Wednesday, August 19, 2009

Healthcare & Taxes

FOR THE FIRST TIME IN five weeks, the major indices took a break. By the numbers, for the week ended Friday, August 14, 2009, the Dow Jones Industrial Average closed at 9321, down 49 points, or 0.5%. The Standard & Poor’s 500 closed at 1004, down 6 points, or 0.6%, and the NASDAQ Composite closed at 1985, down 15 points, or 0.7%.

The Open Market Committee of the Federal Reserve decided to make no changes to interest rates this last week. The Fed did say it would slow its purchases of long term treasuries, and allow the purchase program to expire in October. The Chinese markets have backed off some over concern about tightening credit.

Both Germany and France reported GDP growth in the second quarter. Overall, Eurozone GDP contraction was 0.1% during the second quarter, compared to an expected contraction of 0.4%.

Nestle reported a 3% drop in first half profit, missed its sales forecast, and withdrew its annual revenue target. Kraft forecast a 4% growth in revenue for the year and raised its profit target, while Unilever reported a 4.1% growth in second quarter sales.

CIT is now effectively under government control, apparently needing permission for something as basic as going to lunch. The International Energy Agency hiked its 2009 and 2010 consumption forecast, citing growing demand in Asia, and in particular China. In spite of this, demand is expected to be about 3% lower in 2009 than in 2008.

GM said its new Chevy Volt should get 230 MPG in the city. Sounds like one of those cars you put on instead of get in. The solar energy industry is now awash in modules and cells, bringing the price of products and installation services down. This shift in supply and demand has happened in part because Spain, which accounted for 50% of all solar installations worldwide last year, cut its solar subsidy.

If you are a commercial or residential tenant, this may be a good time to negotiate a new lease. Landlords seem to be amenable to working with you, as they prefer some cash flow to no cash flow. Speaking of which, cash flow beats assets every day of the week. Have you ever tried to pay for groceries with the title to your home, or pay your electric bill with the title to your car?

The administration may be getting the message – Americans don’t want federales controlling delivery of healthcare. Stay tuned for more on this very emotional issue.

On the tax front, according to Kiplinger’s Tax Letter, the IRS has ruled, in a PLR, that all gain realized on metals ETFs is taxed as ordinary income. For IRAs, a different interpretation, as long as the IRA is held by an independent trustee. This means you can own metals ETFs in your IRA without running afoul of the collectibles rules. As a refresher, IRAs can own just about anything except life insurance, shares of Sub-S corporation stock, and collectibles. If you are a client of CAG, your IRA is held by an independent trustee.

In other tax news, open-air parking structures must be depreciated over 39 years. An Appeals Court has upheld the three year statue of limitations on the IRS’ ability to go after misstated returns. Timber owners who enroll in the federal Forest Health Protection Program can get cost sharing payments that cover up to 75% of the cost of implementing a pest control plan.

In a PLR, the IRS let a couple with several rental properties have time to elect to treat them as a single entity, helping them avoid passive loss rules. This in the case of real estate professionals, who are those who work at least 750 hours a year in the real estate business, and are materially involved as landlord, broker, or developer.

UBS values its business in the US to the extent that it is rolling over for the IRS. As many as 150 families may face charges.

The top 1% of all tax filers paid 40.4% of all federal income taxes in 2007, up from about 29% 20 years ago. These taxpayers reported just 22.8% of all income. The highest 5% paid 60.6% of all federal income taxes, while reporting 37.4% of all AGI. The bottom 50% of all filers paid just 2.9% of the total income tax bill. Just more evidence that the wealthy don’t pay enough in taxes. www.fairtax.org.

According to Russ Alan Prince, in his book “The Influence of Affluence”, Steve Bell of Seattle had a solid business as a subcontractor, building out dentist’s offices. That is, until the general contractor was arrested for cocaine distribution. Steve was left with more than $100,000 in debt to a vendors and subcontractors. His attorney recommended bankruptcy. Instead, Steve went to his creditors, promised to pay them all, and went to work. Six years later, all debts are paid, and Steve has a thriving kitchen and bath remodeling business, complete with showroom.

Quote of the week:

“Every adversity, every failure, every heartache, carries with it the seed of an equal or greater benefit.”
Napoleon Hill

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