Thank you for all the emails I received following my last email titled “Lump Sums vs. Income Streams”. It tells me that mindsets are truly beginning to change, mostly due to personal experiences and recent losses.
Just a few situations presented were people getting hit with a large tax bill after the installment sale note they were carrying was terminated due to the buyer selling the property part way into the note term, a person falling prey to a Ponzi scheme and losing a large sum of money, several people who opted for a lump sum after taxes to reinvest and seeing their proceeds further diminish, a person losing most of his life savings after trusting an advisor his attorney recommended, several more who were promised double digit returns and who now have much less than they started with.
It will be difficult to overcome these unfortunate losses.
There is something to be said for a protected and fixed income stream which at least covers your basic expenses. This is the principle pensions and social security benefits were based on.
As you are approaching or are in retirement stages this should be your first priority. This means no matter what else happens, you have money to live on and money you cannot outlive. You need a reasonable (5-7%) annual return (not found in CDs) but this is not money you gamble with. This means not investing in anything that can go down or is subject to changing market conditions.
Once you have the basics covered, you can consider more risky investments if you need a little excitement. Excitement is not all it is cracked up to be when you run out of money!
This is not a new concept, it’s just that we have strayed from the basic rules of protecting ourselves from the very disasters many of us are facing now and in the foreseeable future.
So, if you are selling your appreciated assets, it is prudent to minimize your taxes, protect your principle and provide yourself with a steady income. I am here to help guide you to the best plan for you and your family. Call or email me.
Paula Straub
(760)917-0858
savegainstax@gmail.com
www.savegainstax.com
Wednesday, September 30, 2009
Tuesday, September 15, 2009
Lump Sum vs. Income Stream
Peter decided to take a lump sum of approximately 500K, pay his capital gains and depreciation recapture of close to 150K and invest the 350K he had left over after the sale of his investment property. Peter was 64.
Peter paid off credit cards and bought some purchases he had been putting off such as a new car and gave some money to his kids and put the remainder into some investments his financial advisor recommended. That was two years ago.
Peter is now out of work and has been selling stocks and mutual funds at a loss to cover his bills. He lost a good deal in value on his investments over the last year. He has about 120K left of that 350K and it is dropping fast.
If Peter had taken a 20 year income stream from a self directed installment sale, he would be receiving about $3500.00 per month or 42K per year for another 18 years. After paying his taxes on this it would still be about $2450. per month he could count on coming in.
If he had simply used this income to pay off his credit cards over the last couple of years he would be out of debt. He may not have the new car or his kids may not have gotten the monetary gifts but he would have an ongoing source of income when he lost his job and would have a means of support going forward if he is unable to find another.
His investments would not have lost value and over the 20 year period he would have received about 110K more using the compounded earning power of the money that went immediately to taxes when he took the lump sum.
Which would you rather have, the lump sum or the income stream?
Paula Straub
760-917-0858
savegainstax@gmail.com
www.savegainstax.com
Peter paid off credit cards and bought some purchases he had been putting off such as a new car and gave some money to his kids and put the remainder into some investments his financial advisor recommended. That was two years ago.
Peter is now out of work and has been selling stocks and mutual funds at a loss to cover his bills. He lost a good deal in value on his investments over the last year. He has about 120K left of that 350K and it is dropping fast.
If Peter had taken a 20 year income stream from a self directed installment sale, he would be receiving about $3500.00 per month or 42K per year for another 18 years. After paying his taxes on this it would still be about $2450. per month he could count on coming in.
If he had simply used this income to pay off his credit cards over the last couple of years he would be out of debt. He may not have the new car or his kids may not have gotten the monetary gifts but he would have an ongoing source of income when he lost his job and would have a means of support going forward if he is unable to find another.
His investments would not have lost value and over the 20 year period he would have received about 110K more using the compounded earning power of the money that went immediately to taxes when he took the lump sum.
Which would you rather have, the lump sum or the income stream?
Paula Straub
760-917-0858
savegainstax@gmail.com
www.savegainstax.com
Wednesday, September 02, 2009
Is There Any Way Out of a CRT or Other Charitable Trust?
A couple of times of year I get a call from someone who is unhappy with a CRT or other Charitable Trust they are receiving payments from.
Either they no longer like the charity it was set up with, someone (the trustee) has mismanaged funds, they need a lump sum rather than the monthly payments they are receiving or the trust has lost money and they are afraid it will run out short of making the payments due.
Up until now, there haven’t been many options to make any significant changes, but recently I have met with a couple of companies that may have a viable solution. It is definitely worth exploring.
Upon review of your trust, you may be eligible for a cash offer of a lump sum payment in exchange for your future rights to payments from the trust. This lump sum may be taxed at capital gains tax rates versus ordinary income that you have been paying for your monthly check.
Currently, this option was only available to large corporations and investment firms, but now individual cases are being considered.
This can solve an immediate need for long term care expenses, a way to pass more money to heirs, and a way to disengage from a less than desirable situation with the charity.
You may even have an option to spread out the lump sum over a number of years to minimize the taxes if you wish.
If you or someone you know finds themselves in a similar situation, please give me a call to go over your options.
Paula Straub
Savegainstax@gmail.com
760-917-0858 or 888-338-3036 toll free
www.savegainstax.com
Either they no longer like the charity it was set up with, someone (the trustee) has mismanaged funds, they need a lump sum rather than the monthly payments they are receiving or the trust has lost money and they are afraid it will run out short of making the payments due.
Up until now, there haven’t been many options to make any significant changes, but recently I have met with a couple of companies that may have a viable solution. It is definitely worth exploring.
Upon review of your trust, you may be eligible for a cash offer of a lump sum payment in exchange for your future rights to payments from the trust. This lump sum may be taxed at capital gains tax rates versus ordinary income that you have been paying for your monthly check.
Currently, this option was only available to large corporations and investment firms, but now individual cases are being considered.
This can solve an immediate need for long term care expenses, a way to pass more money to heirs, and a way to disengage from a less than desirable situation with the charity.
You may even have an option to spread out the lump sum over a number of years to minimize the taxes if you wish.
If you or someone you know finds themselves in a similar situation, please give me a call to go over your options.
Paula Straub
Savegainstax@gmail.com
760-917-0858 or 888-338-3036 toll free
www.savegainstax.com
Tuesday, August 25, 2009
When Does A Structured Sale Make Sense?
This is the last of the most common capital gains tax saving strategies. In the last several emails I have covered the SDIS, the Charitable Choices and the 1031 Exchange.
I am going to go out on a limb and make a bold statement about the Structured Sale. I do not see a benefit at all of doing this strategy over the Self Directed Installment Sale.
The SDIS actually is more flexible, returns a higher interest rate and saves much more in tax deferral over time. There is also less resistance from the buyer with the SDIS as they take title and do not have to assign the obligation to make their payments to the seller to an Assignment Company.
About the only plus is a lower initial set up cost and this in no way offsets the lost savings over time. Since the money goes into an immediate fixed annuity which is annuitized to make the installment payments, there are fixed annuities that give guaranteed returns that still return more to the seller over time.
I believe this is why these have not really caught on and other insurance companies have not jumped on the bandwagon to offer their own versions.
If anyone is convinced this is the best option for you, I’d love to hear your reasoning and we can still do a direct comparison. As long as you know the differences, no reason we can’t set one up.
If these reasons closely resemble your desires for the proceeds, or one of the previous options are more to your liking and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
I am going to go out on a limb and make a bold statement about the Structured Sale. I do not see a benefit at all of doing this strategy over the Self Directed Installment Sale.
The SDIS actually is more flexible, returns a higher interest rate and saves much more in tax deferral over time. There is also less resistance from the buyer with the SDIS as they take title and do not have to assign the obligation to make their payments to the seller to an Assignment Company.
About the only plus is a lower initial set up cost and this in no way offsets the lost savings over time. Since the money goes into an immediate fixed annuity which is annuitized to make the installment payments, there are fixed annuities that give guaranteed returns that still return more to the seller over time.
I believe this is why these have not really caught on and other insurance companies have not jumped on the bandwagon to offer their own versions.
If anyone is convinced this is the best option for you, I’d love to hear your reasoning and we can still do a direct comparison. As long as you know the differences, no reason we can’t set one up.
If these reasons closely resemble your desires for the proceeds, or one of the previous options are more to your liking and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
Wednesday, August 19, 2009
When Does a 1031 Exchange or a 1031 Tenant in Common Exchange Make Sense?
Now we have covered the SDIS, the Charitable Choices, and now when does doing a 1031 exchange make sense as a capital gains tax saving option?
* You must have investment real estate or a business that you want to sell and buy another of the same investment type. No primary residences, second or vacation homes, common stock, etc
* You must know the exchange rules and follow them to the letter or know your exchange will be invalid and all taxes due
* You must still have the desire to own new property and manage it
* You know you must carry all of your debt and all of your equity to the new property or the difference is immediately taxable
* You must know you can get new financing in the allotted time if you are transferring debt. Not so easy these days.
* You should be comfortable with the fact that your new investment can gain or lose value over time.
* You have real estate that you wish to leave to your heirs with the least amount of taxes due at your death. Please note here that tax laws may change and this may not be the case when your time comes. Also, even though capital gains tax may not be due, there may still be estate tax issues. I have an awful feeling we will see higher estate taxes or lower caps in the not too distant future to offset some of the US debt we are taking on.
* You may wish to still own real estate and benefit from an income stream but not actively manage it. Here a tenant in common exchange is worth looking into. It goes without saying you need to be aware of all the pros and cons before making a commitment here.
If these reasons closely resemble your desires for the proceeds, and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
* You must have investment real estate or a business that you want to sell and buy another of the same investment type. No primary residences, second or vacation homes, common stock, etc
* You must know the exchange rules and follow them to the letter or know your exchange will be invalid and all taxes due
* You must still have the desire to own new property and manage it
* You know you must carry all of your debt and all of your equity to the new property or the difference is immediately taxable
* You must know you can get new financing in the allotted time if you are transferring debt. Not so easy these days.
* You should be comfortable with the fact that your new investment can gain or lose value over time.
* You have real estate that you wish to leave to your heirs with the least amount of taxes due at your death. Please note here that tax laws may change and this may not be the case when your time comes. Also, even though capital gains tax may not be due, there may still be estate tax issues. I have an awful feeling we will see higher estate taxes or lower caps in the not too distant future to offset some of the US debt we are taking on.
* You may wish to still own real estate and benefit from an income stream but not actively manage it. Here a tenant in common exchange is worth looking into. It goes without saying you need to be aware of all the pros and cons before making a commitment here.
If these reasons closely resemble your desires for the proceeds, and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
Tuesday, August 11, 2009
When Does a Charitable Remainder Trust, Charitable Gift Annuity, CRUT, CRAT, CLT, etc. Make Sense?
I’ve talked about the Self Directed Installment Sale and the Charitable Installment Bargain Sale, so now I’ll characterize when the other charitable options may make sense as capital gains tax saving strategies
* You have a charity that you want to support by giving away a good portion of your proceeds from an asset sale either now or after your death
* You need a large tax deduction to offset ordinary income
* Your heirs have been taken care of by the fact they will inherit other assets or you have adequate life insurance from which they will receive the proceeds
* You would rather see the charity receive the proceeds rather than the IRS via taxes due on sale
* You have highly appreciated assets with very low cost basis which gives you a larger tax deduction upfront and you have a large income from other sources or sales
* Your income from other sources does not depend on the sales proceeds to fund your retirement
* You feel an income stream is more beneficial to a family member than gifting them with the asset or lump sum, as they may spend the bulk and run out of money prematurely.
If these reasons closely resemble your desires for the proceeds, and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
* You have a charity that you want to support by giving away a good portion of your proceeds from an asset sale either now or after your death
* You need a large tax deduction to offset ordinary income
* Your heirs have been taken care of by the fact they will inherit other assets or you have adequate life insurance from which they will receive the proceeds
* You would rather see the charity receive the proceeds rather than the IRS via taxes due on sale
* You have highly appreciated assets with very low cost basis which gives you a larger tax deduction upfront and you have a large income from other sources or sales
* Your income from other sources does not depend on the sales proceeds to fund your retirement
* You feel an income stream is more beneficial to a family member than gifting them with the asset or lump sum, as they may spend the bulk and run out of money prematurely.
If these reasons closely resemble your desires for the proceeds, and you have a current sale pending, fill out the Confidential Questionnaire at www.savegainstax.com and I will contact you to discuss further.
Paula Straub
760-917-0858
savegainstax@gmail.com
Monday, August 03, 2009
This Blog on WE Magazine List of Women Bloggers to Watch in 2009
I was really thrilled to be notified that I am on WE Magazines "Women Bloggers to Watch in 2009" list.
I've been doing this blog since 2005 to educate on capital gains tax savings and it's nice to be noticed as a quality website.
Here's a link to the article
http://wemagazineforwomen.com/100-more-women-bloggers-to-watch-for-2009/
Thanks WE magazine!
Paula Straub
I've been doing this blog since 2005 to educate on capital gains tax savings and it's nice to be noticed as a quality website.
Here's a link to the article
http://wemagazineforwomen.com/100-more-women-bloggers-to-watch-for-2009/
Thanks WE magazine!
Paula Straub
Subscribe to:
Posts (Atom)