Steven A. Branson, Esq. - Financial Strategies

There are several changes in the tax law that may affect you. Let us know if you have any questions.

Education - Congress will try to streamline tax credits and deductions relating to education expenses. The Hope Credit (up to $1,650), the lifetime learning credit (up to $2,000) and the above the line deduction (up to $4,000) would be replaced with a credit worth up to $3,000 per year, with a $12,000 per student life time cap. The phase out for this credit would also be higher than for the current credits, so more families could avail themselves of it.

“Kiddie” tax reprieve – Congress has allowed families with children born before 1990 until December 31st to sell assets to be taxed at 5% instead of 15%. After that date, the rules on taxing children income over $1,700 at the parents’ rate will apply.
See Our section on Tax and Investment Planning for Your Children.

Out-of-State Municipal Bonds - The Supreme Court will review a Kentucky court decision that it is unconstitutional for that state to tax interest on the bonds from other states while exempting from income tax Kentucky bonds. If you had out-of-state municipal interest taxed on your state income tax returns, you may want to file amendments to protect your ability to get a refund if the Supreme Court upholds this decision.

Investment Property and Use of $250,000 Gain Shelter - The IRS recently clarified the rules for the sale of principal residence that had been a rental property. The tax law allows a taxpayer to exclude up to $250,000.00 of gain ($500,000.00 if married and filing jointly) from the sale or exchange of a principal residence, so long as the taxpayer lived in the property for two out of the last five years. Under the new rules, a replacement property held for investment and then converted into a principal residence will still be eligible for this exclusion, if the two out of the last five years test is met AND the replacement property was owned by the taxpayer for at least five years. This would mean that taxpayers could potentially exclude almost all capital gains tax which would otherwise be due on investment property.

Summer is a good time to work on your 2007 tax planning, as you do not miss items that changed at the end of last year such as the state sales tax, Archer MSA, college tuition and teacher’s supplies deductions.

We recommend, as always, reviewing your asset allocation. When the DOW was reaching new highs, there was sense of complacency by investors regarding their portfolios. Now the market has declined again. All of this suggest that it is a time to review portfolios. People need to ask: Do my investments have an international component? How much should I have in bonds? What should I add as market neutral or other investments that are not correlated to the US stock market?

We prepared the most income tax returns for 2006 that we have ever done, continue to act as the CFO of the restaurant in Jamaica Plain, have taken on more estate probate work, and have a couple of clients considering Reg. D private securities offerings.

Barry expects to get his J.D. in December and continues to do real estate and tax work, as well developing expertise on corporate and non-profit issues.

As we review portfolios for clients, and update our own mutual fund model, we find that allocations are out of alignment due to the fact that the growth in stock prices has pushed, for example, mid cap stocks into large cap stocks. This means that the mid cap fund you hold is now and large cap fund, so that you are over-weighted in large cap and under-weighted in mid cap.

This summer would be a good time to review your allocation, taking into account the drift do to capitalization changes but also addressing the decline of the dollar internationally, inflation fears, etc.

Welcome to our new site, built with WordPress. Going from a visual site-building tool to a content management system feels a little strange, but it makes a lot of sense for the kind of content we provide here.

The front page will now display summaries and links to my newsletter posts. Other parts of the site can be reached by using the links in the sidebar.

Note: 2006 Tax Forms: Certain tax write-offs set to expire were restored AFTER the 1040 and related forms were sent to print. Therefore, be very careful in completing your tax returns so that you do not miss items such as the state sales tax, Archer MSA, college tuition and teacher’s supplies deductions.

We have taken on some new tax work, continue to act as the CFO of the restaurant in Jamaica Plain and have a couple of clients considering Reg. D private securities offerings. We are also gearing up for year-end tax planning to address the new tax laws.

Amelie M. Laferriere joined us earlier this summer as an intern, training in financial analysis and investment allocation. Barry continues to do real estate and tax work, as well developing expertise in corporate and non-profit issues.