June Newsletter

There’s an old Wall Street saying, “Sell in May and go away,” advising investors to avoid the historically volatile summer markets. If you are considering selling stock this summer, you may consider donating instead as a way to lower your tax burden. Details on tax-efficient donating are inside, as well some comforting information about the declining frequency of IRS audits. Summer also tends to ignite our home buying instincts, so check out the article with tips for buying a home in this seller’s market. Finally, if you’re a business owner consider the list of reasons to incorporate.

As always, should you know of someone who may benefit from this information please feel free to forward this newsletter.

Donate Stock to Lower Your Tax Burden

With U.S. equity valuations near historically high levels, now may be an opportune time to take advantage of the tax benefits of donating long-term appreciated stock to a qualified charity. Directly donating a winning stock you’ve held for at least one year provides greater tax benefits than writing a check to your favorite cause.
Higher deduction. Your charitable gift deduction will be equal to the market value of the stock on the date of your donation, rather than what you originally paid for it.

No capital gains tax. You avoid paying capital gains tax on the unrealized gains of the stock, because it is transferred directly to the charity rather than sold. That also means the charity gets a bigger gift.

Greg Givesalot bought 50 I.M.Great shares two years ago at $100.00 a share, and its shares have appreciated since then to $150.00 a share, giving him a long-term capital gain of $2,500 if he were to sell today. Instead, Greg avoids the capital gains tax by donating the shares to the Red Cross, and he deducts the full market value of $7,500 as an itemized deduction on his tax return.

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Some tips to keep in mind:

Bullet Point To maximize your charitable donations, donate only long-term appreciated stock (stock you’ve held for one year or longer). That way you can deduct the full market value of the stock, rather than its cost basis (what you originally paid for it).
Bullet Point If it’s a losing stock, it’s usually better to sell it first instead of donating directly. That’s because selling a losing stock will allow you to take a capital loss deduction on your return. Certain limits apply.

Keep Your Audit Fears in Check

Getting audited by the IRS is no fun. Fortunately, your chances of being audited are probably lower than you think. A look at the latest IRS statistics for 2016 reveals some interesting, and reassuring, facts about the risk of an IRS audit.
Bullet Point Audits are becoming less common. The number of individual tax returns the IRS audited fell to a 12-year low last year, to just above 1 million. Audits have been declining especially steeply over the last five years, which the IRS commissioner said was due in part to declining budgets and a smaller IRS workforce.
Bullet Point Audits target the rich. It’s a fact: IRS audits happen most often to the super-rich. The statistical chance of being audited increases dramatically for people at higher income levels.
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For example, filers that made near the average U.S. income only had a 0.4 percent chance to be audited. That frequency doubled once annual incomes reached $200,000, and doubled again at incomes greater than $500,000. By the time a person reports $10 million in income, they have a one-in-five chance to be audited, according to IRS statistics.
Bullet Point Bad math gets you audited. High income isn’t the only thing that gets you audited, however. Often when people do their returns themselves, they make calculation errors. The IRS sent out more than 1.6 million examination letters last year correcting math errors, with the most frequent errors occurring in people’s calculation of their amount of tax due, as well as the number of exemptions and deductions they claim. Getting professional help can save you a lot of hassle.
Bullet Point Missing information creates a problem. Keep in mind that missing or incomplete data on your return also triggers an audit, since the IRS usually gets a copy of the same tax forms (W-2s/1099s) you get every year.
Bullet Point Standing out gets you audited. The IRS takes a close look at business expenses, charitable donations and high-value itemized deductions. They have statistical data on what amounts are typical for various professions and income levels. If your return stands out from what is “normal,” it may be flagged for review by the agency’s computer system.
Bullet Point More audits are done by mail. If you do face an audit, it’s most likely that it will be done by mail. Only about one in four IRS audits are field audits conducted in person by an IRS agent. The most common issues, such as math errors or missing data, are done through mail correspondence.
Bullet Point Most audits end up costing you. You can fight the tax law, but the tax law usually wins. Most people audited by the IRS end up owing additional tax. Only 11 percent of correspondence audits and 8 percent of field audits concluded with a “no change” finding in favor of the taxpayer.

Home Buying in a Seller’s Market

It’s a tough time to buy a house. Nationwide U.S. house prices rose to their highest levels ever in November and have stayed elevated, according to the Case-Shiller Index tracking single-family home sales. Residential inventories also reached their lowest levels on record during the first three months of 2017, the real estate data site Trulia reported.

With high prices and low supply, homebuyers have to tackle the buying process differently than they would in a flat or down market. If you can, it may be worthwhile to wait to buy a house until the market cycle changes. However, that’s not always an option.

Preparation is key

In a seller’s market you’ll be competing with other motivated buyers for the house you want, so there’s a benefit to acting quickly. If you take these steps to prepare, you can be fast and competitive without being frantic.

Bullet Point Have your finances in order. Repair any issues to your credit rating; save as much as you can for down payment; and apply for a preapproval from your mortgage lender. If you can come to the negotiating table with a large down payment (20 percent or more is ideal) and your financing secured, you will be able to close your purchase more quickly.
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Bullet Point Research. Investigate the kind of houses you are interested in and the price range you can afford. Know your target neighborhoods before you start looking. When you search, start below your minimum range, with the expectation that you may have to make a better offer if there are competing bids.
Bullet Point Get a good agent. In a tight market, having a reputable real estate agent with a good track record can give you an edge. Spend some time finding an agent who knows your target neighborhood and who can lend their expertise in closing a deal in a competitive marketplace. Now may not be a good time to work with someone new to real estate.

Land your dream home

Your finances are ready; you’ve researched what you want; and you secured the help you need. Here are the next steps to landing your dream home in a tight market.

Bullet Point Be nimble, be flexible. Now you should be primed to quickly investigate new listings within hours of their first posting, if possible. If you’re interested in a house but an inspection finds a few flaws, you may have to be flexible about accepting a house with a few quirks or in need of some repairs.
Bullet Point Make a strong offer. A seller’s market isn’t a time to lowball your first offer on a house you want. If you’ve prepared and set your expectations below your minimum price range, you should be able to make a strong offer to make sure you are among the most attractive bidders. You shouldn’t wildly overpay, but making a strategic offer above the listing price may sweeten the deal enough to close quickly.
Bullet Point Earnest money. You may consider offering an “earnest money” deposit to show you are serious. Just understand that you may forfeit your deposit if you later change your mind.
Bullet Point Few strings. Try to make your offer as simple as possible. The more contingencies, the more room for someone else to sneak in and snap up your target home. Flexible move in dates may help the seller navigate their purchase. Having to sell your home before buying theirs may create a snag versus another offer.

There are many resources available to you to navigate the home-buying waters. Spend some time finding the resources that work best for you and your situation.

Five Reasons to Incorporate Your Business

Most new businesses start with no thought about legal structure. In the eyes of the IRS, the default structure is a “sole proprietor,” in which your business profits are taxed on your personal tax return. This can serve you well to start, but there are several reasons you may want to consider incorporating as your business grows.
Bullet Point To protect your personal assets from creditors. When you operate your business within a corporation, creditors are often limited to corporate assets to satisfy a debt. Your home, savings, and retirement accounts are no longer fair game.
Bullet Point To provide a personal liability firewall. The corporate form can help protect you against claims made by others for injuries or losses arising from actions of your business.
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Bullet Point To issue shares of stock. You can help build your business by issuing shares to new investors, or by offering stock options to key employees as a form of compensation.
Bullet Point To gain tax flexibility. A corporation can provide you with more tax flexibility. Deliberate planning can help optimize the taxable division between corporate income, dividends, and your personal wages.
Bullet Point To enhance your business presence. Being incorporated sends a signal that your business is a serious enterprise, and it could open doors to opportunities not offered to sole proprietors. Consumers, vendors and other businesses often prefer to do business with incorporated companies.
As always, should you have any questions or concerns regarding your situation please feel free to call.

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