December 23, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

December 23, 2012....Bob Brinker hosted Moneytalk today.....(comments welcome)

STOCK MARKET: It's been months now since Brinker has talked about the stock market. Of course, he is still fully invested and is still forecasting an S&P 500 Index target range of "upper 1400s to lower 1500's."

YOU CAN STILL SELL STOCK THIS YEAR TO PAY LOWER CAPITAL GAINS RATE....Brinker said: "If you have a long-term capital gain, and you're in the top bracket....up until the 31st inclusive, you are able to take that capital gain at the current federal 15% maximum rate.....Under current law, that rate is going up in January. And the top bracket, including the new health care tax, it will be 23.8 federal. That is a 56% increase in the long-term capital gains federal rate.....why pay it?....There are no wash sale rules on capital gains....You can buy it back the next second."

MARKETIMER INCOME PORTFOLIO NOT THE SAME AS FDIC CERTIFICATES OF DEPOSIT: Caller Larry from Arizona asked about moving money out of CD's into Brinker's fixed-income portfolio.

Brinker reminded Larry that they are very different investments because CD's have FDIC insurance guaranteed to get principal back. Then he said: "Our page seven income portfolio has had an absolutely great year. With only a few days to go, our total return is over 8% year to date. That is outstanding and we're very proud of it, but it very different from CDs....You're right, until something changes in the economy, it's very unlikely that you are going to see a run up in rates."

Honey EC: "Danger, Will Robinson!" Here's a warning to Larry and everyone: Brinker's income portfolio "on page seven" may have done well like most bond funds this past year, but it has been changed drastically over the past three months. Brinker sold all Vanguard High-Yield Fund, Vanguard Short-Term Investment Grade and Vanguard Wellesley Income Fund holdings in that portfolio. I believe that those three funds (that had made up 50% of that portfolio) were much more conservative than the new funds that he has added. (DoubleLine Total Return Fund; Metro West; Dodge and Cox Income Fund (DODIX). 

INTEREST RATES ARE WAY DOWN BUT WON'T STAY THERE FOREVER....Brinker said: "A lot of rates are down. Things like the prime rate is down....That includes the rates that are paid by the Treasury on the sovereign debt. Those are way down....They are so low it's kinda ridiculous.....The good side is that people can borrow money, not pay a lot of interest, buy a car, get a mortgage. But there's a dark side to this.....Who wants to issue a 15 year mortgage at 2.66 -- that's the national average. Here's the problem and I think the big-time spenders in Washington have taken advantage of this. The fact that the Treasury is able to raise this money with these trillion dollar annual deficits, and to finance the sixteen plus trillion dollar national debt that we've accumulated at very low rates. And they say this isn't so bad, look at these low rates we're getting. Here's the flaw that these fools that believe in that don't get. There's no guarantee that rates will stay here forever....

They don't want to hear about fiscal responsibility, moving to a balanced budget.....If rates ever normalize, this national debt is going to cost us a lot. And it's going to hurt our growth, and it's going to hurt our country.....There is no way of knowing what this debt will cost us over the long-term....I'd be surprised if two-year Treasury Notes can be marketed forever at one quarter of one percent a year...That's dangerous thinking. These people that are addicted to the big-time spending habits are going to have to get real, and until they do, it's a good idea to call attention to the importance of moving to a balanced budget."

WILL MUNI-BONDS BE TAXED IN 2013? Brinker said: "We don't know what any of the tax policies will actually be, but I would  speculate that they will not pass a law to make municipal bonds taxable in 2013. That's just an opinion...I own municipal bonds so I care about this also."

REQUIRED MINIMUM  (IRA) DISTRIBUTIONS....Be sure make required withdrawals before the end of the year. If you miss the deadline, the penalty is 50% of the amount you needed to take out.

WHEN SHOULD YOU TAKE RMDs....You can take them anytime, lump sum or monthly.

BALANCE OUT TAX GAINS AND LOSSES....It's possible to take up to $3000 deduction against income. If you have more than that, you can carry it forward.

GIFTING MONEY TAX FREE....This year you can give up to $13,000 to an unlimited number of individuals. They don't have to be relatives and pay no gift tax. That will go to $14,000 next year.

POLITICS/FISCAL CLIFF/TAXES (Brinker's opinions quoted or synopsized): "Who let the dogs out? It's definitely X-rated governance or lack thereof." ......A couple of things the president really wants to get done by the end of the year -- holding the tax rates where they are for 98% of taxpayers....and an extension of unemployment benefits for the 2 million that will lose them....Obama is also trying to "avoid a 2% pay cut for everybody in the country" on New Year's Day.....Congress is a ship of masquerading fools....The tax increase turned down by the House this week would have protected 99.8% of taxpayers. X-rated government.

Honey EC: The fiscal cliff, politics and taxes were the main topic of the day. Most of it was repetition from earlier shows. 

OPPOSING BRINKER'S POLITICAL VIEWS....Caller Bob from Indiana said: "With all due respect, I understand you can't be partisan....but I can be as a listener. When one side in congress believes that wealth comes from borrowing money, taking from producers and printing money, and the other side says, we have to stop the bleeding, we have to stop the spending, I'm grateful.  Because if one side backed down, the other side would willy-nilly take money, borrow money and spend money, and take from productive people, destroy our economy even worse than it's already been destroyed. I'm happy for the fight  and I'm happy that there's an opposition to that side. If I walk up on two people and they're fighting, I don't automatically assume they are both wrong."

Brinker replied: "I'm glad you had a chance to step on that soapbox and tell America what you think. As you see, I gave you an opportunity to do so....I don't think it's that much one-sided. I can be as partisan as I wish to be. On this issue, I'd much rather be reasonable."

Honey EC:  Later on, Brinker slammed Bob by calling him an "absolutist," while denying that he was criticizing him.  Well, I'm not being critical either,  Brinker, but why do you completely ignore the fact that the president and fellow democrats have refused to make any meaningful spending cuts in exchange for John Boehner's offer to allow tax increases for the top 2%?

DEBT CEILING....Brinker said: "We are getting close. The Treasury Secretary is going to alert congress that he has run out of borrowing capacity, because borrowing capacity is roughly $16.4 trillion......The rating agencies are watching all of this stuff like a hawk."

BRINKER'S FAVORITE CHARITY = UNICEF (United Nations Children's Fund): Brinker has a link on his website for making donations here.  Several times today, Brinker praised this charity and said he was proud to contribute to it.  However, there was a caller who claimed that the CEO of UNICEF was paid  a million dollars a year. Later Brinker said that was not true, that he only made a half million dollars a year.

 Honey EC: That's the first time I've ever seen a link to a charity on Brinker's website. I did a quick search and it looks like the CEO of Unicef does make about a half million a year. Bear in mind that the leader of the Salvation Army makes $13,000 a year.  AND they are not part of the United Nations....

Guest-writer, FrankJ's third hour summary:

Bob’s 3^rd hour guest on Sunday’s MoneyTalk program was Barbara Weltman, a contributing editor to J.K. Lasser’s, Your Income Tax.   Barbara has been a guest on MoneyTalk in past years, and Bob described her as a walking compendium of the tax code, which indeed, she is.

Bob lamented that because of Congress’s inaction, we won’t know what tax policy will be in 2013 (for taxes payable in 2014).  Barbara “saw his bet and raised him”  by pointing out that 50 or so provisions expired at the end of 2011 and we still don’t know for 2012, which of these, if any might be brought back to life, retroactively, for the 2012 tax returns. 

One expired provision that needs revisiting is the annual “patch” for the Alternative Minimum Tax.  Without a fix, this extra tax could snag 26 million taxpayers, whereas normally “only” 3-4 million taxpayers get hit.  Barbara described a few of the things that trigger the need to calculate one’s liability for the AMT:    a large number of personal and dependency exemptions; and large deductions for state income taxes and/or medical deductions. 

This reference discusses some of the expired tax provisions Barbara alluded to.  

Complete tax guide

 People in states that do not have a state income tax have been able to deduct their state sales tax.  This provision went away in 2012 and unless Congress restores it, they are out of luck.  At one point in the program, Washington state was mentioned and Bob commented on its beauty.  (A good question for the MoneyTalk final exam might be what city did Bob live in when he lived in Washington?  -- Hint, it ain’t Seattle.)  Washington is also one of the few states without a state income tax, so unless Congress reinstates the sales tax deduction, Washingtonians who itemize will get hosed.  

Two other “above the line” deductions that Barbara mentioned are education related.  These are reductions to gross income, and a taxpayer does not need to itemize on Schedule A to take advantage of these.  One is the educator expenses deduction whereby a teacher can deduct up to $250 for classroom materials they bought out of their own pocket.  ($500 if both spouses are teachers.) 

The other one is the “tuition and fees” deduction of up to $4000, thus reducing the amount of your income subject to tax by this amount.  This deduction is available to people who may be pursuing higher education but not enrolled in a degree program.   For example, it can impact people taking a course here and there to improve job skills.  From the J.K. Lasser website:

On 2010 returns filed in 2011, millions of taxpayers claimed various tax breaks:

• More than 12 million claimed education credits worth $12.5 billion ($6 billion of which was refundable).
• More than 2 million claimed the tuition and fees deduction worth $4 billion.
• More than 10.2 million claimed a deduction for student loan interest worth $9.3 billion.

Source: Statistics of Income Bulletin, Winter 2012

Another topic that came up on the program had to do with proof of having made a charitable contribution.  The IRS has some specific, but easily understood rules on this.  The caller asked about contributions above $250.   Barbara’s answer was that you need some backup, regardless of the size of the contribution.   This backup comes into play if you itemize deductions using Schedule A.   Only if you “itemize” do you get to make charitable deductions.

In brief,  the rules say that a canceled check showing the name of the organization, date and amount is adequate backup.   A bank statement, credit union statement also work.  Payroll deductions are documented with pay stubs or a W-2.  And, a receipt from the charity will work, too. 

When you get to $250 or more, you need something in writing from the charity. 

 

As to when you actually make the contribution, the IRS looks at when it was “unconditionally delivered” to the charity.   So, a check you mail to the charity is considered  “delivered” on the date you mailed it.   A charge to your credit card is “delivered” and deductible in the year you made the charge.  A pay-by-phone charge is deductible in the year the financial institution actually pays the amount. 

Non Cash contributions have their own set of rules, which were not discussed on the show.

 Barbara also mentioned a few things that people might do in the waning days of 2012. 

·       Reset a basis.  Sell a security and repurchase it and thereby establish a higher basis.  If there is a capital gain, it will be at current rates, which are scheduled to go up from 15% now, to 20% in 2013.

·       There was the usual advice about booking capital losses.  Capital losses offset capital gains dollar for dollar.  If your capital losses exceed your gains, they do not go to waste, you can use up to $3000 to offset ordinary income, and if you still have capital losses, you can carry them forward to the next tax year. 

·       Bob pointed out there are 5 trading days left in the year. 

(FrankJ) Editorial Comment:  I like listening to Barbara because she is so knowledgeable in a complex field of endeavor, the US tax code, and she can explain things well.  Barbara is to taxes as Charlie Maxwell is to energy.  However, given that some listeners might actually act on the advice she renders, I think it would  have been more useful for her to on the program earlier than Dec 23.  

Jeffchristie's Moneytalk Final Exam Question:

Bob Brinker's special quest today was Barbara Weltman from the J K Lasser tax service.  J K Lasser was the father in law of which Hollywood star?

A) Jane Fonda

B) Woody Allen

C) Wesley Snipes

D) Lindsey Lohan

Answer:

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)  

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