Simply Junior

Beginning January 1, 2011, it is highly likely your taxes will increase. For some of you, the increase will be minor. For others, it will be substantial.

As you probably know, the reason for the tax increase is that many provisions related to the ordinary income tax rates and long-term capital gains tax are scheduled to “sunset” at the end of 2010. These are commonly referred to, in the news, as “the Bush tax cuts.”

When Congress left in September to campaign for the November election, it also left us in limbo as to the fate of the Bush tax cuts. If, when Congress reconvenes in November, they cannot reach an agreement and, as a result, let the current tax provisions expire on January 1, as they are scheduled to do, you and I will face a higher federal tax bill regardless of income.

Given that uncertainty, I believe you should take steps now to get prepared for a world of higher taxes.

What steps should you take?

Here are eight action items you may want to consider:

1. Sell appreciated assets in 2010. Let’s say you own a business or have an investment in real estate. Taking profits now may allow you to take advantage of this year’s lower 15% capital gains rate.

2. Receive income in 2010. In addition to taking profits, it may also be smart to drag income into 2010. One example might be the exercise of non-qualified stock options. Or, if you turned 70 1/2 in 2010, you may want to take your required minimum distribution from your IRA before December 31st, rather than waiting until April 1st. Any income reported in 2010 would be subject to the lower federal tax rates as compared to 2011.

3. Defer deductions to 2011. Unlike previous years, you may not want to double up deductible items such as mortgage payments, property taxes and charitable donations at year end since these may be more valuable in 2011 due to higher ordinary income tax rates.

That said, this is an area where you definitely want to consult a tax professional, which we are not. While this strategy may make sense for many of you given the higher tax rates, there is also the reinstatement of the AGI phase out on itemized deductions that you must weigh it against.

Moreover, the Alternative Minimum Tax may further cloud the issue. If deductions like state and local taxes are disallowed, it may not make any sense to pay them early.

Knowing exactly how to play the deductions game in 2010 versus 2011 will require some of you to look at several different what-if scenarios and determine which gives the least amount to Uncle Sam. Unless you are a tax geek, that is probably best done by someone who is.

4. Take full advantage of employer-sponsored retirement plans. We hope you are doing this anyway, unrelated to taxes. But if you needed another reason, income that is tax deferred could potentially help to lower your tax bracket.

The current annual contribution limits are $16,500 for 401(k), Roth 401(k) and 403(b) plans. There is an additional $5,500 catch-up contribution allowed if you are over 50. The annual limit for SIMPLE IRAs is $11,500 with a $2,500 catch-up if you are over 50. If you are a business owner or self-employed, you may be able to establish a qualified plan that will allow you to defer even more.

5. Review your future goals and savings strategies. What are you saving for? College? A new house? Retirement? Medical expenses? You may be able to find more tax advantaged strategies for saving that money.

For example, putting money in a Flexible Spending Account (FSA) allows you to pay out-of-pocket medical expenses with pre-tax dollars. Along the same lines, if you participate in a high-deductible health insurance plan, you can fund a Health Savings Account (HSA). HSAs give you both an upfront tax deduction and tax-free distributions for qualifying expenses.

You might also consider an after-tax contribution to your IRA. Many people don’t even know you can make an after-tax contribution!

Why would you want to do that? Even though the money is non-deductible, it will still grow tax-deferred allowing you to potentially save more for your retirement than you would in a plain old taxable brokerage account. Plus, it is protected from creditors and more painful to rob if you aren’t 59 1/2, acting as a bit of a deterrent to sacking your retirement savings.

Just remember though, don’t ever let the tax tail wag the investment dog. Never make a bad investment just to save on taxes.

6. Buy long-term care insurance. This is related to number five but reaches beyond just taxes in 2011. Statistics say there is a very high probability you will need some long-term care in your lifetime. If you pay for it out of your pocket, you are paying with mostly after-tax dollars. If you purchase a long-term care policy, you pay a smaller amount in premiums with after tax dollars now but the benefit, which stands to be much larger, is not taxed. Not to mention all the other risk management benefits of a long-term care policy.

7. Review current portfolio and asset allocation. All things being equal, you want to minimize future after tax returns. But again, I would caution you, all things are seldom equal. There is also required rate of return, expected rate of return, risk adjusted rate of return and fees to consider. Again, don’t let the tax tail wag the investment dog!

That said, don’t leave money on the table either. For example, where possible, consider using tax-deferred accounts for active investments and short term holdings. Use your taxable accounts, as much as possible, for tax-advantaged and long-term holdings.

8. Consider a Roth IRA conversion. Now here is a strategy I can give my almost unconditional support to. When you convert an IRA to a Roth IRA, which you can now do without limit, you pay the taxes this year and future distributions are completely tax-free.

If you don’t think you will need the money in your traditional IRA to fund your retirement, the Roth IRA can also be a very powerful wealth transfer tool because there are no required minimum distributions and beneficiaries can generally take distributions from the inherited account tax-free, just like you would have.

So now what?

I would urge you to review each these action items with your financial advisor. Everyone’s situation is different and what may be the highest priority for you will not necessarily be the highest priority for me. Once you determine which strategies will have the biggest impact, create an action plan with the specific steps needed to implement into your financial plan.

Many people will make the mistake of waiting until December to look at year-end tax strategies. Don’t make that mistake. Tax planning is best done throughout the year. And this year in particular, with the threat of increased taxes looming for 2011, it pays more than ever to prepare now for a world of higher taxes.

The intent of this article is to help expand your financial education. Although the information included may be relevant to your particular situation, it is not meant to be personalized advice. When it comes to investing, insurance and financial planning, it is important to speak to a professional and get advice that is tailored to your unique, individual situation. All investments involve risk including possible loss of principal. Investment objectives, risks and other information are contained in the Snider Investment Method Owner’s Manual; read and consider them carefully before investing. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Investing in real estate, in general lines, involves compromise and is often more a matter of what an investor is willing to give up than what he actually wants.

If I were to ask “What is your investment objective?” how would investors respond? Most likely the answers would range from “I want to retire at 55″, to “I want to start my own business within the next five years”, or perhaps to “I want to have enough money set aside for my children education”. We all have many different ways of expressing what we are trying to accomplish when we set investment objectives. When all is said and done, however, there are really only three fundamental goals we really intend to achieve. All goal-setting boils down to growth, income and liquidity.

We want our real capital assets to grow in value, that is to be worth more at some point in the future than they are today. Then, while we are in the process of accumulating whatever amount of wealth we can, we need to generate income out of those assets to minimize costs of owning such as property taxes and maintenance and, possibly, to increase our own salaries or wages. And, finally, we want to be able to quickly convert those assets into cold cash, should the need ever arise to get through some unexpected crisis, or if a better investment opportunity suddenly comes in sight.

That’s quite a lot that we want from our real estate investments. The truth is that only few of all investors will have situations so straightforward as to be able to accomplish all three goals in equal proportions. For the vast majority of us, it will be a matter of seeking compromise so as to incorporate in our investments only some elements of growth, income and liquidity, and not in perfect equilibrium. This is due not only to the nature and type of the real estate investment we decide to make at any given time, whether residential, commercial, multi-family rental or a combination of any of the above, or to the situation of the market at the time we make our investment, but also for a quintessential human trait common to all investors.

We spend money on things we need, and we save money for things we want. Which is great, until such time as we decide to reclassify what is that we need and what is that we want. Human nature being what it is, when we see something that we suddenly decide we ‘need’ and the money is readily available, our best intentions can wilt and disappear instantaneously. If the cash is not in the savings account already, we can pay an unexpected visit to our friendly neighbourhood banker who will be more than thrilled to advance the money secured by our real capital assets, or to refinance our existing real estate loans. This is, in ultimate analysis, how consumerism works.

There is no doubt that the judicious use and management of debt can accelerate the accumulation of wealth. In Finance, this is called ‘leveraging’: the use of borrowed money to meet investment objectives, particularly growth and income. However, financial leverage is a double-edged sword: using other people money to invest also increases the risk associated with the investment. It is bad enough to lose one’s own money if a real estate investment sours. It is much worse, however, to lose the banker’s money – one may quickly discover how unfriendly, all of a sudden, the friendly neighbourhood banker may become.

Historically, leverage strategies work best and are more popular during times of low interest rates and high appreciation of property values. If, for example, an investor borrows money at 5 percent to purchase an investment that appreciates at the rate of 10 percent a year, obviously the investor will come out ahead. Additionally, in certain circumstances the interest expense is tax deductible, thus making the net return even higher. Unfortunately, however, during times of downward fluctuations leveraging may be a risky proposition, as the cost of borrowing may exceed the investment yield even after deducting interest expense.

So, therefore, when is leverage appropriate? In Finance, the rule of thumb is that every dollar borrowed increases the risk of investing by 50 percent. This means that if an investor has $100,000 of his own money and decides to borrow an additional $100,000, he increases the risk by 50 percent. If he borrows $200,000, he doubles the risk. If he goes as far as borrowing $300,000, he increases the risk by 150 percent. Therefore, if the real capital asset chosen by our investor would normally yield, say, 10 percent, he should expect a return of somewhere in the area of around 10 + 5 = 15 percent to account for the extra risk, if he pays $200,000 for the real property he is acquiring, $100,000 of which are financed by a lender.

This ratio holds true for leveraged investments of higher or lower proportions too. For instance, if the investor matches each dollar of his own money with 50 cents from the bank, his expected return should be at least 25 percent higher than if he only used his own money, or 10 + 2.5 = 12.5 percent. Likewise, in the case of $200,000 financing the expected yield should be 20 percent. And then, of course, there is the real big one: the 100 percent leverage, also known as the zero-down option (the one they show on TV at midnight), with the investor using none of his own funds (because he doesn’t have any, since he just landed straight out of the Mongolian desert – like the chap on TV). On a purchase price of $200,000, the yield should hover to on or about 10 + 5 + 5 = 20 percent. On a purchase price of $300,000 it should be in the range of 10 + 5 + 5 + 5 = 25 percent and so on.

Luigi Frascati

Purchasing real estate properties entails huge amounts of money which makes real estates substantial assets. Although it may be easy to manage just one or two real estate properties, managing more than that may seem too tedious for most people. This may be one of the reasons why people and companies turn to real estate asset management as a way to handle real estate assets.

The difficulty in handling real estate assets would be the fluctuating market prices and demand for these properties. There are instances that real estate bubbles may dramatically show a drop in prices, deeming the property more or a liability than an asset. Real estate asset management not only handles one’s real estate assets, they may also be a source of relevant information regarding real estate properties and the potential of these properties to earn higher returns in the future.

Real estate asset management offers a structure approach in handling real estate assets considering all the factors that accompanies investing in real estate. It may be described as the systematic process of maintaining and upgrading real estate assets in a cost-effective manner that would work well for the property owners.

A lot of factors are considered when managing real estate assets. One would be the location of the property, the soundness of the existing structures, the cost of maintaining the structure and even the lot appreciation or the structure depreciation. Aside from these, ideal real estate asset management considers property taxes that owners must pay for.

Because of the many facets of real estate asset management, most, if not all asset management firms or asset management advisors use the use of asset management software that cater mainly to the management of one’s real estate assets. Utilizing asset management software is useful because of the amount of data when managing real estate. These data may be used as basis in predicting real estate cost estimates for years to come, maintenance cost through time, and the property’s real estate value which would dictate its appreciation or future resale value.

Understanding the real estate tax laws in Florida can be tricky-there are several different factors that can affect the rate at which you’re taxed. The size of your property tax bill depends on two main factors-the assessed value of your property, and the tax rate (expressed as tax dollars paid per thousand dollars of assessed property value) for each local government body in your area which taxes property. For example, the property you purchase may be subject to taxes by the County, the School Board, the City, and various designated district organizations such as the Hospital District and the Water Management District. You will also be affected by whether or not you live in a Community Development District (CDDs)-these have extra tax regulations that will affect how much property tax you pay. There are other considerations, too, such as Homestead Exemptions and the “Save our Homes” amendment, which will limit the amount of property tax you pay.

If you are buying property in Florida, or considering relocating to Tampa, Florida, understanding property tax laws is particularly important, because the amount of property tax that is payable is subject to change once you make the purchase. Property values are reassessed each time a property changes hands, and the assessed value influences how much property tax you pay. As a rule, the assessed value of a property you buy will typically be around 83% of the sale price of the home. Note that with home prices in many areas of Tampa on the rise, it’s particularly important to get as accurate an estimate as possible before buying to avoid any unpleasant surprises in the future.

County Taxes

Your tax rate varies depending on which county you live in, and which part of the county you live in. This is because within a county, certain regions may be incorporated, and other regions may be unincorporated. Those regions which are unincorporated have slightly lower property taxes. For example, unincorporated Tampa regions such as areas within Lutz and New Tampa are subject to slightly lower property taxes than incorporated regions such as the City of Tampa and Temple Terrace.

Community Development District Tax

If you live in a Master Planned Community in Tampa or are considering relocating to one, your property will be subject to Community Development District Tax. Developers use this tax as a means of sharing the cost of land and community development among the individual lots and homes in that community. This tax enables the development of Tampa communities with additional amenities such as parks, community centers and other recreation areas that make these areas attractive and pleasant places to live. These taxes are usually payable for a fixed amount of time-up to twenty years-after which the tax no longer applies. Payment of this tax is tied to the property, not the owner. This means that if you purchase a property in a CDD, you as the new owner will be required to pay the CDD tax. The length of time the tax is payable does not change if the property changes hands. So if, for example, you purchase a ten-year-old property in a community with a twenty-year CDD tax, you’d be paying the bond portion of the tax for another ten years.

If you’re considering purchasing property in such a community, it’s important to find out how much the CCD tax is, and how many years of payment are remaining. Note that CDD taxes vary based on the amenities available in the community, and that there may be other fees associated with the property such as those required to maintain community common areas. If you are the owner of a CDD property you will likely be subject to paying annual fees for the maintenance of common areas even after the bond portion of the tax has been paid in full.

Homestead Exemption

Homestead Exemption allows all Florida homeowners who are legal residents of the state to deduct $25,000 from the assessed value of their primary residence, meaning that the taxable value of primary residences is reduced. There are other exemptions which apply to other groups of residents-these include disability exemptions, exemptions for senior citizens and veterans, and an exemption for those who are legally blind. To be eligible for an exemption in any given year, you must take possession of your home by December 31 and must apply for homestead exemption by March 31st the following year. Exemptions are not granted automatically-you must apply for any exemption you would like to receive, and you are subject to approval based on certain requirements, which depend on the type of exemption you are applying for. If you qualify for a Homestead Exemption, you may also qualify to defer part or all of your property taxes for any given year. For more information, see your tax assessor’s office.

The Florida “Save Our Homes” Amendment

If a homeowner qualifies and applies for Homestead Exemption this guarantees the property’s assessed value cannot rise more than three percent each year. This law is a result of the “Save our Homes” amendment, which states that annual property assessment figures cannot exceed the lower of 3% of the prior year’s assessment, or the percent increase in the Consumer Price Index. This amendment protects existing homeowners, but note that if you purchase property, it will not be protected by “Save our Homes” automatically-when the property changes hands, the assessed value cap is lifted, and you do not qualify for protection until you obtain a Homestead Exemption. However, once you have obtained a Homestead Exemption, you will automatically be protected by the “Save our Homes” amendment.

The “Save our Homes” amendment means it is particularly important that you not rely on existing property tax values if you are considering purchasing any home in Tampa or within all of Florida-a protected home has an artificially low assessed value, and depending on the region in which you purchase and the current real estate market, the assessed value may increase sharply once the property has changed hands.

Real Estate Market refers to a market where exchange of real estate takes place between sellers and purchasers. Real estate comprises of commercial and residential property. Commercial property consists of office buildings, office complexes, retail places and industrial premises, whereas residential property consists of independent houses, bungalows, apartments and condominiums. Main participators of this market are buyers, sellers, renters, builders, renovators and facilitators. Demand and supply are controlled by them in different ways.

Real estate markets are durable. So they last for a long time and the major part of the supply is existing property, rather than newly constructed properties. There is no physical market place as real estate is immovable in nature. Each and every unit is unique according to their location, quality and financing. In this market, investors are mainly concerned about their profit and they even wholesale properties to earn huge profits. But before investing, investors should inspect it thoroughly. Real estate investors must know the current demand as well as future trends.

The advantageous side is that it is an ever growing market as it depends upon the growing population. It is easy for an investor to own a property as they have to make minimum down payment. As the properties are very expensive and every time one sells it the profit increases more. It is also very convenient to finance real estate as compared to other products.

The real estate market needs regular maintenance and property taxes should be submitted in time otherwise an investor can suffer a major loss. During project development, many investors desire to buy property without manipulating the expenditures and hidden taxes. In the mean time the market will flow against them and they will suffer huge loss. Sometimes price does not increase with changing society which leads to a great loss for investors.

Real estate market analysis is a device through which people can detect the working of market to which they are aligned or will be aligned in future. This analysis is a vital step which investors should pursue before developing a market atmosphere. First step they must follow is to gather information through online surveys and focus groups. This comprises of complete information about the history, present demand and future trends of market. Before investing, a person must know whether the market is emerging, stooping or staying constant.

When a person is interested in real estate, his analysis should consist of a few more things:

o Demand and growth in the market.

o Profits

o Threats

With the growing population, demand for commercial as well as residential property is growing rapidly. Some of the government and bank policies are also expanding the demand and growth of this market.

In property market, both buyers and purchasers have the chance to earn profit. Sellers will earn their profit by selling the property for higher price whereas the purchasers will earn when they will sell their property in the coming year.

The market will be under threat when there are changes in government policy. Such changes include taxation system, loan policy and shutting down of industries. So to escape from these kinds of threat investors must depend on a proper analysis.