Take Advantage of the Summer Downtime and Reevaluate Your Business

It’s that time of year again. Every day the temperature is a predictable triple digit number and Phoenix seems to be a ghost town. Just because summer is here does not mean business has to slow down for you. In fact summer is the perfect opportunity for you to reevaluate your expenses for the year, set goals for your company, and review your employees’ performances. Here are a few suggestions on how you can take advantage of this downtime and make sure your business thrives in the coming year.

· Get new quotes from your vendors! Take a look at your expenses from this year and request new quotes from your vendors. This is the perfect time to examine everything from insurance premiums, internet services, rents, landscaping, etc. If your current vendors cannot offer you a better rate, then investigate other options. Your customers are putting pressure on you right now-remember you’re a customer too! Put pressure on your vendors and seek relief!

· Reevaluate your marketing plan. Devote some time to research different marketing plans. You can trim your expenses by cutting out archaic marketing techniques such as advertising in the yellow pages.

· Examine your retirement plan. Now is the perfect time to evaluate your retirement plan to see if you need to make any modifications. Converting from a 401k plan to a SIMPLE IRA plan may save you more than $1,500 in administration fees. SIMPLE IRA plans have no annual filing requirements, which is an excellent option for business looking for leaner expenses. The deadline to set up a SIMPLE IRA or safe harbor 401k is October 1, 2010.

Feel free to give us a call if you have any questions!

Fannie Mae Announced Sanctions for Struggling Homeowners for Strategic Defaults

Fannie Mae recently announced sanctions against homeowners who strategically default on their mortgage, making them ineligible for Fannie Mae mortgages for seven years. A “strategic default” is defined when a homeowner did not work in good faith to avoid foreclosure and has as the ability to pay but chooses to walk away when the value of the home is less than what is owed.

Fannie Mae also announced that they would seek “deficiency judgments” against homeowners in court to recover debt by seizing borrower’s other assets. Since Arizona is a non-deficiency state, this threat does not hold much clout against Arizona homeowners.

The Wall Street Journal recently reported that nearly one in five mortgage defaults in the first half of 2009 were considered strategic. Fannie Mae’s recent decision attempts to curb homeowners from forcing foreclosure to pursue other alternatives such as a lender-approved short sale or formally giving up the deed.

Analysts question whether the aggressive Fannie Mae sanctions will have a positive effect on the housing market. The plan clearly challenges the Obama administration’s policy of stimulating the fragile housing market.

Furthermore, Fannie Mae’s policy might be impossible to execute. The task of distinguishing between intentional defaults and homeowners who had no other options will subject Fannie Mae to scrutiny. Additionally, Fannie Mae’s pursuit of deficiency judgments is economically inefficient since there is no tax liability on forgiven portions of home mortgages until 2012.

Whether or not Fannie Mae will be able to execute the new policy is to be determined. However, the policy draws one important question: will the housing market improve with decrease of mortgage defaults, especially with a decline in unemployment or do home prices need to appreciate before the market can improve? Time can only tell.

Health-Care Overhaul Imposes Wealth Taxes, Makes Roth IRA Conversions More Attractive

Last March Congress passed the landmark Patient Protection and Affordable Care Act. This radical policy forced many critics to ask “How is the government going to pay for this?” The answer to this million dollar (or $1 trillion according to the Congressional Budget’s Office’s projection) question? The health-care overhaul will impose two new taxes on earnings: 1) an extra 0.9% levy on wages for couples earning more than $250,000 (or $200,000 for singles) and a 3.8% tax on investment income for the same group. How could these taxes affect you?

Let’s say you and your spouse both earn $150,000, combined income is $300,000. In 2013, you will owe an extra 0.9% on the excess earnings over $250,000, or $450, in addition to your regular Medicare tax because your combined wages are above $250,000.

How will your investment income be affected? First of all, let’s define investment income. Investment income includes, interest, dividends, rents, royalties, captain gains in addition to the taxable portion of insurance annuity payouts (unless it is from a company pension). All of these types of investment income are subject to the 3.8% tax on amounts over the $250,000 (or $200,000 for single filers) threshold. For example, if you earned $60,000 a year, but have an investment income of $180,000, your total income is $240,000 and you are subject to additional tax. Because your investment income is $40,000 over the $200,000 threshold, you would owe $1,520.

How can you minimize these taxes? Essentially, your investment income is subject to the new tax when it increases your adjusted gross income. While social security and pensions are not investment income, they still raise your AGI. Here are some suggestions on how you can avoid increasing your AGI.

· Roth IRA conversions. These are an excellent option because they do not raise AGI and are not considered investment income.

· Defined-benefit pensions. If you are in a small business or have consulting income, pensions could be a good fit. Pensions are not investment income and you can contribute more with age.

· Installment sales if you are selling assets. If you are spreading out the income, you would minimize the tax.

· Life Insurance. If you purchase a policy, you could borrow from it and settle before death. You can avoid income tax on investment gains within the policy.

For more information, check out this article from the Wall Street Journal or give us a call!