer relief worker and Church of the Brethren member, grasped that the people needed "a cow, not a cup"—cows that could produce milk so families would not have to depend on temporary aid. From that simple idea, Heifer International was born.

In 1944, the first cows sent abroad were donated by West's neighbors and distributed throughout Europe following World War II. More than 67 years later, Heifer has expanded its mission, just as it expanded to 30 types of animals it now provides—from goats, geese and guinea pigs to bees, silkworms and water buffalo.
 

Through their Web site Catalogue you can reach out and help change the face of the world through changing the human experience.
 

(Charity Navigator Rating for Heifer Int’l)

Social Security Update

Social Security Changes Statement Policy

On October 1, 2012, the Social Security Administration (SSA) took the following actions:

• Suspended all paper mailings of Social Security Statements, including mailings to people 60 and older and individuals age 25
  
• Suspended all on-request mailings and instructed SSA personnel to discontinue the distribution of the Form SSA-7004 to request a Statement

REMINDER: The SSA launched online statements earlier this year that all individuals should be able to access through MySocialSecurity.

We encourage you to use this opportunity to reach out to your clients who are approaching retirement to discuss this new development. A broad announcement from the SSA may not be made.

These changes were made due to the current budget situation. Prior to this change, workers and former workers age 60 or older who were not receiving benefits were sent Statements about three months prior to their birthdays. Additionally, workers who were approaching their 25th birthday were sent Statements about three months prior to their birthdays.

In the absence of Statements, you should download an Online Statement at MySocialSecurity at least annually. This online statement will provide the benefit estimates needed to run the Social Security Optimizer which aids us in creating an appropriate collection strategy for you as a planning client.

The Leak in Your (Information) Boat:

The latest press on John McAfee not withstanding (and no he is no longer affiliated with the data security firm that bears his name), the newest on-line scams seem to simply be more sophisticated versions of older scams. Tailored for the Christmas shopping season, tailored to look like the real deal – beware! The linked article: The 12 Cyber Scams of Christmas, by McAfee is a good guide to avoiding reindeer road apples this season.

Want A Quick Intro Into Medicare?

Below is a quick summary of choices for Medicare coverage.

 

 

The Cost of Living Longer

One of the leading insurers of Long Term Care has come out with their annual cost survey. An interesting picture of what the average cost of an assisted living facility by state is shown below.  

The full article is from the Wall Street Journal here. 

Retiring and Living Abroad

Thinking about retiring to your favorite travel destination? How much money will that cost you and what does that even look like? Well, here is an article to keep you up to date on the cost involved with retiring and living abroad. Although, this may be an extreme take on this type of retirement there is something to be said about living in an entirely different culture.

Click here to see the wall street journal article.

Visual Guide To The Federal Reserve

Credit to Mint.com and Wall Stats for the following “wall chart” posted to Barry Ritholtz’ blog site The Big Picture. The graphic you will see by clicking on the below link helps bring some clarity to the purpose and workings of the Federal Reserve which has so oft been in the news the past few years.

 

Click here for the graphic on The Big Picture blog.

Medicare Fact Sheet - A Quick Overview

Medicare is a federal health insurance program that covers certain medical services and supplies in hospitals and doctors’ offices. The insurance is provided for U.S. citizens and permanent residents. Its beneficiaries must meet one or more specific criteria and make specific coverage elections. These elections may be changes during the annual open enrollment period from mid-October to early December and under specific alternate circumstances.

Click here to get the Medicare Fact Sheet

Correcting Common Medicaid Misconceptions

Medicaid planning is an extremely complex area of law, and it is no surprise that there are so many misunderstandings about how rules are applied. The following summary is intended to help you avoid falling into common Medicaid planning traps by correcting some popular misconceptions.

Click here for the Correcting Common Medicaid Misconceptions Article

 

Caring For An Aging Parent

Many baby boomers belong to the “Sandwich Generation”—the growing group of people who care for their aging parents while supporting their own children. According to a 2008 USA Today/Gallup poll, 41 percent of baby boomers who have a living parent assist with the parent’s personal care, financial matters, or both. Another 37 percent expect to take on the care of their parents in the future. If you plan to be involved in an elderly parent’s care, it’s important to understand the array of issues that come into play.

(for the full article with resources click here)

What Can I Do With That 529 Income?

We get this question every so often. Clients not sure what qualifies as a tax or penalty free withdrawal from a 529 plan. Hopefully we can shed some light on this.

The following IRS web site gives more details:

http://www.irs.gov/publications/p970/ch08.html#en_US_2011_publink1000178531

Although the material is not very exciting, the language therein includes the following:

Qualified education expenses. These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. See Half-time student, later.

1) The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution.

            (a) Tuition and fees.

            (b) Books, supplies, and equipment.

 

 

2) Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution.

3) Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. 

           (a) The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

           (b) The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

You will need to contact the eligible educational institution for qualified room and board costs.

So, more simply it appears that:

• Amount for food (inc. groceries and dining out) within the qualified board cost for that college/university. Any amount above that for the enrolled term is not a tax free withdrawal,
• Fraternity housing yes within the qualified room costs for the school, but not for any other fraternity expenses (dues, party funds, etc.,)
• Travel is not on the list (not for travel to and from the university in any fashion) excepting as specifically required by a course the student is taking or to address the needs of a “special needs” beneficiary (student). This exclusion applies to gasoline and all related auto expenses.
• Utilities fall within rent. If the rent and utilities combined are less than the qualified room costs for the college/university the utilities can be reimbursed from the plan assets
• Furniture is not going to make the qualified costs list but sundries may fall into groceries spending (if deminimus) and thus may be covered)

The fees, expenses and features of 529 plans can vary from state to state.  529 plans involve investment risk, including the possible loss of funds.  There is no guarantee a college-funding goal will be met.  Earnings must be used to pay for qualified higher education expenses to be federally tax-free.  The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10% penalty.  By investing in a Plan outside your State of residence, you may lose any State tax benefits.  529 plans are subject to enrollment, maintenance and administration/management fees and expenses.

IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Who’s Who in the S&P 500: see it in one Interactive Graphic

While we are sorry to see Smart Money fade away (reports indicate the print version of this consumer retail financial magazine will be suspended) we must admit that like its counterparts in this industry the “advice” therein was often too vague or circumstance specific (if not downright incorrect) to be helpful. All the same, they did offer some interesting pictures of the world of finance.

The below is a graphic that acts as a link. Double click on the graphic and you will be transported to the Smart Money website with this interactive graphic. It can help you “see” a who’s who of the S&P 500 index, an index of the 500 largest publicly traded US businesses:

·         Who is the biggest company represented in the S&P 500 index (whose stock value change has the biggest affect on the index)

·         Who are the big firms in each sector of the S&P 500

·         How big is each sector relative to the others

·         Which firms overall and by sector have been growing and which shrinking based on total stock value

So How Good An “Investment” is That Long Term Care Policy?

Remembering that we hope to live a long life and never really need the benefit of the coverage it is still a fantastic risk management tool. In recent years we have seen insurance companies either discontinue offering new applicants coverage or offer it at significantly higher rates. In a nutshell, the product appears to have been underpriced – and quite likely may still be.

Partly due to improved longevity, and partly due to low return on investments (principally bonds) that insurance companies expect, another Long Term Care insurer has announced another price adjustments to its long-term care product. These changes affect only new applicants and not existing policy holders. This has been a common trend among Long Term Care insurers and the below changes being made by one major insurer are quite typical of what we see from others.

For this insurer the following changes will take effect on September 25, 2012 in all but 15 states (expect the changes to be rolled out in the remaining 15 states in a matter of months):

• A 15-percent increase on all premium rates (new business only)
• Preferred health discount, applicable to single applicants, reduced from 15 percent to 10 percent (This discount is already 10 percent for couples, and that rate will not change.)
• Couples discount reduced:
  

   
• Both spouses approved: Discount will be 20 percent instead of 30 percent
• Married spouse not applying: Discount will be 10 percent instead of 15 percent

Additional changes— On September 25, the following changes will take effect in all states except New York:

• Sale of limited pay options (i.e., single-pay, 10-pay, and pay-to-65) suspended
• Sale of the lifetime (unlimited) benefit period suspended

The theme here is higher pricing by as much as 31% through premium increases and the reduction in discounts as well as more restrictive coverage and payment options. This price increase is on top of the higher cost that one might expect to pay by delaying to begin coverage for one or more years.

So, congratulate yourself for putting coverage in place for yourself, look more favorably upon your now relatively modest rate for that existing coverage, and advocate coverage to your friends and family – especially those with less than $3,000,000 in invested assets whom you may become the caregiver too if/when they need care.

Understanding The Fiscal Cliff

With the upcoming elections and looming effects of the fiscal cliff individuals need to have resources to understand what lies ahead. The article below has summarized the most comprehensive and efficient websites for that very information. If you would like to be well informed about how this will impact your finances read on.  

... Read the entire Barron's article
 

*Mark Phillips and Associates does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Making Good Decisions July 19, 2012         Make good financial decisions can be hard when you see people making bad decisions being rewarded.

It can be really hard to behave correctly if we see examples of people being successful while doing things we know have higher odds of a bad outcome (e.g., buying lottery tickets). But as you’ve probably learned by now, investing isn’t always fair. Bad choices get rewarded, while people who made prudent decisions sometimes appear to be punished—at least in the short run. So even though it’s tempting, I strongly encourage you to judge the investment advice you receive based on the validity of the principle and not the outcome. For instance, one story I shared in The Behavior Gap dealt with a client who had stock in his grandmother’s mining company. Over time, the family had invested and lost millions trying to keep the business afloat. As you might imagine, the family stories around the business made it seem like a sacred thing to protect, regardless of the cost. At this point, the stock had reached a low of $2 a share, and my client debated what to do. He worried that if he sold the stock, then it might recover and his family would regret the sale and wish they’d kept it. I acknowledged that if he sold the stock and it doubled or tripled—which was a real possibility—he’d feel badly. But the catch was that if he kept the stock and it went to zero, he’d feel much, much worse. The underlying factor was that he needed to make a decision based on a principle (e.g., did owning this stock support his long-term goals) instead of the emotion and family lore surrounding the stock. There’s no guarantee that good investment decisions won’t lead to a painful result. But we need to remain committed to making good decisions based on sound principles and not just luck. Carl

Why We're driven to trade

With computerized traders that "hold" stocks for only a few seconds at a time and markets that can swing wildly in a matter of moments, long-term investing seems to be on the verge of extinction.

Perhaps this is inevitable. It turns out that short-term thinking is deeply embedded in the workings of the human brain. New research suggests that in order to avoid trading your accounts to death, you must counteract some of the very tendencies that make Homo sapiens the most intelligent of all species.

…. Read the Wall Street Journal article

Why We Don't Believe in Science

Why are some proven ideas hard to believe in? This New Yorker article explores the difficulty we have when the facts are counter-intuitive or against our beliefs, or simply when we are replacing an old idea with a new idea. A classic investment example is the persistent inclination to buy when markets are rising and sell when markets are falling, and a few moments thought will identify others that confront us and our clients . . . Click here.

3 Scams You Need to Know About

It’s one o’clock in the morning and your sleep is interrupted by a phone call. Startled, you answer the phone and hear what sounds like your grandson on the other end, saying he’s been in a bad car accident while on vacation in a foreign country. While waiting for a tow company to come, he was mugged. Now, he’s hurt and has no money. He desperately needs you to wire him a few thousand dollars to get back home safely. He also asks you not to tell his mom and dad, as he doesn’t want them to know about his dilemma.

This story is just one of many similar tales that phone scammers use to target senior citizens. In what’s known as the “grandparent scam,” crooks scare their elderly suspects with a call in the middle of the night, catching them off guard with a heartbreaking story about someone they care about. The “grandchild” is always in need of cash, which he or she instructs the victim to wire through a money-transfer service, and repeatedly asks the victim not to tell anyone.

A real and growing threat

As the number of aging Americans continues to grow, more and more scams are targeting people 60 and older, who are often perceived as more trusting and polite. Based on their success with seniors, many con artists are now attempting to defraud people of all ages with similar schemes. In 2010, the Federal Trade Commission received 60,000 complaints about the grandparent scam and related frauds; in 2011, the number of complaints increased by 22 percent, to 73,281.

Besides the grandparent scam, those who prey on the elderly have plenty of other tricks up their sleeves. For example: 

1.  Scammers posing as telemarketers ask for donations to civic causes, attempting to appeal to the older generation’s patriotism and respect for authority.

2.  Imposters pretend to be with a government agency, such as the Social Security Administration, Internal Revenue Service, or another trusted source, trying to convince their targets that, in order to comply with new regulations, they must pay exorbitant sums for unneeded products and services.

3.  Claiming to represent Wal-Mart or another well-known company, scammers inform their targets that they’ve won a sweepstakes and need to make a payment to obtain the supposed prize. They may even send fake prize-money checks to their victims’ homes. But before the checks bounce, the criminals collect money for “fees.”

How can you protect yourself and older family members?

To safeguard your identity and finances from con artists, keep these tips in mind:

• Never wire or send money to someone you don’t know, no matter what the circumstances may be or how convincing the person is. As with sending cash, once you wire money, you cannot get it back. Also remember that legal sweepstakes don’t require you to pay taxes or other fees in order to claim your winnings.

• Don’t forget your common sense, especially in the middle of the night. Fraudsters call at times when they think they can catch you off guard, shock you, and cause you to panic. They also create a sense of urgency, pressuring you to send them money before you find out who they really are. As disturbing as the call may be, remember to keep calm and rely on your common sense.

• Question the caller. If someone contacts you claiming to be a family member, friend, or someone else you know, ask the caller questions to confirm his or her identity. You could quiz him or her on the date of a family’s member birthday, the name of a pet, or the restaurant you last went to together.

• Confirm the emergency situation. To determine if the story is real, call sources who can verify where the person in question is. If someone calls claiming to be your grandchild, contact your actual grandchild’s parents immediately, no matter how many times the caller asks you not to say anything to anyone.

• Be wary of strange messages. Usually, these scams don’t involve meeting anyone personally; rather, the scammers will keep their distance, contacting you by phone, letter, fax, e-mail, or even text message.

• Know that scammers don’t always ask for sizable amounts of cash. In most cases, it’s between $500 and $5,000. If you wire money once, the scammer may continue to contact you in the hope that you’ll keep sending money, upping the requested amounts until the total takeaway is far greater.

• Protect your computer, tablet, and smartphone information. Don’t let crooks get their hands on your e-mail account, phone contacts, or passwords stored on your electronic devices. To protect yourself, label the phone numbers of family members by their first name, rather than “Mom,” “Grandpa,” and so on.

• Contact your local law enforcement department if you’re concerned that a con artist is targeting you.

Remember, scams are ever-changing, and fraudsters are constantly coming up with new ways to take advantage of unsuspecting victims. To stay up to date on the latest scam alerts, visit the FTC’s website at www.ftc.gov/bcp/edu/microsites/phonefraud/index.shtml.

What Might Work Against Inflation?

To combat the erosion of purchasing power,   floating rate securities and high yield could be considered as investment options. Both asset classes have had historically high correlations with inflation compared to other asset classes. Out of 80+ Morningstar Asset Class categories, the below chart depicts the 10 most effective inflation fighters, as ranked by 15-year correlations.

Quote/Graph of the Week:

Thanks to Jim McAllister and the rest of the Equity Research team at Commonwealth Financial Network I have this to offer:

In a week when the GDP report showed a weaker-than-expected U.S. economy while corporate earnings came in better than anticipated, many investors have been left wondering how to explain the disconnect between the two data points. The accompanying graph, which illustrates the share of corporate profits derived from foreign markets over the last 65 years, may hold the answer.

U.S. companies now earn almost a quarter of their overall profits overseas. As globalization continues—and the Chinese consumer, in particular, continues to have more disposable income—we expect this trend to continue. Apple’s incredible earnings results are a perfect example of how foreign sales can be such a strong driver of growth. Up until the last several quarters, China was a minimal part of Apple’s overall revenue and profits. The country now represents about 20 percent of Apple’s revenues. That number will only grow as the company expands its distribution footprint and the number of products it sells in China.

How Have The Numbers Changed?

NET WORTH - The total net worth of U.S residents was $58.5 trillion as of 12/31/11, down 0.6% in the last year (source: Federal Reserve). This suggests that the average net worth per person in the U.S is ~$188,000. This is, in itself not meaningful as the poorest 40% of U.S households collectively have virtually no net worth, thus skewing the “wealth distribution curve” sharply.

BIG DEBT - The total value of home mortgage debt (including home equity loans) held by Americans has decreased 7% in the last 4 years. The amount owed nationwide is $9.8 trillion (source: Federal Reserve). As only ~65% of U.S residents own the home they live in and only about half carry mortgages this suggests that all of this mortgage debt is carried by ~32% of families (~40 million households) in the U.S. leaving households that have a mortgage with a mortgage balance averaging ~$245,000.

MORE PROFITS – Over the past 10 years the companies in the S&P 500 have seen their profits increase ten times faster than their stock price. Surely not overpriced in January 2002, stock pricing is a function of a firms current and future profitability filtered through marked Aggregate (sum total) earnings per share of the companies in the S&P 500 stock index have grown +13% per year on average over the last 10 years (2002-2011), increasing by +253% in aggregate over the decade (source: S&P). While average trading volume has nearly tripled in the past 10 years, and while January 2002 stock pricing reflected a ~24% drop from March 2000 highs, the year end 2011 closing price of the S&P 500 index (~1,267) reflects a stock price increase of ~1.2% per year average over the last 10 years (2002-2011), increasing by ~13% in aggregate over the decade.

Who (at the IRS) Loves Ya Baby?

In the 1990s the Senate was holding hearings as a public forum as theater to “beat” the IRS for what was seen as unconscionable auditing and poor taxpayer service. This led to the passage of the Internal Revenue Service Restructuring and Reform Act of 1998….Big yawn, you say??

Well, this piece of legislation called for the formation of the Taxpayer Advocate Service. It was begun in 2000 with the hiring of Nina Olsen as its first (and only) director. This agency is part of the IRS and is working for us… go figure!

I want to share with you a heartwarming story, inspirational, one that may give you hope for  the humanity of the IRS, well, at least for this band of “Advocates” working for Ms. Olsen – and for us. Like a disciplined group of Robin Hoods Merry Men, they are helping to make what too often seems insanely wrong a bit more right.

Bloomberg BusinessWeek: The People vs. the IRS

Please consider forwarding this post to your CPA/EA and to all of your friends – a bit of hopefulness. Perhaps we should each send a Thank You card, a bundt cake, you know, to Ms. Olsen, encourage her to keep up the good work and let her know that we support her group.

What do you think?

Comment below…

Addiction to Prediction?

Helpful if unsettling January 3, 2012 blog post on the Process Maximus  blog site by Robert Speck that reflected what we can predict with high probability: more predictions about the future, many of which are wrong and soon forgotten and forgiven  as we move onto the next .

While I recommend the full article you may find the conclusion a most helpful summary:

Question Authority

Prediction should be all about risk, uncertainty, and likelihood, but what you’ll hear this week and throughout the year is a chorus of experts telling you with great certainty what the future will bring. Don’t believe them. If you’re jonesing for advice, try listening to those who are providing detail on probability, risk and trends. But know that the future is never about certainty and always about probability. When prognosticators get it right, they were just plain lucky. They may have played the odds. They may have had some truly intuitive insight that others did not. But there is never a sure thing.

Deflating the Home Price Bubble: Where Might We Be?

A fairly simple way to assess the value of the housing market is to look at the price-to-rent ratio. This metric equates the median home price to what an equivalent property would yield in rent (known as owners’ equivalent rent). As is evident from calculations based on national and regional median prices and rents, this metric appears returned to levels last seen in the early 2000s, which means that in some markets buying is again looking like a reasonable option. A corollary to this, rental properties in select markets may have become attractive investment opportunities for some individuals with the capacity and means to invest and borrow inexpensively.

The run-up to the 2005/2006 peak certainly showed signs of a bubble in the making, as property values significantly outpaced rental prices during that period. In many markets prices were well higher than 20 times annual rent, a benchmark that many seem to see as an indication of overpricing.

Example: a home selling for $800,000 should have been renting for ~$3,500/month. This would have been a ratio of:

                           $800,000/$42,000 = 19

($3,500 x 12 months/year = $42,000 in annual rent)

We should also consider that the current wisdom finds 20 to 1 as the tipping point for the Buy vs. Rent decision.  While select factors can push this ratio they cannot do so for long, at least not forever. These may include:

·         Property tax rates

·         Interest rates

The higher they go (and this we must imagine is inevitable at some point) the more expensive will be buying and, as rents tend to lag, renting will enjoy a margin of advantage until either home prices come down, or rents catch up.

So, what can we expect for the long term return in housing stock investments?

When considering a home as an investment please consider: home prices, on average, track to inflation, as do rents. They do not grow any faster in the broad market.

“Wrong!” you say?

How can they grow faster I reply, when all we have at our disposal with which to buy these homes is our wages, which have, on average, struggled mightily to keep up with inflation.

This is to suggest that a portfolio of fully owned (not leveraged) average residential real estate will on average not grow wealth (increased purchasing power) over an extended period. History is littered with one off examples where this has not been the case. This is particularly true in many in the “hot” markets of California and others. And yet - maybe not.

As I said above, changes in Interest Rates are a lever that can throw off the equilibrium – but only for a while. A forty year period in which interest rates drop from ~14% to ~4% for home mortgages allows for a 150% market price increase for the same mortgage payment. This attributes 3% of the annual average real estate price growth. Add this to the ~4.3% average inflation from 1070 to today and we should have gotten a compounded ~7.3% price increase just to stay even with inflation

So…

That home one bought in 1981 for $25,000 with no upgrades made (only basic maintenance – find me that house!?!) could have appreciated to ~$530,000 today and yet only kept up with inflation and the interest rate decline “bonus”.

Well then… How were people making money investing in homes?

Appreciation of a leveraged asset.

Ok then… How might it work well going forward?

Charging more for rent than you pay in financing, lost opportunity cost, and tax, which may be do-able as the cost of financing is temporarily so low.

This is not a new normal – except for so many who do not study or remember history – this is the old normal all over again.
Keep in mind also what an increase in mortgage rates from 4% to 7% (near to the long term national average rate) may mean for the price of such a home? All else held static, it would require a ~30% price correction to sustain the current monthly payment. This would drop the $530,000 house to ~$370,000.

So how might we approach purchasing a home or a rental now?

1.      Consider the article “Why U.S. Housing Prices Won’t Recover” by Jack Hough on Marketwatch, and

2.      Consider the below interesting (dare I say, useful) linked interactive graph as relates to your specific case analysis. Click on the below image to jump to the New York Times web site tool:

Is it Really Getting Worse?

Despite the pleadings of mass media these days economist Jeff Thredgold reminds us, in his semi-annual Happy Talk blog posting, that the general direction of the world is up, not down, and there are plenty of reasons for optimism. Here are a few of Jeff’s points that jumped out at me:

·      Even as U.S. economic output (GDP) has climbed by more than 210% since 1970, aggregate emission of six principal air pollutants has plunged by 60%

·      The divorce rate dropped by one-third between 1981 and 2008, and is at its lowest level since 1970

·      Productivity of U.S. workers rose an average of 2.4% annually during the past 10 years, some of the strongest gains in 40 years

·      When comparing economic size and population, the average U.S. worker is 10-12 times more productive than the average worker in China.

·      Roughly 80% of companies that suspended or reduced their 401(k) matches during the past 2-3 years have reinstated them

·      America produces more steel today than 30 years ago, despite the shuttered plants and slimmed-down work force

·      During the early 1960s, the five-year survival rate from cancer for Americans was one in three. Today it is two in three…continuing to climb…and the highest in the world

·      Donations to charity rose 3.8% in 2010, with $291 billion donated by individuals, foundations, and corporations. As a percentage of GDP, Americans gave twice as much as the next most charitable nation…England.

·      Men’s time spent on child care [with their children] has tripled over the past 40 years.

·      A recent poll of more than 12,000 global business figures conducted by the World Economic Forum ranked the U.S. as the world’s most competitive economy

To see Mr. Thredgold’s full list as posted on his blog click here.

The New IRS Audit: Snake In Your Mailbox?

The IRS has taken to technology. Back when a few billion dollars used to impress even the most wealthy among us the IRS budgeted a few more to upgrade their computer systems. The aim, in part, was to be able to actually track us in a manner more consistently with what so many of us imagined they were already doing. Truth be told, while so many of us imagined that our financial life was an open book to the IRS, the agency has been anything but omniscient with regards our finances.

No Judy, they are not doing this because they know better and just want to annoy and inconvenience you.

So, they set out to be able to match up all of your W-2s, 1099s, 1098s, 5498s, and the like with what you reported on your 1040 return (along with your Schedules A, B, C, D, etc.). You probably thought that they could do this all along. Not so, unless they actually manually pulled your file and did so “manually”. Now, the IRS is doing this digitally. This is one of the reasons that the IRS insists that CPAs file all of their clients returns electronically. This enables the service to more easily do data matching with the employer and brokerage houses W-2s and 1099s.

“So”, you say “What does this mean to me?”

More “Mail Audits”. This is the “new” IRS audit. This is when you get a 10-20 page document in a #10 window envelope from the IRS. Inside you find that the IRS has determined you understated taxable income on your return and they are billing you for the missing tax. They are able to make very specific (if however inaccurate) claims in this  manner because their computer data base can now match up all incoming records and reports with your SSN on them.

Consequently, your chances of an audit by mail (“correspondence audit”) has roughly doubled, as these are the audits that have dramatically increased. What to do when this occurs:

1.      Assume that the IRS is mistaken and you will not owe much if anything. This, I have found is most often the case, but our immediate reaction is panic.

2.      Open the envelope, see the amount they claim you owe and say “they are mistaken” aloud. This will calm you a bit and set you in the right direction to proceed (rather than ripping the arm off a dining room chair and beating your trusty lap top with it).

3.      Contact your CPA/EA immediately and forward to him/her all of the documents sent to you by the IRS (leaving anything out is perilous).

4.      Set the reply date (typically no more than 30 days from the date of the IRS letter) on your calendar and be sure to reply in some way prior to this date – even if to request more clarification or time to gather information. You, not your CPA is the responsible party if no reply is received.

5.      Once you have submitted your full reply to the letter forget it. There is no practical means of tracking it and expecting a timely reply is a fools delusion. Eventually you should receive a reply. If it is close to what you expected pay and move on. If not (and if unfavorable) see step #2 above and proceed from that point.

So there we are. The new snake in your mail box. If you haven’t gotten one don’t be too proud, they just haven’t gotten to your data yet. If they have and you “beat” the claim well good work but you didn’t really do anything too special.

This is the New IRS, the new face of government, the faceless and voiceless government (at almost all levels). It is the government we created, our systems. Like self-check-out at the grocery this is not too likely to go away – ever.

So, if you do get great service from anyone in a government agency, consider they are bucking the current in so many ways the least we can do is assure them how meaningful their effort is to us.

Neither Commonwealth Financial Network® nor Mark Phillips & Associates provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.