Saturday, January 24, 2009

Your 1099-B will be late this year

I received a mailing from my broker that my 1099 wouldn't be mailed until February 15 of this year. It said that the IRS reporting deadline has changed from January 31. What the heck?

Well, it turns out I can blame Congress. The reason for the change is brokers now have to include tax basis as well as sales proceeds on all sales you make in the tax year. I have a couple of issues with this as a reason for pushing back the deadline.

First, the 1099 forms are generated by a computer. It's not like people are calculating the tax basis for all my sales transactions by hand. So once the computer program is updated to print the basis on the 1099, there is no other work. The incremental processing time to include this when the 1099 forms should be trivially small, or else the programmers who made the change should be fired. No extra time is needed.

Second, the tax basis isn't required to be put on the 1099 forms for 2008. It's not going to be required until a later date. So the brokers are being given more time to add information to the 1099 form that they aren't even required to add this year.

Third, the change in the law only applied to the 1099-B, but since most brokers send out a combined 1099 with the 1099-DIV and 1099-INT with the 1099-B, the IRS is allowing the later date to apply to the entire combined 1099.

Why am I making a big deal about this? Because I like to get my taxes done early, and this will delay me by at least 2 weeks. The worst part is that my broker usually screws up the dividend classification (qualified vs. non-qualified) and has to send me a corrected 1099. I'm sure that it still won't catch the mistakes it's made in the past even with this deadline extension, and I'll be getting a corrected 1099 even later than usual. OK, rant done.

Tuesday, January 20, 2009

Just an interesting story

This is just an interesting story.

TD Bank branch opening

I received a postcard in the mail informing me that TD Bank was opening (another) branch near me. They're giving away $500 cash (in a drawing) on the day of the opening, and then they're giving away a $1,500 gift card (also in a drawing) several days later. Better than a toaster. Look for these giveaways if one opens near you.

Tuesday, January 13, 2009

Where have all the cowboys stock analysts gone?

There are fewer employed stock analysts, their ranks having been decimated by layoffs as a result of subprime losses and mergers. This leads to less research available to individuals, since their brokers are less likely to now cover as many stocks. (Whether or not fewer analyst reports is a good or bad thing is something we can debate at another time.) What are some other options if your favorite coverage is no longer available? BusinessWeek has provided some options.

Research Edge is a boutique research firm that provides recommendations for $2700 a year, or $225 a month. From looking at the sample on their Web site, it appears they provide daily big picture market strategies and individual stock or ETF recommendations. Their CEO is a former managing director at The Carlyle Group, so he's a heavy hitter. has a premium section that contains more of the insights they pull from SEC filings. As they say - "For the past 5 years, Footnoted has been digging through SEC filings to bring the most interesting tidbits to our readers. But because we look at many more filings than we post on the site, we’ve decided to launch a separate product: FootnotedPro."

The most notable one of all is of course Morningstar. According to the article:

The Chicago firm started out providing reports on mutual funds, but since 2005 it has been steadily adding product categories. Currently, for an annual fee of $159, subscribers can read regularly updated reports from 200 analysts on 2,000 stocks and get access to fairly involved screening tools for finding stock or fund bargains.
The story mentions a couple more possibilities, so if you're in the market for equity research, check it out.

Monday, January 12, 2009

Where the returns were in 2008

Are you looking for where the investment returns were in 2008? Look no further, they were in managed futures funds.

[...] boon for managed futures funds, which climbed more than 13% last year. Hedge funds, by comparison, were off around 21%.
What are managed futures funds?

Managed futures are different from long/short funds and natural resource sector mutual funds. Managed future funds trade futures contracts and other derivatives. This allows them to take long and short positions. They use futures to make bets on oil and other commodities, as well as stocks and bonds. They tend to do well in markets with a lot of volatility, which we had in abundance last year (and still have now), and not as well in low volatility markets:
In 2005 and 2006, when stocks were steadily rising, the Chicago Board Options Exchange Volatility Index—the infamous VIX "fear index" that measures whether fluctuations in equities are weak or wild—dipped to a low of around 10. During those two years, managed futures funds overall eked out gains of just 1.7% and 3.5%, according to research firm BarclayHedge, compared with 10.7% and 12.4% for hedge funds.

Don't break the buck continued

Following up on my last post on this matter,I received a new notice from my money market mutual fund manager that it was going to extend its participation in the Treasury's Temporary Guarantee Program until April 30, 2009 (the date to which the Treasury extended the availability of the Program). I would bet that as the Treasury keeps extending availability, my fund will keep extending its participation, and I'll get to keep paying for the 'privilege'.

Saturday, January 10, 2009

Simple estate planning

Money Magazine recently covered the basics of estate planning. First, understand how the estate tax rates are going to change over the coming years.

In 2009 the federal exemption - the amount of an estate not subject to a 45% federal tax - has increased from $2 million to $3.5 million for individuals. This move is the result of a 2001 law that continually increased the limit for the eight years following. Oddly, the law calls for estate tax to be eliminated in 2010, then to revert back to 2001 levels ($1 million with a 55% tax rate above that) in 2011.
So, as of right now, you only have to worry about estate taxes if your estate is going to be over $3.5 million when you shed this mortal coil. However, even if your estate won't hit this level of assets, you should have an estate plan.

You need a will to make sure your inheritance plans are carried out as you instructed. Money recommended the site,, to help you find an estate planning attorney. You'll also want to do whatever you can to avoid probate. Why?
"It's not unusual for a $1 million California estate to generate $23,000 in probate fees," says Liza Weiman Hanks, a San Jose estate attorney and author of "The Busy Family's Guide to Estate Planning."
Some other things to understand; living trusts, 'pour over' will, irrevocable life insurance trusts, bypass trusts and disclaimer bypass trusts (read the fine article).

I'll describe irrevocable life insurance trusts to pique your interest. Normally, if you designate someone other than your spouse as the life insurance policy beneficiary, such as a child, the benefits paid will be taxed as being part of your estate. However, if there is a policy that covers you but that you don't own, the benefits shouldn't be subject to your estate taxes.

Enter the irrevocable life insurance trust. You set it up and the benefits are paid to the trust, free of estate taxes. There are some big caveats, however. For one, after the trust is established, you can't change the beneficiaries. This is part of the reason it's called irrevocable.

Wednesday, January 7, 2009

Estate planning tips for bear markets

There are a couple of estate planning "benefits" that you can get in bear markets and low interest rate environments. The first one is pretty trivial. Give away your assets that have lost value to your heirs. If an asset has fallen in value by 50%, you can now gift twice as much of it, up to the annual $13,000 limit, before having to pay taxes on the gift. Then, if the asset comes back in value, your heir should only have to pay the regular capital gains rates on the gain. If instead you held on to the asset and it came back to full value, when you shed this mortal coil, the asset could potentially be subject to the 45% estate tax, which is greater than the current capital gains rates.

Another tip is to use a grantor retained annuity trust, as described:

A GRAT is an irrevocable trust designed to transfer the appreciation on assets contributed to it with minimal or no gift-tax consequences. It's a popular strategy for transferring wealth in a low-rate environment. That's because of the current IRS-mandated interest rate of 2.4%. Here how it works: Let's say you set up a GRAT and fund it with $1 million in badly depressed stock. Assuming the simplest scenario and a trust term of two years (it could be longer), the GRAT would make annuity payments to you valued at $518,081 in each of those two years. (That includes a calculation of present value you don't want to do at home; those payments can be made in cash or stock.) If the asset appreciates more than those payments—and the odds of that seem good, with a low "hurdle" rate of 2.4%—the excess goes to your beneficiaries tax-free.

If it turns out the asset has appreciated less than those $518,081 payments, the trust fails. The asset returns to you, and you can start another GRAT and try again. A rolling GRAT strategy allows multiple possibilities of catching the asset's rise at a valuable moment. GRATs have a standard structure, so setting up the second or third one is less expensive than the first. (A simple GRAT might cost about $5,000.)

Now, those five grand fees can add up, so you wouldn't want to have too many failed GRATs.

Finally, the story points out that the IRS rate for intra-family lending is now %0.81. Try getting that rate from your local bank.

Tuesday, January 6, 2009

Falling air travel means bankrupt airlines

Plummeting jet fuel prices caused by the sharp decrease in the price of oil won't help the troubled airline industry. Passenger traffic was down 10.6% in November. We're also not talking about a nice (relatively) Chapter 11 bankruptcy that allows an airline to reorganize. Oh no, these are the Chapter 7s, liquidation.

Now, with both business and leisure travel in North America expected to fall as much as 15% this year, the industry may face another round of bankruptcies. Unlike the last spate of failures in the mid-2000s, not every airline may survive. In previous downturns, carriers often used Chapter 11 as a reset button that let them emerge from bankruptcy even stronger by shedding debt and other obligations, such as pensions. To play it safe, big carriers such as American Airlines and US Airways have raised fresh cash. But many airlines have hocked most of their assets, leaving them little to borrow against. "At this point, bankruptcy is liquidation," says Roger E. King, an airline analyst at institutional research firm CreditSights.
The 15% fall in North American passenger traffic squares with some numbers I found in a previous post (decrease to 240 million from 299 million passengers on American carries). That stories referenced from that post said ticket prices would rise. But this more recent article says that carriers are slashing fares to fill empty seats, but doesn't mention what's happening with capacity. Anecdotally, I haven't seen massive fare decreases.

The BusinessWeek article says Air Canada and US Airways are the two big airlines that are in danger of going under. From my reading, it seems that Air Canada's problems are due to the financial engineering of the hedge funds that bought it during its last bankruptcy.