Prepping for Tax Time

 As you prepare your 2013 taxes, here is some information you may find beneficial.

The Center’s Commitment to You

At The Center, our goal is to provide exceptional service and meet your needs as efficiently and effectively as possible. We offer the following commitments and services related to the tax season:

  • Consistent communication about timelines for tax document receipt as that information is available.
  • Assistance in understanding your tax-related questions and coordination of information such as cost basis.
  • Coordination and communication with CPA’s and tax preparers upon your request. We’ve find that sharing and collaborating with your other trusted advisors can have substantial benefit to you.
  • Financial planning and investment management integrated with perspective on tax consequences. If you would like to review or discuss our approach to taxes as it relates to your personal situation, please let us know!

  • 2013 Year-End Tax-Planning Letter

As you complete your taxes for this year, a copy of your tax return is one of the most powerful financial planning information tools we have. Whenever possible, we request that you send a copy of your return upon filing to your financial planner, support planner, or client service manager at the time of filing. Thank you for your assistance in providing this information which enhances our services to you.

IRS Filing Dates

For Tax Season 2013, due to the government shutdown in 2013, the IRS will not start accepting and processing returns until somewhere between Jan. 28 and Feb. 4. This is approximately two weeks later than the standard start date.

Raymond James Tax Reporting.

For the most up to date information on the 2013 Tax Season & Raymond James, visit their tax resource page.

Many 1099’s will be delayed so as to ensure accuracy and reduce the potential for amended 1099’s.

2013 Form 1099 Mailing Schedule

  • February 14 – Raymond James begins mailing “basic” or fully reallocated 1099s
  • February 28 – Second round of original 1099s and first round of amended1099s are mailed

To reduce the number of delayed tax forms due to income reallocation, Raymond James will be utilizing February 15th as its deadline for mailing our first round of original 1099s. This additional time will allow Raymond James to capture further income reallocation and produce additional tax forms that would otherwise been delayed until the 2/28 mailing. 2/15 also aligns with the regulatory IRS mailing date.

Electronic Access to Tax Documents through Investor Access

You can view your tax reports, along with statements for all of 2013, by accessing your account online through Investor Access: raymondjames.com/investoraccess.

These documents are available in Adobe PDF format, so you are able to print or save them to your own computer. They will be archived in Investor Access for 20 years.

TurboTax users click here for information on importing tax data

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. You should discuss any tax or legal matters with the appropriate professional.

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine. A14-001496

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Where Do I Take Cash From Next? The 72(t) Option

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A longtime client, we will call her “Joan”, called last month needing to set aside money for her 2014 income needs. She had nothing left in the bank.  She had been through a life transition recently, out of work for over a year, and helping family with some health concerns.  Nearing retirement but not quite at the point at which she could access her retirement moneys without penalty (she was in her late 50’s, but not quite 59 1/2), she was concerned because her only choices were a Roth IRA and a traditional IRA.  So her normal reaction was to go for the Roth because it had fewer penalties or tax (she had established the Roth over 5 years ago and could access her contributed portion without penalty; she would likely experience a penalty if drawing on earnings portion). 

Penalty-free IRA Withdrawals

I offered a rarely used suggestion to establish a section 72(t) distribution (as authorized under the IRS tax code). This rule allows for penalty-free withdrawals from an IRA account. The rule requires that, in order for the IRA owner to take penalty-free early withdrawals, he or she must take at least five "substantially equal periodic payments" (SEPPs). The amount depends on the IRA owner's life expectancy calculated with various IRS-approved methods.

Rule 72(t) allows you to take advantage of your retirement savings before the age of 59 1/2, when there is otherwise a 10% penalty on early withdrawal. The withdrawals, however, are still taxed at your income rate.

How to Use Rule 72(t)

The substantially equal period payments must generally continue for at least five full years, or if later, until age 59 ½. For example, if you began taking payments at age 56 on December 1, 2006, you may not take a different distribution or alter the amount of the payment until December 1, 2011, even though your fifth payment was taken on December 1, 2010.

If you begin taking substantially equal periodic payments on December 1, 2005, and you turn 59 ½ on July 1, 2011, you may not take a different distribution or alter the amount of the payment until July 1, 2011.

This works well for Joan because she did not have any earned income in 2013 so we actually started her distribution in December for the 1st of 5 distributions.  We plan to take the next one immediately in January of 2014 and this should fulfill her income requirements needed for 2014.  She also does not plan on finding work in 2014 so the taxes on these dollars will be small since she had no other income.   The Roth arguably would also have fewer tax implications, but we suggested taking from the Roth IRA after this if additional income was needed in the year as she climbs the tax bracket wall.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. A 72(t) distribution may not be right for everyone. Investors should take into consideration the possibility of depleting their retirement account before the end of their life expectancy. In addition, any withdraws are taxed at the investor’s income rate and may raise their tax bracket. Please discuss any tax or financial matters with the appropriate professional before making a decision. #C14-001634

Curtain Call

 The Center's Team enjoys sharing their knowledge with the press to help stories come to life, share facts and bring important topics to the forefront.  We are also honored when we are recognized by media and publications for our work and service to our profession. Here's what's new:

Center Included in 2013 Crain's List Largest Money Managers

Center for Financial Planning, Inc. has been recognized among the top 25 largest money managers in Crain’s 2014 Book of Lists. Ranked by assets under management. View Crain's List here.

Click here to view the profile of Timothy W. Wyman, CFP®, JD.

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Bitcoin: The Open Source Currency

 Have you heard about Bitcoin? It’s an online “cryptocurrency” meaning it has no physical presence like the U.S. Dollar or similar currencies. Instead it’s simply a long sequence of random numbers and letters that’s supposed to be unique and not replicable. If you want to purchase something and the merchant on the other end of the transaction is willing to accept Bitcoins, you simply send that person Bitcoins through an online exchange.  An “electronic signature” is added (the random sequence of letters and numbers) which supposedly makes the transaction secure and not duplicable.  

How does someone get Bitcoins?

There are three ways to get Bitcoins.

  1. You can acquire Bitcoins by converting local currency (U.S. Dollars, Euro’s, British Pound Etc…) for Bitcoins on an online exchange. 
  2. If you are a merchant you can advertise that you accept Bitcoins for goods and services.
  3. Finally, you can “mine” for Bitcoins by dedicating your computer to the Bitcoin network. When your computer solves math problems, you earn Bitcoins. Anyone can take part but without a computer technology background, it can be extremely confusing. I candidly admit I don’t entirely understand it.  For further information:  http://www.bitcoinmining.com/

What is a Bitcoin worth?

The value of Bitcoins fluctuates dramatically on a day-to-day basis due to the emerging nature of the currency.  At the time of this writing 1 Bitcoin was worth $915.48 U.S. Dollars.  Unlike other currencies Bitcoin is not backed by the full faith and credit of any sovereign government so the “value” is only what the users are willing to pay for it.  

Where to store Bitcoin money?

There are several “wallets” currently available:

  1. Web wallets are stored on the world wide web, but apparently are less secure then other forms of wallets.
  2. Software wallets are downloaded and stored on your personal computer, and are considered more secure because the user has more control and doesn’t depend on a 3rd party service.
  3. Mobile Phone Wallets are available on iPhones and Android devices. 

How does someone spend Bitcoins?

Bitcoins can be spent anywhere that they are accepted. There are two commonly used websites to find Bitcoin-friendly merchants near you http://coinmap.org/ and https://bitpay.com/directory#/#search   .   By current estimates there are over 12,000 vendors that accept Bitcoins.  

Where to find more information? 

Here are some good places to keep up with Bitcoin news and discussion:

  • Coindesk.com - An excellent source of Bitcoin news
  • BitcoinMagazine.com - Insightful articles with deep technical credentials
  • BitcoinX.com - Bitcoin headlines, market rates & charting resources

Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

This article and its links are being provided for information purposes only.  It is not a recommendation to buy or sell Bitcoins.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. #C14-001113

Financial Life Planning Gets Beneath the Raw Numbers

 I recently traveled to Beverly, MA to attend the Kinder Institute’s 5-day Life Planning training.  The Kinder Institute is internationally recognized and founder George Kinder is a thought leader in the Life Planning movement. The 5-day advanced training was well structured and the experiential teaching format was powerful. I walked away with a deeper understanding of how to promote a stronger relationship between financial resources, personal values and aspirational goals.

One example that comes to mind is that money matters are often thought about in terms of numbers:

  1. I make $X
  2. I’d like to save $X for retirement
  3. Our debt is $X
  4. I own a home worth $X
  5. My investments are worth $X

These concerns represent the raw data, facts and resources that make up your financial life.  To get beneath the numbers takes some additional exploration. Spending time up front to figure out what's most important to you creates a bridge between financial numbers and the life you strive to live.  A personal vision statement is an inspirational document that goes hand in hand with your financial plan. 

At The Center, we are fortunate to have many long-term relationships with clients. My experience at the Kinder Institute was an exceptional opportunity to learn new skills to better serve our clients and the financial planning process that is core to The Center.

Laurie Renchik, CFP®, MBA is a Partner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

George Kinder and the Kinder Institute are independent of Raymond James. C14-000816

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Protecting Yourself Against Identity Theft in 4 Easy Steps

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 Who hasn’t heard about the Target stores’ security breach that occurred during the recent holiday season? I am sure we all know someone who was affected by this security scare as they routinely used their store credit card to pay for holiday purchases. While the victims of this breach could not control their circumstances, incidents like these are a friendly (or not so friendly) reminder that credit card security and identity theft are a fact of our everyday lives. So what can you do to make sure that your own actions don’t lead to an identity theft nightmare?

  1. Routinely check your Credit Report. Go to www.annualcreditreport.com, where you can access a free report from each of the credit reporting agencies once per year. Consider requesting one report every four months to keep an eye on your credit activity.
  2. Limit the number of cards you own and monitor them actively. Review your account activity at least monthly when you receive your statement to make sure that all charges are legitimate.
  3. Do not give identifying numbers or financial information over the phone, by e-mail, or in person unless you are sure of the person you providing information to. Be careful not to e-mail important numbers – Social Security Numbers, credit card numbers, etc.
  4. Shred documents with personal information or store them in a locked cabinet or safety deposit box. Prevent easy access to your personal information.

Taking these simple steps does not guarantee that you won’t be a victim, but can go a long way towards preventing the opportunity for fraud, or catching it early in the process.

Contact your financial planner about this and other credit and identity theft issues.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-001633

Can You Ignore the Facebook Speculation?

 If you’re tapped into social media, you’ve likely heard the latest hype about Facebook’s share prices. Facebook has drawn a lot of attention and, as a result, a lot of demand for its underlying common stock. 

How Facebook is Valued

There are a lot of different methods for valuing shares in publicly traded companies.  Two of the more common approaches are to look at present earnings versus the current share price and decide whether a company is under or overvalued based on some multiple of those two figures. This is known as the price to earnings ratio.  The second common approach, and probably the one more applicable to social media companies, is future projected price to earnings. This approach is nothing more then educated guess work, and in many cases can lead investors to pay large dollar amounts for a company based on their potential earnings rather than current earnings.

The argument is that because social media sites have so many users, they can leverage that user base into advertising dollars. It sounds great, in theory, and even in practice we are starting to see those advertising dollars roll in for Facebook. The company recently reported $2.02 billion of revenue for the third quarter of 2013.  That’s certainly a lot of money, but if you take a look at what that means in the bigger picture that’s simply .39 cents for each share they have outstanding.  If you were to purchase Facebook’s stock today, you would be paying almost 150 times their earnings.  The closing price on January 13th, 2014, was $56.46 per share.

Even if you account for future potential earnings, Facebook would have to triple their revenue to bring their multiples down to any sort of reasonable historical P/E ratio (according to Morningstar.com, S&P 500 companies have a historical P/E ratio of roughly 15). Furthermore, a future tripling of revenue would only justify the current price. For any further appreciation of the share price, the growth would have to continue at an exponential rate, which seems highly unrealistic, even by Facebook standards.  

Technology Craze Notables

Despite all this, don’t be surprised if Facebook’s share price continues to rise in the short term.  It’s widely documented from the 1999-2000 technology craze that companies share prices appreciated substantially regardless of their underlying fundamentals or profitability.  You may or may not remember some of these under-achievers from that time period: 

  • Boo.com -- spent $188 million in just six months n an attempt to create a global online fashion store that went bankrupt in May 2000.        
  • Broadcast.com -- acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban a multi-billionaire.  The site is now defunct and redirects to Yahoo!'s home page.
  • Freeinternet.com – Filed for bankruptcy in October 2000, soon after canceling its initial public offeringISP in the United StatesBaby Bob, the company lost $19 million in 1999 on revenues of less than $1 million.
  • GeoCities – Purchased by Yahoo! for $3.57 billion in January 1999.  Yahoo! closed GeoCities on October 26, 2009.
  • theGlobe.com -- social networking service that went live in April 1995 and made headlines by going public on November 1998 and posting the largest first day gain of any IPO in history up to that date.       
  • inktomi – Valuation of $25 billion in March 2000.
  • InfoSpace – In March 2000 this stock reached a price $1,305 per share, but by April 2001 the price had crashed down to $22 a share.
  • MicroStrategy -- shares lost more than half of their value on March 20, 2000, following their announcement of re-stated financials for the previous two years.  A BusinessWeek editorial said at the time, "The company's misfortune is a wake-up call to all dot-com investors.  The message:  It's time, at last, to pay attention to the numbers."
  • Xcelera.com – Swedish investor in start-up technology firms that was one of the "greatest one-year rise of any exchange-listed stock in the history of Wall Street." 

If there’s one take-away from this list it is this: Short-term speculation is no different than gambling and can end badly.  In the end, fundamentals usually win. As legendary investor Warren Buffet so aptly put it, "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.”

Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material, and is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation or a solicitation or an offer to buy or sell any security referred to herein.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.  The price-earnings ratio, or P/E, is a common measure of the value of stocks.  It shows the relationship between a stock’s prices and the underlying company’s earnings (or profits) per share of stock.  In essence, it calculates how many dollars you pay for each dollar of a company’s earnings.  In very general terms, the higher the P/E ratio, the more likely the stock is to be overpriced.  Forward P/E, sometimes called estimated P/E, divides a stock’s current price by consensus earnings estimates for the next four quarters.  It evaluates the current stock price against projected earnings.  Forward P/E will be lower than current P/E if earnings are projected to rise, and higher if future earnings are expected to slow. Links are being provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.  Center for Financial Planning, Inc., Raymond James Financial Services, Inc., its affiliates, officers, directors or branch offices may in the normal course of business have a position in any securities mentioned in this report.  Closing price for Yahoo as of 1/13/14 was $40.21/share.  Google and Yahoo are not closely followed by Raymond James Research.  #C14-000640

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Ways to Maximize Social Security Benefits

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 Recently I had the privilege of presenting at the Michigan Association of CPA’s continuing education conference on the topic of Maximizing Social Security benefits.  Social security is an important source of income for most of the estimated 58 million people who receive benefits.  Over my 22 years as a practitioner, I have tried to counsel clients to be sure to coordinate social security retirement benefits with their overall retirement plan.  As pensions (not just the City of Detroit) continue to become more obsolete, social security remains one of the few, if not only, guaranteed income sources for future retirees.

Following Ida Mae Fuller’s Lead

Before getting to how to maximize social security retirement benefits – how about a little fun social security history?  Do you know Ida Mae Fuller?  She is the first reported person to receive social security retirement benefits.  Apparently Ida went into the SS office after contributing a total of $24.75 over three years in payroll taxes and told the staff that she was retiring and didn’t expect to receive anything – but thought she might as well check. She ended up collecting $22.54/month and lived to age 100 – not a bad return on her contributions!

When to Begin Collecting Benefits

A traditional breakeven analysis works pretty well for single folks.  One of the best research articles that I have come across was in the Journal for Financial Planning and written by Doug Lemons.  Mr. Lemons outlined three main variables in the breakeven analysis: inflation/cost of living, income taxes, and time value of money. Mr. Lemons’ research addressed multiple variations and combinations.  The general rule based on his research is:

  • The breakeven between taking at age 62 and 66 (assume full retirement age) is roughly age 78.  Meaning, you need to live past age 78 to be better off by waiting until age 66.
  • The breakeven between taking at age 66 and 70 is roughly age 83.  Meaning, you need to live past age 83 to be better off. 

Social Security Analysis for Couples

The breakeven analysis breaks down a bit for couples (two life expectancies vs one). I have written about spousal benefits in the past.  In this post I’d like to provide two strategies for couples to consider.

File & Suspend Strategy

June Cleaver:  As you may know, June Cleaver of the “Leave it to Beaver” show was the classic stay-at-home mom.  Her husband Ward, who sometimes was known to be a “bit too hard” on their son the Beaver, was the sole income earner. If June and Ward were close to retirement today, their respective social security benefits at full retirement age might be $2,000/month for Ward and $0 for June.  How can they maximize benefits?  At full retirement age (assume 66) Ward files for social security retirement benefits but then immediately suspends.  This allows June to begin receiving a spousal benefit (assuming she is at full retirement age) which is $1,000/month or 50% of Ward’s benefit. Then, when Ward turns age 70, Ward may elect to begin receiving his own benefit ($2,640 in this example) that has increased 8% per year from age 66-70 thanks to “Delayed Retirement Credits”. Assuming average life expectancy, this combination will provide June and Ward the maximum benefit.  What if Ward passes away at age 75? June will receive the higher of her benefit or Ward’s as a survivorship benefit - $2,640 in this example.

Claim Now, Claim More Later

Elyse Keaton: Elyse Keaton of “Family Ties” was played by Meredith Baxter (and mother of Michael J. Fox in the show).  Elyse, unlike June Cleaver, had income of her own as an architect. Elyse and her husband Steven Keaton had similar earnings. If Elyse and Steven were close to retirement today, both of their social security benefits at full retirement age might be $2,000/month. Rather than “filing & suspending” like June and Ward, the Keatons might consider another strategy to maximize their total benefits.  At full retirement age Elyse should consider taking her own benefit or $2,000/month.  Steven, at full retirement age, may choose to restrict his benefit to a spousal benefit only (50% of Elyse’s benefit) or $1,000/month.  This allows Steven to collect some benefits now while allowing his own benefit to grow at 8% until age 70.  At age 70, Steven may elect to begin receiving benefits based on his own earnings – or $2,640/month.  Note that the survivor benefit for each of them now becomes $2,640.  The election to “restrict” to a spousal benefit can only be done at full retirement age or later. 

So, are you more like June or Elyse?  If your situation is more like June’s then consider the “File & Suspend” strategy.  If your circumstances are more like Elyse’s then consider the “Claim Now, Claim More Later” strategy. Do you have a social security question? Let us know – we love to research and help you maximize the benefits. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete. Any information is not a complete summary or statement of al available data necessary for making a decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of Raymond James. The examples provided are for illustrative purposes only. Every individual’s situation is unique and you should consult with the appropriate professional regarding your individual situation.  Every individual’s situation is unique and you should consult with the appropriate professional regarding your individual situation. Guarantees are based on the paying ability of the issuer. #C14-000038

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