Gaining an understanding of capital gains

Are your investments gaining in value? Then you'll want to understand how the capital gain tax works. Here's a refresher.

• What is a capital gain? For tax purposes, you have a capital gain when the amount you sell an asset for exceeds your basis in that asset. An example: when you buy stock for $50 and sell for $70, your gain is $20.
  
  Getting your basis right is important — though not always simple. If you purchase an asset, determining your basis is fairly easy. But if you receive an asset by gift or through an estate, your basis can be more difficult to determine.

• What are the capital gain tax rates? For 2010, capital gain tax rates range from zero to 35%. The actual rate you'll pay depends on how long you own an asset, the type of asset, and your federal income tax bracket.
  
  Short-term capital gains — assets you've owned a year or less when you sell — are taxed at regular income tax rates, which can be as high as 35%.
  
  Assets you sell in 2010 after owning them more than a year are generally subject to tax at a 15% rate. You may qualify for a zero percent rate — no tax at all on the capital gain — when you're married filing jointly with taxable income of $68,000 or less ($34,000 for singles).
  
  You'll pay a higher rate on some types of assets. For instance, collectibles are taxed at a maximum rate of 28%.

Capital gains offer excellent opportunities for tax planning because you can usually time when you'll pay the tax by choosing how long to hold an asset and when to sell. Please call to discuss how you can benefit from year-end planning strategies.

Providence Trinity Care Hospice Re-accreditation

John Cameron, Managing Partner of BCWS, wanted to share this letter he received as a member of the board of directors of the Providence Trinity Care Hospice.  They are excited to have been fully re-accredited.

DATE:	November 5, 2010
TO:	PTCH Board of Directors & Trustees Kerry Carmody
FROM:	Terri Warren, Executive Director
RE:	Announcement:  CHAP Reaccreditation, Deemed Status

As many of you know, we submitted our self study binders to our accrediting body, Community Health Accreditation Program (CHAP) in the middle of October for our three year reaccreditation survey, deemed status.  In a much more rapid time frame than anticipated, our CHAP surveyors arrived on Tuesday, November 2 and formally exited earlier today.  After the full survey, the team is recommending full reaccreditation, deemed status to the CHAP Review Board later this month.

This survey was thorough, reviewing both CHAP and Medicare standards and compliance.  In addition to the medical and personnel review including five patient home visits, governance, strategic planning, and contracting, multiple interviews were conducted.  John Cameron was interviewed as Chair of the Operating Board of Directors.  At our exit conference today, they specifically noted organizational strength in the areas of Key Leadership, Quality of the Medical Staff, focus on Palliative Care through the Continuum, Successful partnerships with Providence ministries and community partners, and Strong Board of Directors with strong leadership.  Some of our key opportunities lie in refining and organizing some systems, standardizing care standards and practice across all sites, and integrating CHAP standards more fully into practice and operations. 

Providence TrinityCare Hospice truly has a remarkable team, offering exceptional care to patients and families in our communities. I am so grateful to each of you for the support and guidance you bring to our service and each of us.  Special thank you to John for his professional, supportive and articulate interview!  We will celebrate our reaccreditation success at our upcoming Board meetings!

How to improve your credit score

The days of easy credit, offered to anyone who can breathe, are history. In this sluggish economy, lenders want to know whether borrowers are likely to stay current on their loans, mortgages, and credit card accounts. Banks and other lending institutions are looking more closely at credit scores, the numbers that (in theory at least) predict the likelihood that a borrower will default on his or her outstanding debts. As a result, knowing your score and ensuring that it's climbing toward the upper percentiles should be a part of your regular financial planning.

The most commonly used credit score is the FICO, developed by Fair Isaac Corporation. FICO scores range from a low of 300 to a high of 850 and may be obtained (for a fee) at myfico.com. The score is considered a predictor: the higher the score, the more creditworthy the consumer. Not so long ago, a score that just nudged the 700 mark would bring lenders to the table with their lowest interest rates. Over the last few years, however, higher scores are often required to get premium rates.

About 35% of the FICO score is derived from your payment history, and another 15% comes from the length of that history. Ten percent of the score is based on the types of credit you use—credit cards, retail accounts, and other types of loans. Another 30% takes into account the amounts you owe as a fraction of your available credit. These numbers and others are fed into the FICO calculator to determine your overall score.

To raise that score, focus on the numbers that matter most:

• Avoid late payments. If you must juggle payments because of cash flow problems, try to limit the number of past-due accounts. A history of late payments on several accounts will hurt your score more than delinquencies on a single account.
• Mix it up. Spread your debt over several types of accounts: installment loans, credit cards, and accounts with retail merchants.
• Curb spending. Keep your outstanding balances to less than 50% of your available credit.
• Check your credit report regularly. By law, you're entitled to a free annual credit report from the three main credit-reporting agencies. Check the report for errors, and follow up to ensure that problems get fixed. One vendor's erroneous reporting can tank your score.

Good credit is a valuable commodity. Guard it carefully.

More money saving tips for small business

If you're the owner or manager of a small business, you've undoubtedly felt the pain of this economy's ever-so-slow recovery. Demand for your products or services may have dwindled and when revenues are down, businesses need to adjust by tightening their belts. But reducing expenses is a balancing act. Cut costs that make a significant contribution to your income, and you may find revenues declining further. Trim expenses that are "fat" - unnecessary because they don't bolster the bottom line - and your firm can become leaner and better able to compete.

Here are a few suggestions for targeting and trimming some of these "fat" expenses.

• Scale back on utilities. Take a hard look at your phone system. Do most of your employees use cell phones? If so, perhaps you can reduce the number of phone lines or dispense with that expensive in-office system entirely. Is your electric bill going through the roof? Try installing motion sensor lights in some areas, and turn off lights in unused spaces. Consider switching to laptop computers instead of desktop models that consume significantly more energy.
• Exploit the Internet. Use the World Wide Web for everything you can, from teleconferencing to market research to buying discount office supplies. Look for deals on office items on Craigslist and eBay. Find free business forms online, everything from purchase order templates to marketing brochures.
• Bolster your procurement practices. Force vendors to compete by getting multiple bids, and ask suppliers to match the lowest prices.
• Lease that unused office space. If you have space that's, well, taking up space, consider subletting to another company or asking your landlord for a price reduction.
• Buy in bulk. Everything from office supplies to lunchroom goodies can be purchased at a discount in larger quantities.
• Dump the company car. If your company owns a vehicle, it may be time to rethink whether it's really needed. Gas, insurance, car payments, and other costs can go away if the car isn't on the company books.
• Review your insurance policies. It may be time to discuss discounts or umbrella plans with your insurance agent. Shopping around can be a good idea as well. After all, insurance companies are feeling the effects of the down economy too, and may be willing to work with you to retain your patronage.

If you'd like to discuss additional ideas for reducing business costs, give us a call.

Is it smart to use retirement savings to pay off a mortgage?

In these days of high unemployment and declining home values, people are searching for ways to regain control over their financial lives. For many, that includes paying off debts as quickly as possible. After all, if you no longer have a mortgage, the banker can't foreclose on your house. If your credit card balances are zero, the collection agency will stop calling. If you've retired your auto loan, the repo guy won't be knocking on your front door.

But sometimes paying off debts - especially a mortgage - shouldn't be your first priority. For example, it's wise to establish an emergency fund to keep from going further into debt when you encounter the inevitable bumps on life's journey. Also, if your employer matches contributions to your retirement account, it makes sense to contribute up to the matching amount before paying off debts. That's because an employer match represents a very high return on your investment. And the longer your money is invested, the longer it has to grow. With a relatively conservative return of 6%, your money will double in about 12 years and double again in 24 years.

By withdrawing retirement funds to pay off a low-interest mortgage, you lose the opportunity to earn a return on those withdrawals. Let's say you pull $100,000 from your retirement account to pay off a 5% fixed-rate mortgage. If you plan to retire in 24 years and the return on your investments averages 6%, that $100,000, if left in the account, could have grown to $400,000 by your retirement date. Withdraw the money now and that earning power is lost forever. You're giving up a return of 6% to pay off a debt that costs less than 5% (when tax-deductible interest is factored into the equation). In addition, withdrawals from tax-advantaged retirement accounts can generate enormous tax consequences. If you're under age 59½, expect to pay a 10% penalty (in addition to general income taxes) on that $100,000. That means you'll need to withdraw substantially more than $100,000 to pay off your mortgage today.

Generally speaking, it's prudent to establish an emergency fund, contribute to retirement accounts (at least up to the matching percentage offered by your employer), and pay off high-interest credit cards and loans — before you consider raiding a 401(k) account to pay off the mortgage.

Questions to ask before retiring

If you're within a stone's throw of retirement - for most folks, that's somewhere between the ages of 55 and 65 - you've probably spent at least a little time dreaming about life after work. But before you turn off the computer and turn in your retirement paperwork, consider three important questions.

• What will you do in retirement? If you love golf, and dream of getting up late and hitting the greens every afternoon, retirement may be just the ticket. But your hobby may not hold the same appeal after a few years. That's why it's important to take stock of your interests, hobbies, and activities before retiring. Consider "field testing" activities you intend to pursue in retirement, such as joining a band, volunteering for a nonprofit organization, or taking classes at a community college. Doing "retirement activities" before you retire can be an eye-opening experience, and may help to separate daydreams from reality.
• Will you work? Studies show that the number of older Americans either holding jobs or looking for work has been rising for at least 15 years. Of course, some folks seek employment out of necessity: bills need to get paid. But for many people, work also provides needed social interaction and a sense of satisfaction. Consequently, some may decide to work at least part-time during retirement — whether or not they need the money. Another idea that's gaining popularity is called "serial employment." With this strategy, you spend part of your "retirement" years employed in a series of full-time jobs interspersed with periods of travel and leisure. Such a plan can generate a healthy supplemental income for you and benefits for talent-starved employers.
• Have you saved enough? This, as they say, is the million-dollar question. But how much money you'll need to comfortably retire depends on many factors, including the status of your mortgage and other loans, your general health, expected rates of return on your investments, the size of your current nest egg, life expectancy, plans during retirement (including travel), pensions and other sources of income, the cost of health care and insurance, and myriad other considerations. One size doesn't fit all. So it's important to confer with a trusted advisor who'll help you take a hard look at the numbers - before you wave goodbye to your employer.

For guidance in your retirement planning, give us a call.