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By Mark P. Cussen

Even though it might be too late to use this strategy for 2007, those who have IRAs that they would like to convert to Roth IRAs can use such things as undeclared ordinary or charitable losses or nonrefundable tax credits to do so. This easy strategy basically grants you to essentially avoid paying taxes on what would otherwise be a taxable event by generating income against a credit or deduction that would otherwise have to be prorated or else lost altogether. There are a number of losses, credits and deductions that can be used to offset the income realized from a Roth IRA conversion. For example, if you’re a small business owner and your business posts a loss of $40,000 for the year, then you could convert $40,000 of your Traditional IRA into a Roth IRA declare no income from the transaction. Or you could convert $140,000 of Traditional IRA money to Roth and still stay within the $100,000 MAGI limit (assuming that you have no other declarable income for the year, of course.) Those who are sending children to college may be eligible for larger Hope or Lifetime Learning credits or deductions if they can declare a higher income. Obviously, a Roth conversion could be the perfect tool to provide this.

The purpose of this blog is to awaken the reader to the strategic use of Roth conversions to offset potential unused deductions or credits. Of course, the timing and coordination of your Roth conversion can be a tricky issue involving many variables. In order to reap the maximum benefit from your conversion, consult your tax advisor or your financial planner.

Permalink | Comments | Mark P. Cussen“>Mark P. Cussen's blog | Channel: Personal Finance

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By Mark P. Cussen

Even though it may be too late to use this strategy for 2007, those who have IRAs that they would like to convert to Roth IRAs can use such things as undeclared ordinary or charitable losses or nonrefundable tax credits to do so. This simple strategy basically grants you to essentially avoid paying taxes on what would otherwise be a taxable event by generating income against a credit or deduction that would otherwise have to be prorated or else lost altogether. There are a number of losses, credits and deductions that can be used to offset the income realized from a Roth IRA conversion. For example, if you are a small business owner and your business posts a loss of $40,000 for the year, then you could convert $40,000 of your Traditional IRA into a Roth IRA declare no income from the transaction. Or you could convert $140,000 of Traditional IRA money to Roth and still stay within the $100,000 MAGI limit (assuming that you’ve no other declarable income for the year, of course.) Those who are sending children to college may be eligible for more massive Hope or Lifetime Learning credits or deductions if they can declare a higher income. Obviously, a Roth conversion could be the perfect tool to provide this.

The purpose of this blog is to awaken the reader to the strategic use of Roth conversions to offset potential unused deductions or credits. Of course, the timing and coordination of your Roth conversion can be a tricky issue involving many variables. In order to reap the maximum benefit from your conversion, consult your tax advisor or your financial planner.

Permalink | Comments | Mark P. Cussen“>Mark P. Cussen's blog | Channel: Personal Finance

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By Linsey Knerl

Prescription drugs are high-priced. While generics do offer some relief, if you’ve to have several filled, your pharmacy bill can add up fast. Here are a few free prescription promotions to aid a limited number of patients in the U.S. – But hurry! Some of these offers expire soon!

The Blues – Several Blues health insurance plans are offering to waive the co-pays on hundreds of generic prescriptions over the next few months as part of an initiative to educate consumers on their effectiveness. While I don’t have the exhaustive list of which Blue Cross Blue Shield plans are participating in a no-copay program, here are a few more notable promotions:

BCBS of Nebraska – The health insurer is waiving the copay and coinsurance on generic prescriptions filled between January 1, 2008 and March 31, 2008. That’s 3 months of free prescriptions for their customers!

Independence Blue Cross – The Southern PA insurer led the way with its successful No Pay Copay program for generic drugs. This program is scheduled to end December, 31, 2007.

BCBS of North Carolina – While we don’t have all the details, the company announced that, beginning January 1, 2008, it is waiving the co-payment for some generic drugs and lowering the cost of 40 brand-name drugs. The health care company's waiver will apply specifically to all generic drugs — such as Zocor, Norvasc and Glucophage — that treat congestive heart failure, high blood pressure, high cholesterol and diabetes.

Publix and Meijer – Those of us without insurance, or who are not currently with a Blues plan, can take advantage of free generic antibiotics filled through Publix pharmacies. The covered prescriptions include: Amoxicillin, Cephalexin, Sulfamethoxazole/Trimethoprim (SMZ-TMP), Ciprofloxacin (excluding ciprofloxacin XR), Penicillin VK, Ampicillin, and Erythromycin (excluding Ery-Tab).

While some public health officials are upset about the program, claiming that Publix is contributing to the progression of antibiotic-resistant diseases, Publix is using its own statistics to justify the program. “These antibiotics account for nearly 50 percent of the generic, pediatric prescriptions filled at Publix. New or current customers simply need to provide their Publix pharmacist with their prescription, up to a 14-day supply, and it will be filled at no charge. Publix is not limiting the number of prescriptions customers might fill for free.”

Meijer is also participating in a similar program. See this list of store locations.

While these cost-saving programs aren’t going to help everyone, it seems to be a step in the right direction. Do you know of a free prescription promotion that we missed? Email us at tips@wisebread.com and let us know! Here’s to your health!

Permalink | 1 comment | Linsey Knerl“>Linsey Knerl's blog | Channel: Personal Finance, Frugal Living, Consumer Affairs, Deals, Health and Beauty

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Filed under: Earnings reports, Deals, Competitive strategy, Intel (INTC), Advanced Micro Dev (AMD)

Advanced Micro Devices (NYSE: AMD) comes to the end of year at a 52-week low of $7.62. Very few stocks have done as badly over the last couple of years. In February 2006, the shares traded above $42.

When the company was doing well, it was taking market share in the server and PC industries by producing better chips than bigger rival Intel (NASDAQ: INTC). In some of these segments, the company had about 25% of the market and said it could get to 40%. Intel fought back. It pushed its R&D to produce superior products and cut what it charged for chips, which hurt AMD’s gross margins and drove the company to a loss.

AMD made matters worse by purchasing graphics chip company ATI. That loaded AMD’s balance sheet with debt, just as its operating income fell apart.

AMD could do a few things to improve its position.

The chip company says it will have an operating profit by the end of next year. But, it keeps releasing its products late, and they are often underpowered. The firm’s new Barcelona chip has been a disappointment. AMD might be superior off giving conservative release dates and product information and then doing better than forecasts.

Another part of AMD that troubles Wall Street is its debt, which is over $5 billion. As painful as it might be, AMD should sell ATI. The company’s operations brought in $252 million of AMD’s $1.62 billion in revenue last quarter. And, the unit had negative operating income.

The last thing AMD needs to do it let CEO Hector Ruiz go. He has been the architect of the current disaster and investors are unlikely to think he can have a hand in fixing it. After all, the company has lost well over three-quarters of its market value.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Earnings reports, Competitive strategy, Apple Inc (AAPL), Starbucks (SBUX), McDonald’s (MCD)

Shares in Starbucks (NASDAQ: SBUX) are as hard to understand as those of nearly any other massive public company in the U.S.

In the fiscal year ending September 30, revenue for the company was up over 20% to just shy of $9.4 billion. Operating income rose 18% to $1.054 billion, according to the Starbucks 10-K. But, the price of the company’ stock dropped from just over $40 in November 2006 to the current price of $20.13.

Starbucks can’t fix its Wall Street problems all at once, but it could look at the things investors don’t like about the company and begin to address them.

First, investors believe that McDonald’s (NYSE: MCD) will take a great deal of the Starbucks premium coffee business. The fast-food chain states its earnings are being helped by its push into high-end coffee. Starbucks already knows whether it is being hurt by McDonald’s. It certainly keeps enough detail on each of its local outlets. Perhaps it could share that data with investors.

The other large knock on the coffee company is that it is opening stores too fast in the U.S. It ends up competing against itself in some markets. The facts about this should not be hard to come by. Starbucks certainly selects locations based on not taking business from its other outlets. If those decisions are working, perhaps the company could pass that along.

The last significant question about the firm is whether its move into breakfast foods, music, and a partnership with Apple (NASDAQ: AAPL) are doing anything for the bottom line.

Starbucks might do superior with Wall Street if it would just give out a little information.

Douglas A. McIntyre is an editor at 247wallst.com.

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By Paul Michael

Ever wondered what happens to all that stuff the good folks of law enforcement have stashed away? You know, anything from car stereos to bags of diamond necklaces, watches and gold rings. Well, when it's no longer required as evidence several things can happen to it. If the police can find the original owners, they'll get it back. If they can't, they'll often sell it off at auctions. And I've just found a terrific site that lets you bid on all sorts of great stuff like this at silly prices.

The site is called PropertyRoom.com and it's a veritable goldmine of cool gear. It works in the same way as eBay, except most of the items come directly from law enforcement agencies. From the site:

The vast majority of items auctioned by PropertyRoom.com derive from law enforcement agencies and other public municipalities. With few exceptions, we physically pick-up the goods and transport them into our facilities. We then inspect the goods and make them ready for auction. Lastly, we tightly control the listing content, auction process and fulfillment of each item.

The types of items you can buy vary just like any other auction site, but the main categories are just as you'd expect:

Apparel; Automotive; Bicycles; Buy Now Deals; Coins & Currency; Computer; Electronics; Jewelry; Photography; Real Estate; Tools; Watches; Everything Else

However, my personal favorite is the 1-Hour Quick Wins section. This is constantly updated with new stuff, and the auction is only up for one hour. We recently got pipped to the post by someone for a sapphire ring, retail value $399 - it went for just over $50. There are tools, watches, iPods, laptops, well, you name it and it appears in the swift wins section, as well as on the rest of the site. Sure, it's all used but at these prices who cares?!

Former law enforecment cars 
PropertyRoom.com also gives you the opportunity to purchase ex-police vehicles at a fraction of the price you'd pay at a dealership. Remember, the mileage on these automobiles is very high for the age of the car, but don't let that fool you. A '99 Crown Victoria with 200,000 miles may have done some serious driving but it's also been given some incredible maintenance. These cars have to be in A1 condition all the time, and $800-$1000 on one of these beauties is well worth it. (Note: At the time this article was published, the automobile in the pic was at $550 with less than a day to go…seriously).

See something that's yours? Steal it back! 
Another fabulous feature of this site is its promise to help victims of crime, namely by making sure that if you see something that was yours, you can get it back free. It's called the Steal It Back Registry .

Largest Stolen Property Repository

PropertyRoom.com is the leading World wide web Auction Services Company serving law enforcement in the United States. In addition to our auction site at www.propertyroom.com, we maintain the only nationwide registry available to the general public for recovering lost or stolen goods, and it is absolutely FREE.

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By Julie Rains

The Quiet Millionaire author and Certified Financial Planner Brett Wilder states that “Most ‘normal’ people think that the subject of taxes is an absolute bore and would much rather spend their free time thinking about more interesting, stimulating, and happier aspects of life.” Thankfully, I would be considered normal by this measure. Thinking about avoiding taxes, the focus of Chapter 6, however, is mildly exciting. I've selected some of Mr. Wilder's ideas and insight that I found particularly useful.

Plan tax reductions rather than just take tax deductions.
There is a difference between 1) gathering your tax information and preparing your taxes or having them prepared by a tax professional and 2) actively planning tax reductions, that’s making financial decisions considering the immediate and long-term tax implications of your actions.

For example, if you’re ready to capture capital gains on certain investments, then you might also sell shares on stocks that have lost value (and that you’re planning on selling soon anyway). As a result, your gains and losses will be recognized in the same tax year and your overall taxes paid will be less than if you didn’t sell the losing investments.

If you’re working with a CPA and/or tax professional, shouldn’t that person advise you on tax strategy? Mr. Wilder asserts (and I agree, based on my experience) that

“Even the most competent CPAs are too busy to do meaningful tax reduction planning for you during the height of the tax-filing season, so you need to constantly manage your tax situation as part of an ongoing comprehensive financial management program.”

So, consider:

• Finding a financial advisor who keeps up with tax law and can suggest strategies based on your situation;
• Meeting with your CPA during the off-season to discuss tax ideas;
• Doing your own research and, if you’re engaging a CPA, asking very specific questions regarding the feasibility, legality, and reasonableness of your tax reduction plans.

Mr. Wilder dispels two tax myths, beginning with

Myth #1 “Deferring taxes is always good”

Adhering to conventional wisdom will have you reduce your tax liability now. Here’s the upside: as a result of lower taxes, you can free up cash to pay off debt, reduce your need for borrowing, and/or invest savings to begin or add to your portfolio. Mark offers ideas on ways that you can reduce your taxes now if you’d like, such as paying your property tax bill before the end of the year.

But there might be reasons not to defer taxes (and as Mark notes might not be applicable to your situation). For example, if you graduated in May of this year and only have a half-year of earnings to report (June to December), you might not want to pay that property tax bill this year; next year those deductions might be more valuable because you might be in a higher tax bracket based on a full year of earnings (January to December).

Another reason not to defer taxes is that you may need to sell investments now to lock in profits. The sale will trigger capital gains tax but a possible decline in the value of the investments next year may be greater than the tax you’ll owe upon the sale this year.

Myth #2 “Taxes paid go down during retirement”
Retirement income and income tax planning might not be a high priority at this moment but it is useful to take into account the possibility that you’ll need more money in retirement than you do now. The two huge reasons you might need more are: 1) taxes will be higher and maintaining your standard of living will be costlier due to the impact of higher taxes and 2) things will cost more. Therefore, deferring as much income and income taxes as possible to the future might be damaging to your long-term financial well-being.

To address the unknown of taxes and income, Mr. Wilder offers this agrarian-based tax wisdom:

“…you may be better off not taking the tax reduction opportunity on the smaller amount being invested, the seed, instead of looking toward the gain of a larger tax break on the larger amount coming out, the harvest.”

Funding Roth (retirement) and 529 (education) accounts are two great ways of paying taxes on the seed in order to avoid taxes on the harvest. There are no immediate tax advantages to funding either of these types of accounts. And if you are converting a tax-deferred account to a Roth, you’ll incur taxes now. However, if you’re a positive cash-flow maniac with a long-term view, you’ll love these benefits: 1) you won’t have to pay taxes on capital gains that occur when you trade investments and 2) you won’t have to pay taxes on withdrawals.

How do you know what’s best? Unless you are an income, investment, and tax prophet, you can’t see and know the future. So, Mr. Wilder grants that it is best to have funds in all types of accounts, which is certainly doable at least from a tax perspective. For example, it is possible to fund a 401(k) and a Roth IRA to lower your tax bill this year and future years. (Income restrictions apply).

Just for fun, I’ve got a few tax-savings ideas that may be applicable to your situation. These are inspired by The Quiet Millionaire and the IRS website:

• Charitable contributions: If you are planning on using funds from investments to make a charitable contribution, transfer appreciated stock to the charity rather than sell the investment, pay capital gains tax, and donate the proceeds. This tip may be especially useful for someone who will be taking the standard deduction rather than itemizing deductions. The warning is that if that stock is going to be sold at a loss, you'll be better off claiming the loss on your taxes. 
• Volunteer expenses: Some, not all, expenses associated with volunteering are deductible. For example, you can deduct the cost of transportation to the volunteer site; you can’t deduct the value of your time or services.
• Medical expenses: These expenses might include surgery, prescription medications, insurance premiums, dental work, modifications made to your home or car for medical reasons, eyeglasses, and tutoring for children with learning disabilities. The catch, according to the IRS, is the “you can deduct only the amount of your medical and dental expenses that’s more than 7.5% of your adjusted gross income (Form 1040, line 38).”
• Tax credits for child and dependent care, hybrid vehicles, and more: Mr. Wilder emphasizes that tax credits are superior to tax deductions; credits provide a dollar-for-dollar elimination whereas deductions reduce taxable income upon which tax rates are applied.
   

Avoid, don’t evade.

Cheating on taxes is illegal but it is a sin not to take allowable deductions, according to my personal income tax instructor at the community college. Wilder echoes these sentiments, saying that taxes “should be legitimately avoided, but not illegally evaded.”

”Ironically, if you earn a relatively high income and do too good a job of reducing your tax liability, the IRS can force you to pay a higher alternative minimum tax, or AMT.”

Again, Mr. Wilder advocates planning and projecting taxes to see if your tax avoidance strategies will lead you into “AMT territory.”

All this careful planning might not be necessary if your income and the cost of living stayed constant throughout your lifetime, tax laws never changed, ordinary income and capital gains were taxed identically, and taxes were calculated on an unchanging, straight percentage of your income. Not only does income vary, tax laws change each year. Research, tax planning, and financial adjustments can reap payback now and later.

Note: I am not a tax professional so please check with your CPA before using these ideas. I received a copy of The Quiet Millionaire in exchange for a review of this book. This post is part of a series; see also:

• What is Important about Money to You
• Major Obstacle to Financial Success
• Money for Now, Money for Later
• Building Your Net Worth

Permalink | Comments | Julie Rains“>Julie Rains's blog | Channel: Taxes

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By Philip Brewer

I don't know if a recession is coming. Nobody does. We might dodge the bullet for a while. On the other hand, the economy might already be in recession. You don't need to know the future, though, to make some wise moves.

Recessions hit everybody differently, so we'll take a look at how things tend to play out for people in different situations. First, though, it helps to comprehend what a recession is.

What happens in a recession

A recession is a reduction in the total amount of business done in the economy.

When conditions are right for a recession almost anything can set one off–anything that prompts businesses to decide to produce less, or prompts consumers to decide to buy less. High oil prices, for example, might lead consumers to cut back on food and clothing purchases so they have the ability to afford enough gasoline to get to their job. A credit squeeze might force businesses to scale back, because they can't borrow enough to purchase all the raw materials they need to keep their factories running at full capacity.

Once a recession gets started, it tends to spread. Every business that sells less also purchases less–meaning their suppliers are doing less business. Pretty soon, all those businesses are laying off employees–meaning a bunch of would-be consumers no longer have any income, so they're buying less as well.

How it affects you

A slowdown in business hits you directly if you own a business. It hits you one step removed if you work for a business (or want to): Jobs will be harder to find, raises will be smaller, layoffs will be more common.

A lot of people don't work for a business. Some work for governments (federal, state, local). Others work for institutions, large and small: colleges, universities, hospitals, orchestras, art centers, food pantries, land trusts (any of which may be purely independent or government-sponsored to some extent). People who work for governments or institutions are a second step removed from the impact of a recession, but that doesn't make them immune. The decline in business activity always reduces tax receipts to governments, leading to cutbacks especially at the say and local level. A general decline in prosperity often reduces charitable donations, leading to cutbacks at private institutions. Again: fewer jobs, less secure jobs, smaller raises.

There are also, of course, people who don't work in the money economy. Putting aside kids and non-working spouses (who face the same circumstance as their family breadwinner), I divide these people into two groups: The ones who are actually out of the money economy (subsistence farmers, freegans, prisoners) and the ones who are are in the money economy but their income doesn't depend on the work they do (the wealthy, retirees, people on welfare).

It's an important distinction, because people in the second category are depending on promises–the income from investments, pensions, social security, welfare, and the like, is at best only as sound as the finances of whoever is paying the money. In a recession, that soundness is threatened.

If you live on promises, remember that promises get broken–especially in a recession.

What to do

The first key, whether your income is tied to a business or not, is to reduce fixed expenses. High variable expenses can be tolerated, as long as there's an income stream to pay them. But high fixed expenses will wreck your finances very swiftly if the income stream dries up. This means reduce debt and avoid new obligations (fitness center memberships, burglar alarm contracts, etc.). For businesses, it means postpone hiring (hire temps instead) and postpone raises (instead, offer bonuses conditioned on profits).

The second key is to boost your emergency fund. A temporary income shortfall doesn't need to become a financial catastrophe, as long as you have enough cash on hand to tide yourself over. Resist the temptation to rely on credit as your emergency fund. It can be tempting to figure that paying down revolving debt frees up part of your credit line for use in a future emergency, but that's not the same as an emergency fund. At any time, but especially during a recession, lenders can cut credit limits, refuse to extend further credit, or simply get out of the business entirely. Have an emergency fund that doesn't depend on someone making you a loan. (After all, the classic reason to tap an emergency fund is when you've just lost your job–which is exactly the time that a creditor would be especially likely to cut off your credit.)

The third key is to diversify your income sources. If your goal were maximum total income, diversity would probably be the wrong choice. There's nearly certainly one income stream that would give you the highest total income if you put all your effort there. The problem is, that's not a stable strategy. A better choice, especially if a recession is in the offing, is to try to arrange several income streams, some of which don't depend too much on a thriving economy.

The fourth key is to reduce your dependence on money economy. This is the one sure way to protect your family from recession: provide for their needs without having to spend money. It seems unnatural in today's world for people to grow their own food and make their own clothes–but, to the extent that you can do so, you're in a position to just ignore the ups and downs in the economy. All the other options are just stop-gaps–they help you keep things together until the economy picks up again. This one actually solves the problem.

Same strategies, different balance

Wise Bread readers will recognize these four strategies as the same core principles that we speak about all the time, so I'm not telling you to do something new. Rather, I'm suggesting that you modify the balance. The downside of all these strategies is that in good economic times they result in a lower standard of living than you could achieve if you followed more mainstream personal finance strategies. In bad economic times, though, these are the winning strategies.

In good economic times, a business that refuses to use debt to grow will inevitably fall behind its more aggressive competitors. In bad economic times, the business that avoids debt will survive while the others will fail. For individuals, the calculation leans even more away from debt.

On top of that, a recession provides many opportunities for someone with ready cash. When no one else is buying, someone with cash in hand can get some terrific bargains–enough to catch up with years worth of “lost opportunities” for growth.

We don't know for sure that bad economic times are coming, but the threats to the economy (housing collapse, credit crunch, spiking prices for oil and food) are as great as they've been in a long time, and the potential missed opportunities from an excess of caution are smaller than during a boom.

Now is the time to go with these strategies–accepting the slower growth and lower standards of living that go along with them as a small price to pay for security and a reasonable shot at some massive opportunities ahead.

Remember: A recession is a time when promises get broken. Business fail, leaving both their debts and their employees unpaid. Tenants don't pay their rent. People who have always paid their bills on time suddenly can't. Sales fall through. Wherever your income comes from, it is at some risk. Arrange things so that you can face that risk.

Permalink | 4 comments | Philip Brewer“>Philip Brewer's blog | Channel: Personal Finance

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