December 9, 2008

Editor’s Note

We would normally not send newsletters out with the frequency with which we have started. But, these are extraordinary times- close to year end for tax planning purposes that present opportunities to cut your tax bills and shore up investment portfolios.

We recently received a letter from Mr. Ron Bell, founder of Bell Capital Management, Inc., one of our associated investment advisors. While a bit technical in scope, you can read this letter at http://www.agmtax.com/files/ronbell.pdf

Controlling OUR Costs

In our first issue, we promised to keep your income tax preparation fees from rising for a comparable return. You can help us do that by helping us control the cost of providing your return.

If you receive this e-mail newsletter, we plan to send your 2008 Income Tax Organizer to you via e-mail. You can print it and complete it prior to your visit, you can view it on your computer screen and use it as a guide to locate the information we will need, or use it in any other way that might be of benefit to you.

Some of you do not use the organizer in advance, but you probably remember that we use it to gather information and for our use in entering data into our software. If you do not use the organizer in advance, don’t print it and we will print one when we meet with you in our office.

Should you want to use the organizer, but prefer not to print it yourself, let us know by phone, e-mail, or some other means and we will mail you a pre-printed organizer as we have in the past.

Capital Gains

If you invest in mutual funds held in taxable accounts (not 401-k’s or IRA’s) you are familiar with the fact that your funds report capital gains at the end of each year. These gains are taxable on your return even if they are reinvested in the fund. Sometimes these gains can be sizeable.

Even though this has been a disastrous year for our investments, some of your funds may report capital gains. Many funds held stocks with large gains. As shares of the fund were redeemed, fund managers were forced to sell some of their holdings in order to raise cash. Some of the funds sold may have generated significant capital gains.

We would hope that the fund managers would be able to sell losing holdings (and at this point, there are plenty of them) to offset those gains. In some cases losses may not offset gains at the fund level and investors will receive capital gains at the end of the year.

Our advice would be to check with your funds if they have not already given you advance notice of expected year end results. A quarterly estimated tax payment by January 15, 2009 could help you avoid penalties for being under withheld for the year.

Roth Conversions

Many of us have traditional IRA’s. When funds are taken out of those IRA’s, tax is paid at ordinary rates. Roth IRA’s both grow tax free, and are disbursed tax free. Additionally, with a Roth IRA, there is no requirement to ever disburse those funds. They can be inherited intact by an heir after death of the owners. Traditional IRA’s must be disbursed over time, generally beginning in the year the owner turns 70 ½.

Traditional IRA’s can be converted to Roth IRA’s subject to income limitations, and after paying the tax on the disbursement. In some cases this can be a beneficial action to take.

If you are contemplating conversion of a traditional to a Roth IRA, if you can meet the income limitations, this could be a good year. Unless you are a better investor than most of us, the value of your traditional IRA has fallen in 2008, leaving you with less tax bite on a conversion.

There is room for planning too. A portion of a traditional IRA can be converted this year, and more in future years. Income limitations for conversions are lifted beginning in tax year 2010, but not until.

For conversions to be counted in tax year 2008, they must be complete by December 31, 2008.

Facts:

Among people age 55 and older, 54% have less than $100,000 saved toward retirement

Source: Employee Benefit Research Institute

The average cost for a one-bedroom unit in an assisted living facility is $3,008.00 per month. Nursing home care now averages $187.00 per day for a semi-private room. A home health aide costs $29.00 per hour.

Source: Employee Benefit Research Institute

Thoughts for 2009:

1. Start a savings plan in addition to your 401(k) and other retirement plans.

2. Reduce your credit card debt.

3. Schedule your tax appointment early this year.

4. Be the person your dog thinks you are.